Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the INDB Independent Bank Corporation's Second Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

Before proceeding, please note that during this call, we will be making forward-looking statements. materially including statements earnings those other filings. differ number to release may SEC factors, of described results from due these a and Actual in our to any We publicly no obligation such undertake statements. update

non-GAAP Relations GAAP SEC our and of Investor other earnings via of non-GAAP may to about some addition, filings be website. accessed financial reconciliation found the discussion Information to In measures. including release These can may our include be SEC today section references filings. certain measures measures our these in

please note Finally, also is that being this recorded. event

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

Jeffery Tengel

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

healthy higher volumes deposit capital. Our attrition, stable income, moderating fee new loan ample was second marked quarter performance liquidity levels, with expenses a contained and solid and by one

environment the begin like you industry, to quarter, first are to continuing banking current full pressure are but my quarter observations through While offer when first the our and rate CEO. earnings will as following in I'd take we turn. strategies Mark well-positioned on continues act the to some long-standing to things

my impressed personally success. even years. Beyond understanding in thoughtful organic of with my foundation future away Rockland In industry been a current that additional that opportunities initiatives dynamics, and continuing up acquisition demographics business came position growth for units about to attributes and individual excited our in We over markets growth a I guided more has Trust number have for our franchise of operate consideration. solid addressing Trust the on a and colleagues, engage attractive opportunities the focused future of us. all highly has my nutshell, with the of front efforts Rockland us and deepening and sizing

pool arising income the growth levels universities many and out growth labor in with and with multiple of that region. market industries national a above It's averages the deep projected a household are

and a consumer sophisticated our investment large We and have retail by a extensive network. which increasingly mix client an business offerings, of is product suite of and base complemented branch that and scalable meets commercial business management the a full needs

extends at the Boston, Cape continued to with share through very many management and in caliber both number depth now and senior served been I've customer-facing support the have quality impressed levels. local record footprint the households and of by ranks, West the Worcester staff and from Cod Our Rockland of number Trust. Greater of experience islands down whom key of markets, while and of reach decades one the

We matters. for our net and have passion culture in market highest score our have where a evidencing promoter the each excellence service relationship

operating disciplined XXX Trust philosophy has over that years. a have its guided We plus Rockland

discipline all embedded have activities advantage a levels pursuing emphasize value. allowed throughout is we us can Our risk the culture company. management competitive where businesses add and avoid those to has deeply This of where we to

years. solid When you compound has EPS together, XX the that rate profitability annual of demonstrated with over Rockland consistently put all Trust growth past XX% an

costs acquisitions. track tangible cycles strong share per value of ROA, has book on a a credit of multiple record to cost despite efficiency in have growth ratio, We led performance and through consistent This multiple and ROTC, deposits.

invested new personalized advice towards financial At technologies, geared applications insights, experience-driven application. the Encino. and same in rolling automated management. We've like time, and best-in-class We're opening we've with money our in customers salesforce.com online We applications customer journey account been other our a through technology. investing leverage guiding out their including

are tasks. to productivity We use repetitive continuing to RPA and increase our help

and the advanced user efficiencies. that experience modernize platform improve front-end will And finally, we're upgrading operational our day-to-day core and

my should has provided ongoing source he need on-boarding. want is our Chris counsel accelerating now insights Before been during ready helpful and retired has I Chris thank, advice publicly of Mark, it who to a the extremely curve turning over CEO, my arise. Oddleifson, and in to learning invaluable

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

Mark Ruggiero

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

As the noted drivers. and will Slide Jeff second on I which of move Slide hit X, upon to quarter of many results X our deck the key themes summarizes

on funding grew XXXX And X.XX% and despite second which return book million of average loan of levels, quarter return GAAP and modestly common comprehensive benefit additional competitively $XX.X on higher to stable buyback quarter. income second reflected full higher quarter on assets a along fee a our $X.XX, tangible or quarter with EPS higher net activity. diluted costs X.X% deposit and balances, value and return the income $X.XX losses, in other grew results equity X.XX% XX.XX% the These produced equity. common tangible first

results the I'll quarter the slide. second now discuss highlighted drivers as primary behind on this

remains top $XX.X of by $XX.XX minimally As we last X.X% deposits deposit Total on we Slide first move compared million to mind. which will X, to billion activity when declined to focus or quarter.

points the balances. continued basis more to primarily to of of While shift deposits QX, XX points QX a from a reflects meaningful stabilization normal our funding for overall overall in quarter balance increased The driven in cost modest the basis profile. XX deposit change a by

stable on compared also market quarter. of customers focus prior levels disruption deposit base, starting new the or accounts information both with are core and our X the service for deposit strength to long-standing existing in our a annualized quarter, and footprint. Our Continuing really we our see the total relationship on households healthy Slide X.X% to resonate balances, drove award-winning updated amidst increase really when to uninsured market as X.X% provides customer reputation the in reflecting focus regarding

regarding company's highlighting. and includes The and Turning interest-earning X, we sheet Slide activity off liquidity details position, on around provide reflected information our a metrics. additional items including QX the to balance monitoring now overall cash measuring of in of both the couple worth position

million environment, during million talked the we just borrowings of deposit about. stabilizing to We from $XXX amount the quarter. the to response in reduced First, $XXX proactive

sheet the can you for changes addition, quarterly our a cash In and operating activity of the primarily the is see balance business function quarter. of core rest

capacity, borrowing second activity the Loan overall sheet uninsured strong track increase metrics on we monitor Home borrowing appropriate ensure of continue Federal noted evidenced deposit slide. off-balance our additional capacity and securities our Boston pledged mitigation to during quarter our Bank by and at to the to Regarding we risk as coverage this

to of included years is million the portfolio. held rate over portfolio in an another of totaled to repayments The details XX.X% balances expected or AFS unrealized of principal of risk losses three $XXX of important this included approximately $XXX X.X quarter-end portfolio, our slide. summarizes balances. unrealized portfolio interest Slide on XX.X% life management, on which portfolio capital Another element the maturity next related $X was securities the information of billion key with entire million reported with both at position X loss our Not of the average on the are the those years and

terms capital, on of the remains when of ratio X.X% In highlight capital impact very net held portfolio even tax. at we portfolio the unrealized factoring strong tangible to the losses, that maturity in

which benefiting X. residential attrition commercial also or driven primarily in $XX.X increased Slide quarter, for real Total disciplined our X.X% to from portfolios, to by growth lower levels. are X.X% the annualized and Moving loans estate billion overall

we cautious optimistic are While deal flow. we remain loan over our second new in opportunities, approach half to

on pipeline. end and at or residential anchored has many $XXX us lending quarter pipeline the approved relationship-based our are lending sits in on products is well years. salable at served consumer rate portfolios, core portfolio equity Our to a a variable over we home And in million addition healthy that side stable commercial the prioritizing

Slide occupied various exposure. overall quality commercial bit And real estate a X loan we snapshot of while non-owner provides deeper the makeup will of an portfolios, and dive overall asset into the

the provides a move which to that Slide we Regarding of over details number latter, XX, portfolio.

primarily the and our we and while mixed-use the credit monitoring approximately occupied in of portfolio. billion chart, disclosure on non-owner balances owner-occupied indicated, is risk As $X.XX top disclose office focused enhanced

Big $XX.X quarter the loan allocation nonperforming current the of of for majority quarter. is in driving reserve the into additional provided picture, the million migration

for degradation. any further While we closely the remaining monitor continue to exposure

through zero work and delinquent monitoring, As noting loans the status, our group. largest enhanced that within top remain XX in we comfort nonperforming cautious that office zero within is there we that yet current balances,

Slide presented here embedded a story XX, the graphs fairly straightforward. on in noted the And

As quarter, I charged as off been reserved fully charge-offs last during $XX in already had we that second fully accounting the for loan mentioned for the the quarter, majority million of of C&I quarter. vast the

at Regarding that remediation still are recovery possible point. and through unknown this is any we loan, loss efforts working

status previous quality driven by primarily As office slide, to metrics quarter the CRE that moved other on stable. loan was and the I the in all loss for loan noted one asset remained nonperforming provision

stability and When the borrowings basis year. non-core the And charts experienced both now and in asset pressures below, costs net to XX%, interest of for decreased higher a balances XX deposit increased margin, we in maturities cumulative of interest XX a relative repricing Slide the deposit in in in quarter. deposit XX% on rate positive as the respectively. interest impact margin to have noted with reported should and excluding the hedge a to Turning benefit the pegged at the point half quarter path net beta wholesale full and for provide points net along second core the margin X.XX% the resulted basis the reduction the loan stability quarter. the Though the future quarter margin the note, will items, XX portfolios deposit on and persist, second

loan an $XXX and wealth increased of X.X% other fueled assets appreciation to quarter. Noted or on inflows wealth billion Slide drove the a management fees, money June in miscellaneous swap derivative solid administration business at XX, other with prior fee in quarter, XX, and over $X.X by income along record the our a increase market in quarter increase items nicely under new million income increased level overall

or expenses me, the excuse decreased evidenced, ensure initiatives. is in on of noted XX of X.X% leverage. our prior while quarter continue on company's As we sacrificing by operating investments appropriate the balance focus million future Slide there value compared Total an near-term not to as evidence $X.X to discipline is when expense further

Lastly, primarily summarized on Slide term set focused on we near over of as updated guidance an expectations. trends XX, general provide

deposits, remixing interest flat stabilize the the the curve, the $XXX during range balances margin which $XXX to Using the term year, forward of to As the the Though now stabilizing, quarter. noninterest-bearing net for we of half likely second second the will deposits the balances pressure million half assumptions fourth relatively loan we the million year. continue margin expect expect expect noted, in near into we future. in further of deposit to in

year, loan a direct first changes. be levels primarily changes the to of expect half we the reflection will deposit Similar of borrowings our in and

loss loan for portfolio, exposure, of still be in by With uncertainty investment performance will office our the portfolios, loan estate level we provision of all term real particular. commercial the near driven impacting primarily anticipate the and

increases low Regarding fee to increase QX percentage non-interest anticipate for we expect also to And single income, slightly relatively when compared results. to to compared expense, flat flat as QX. we levels digit

we're to questions. my back comments, it I'll Jeff. turn and I'm concludes That to going now take sorry, actually

Operator

We question-and-answer Sandler. Fitzgibbon first Instructions] [Operator Piper will from ahead. session. begin Please The comes Mark with now go the question

Mark Fitzgibbon

Hey, guys, good morning. Good morning.

Jeffery Tengel

morning, Good Mark.

Mark Fitzgibbon

you on for this credit had looks had I'm yet? And LTV whether I reappraised a curious that in $XX the have I is you quarter. question alone and on went it it non-accrual was like curious million also Boston? that what is First

Mark Ruggiero

bay, in not Yeah, kind is it it's so District in which Back Financial Boston, it's downtown Bay financial exposure. see actually you why of our -- don't

unique suburb set markets to mature We're of a Boston, it's process still borrower. with the of back believe. a the a story it's in So little It bit in actually. of I was May, negotiating

but any formal that of as XX out at thought of due, not it's forbearance modification days have customer do we we given the put on of the we discretionary executed or only So now this process point. it past working kind with non-accrual sort

condition, in take that continuing So in conservative imported of thought we it continuing with is borrower stabilized to we're discussions we we're the operating we're to to There non-accrual, more getting cash a that level but this point, in of a hopes the at with facility challenged but a borrower. with borrower. in work just work flows, vacancy but that has approach

Mark Fitzgibbon

what for on sense a Mark? is, have you do LTV that rough the And

Mark Ruggiero

Yeah.

we deficit terms appraisal compared was what us to decision there the Our books value that of most on that the at. to is recent it also a helped in appraised make felt

tune So of a we've at actually up the quarter set the the of to million second reserve specific based the upon $X recent about end appraisal.

Mark Fitzgibbon

the reading helpful. secondly, Am I or office right it which XX% book then reprice And of great. on Okay, the that Slide about XX Page will your within of two was deck, Thank you. super years? next mature

Mark Ruggiero

Yeah.

XX% loans we're next within looking we of actually adjustable will rate at. about the that have years. two mature then have And We that

two so. new We a and reset will years, up another come for next that's the rate within XX% or

Mark Fitzgibbon

Any to nodes office exposure Okay. trying maybe, we this thoughts some are shrinking stuff? sell cycle the in given about, where with

Jeffery Tengel

at so. that Not pretty good actually underlying the that. don't think underwriting point. this portfolio still I We about and on we've done historically our feel

we're going think in I So there. to hang

of seen comfortable reality there to at least that think some with the a them. are not lot lot we've there's We've going reaching is think customers our already with. to been at proactively practical I a we'd of of levels work don't I a out that be buyers, us. And that as

Mark Fitzgibbon

of portfolio office there maybe we're larger sort then trends. we Okay. being in comments that the could than saw dependent mean be accustomed seeing that Should take on on provisioning levels? more And your I swings to provisioning provision, some swings to on somewhat

Mark Ruggiero

to think credits. or two no as loan, is, What Mark. the that large for of been that about The out the I necessarily, Not risk. have pool, with provision we talking has you've one was But we just see over really last what other is most tied today to get moved few right us. which now movement into seen the the within trying were here there where delinquencies we there I nonperforming, office nonperforming one or sit we quarters

in the what's monitor, So, due looking terms efforts, are coming out you our We're spending a I to where of is looking feeling subset we're we're of horizon, but credit. the referenced good lot of portfolio, the think right about pretty continuing now good. obviously, things on

any non-performing, on barring see movement some think, should stabilization into I we So provision.

Mark Fitzgibbon

get Okay. to beta cumulative And you of rising think what you do we lastly, the cycle, rate think the like settles that I through looks cumulative date, like fully the then do when Where deposit deposit betas cycle? sort out? XX%. the think

Mark Ruggiero

of a great we've our suggest it, deposit think I the higher than of it's think in beta the level guidance franchise. would always about stabilize. deposit that. I cumulative consistent performance margin question of we're probably through so, modeling. about That gets about thinking maybe XX% But all as how and to I we think terms in in how Yes, that slightly the or embedded where would provided do It's ALCO right cycle, we've talked that's, range with the about said, that our that's and lot about our how a

probably comforting we've been we'll through beta to that see that So it's about. to the cycle thought point as always the get

Mark Fitzgibbon

Thank you.

Mark Ruggiero

Thank you.

Operator

Our with next go Steve Moss Raymond question ahead. Please comes James. from

Steve Moss

morning. Good Hi.

Mark Ruggiero

Hi, Steve.

Steve Moss

deposit Maybe up following just the beta there. on

mentioned Mark. you beta, deposit Just toll

to level terms that is of bit assuming there maybe curious, in Just the like, a noninterest-bearing Is more remixing a of little just remix. fair? interest-bearing you're

Mark Ruggiero

XX%. around But look back terms a that we couple over I bit there we've Yeah, noninterest-bearing. deposits of flow. going certainly, I maybe a go. an the does But still Right pre-COVID, about stay more being think you've our the I -- there's think positive there, I tough think can now, down which very -- low the XX%. at pace last I at noninterest-bearing pinpoint we're historically I'd there's seen to XX% sitting range, -- that's to migration probably like get in but quarters When look our path hopefully of of it demand we at to to been we at XX% where I in deposits, yeah, forward. think were exact number total will think

Steve Moss

you you see just you're on of curious Okay. healthy to then pricing pipeline, on color. to of a coming yields? books. And this loans Appreciate mentioned for the expecting where new pretty had what kind that just are And here, loan terms on year come later in

Mark Ruggiero

Sure.

the It's and story -- I the right variable talk originations. New about now. really It's it. fixed of dichotomy

the the looking a pricing in as commercial fixed can rate on the rate we resi when imagine, the And quarter on the competitive So is of fixed side, at that middle still the at portfolio. you curve. side, you're of closed terms was pretty in what of part second least lot the in

into that to prime-based still high see what a probably deals. So, of that's shifting lot of whether decent on will trend of credit upwards what or side, spreads lot variable, on think around [SOFR] a we about was But the the lending. sevens you high I'd mid-Xs the (ph) where and anything was flip we're of it's to X%. closed and X% when put books even in A we quarter to lot sevens mid towards true fixed-rate say the more priced off continuing exposure. second continue in

So mix certainly new variable do or X% equal pretty originations probably to and rate if be on going would all-in looking being rate a forward. you prioritizing lending forward. going the look I'd at the around more imagine bit

Steve Moss

Okay, bit that's the -- your year. pipeline, helpful. the your And is maybe -- guidance relatively upbeat guys about of little a the in then you But the sound second given just for in for potential half for terms pipeline. growth stable of terms some of

curious out of a maybe tie kind further. that little to Just

Jeffery Tengel

Yeah.

the about amortization and of So then that in half flatness about stability do the feel but a and the franchise. we good the of the about marketplace we have really we're because year little ongoing thinking comes proposition the portfolio attrition, the the of bit value of the in over second that

of our of in we've are is off So, new existing customers form prospecting some actively pay to prospecting to that for support and continued the and starting customers business. new

half. like and a share sales little of active be force bit a take to in second and engaged feel we pretty have expect able to So market the we

Steve Moss

the much. Thank all you color. Appreciate great. Okay, very

Jeffery Tengel

you. Thank

Operator

next Chris question Please with from ahead. [Operator KBW. O'Connell Instructions] comes Our go

Chris O’Connell

morning. Good

a not portfolio, guys the for -- the migrated office circle the that on see of total quarter? credit to and Just just if reserve this portfolio entirety back the migrated had one wanted you

Mark Ruggiero

allocation overall Yes. the Chris, consistent allowance, to with that It's in of specific portfolio. pretty total terms

Chris O’Connell

wanted get your more teams personnel it. you go-forward standpoint, basis? a there's been hiring Have looking been just of, add so, guys lot of a a types on looking Got guys you to then, to are or opportunities? And lot sense markets. in Okay. disruption what of a most strategic from at If a

Jeffery Tengel

I've continue that we with opportunistic win that people. be been really So, you believer regard. a in the best to always

and active So be when we to good available, become people pretty that. to tend responsive

have we most find good idea that for banks we're lot the of getting larger is coming a have, the to banks of think the that quicker. compelling people. larger the same working I some in have successful to react a people Trust we're attracting are good but much of in more tell terms because We find story region from that a a the capabilities Rockland we're position, able and that nimble we lot of

to that trying we well fit they is and credit and that from with thing us bankers hiring The come what they with to people good accomplished. about like get typically skills pretty pool savvy we're

So half just I from over people We've first continue had some to that new of four and pool the we'll success year. of described, half we've the five that opportunistic to we'll in year. the hired be -- or would continue second the expect I

Chris O’Connell

of detail pressure bit areas? on you overall more the base that hiring does in could headed And And have mentioned maybe core opportunities, a the any the you different -- into expense go Great. the XXXX? ability into offset comments? put prepared do do that platform Okay. to little you that kind just in if Or enhancement those on to is guys

Mark Ruggiero

that have expense I on answer going question, Yeah, the impact to rate think to meaningful the Chris, a run I anticipate wouldn't first forward.

to levers think obviously to mentioned, in make where there prudent think, investments where focused the to you on very continue we're I it's staying offset future. we is as

makes -- sort finding looking So mentioned in that we're doing we certainly do of increase check. on be are I of a balance we'll Jeff expense sense. to hiring to able any finding despite in to I where areas that aggressive continue think good think job to be keep And

There's the In will a efficiency terms et for the functionality and we're much upgrading yeah, much lot better further of settings, of kind the interface risk provider, of a really drive cetera. folks, primarily, so user internal technology core governance spend, better internally. here system our

take but bit make about working upgrade. process use as put how little consultants spend technology that a the So us well the advantage with sure one-time right help to technology there's we're best of think to to processes as a really about only efficient to in kind that and we of of our will think have not some place that

commitment $X some a an standpoint there's technology in I million all is, bit that time. will in be million, sense, $X.X spend believe, So, that expense but about from the over

of won't think, it again, expenses quarter I any in So impact, run total. rate to or the sort create big a in

Chris O’Connell

decision? sheet at if the growth repurchases pretty I environment minimal Have a we've that whether after given balance in quarter, Okay. obviously, trigger half about does that And Got pause are XX% additional really implies bit a had the at some year next take first couple the I repurchases capital slug to of were levels what the it. that will I guys quarters. know of in not, there and or And back overall thought big the be the strong you little would looking of of now economic just But guess, mean, point all XXXX? for guys into guidance around here you TCs then. since the

Mark Ruggiero

Certainly, back the franchise And of talked We stability stabilization right things really half. the about a pointing Yes, levels deposit that's considering quarter. there's I the Chris. things think we into second in of the to that we're indication a And think capital second as sense lot whole. about that of certainly capital the that normal the around think and a on absolute a the to be strong. to deploy continue in of strong in question rightsize we very to your certainly look cautious are getting very capital heading decision, in obviously that couple things will bit. hit But and constantly a remain and I talking opportunity And just of ensuring direction.

feel standpoint, credits been the good from but we certainly a some still we've of monitoring And in materials, these then credit very credit. all, in we're highlighting that about individual all

I I'd here lot are thinking that second buyback think like opportunity for the decision of half. more the we've to think in in weighing So about there's becoming stronger things been a of and terms clear. a

a made on haven't final to We comfortable for it's decision do that but makes be and we yet, it. that get think point sense a to us where we'd with think reasonable I certainly

Chris O’Connell

your Got And kind me. seeing just portfolio Okay. I in Outside competitors might at point mean, kind on stress CRE, either for where just you one aggressive back it. any last pulling pockets this or but of having is on markets? the are you're that office within there obviously, about other portfolio where pricing general talked the here, of either in cycle? your or structure of you on additional Or being be areas caution of

Jeffery Tengel

historical which company that any Well, or other portfolio us and very your into giving we which like our in the changed. hasn't is, pause any our done, credit per particular about loans, of has around that good quality again, pulling our seeing part both seeing second the question, pricing stress we're signs of loans been of disciplined the in se. we've really back We feel, that and we're the the parts leads question, the always of underwriting of kind feel really not are are first or

to get going in feels competitors some where market think always a it certainly been. stuff terms the us aren't And to more place starting heats we've sectors, some typically extent, in we conservative to like up. it's to they're are as other -- and to I moving chase coming so, And back

out performance and years. just the good over and operating to about on in quality again, ability to our of we we're compete. So But to. and of think, the haven't we the our about the had type messaging speaks We that and competed I historical market company customer we've feel have rate that pretty credit the that historically structure, not and

Chris O’Connell

Yeah.

That's the I color there. all Okay. now. That's Appreciate have for -- you. Thank

Jeffery Tengel

you. Thank

Operator

go will Our question Sandler. Mark a ahead. next be from Piper Please Fitzgibbon follow-up with

Mark Fitzgibbon

Hey, guys.

of one questions. Mark, Just the the reserve is the to clarify the on of consistent Chris' said I rest with correctly, you book Did portfolio. hear the to office responses

And I book is the total think so billion, on $X.X X% roughly so reserve loans. office

million have you about $XX correct? of against Is reserves that office So the book.

Mark Ruggiero

it. I have number, have don't meaningfully necessarily against elevated a the don't Yeah. exact reserve noted we but

We factors real up the bit there have kind the that And of mind, whole. as looked in on office estate certainly a qualitative isn't just reserve a We've one nonperforming. of we commercial at because keep that have the specific ticked exposure.

So, that we than specific above slightly as higher allocation general, and call maybe a one that it, have over reserve well.

Mark Fitzgibbon

Got you you. Thank very much.

Operator

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

Jeffery Tengel

you. Thank

a that we that absorb well no macro are would by shortage context, take there close are is uncertainty the In We shifts. cognizant its protection. while ourselves community operator of advantage brand the to stable capital from situated scalability record opportunities regarding underscoring with generation, fully of strong as sheet, internal combined that and core confidence earnings. That positioning emanates and our excess downside conservative current track model proven providing its environment attractiveness a to and impact challenges our banking position, deposit base, I acquirer a franchise, of near-term environment when and capital on our of balance

continued you Corp. Thank interest for Independent in Bank your

Operator

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

may now disconnect. You

Independent Bank (INDB) 21 Jul 232023 Q2 Earnings call transcript