On Friday, Independent Bank (NASDAQ:INDB) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Independent Bank reported solid deposit growth and strong C&I loan growth, despite a smaller average balance sheet and lower loan accretion income.
The company announced a new $200 million share repurchase plan and completed $75 million in buybacks during the quarter.
The adjusted net interest margin improved by 4 basis points, driven by pricing discipline across loan and deposit portfolios.
The wealth management business continues to be a strong fee income driver, with positive results in traditional asset management and business advisory services.
Management remains vigilant on expense levels and is preparing for a core operating platform transition set for October.
The commercial loan pipeline increased significantly, positioning the company for positive loan growth in the second half of the year.
CEO Jeff Tangle announced he is cancer-free, a positive personal update that bolstered the overall sentiment of the call.
Full Transcript
OPERATOR
Joining me on today's call is Jeff Tangle, CEO, and Mark Ruggiero, CFO. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press Star one to raise your hand. To withdraw your question, press Star one again. Before proceeding, please note that during this call we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors including those described in our earnings release and other SEC filings.
We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliation to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the Investor Relations section of our website. Finally, please note that this event is being recorded.
I would now like to turn the conference over to Jeff Tangle, CEO. Please go ahead.
Jeff Tangle, CEO
Thank you. Good morning and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending Mark Ruggiero. Before we discuss our quarterly results, I wanted to share an update on my health. We released an 8K in February disclosing that I had been diagnosed with non-Hodgkin's Lymphoma. I'm happy to report that I have finished my treatments and learned last Friday that I am cancer-free and in remission. So on that good note, I'd like to turn to our quarterly results.
While activity was slow early in the second quarter, momentum accelerated as the quarter progressed resulting in solid deposit growth, strong CNI loan growth, continued improvement in the adjusted nimble, aggressive buyback activity, and excellent results in our wealth management business. These positives were offset by a smaller average balance sheet and lower loan accretion income. Our deposit franchise continued to differentiate itself, producing over $300 million of non-time deposits representing 7% annualized growth while maintaining a stable cost of deposits of 136.
These results were achieved in an environment of heightened competition and expectations that the Fed will keep rates higher for longer. On the lending front, we experienced robust growth in the CNI and home equity portfolios offset by heavy loan payoffs within the CREE Book. With respect to CNI, excluding the impact of the $37 million decrease in our dealer floor plan business, which we have now largely exited, our C and I loans rose by 116 million, a healthy 10% on an annualized basis.
This growth was broad-based across all of our market segments, investment, CRE, and construction loans. Conversely, declined 176 million during the quarter, primarily reflecting elevated payoffs due to a variety of factors including asset sales, refinancing done away from US construction, loans maturing, and going to the permanent market. We like the CREE asset class and will continue to support our clients in this space the way we always have. This is evidenced by the $203 million in new relationship-based CREE loans we funded in the quarter, up 11% from the first quarter, and the $300 million of new Cree commitments we added.
Our CREE concentration now stands at 278. On June 30, our approved commercial loan pipeline totaled 510 million, up from 313 million on March 31. This strong loan pipeline together with continued strong origination activity and an expected normalization of payoff activity positions us well to return to positive commercial loan growth. The second quarter also saw continued improvement in the adjusted NIM which rose by 4 basis points right in line with our guidance.
This reflects pricing discipline across both our loan and deposit portfolios. Mark will elaborate on our NIM during his comments as Mark will also further expand on we maintained a proactive posture in returning excess capital to shareholders with expected further improvement in our profitability and moderate balance sheet growth. Capital management will remain a key priority for the balance of the year. Our wealth management business continues to be a key fee income driver for us.
Second quarter results benefited from strength in our traditional asset management business as well as inroads we have made in the enterprise footprint. I would also highlight momentum in our business advisory services segment where we assist business owners to prepare for and manage the sale of their companies which has shown early signs of being a real positive catalyst for potential AUM inflows with respect to asset quality. While we continue to see movement in and out of our non-performing loans and criticize and classified loan buckets, the levels are consistent with our historical credit performance.
Our net charge-offs were just 2 basis points for the second quarter and have averaged just 9 basis points over the last five quarters. Our loan loss provision represented 14 basis points of average loans in the second quarter and has averaged 13 basis points over the last five quarters. Excluding the day one impact of the enterprise acquisition, excluding MA charges and non-recurring core system conversion costs, expenses were flat versus the first quarter.
Mark will provide a detailed breakdown of the moving parts within our expenses. We remain vigilant regarding our expense levels. As we have stated in the past, given the investments we have made in people and technology over the past few years, we believe we have the scale to continue to grow without significant additions to our expense base. There is a significant amount of work underway as we prepare to transition our core operating platform from Horizon to IBS, both part of the FIS ecosystem.
The conversion is scheduled to take place in October of this year. The IBS platform positions us to improve client service, enhance operating efficiencies, accelerate the introduction of new products, and support future growth. Related I'd like to take a moment to talk about AI. This is obviously a topic on investors' minds. In the first quarter, we established an Office of Digital Innovation. We've stood up a governance framework around our AI activities to ensure we stay within the guardrails of our moderate risk profile and that any actions are consistent with our award-winning culture.
This governance framework includes a steering committee that will serve as a clearinghouse for AI use cases. This will allow us to make AI investments in those areas that have a meaningful payback and avoid the proverbial boiling the ocean. I expect us to start with some relatively easy use cases as we build muscle memory over time. This should enable us to gain confidence in our ability to execute and take on bigger, more impactful applications.
Our strategy remains straightforward: organic growth through new and existing relationships, maintain disciplined underwriting, generate positive operating leverage, and deploy our strong capital position to create long-term shareholder value. I want to thank all Rockland Trust employees for their tremendous efforts on a daily basis. Every measure of our success is a direct result of their commitment. On that note, I'll turn it over to Mark.
Mark Ruggiero (CFO)
Thanks, Jeff. And to summarize the quarter results, 2026 second quarter net income was 81.8 million and diluted EPS was $1.70, resulting in a 1.34% return on assets, a 9.24% return on average common equity, and a 14.05% return on average tangible common equity. The second quarter results were a great reflection of the bank's ability to drive strong core profitability and return capital to shareholders despite the highly competitive environment, keeping loan growth relatively flat.
Touching first on the capital management aspect, during the quarter we completed the previous year's buyback authorization and in May announced a new 200 million share repurchase plan. During the second quarter, we repurchased $75 million in capital, bringing our capital ratios down slightly with the CET1 ratio at June 30th now at 12.8% and the tangible capital ratio at 9.7%. Going forward, we will continue to leverage the buyback plan as our primary means of returning excess capital to our shareholders.
In terms of the core profitability improvement, the main drivers continue to be core net interest margin expansion coupled with prudent share repurchases. Regarding the margin, though reported loan yields were down 8 basis points in the second quarter, core loan yields increased 3 basis points when adjusted for the exclusion of volatile purchase accounting accretion and other non-core items. And although commercial real estate loan growth has been a challenge, we are originating a significant volume of new loans to offset the pay downs and amortization in this portfolio, and that continues to fuel the cash flow and repricing benefit dynamic in our loan yields. Similar characteristics in the securities portfolio drove an increase of 5 basis points for the quarter with increased amortization and maturities expected in the second half of the year. And lastly, as Jeff noted, we are extremely pleased with our ability to hold the line on cost of deposits, keeping that flat at 1.36%. With these all primary drivers, the core net interest margin increased 4 basis points for the quarter. I mentioned the challenges in the commercial real estate and construction books, but on a positive note, as Jeff mentioned, the second quarter approved commercial pipeline grew nicely to 510 million, a 63% increase from the prior quarter and reflects a healthy mix of both commercial real estate and CNI. On the CNI side, the ability to enhance our combined offerings to both the smaller and mid-market CNI space was highlighted this quarter as CNI balances increased 10% on an annualized basis when excluding balance runoff from the exited dealer floor plan business. In addition, consumer home equity balances increased 35 million or 11% on an annualized basis, while residential mortgage activity reflected a nice balance between increased portfolio balances and mortgage banking gain on sale results.
On the deposit side, there's no secret in our industry when it comes to how competitive the environment is. We believe the second quarter results are a testament to the amazing deposit franchise that continues to differentiate Independent Bank. Not only did we grow period-end balances at a 5.9% annualized rate, we did so while maintaining a flat cost of deposits. Average balances, however, were down for much of the quarter, which created a temporary drag on our cash position and overall average earning assets.
But we are encouraged by the rebound of balances late in the quarter and our consistent quarterly trends of attracting new core deposit relationships to the bank. As a result of the strong core deposit growth, we paid down $100 million of maturing FHLB borrowings while increasing our working capital line of credit by only 25 million. I'll now switch gears to asset quality and I'll highlight the following notable items for the second quarter: total non-performing assets increased modestly to 103.8 million or 56 basis points of total assets.
The changes reflect some normal ins and outs on the commercial loan side and a net $4.7 million increase in residential loans. Regarding the latter, though, we are seeing some increased volatility in delinquencies and non-performers in almost all workout cases to date. There is sufficient equity in the homes and net charge-offs remain extremely low in this portfolio. Along those lines, net charge-offs for the quarter were only 911,000 or 2 basis points annual with total year-to-date charge-offs now at only 6 basis points on an annualized basis.
The second quarter provision of 6.3 million and increase in the allowance for loan loss to 1.06% of loans was primarily driven by modest specific reserves on a couple of commercial loans. And lastly, total criticized and classified loans decreased versus the prior quarter as we remain hypervigilant on effective early identification and development of workout strategies on problem loans. Moving to non-interest items, fee income of 42.4 million was up over 5% from the prior quarter.
The wealth management business continues to lead the way with AUA at 9.5 billion as of June 30, driving higher wealth management fees combined with elevated tax preparation fees of $537,000 during the quarter. In addition to wealth, we saw solid fee income growth from our deposit and treasury management services as well as increased swap volume on the expense side. The quarter-over-quarter results reflect a few moving pieces that I'll highlight specific to quarter-over-quarter trends.
The second quarter has zero merger-related expenses versus $3 million recognized in the first quarter. Secondly, we incurred approximately $2.1 million of expenses related to the ongoing preparation of our core conversion project versus 1.1 million of similar expenses in the first quarter. The majority of these are consulting related included in the other non-interest category in our earnings release. After excluding these 2 items, our remaining core expenses were relatively flat versus the prior quarter as reductions in incentive expense, payroll taxes, and snow removal were offset by annual merit increases, annual director equity compensation grants, and some other miscellaneous increases. And lastly, as expected, the tax rate stayed relatively consistent at 23.4%. With that, I'll now finish up by revisiting our 2026 full-year guidance. First, we reaffirm our two primary profitability targets for the fourth quarter of 2026. The first is return on average assets of 1.4% and the second is return on average tangible capital of 15%. Regarding loan growth, given the paydown activity experienced in the second quarter, we update our CRE and construction full-year estimates to now be flat to low single-digit percentage decrease for CNI growth with minimal headwinds from the exited floor plan business, we would expect to land on the high end of the mid-single-digit percentage range of the guidance. And for total consumer, we now assume a full-year increase in the low single-digit percentage range. Our full-year deposit growth guidance remains unchanged. And similarly, with the core margin increase as expected for the quarter, we reaffirm our 2026 fourth-quarter margin will be in the range of 3.9 to 3.95%, though likely on the low end of that range.
I would also point out this range includes a 10 basis point impact assumption from purchase accounting accretion. Our fee income and tax guidance also remains unchanged. And lastly, on the expense side, we anticipate core expenses which exclude the system's conversion expenses to be in the 553 to 557 million dollars range plus the one-time systems conversion expenses to land in the 5 to 6 million dollar total range for the year. And that concludes my comments.
And with that, we'll open it up for questions.
OPERATOR
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press Star one to raise your hand. To withdraw your question, press Star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality and if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from the line of Justin Crowley from Piper Sandler.
Your line is open. Please go ahead.
Justin Crowley (Analyst at Piper Sandler)
Hey, good morning, guys. First of all, Jeff, on the health update, congratulations. That's really excellent news and thrilled to hear it. I think we all are.
Jeff Tangle, CEO
Thank you.
Justin Crowley (Analyst at Piper Sandler)
But wanted to start out on loan growth and maybe just dig into that commercial real estate bucket where the guide was tweaked a bit lower. You know, I was wondering if you can give a sense of, you know, what else may have gone into that beyond. I know you mentioned the payoff activity, but just maybe some detail just on the evolution of the market, uncertainty, and competition from where we were 90 days ago when we talked through this.
Mark Ruggiero (CFO)
Yeah, I mean, especially in commercial real estate, it feels like the market has continued to get more aggressive as the year has unfolded. You know, part of that is evidenced by, you know, we talked about the elevated pay downs in the second quarter. We had 2 loans in the second quarter that accounted for $120 million of those pay downs. So. And one of both of those loans are refinanced away from us, and one of them was refinanced really on terms and conditions that we were very uncomfortable with. And so that's some of the headwinds that we have when we're trying to grow the commercial loan book.
Having said that, as Mark pointed out, and I did as well in my comments, we still originated a healthy amount of commercial real estate in the quarter and feel like we can continue to do that in the back half of the year and really would expect paydowns to revert back to their more historical levels, which is why we think in the second half of the year we could see flat to modestly up commercial real estate balances. It won't offset the first half of the year headwinds, but we think that is a good signal for us in terms of growing the balance sheet.
Justin Crowley (Analyst at Piper Sandler)
Okay. And then I guess kind of like, you know, within commercial real estate and, you know, I know it's still early days here, but what have you been hearing from borrowers in the wake of the decision? We got just on Massachusetts front control, you know, I guess any read on how that could impact the commercial real estate market and just the overall level of activity in the state?
Mark Ruggiero (CFO)
I think it's a little too early to say that we've seen a big increase in the demand for multifamily construction. We have seen some asset sales that I think maybe wouldn't have occurred had that news not come out. But we do expect that there will be more activity as we move through the second half of the year in that. In the multifamily construction space. And of course, it also impacts the permanent market as well to the extent that there are sponsors looking to sell their multifamily business. The cap rates have likely come in a bit because of the rent control ruling, so too early to tell. But I do think as we move through the balance of the year that we'll see an increase in activity.
Justin Crowley (Analyst at Piper Sandler)
Okay, got it. That's helpful. And maybe just one last one on credit, as you guys pointed out. You know, overall looks like some stabilization, you know, if not some improvement in a lot of areas. And I know there's some moving parts, so I guess just in the not performing bucket, you know, with the gross inflows picking up a bit over the last quarter, you know, curious if you could talk through some of what you saw there and then just some color on the payoffs that kind of help keep a lid on that net increase for the period.
Mark Ruggiero (CFO)
Yeah, I mean the story on the non-performing asset side on the commercial is fairly benign. I'd say the biggest movers was the actual resolution and pay down of one office non-performer that we were talking about last quarter. That was about an $11 million loan that had been charged down to that came off the NPA list, and we had one new one go on at about $14 million. Outside of that, there was very little movement within the commercial bucket. I did mention in my prepared comments what you're seeing really is the primary driver of the increase is a bit of an uptick on the resi side.
But, you know, it's interesting as you go through each case, you're seeing a dynamic where the consumer will often suggest that the mortgage payment is one that they're willing to delay while still spending in other areas. Believe it or not, we have a lot of what we would call chronic non-performers where they make periodic payments throughout, but it's not at a consistent pace where you can establish putting them back on accruing status. In all cases, there's plenty of equity in the homes.
We don't see really any emerging loss dynamics in that segment. You're just seeing a little bit of payment issues where delays are ticking up a bit in terms of delinquencies and NPAs. Yeah, sorry Justin. One other comment I'd make on our non-performing bucket is the largest non-performer, which we've talked about multiple quarters, continues to improve, and we think there's a chance that it could return to performing status by year-end. So we're encouraged by the progress there. In fact, it already started to make interest payments in July, so it was an 18-month no-payment period that effectively started last January of last year.
So that 18 months has come due, and they are starting to make the interest payments. And one other comment on the rent control that you asked about, Justin, and just to be clear, the organization that was putting that forward, they can come back in two years. So that's the, I'm not sure what the legalese is around that, but they'll have the ability in two years to reintroduce that as a ballot measure.
Justin Crowley (Analyst at Piper Sandler)
Okay, that's helpful. I guess just on that one large non-performer that you called out, do you have, you know, how much, what is the balance of that right now? I'm not sure if you have it handy.
Mark Ruggiero (CFO)
Yeah, that's a $22 million large syndicated loan. We had taken a fairly sizable charge-off on that down to that balance. So it's staying on the book now at about 22.
Justin Crowley (Analyst at Piper Sandler)
Okay, perfect. I will leave it there. Thank you so much, guys.
OPERATOR
Thanks, Joseph. Your next question comes from the line of David Conrad from KVW. Please go ahead.
David Conrad (Analyst at KVW)
Hey, good morning, and I'd also like to say Jeff, congrats on your health. It's great news.
Jeff Tangle, CEO
Thank you, Dave.
David Conrad (Analyst at KVW)
Mark, some questions for you. I mean, I think the quarter really isn't about the NIM, but it's about the balance sheet and couldn't develop any deposits. I'm looking, you know, cash balances around 730 million EOP last quarter, 530 average, and now we're up to a billion EOP in cash with kind of flat securities. So kind of when we think about, you know, the guidance in the back half of the year, I guess my key question is, you know, how quickly, what do you think cash and securities that mix shift, what will that end up, do you think by the end of the year, how quickly can you kind of remix that?
Mark Ruggiero (CFO)
Yeah, no, it's a great question. And we're already remixing that into securities right now. I mean, ideally, we'd like to see that obviously get redeployed into loan growth, but we absolutely will be more aggressive in putting more of that cash balance into the securities bucket. So ideally, I would say targeting earning cash in the 4 to $500 million range over the second half will be a bit, you know, we'll monitor the pipeline and see how much of that we get comfortable should get redeployed into loan growth.
But you'll, I would expect you'll see us, you know, certainly put more of that back into higher-yielding securities.
David Conrad (Analyst at KVW)
And then, and then you also have what about a half a billion or so rolling off in the second half, like sub 2%, right, that's another.
Mark Ruggiero (CFO)
That's right. Benefit. Yeah.
David Conrad (Analyst at KVW)
So what I guess.
Mark Ruggiero (CFO)
No, no, you're fine. It's interesting, in the second quarter you only saw about 70 million of runoff in the securities portfolio. 45 million of it happened literally on the last day of the quarter. We had a Treasury security mature at 87 basis points. So you know, the 5 basis point lift you're seeing in the securities book for the second quarter, very, very comfortable suggesting that's a low point in terms of a quarterly increase. The 200 million in the third quarter, 200 million in the fourth quarter, give or take at 2% coupon. You know, that should create more like a 15 basis point lift each quarter, all other things being equal. And I would think we can go even more north of that if we're putting more purchases into the book as well.
David Conrad (Analyst at KVW)
Got it. And what, what yields are you looking at now with the improved yield curve?
Mark Ruggiero (CFO)
Yeah, we're, I mean, we're still looking mostly at deep discounted MBS that give us sort of downright protection, but as the rate environment and expectations are starting to shift more, we're more comfortable taking on a little bit more duration. So call it high fours. 5% on new purchases.
David Conrad (Analyst at KVW)
Perfect. Thank you. Appreciate it.
Mark Ruggiero (CFO)
You're welcome.
OPERATOR
Your next question comes from the line of Steve Moss from Raymond James. Please go ahead.
Steve Moss
Good morning, guys. You know, Jeff, just to echo what's already been said, congratulations on your health here. You know, great news there.
Jeff Tangle, CEO
Thank you.
Steve Moss
Definitely glad to hear it. In terms of just the, you know, going back to the loan pipeline here, just kind of curious on the, you know, has the mix shifted more CNI in the pipeline on that 510 million number or is it kind of similar to what you guys disclosed in there in terms of what was originated for two Q? And just one other thing to throw in there. Just curious on where you're seeing loan pricing these days.
Mark Ruggiero (CFO)
Yeah, the mix, I would say is shifted to CNI slightly in the pipeline. Part of that is we had a number of approved loans that honestly we thought were going to close in the second quarter and they didn't and they slipped into the third quarter. So that's one of the reasons why I think the CNI pipeline is a little bit higher as a percentage of the overall than it maybe it was in the, in the first quarter, but I think we're, we expect to see good originations in both asset classes, CNI and CRE as we move through the second half of the year.
Jeff Tangle, CEO
I'll add on. And the good news is as more of that pipeline has shifted to CNI, it's primarily more floating rate. So we've seen new originations on the commercial space move up into the mid 6% range in the pipeline. I have the data it's about 50, 50 CRE CNI today. I can't recall off the top of my head last quarter if it was materially different than that. But to Jeff's point, it probably, it probably continues to tick a bit more up CNI vs CRE from a mix standpoint.
Steve Moss
Okay, great. Appreciate that color there. And then in terms of, you know, capital deployment, you know, you guys bought back 2% of shares outstanding here. Just kind of curious how. And you know, capital ratios barely moved. Just kind of curious as to, you know, how you guys are thinking about the payout ratio here going forward on a combined basis, you know, do we think about it as 100% of quarterly earnings or maybe a bit more than that? Just given where your capital ratios are at the.
Mark Ruggiero (CFO)
Yeah, I'd say 100% is the minimum, Steve and I think ability to do more. I talked about this in the past, but you know, where a lot of that I would like to fund via earnings and a bank holding company structure. Dividend funding up from the bank to the holding company allows us to execute buybacks in a much more economic efficient way. I'm not against borrowing to execute more buyback than that, but you know, that's, you know, that's the calculus we'll go through each quarter to see how aggressive we want to get in terms of returning over 100% of profits. But you know, it's appropriate question to ask. Obviously the growth has been challenged, so we are, we are definitely committed to executing the buyback in an aggressive manner.
Steve Moss
Okay, appreciate that. And then, you know, on, on expenses here, just kind of curious. Obviously got the conversion coming up in October, you know, but it kind of seems like your underlying core expense run rate would be fairly stable. Call it 130,139ish. You know, as we kind of look at going forward, I know you guys been looking to hire people and add more talent. How do you think about the, you know, your investments and maybe your expense growth rate a little further out here?
Mark Ruggiero (CFO)
Yeah, I mean, I think as Jeff said in his comment, you know, the mentality here is sort of a hold the line type mentality, meaning we can't take our foot off the pedal in terms of thinking about AI and technology investments. And you know, that's part of what you're seeing, you know, even in the last couple of quarters is increased IT spend and talent in those areas to help develop some of the technologies that we know we'll need to deploy throughout the bank internally. So it's looking for opportunities to find areas to reduce or get smarter on and other spend across the bank.
So I think it's still supporting the infrastructure that we think we need to be a bank that continues to grow in this space, but we need to find the offsets to make sure the expenses are held in check.
Steve Moss
Okay, great. Appreciate all the call there. I'll step back in the queue here. Thanks guys.
Mark Ruggiero (CFO)
Thank you.
OPERATOR
Your next question comes from the line of Lori Hunzicker from Seaport Research Partners. Please go ahead.
Lori Hunzicker (Analyst at Seaport Research Partners)
Yeah, hi. Thanks. Good morning. Jeff and Jerry. Yes. Congratulations. I'm so, so happy to hear that news.
Jeff Tangle, CEO
Thank you.
Lori Hunzicker (Analyst at Seaport Research Partners)
Just wanted to maybe start over with margin and deposit. Just want to make sure I'm thinking about this. Right. So as I, as I look linked quarter, you guys actually had a jump in your money market. You know, I mean the line held flat on an average basis that I'm talking about the rate. Right. So the rate went from 206 to. So directionally a little different than what we're seeing. Is it just so competitive you're paying up or was that a special or how do we think about that?
Mark Ruggiero (CFO)
Yes, it is. We have a money market special that we introduced into the market. You know, I'd say halfway through the second quarter and that that is a 4% sort of short term money market rate. So it's not surprising, Laurie, we're seeing some of the new money come in on that special. So it's been pretty equally balanced between, you know, DDA low cost deposits and higher rate promo money. But you know, I'll be fully candid, you know, we would expect the cost of deposits to tick up a bit in the second half. I'm still comfortable with the fourth quarter guidance range that we gave with the margin in the 390, 395 range. But you know, our spot cost of deposits in June was at 1.38%. So I think you'll see a little bit of pressure on the cost of deposits in the second half.
Lori Hunzicker (Analyst at Seaport Research Partners)
Okay, that's helpful. And then what was your spot margin?
Mark Ruggiero (CFO)
It was so spot margin for June stayed at 3.76, which is what the full quarter was despite that cost of deposit increase I just mentioned. So we're still seeing the asset side repriced to offset that.
Lori Hunzicker (Analyst at Seaport Research Partners)
Great. Okay, so 376 and that's obviously excluding the accretion.
Mark Ruggiero (CFO)
Exactly. That's a core number. Correct.
Lori Hunzicker (Analyst at Seaport Research Partners)
Okay. Okay, great. And then just going over, back over to office. So you're down to, you've got the two office non-performers, obviously the 22 million which you've talked about for some time. And I just want to make sure I heard that potentially goes current in the fourth quarter by year end. Potentially by year end.
Justin Crowley (Analyst at Piper Sandler)
Okay. Okay. And then the 18 million office that remains, that's the life sciences loan classified, I think, in non-performing.
Mark Ruggiero (CFO)
Oh, and are non-performing? No, the 18 million is the. That's a loan that had moved into non-performing last quarter. We had taken a reserve on it. We're in the process of brokering that for sale based on some updated BOVs. That's one of the two properties we actually put a bit more reserve on. So we're hoping to get that resolved in the second half of the year. That's a $17.4 million balance, but that has a full reserve on it based on our updated BOVs.
Justin Crowley (Analyst at Piper Sandler)
Okay, but that one. Is that one the Life Sciences? That's the one where you had a large tenant. Or am I. Is that a single tenant?
Mark Ruggiero (CFO)
Life Sciences. A single tenant. It's not the labs that has been built up and now has new tenants in it. This is another Life Science single tenant facility.
Justin Crowley (Analyst at Piper Sandler)
Gotcha, gotcha. Okay, and then next quarter, I'm just looking at page 10 and they love all of your details here, but. And this certainly was unchanged from last quarter. But the $20 million that's criticized, that matures into third quarter. Is there anything that we should be thinking about there? Or how are you looking at that?
Mark Ruggiero (CFO)
So the third quarter criticized levels is primarily two loans. Give me one sec here. Let me just make sure I'm getting you the right data here. Yes, give me one second here. Yeah, so the classified. So we have, basically the classified is the loan we just talked about within. The other criticized the 26.8 million. It's two loans. One 17 million, the other is 10. You know, we're both, you know, we're working through on both of those for resolution.
We think one of them would likely either refinance out as that becomes reaching maturity, and the other, I believe is likely on track to see sort of a short term extension. So both of those right now, based on the data we have, we don't see any imminent loss exposure on them. But we are looking for either short term extension or hopefully refinance out on both.
Justin Crowley (Analyst at Piper Sandler)
Okay, yeah, so that's helpful. Okay, so that's the 27 and the 174 we talked about. And sorry, the one that comes up in the third quarter, the 19.9 million criticized. It's maturing in the third quarter.
Mark Ruggiero (CFO)
The third quarter is also two loans. Yeah, so sorry. Third quarter is also two loans. One of them is 14 million, the other is about 5. I'd say the 14 million dollar loan. We're also working with the broker to sell that property based on data. Now we do expect full payment. So we hope to get out of that here in the second half. The $5 million loan, you know, that one's a little bit of a different situation. It's anchored by one primary tenant who, you know, is indicating they may be leaving the space.
So if that ends up happening, we would expect that that will have maybe a modest impact on the valuation. So right now there's no loss reserve on that super hustle.
Justin Crowley (Analyst at Piper Sandler)
Okay, Jeff, you've now held, I think, for at least a quarter, maybe two quarters that were seventh inning on office. Would you still say long seventh inning? Are we close to the eighth? How are you thinking about it?
Jeff Tangle, CEO
Yes, it still feels like we're in like kind of this long seventh inning. I am encouraged, though, by the amount of work that we're doing that I think is going to, over the next couple of quarters, hopefully bring down the office loans in our criticized and classified buckets. We have an awful lot of energy around moving as many of those out as we can. So hopefully we can get into the eighth and ninth inning before too long. But we still have a lot of work to do.
But we're doing the work and I think we'll have some positive outcomes over the second half of the year.
Justin Crowley (Analyst at Piper Sandler)
Okay. Okay, great. And then just income statement. Just two questions here. Non-interest income. It looks like, you know, outsized fully death benefits and sort of outsized loan level derivative income. I mean, it. If we're looking at your projected numbers of increase, do you exclude that Boli death benefit or maybe a better way to ask this, you know, if we're thinking sort of about a core number, 41.5, 41.6 million would be a closer number as a quarterly run rate.
Mark Ruggiero (CFO)
Yeah, I mean, I think you'll lose a little bit of tax prep fees in the third quarter, obviously off of the second quarter numbers. But I think a lot of the other major components, whether it's deposit related fees, interchange, ATM, those all should be pretty consistent and continuing to increase modestly. So I think I would expect to see us pretty consistent with Q2 results. All in. And then the death benefit on the Boli side is pretty modest. Right. So I think, you know, I think even with or without that, you should stay in that, you know, $42 million plus range.
Justin Crowley (Analyst at Piper Sandler)
Okay. Okay. And then last question for me on your expenses. So the core systems upgrade was a million. And then you mentioned another million that was non-recurring in the quarter. I guess, just what was that? And then if we look at the core systems upgrade relative, it looks like you sort of upticked your spend a little bit there. We're going to have maybe a $4 million charge in the third quarter being into that. Or are you still going to take some of that in the fourth quarter because it's an October event.
How should we think about that?
Mark Ruggiero (CFO)
Yeah, so just to be clear, we had 1.1 million of core charges in the first quarter. That increased to 2.1 million in the second quarter. So we're at 3.2 million fall in already year to date. So the $1 million references the increase quarter over quarter. But both quarter had meaningful charges in there in terms of the remaining. So call it 3 million, you know, 2 to 3 million dollars. I would expect most of it to be in the third quarter, Laurie, because the October, you know, the conversion date is in October. You may see some added consulting expense in the fourth quarter to help with, you know, whether it's call center or other sort of customer facing work that we would expect post conversion. But I would imagine the bulk of that will be in the third quarter.
Justin Crowley (Analyst at Piper Sandler)
Okay, great. Thanks for taking my question.
Mark Ruggiero (CFO)
Thank you.
OPERATOR
Your next question comes from the line of Matthew Brees from Stevens Incorporated. Hold on, please.
Matthew Brees (Analyst at Stevens Incorporated)
Good morning everybody. Jeff, I'd be remiss if I too didn't congratulate you on the health news. Feels a little out of tune the hopscotch to Nim and Long Growth Dynamics, but very glad to hear the news. Everything else, I suppose is secondary. Mark, you touched on a little bit deposit competition, I guess. I'm curious, you'd mentioned the spot rate, I think is 138. Should we expect that kind of cadence? Maybe one or two BIFs of deposit cost increases through the end of the year. And then as we think about. Because you're also growing DDAs, as we think about kind of the all in new money rate for deposits, what is that relative to where you're at?
Mark Ruggiero (CFO)
Yeah, yeah. I think your first question is spot on there, Matt. I would expect, you know, I mean, we're already talking about two basis points in terms of that spot rate number I gave. But you know, I'd like to see us, you know, counter that a bit and kind of keep that in check through the third quarter and probably even a little bit more pressure heading into the fourth quarter. So when I look out into the margin guidance and reaffirming the 390 to 395 range, I'm comfortable suggesting that with an expectation, you could see cost of deposits, you know, tick up towards 1.40% I think there's still enough asset repricing benefit in with some growth hopefully. On the commercial side, I think you land in the low end of that range even with some of that cost of deposit pressure.
And the reason we're seeing that pressure, you hit on it in the second part of your question. We're seeing basically almost a 50, 50 kind of DDA plus promo money driving those new deposit results. So that's going to create sort of an all in weighted average cost on new deposits, call it around 2%. So as the deposit environment, our deposit situation has stabilized significantly through June, I think it's prudent for us to revisit sort of the promo strategy and make sure we're finding the right sort of marketing and you know, I guess new sales efforts to keep that new cost of deposit in check.
So you know, I don't want to promised anything quite yet out of the gate but we recognize, you know, the more that comes in on that promo money, the more pressure that puts on cost of deposit. So with the, you know, the modest growth and the nice lift we got through June, I think it gives us the opportunity to get, you know, a bit more tactical on that front in the second half.
Matthew Brees (Analyst at Stevens Incorporated)
Great. Okay. And then just a follow up mark on the nim. You know, when you model it out, how much longer might we see the fixed asset repricing benefits flow through to the nim? When do you think it starts to peter out? And I'm particularly focused on 2028 as loan yields kind of spiked in 2023. And just my gut is that we start to see some of those benefits from 23 roll off in 28. And I'm curious if that kind of aligns with what you're seeing.
Mark Ruggiero (CFO)
It does, it does. I think there's, there's a certainly additional repricing benefit both on the securities and the loans through 2027. And I would suggest early 28 is when you start to see most of that really low coupon not impacting as much.
Matthew Brees (Analyst at Stevens Incorporated)
Okay, Jeff, one for you kind of marrying two ideas together and considering your background and the continued disruption in Connecticut with Webster being sold, is there an opportunity for you all to kind of expand the geography, start to hire or de novo in Connecticut considering how many folks you're close to there. I would also throw in hiring and or M and A, but I think I know what the M and A answer is going to be.
Jeff Tangle, CEO
Yeah. So the M and A answer would be the same as it's been in past quarters. And I think de novo branching would probably be a ways off. But having said that, we were having active dialogue with some of the people that are in Connecticut that I know and honestly we've done this in the past. Our head of commercial banking, Jim Rizzo. I don't know, Mark, how many years ago this was that we established effectively an LPO and Providence and experience a lot of success there.
And so we're having conversations as we speak about thinking about doing the same thing in Connecticut, which again, which we have confidence we can do because we've done it before. But it's all about the people. We wouldn't do it if we couldn't get the right people on the ground that we felt confident could build a business.
Matthew Brees (Analyst at Stevens Incorporated)
Would that be a, like a Hartford play or more Northern Connecticut?
Jeff Tangle, CEO
Could be Hartford. It could be, you know, New Haven, Fairfield county at this point. We've been open minded about it as we've been having discussions with various people. Our preference would probably be Hartford just because it's closer, but not exclusively.
Matthew Brees (Analyst at Stevens Incorporated)
Okay, and then last one for me, wealth management, good quarter. Nice to see AUM pick up as well. But as I measure kind of fees to AUM, that ratio has started to creep up in recent quarters. It's now at 63 basis points versus 59 just a few quarters ago. Anything to that? What's going on behind the scenes to drive a higher level of profitability there and do you expect it to continue?
Mark Ruggiero (CFO)
Yeah, I'm not sure. Matt, if you're using from an income perspective, if you have just what I would call managed money or if some of our other ancillary businesses might be in that revenue number you're using. But we've seen our fee ratios stay relatively flat, to be honest, over the last couple of quarters. So I wouldn't suggest where we're seeing any dynamic that is driving an increase in fee ratios. I think it just might be other services that we've put into the wealth business that are also giving us some nice lift on the revenue side.
Matthew Brees (Analyst at Stevens Incorporated)
Yeah, I'll follow up with you there. Okay, I'll leave it there. Thank you very much for taking my questions.
Mark Ruggiero (CFO)
Yeah, the 14.9. Just so you know, that's an all-in number. If you look at the slide deck, we include in the earnings deck, we try and break out what is really tied to the AUA versus what's either tax prep, we have estate planning, we have a business advisory fee services. All that is in that 14.9 number.
Jared Shaw (Analyst at Barclays)
Helpful. Thank you.
OPERATOR
A reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Jared Shaw from Barclays. Please go ahead.
Jared Shaw (Analyst at Barclays)
Thanks. Good morning and congratulations, Jeff, as well. That's great news.
Jeff Tangle, CEO
Thank you. Yeah, so I think, you know, a lot has been addressed, but I guess just on the loan side, you know, what's giving you confidence that the pace of prepayments on the CRE side is going to slow down in the second half? Is that just more of a willingness on your part to engage or are you just looking at sort of the pipeline of what's coming down?
Mark Ruggiero (CFO)
I think it's both of those things. And then I would add one third, which was I mentioned in my comments a little bit earlier. We had two rather large loans and one of them wasn't one loan. It was two or three different loans, but to one sponsor. But the two, I'll call it, the two relationships totaled $120 million of pay downs. Incredibly lumpy, a bit unusual in terms of our normal pay down activity. So it would be a combination of those three things, Jared.
We don't expect that kind of lumpiness of size in the second half and we think we're going to get good originations as we move through the second half of the year and we're going to continue to defend our existing clients when they're refinancing and be as aggressive as we think is appropriate without doing something stupid, I guess. So a combination of those factors is what gives us confidence. We have very few $50 million exposures in the book at all.
So to have two of them pay off is pretty unusual.
Jared Shaw (Analyst at Barclays)
Yeah. Okay. So I guess, you know, if we just sort of look at the expectations for the second half of the year and some of those trends, I mean, you know, when we look at 27, is that the type of thing where we could be mid to high single-digit loan growth overall?
Mark Ruggiero (CFO)
I would think mid-single digits overall. If we can get some traction in CRE, I feel very confident we'll continue to generate the kind of loan growth that we've had on the CNI side. And we're just talking commercial here, not consumer, but I think we could get back to the mid-single digits. Okay, and then what's the new loan yields going on right now on the commercial, on the CNI and the CRE side for you?
Jared Shaw (Analyst at Barclays)
Okay, all right, thanks. And then on the DDA side, good trends on growth there. Is that just, you know, getting a bigger wallet share from existing customers or, you know, maybe you could break down what's, you know, sort of new to bank versus existing customers doing a little bit more.
Mark Ruggiero (CFO)
Yeah, it is both, Jarrett. You know, we see a lot of seasonality in the second quarter and this is probably the biggest drop in rebound that I've seen here since I've been at the bank. You know, I think to give that perspective, we got probably as low as like 19.6 billion during the quarter. So significant rebound. A lot of that is existing relationships and just kind of we have a lot of activity on the Cape and the islands that's more seasonal. Tax time period always creates some drops and then rebounds.
So a lot of it was rebounding on existing relationships. On the new money, we're still very much on the consumer side, community bank driven with a free checking product that doesn't bring in a lot of big single deposit relationships, but it brings in a lot of units and it adds up in dollars over time. So that continues to be a big driver of new money. And on the business side, it's word of mouth, treasury management. Some of the CNI activity that we're doing that's going to lead to better full wallet deposit relationships.
On the commercial side, Muni is always a bit volatile. We had a big uptick on municipal in June as well, but that's an area that we have a good team on and is sourcing some new wins as well.
Jared Shaw (Analyst at Barclays)
Okay, all right, good, thanks. And then just finally, you know, I know it's a relatively small part of the overall number, but good growth in the interchange in ATM fees. Is that anything to call out there? Is that, you know, the impact of enterprise or is that just sort of seasonality?
Mark Ruggiero (CFO)
I think a little bit of seasonality. I wouldn't say there's anything unique to call out there, but yeah, it's a focus on operating accounts that continues to put that debit card in their hand and drive interchange. So that's, you know, it's nice to see that lift play out.
Jared Shaw (Analyst at Barclays)
Great. Thanks a lot.
OPERATOR
At this time, there are no further questions. I will now pass the call back to Jeff Tangle for closing remarks.
Jeff Tangle, CEO
Thank you. We appreciate everybody's interest in Independent Bank. Have a great rest of the day.
OPERATOR
This concludes today's call. Thank you all for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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