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 am 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 to 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.…

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 in how aggressive we may or may not be in the market. Second, 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 1 closing of Enterprise Bank.…

[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 seeing 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 really not interested in commercial real estate at all, kind of tiptoe 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.

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 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.

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 -3.60s ]. 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 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 large 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. We're 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 group landed in this case was to essentially restructure this into a note A, note B structure, whereby the note A loan is representative of a valuation and expected debt service coverage to support the appropriate metrics. And then the note B structure is one that I think, is where there's 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 is putting money into 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 Laura Hunsicker with Seaport Research.

Yes. Just 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 refresh balance?

Correct. Yes, still that balance, Laurie.

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

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

And then just staying on office and absolutely great work on the office reduction, basically exactly what you said. Obviously, A came off and E came off. Maybe just help us think about that loan C, that $4.7 million that was originally an $11.7 million, 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 here in the second half.

And then maybe just help us think about the uptick in the office criticized 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 2. 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 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 of 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 principal has been replaced with 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 out, 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.

And then maybe just shifting over to margin. I guess 2 questions on that. The paydown of the $100 million in borrowings, 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 termed FHLB borrowing that we had done back last year. So that was at a [ 4.75% ] rate, Laurie, and that got paid off on April 30. And the spot margin for June was [ 3.40% ].

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 -- do 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? 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 and earnings accretion trade-off. It's really just rate driven at this point. I was going to suggest the second part of your question on the CECL double count. That's an interesting one. We'll -- obviously, as I mentioned in my comments, we'll have to close the quarter with current guidance. And 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 peg 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.

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

I would 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.

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 this earnings season is that the competitive pressures are increasing on deposits. So just wondering on the NIM outlook, is do you have ability to kind of continue to drive deposit costs down? Or is it really just the benefit from the strong benefit from 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 an 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 our good share of operating accounts. That's always been our focus. So we really pride ourselves on 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.

And last quick one. Thanks for the color on the tangible book value, but just wondering 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.