Independent Bank Corp. Aktie

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.

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, and 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.

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. 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 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. 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 clearing house 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 into deposit growth was somewhat muted in the quarter. Given the Iran war, the marked volatility in interest rates and the lingering inflationary environment, it should be no surprise there is 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 and 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, health care benefits, materials and utilities. Suffice to say, the environment is best characterized as somewhat challenging. I would summarize our customers' mindset as cautious.

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 floor plan 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. While we have reduced transactional free balances, we funded $179 million of relationship-based free loans in the first quarter and added $290 million of CRE commitments. We still like the CRE asset class, and we'll 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. But 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.

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 is 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. 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 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.

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 and 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 per quarter. 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. 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 1 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 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. Reiterating the $39 million decrease associated with our winding down of the dealer floor plan 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 saleable activity kept mortgage banking results relatively flat while absorbing runoff of lower yielding portfolio balances. In 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 point lift in the core margin. And 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 Fed Reserve.

Moving to asset quality. We highlight the following notable items for the first quarter. Total nonperforming assets increased to $98.7 million or 0.52% of total loans, driven primarily by the downgrade of 1 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. And as a quick positive update, this $4 million charge-off loan was associated to a nonperforming 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, and 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. 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. 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. And lastly, as expected, the tax rate increased from the prior quarter to 23.38%.

With that, I'll now finish up by revisiting our 2026 guidance. First, we reaffirm our 2 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 Korean 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 increased our estimate to suggest that the 2026 fourth quarter margin will now be in the range of $3.90 to 3.95% and 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 Instructions] Your first question comes from the line of Justin Crowley with 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. So I was just curious if you could expand even a little more on what informed that decision. And then 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 seen borrowers respond with some of the heightened macro volatility? And how long you think that could maybe persist here?

Yes. On the CRE side, it's interesting because the commercial real estate market has gotten very, very competitive. It's really competitive at -- 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. And it's a space where, as I said in my comments, we're not going to stretch for structure or for rate. And so we think the environment has been -- is really very, very competitive. So 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. And so a lot of the multifamily projects, and these would be mostly construction loans really aren't happening. 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. So we've definitely seen a marked 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 is 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 or maybe in listening to our clients have a better sense for how they're thinking about it. But I think caution right now is definitely the word I would use to express how generally our -- that middle market and lower middle market client base deals -- but 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 it's prudent. But it definitely is causing the owner-operators that we typically bank. It's just giving them pause and it probably makes some 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.

Okay. Got it. That's helpful.

Sorry, I'd 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. But having that play out in the first quarter and creating a little bit more of a drag on net loan growth was -- those are probably the 2 primary drivers to just being practical around the expectations going forward.

But 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.

Okay. Understood. And then just flipping to -- on 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 as a fact there, at least on the nonperforming side a bit. I'm not sure the extent when you look at criticized balances? And then 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, just where you feel or how you stand on credit quality.

Yes. I'll take the first part of that, Justin, and then I'll let Mark take the second part. With respect to the criticized assets, we really had 3 larger loans that moved to criticized status at make up the bulk of that increase. And all 3 are in different asset classes. Only one of those is in the office asset class, one of them is 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. And 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 criticized status but still feel really, really confident that things are going to work out.

So that's the quick overview of the increase in criticized loans. And 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.

Yes. Well, I think from a provision and 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. But 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. So as a, call it, a risk-rated 7 loan versus a risk-weighted 6 loan there's a higher allocation in the model, but it won't move the needle too much. So 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 of million dollars higher than what we had reserved as of last quarter. So that required a couple of million dollars in provision. And 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, but I think you'd be naive to suggest there isn't a little bit more pressure on the health of the consumer. So $1 million or $2 million of added reserve on mortgage home equity portfolios is appropriate. So those would be the 3 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.

Great. And then just one last one. I gave a 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?

Yes. I can tell you it will absolutely be a priority. The goal high level would be to keep capital relatively flat. Now we can lever up and down a little bit from there. But I think that's the right level that will allow us and afford us to do a bit of a management over holding company liquidity, Cree concentration and obviously optimizing capital.

So I would say -- we haven't announced a new plan yet. I would very comfortable suggesting we will likely put 1 in place here in the second quarter, but the level of buybacks should be at a pace where we're going to try and keep capital relatively flat.

Your next question comes from the line of David Konrad with KBW.

Just really a follow-up on the capital and the buyback. I mean, your CET1 levels is about 12:9. And you started the buyback and it really didn't buy and I think earnings power is going to improve even if loan growth improves a bit. So maybe balance the discussion on why you would want desire to keep that flat instead of working that down a bit? And how you weigh the environment with like narrowing credit spreads in excess competition with potential using macro potential buybacks to offset that?

Yes. It's a fair question. I think we're -- we're still feeling like there's a growth path that we'd like to leave some level of capital flexibility. Ideally, I've said this a few times now, ideally, we grow into that excess capital position. But 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. So 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. So 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, put some pressure on the ability to rely on that as a funding base. So we would have to go to the outside market to borrow if we really wanted to ratchet that up. And I'm not saying we wouldn't do it, but we're still weighing that pro and con.

And then 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. So that $2.80 to $2.90 range, we're very comfortable with. But the more we do on the buyback side, the more that constrains keeping that the pre ratio in that range. So 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. But when you start to exceed that, we would just have to weigh sort of the pros and cons.

Got it. Fair enough. And then 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 any potential benefit in your mortgage or CRE portfolio given their guidance.

Yes. Yes, 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. And then on the commercial side, in general, 5 basis points of RWA relief. So that probably pencils out to 7% or 8% size of basis points, a 5% reduction in RWA, 15% reduction on the mortgage side.

So it's about a 7% to 8% reduction in risk-weighted assets, which gives you about $150 million, $160 million of capital relief when this comes to fruition. It certainly allows for an expectation for even more buyback or obviously just more capital flexibility.

Your next question comes from the line of Steve Moss with Raymond James.

Jeff, Mark, maybe just going back to the loan pipeline here and loan yields, just 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?

Yes. On the commercial side, Steve, it's low 6s, probably 6%, 10%, 6%, 20% range. runoff is in the 5% to 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% to 6%. Most of the home equity volume continues to be prime. So that's obviously at a better rate. But the biggest driver on the commercial side, call it, low 6s replacing low 5s dynamic.

Okay. And then in terms of the securities cash flows here that you have coming on come 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 managed higher cost deposits lower? Or are you thinking about parking those into securities here? Or just what's the dynamic you're thinking going forward here?

Yes. I think from a balance sheet position 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. But 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, and we're very conservative in terms of managing that portfolio.

We're buying deep discounted fairly matured, mortgage-backed securities. We're not stretching for yield in that portfolio, but we're getting, on average, 4.25 rate. and that's replacing in the first quarter, actually, the $100 million that came off was at a $150 million rate. I would expect more of what's going to run off in the second half of the year to be closer to 2%. But that dynamic giving you 200 to 225 basis points of lift on the securities book is another big driver of the margin expansion you saw. But I would -- long way of saying, I would expect us to keep that portfolio relatively flat.

Okay. I appreciate that color. And then 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 tight 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?

Yes. I mean 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, and 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. And so I think we're going to -- 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 is pretty seasoned. It's been underwritten consistent with historical Rockland Trust conservatism. We don't underwrite the trended rents or any of those sorts of things. So we feel really good about the existing portfolio of multifamily loans that we have. We haven't seen any signs of stress as we kind of move through these quarters. So I think the biggest the biggest challenge is going to be with new business as opposed to feeling like our existing portfolio is going to experience stress.

Okay. Fair. And then in terms of just going back to the office credit here, just want to clarify with regard to the payoff and the charge-off. Is it fair -- did I understand correctly that you charged off of $4 million and then the remaining balance, which I assume is the $137 million on the -- in the deck was paid off just a few days ago? Or is there a [indiscernible]

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

Wasn't quite sure I heard it right. Great. And then one more thing just on the noninterest-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 have been thinking about...

On the deposit side, particularly?

Yes, on non-interest bearing.

Yes. Yes, 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're still -- we still brought in new relationships and deposit dollars associated with new relationships that outpaced close relationships. So where we saw some of that average deposit pressure is in existing balances being utilized.

And 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. So I think that's putting a little bit of pressure on outstanding deposit balances. And then 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.

So you may see a customer with x amount of dollars in their account, they're coming out a small piece and looking for top rate. And we're going to -- sometimes that answer is we price up and match sometimes depending on the overall relationship, we've been willing to not match. So all factors are in play in the first quarter, but I'd say the biggest majority is the typical usage that we would look to see rebound in the second quarter.

Your next question comes from the line of Laurie Hunsicker with Seaport Research.

I just wanted to say where see was on office. So 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 nonperformers of $53.8 million, that $18 million that repaid is already out of those numbers, correct?

It's the $13.7 million is out of those numbers. It was originally being charged down to $13.7 million, and that paid off in April, correct.

Okay. Perfect. Okay, right. So -- and then you initially had a $2 million reserve on that in the fourth quarter. So you took another 2 before you charged it off and then this new when it came on, you took a $2.8 million specific reserve. So if I look at your loan loss provision for the quarter, it basically was all office. Am I thinking about that the right way?

The new non to performer, the $17.7 million that has a $2.8 million reserve. We had already reserved $2 million of that last quarter. So just -- the appraisal suggests a bit more feedstock that would be needed. So it was only another call it, $800,000 of provision needed to establish that reserve. So I probably 3 out of the 5 is office related. The rest is just general reserve build.

Perfect. Perfect. Okay. And then 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?

The $17.7 million new.

Yes. Yes.

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

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

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

Got you. Okay. And just remind me, your Life Sciences book, how big is that?

It's not very big, Laurie. I'm going to -- I don't have it in front of me, but I'd say it's $100 million, plus or minus. It's not very big, and it's a little bit lumpy. I know we have a couple of larger loans in there, 1 in particular that it was a construction loan and 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. And so 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.

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

With good sponsorship, I might add.

That's great. And actually, that segue to my other question. By the way, I love the Slide 10 details. Thanks for continuing to include that. So yes, so you touched on the $54 million that's coming due in the fourth quarter of '26. 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. Is there anything -- I guess, maybe how should we be thinking about that? Is there any color you can give us on those loans?

Yes, to be honest, some of them, we've probably talked about in the past. I mean 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. So we feel genuinely good about that.

I think, to provide maybe 1 notable update. So I believe it's a fourth -- yes, 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. So 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. But 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.

So that's probably one to note just a few -- 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. But in general, like I said, the rest of the short-term maturities, we feel knock on wood pretty good about.

Okay. Okay. And then just switching over to the dealer floor plan loans. So 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?

Yes. So the reason we decided to exit was just we felt like we didn't have scale to compete. The segment that we were in was tended to be smaller, I'll say, relatively undercapitalized used car dealers. That industry, as you know, has consolidated quite a bit, and the larger more well-capitalized companies didn't really fit our kind of our traditional profile. And so 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. And 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, and let's put resources against it and let's grow it. If we don't, then let's exit because otherwise, we're going to make a mistake and then it'll come back to bite us. And so 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 like $100 million, $150 million roughly of outstandings. And we're down to I think...

$70 million or $80 million.

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

I just looked up. I think we're actually -- it's only about $50 million, a little over $50 million left. So I would imagine, Laurie, that will play out over the next year, probably 9 to 12 months.

Yes, we'll probably be substantially done by year-end.

Okay. That's great. Okay. And then expenses, obviously, great guidance that you gave on Slide 15. But if I'm just looking at a very high level, so you're at $143 million for this quarter, $3 million in merger, $3 million of snow and then $1 million of core conversion systems that takes you down to $137 million. And then obviously, this quarter had the FICA. How much was the FICA?

Payroll taxes quarter-over-quarter are up $1.2 million. I wouldn't suggest that goes back down -- that will gradually reduce over time. So 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?

Yes, I'm just looking at it just seems like your core expenses taking out that core seasons. I mean, you're just -- you're running better, lower, right? Am I thinking about that the right way? Or is there some other [indiscernible]

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. So you actually have 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. So you will see an uptick in salaries, all other things being equal, just from annual merit, call it, 3% on average.

So I think it's holding the line. That's the mentality we're talking about is hold the line in all the major areas. But I think you -- I would hope and expect to see this kind of in that $1.38-ish million, $139 million range.

And just as an anecdote, Laurie, we've talked a lot about the number of bankers that we've added over the last 6 to 12 months, mostly in the C&I space, and 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.

So 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.

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

Yes, spot for March was -- yes, sorry, go ahead. I didn't mean to jump in. You're looking for our core spot margin.

Core -- yes, if you have it, yes.

It was $372 million. 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 payoffs. So I still expect it to increase, obviously, off of that number, but spot was $372 million.

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

Yes. So just to be clear, like 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. But I would say we're still penciled down on bank M&A. The conversion that we have coming up in October, is really a big deal. And so 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. And so we've been spending a lot of our time and energy making sure that we do that. 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. So we feel like organic growth very much remains kind of top of mind, and 1 of the things that we're focused on in addition to getting the conversion done well.

So -- and that, coupled with the environment. I mean the environment right now, as you know, is a little bit uncertain, but I would I would characterize our posture as pencil down.

Your next question comes from the line of Matthew Breese with Stephens Inc.

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

Yes. Taking the latter both, to be honest. It's certainly, Massachusetts is a bit of a unique environment. You have still a lot of mutuals at play that good operators, but they can be a bit aggressive on pricing. And we're seeing offers even from larger banks, other typical similar-size banking a lot in the forehandle on the deposit side. In some cases, even $4.25, I think I saw $4.50 offer out recently on a pretty large relationship.

So it's very, very competitive. And it's those types of dynamics that I was alluding to, where, of course, we're looking at the overall relationship in if there's a portion of money that needs to be a 4 handle in the overall cost of deposits is where we'd like it to be, that's the relationship we're going to continue to support. 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.

So you're seeing some of that dynamic. And like I said, it's probably heightened by the level of mutuals and I can appreciate it's in the markets where we -- 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 it was right in line, Matt, with the quarter end, like around 1.36%.

So 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. 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. And I think because of the competition, I would imagine new money coming on is going to challenge the 1.36% rate to some degree. But I think keeping deposits flat or slightly up in this environment, it will be a pretty successful profile.

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

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

So the 10 bps would be additive? Or is the...

Sorry, go ahead.

So let's work off of the 3 to low 3.70s core NIM this quarter. Expected anticipated expansion is the 3.90% by end of the year, tack on another 10 bps, all in NIM close to 4% or just over by the end of the year. That's the way to think about it?

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

Got it. Okay. So I guess with that in mind, just considering flat deposit costs and then you 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?

I do think if the rate environment stays if the longer term and 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 to 4 basis points of core expansion per quarter does take into account the fact that we may see a basis point or 2 tick up in cost of deposits, if we're being realistic.

So I think that's a little bit of the development that I would suggest over the next 3 quarters, you're going to get the loan repricing benefit, you're going to get the securities repricing benefit. 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 to 4 basis point core margin expansion.

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.

Yes. So 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. But it's obviously less today than it was a year ago, 1.5 years ago.

If I had to venture a guess, I'd say it's probably somewhere between $300 million and $500 million, maybe towards the lower end of that $300 million. But we haven't really put pencil to paper to really identify, okay, how much is it? And then when is it running off as you can imagine, some of the transactional real estate is just -- it has a maturity date that's well beyond next year or 2. And as long as it's performing, we're just going to have to continue to live with it.

And that's not necessarily a bad thing because we're getting, obviously, the income off of it 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.

Okay. Two other.

I hope that answers your question.

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 for kind of a quick Google search, it sounds like there's some -- it's contested. I'm just not sure to what extent. And I'd be curious what you think there. Is this like a likely outcome or not.

Yes. 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 like inside baseball or anything like that. is I think there's a good chance that 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. And I'm -- we're hopeful that, that argument kind of wins the day, but I'm no expert on this or have a -- my crystal ball is not -- it's not all that precise. Mark, I don't know if you have anything to...

I was just going to add, I mean, 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 stock to weigh in and lean in on suggesting why this is not a good answer for the economy. So the question becomes whether those voices outweigh sort of the voters, the consumers that on paper here, rent control and think that will help my pocket. So will the business community sort of messaging of why in the long term, this is not good, helped defend what probably has some consumer momentum to get it past.

But I think to Jeff's point, there'll be enough lobbyists in business offset to hopefully come against that. I think the other mitigant to 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. So 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. So it's an area that I think has been somewhat contained.

So I do think it wouldn't -- 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.

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

Yes. It's probably a little too early to quantify what we think the benefits will be. I would say it's -- 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 chat bot 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. And then once we get some wins under our belt, I think that will give us some confidence that we can continue to do this well.

And I think as I said in my comments, we can develop some muscle memory around how we roll this out. And 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, but a lot of that is still TBD.

Your next question comes from the line of Jared Shaw with Barclays.

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

I don't only because we're -- it's basically just like any other discount on a bond is how we're capturing it. So I don't have the actual dollar amount, Jared, I'd have to follow up on that, just to give you sort of the discount amortization, I guess, on the enterprise bond is how I would quantify that, right?

Okay. And then when you look at the -- do you still feel that you can get to that 80% CD beta through the cycle? And then 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?

Yes. I think on the CD base, where all in, I think, cost of CDs is what, right around $330. Let me just triple check my math, yes, it's right about $330. So 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. So even though Fed funds sitting around $360, 1-month money, brokered CDs in the 1-month space is probably closer to 4% now.

So 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 4-month 360 offer out there. That's the primary driver of any new CD money. So I think it's going to keep like I said, cost of CDs somewhat at where they are right now, if not maybe a little bit of an uptick.

In terms of the overall -- I mean, our deposit strategy, it's -- 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 and continuing to do what this bank has done for such a long time in attracting new money. 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. So it's -- a lot of those pieces are still in place that have been able to drive deposit growth for us in the past. And then we're just -- we've coupled that with being really smart about our pricing strategy.

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. And we think that, that's an opportunity for us because we -- I think we're viewed as sort of the stable, not a lot of change going on, and that's not true with some of our competitors. And so we've been very focused on developing marketing programs and have our -- 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.

So we're really focused on deposit. We know that's an important part of our the overall company and funding the loan growth that we hope. So 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. And we have a number of businesses that aren't credit-oriented businesses. They're just deposit verticals that were doubling back on and seeing if there's ways that we can't accelerate the growth in some of those areas.

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

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

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

Ladies and gentlemen, thank you for joining us, and welcome to the Independent Bank Corp Fourth Quarter Earnings Call. Before proceeding, please note that during this call, we will be making forward-looking 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, President and CEO. Please go ahead.

Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero.

Our fourth quarter results reflect ongoing progress towards restoring Rockland Trust's historically strong performance. Quarterly highlights included continued NIM expansion, strong C&I growth, solid non [indiscernible] deposit growth, stable credit costs, realized cost savings from the Enterprise acquisition and the return of excess capital to shareholders.

Between the first quarter of 2025 and the fourth quarter of 2025, our operating EPS increased by 60%. Our operating ROA rose by 40 basis points, and our operating ROTC improved by 529 basis points. Reflecting on 2025, it was a busy and rewarding year as we gained traction on a number of key initiatives. First, we closed an integrated enterprise. I want to extend my immense gratitude to their former Chairman and Founder, George Duncan, as well as all of the enterprise colleagues who help champion the integration process. acquisitions are never easy and often are disruptive to the day-to-day operations of the bank, the Rockland Trust and Enterprise team members collaborated to ensure disruptions were kept to a minimum. Let me share a few examples with you. On the commercial banking side, we have retained almost 100% of client-facing personnel and have experienced negligible customer loss. Obviously, keeping the relationship managers has helped retain the customers. Despite distractions from the acquisition and integration process, there has been no material drop in enterprise loan production, and their pipeline remains as strong as it was when they joined Rockland Trust in July.

On the retail banking side, it is again important to emphasize that we did not close any enterprise branches and all Enterprise branch employees were retained. Excluding ICS and municipal deposits, all Enterprise branches have exceeded our 95% deposit retention target with approximately 60% of these brand is having stable to increasing deposit balances. Given the acquired bank typically loses 10% of their deposits post deal, we are delighted with our performance. In the fourth quarter, we opened 271 business relationships and 837 new consumer relationships in the acquired branches.

Within our investment management group, we've been able to retain almost all employees. We have targeted the caliber of talent and strength of the client base and the depth of relationships between colleagues and clients are outstanding at both Rockland Trust and Enterprise at a client-centric focus and the cultural integration has been excellent.

Secondly, we made solid progress on the credit front. Our net charge-offs averaged just 11 basis points over the last 3 quarters of the year and the challenges within our office portfolio are identifiable and manageable.

Third, we continue to rebalance our commercial lending business. C&I loans increased 9% organically in 2025 and now represent 25% of total loans versus 22% at year-end '24. Commercial real estate balances were down [ $0.036 ] organically from year-end 2024 or flat from the third quarter. Our CRE concentration stood at 289% at year-end, we believe we have achieved most of the targeted reduction in transactional CRE pre business.

Total commercial loans closed and were $789 million in the fourth quarter, up from $754 million last quarter. Funding on these commitments were $454 million versus $396 million last quarter. 52% of fourth quarter fundings were C&I. Our middle market C&I group continues to gain momentum as evidenced by the fact that it represented 27% of total closed commitments in the quarter.

The regional banking, which represents Rockland's traditional lending business accounted for 39% of total closed commitments. I would also note that our low-income housing tax credit business injected $100 million of capital into our communities.

And lastly, we were named Massachusetts third-party Lender of the Year for 2025, showing a solid progress in the SBA space. Fourth, we generated solid organic growth in nontime deposits of 4.2% in 2025, which has been a historical strength of ours. DDAs represent a healthy 28% of overall deposits about where we were pre-pandemic. The cost of total deposits was 1.46% in the fourth quarter, highlighting the immense value of our deposit franchise.

Legacy Rockland Trust branches generated record new business relationships totaling 6,921 and 3,463 net new relationships. 97% of branches achieved positive net new growth in business relationships in 2025. 100% of all our legacy branches achieved positive net new consumer growth.

Fifth, our wealth [indiscernible] business continues to be a key driver. Our [ AUA ] remained stable at $9.2 billion in the fourth quarter, while revenues grew at a 4% annual rate. Last week, we returned $164 million of capital to shareholders in 2025, including the repurchase of 913,000 shares for $61 million. With the Enterprise acquisition completed in 6 months of customer integration behind us and with credit trends stabilize, will enter 2026 laser-focused on organic growth, expense management and capital optimization.

With respect to growth, I would highlight the following items. We hired a number of commercial lenders in 2025. In addition, we're working to ensure our alignment and incentive structures to emphasize both loan and deposit growth. We are also intently focused on identifying opportunities within our acquired footprint to deepen our relationships with our expanded product set.

Lastly, given the improved credit metrics we are more open to resuming normal commercial real estate growth. As we always highlight, loan growth will be commensurate with our deposit growth.

On the expense front, with the Enterprise transaction complete, we believe a hold align [ mentality ] with respect to staffing levels as appropriate. We will continue to invest prudently in technology to leverage efficiencies. Examples include our core systems conversion scheduled for later this year and our AI innovation team. Our AI efforts are focused on enhancing back office efficiency, including fraud review day-to-day processing and BSA AML.

With respect to capital, we acknowledge that current levels are above our internal targets, and our improved profitability will add upward pressure to our capital position. We remain committed to returning excess capital to shareholders.

Early fourth quarter results represent another major step forward in driving improved growth and profitability at Rockland Trust. We expect to build on this strong performance in orders ahead. Prudent expense and capital management combined with improved organic growth and sustained NIM expansion position us to unlock inherent earnings power. I feel particularly confident in Rockland Trust 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 2025 a successful year. Every measure of our success is a direct result of your commitment.

On that note, I will turn it over to Mark.

Thanks, Jeff. I will now provide a bit more color into some of the fourth quarter numbers that Jeff just discussed and wrap up with full year 2026 guidance. .

To summarize the quarter results, 2025 fourth quarter GAAP net income was $75.3 million and diluted earnings per share was $1.52, resulting in a 1.20% return on assets, an 8.8% return on average common equity and a 12.77% return on average tangible common equity. Excluding $12.3 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $84.4 million or $1.70 diluted EPS, representing a 1.34% return on assets, a 9.8% return on average common equity and a 14.3% return on average tangible common equity. It is worth noting that the fourth quarter results also benefited from a lower tax rate due to onetime adjustments associated with the filing and true-up accounting of the 2024 corporate tax return as well as the finalization of all tax-related estimates inclusive of the Enterprise acquisition.

Diving more into the fourth quarter results, we'll start with loan and deposit growth. As Jeff alluded to in his comments, commercial growth was driven entirely by C&I, which increased 7% annualized for the quarter and over 9% on an organic basis for the year. This focus on C&I lending has also helped fuel an almost 50% increase in new commercial deposit generation in 2025 versus the prior year. On the consumer real estate side, total loan balances were relatively flat with an increased level of mortgage production sitting at year-end in the held-for-sale category, which bodes well for mortgage banking income momentum heading into 2026.

And lastly, though much smaller in volume, a 2025 initiative to build out a more robust premier banking offering, drove a nice increase in the quarter and our wealth management secured consumer lines of credit.

On the deposit side, I already mentioned the calendar year commercial deposit activity. But for the quarter, total period end deposit balances declined 0.8% and due mostly to seasonal business deposit activity related to year-end bonuses, distributions and tax payments. We are encouraged by the growth in average deposits for the quarter across both the consumer and business lines, with 3.6% annualized growth in [indiscernible] core deposits, while we allowed for some level of attrition in our highest rate time deposits.

In terms of a capital update, tangible book value grew nicely at $1.04 for the quarter to $47.55 at year-end. During the quarter, we repurchased approximately 548,000 shares for $37.5 million, representing a weighted-average repurchase price of $68.39, and as Jeff noted, we are committed to returning capital to shareholders via buyback in a prudent manner throughout 2026.

Shifting gears to asset quality, the overall picture remains very stable. Total nonperforming assets stayed relatively consistent at $85.7 million or 0.45% of total loans. Net charge-offs for the quarter were $5.3 million, with $4 million of that related to a C&I relationship that was fully reserved for last quarter. Provision for loan loss was $4.75 million and total criticized and classified levels decreased 8.9% during the quarter.

Moving to net interest income. Despite the modest balance sheet growth, Net interest income increased $9.1 million to $212.5 million for the quarter. The reported margin increased 15 basis points to 3.77%, while the adjusted margin, which excludes purchase loan accretion and other significant onetime items, increased 10 basis points to 3.64%. Breaking down the components of that 10 basis point increase First, we were able to effectively reduce our cost of deposits by 12 basis points during the quarter to an impressive 1.46% total asset deposits. This reflects an approximately 30% beta on the average Fed funds decrease of 40 basis points quarter-over-quarter, right in line with our expectations. [indiscernible] loan yields stayed relatively flat when excluding purchased loan accretion, as immediate repricing on floating rate loans was nicely offset by continued yield expansion from cash flow repricing.

And lastly, the vast majority of the securities book continues to see yield expansion driven by repricing. Our fee income businesses performed right in line with expectations for the quarter. Assets under administration ended the year at $9.2 billion, with the expanded footprint and resources providing nice momentum heading into 2026. And we are optimistic that both loan level swap up in mortgage banking income should continue to serve as a natural hedge against any pressure over longer-term rates.

On the expense side, I would point you to Slide 12 in our earnings deck to provide some context over the fourth quarter results. In addition to providing insight into our 2026 guidance, which I'll soon share. As noted on this slide, total fourth quarter expenses of $142 million on an operating basis, represent a 3.7% increase versus the prior quarter, which can primarily be attributed to a number of large onetime or outsized expenses. To highlight a few, the fourth quarter included a $2 million increase in incentive expense versus the prior quarter. $750,000 of consulting expense related to our 2026 core system upgrade, a $750,000 swing in equity securities valuations, an updated FDIC insurance premium assessment, which created an almost $1 million change quarter-over-quarter, and approximately $325,000 in snow removal expense. So as noted on this slide, which is difficult to extract from the noisy reported results, we peg our core expenses plus full cost saves from enterprise right around the $136 million number for a quarter.

With that, I'll now finish up with full year 2026 guidance. Before I get into the various components, a lot of the fundamentals that we have been highlighting over the last few quarters give us strong conviction in our ability to improve earnings in a focused, sustainable manner throughout 2026. As such, we have established 2 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%. As for the drivers behind those targets, starting first with loan growth, we are targeting mid-single-digit percentage growth for C&I loans, low single-digit percentage growth for combined [ CRE ] construction and flat to low single-digit percentage growth for total consumer as we anticipate a higher percentage of mortgage volume to be sold versus the 2025 levels.

For deposit growth, we are targeting low- to mid-single-digit percentage growth for total core deposits while relatively flat to slightly lower balances for time deposits. For the net interest margin, we are modeling in 2 Federal Reserve rate cuts, which we continue to suggest will drive a fairly neutral impact on the margin. Assuming the 5- to 10-year part of the curve stays consistent with current rates, we anticipate continued margin expansion from cash flow repricing dynamics in both the loan and securities portfolios. Assuming purchase loan accretion of 10 basis points, we estimate the net interest margin to continue to grow to a range of 3.85% to 3.90% in the fourth quarter of 2026. From a credit standpoint, we have no significant loss exposures that are currently in workout status. And as such, we expect overall asset quality metrics to remain stable. Regarding noninterest income, we guide low single-digit percentage growth off of the 202 second half combined annualized results. And for noninterest expense, again, referring back to the details on Slide 12, we are estimating a range of $550 million to $555 million for full year operating expenses, plus another $4 million to $5 million for onetime costs associated with our planned core system upgrade.

And lastly, for the tax rate, with the significant increase in pretax income versus 2025 results, we project a full year tax rate in the 23.50% to 24% range.

I will close out with a reminder that the fewer number of business days in the first quarter will typically result in lower first quarter earnings versus the rest of the year.

And with that, that concludes my comments, and we'll now open it up for questions.

[Operator Instructions] Your first question comes from the line of Jared Shaw with Barclays.

Maybe if we could just start with the -- on the credit side in Slide 9 with the office. Can you just walk through some of the dynamics with the change that we've seen, sort of the criticized classified was down, but NPLs are up and it looks like the criticized classified 26 maturities increased. What was sort of the backdrop of that?

Yes. I'd say the most notable mover in terms of NPAs versus prior quarter is one specific loan that is now in the first quarter 2026 maturity bucket. So that's the $18.1 million classified balance there. That's one relationship that was actually originally scheduled to mature last quarter. We put it on a short-term extension, that deal is actually with our current [ P&S ]. We expect that to go through. Right now, the negotiations are going well. the appraisal we had on that actually suggested there was sufficient protection from a valuation standpoint, but the P&S that is in process suggests a small loss there. So we did reserve about a $2 million loss in the fourth quarter. So that's already in the allowance, but we expect that to get resolved here early in 2026. So that was probably the biggest -- the only downgrade for the quarter, Jared. I think on a positive front, we had a maturity in the last quarter that was approved. This was a $27 million loan. That continues to perform well. That was actually upgraded from a risk rating standpoint. When you look out into 2026 and you look at the criticized and classified levels that are disclosed, it's really just a handful of loans. As I mentioned in my guidance, there isn't really anything out there that has imminent loss exposure that we feel exposed to, I think, anything with a very modest loss like the one I just talked about, we've already specifically reserved for us. So we feel good about the office.

Okay. And then maybe shifting over to deposits as you move through the year and with that guidance or a backdrop, where do you see betas coming through with potentially a couple more cuts here. Do you still feel like you can get 20% in the non-CD beta and 80% in CD? Or how should we think about that?

Yes. I do, Jared. I think fourth quarter was a really good example of our ability to do that. I talk a lot about how the -- this deposit franchise is structured. We have real visibility into a lot of the small balance core deposits that we don't move a lot on what we would call our rack rate pricing. We're probably only in a 5% to 10% beta in that bucket, but it's the higher rate more sensitive where we do very deliberate what we call exception pricing, and that's the bucket where we typically are seeing 70% to 80% beta. So that combined methodology gets you to that 20%, give or take, all-in deposit base beta on the non-time deposits. We've talked a lot about keeping the CD book relatively short for that reason as well. So we are really well positioned to continue to get some cost savings on the CD book, if you see the Fed continuing to cut.

Okay. And if I could just sneak 1 final one. Looking at capital continuing to grow and the success you've had with some of the deals in the past, what's the outlook on M&A? And I guess, maybe what's the sort of the feeling on the ground from potential sellers in the market?

Yes. So we've said this a lot over the last few quarters that we're really not focused on M&A at the moment. We -- the priorities are organic growth, launching our expenses and focused on the conversion that's coming towards the latter part of the year. And we got to get the conversion right. You don't get a second chance if you don't. And we were able to get the conversion and enterprise done, we think, pretty well. And so we're working at making sure the same experience happens with the entire the entire enterprise come October. And so those are the things that we're really focused on. I would say M&A is not one of them.

Your next question comes from the line of Mark Fitzgibbon with Piper Sandler.

First, I just wanted to follow up on Jared's question as it relates to capital. Jeff, you had mentioned that you have internal capital targets. Is that something you'd be willing to share with us, whether TCE or CET1 or whatever you look at?

Yes, I can jump in there, Mark. I'd say long-term capital targets for us, CET1, probably in the 11 -- high 11% to 12% range, call it, 11.75% to 12%. I think that suggests your tangible capital in the 8.75% to 9% range. So certainly, suggests lower than where we are today, which is why we are talking a lot about expecting to continue to return capital to shareholders via buyback in a prudent manner. I don't think you're going to see us get to those levels certainly in the next 12 months just from buying back stock. But I'd say long term, that's where we should be optimizing capital. .

I guess the challenge is based on your projections, organic growth is going to be relatively modest in the near term. So it looks like capital will continue to build unless you're aggressive with buybacks. And I would suspect that sort of [ $168 or $170 ] a book, it's kind of hard to justify doing buybacks up at these levels. So I guess how else -- if M&A is out of the equation and buybacks that are out of the equation, organic growth all get you there? Do you raise the dividend? Or is there something else that we're missing?

I would suggest, I don't believe buybacks are out of the equation. I know -- I get your point in terms of the valuation has moved nicely. I look at our profitability profile in the future profitability profile, and I would suggest we'd be comfortable buying back at levels in 2026. So I think that the target would be to keep capital fairly flat via buyback through 2026 and allow us to deploy capital, hopefully in a better growth environment heading into 2027.

I would also just add, Mark, maybe to slice it a little bit finer on the M&A question, bank M&A clearly not interested. But if there is a [Audio Gap].

Your next question is from Stephen Moss with Raymond James.

Maybe just starting here on loan pricing here. Just kind of curious what you guys are seeing in the market for C&I and CRE loans these days?

Yes, it's competitive. I think not surprisingly in our market. I think in some C&I deals, you're seeing some of the spreads competitively bidding out under 200 basis points. But we're getting our fair share of deal flow at the pricing we would like, which is 200 plus. So I think in the fourth quarter, all in, you saw total loan yields in the mid 6s. So that kind of reflects the pricing that we'd like to be getting in an environment like this. So I think as long as we're kind of my caveat there on the margin guidance, as long as you're seeing the 5-, 7-year part of the curve, stay where it is. I'd like to see loan yields staying in that range, which has given us the nice lift on the repricing aspect of it. .

Okay. appreciate that. And then in terms of just the maturing cash flows from the securities book this year, Mark, what are your thoughts in terms of deploying that -- you just into securities or maybe be a little more aggressive on pricing CDs down? Just kind of curious how you're thinking about that?

Yes. I really like where we are with total securities as a percentage of the balance sheet today. So I would say the vast majority of what will generate cash flow out of the securities book will likely go right back into the securities book. if we start to see any major variations and the rest of the balance sheet composition, that could change slightly. But I think general guidance would be expect to see securities stay relatively flat, meaning we're putting the $670 million that's repricing [indiscernible] coming off right back into the bank. And just a reminder there, a big portion of that, Stephen, is at lower rates. So of the $60 $70 million, $625 million of that is yielding about $180 million today. So if we're conservatively assuming to put that back into 4% securities, that's a nice lift to the securities book throughout 2026.

Yes, 100% on that. And then in terms of maybe just the other thing on to hiring talent here. Just kind of curious what are your guys' plans for hiring additional commercial loan officers? I know, Jeff, you talked about wanting more organic growth. I'm just kind of curious as to how you guys are thinking about those plans and where they may be these days?

Yes. I think at the moment, we're in a good position. A number of the people that we hired in the second half of last year came over into a relatively new segment of the commercial business. And so some of them came over without a portfolio. And so I think there's a lot of just inherent C&I growth that we can get from getting some of our new hires, basically the support that they need and just let them go. They all came over with a [indiscernible], and we feel pretty good about their ability to drive activity and drive volume.

Excellent. Well, nice quarter. I appreciate all the color here.

Thank you.

Your next question comes from the line of Laurie Hunsicker with Seaport Research.

Jeff and Mark. I Wanted to start here with expenses and really appreciate the Slide 12 and really appreciate your breakdown of the $5.1 million. But I just wanted to make sure that I heard it right. Included in that $700,000 was from the core systems upgrade and that's...

That's right. so the fourth quarter, we had some consulting to start preparing some of the work associated with that upgrade that would be somewhat onetime in nature.

Got you. Okay. And that the $4 million to $5 million of onetime, that's going to be spread over the year or sort of over the first 2, 3 quarters. How should we think about that?

Yes. I'd say probably pretty evenly spread over the year, maybe a little bit more in the first quarter to come. But if I had to guess, it's probably $1 million or $2 million here in the first quarter, probably another $1 million or $2 million in the second quarter. And then as we get to the October time line, it probably -- I think a lot of that will be the work that needs to happen over the 6 months, including third-party consulting to just get a lot of the processes documented as we gear up for that conversion. .

Okay. And the conversion is in October?

That's right. Recall, we're originally talking about it as May as we started to do some of the initial work in lining up all the teams that are going to be needed. We just felt it was appropriate to give us a bit more time. Further complicating it, you need to get the core provider with the weekend where they can facilitate the conversion as well. So it's almost similar to scheduling and acquisition physician deal where you need the FISs of the world to be able to have a slot. So the next table slot that we were comfortable with was in October.

Okay. Okay. And then you mentioned the AI innovation team. What is your spend this next year on AI? Can we share that?

I actually don't know what the spend is, but I can tell you what we're doing about it, because I think one of the things that could get people caught in the AI space is trying to boil the ocean and do too much. And so what we've been doing is putting a governance model in place and then have all the kind of AI business use cases flow through this governance to make sure that we're thinking about the right thing. We don't want to have every one of our different business units all off doing their own kind of AI, skunkworks. So we'd rather get that flowing through a centralized governance. [indiscernible] let that team, which is, as you can imagine, heavily populated by our IT and [indiscernible] folks and have them pick and choose 2 or 3 of these business cases and get them done and show ourselves that we can get and get them done right and then we'll bring more ideas into the centralized utility that is going to have a hand in the AI work that we do anyways. So we're trying to be methodical about it because I'd rather get 2 or 3 wins and knowing that it got done correctly, and we got the output that we're looking for than try and do 25 of these in each business unit kind of doing it themselves. I think that would be counterproductive.

Yes. I'll jump on to that. So from a dedicated spend, the guidance for '26 is exactly as kind of Jeff laid out, it's specifically 3 dedicated individuals that we would expect to sort of create this initiated project. And I would propose, as we learn more through what their capabilities are, if we feel the need to invest more money and/or ramp up from a people standpoint and/or a technology standpoint, we would need conviction that, that is being done with offsets and other expenses through the environment so that it's ultimately beneficial to the expense run rate to keep investing in AI. So I think we need to see those benefits come through, give us [indiscernible] to continue to invest in AI, which should allow us to either reduce or at a worst case, hold the line in other expenses.

Okay. Okay. That's helpful. And then just one more on expenses. Your onetime charges with EBTC, those are finished, correct?

Those are finished, correct.

Yes. Okay. Okay. Great. And then just jumping over to margins. Do you have a spot margin you can share with us?

For December? You know what? Well, I actually forgot to bring that with me and at the top of my head, I don't have it. Because I want to give you a core number. But I can follow up with that. I don't have it in front of me. .

Okay. Okay. And then just 2 more questions on the in [indiscernible] statement. Just thinking about sort of the nonrecurring, I guess, obviously, the $315,000 of [ BOLI ] benefits, but the $7.6 million that you had of other income, what's the nonrecurring piece in there? I mean that should be running $1 million, $1.5 million lower. Is that right?

Yes. In the fourth quarter, it was about $400,000 or so on our equity securities book. So whether you call it nonrecurring or not, you do -- we always see a fourth quarter lift because you get capital gain distributions and redistribution that may generate realized gains. So increased interest, dividends, cap gain distributions [indiscernible] ISO is probably a few different pieces with $100,000 increases quarter-over-quarter. So nothing really unusual that I would definitively pull out as onetime or nonrecurring in nature outside of those equity securities gains.

Okay. Okay. And then just last question, just circling back here on office. So I know you talked about the $18.1 million classified that is maturing in the first quarter. The $9.9 million that's criticized, how should we think about that?

Yes. Let me just -- so the $9.9 million that is criticized in Q1. That is a participated deal that we have basically received an appraisal that had suggested valuation had been challenged a bit. That appraisal came in at the time the government announced kind of some of the DOGE initiatives, and there was a pullback on GSA leases. So this is a property that is being impacted by that sort of out of market. The sponsor is looking to either refinance or sell. We'll likely be working with the sponsor on that. So we expect there'll be an extension coming. The property is cash flowing. It's continuing to make payments. It's current, but there is likely a longer-term resolution to hopefully get repaid out of that. So I think -- if I had to guess right now, Laurie, I'd say you'd see that probably with an extension that gets executed in this quarter with hopefully exiting out of that without really any loss at some point in '26, hopefully.

Okay. Okay. That's great. And then just lastly, the actual increase in the office non performers from the $22 million to the $41 million. Can you just break down roughly what that $18 million, $19 million is?

Yes. That's one loan. So that was a loan that I mentioned earlier, we actually have a P&S on, where we accepted a slightly lower value than what the appraisal suggested. So that $2 million loss that we expect is already reserved for. That's the only change.

Got you. Okay. I thought you were talking about the $8 million classified. My apologies.

So I know that's the -- well, that is -- yes, that's the [indiscernible] classified in Q1. So that was new to nonperforming.

[Operator Instructions] your next question comes from the line of David Konrad with KBW.

Yes. Just had a follow-up question on the Commercial Banking platform. Your guide for '26 mid-single-digit increases is fair. Probably what I would do with all the uncertainty as well. But on the other hand, you've hired a lot of people in the back half of '25, and you grew by, I think Mark said about 9% organically in '25 as well. So it feels like you got a lot of momentum, and this is kind of a slower growth. So are you seeing something in the marketplace, whether it's competition that hold that back? Or maybe talk about potential upside to that growth rate?

Yes. So there probably is some potential upside just because I know all the people we hired last year and are all very, very talented. I would also point out that in addition to just getting our teams that are already doing well, pushing the zoo even more. We had one line of business that we started in '25 will be done in '26 that we just decided it wasn't where we wanted to be. And so we wound up -- we're in the middle, I should say, of exiting that business. It's around $100 million, give or take. And so we've been in process of moving that. So any of the growth that you see is going to include $100 million of runoff in this specific business segment. And that's a little bit of the headwinds that I think if you -- if we wind up, we're sitting here at the end of the year and we exclude in act of that runoff, I think the low to mid-digit -- single-digit percentage increase could be higher.

Got it. Got it. Okay. And then what was -- what type of loans were in this specific segment you're running now?

It's our floor plan business, not to be confused with our ABL business, which we like a lot. This was a business that had floor plan lines to very small used car dealerships. It was a bit of a legacy Rockland Trust business. And we just got to the point that we didn't have the right systems that help track the collateral. And the loans were small. We didn't think the outlook for this business was good, given the nature of the business. All of the lot of the floor plan companies are consolidating, just like the OEM part of this. And so to the extent that this just really didn't fit our risk profile.

Got it. And I know, historically, those loans are actually pretty tight credit reads as well.

Yes. Can be.

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

Thank you. Appreciate everybody's interest in Rockland Trust and have a terrific weekend. And go [indiscernible]. Thank you.

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

Good day, and welcome to the INDB Independent Bank Corp. Third Quarter 2025 Earnings Call.

[Operator Instructions]

Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliations to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings may be accessed via the Investor Relations section of our website. Finally, please note this event is being recorded.

I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead.

Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. We had a busy third quarter. We closed on the Enterprise transaction on July 1 and completed the systems conversion this past weekend. We posted solid financial results and continue to make progress on several of our strategic initiatives. Results for the third quarter reflect continued NIM improvement, strong C&I loan growth, solid growth in low-cost deposits, lower credit costs and the beginning of the realization of cost savings from the Enterprise acquisition. Our PPNR return on average assets was 1.7% on an operating basis, and our operating return on average tangible common equity improved 283 basis points to 13.2%.

I wanted to focus most of my comments on the enterprise integration and conversion. Before we get into some of the specifics, I would like to highlight one important difference in this transaction. The typical pattern in most of the acquisitions I've been involved is for the acquired CEO to get a big payday and ride off into the sunset. In the case of Enterprise, their former Chairman and Founder, George Duncan, remains actively involved. He is an adviser to our Board, chairs the newly created Lowell Advisory Board and continues to be an advocate for Rockland Trust in the community. There are several other senior executives from Enterprise who also continue to be a resource and advocate for us. The involvement and insights provided by George and his colleagues have been invaluable as we bring these 2 banks together. Simply put, they care.

Regarding the integration, things went extremely well. We've had great collaboration between the teams post close and the lead up to the systems integration and conversion that took place this past weekend. While it's still early, we think the conversion went exceptionally well. Many colleagues across various business lines commented on how this transaction felt different than others they were involved in. The level of teamwork and appreciation for what each side brought to the table was a common theme across many I spoke with. For Rockland Trust colleagues, we have been open to acknowledge ways in which the Enterprise Bank did things differently and perhaps better, and we have already adopted some practices and approaches from Enterprise.

On the commercial banking side, we've retained almost 100% of client-facing personnel and have experienced negligible customer loss. Obviously, keeping the lenders has helped retain the customers. The enterprise lenders are fully embracing Rockland Trust's diverse lending product set as well as our treasury management and fee income offerings. As evidence of this engagement, Enterprise Bankers originations for the third quarter this year were 27% higher than the prior year period. This is a testament to my comment last quarter where I highlighted our similar credit culture. As such, there has not been the typical transition period where the acquired bankers must figure out where the new bank's credit appetite is.

A key initiative going forward will be to continue to cross-sell deeper into this enterprise customer base. On the retail banking side, it's important to emphasize that no enterprise branches were closed and all enterprise branch employees were retained. There are many strategic and tactical methodologies that we have found to be beneficial, and we'll be working to incorporate those at Rockland. These include incentive plans, position responsibilities within a branch and de novo branch openings. Excluding brokered funds, deposit retention at Enterprise has been better than expected. We are also eager to bring our broader consumer lending product set to this market with early activity indicating the team is well positioned to introduce both mortgage and home equity offerings to further support these strong communities.

Within our Investment Management group, we've been able to retain all employees we had targeted. The caliber of talent, the strength of the client base and the depth of relationships between colleagues and clients are outstanding at both Rockland Trust and Enterprise at a client-centric focus and the cultural integration has been excellent.

In summary, success is driven by having talented and engaged employees. It was great to note that over 90% of enterprise employees who had a job offer extended accepted that offer. We can't be more excited about the merits of this transaction. Shifting gears a bit to the general business conditions in the current environment, we can now add the government shutdown to the existing list of tariffs, government funding and inflation and unemployment that weigh on clients' minds. Overall, the word I think our clients would use to characterize all this is uncertainty, yet our client base remains resilient. The recent AIM poll, which is the Associated Industries of Massachusetts, showed that their Massachusetts business confidence was in the high 40s, right where it's been for the last 5 months. A score of 50 is considered negative. Of note, the poll was taken prior to the government shutdown.

Turning to results at INDB. I would like to touch on just a few financial highlights before I turn it over to Mark. First, C&I loans grew organically at a 13% annualized rate. This represents continued strong performance in our legacy markets like Plymouth County, coupled with some of our newer initiatives maturing.

Second, commercial real estate loan balances declined organically at a 6.7% annualized rate due to normal amortization and the intentional reduction of transactional CRE business. We've talked in the past about getting our CRE concentration below 300%. As expected, the Enterprise acquisition resulted in our CRE concentration increasing. However, the quarter end number landed at 295% indicating we have quickly met our challenge to get our concentration below 300%. Despite this, there remains additional transactional CRE we wish to exit as quickly and as economically as possible while still serving our legacy client base. In all, we see a clear path for the bank to return to a rate of loan growth more commensurate with our solid deposit growth.

Third, we think generating organic demand deposit growth of 5% annualized in the third quarter, which has been a historical strength of ours. DDAs represent a healthy 28% of overall deposits, about where we were pre-pandemic. In the third quarter, the cost of deposits was 1.58%, highlighting the immense value of our deposit franchise. Lastly, our Wealth Management business continues to be a key value driver. We grew our AUA to $9.2 billion in the third quarter, inclusive of the $1.4 billion acquired from Enterprise. Now that we have the enterprise conversion behind us, we will continue to prepare for our core conversion of the entire bank scheduled for May of '26. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiencies and scalability and support the future growth of the bank.

We think third quarter results are an important stepping stone to improved growth and profitability for Rockland Trust. We expect to build off these solid results in the quarters ahead. We believe prudent expense and capital management, continued NIM improvement, the realization of the benefits of the Enterprise acquisition and improved organic growth will unlock the inherent earnings power of Rockland Trust. On that note, I'll turn it over to Mark.

Thanks, Jeff. As Jeff just hit on a lot of the key drivers for the quarter, I will go into a bit more detail in a few areas, focusing primarily on the Enterprise acquisition, some of the big moving pieces during the quarter and expected trends going forward. To summarize the quarter results, 2025 third quarter GAAP net income was $34.3 million and diluted EPS was $0.69, resulting in a 0.55% return on assets a 3.82% return on average common equity and a 5.84% return on average tangible common equity.

Excluding $23.9 million of merger and acquisition expenses and $34.5 million of day 2 CECL provision for non-PCD acquired loans and their related tax impacts, the adjusted operating net income for the quarter was $77.4 million or $1.55 diluted EPS, representing a 1.23% return on assets, an 8.63% return on average common equity and a 13.2% return on average tangible common equity.

I'll start with some of the key metrics that are heavily impacted by the Enterprise acquisition. First, in terms of a capital update, as a reminder, we originally estimated the Enterprise deal to result in 9.8% tangible book dilution. Including estimated M&A to be incurred in the fourth quarter, we pegged actual tangible book dilution right around 7% as the loan interest and credit marks came in lower than originally modeled. As such, we anticipate slightly lower earnings accretion than originally modeled as well.

In addition, we repurchased $23.4 million of capital at an average price per share of $64.07 during the quarter. Despite the deal impact dilution and repurchase activity, our improved earnings profile and OCI movement resulted in a tangible book value per share decrease for the quarter of only $2.17 or 4.5%, while the tangible book value per share is up modestly over the year ago metric. Regarding the net interest margin, the reported margin improved meaningfully to 3.62% for the quarter. The 25 basis point increase from the prior quarter can be summarized by highlighting a few key components. First, both the Rockman Trust and Enterprise Bank balance sheet profiles are well positioned to experience margin growth from loan and securities cash flow repricing, and we saw that drive a good portion of the increase this quarter.

In addition, though it has negligible impact on the actual net interest income results, the margin also improved slightly by the payoff of approximately $110 million of acquired debt from Enterprise. The margin also expanded approximately 5 basis points due to purchase discount accretion on the acquired securities book. And lastly, we saw approximately 8 basis points of expansion from purchased loan accretion.

Regarding this last item, we recognize that the loan accretion results are less than suggested in our guidance last quarter. I would suggest this is purely a timing issue. The total accretable loan interest and credit mark is approximately $160 million, and we will expect the vast majority of that to come in over the next 5 to 7 years. However, we remind everyone that the actual results can often be lumpy due to prepayments, individual loan payoffs and repricing events. As long as longer-term rates remain intact, we are confident that our reported margin will sustain -- will reflect a sustainable level as those accretion numbers roll down.

With the Federal Reserve cut occurring in mid-September, the quarterly results had very little impact from the Fed action. We continue to reiterate our guidance that the bank is positioned to see little impact on the net interest margin from the recent and any future Fed cuts.

Shifting gears to loan and deposit activity for the quarter. We are very pleased with the organic results for the quarter. As Jeff just alluded to, you saw our strategic initiative to focus on relationship CRE and C&I lending on display as total C&I balances increased organically over 13% on an annualized basis for the quarter and are up over 7% through the first 9 months of the year. In addition, we are still optimistic over CRE and construction activity moving forward with the year-to-date declines driven primarily by runoff and workouts of more transactional balances.

Specific to the Enterprise acquisition, our newly acquired teams are working off of the same playbook, prioritizing C&I and relationship CRE, and they have not missed a beat remaining very active in the deal flow during the quarter. This focus resulted in a modest decline of approximately $45 million in total loan balances from the enterprise activity, which was nicely offset by growth in the legacy Rockland book.

Moving to the deposit side of the balance sheet. The story is equally positive. First, specific to the enterprise acquired balances, the third quarter results reflected a decline of approximately $80 million. However, only $30 million of that relates to relationship balances, while $50 million reflected the payoff of a maturing brokered CD. And similar to the loan activity, the legacy Rockland deposit organic growth more than offset the enterprise-related reductions, resulting in approximately 1% combined annualized growth for the quarter.

Switching gears to asset quality. The quarterly results capture a few different moving pieces related to the allowance for loan loss and provision levels. High level, net charge-off activity was only $1.8 million for the quarter or 4 basis points on an annualized basis and overall asset quality metrics remain strong. To provide a little more color on the reported results, the allowance for loan loss increased $45.7 million for the quarter, which includes $34.5 million of day 2 provision on non-PCD acquired loans, $9 million of carryover allowance on acquired PCD loans and $4 million of core provision less charge-off activity.

Total nonperforming assets at September 30 are 0.35% of total assets and include approximately $25 million of acquired NPAs from Enterprise. And though new to nonperforming activity was up slightly from the prior quarter, no material loss exposures were identified in those recent downgrades. Rounding out the update on noninterest-related items, we are pleased to report that both noninterest income and noninterest expense are right in line with expectations following the enterprise merger. On the fee income side, as Jeff just mentioned, it's worth re-highlighting that the merger brought over an additional $1.4 billion in assets under administration. And with the current quarter activity, total AUA grew to $9.2 billion as of September 30.

On the expense side, I will highlight a few key items. First, we reaffirm our original guidance of achieving 30% cost saves on the acquired enterprise expense base to be fully realized during the first quarter of 2026. Merger-related expenses totaled $23.9 million for the quarter and were comprised primarily of severance-related costs and professional fees. Amortization of intangible assets for the quarter was $7.3 million, with $6.1 million related to the newly acquired intangibles from the enterprise deal. And as Jeff mentioned in his comments, we are working through implementation efforts for a core system upgrade in May of '26. We had little impact from this in the third quarter expenses, though we do anticipate approximately $5 million of onetime costs to be incurred over the next couple of quarters.

And lastly, the reported tax rate for the quarter stayed relatively consistent at 22.8%. I'll now just close out my comments with fourth quarter guidance only as I will plan to give full year 2026 guidance with our fourth quarter results. In terms of both loan and deposit growth, we anticipate a low single-digit percentage increase off the September balances. Regarding asset quality, as I've been stating, we still do not see any pervasive issues across segments. And as such, provision will continue to be highly driven by developments of individual commercial credits. Regarding the net interest margin, we reaffirm and anticipate 4 to 6 basis points of expansion on an adjusted basis, which excludes loan accretion impact, which, as I noted before, can be volatile on a quarter-to-quarter basis.

For noninterest income, we estimate flat to a low single-digit percentage increase of the third quarter results. And for noninterest expense, we anticipate total core expenses, excluding merger-related costs and onetime conversion upgrade costs to decrease by approximately $2 million. This decrease represents a portion of the remaining enterprise cost saves expected to be realized as some temporary salary costs will extend into the first quarter. And as I just alluded to earlier, with the enterprise core conversion behind us, we are ramping up efforts in preparation work for our upcoming core system upgrade, which we estimate will result in approximately $3 million to $5 million of onetime costs during the fourth quarter. And lastly, tax returns.

That concludes my comments. And with that, we'll now open it up for questions.

[Operator Instructions]

The first question comes from Steve Moss with Raymond James.

Nice quarter here and definitely a lot of moving pieces. Maybe just one thing to start here. I noticed in the deck you guys had said there was good C&I growth. Just wondering if you could quantify that number here as you're kind of hard with the merger noise. And then also just talk about the loan pipeline.

Yes. So the C&I growth has been, as I said in my comments, really a function of we're really good at what we do, and we've been doing it a long time, but it's really been in the kind of the lower middle market. And so we've continued to make progress there. As I mentioned, in some of our legacy markets like Plymouth County, we've changed the incentives of the bankers there to incent more C&I than CRE. And with the balanced scorecard, C&I usually checks more of those boxes like with deposits and treasury management and such. So we think that's part of it.

And then we had -- as I mentioned in the last couple of quarters, we hired somebody to lead our effort in the middle market and in some of our specialty businesses, and he's had an immediate impact. And the loans that his groups and that he are responsible for are all C&I, and they tend to be a little bit bigger than some of the things we've done historically. And so that's really what's driving the C&I growth that we've been seeing over the last quarter or 2.

With regard to the pipelines, I'd say they're pretty healthy. I mean we haven't seen a dramatic increase or decrease. I think they've been somewhat stable with where they've been in the past. Obviously, kind of with the caveat that as you clear out portions of your pipeline with closings, you got to rebuild it a bit. So we've been experiencing some of that quarter-to-quarter. But overall, I think they've been pretty healthy.

Okay. Appreciate that color. And just curious where is loan pricing for you guys these days?

Yes. I mean, still on a spread basis, Steve, we stay disciplined. We're still looking to get above 200 basis points on a spread, especially on the C&I side. Given where rates are today, as you can expect, that tends to lead you to around 6%, low 6s. So we're always looking at staying disciplined to get the appropriate spread over whatever term we're funding.

Steve, one other comment maybe on our C&I exposure since I know it's a topic that will probably get asked about later is none of the growth that we're talking about in C&I is coming in the NDFI space. So we don't have any specialty businesses that are geared to that space or have much in the way. We have a couple of one-off relationships with leasing companies where we provide a line to them, but it's incredibly modest, and we don't have any of our initiatives pointed at that space. So all of the C&I growth that we're talking about is all Eastern Massachusetts, and it's all kind of middle market companies.

Right. And then just kind of curious here in terms of the -- on the office side of things, a stable quarter, I guess, is kind of how it seems to -- I would characterize it for office. Just kind of curious how are you guys thinking about resolution here? Are you guys feeling better in terms of office credit? There's obviously a few -- a decent number of classified loans coming to maturity next year in particular. Just kind of curious if you have any updated thoughts as to what you're seeing in resolution on the criticized and classified.

Yes. So I'll start, and then, Mark, you can comment. I would say, in general, I feel better today than I did 6 months ago. And part of that is we've resolved several of the larger problems we've had. And part of that is when I sit through a lot of the meetings where we're talking about these credits, I think the general feeling I walk away with is we still have work to do. So we're not out of the woods yet, but it feels like there's a good number of the work we're doing with these loans where we expect a positive resolution or a positive outcome in part because the sponsor working with us. We're reaching middle grounds on this. We're providing them time to get the asset they own maybe in better shape, and they're providing us with money or a master lease or what have you.

So there's a bunch of different ways to get to that point. But I would say, net-net, I feel positive. That's not something I could put numbers to, but it's just a general feeling.

Yes. I don't have too much more to add, Jeff, outside of -- when you look at, as you were indicating to some of the practical implications of what's coming due over the next couple of quarters, it's really concentrated in just a handful of loans. And to be honest, a couple of these are trending in the right direction where there's potential for upgrades of risk ratings and good resolution. If there is a little bit of an uncertainty, you're certainly not seeing the loss exposures that we experienced earlier in the quarter. So I think from that perspective, it feels like true losses and provision expectations feel much more contained.

Okay. That's great. And maybe just one last one for me, and I'll hop back in the queue. But you guys sound a bit more constructive on commercial real estate balances and definitely talking about a better C&I loan pipeline. And I know, Jeff, you've been talking about more organic growth for a little while now. Historically, you guys have done mid-single-digit type -- I'm sorry, low single-digit type loan growth. Could we maybe see something a little better next year given what kind of sounds like things are shaking out?

Yes, I think we could. If the trends continue here and we get our enterprise bankers continuing on the same path that they just demonstrated in the first quarter that we've owned them. I feel like kind of if I were to bracket it, kind of low to mid-single digits. So I think previously, we would have said low single digits. So I don't think we're ready to put a stake in the ground and say this is what we think the number is going to be. But I think we feel pretty good about it.

The next question comes from Mark Fitzgibbon with Piper Sandler.

Mark, first question I had for you is your guidance on the margin of 4 to 6 basis points of expansion in the fourth quarter, does that assume 1 or 2 Fed rate cuts?

Somewhat moved to Fed cuts, I guess, I would say, Mark, because we're -- as I mentioned in the call, I really feel good about our ability to neutralize any Fed cuts pretty quickly. So I would suggest that's similar guidance regardless of the Fed action.

Okay. And then secondly, now that you've marked the securities portfolio of enterprise, any plans to kind of restructure that? Or should you?

Probably not at this point. I mean, not that it's about a reporting answer here, but I think we view that as now being market securities. So whether we sell those off and replace with new securities, I think you're in the same position. So it's asset classes we're comfortable with. We're comfortable with the total book of the securities portfolio. And the all-in now yield on that book is certainly a lot better. So I don't feel strongly there's any reason to restructure that at this point.

Okay. And then I wonder if you could give us any color on the $16.8 million of new nonaccruals. Any particular -- is it concentrated in a couple of loans? What type of loans? Anything you could share with us?

Sure. Yes. It's actually really only 3 loans greater than $1 million in that number, the largest being about a $4.5 million construction loan that came over with the Enterprise acquisition. That -- it's a fairly benign story there in terms of what we expect from. Probably, hopefully no loss. This was a construction loan that was under an agreement and had just been delayed and kind of pushed out. That P&S has since expired, but the interest is still there, and we're hopeful and feel pretty optimistic that there is a sale that will get paid out in full on that. So that's a $4.7 million loan. That was the biggest of them.

After that, you dropped to $1.6 million and $1.1 million, one of those being a residential loan. That appraisal is well in support of the outstanding balance. And then it's just a handful of smaller stuff. So I know the number ticked up a bit from the prior quarter, but we really don't see any loss exposure in that bucket at this point.

Okay. And then I noticed you bought a little bit of stock back this quarter at an average price like $64 and change. How do you think about the tangible book value dilution from buying it up here at, call it, $140 million or $145 million of tangible book value?

Yes. I mean it's always a valuation consideration. Certainly, we're always a bank that's sensitive to tangible book dilution. But at the same time, it really comes down to do we feel the bank is appropriately valued and what's the right level to be buying at. So I think it's something we're going to continue to reassess at what ranges we'll tier up activity. I'd like to suggest we will continue to stay active, but we'll just revisit that over the next month or 2 and see what the right levels are to keep buying at.

Okay. And then lastly, for you, Jeff, I was curious, given how friendly the regulatory environment seems to be for M&A these days, what are your thoughts about doing another transaction? And would you look at all sort of further afield from what you have traditionally?

Yes. So I guess I would point back to the last couple of quarters, and our posture hasn't really changed, which is not really interested or focused on M&A at the moment. We're very focused on organic growth and getting our company positioned to continue to be a good earner and the integration and conversion of enterprise. And just because the conversion is behind us, that doesn't mean our work is done. So we still have a lot of work to do, making sure that continues to be a good story, the conversion I'm speaking of. And then we still have a lot of integration activities going on in order to synergize the enterprise franchise with the rest of our franchise. So message hasn't really changed in my mind.

The next question comes from Laurie Hunsicker with Seaport Research.

So Jeff, I just wanted to start by asking a question that I think you largely answered, but I just want to hear it because it's so great. NDFI exposure is basically nothing.

It's -- I mean, to the extent you want to call a couple of local leasing companies where we have some exposure to, but beyond that is really -- it's negligible. It's not -- hasn't ever been really a focus of ours, isn't today. We don't have any businesses geared towards that sector of the economy.

Right. Okay. And then office, just circling back to that. So the $42.9 million of criticized that you've got maturing in the fourth quarter, I guess, how much of that came from EBTC, so it's marked? Or how should we think about that piece? It's up from where you were last quarter, but obviously, last quarter didn't include EBTC. Is there any color you can give us around that 42.9% criticized office maturing in fourth quarter?

Yes. You've seen this now play out on a few loans. I think over the last couple of quarters here, Laurie, those were primarily the same 2 loans that we talked about as maturing last quarter. We entered into a couple of short-term extensions as we were working through more permanent resolutions. So happy to report on one of those loans, which is a $27 million relationship that was just recently approved for a new 2-year renewal with some injected equity as well. The projected debt service coverage looks very strong. So that property has morphed into a much better position and was just recently extended.

The other remaining balance. So there's really only 2 notes that make up that $42 million. The other one is likely to be sold. We're entertaining that right now. The offer we see on the table falls just a little bit short, but nothing of a material nature. So we're hopeful for a resolution there as well, but that one is just potentially a pending sale.

Got you. And that's $16 million?

That's about $16 million, correct. There's another couple of million dollars related to that relationship that is not in that number that is exposure to the same borrower, but the office exposure is only $16 million.

Got you. Okay. And then it looks like your office nonperformers down to $22 million. That's great. That's just that Class A office next that maybe is going to go back on performing status here in the next 1 or 2 quarters. Can you just help us think about that one? Any updated information?

That one would not be returning. They have essentially payment-free period for quite some time now heading out into 2026. So we're of the -- even though it's technically performing under the modification, we're of the opinion that we would not restore it back to accruing until we see cash flow resuming. So that's going to stick around on NPA for a bit, unless there's a path to a full resolution through another channel. But if it stays as is, it will just -- it will be on payment deferral for quite some time.

Got you. Okay. And that still is $22 million. Is that right?

It is still $22 million, yes. That is the one -- that's just one loan.

Okay. Great. I appreciate all the details you gave on office. Okay. So maybe jumping over to margin. What was your spot margin?

Spot margin for September, excluding loan accretion, I think, is the appropriate number to give you. That was 3.57%.

Okay. And then...

Bond accretion back to maybe Mark's question earlier, we view that as the core margin now or what we refer to as our adjusted margin. So that is inclusive of the bond pickup we got with Enterprise, but I will continue to isolate the loan accretion as that can be a bit lumpy.

Perfect. Okay. And then I do appreciate that loan accretion income is lumpy. Initially, obviously, your guide was 18 basis points. You had less dilution, the tangible book on the deal, which was amazing, but obviously less accretion. I mean -- and I know it can jump around, but thinking about it, like 8 basis points, give or take on margin, is that the right way to be thinking about it?

To be candid, Laurie, I think it will probably move up a bit from there. I don't want to predict an exact number, but you didn't see a lot of payoffs this quarter, which typically can accelerate some of the marks. So I would expect that to move north a bit. I just don't want to pick a number. I think it's important to note, though, the 18 basis points, I think, that you were referring to was also inclusive of the securities accretion as well. So that's 5 basis points of the 18. So I think if you're isolating just the loan mark, that would have originally thought to be 13 basis points or so.

You may see a quarter where it actually is in that range or you may see a quarter like you saw here. So I think you're going to see -- I think you will see volatility between 10, 13 basis points on a given quarter, if that makes sense.

Okay. That's helpful. Okay. And then just jumping over to expenses. So by my math, you got onetime charges left of $32 million. Is that right? Or is there a better number?

The $61 million we originally modeled, we -- a lot of that actually went through enterprise. I shouldn't say a lot, but about $22 million of that went through Enterprise's books in the second quarter. There were change of controls that was pushed through on their side prior to close because they were change of control contracts and the accounting nature suggested it was their expense. So $22 million of it already went through Enterprise. We've incurred about $27 million or $29 million year-to-date. And based on the revised estimates, I'm probably looking around an $8 million number -- $8 million to $10 million in the fourth quarter. finish.

Okay. And that finishes it. Okay. Great. And then if we think, to your point, that core expenses here increased $2 million ex merger, ex system upgrade. I mean, I guess if we sort of fast forward [ instead ] we would be looking to a clean quarterly run rate on expenses. How should we be thinking about that number?

Yes. It's a good question. I will reserve formal guidance for 2026 till next quarter. But I think if you just look at the third quarter, round it to $137 million of what I would call core expenses, excluding M&A, we're pegging additional cost saves of about $2 million. That gets you to $135 fully baked cost saves will probably get a little better than that. We're going to go through the budget process and strategic planning in the next couple of months. I wouldn't suggest there's meaningful increases by any means coming. But I don't want to pick a new number yet for 2026, but I don't think you're going to see it move too far north from that math that I was just suggesting, which is about $135 million per quarter type number.

The next question comes from David Konrad with KBW.

I was hoping you could help me out a little bit with the securities portfolio, if I promise this will be the last time that I'll ask it. But I was wondering if you can kind of split out the kind of legacy with the enterprise book. In other words, you went from 2.32% to 2.84%. Just wondering what the yields are on the marked enterprise side? And then what kind of improvement from the 2.32% on the legacy side? And kind of what's the new investment run rate you're getting there? So I'm trying to kind of figure out where the cash flows are going and where the yield can improve, if that makes sense.

It does. I may not have all the pieces for you, so I may need to follow up. But I would peg the yield on the acquired book in the low 4% range, and I can follow up with an exact number there. But I believe the discount mark that you're seeing accrete in essentially brings that piece of the portfolio into the low 4s, which is consistent with what we're replacing runoff of our legacy securities at with new securities. And that's the lift you're seeing on the Rockland side.

So the cash flows we're anticipating on our book, I guess, on the combined book going forward is about $700 million in 2026. I guess, technically, a portion of that is already at market rate because if it's enterprise related, it's been marked up to the 4% range. But a good portion of that will be on average, probably 1.5%, 2% coupons that are being replaced at 4% yields. And that's a piece of that overall margin expansion that we've been talking about pretty consistently now for a few quarters, that 4 to 6 basis point range is because a basis point or 2 of that is because of the securities repricing that we're seeing.

Got it. Okay. Perfect. And then following up with the earlier comment, a question from Steve on loan yields, I think that was more directed towards C&I. Maybe the belly of the curve has come in a little bit, maybe more than I thought. But on the new CRE, is there a difference in kind of the new money yield you're looking at there?

Not much, David. I think fixed rate is probably penciling out somewhere around there. I'm sure we're seeing some competition get below 6% given, as you mentioned, the contraction at that part of the curve. So I'm not suggesting we're not doing deals that might be slightly under 6%, but it's going to be right around probably 6%. We are seeing a pretty modest pickup in swap activity. I think that's back on the table for borrowers to be thinking about. That's a product we've always been very comfortable with. So you saw a bit of an uptick in the third quarter fee income as it relates to swap fees. So again, swap pricing, I wouldn't suggest is that far off. It's just -- I think borrowers are thinking about that a bit more now as well.

[Operator Instructions]

We do have a follow-up from Steve Moss with Raymond James.

2 follow-ups for me, guys. In terms of the balance sheet, you guys have a reasonably healthy cash position here, been running it for a little bit. Just kind of curious if there's any thoughts on deploying some of that into securities here and maybe shifting the mix given Fed rate cuts? Or just any thought process around that?

Yes. Yes. It's a good question. I mean I think as the balance sheet has grown, there's certainly a slightly elevated cash position that we believe is appropriate just from a liquidity management standpoint. But I do think there's opportunity to put a little of that back into securities. I think right now, we're comfortable with the current level as we work through the acquisition. We get a bit more visibility into what loan growth expectations look like. So I'm not feeling anti to rush to put that cash to work. I really would like to see what the loan demand looks like. Obviously, how deposits play out post acquisition. So sitting on a little bit of excess cash feels appropriate right now.

Okay. Appreciate that. And then on capital here, you guys are almost at a 13% CET1 ratio. Kind of curious how you're thinking about a longer-term target? And given good profitability and where credit is these days, could you be a little bit maybe more aggressive on the buyback? I heard your answer on TBV buying back, but it seems like you have room here.

No, it's a fair question. Certainly, I think optimal levels of CET for us in this environment, I would certainly be comfortable at 12% CET1, 8.5% to 9% tangible capital and you're hitting the nail on the head, that suggests there's opportunity to continue to engage in buyback activity to work that down. So that would require a lot of buyback, I think, to be realistic there. So it's something that we understand and appreciate. Ideally, we would love to be able to take advantage of these great new markets that we're in with enterprise and grow into that capital. Growth will need to be driven by good core funding. I think that's going to be a lot of what our mentality will be.

So if we can find better growth because we're getting good deposits and good funding, I'd prefer to grow into that capital. If growth stays in that low to mid-single-digit range, I think buyback is certainly a tool that we should be exploring more.

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

Thanks. We appreciate your interest in INDB, and everybody, have a great day. Thank you.

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

Good day, and welcome to the INDB Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

Before proceeding, please note that during this call, we will make forward-looking statements. Actual results may differ materially from those 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. Please also note today's event is being recorded.

I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead, sir.

Thank you. Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero.

We had an eventful second quarter. We closed on the enterprise transaction on July 1. We sold 2 of our large NPAs. We signed a lease on a new headquarters building, posted solid results and continue to make progress on a number of our strategic initiatives. In addition, we just announced a $150 million stock buyback.

Results for the second quarter reflect better-than-expected NIM performance, solid C&I loan growth, strong deposit growth, lower credit costs, which were partly offset by higher expenses and a continued runoff in the CRE portfolio. Our PPNR return on average assets was 1.53% on an operating basis, and our tangible book value improved 2.1% from the first quarter and 8% from the year ago quarter.

As we signaled last quarter, we were successful in exiting our largest nonperforming loan as well as another of our prior quarter's top 5 problem loans. This brought nonperforming assets down 35% from the first quarter. Unfortunately, we had one other office-related nonperforming loan we thought would be resolved in the second quarter, but the deal fell through and is now being remarketed for sale. While we are pleased with the progress we have made in resolving several of our problem office loans, we still have work to do. We continue to work constructively with our sponsors to find mutually agreeable solutions.

From a business perspective, while the degree of economic uncertainty has improved, the combined impact of tariffs and other potential federal government actions remain unclear. Though it remains too early to tell what the true impact of the tariffs will be, our customers are moving cautiously through the plans they had established. The lack of certainty is causing them to pause any significant expansion or growth initiatives now as they assess the economic landscape. I would note there are many provisions in the recently passed legislation that are beneficial to the business community and could favorably impact future loan demand.

We made solid progress on several of our key strategic priorities in the second quarter. We continue to reduce our commercial real estate concentration. C&I loans were up 3.4% in the second quarter. Conversely, CRE and construction loan balances were down 1.7% due to normal amortization and the intentional reduction of transactional CRE business.

We've talked in the past about getting our CRE concentration below 300%. At 6/30, our CRE concentration was 274% due to the sub debt raise and contraction of CRE balances. However, the closing of enterprise will move our concentration back up to between 310% and 315%.

Our current expectations are to get this ratio to 290% by year-end 2027 through amortization and payoffs. We will also actively pursue loan sales where we can, which may accelerate a reduction in this ratio.

We've also spoken in the past of our desire to grow C&I in part to reduce our dependence on CRE and to drive more deposit and fee income growth. I want to spend a few minutes providing a bit more detail on how we are going to accomplish that. It starts with clearly defining the segments we are going to participate in and feel we can deliver the historical Rockland Trust client experience.

The first segment is what we call community banking. This segment is comprised of generalist relationship managers who markets both C&I and CRE customers and prospects is the balance of the commercial bank and a segment we excel in. The average loan size is a little over $1 million, which is the legacy Rockland Trust you are accustomed to. C&I customers are typically between $5 million and $50 million in revenue and credit needs are generally less than $10 million.

In 2025, Greenwich named Rockland Trust the Best Bank in the Northeast for overall customer satisfaction and likelihood to recommend in this segment. The enterprise franchise fits squarely in this space. Growth in this segment will come from taking market share and doing more with our existing customers.

The next segment is Middle Market and Specialty business. This segment is comprised of 2 groups. The first group is focused on Massachusetts C&I companies with revenues between $50 million and $500 million and a team that has several industry verticals to include asset-based lending, dealer finance, franchise finance and security alarm. I've mentioned in the past, we recently hired a seasoned executive to lead these 2 groups who brings a demonstrated track record of success. He in turn has hired several people to round out the team and I'm very encouraged by the early activity we have moving through the pipeline. These 2 groups by their nature, will have higher credit holds typically between $10 million and $35 million and will enable us to grow our C&I business in a meaningful way.

And the third segment is our investment CRE portfolio. This segment focuses on investment CRE professionals where the loan size is typically greater than $10 million. As we've said in the past, our goal here is to exit transactional CRE as quickly and as economically as possible while still serving our legacy client base.

I know this is a drag on loan growth as we look to reduce our CRE concentration, and we are actively looking at ways to accelerate that transition so we can return to a more active originations posture.

Our goal is to be able to grow loans in the mid-single-digit range, but until we can reduce our CRE concentration, it's likely to be closer to the low single digits. That's why this remains a top priority.

We closed our acquisition of Enterprise Bank on July 1. Things are going extremely well. We've had great collaboration between the teams and the lead up to the close. As I've said previously, it feels like 2 puzzle pieces coming together and nothing we have seen today would suggest otherwise. We continue to work closely with our enterprise counterparts as we plan the systems conversion that will occur in mid-October.

Of note, their business model is very similar to ours. Unlike previous acquisitions we have done, there are no branch closures. There's no commercial businesses we are exiting due to a mismatch in strategy and credit philosophy. I feel confident this will enhance shareholder value as we assimilate the company, realize synergies from a broader product set and leverage a bigger balance sheet in the legacy enterprise markets.

Concurrent with the conversion of enterprise into Rockland Trust's core platform, we are preparing for our core conversion of the entire bank from Horizon to IBS scheduled for May of '26. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiency and scalability and support the future growth of the bank.

We prudently grew deposits in the second quarter, which has been a historical strength of ours. Non-time deposits were up 3.6% year-over-year and 1.6% from the first quarter. In the second quarter, the cost of deposits was 1.54%, highlighting the immense value of our deposit franchise. Mark will provide additional color on our deposits in a few minutes.

Finally, our Wealth Management business continues to be a key value driver. We grew our AUA by 4% in the second quarter to $7.4 billion, driven mostly by market appreciation. Total investment management revenues increased 1.4% from the first quarter and nearly 4% from the second quarter of '24. This business works seamlessly with our retail and commercial colleagues to deliver a holistic experience that resonates with our clients. The breadth of these services provides one-stop shopping for our clients that includes not only investment management, but financial planning, estate planning, tax prep, insurance and business advisory services. This full suite of products is a differentiating factor for our wealth business. We've had very positive initial conversations with numerous enterprise wealth customers and believe like the rest of the Enterprise Bank, its customer base is very similar to ours, which will make the transition go smoothly. Enterprise adds approximately $1.6 billion in AUA for our platform and will offer additional cross-sell opportunities with our broader product offerings.

While we are pleased with second quarter results, I want to make very clear that we recognize our profitability metrics need to continue to improve. We are fortunate to have an enviable deposit franchise, a strong liquidity position and a robust capital base. Once we reduce our CRE office portfolio, we believe prudent expense and capital management, together with continued NIM improvement and the realization of the benefits of the Enterprise acquisition, when coupled with the ongoing organic growth we are seeing in many of our businesses, we will begin to unlock the inherent earnings power of Rockland Trust.

We have a skilled and experienced management team. We operate in attractive markets. We have a strong brand recognition a broad consumer, commercial and wealth customer base and an energized and engaged workforce. In short, we have all the ingredients to return INDB to its historical premium valuation.

On that note, I'll turn it over to Mark.

Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our 8-K filing and is available on our website in today's investor portal.

Starting on Slide 3 of the deck, 2025 second quarter GAAP net income was $51.1 million and diluted EPS was $1.20, resulting in a 1.04% return on assets, a 6.68% return on average common equity and a 9.89% return on average tangible common equity. Excluding $2.2 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $53.5 million or $1.25 diluted EPS, representing a 1.09% return on assets, a 6.99% return on average common equity and a 10.35% return on average tangible common equity. The improved operating results reflect asset repricing benefit driving an improved net interest margin and contained loan loss provision. In addition, tangible book value per share increased by $0.99 during the quarter, reflecting solid earnings retention and a $0.28 benefit from other comprehensive income.

Staying on capital, as Jeff highlighted, we recently approved a $150 million share buyback plan. This plan is in place to be opportunistic in buying back stock and will be governed by 3 major tenets. First, the stock price will obviously be a key component and how aggressive we may or may not be in the market. Second, we will be -- we will balance the timing and the pace of buyback activity while simultaneously working to reduce our CRE concentration to the target level that Jeff just highlighted. And lastly, the pace will also be impacted by ensuring we have adequate cash at the holding company to service our debt requirements.

I'll now cover the key highlights of the second quarter results, and then I'll address some updates regarding the July 1st close of Enterprise Bank.

Turning to Slide 4. Core deposit growth remained strong with period-end balances up $218 million or 1.39% for the quarter, while average balances increased $116 million or 0.75%. The mix of deposits has stabilized with noninterest-bearing DDA comprising 28.5% of total deposits at quarter end, while time deposits as a percentage of deposits decreased modestly to 17.1%. With steady emphasis on core relationships within both the consumer and business segments, net core households have increased for the tenth consecutive quarter, which has really served as the primary driver of our differentiated funding base.

Moving to Slide 5. Total loans increased modestly in the quarter, and as Jeff just highlighted, our relationship banking strategic focus drove an increase in C&I balances of 3.4% or 13% annualized. Attrition in our transactional CRE balances offset by balanced new originations and steady volume in both our small business and consumer real estate portfolios.

As an update on asset quality, we'll move to Slide 6, which reflects a few developments worth highlighting. First, total nonperforming loans decreased significantly from $89.5 million last quarter to $56.2 million at the end of the second quarter or 39 basis points of total loans.

In terms of an update on the biggest movers for the quarter, the acquired $54 million relationship that was charged down to $28 million last quarter was fully resolved in late June. The other positive development was the final resolution of a $7 million previously disclosed nonperforming office loan.

Regarding the previously disclosed nonperforming syndicated office loan that is located in Downtown Boston. The bank group executed a modification during the second quarter restructuring that debt into multiple notes with a full payment deferral period through July of 2026. As a result of the modification, no additional loss was recognized and we expect this loan to stay on nonperforming status for the near term.

Although we are certainly encouraged by the meaningful reduction in nonperforming loans, we recognize the environment remains uncertain. We acknowledge total criticized and classified loans experienced a bit of an uptick this quarter, but we are confident we can continue to proactively work through these loans as evidenced by the over $100 million reduction since last year levels. As a result of the moving pieces I just discussed, provision for loan loss in the second quarter was $7.2 million, reflecting modest adjustments related to individual credits and overall loan growth.

Shifting gears now to the net interest margin. Let's jump to Slide 11, where you can see the reported and core net interest margin was 3.37%, reflecting minimal impact from purchase accounting and other nonrecurring items in the current quarter. The second quarter core net interest margin was higher than our previous guidance as we saw a slightly higher asset repricing benefit while also being able to move on some deposit pricing to extract another 2 basis points benefit from reduced deposit costs. In addition, the strong deposit growth allowed for the repayment of FHLB borrowings further improving the margin while continuing to structure the balance sheet for sustainable strong margin with very little wholesale borrowings.

Moving to Slide 12. Noninterest income increased modestly in the second quarter reflecting solid wealth management income results, increased deposit-related fees and outsized benefit from bank-owned life insurance. In addition, total expenses when excluding merger and acquisition costs, increased 1.8% when compared to the prior quarter. Some key changes for the quarter include annual salary merit increases in director equity award grants as well as increased check and fraud losses, timing on advertising expenses and legal loan costs. And lastly, the reported tax rate for the quarter was approximately 22.3%.

I'll now shift gears and provide some insight into the Enterprise acquisition. So we are only 18 days out from the closing, we are able to provide some updates regarding a few key deal metrics. First, excluding any fair value adjustments, we acquired approximately $4.1 billion of loan balances and $4.4 billion of deposits. Given the stock price at closing, the book value of the net assets acquired and the yield curve position at the time of closing, we now anticipate the deal to be approximately 8% to 9% dilutive to tangible capital on day 1, inclusive of the anticipated onetime merger costs and the non-PCD loan double count impact.

Given that longer-term rates have contracted a bit since the time of announcement, this would suggest slightly lower tangible capital dilution than expected, with the trade-off being modestly lower earnings accretion and with no material impact on tangible book value earn-back period versus original expectations.

In addition, we recognize that the FASB has issued proposed guidance that would effectively eliminate the non-PCD double count. However, it is anticipated that the final guidance will not be promulgated until later in the year. And as such, we expect to close and report our third quarter results with existing PCD, non-PCD treatment. And lastly, with the core conversion scheduled for mid-October, we expect to recognize full cost save synergies during the first quarter of 2026, which we reaffirmed to be approximately 30% of the enterprise expense base.

In closing out my comments, I'll turn to Slide 16, where we will now focus on next quarter guidance only given all the moving pieces of the recent merger closing. In terms of organic loan growth, we anticipate a low single-digit percentage increase on a combined basis. For organic deposit growth, past experiences suggest we may see some modest level of deposit attrition from the acquired balances. And as such, we are estimating flat to slightly down combined deposit balances.

Regarding asset quality, we still do not see any pervasive broad-based issues across segments. And as such, provision will likely continue to be highly driven by developments of individual commercial credits. For noninterest income, we estimate a low single-digit percentage increase off of the combined results. And for noninterest expense, as I just alluded to a little while ago, we will expect to see a flat to low single-digit percentage increase on the INDB stand-alone results, which includes some level of costs associated with our 2026 core system migration. Regarding the enterprise expense base, we should realize some modest level of cost saves in the third quarter. However, we will refine the assumptions over the timing and extent of full cost saves as we work through the second half of the year.

Regarding the net interest margin, we provided a revised chart on Slide 17 to show the path of what is expected for continued margin expansion from both the core INDB and enterprise results along with the anticipated lift from purchase accounting, and this indicates we would peg the third quarter margin to be in the mid-360 range. As a reminder, the purchase accounting estimates are based on the preliminary work that has been completed to date as the fair value marks have not been fully finalized at this point.

And lastly, in closing out the guidance, the tax rate for the quarter is expected to be in the 23% range.

That concludes my comments. And with that, we'll now open it up for questions.

[Operator Instructions] Today's first question comes from Steve Moss at Raymond James.

This is Thomas on for Steve. So where were new loan originations during the quarter? And maybe can you speak to some of the competitive dynamics you're seen there? And how those dynamics are impacting loan pricing and demand?

Really, we've seen good loan originations across -- most all of the segments I mentioned. Obviously, we're being more conservative with respect to our CRE portfolio, but whether it's in some of the Specialty businesses or just our core middle market and the commercial segment I just described. I wouldn't say it's been more heavily weighted in any of the different segments. It's been pretty broad-based. The competitive landscape just continues to be a challenge. There's an awful lot of banks that are, I think, similarly interested in growing their C&I portfolio. So I think it's particularly keen there. But I would also tell you, even within the commercial real estate space, we're starting to see some of the banks that maybe a year ago were we're really not interested in commercial real estate at all kind of tips go back into the market and begin to get a bit more aggressive in the commercial real estate space.

And just I'll add from a yield perspective, Thomas, that on the commercial side, we see our second quarter closings in the high-6s probably in the 6.70, 6.80 range. And on the consumer book, a bit lower, probably mid-6s.

Got it. Okay. And then one more for me. your small business lending continues to be a bright spot for you guys. Can you just talk about maybe a little bit why you've seen so much success there in recent years and whether you expect that to continue?

We do expect it to continue. I'd start there. It's really an extension of what we see in the -- kind of in our core business. We have really long-time Rockland Trust bankers who've been doing this for a while. So they're very well known in the market and are very active. And we have a centralized underwriting unit that enables us to turn loan requests around very, very quickly. And the combination of those 2 things, I think, is really powerful. And because we've -- we've been at it for an awfully long time, and we have a streamlined process. I think that enables us to be a lot more nimble than many of our competitors.

Okay. That's great. Appreciate all the color there. And congrats on the quarter. I'll step back.

And our next question today comes from Mark Fitzgibbon with Piper Sandler.

First question, Mark, just a follow-up. So you're suggesting the third quarter margin is going to be something in the mid-360s. And even with some deposit runoff, you think assuming the Fed cuts in the back half of the year, we'll see the margin gradually rising. Would that be fair?

That is fair. Yes. I think we're really positioned pretty well on the short end of the curve. If there's a Fed cut where I think we would neutralize the impact on our asset downward pressure and we'd be able to move on deposits to essentially negate that. And as long as the longer end of the curve stays elevated, that's been the big driver of the margin expansion you've been seeing.

Okay. And then yesterday, 2 other large New England banks came out and essentially said on their calls that the worst is behind for credit. It didn't sound like you all were saying that in your comments about credit. Would you agree with that statement that those other 2 banks made that the worst is behind here on credit?

Honestly, Mark, it's hard to tell because things are so property specific and -- so I'd like to think the worst is behind, but I'm not ready to call the ball on that. As I said in my comments, we feel really good about the progress we've made, and we're continuing to make progress. We're working constructively with all of our borrowers, including the ones that are a bit stressed. But I'm not sure that I would say that, that we're out of the woods. So I guess as I think about it, we may be past the worst in terms of an inflection point, but we're still working through some of the challenges we have.

Okay. And then just with respect to that, I think this quarter, you made one large loan modification. Could you share with us what that modification look like, what the term changes were? Just give us a sense for how those are progressing.

Are you referring to the log syndicated Downtown Boston loan that I alluded to in my comments, Mark?

Yes.

Yes. This is one we've talked about now, I think, for the last couple of quarters that had reached maturity. And this is a much larger syndicated deal where one of 7 or 8 banks in the deal. So we had anticipated that this would be coming to a point where the bank group would be working with the borrower who's a very strong sponsor to find some form of modification. And where the bank we've landed in this case was to essentially restructure this into a Note A, Note B structure, whereby the Note A loan is representative of valuation and expected that service coverage to support the appropriate metrics. And then the Note B structure is one that I think, is where there is to be seen impact going forward. So because of that modification, some of the concession there was essentially no cash payments until mid 2026. So even though they're technically performing under the modified terms, we will not suggest this is a loan that would come back on accrual status anytime soon. So...

And really, that was done so that they could and the sponsor putting money in to this property in terms of lease-up and TI. And so that's really what we're waiting for is for -- as that unfolds, it will get fully leased up. The debt service coverage and the cash flow will improve. And at some point down the road, we would expect to be able to return it to performing status.

[Operator Instructions] Our next question today comes from Laurie Hunsicker with Seaport Research.

Sticking with Mark's question. So I just want to make sure the large loan modification, that's about $22 million? Or is there a fresh balance...

Correct. Yes, still that balance, Laurie.

Got it. Okay. And then again, just assuming that the modification, et cetera, works, we -- just remind us what typically is the time frame for returning it to performing status? Is it sort of 12 months out...

Our policy is 6-month of -- 6 months of performance, but we would be looking for actual payment performance in this case.

Got you. Got you. Okay. And then just staying on office, an absolutely great work on the office reduction, basically exactly what you said. Obviously, A came off then came off. Maybe just help us think about that loan fee that $4.7 million that was originally an $11.7 million in the Class A office that was going to be resolved. It looks like it didn't. How should we be thinking about that one?

Yes. Unfortunately, as you indicated, it was under an agreement that had fallen through. At the time it was being marketed, we had multiple indications of interest. So it's somewhat back to the drawing board, though, we're still optimistic there's a resolution here in the near term. But I think based on that process through which it was being marketed, we did see other indication of interest at some modestly lower price points. So we did actually put a little bit more of a specific reserve on that property, not big dollars, but another $700,000 or so. So we believe we've got now, call it, a carrying value of about $4 million that we're hoping to get resolved during the second half.

Okay. Great. And then -- maybe just help us think about the uptick in the office credit size from $65 million to $111 million. And it looks like $59 million now is maturing in third quarter. Maybe can you help us think about that bucket and if loan loss provisions are going to go up because of that? Or how you're looking at that?

Yes. No, it's a fair question. About $13 million of that was originally, if you looked at our disclosures last quarter, it was essentially what was in there as Q2 maturity. So we entered into some short-term extensions on those two. The largest of that, we're currently working with 2 other banks to determine the appropriate next steps. But while the occupancy and debt service remains pretty good there. We had a recent appraisal, put the LTV up around 90%. So that's about a $10 million one that we're still just working with the borrowers and other partners to likely find an appropriate extension.

The 2 new downgrades that are maturing here in the third quarter, make up the rest of the balance. So it's 2 loans totaling about $45 million. The largest of that is a $27 million loan. Just to give you a little bit of color on that, we consider it one of the small handful of really strong assets in the Metro West market. The loan is current. It's had some tenant turnover. So it's pressured occupancy to around 70%, and that's created a little bit of debt service coverage challenges, which prompted the downgrade. I think the good news there is we did get an updated appraisal in June, which is suggesting an as-is LTV of about 69%. So we'd be looking for a potential extension to be executed this quarter, but we're still in the process of working that through. The next loan in that bucket is about an $18 million loan somewhat similarly in the terms if we like this asset, the loan is current. In this case, we have a very cooperative equity investor group that's supporting the asset. And the reason for the downgrade on this one was there was really mismanagement of cash flows from the principal. That principle has been replaced. There's a new management company that was brought in. The property is 80% to 83% leased. We see a path to getting that up to 90% with some recent levels of interest. So in this case, we're waiting on a new appraisal, but we also think there's an extension path expected for that one soon.

And I would just point, Laurie, that in both of these cases, the sponsors are working very constructively with us. This is not a situation where they're throwing the keys at us. They're putting more money in. We're having productive dialogue in the first situation that Mark referred to. We have a 50% guarantee from the sponsor. So we're even though, obviously, we're not happy that we had some migration into the special mention bucket. We feel that there's a path for both of these loans for us to kind of get them in a bit of a longer-term structure that works for us and works for them.

Right. Great. Okay. And then maybe just shifting over to margin. I guess, two questions on that. The paydown of the $100 million in borrowing when was that in the quarter? What was the rate on those? And also, do you have a spot margin for June?

Yes. So the $100 million we paid down was on April 30. That was a term FHLB borrowing that we had done back last year. So that was at a 4.75% rate that got paid off on April 30. And the spot margin for June was 3.40%.

Okay. And then -- the -- I guess, just going here to the tangible book dilution of 8% to 9%, obviously, a bit better than when you started for your comments. Can you help us think a little bit about as we fast forward beyond third quarter, just considering the FASB impact on the CECL updates? How we should be thinking tangible book dilution? And I guess, is there you reset that? And maybe just high level, the 20 to 25 basis points of purchase accounting, pickup to margin that you detailed on Slide 17. How does that change? And anything that you can help us with, with respect to that would be great

Yes. I'll try to provide a few pieces there. And if you need a little more clarity, I'll pivot. But I think anchoring maybe the conversation in how we -- our estimates in the original announcement, I think you're highlighting, we originally announced an expectation of slightly under 10% dilution, and we've updated that to be 8% to 9% now. And that's really primarily driven by the yield curve contracting a bit in the 5- to 7-year. So what was a, call it, $150 million interest rate mark. My caveat here will be this work is still ongoing, Laurie. So don't take us to the penny on this one. But I would suggest that interest mark is going to come in a bit. And that's primarily that and the securities portfolio. So that we have a bit better visibility into because that's already been mark-to-market as all the securities are in AFS. So what was an $80 million unrealized loss position has come down to about $53 million on their closing balance sheet. So both the interest rate mark and the securities AFS mark have contracted a bit. That's what's given you the better or improved dilution down to that 8% to 9% range, but that's going to cause what was my original estimate of 28 basis points of purchase accounting pickup, I would suggest that's now down to about 25 basis points because it's a lower mark accreting in. .

So that's the dilution in earnings accretion trade-off. It's really just rate driven at this point. Yes, I was going to suggest the second part of your question on the CECL double count. That's an interesting one. Well, obviously, as I mentioned in my comments, we'll have to close the quarter with current guidance in all of those estimates I just gave you are inclusive of assuming we have the CECL double count. If they allow, which is what our understanding is if this gets issued in the fourth quarter, and we have the ability to amend and eliminate that CECL double count. As I sit here today, I would probably lean towards taking that relief as I do think the double count does distort the metrics a bit.

So if you ran a pro forma number, whereby there's no PCD double count, I pegged that the dilution would actually come down another 1.5% from the numbers I gave you, but it would also come at a 2% to 2.5% give up on the earnings accretion.

Perfect. Perfect. Perfect. That's super helpful. And then just one thing here. Going back to, again, that 8% to 9% tangible book dilution, it's a bit better, absolutely get it that it's on the rate mark makes a lot of sense. The credit marks, was there any changes? Or is it too soon you were...

I say it's too soon. I mean we're pretty far along in the process, but I don't think you'll see a material difference, but we don't have an updated number on that one yet.

Got you. Got you. Okay. Sorry, I know I've had a lot of questions here. You all had a lot going on. I guess just one last question here, Jeff, to you. Appetite for M&A. Where do you guys stand? Obviously, your currency keeps improving. How do you think about it?

Thanks for the question, Laurie. I would say it's really not a priority right now. We just closed enterprise. We have the conversion in October. And frankly, there aren't very many enterprises left. We have a major core conversion next May. And we really need to demonstrate our ability to grow organically while reducing our office exposure. So we're really focused on those things. So M&A really isn't something we're particularly focused on right now.

And our next question today comes from David Konrad of KBW.

Just a couple of quick follow-up questions on the guidance. As you pointed out, you did a really good job on deposits this quarter and drove costs down primarily in the CD area, but it just feels overall discerning season is that the competitive pressures are increasing on deposits. So -- just wondering on the NIM outlook is -- do you have the ability to kind of continue to drive deposit costs down? Or is it really just the benefit from the strong benefit of the back book on the asset side?

Yes, it's a great question. I would suggest the guidance now is really anchored in the repricing on the asset side. I think you hit the nail on the head. The benefit we had been seeing over the last couple of quarters on the deposits have been primarily CD repricing. We're at the point now where the average cost of our CDs is essentially in the mid-3% range. So I don't think you'll see absent any Fed move and ability to reprice CDs down to any great extent. So a long way of saying, I think our cost of deposits is pretty stable right now. You're absolutely right. There's still very competitive pressures out there. And we're getting a good share of operating accounts. That's always been our focus. So we really pride ourselves on not -- not betting on attracting the high rate sensitive customer. But at the same time, we certainly have new deposits coming on that are looking for rates. So I think we're finding the right balance there that keeps the costs in check, but all the margin benefit will come primarily from the asset repricing.

Great. And last quick one. Thanks for the color on the tangible book value, but just wonder if you could help us out with the pro forma CET1 ratio that you're expecting?

Yes. With all those moving pieces, and I guess the caveat of the CECL double count staying intact, we were modeling it out in the, I believe, in the mid-12% range, around 12.5%.

And this concludes our question-and-answer session. I'd like to turn the conference back over to the company for any closing remarks.

Thanks. Appreciate everybody's interest. Have a great day.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.