INDB - NASDAQ

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. The lack of certainty is causing them to pause any significant expansion or growth initiatives now as they assess the economic landscape. I would note there are many provisions in the recently passed legislation that are beneficial to the business community and could favorably impact future loan demand. We made solid progress on several of our key strategic priorities in the second quarter. We continue to reduce our commercial real estate concentration. C&I loans were up 3.4% in the second quarter. Conversely, CRE and construction loan balances were down 1.7% due to normal amortization and the intentional reduction of transactional CRE business. We've talked in the past about getting our CRE concentration below 300%. At [ 6/30 ], our CRE concentration was 274% due to the sub debt raise and contraction of CRE balances. However, the closing of Enterprise will move our concentration back up to between 310% and 315%. Our current expectations are to get this ratio to 290% by year-end 2027 through amortization and payoffs. We will also actively pursue loan sales where we can, which may accelerate a reduction in this ratio. We've also spoken in the past about our desire to grow C&I, in part to reduce our dependence on CRE and to drive more deposit and fee income growth. I want to spend a few minutes providing a bit more detail on how we are going to accomplish that. It starts with clearly defining the segments we are going to participate in and feel we can deliver the historical Rockland Trust client experience. The first segment is what we have called Community Banking. This segment is comprised of generalist relationship managers who market to both C&I and CRE customers and prospects. It is the ballast of the commercial bank and a segment we excel in. The average loan size is a little over $1 million, which is the legacy Rockland Trust you are accustomed to. C&I customers are typically between $5 million and $50 million in revenue and credit needs are generally less than $10 million. In 2025, Greenwich named Rockland Trust the best bank in the Northeast for overall customer satisfaction and likelihood to recommend in this segment. The enterprise franchise fits squarely in this space. Growth in this segment will come from taking market share and doing more with our existing customers. The next segment is middle market and specialty business. This segment is comprised of 2 groups. The first group is focused on Massachusetts C&I companies with revenues between $50 million and $500 million and a team that has several industry verticals to include asset-based lending, dealer finance, franchise finance and security alarm. I've mentioned in the past, we recently hired a seasoned executive to lead these 2 groups who brings a demonstrated track record of success. He in turn has hired several people to round out the team, and I'm very encouraged by the early activity we have moving through the pipeline. These 2 groups, by their nature, will have higher credit holds, typically between $10 million and $35 million and will enable us to grow our C&I business in a meaningful way. And the third segment is our investment CRE portfolio. This segment focuses on investment CRE professionals where the loan size is typically greater than $10 million. As we've said in the past, our goal here is to exit transactional CRE as quickly and as economically as possible while still serving our legacy client base. I know this is a drag on loan growth as we look to reduce our CRE concentration, and we are actively looking at ways to accelerate that transition so we can return to a more active originations posture. Our goal is to be able to grow loans in the mid-single-digit range, but until we can reduce our CRE concentration, it's likely to be closer to the low single digits. That's why this remains a top priority. We closed our acquisition of Enterprise Bank on July 1. Things are going extremely well. We've had great collaboration between the teams and the lead up to the close. As I've said previously, it feels like 2 puzzle pieces coming together and nothing we have seen to date would suggest otherwise. We continue to work closely with our enterprise counterparts as we plan the systems conversion that will occur in mid-October. Of note, their business model is very similar to ours. Unlike previous acquisitions we have done, there are no branch closures, there's no commercial businesses we are exiting due to a mismatch in strategy and credit philosophy. I feel confident this will enhance shareholder value as we assimilate the company, realize synergies from a broader product set and leverage a bigger balance sheet in the legacy enterprise markets. Concurrent with the conversion of Enterprise into Rockland Trust's core platform, we are preparing for our core conversion of the entire bank from Horizon to IBS scheduled for May of '26. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiency and scalability and support the future growth of the bank. We prudently grew deposits in the second quarter, which has been an historical strength of ours. Non-time deposits were up 3.6% year-over-year and 1.6% from the first quarter. In the second quarter, the cost of deposits was 1.54%, highlighting the immense value of our deposit franchise. Mark will provide additional color on our deposits in a few minutes. Finally, our Wealth Management business continues to be a key value driver. We grew our AUA by 4% in the second quarter to $7.4 billion, driven mostly by market appreciation. Total investment management revenues increased 1.4% from the first quarter and nearly 4% from the second quarter of '24. This business works seamlessly with our retail and commercial colleagues to deliver a holistic experience that resonates with our clients. The breadth of these services provides one-stop shopping for our clients that includes not only investment management, but financial planning, estate planning, tax prep, insurance and business advisory services. This full suite of products is a differentiating factor for our wealth business. We've had very positive initial conversations with numerous enterprise wealth customers and believe like the rest of the Enterprise Bank, its customer base is very similar to ours, which will make the transition go smoothly. Enterprise adds approximately $1.6 billion in AUA to our platform and will offer additional cross-sell opportunities with our broader product offerings. While we are pleased with second quarter results, I want to make very clear that we recognize our profitability metrics need to continue to improve. We are fortunate to have an enviable deposit franchise, a strong liquidity position and a robust capital base. Once we reduce our CRE office portfolio, we believe prudent expense and capital management together with continued NIM improvement and the realization of the benefits of the Enterprise acquisition, when coupled with the ongoing organic growth we are seeing in many of our businesses, we will begin to unlock the inherent earnings power of Rockland Trust. We have a skilled and experienced management team. We operate in attractive markets. We have a strong brand recognition, a broad consumer, commercial and wealth customer base and an energized and engaged workforce. In short, we have all the ingredients to return INDB to its historical premium valuation. On that note, I'll turn it over to Mark.

Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our 8-K filing and is available on our website in today's investor portal. Starting on Slide 3 of the deck, 2025 second quarter GAAP net income was $51.1 million and diluted EPS was $1.20, resulting in a 1.04% return on assets, a 6.68% return on average common equity and a 9.89% return on average tangible common equity. Excluding $2.2 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $53.5 million or $1.25 diluted EPS, representing a 1.09% return on assets, a 6.99% return on average common equity and a 10.35% return on average tangible common equity. The improved operating results reflect asset repricing benefit driving an improved net interest margin and contained loan loss provision. In addition, tangible book value per share increased by $0.99 during the quarter, reflecting solid earnings retention and a $0.28 benefit from other comprehensive income. Staying on capital, as Jeff highlighted, we recently approved a $150 million share buyback plan. This plan is in place to be opportunistic in buying back stock and will be governed by 3 major tenets. First, the stock price will obviously be a key component 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. Turning to Slide 4. Core deposit growth remained strong with period-end balances up $218 million or 1.39% for the quarter, while average balances increased $116 million or 0.75%. The mix of deposits has stabilized with noninterest-bearing DDA comprising 28.5% of total deposits at quarter end, while time deposits as a percentage of deposits decreased modestly to 17.1%. With steady emphasis on core relationships within both the consumer and business segments, net core households have increased for the 10th consecutive quarter, which has really served as the primary driver of our differentiated funding base. Moving to Slide 5. Total loans increased modestly in the quarter. And as Jeff just highlighted, our relationship banking strategic focus drove an increase in C&I balances of 3.4% or 13% annualized, attrition in our transactional CRE balances, offset by balanced new originations and steady volume in both our small business and consumer real estate portfolios. As an update on asset quality, we'll move to Slide 6, which reflects a few developments worth highlighting. First, total nonperforming loans decreased significantly from $89.5 million last quarter to $56.2 million at the end of the second quarter or 39 basis points of total loans. In terms of an update on the biggest movers for the quarter, the acquired $54 million relationship that was charged down to $28 million last quarter was fully resolved in late June. The other positive development was the final resolution of a $7 million previously disclosed nonperforming office loan. Regarding the previously disclosed nonperforming syndicated office loan that is located in downtown Boston, the bank group executed a modification during the second quarter, restructuring that debt into multiple notes with a full payment deferral period through July of 2026. As a result of the modification, no additional loss was recognized, and we expect this loan to stay on nonperforming status for the near term. Although we are certainly encouraged by the meaningful reduction in nonperforming loans, we recognize the environment remains uncertain. We acknowledge total criticized and classified loans experienced a bit of an uptick this quarter, but we are confident we can continue to proactively work through these loans as evidenced by the over $100 million reduction since last year levels. As a result of the moving pieces I just discussed, provision for loan loss in the second quarter was $7.2 million, reflecting modest adjustments related to individual credits and overall loan growth. Shifting gears now to the net interest margin. Let's jump to Slide 11, where you can see the reported and core net interest margin was 3.37%, reflecting minimal impact from purchase accounting and other nonrecurring items in the current quarter. The second quarter core net interest margin was higher than our previous guidance as we saw slightly higher asset repricing benefit while also being able to move on some deposit pricing to extract another 2 basis points benefit from reduced deposit costs. In addition, the strong deposit growth allowed for the repayment of FHLB borrowings, further improving the margin while continuing to structure the balance sheet for sustainable strong margin with very little wholesale borrowings. Moving to Slide 12. Noninterest income increased modestly in the second quarter, reflecting solid wealth management income results, increased deposit-related fees and outsized benefit from bank-owned life insurance. In addition, total expenses, when excluding merger and acquisition costs, increased 1.8% when compared to the prior quarter. Some key changes for the quarter include annual salary merit increases and director equity award grants as well as increased check and fraud losses, timing on advertising expenses and legal loan costs. And lastly, the reported tax rate for the quarter was approximately 22.3%. I'll now shift gears and provide some insight into the Enterprise acquisition. Though we are only 18 days out from the closing, we are able to provide some updates regarding a few key deal metrics. First, excluding any fair value adjustments, we acquired approximately $4.1 billion of loan balances and $4.4 billion of deposits. Given the stock price at closing, the book value of the net assets acquired and the yield curve position at the time of closing, we now anticipate the deal to be approximately 8% to 9% dilutive to tangible capital on day 1, inclusive of the anticipated onetime merger costs and the non-PCD loan double count impact. Given that longer-term rates have contracted a bit since the time of announcement, this would suggest slightly lower tangible capital dilution than expected with the trade-off being modestly lower earnings accretion with no material impact on tangible book value earn-back period versus original expectations. In addition, we recognize that the FASB has issued proposed guidance that would effectively eliminate the non-PCD double count. However, it is anticipated that the final guidance will not be promulgated until later in the year. And as such, we expect to close and report our third quarter results with existing PCD, non-PCD treatment. And lastly, with the core conversion scheduled for mid-October, we expect to recognize full cost save synergies during the first quarter of 2026, which we reaffirm to be approximately 30% of the enterprise expense base. In closing out my comments, I'll turn to Slide 16, where we will now focus on next quarter guidance only given all the moving pieces of the recent merger closing. In terms of organic loan growth, we anticipate a low single-digit percentage increase on a combined basis. For organic deposit growth, past experiences suggest we may see some modest level of deposit attrition from the acquired balances. And as such, we are estimating flat to slightly down combined deposit balances. Regarding asset quality, we still do not see any pervasive broad-based issues across segments. And as such, provision will likely continue to be highly driven by developments of individual commercial credits. For noninterest income, we estimate a low single-digit percentage increase off of the combined results. And for noninterest expense, as I just alluded to a little while ago, we will expect to see a flat to low single-digit percentage increase on the INDB stand-alone results, which includes some level of costs associated with our 2026 core system migration. Regarding the enterprise expense base, we should realize some modest level of cost saves in the third quarter. However, we will refine the assumptions over the timing and extent of full cost saves as we work through the second half of the year. Regarding the net interest margin, we provided a revised chart on Slide 17 to show the path of what is expected for continued margin expansion from both the core INDB and Enterprise results, along with the anticipated lift from purchase accounting. And this indicates we would peg the third quarter margin to be in the [ mid -360 ] range. As a reminder, the purchase accounting estimates are based on the preliminary work that has been completed to date as the fair value marks have not been fully finalized at this point. And lastly, in closing out the guidance, the tax rate for the quarter is expected to be in the 23% range. That concludes my comments. And with that, we'll now open it up for questions.

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

This is Thomas on for Steve. So where were new loan originations during the quarter? And maybe can you speak to some of the competitive dynamics you're 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.