Earnings Call: Q2 2021

Jul 23, 2021

Good day, and welcome to the Independent Bancorp Second Quarter 2021 Earnings Conference Call. Please note this event is being recorded. Before proceeding, let me mention that this call may contain forward looking statements with respect to the financial condition, results of operations and business of Independent Bank Corp. Actual results may be different. Factors that may cause actual results to differ include those identified in our annual report on Form 10 ks and our earnings press release. Independent Bancorp cautions you against unduly relying upon any forward looking statements and disclaims any intent to update publicly any forward looking statements, whether in response to new information, future events or otherwise. With respect to the Meridian East Boston Savings Bank transaction, please note that Independent filed a Form S-four registration statement with the SEC that includes a proxy statement prospects regarding the merger. You are urged to read the proxy statementprospects and other documents relating to the merger because they contain important information about the merger. In addition, independent and Meridian and other directors and officers may be deemed to be participating in the solicitation of proxies in favor of the prospective merger. Finally, please note that during this live call, we will also discuss certain non GAAP financial measures as we review Independent Bancorp's performance. These non GAAP financial measures should not be considered replacements for and should be read together with non GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings press release, which contains reconciliations of these non GAAP measures to the most direct comparable GAAP measures and additional information regarding our non GAAP measures. I would now like to turn the conference over to Chris Oddleason, President and CEO. Please go ahead. Good morning, everybody, and thank you, Betsy. Thank you, everybody, for joining us today. With me, as usual, is Mark Ruggiero, our Chief Financial Officer. We are also joined by Rob Cazone, our Chief Operating Officer and Jerry Nadeau, President of Rothman Trust and our Chief Commercial Banking Officer. Our strong fundamentals were once again on display as evidenced by our solid second quarter performance. Excluding M and A charges, operating net income for the quarter came in at 30 $800,000 or $1.17 per share. Mark will be taking you through the quarter shortly, but highlights include excluding PPP loans, our commercial portfolio grew at a healthy 4% annualized rate for the quarter that was marked by strong loan closings. In general, while total loan growth remains constrained, we remain encouraged by our robust origination volumes across both the commercial and retail areas. In fact, total loan origination of approximately $1,600,000,000 for the first half of this year grew by over 24% from the same period last year. Deposit generation remains very robust with core deposits reaching 92% of total deposits. Our marketing efforts and growing brand recognition resulted in record new account openings along with ongoing growth in the number of households we serve. Investment management continues as a major source of strength with rising fee revenues and assets under administration continuing to reach record levels. Credit quality remains pristine with non performing loans down by over 19% during the quarter along with minimal levels of charge offs and lower delinquencies. Expense levels remain well contained given our disciplined management of costs and selective investments and tangible book value per share continued its upward ascent. So all in all, a well rounded performance, while we and all other financial institutions are still dealing with the lingering effects of the pandemic, along with the unprecedented levels of excess liquidity, we are witnessing some encouraging signs of increased economic activity. Though economic recoveries are fragile by nature, but we remain hopeful of continued progress. We also continue to be active participants of the PPP loan program. Since its inception last year, we originated just about 10,000 loans totaling nearly $1,200,000,000 At the same time, we've been hard at work aiding the 6,000 plus round 1 borrowers to obtain forgiveness of their loans. This program required a lot of effort, but it provided needed working capital to worthy businesses. As the program winds down, we really take great pride in how we answer the call and the communities we serve. Beyond all that, our top priority, of course, centers in the integration planning for our recently announced acquisition of Meridian Bank Open its flagship East Boston Savings Bank, a well run community bank with $6,500,000,000 in assets centered in Boston proper and neighboring towns. Now we couldn't be more excited about assimilating this company to ours and we're already making excellent progress in the three months since the announcements. Initial focus has been heavily on key people retention, which is proving quite successful, especially in the customer facing ranks in both the commercial and consumer areas. Jerry and Rob are heavily involved with their East Boston counterparts and mapping out new business opportunities in the acquired customer base. Branch consolidation decisioning and planning is very far along. Shareholder approval meetings are scheduled for early next month and all regulatory applications have been filed. I would especially like to thank Meridian's CEO, Dick Gaviano and his senior team for their focused and very capable efforts to ensure a smooth integration of our 2 companies. Dick's intimate knowledge of the local marketplace is invaluable and I look forward to continuing to work closely with him in his consulting role with us over the next few years. We remain confident in achieving our original expectations for cost savings, healthy earnings accretion and tangible book value accretion, and we anticipate a 4th quarter closing and conversion. Despite this high priority effort, we're not sitting still and moving our franchise forward. Our proven integration record across multiple acquisitions over many years gives us confidence to pursue other growth initiatives at the same time. For example, we're implementing our mobile your banking technology, which allows customers to chat and share documents securely with their own dedicated banker anytime, anywhere from their own phone, tablet or computer. And we're working to further extend our sales force application within our commercial and investment management businesses along with a rollout to our retail network that will continue to boost our marketing and new business generation We continue to expand in the Greater Worcester market with the recent opening of our Shrewsbury branch. We will have a 3rd Worcester City branch opening next quarter with another plan for a neighboring town early next year. We also continue to attract senior lenders with in-depth knowledge of the local markets. We're very encouraged by our progress in this attractive market. And of course, continue to build out our broad based enterprise and technology risk management functions to accompany our growing size as a company. Taking a look at the economy, despite a recent shift in sentiment in the equity markets due to increased uncertainty, economic data remains encouraging and the economy continues to prove its resiliency nationally. As I'm sure, one of you know, GDP continues to climb with consumer spending providing a strong tailwind. Retail sales growth exceeded expectations in June and that provides for support for continued growth. If inflation remains in focus, but Chairman Powell has reaffirmed his stance that it will be transitory and the Fed will continue labor market continues its steady recovery with 850,000 new jobs in June. More locally, the Massachusetts economy has seen back to back quarterly GDP growth ahead of the nation with Q1 2021 GDP growth of 6.9% compared to 6.4% nationally. In addition, while Massachusetts was hit harder by the pandemic, the labor market in Massachusetts continues to recover faster than the nation, led by strong growth in leisure and hospitality as well as some other services. Now in summary, I'd say that there is a lot going on in our company these days and we believe we are persevering very well for the near term challenges posed by the current environment. But more importantly, we continue to build on our strengths to ensure long term success and sustained financial performance. We continue to rank high in various surveys by reputable third parties across a wide range of measures. Most recently, we came in 1st in our home state and 3rd nationally in Forbes ranking, so the world's best bank. Also, the Bank Director publication ranked us 2nd overall for long term performance total shareholder return. Opportunistic acquisitions such as Meridian Bancorp certainly contribute to our long term goals, but organic growth remains a focal point. We like how we're positioned without taking anything for granted in this highly competitive space. We believe the winning formula lies with a relentless focus on our customers and service, a clear understanding of our competitive advantages and investing heavily in our Roth and Trust colleagues. Rate service to our customers. They have really fully embraced our role as an essential business to provide much needed comfort and support to our customers and local communities in these very stressful times. And I will thank each and every one of them for their dedication and enthusiasm. And with that, I'll turn it over to Mark. Thank you, Chris. 2nd quarter GAAP net income was 37 $600,000 and diluted EPS of $1.14 represents a decrease of approximately 10% from prior quarter results, due primarily to reduced PPP fee recognition and mortgage banking income as well as current quarter East Boston Savings Bank merger related expenses. Excluding merger and acquisition expenses, operating net income and diluted EPS were $38,800,000 and $1.17 respectively for the 2nd quarter. On a GAAP basis, the results reflect a 1.08% return on assets and a 8.70% return on average common equity, while the operating results excluding M and A were 1.12% and 8.98 percent respectively. In addition, tangible book value per share rose another $0.82 to $36.78 as of June 30. I will now summarize some of the major drivers behind the quarterly results. Changes in loan levels continue to be skewed by PPP loan activity. Total loan balances decreased by $308,000,000 or 3.3 percent for the quarter, caused primarily by a reduction in PPP loan balances of $364,000,000 Excluding PPP loans, total commercial loans increased $66,200,000 or 4.3 percent on an annualized basis with total closed commitments of $452,000,000 for the quarter, essentially doubling its volume from Q1. In addition, the approved commercial loan pipeline as of June 30 sits at approximately $346,000,000 dollars which should bode well for healthy closing activity in the second half of the year. As discussed in prior quarters, the majority of commercial opportunities lie in various residential developments, including both single and multifamily, as well as both for sale and rental properties, while additional opportunities are diversified across retail, industrial and warehouse classes. In addition to new volume associated with those asset classes, 2nd quarter balance changes also reflect an increased level of construction loans reaching project stabilization and either transferring into commercial real estate or refinancing out. We also experienced solid growth in our small business portfolio as the customer goodwill earned from the successful PPP campaign has paved the way for increased volume. On the consumer loan side, a similar story of strong closing volumes was experienced in both the home equity and residential books, with the residential portfolio also benefiting from the retention of approximately 45% of the production into the balance sheet portfolio for the 2nd quarter as compared to only 23% in the Q1. Despite the consequent lowering of mortgage banking interest income, the increase in retained residential loans did help maintain balances quarter over quarter while adding modestly to net interest income. And strong closing activity in home equity continues to be offset by accelerated pay down and payoff activity resulting in a 1% decrease in that portfolio. As Chris noted, our success in the PPP program, a deeper dive into the related financials is as follows. As of June 30, 2021, there are approximately $112,000,000 of outstandings and $1,500,000 of deferred fees remaining to be recognized from the original 2020 round, the majority of which should be recognized in the second half of the year. Regarding the new 2021 round, we closed that program having secured approximately 3,700 loans, totaling approximately 370,000,000 dollars This volume generated $18,200,000 in total fees with $16,900,000 remaining to be amortized into interest income over the 5 year repayment schedule or accelerated into income upon full forgiveness. Total deposits increased by 3.4 percent or $393,400,000 reflecting not only additional stimulus money received in April, but as Chris cited, very robust new account opening activity. Core households are up 2.6% over the first half of the year with core deposits now reflecting 92% of total deposits. The combination of strong core deposit levels and the runoff of higher cost time deposits led to a 2nd quarter overall cost of deposits of only 7 basis points, down another 3 basis points from the prior quarter. While the success of attracting new core accounts does not alleviate the current excess liquidity challenges, we continue to feel strongly about the long term strategic value of attracting new core customers, and we believe the current environment remains right for doing so. As such, there are no plans to hit the pause button on efforts to attract and retain core customers, as evidenced by, as Chris mentioned, our continued Worcester branch expansion and ongoing improvement in our digital experience. Though general expectations for an improving economy could lead to some level of increased customer spending in the second half of the year, The impact of the excess liquidity from both our consumer and business segments on overall deposit and cash levels remains challenging to confidently predict. The primary outlet for some of the excess liquidity continues to be the securities portfolio, with 2nd quarter purchases of $340,000,000 and overall balance increases of $251,000,000 or 17.6 percent. With our overall asset sensitive profile of the balance sheet, we have been more comfortable investing further out on the curve for these security purchases with an average expected duration on 2nd quarter and first quarter purchases of 5.4 years and 6.7 years respectively. Shifting gears to the quarterly earnings, net interest income of $93,400,000 decreased by $2,200,000 or 2.3 percent compared to the prior quarter with the reported margin of 2.99 percent reflecting a 20 6 basis points decrease. As I previously noted, the decrease in dollars was primarily driven by a reduction of PPPCs as $7,200,000 was recognized in the current quarter versus $9,500,000 in the prior quarter, while the decrease in margin is primarily attributable to the elevated levels of cash and securities, where average balances rose by over $800,000,000 on a combined basis in the quarter. The loan yield compression was able to be offset with further deposit rate decreases during the Q2 with absolute funding costs at very low levels, further asset yield reductions from asset repricing will be a challenge to mitigate going forward. Regarding asset quality, notable metrics for the quarter include the following: non performing loans decreased $11,400,000 or 19.2 percent driven primarily by an $8,400,000 commercial loan payoff during the quarter. Total delinquencies dropped to 0.11 percent of the portfolio. Net charge offs for the quarter were only $192,000 representing nearly one basis point of loss on an annualized basis. And total loan deferrals were $233,800,000 at June 30, which is relatively consistent with the prior quarter as expected. This equates to 2.6% of the total portfolio and continues to be concentrated in the accommodation industry. As such, the negative $5,000,000 in provision for bad debts is reflective of improving overall economic forecasts, very strong asset quality metrics and modest new overall loan growth in the quarter. The current level of loan loss reserves equates to a healthy 2 21 percent of non performing loans. Non interest income decreased $279,000 or 1.1 percent, which included strong wealth management results further enhanced by seasonal tax preparation fees, notable increases in deposit account fees, interchange and ATM income and $1,100,000 of gains from small business equity investments. Offsetting these increases, the $3,000,000 decrease in mortgage banking reflects gain on sale margin compression combined with the aforementioned strategic decision to hold a larger portion of new originations in the company's portfolio versus selling into the secondary market. On the expense side, total reported expenses increased 5.2% from the prior quarter. When excluding the $1,700,000 in merger related expenses, the remaining increase of $1,900,000 is almost entirely comprised of increased incentive compensation with other offsetting increases and decreases in various categories. Lastly, the tax rate of 24.9% for the 2nd quarter is in line with expectations and is up from the prior quarter, which as a reminder benefited from $1,400,000 of discrete benefits associated with loans and housing tax credit investments and equity compensation. In summary, highlighting various aspects of those 2nd quarter results as a framework for near term guidance, The healthy pipelines across all loan products should serve the low single digit annualized commercial loan growth moving forward, excluding PPP impact. While the mortgage retain versus sell decision and low home equity utilization rates will continue to challenge net growth in the consumer books. Any future deposit growth will likely be more muted, which in turn will affect the level of excess cash continuing to be deployed into securities. And though the deployment of cash into securities will provide some level of incremental interest income, a reduction in net interest income is expected as accelerated PPP fee income for Q3 is anticipated to be approximately $5,500,000 lower than Q2 results, with any notable acceleration of the 2021 round not expected to benefit the margin until 2022. Assuming an anticipated trend of improving general economic factors and no major surprises from overall asset quality, provision for loan loss will likely continue to track at levels below net charge offs, resulting in further reductions in the overall allowance. And with various moving pieces, core non interest income, excluding the 2nd quarter $1,100,000 investment gain that is non recurring and non interest expense excluding merger costs should remain relatively consistent with Q2 results along with a consistent tax rate for the remainder of the year. That concludes my comments and we'll now open it up to The first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Good morning, everyone. This is Nick Cutrone filling in for Mark. Hope you've been well. Hi, Nick. Thank you. So I wanted to start with the deferral portfolio. As you alluded to, looks like nearly 3 quarters of the remaining modifications were in the accommodation book. Can you give us some color on those loans? Has occupancy rebounded significantly? Sure. Maybe, Jerry, do you mind giving some color there? Sure. It's really 2 subsets in that group, and that is those that are sort of destination vacation stay hotels have actually come back very, very strong. Majority of them are either in vacation locales such as New Hampshire and Cape Cod. They're experiencing occupancy levels in some cases even in excess of 2019. The business stay hotels are, for the most part, flagged suburban to Boston or suburban to in Rhode Island, focused on business travelers. They have been slowly improving their occupancy rates and ADR. And anecdotally, we are hearing from them that from what then is low, is in some cases is 10 percent, now running up closer to 50% on average with many of them reporting nearly 100% on weekends. So it is gradual, steady improvement on those that subset. So of those $176,000,000 in accommodation deferrals, do you have a breakout of what percentage is destination versus business? In that group, about 2 thirds is business. Our total hotel portfolio is split about fifty-fifty, but in that subset, 2 third business travel, 1 third vacation. That's very helpful. Can you share with us where C and I line utilization was at June 30 relative to last quarter and then pre pandemic levels? Sure. I have that. Here, Nick, so we look at within C and I, we break out dealer floor plan and then other general C and I lines. I have March 2020 data, which was right at the onset of the pandemic, but reflective of probably more healthier levels. General line of credit utilization was around 46% in dealer floor plan utilization was about 66% back at March of 2020. At the end of the Q2, general C and I line utilization is down to about 34% and dealer floor plan is down to 52%. So certainly, those continue to give some headwinds into extracting outstanding balances on the balance sheet. That's great. Thank you for having that handy. And then lastly, just thank you for quantifying the commercial loan pipeline. It sounds like you're optimistic for the second half given your guidance. Could you help us think about where you're finding opportunities in a competitive lending environment? Mike, would you like me to answer that? Sure. And I'll chime in if needed, Jerry. As Mark indicated in his comments, we're seeing it mostly on the residential side, whether it be apartments or single family or condominiums for sale, I would say, have been the most significant driver. And then secondarily, have been clients either expanding their buildings for their own personal use, being their business, or expanding buildings for further rental tenants, mostly these are on the industrial fixed use, if you will, side. That's probably been the primary drivers mostly on the CRE side. That's great. Thank you for taking my questions. Nick, I thought it'd be important to note just back on your deferral question, one other aspect of that that as a reminder, we shared this in prior quarters, but recollection, we a lot of those modifications under the CARES Act, we're able to extend out into 2022. So many of those accommodation based deferrals will continue to stay on deferral through the remainder of 2021. So those levels of deferral balances that we've been reporting would not be expected to run off in any meaningful manner through the rest of the year. And then they'll sort of layer in based on different segments and different maturity dates of those deferral programs. So those will be deferrals well into 2020 That's great. Thank you for clarifying. The next question comes from Dave Bishop with Seaport. Please go ahead. Yes. Good morning, gentlemen. Good morning, Dave. You had mentioned in terms of the outlook for excess liquidity, probably continuing to redeploy to the extent that loan growth opportunities are available into the securities portfolio. And I guess that's up to probably about 11% of average assets or so. Do you have a sense how large that could get as a percent of assets? Just curious how you're thinking in terms of building that in light of Chris, I guess, your remarks with the Fed seemingly staying on the sidelines for some time and the yield curve staying so flat. Just curious what the appetite is to grow that portfolio. Yes, David, you know our story well. We typically do not have an overly large securities portfolio as a percentage of those assets. And in fact, the percentage we have right now is pretty much where we've historically operated at. I think this dynamic in the environment we're in with the level of excess cash, it just warrants sort of an expectation and the correct decision to at least deploy some of that excess cash and probably build a higher securities portfolio than we typically operate with. I will add, the one challenge here is just even finding security product that has a reasonable return and a reasonable spread. So during the Q2, we leading up to the Q2 and through partway of the Q2, we were primarily investing in agency bullets going a little bit longer out on the curve because we have the asset sensitive profile to do so. We all know that just the low rate environment in fact what we're seeing in terms of spreads and a lot of those products is becoming more and more of a challenge to be convinced that those are the right deployment of the excess cash. So we actually move towards purchasing some treasuries as of late, because to be quite honest, it's just the best bang for our buck at this point. So it's a constant sort of analysis of where to deploy that liquidity, if there's even convincing product out there with a reasonable spread and reasonable return for the risk, But sort of a long way of saying we'll modestly continue. I think the clip we did in the Q2 of $3,000,000 $350,000,000 of purchases, assuming all things being equal, that's probably where our comfort level would be. And did you have the average weighted average yield on the security purchases this quarter by any chance? Yes. On the Q2, it was a little over 1 so about 1.1% on those purchases. Obviously, the treasuries that I just mentioned will be lower than that. Those are we're looking at sort of the 5, 6 year part of the curve on those purchases. You're talking maybe 70 basis points, but all in weighted average for Q2 purchase was 1.1%. Got it. And then Chris, I think you noted another strong quarter from the Investment Management Wealth Management Group, probably one of the stronger quarters we've seen on a year over year basis. Just curious how much of that is sort of market rebound related versus new assets and generation of new relationships? I don't have that breakdown in front of me. I will say we our origination is strong. Mark, do you have that specific breakdown? I do. Yes. We had net inflows of about well, actually, we did experience a little bit of runoff in the second quarter. So essentially a wash in terms of new money and outflows for the Q2 and most of the appreciation came in market value appreciation. But we did add a little over $100,000,000 or $125,000,000 of new money, and that's down a little bit from the Q1 where we were just shy of 200,000,000 dollars But still very good results and very optimistic opportunities in talking with the wealth management folks. I think they're excited to be able to actually go out and start meeting with clients again. I think there's been a lot of pent up demand for those customers to have those face to face meetings and get with their advisors again. So we're feeling very good about continuing to find opportunities there and the market's been cooperating as well. Dave, I will add that we have grown this business over 10x over the last 15 years. One of the major drivers is our expanding footprint franchise. 80% of our business comes from our commercial bankers and our retail bankers referrals. And the more commercial lenders and retail branches we have, the more referrals we get. And that's been the kind of all our other acquisitions. So with the Meridian Bancorp acquisition, we expect that to bode well too for the growth into this business. Got it. And then just one final question, Mark, you mentioned I missed the number, but in terms of deferred fees outstanding from the 1st tranche of PPP loans. Could you hear over that again? Yes. The first tranche is down to about $1,500,000 David, as of June 30. Got it. And then 18.2 in the I'm sorry, dollars 16,900,000 $900,000,000 Yes. So I think that will just be subject to normal amortization through most of 2021, so a 5 year sort of amortization period on the $16,900,000 The one caveat there is there will be a time period here in the Q4 for the most part where borrowers will hit their the end of the time period, the 24 week period of utilizing the funds. Then there's a 10 month window essentially where they have sort of a payment deferral and that's sort of the window when at least to the first round we experienced we'll start to see some level of applications coming in for forgiveness. So it's tough to pinpoint exactly when customers will start going through that forgiveness process. But if we leverage what we learned through the first round, my best guesstimate would be the majority of that will not happen until 2022. But there is the potential for some accelerated forgiveness later in the year. I just think you'll see the majority of it in the next calendar year. Got it. Thanks. Sure. The next question comes from Laurie Hunsicker with Compass Point. Please go ahead. Yes. Hi, good morning. Good morning, Laurie. I just wondered if we could go back to deferrals for a minute and your credit trends look great. Just wondered if you could comment a little bit on this other small business services where we just saw the sharp uptick in deferrals. So I'm talking about the lines, it looks like it's real estate and leasing. I mean, your small transportation warehouse, but your deferrals went linked quarter from $24,000,000 to $43,000,000 Just any color you can give us around that or how we should be thinking about that? Yes. Without the specific borrowers, Laurie, I'd say this was a similar issue with the Q1. There was a time period through as of when we reported year end 2020 deferral numbers and then as it played out over the 1st couple of quarters, we were in talks and negotiations with a number of borrowers that were looking to enter into a deferral program. And just the timing of when some of those negotiations got executed, that's what created the increases we've seen over the last couple of quarters. Executed, that's what created the increases we've seen over the 1st couple of quarters. So I'm not sure if you recall, but when we announced at year end, we talked about somewhere around $70,000,000 of potential deferrals that were still somewhat in flux that could come back on. So nothing has surprised us there. All of these increases over the 1st couple of quarters were all part of that group that we were talking to. And in fact, it's probably at a number now where we anticipated we would be once sort of all the dust settled. So the one increase this quarter was just another example of a borrower that had not sort of in theory signed the paperwork and just got around to it in the Q2. Got it. Got it. Okay, thanks. And then also just wondered and thank you for your clarification on the remaining PPP fees. If you could also help us think about what accretion income is going to look like in 2022 with EBSD? And then also just any thoughts you can give us pro form a margin, excluding the PPP. In other words, as we think about what your core margin looks like for 2022, factoring in EBSD, factoring in the restructure, any comments would be super helpful. Sure. I'll take a stab at it. And as you noted in your question, there are a lot of moving pieces in that equation. So I'll try and break it down for you as best I can. But I think as a starting point, looking at our results over the last couple of quarters, I think of it as let's take LPPP altogether as sort of the baseline starting point. And I think if you do that, you're looking at our standalone entity at a margin of about $280,000,000 to $285,000,000 That's with what has been a pretty consistent purchase accounting accretion number. We've seen in the last couple of quarters, it's running about $1,600,000 $1,700,000 a quarter. That could tick down a couple of 100,000 if I had to guess over the next couple of quarters, but I don't think it'll be a meaningful change. Upon the East Boston acquisition, as a reminder, our initial assumptions that are still subject to obviously a lot of moving pieces between now and close, but at the time we announced and what we're reiterating still is that we would have a sixty-forty PCD, non PCD, well, I should say sixty-forty non PCD, PCD split. And that would equate to about a $65,000,000 $68,000,000 non PCD mark. So that would get accreted into income. If we assume that's a 5 year average life, that would equate to about $13,000,000 a year in accretion income. Offsetting that, we anticipate there'll be a premium loan interest and liquidity mark essentially in the same amount. So the amortization of that premium will be about $13,000,000 $14,000,000 that will wash with the non PCD benefit. So the good news is there should be sort of a washing effect in terms of the noise in the margin on that side. And then there'll be a sort of a 1 year benefit on the fair value mark of the CDs or the time deposits. And I think that will accrete in about a $5,000,000 benefit. So really that starting point core margin $2.85 doesn't change a whole lot when you layer in the impact of the acquisition because a lot of that is sort of netting out to very little noise. But I think you're going to see that get into about a $2.90,000 $2.95 margin, we'll call it. And then lastly, we talked about sort of the balance sheet restructure and the opportunities to essentially allow for a level of runoff on the commercial real estate book and then likely deploying some of that excess cash into paying off the wholesale funding and also allowing for us a level of deposit runoff. So we peg that and modeled in essentially a $2,000,000,000 reduction in the balance sheet on the asset size that's comprised of $1,300,000,000 in cash and $600,000,000 or $700,000,000 in loans. And then on the funding side, it's $600,000,000 in FHLB borrowings and the rest coming out of deposits. That spread on that $2,000,000,000 is only about 50 basis points. So even though we'll lose absolute dollars in net interest income, the quality of earnings improves significantly. So you're looking at a smaller balance sheet, but we peg that margin post full restructure of that $2,000,000,000 to get back up to about $320,000,000 or so. So I'll pause there, Laura. I know there's a lot of moving pieces there, but hopefully that answered your questions. Yes, that's fair. Thank you for all the details. I really appreciate it. That is great. Hopefully, I wrote fast enough. Chris, just last question for you. Obviously, we're going to see EBS be close here hopefully by the end of the year. How are you thinking about forward M and A at this point? So Laurie, pretty much the same way. I know we've had a long track record of an acquisition sort of coming across the horizon every year and a half, two years. And it's been a really great growth strategy for us. And I think that we've executed it quite well and it's been important to us. And I would hope that once we close and convert and digest that as the past passes prologue and another opportunity emerges, we would love to take advantage of it. Okay. And then just remind us again, I know that we one of us actually usually every quarter, but just your target asset size in terms of how small you would go, how large you would go? Yes. That's the banks are sold not bought. I'd love to sort of tell you exactly. I think probably it have to move the needle a little bit and there would have to be if it was too small and didn't move the needle, that might there have to be other good reason like some capability we're buying or so on. I mean you may recall the first acquisition back in 2003 was $175,000,000 I think that was the size of Falmouth Coop. And I think that would be too small. So moving the I have to move the needle a little noticeably. I mean, certainly not as much as Peace Plus and Meridian Bancorp, that's pretty extraordinary. That was good metrics. But I don't want to set a number, but it has to be something noticed. Great. Thanks for taking my questions. Thanks, Laurie. The next question is from Kelly Motta with KBW. Please go ahead. Hi, thanks for the question. Good morning. Hi, Kelly. Hi. At this point, most of my questions have been asked and answered. But I did want to dig in a little bit on expenses. Specifically, your occupancy and equipment line came down a lot, which you in the release said was mostly snow removal and reduced cleaning costs. Just wondering, I think you in the past have talked about potentially reducing some office expenses. Just wondering if you're still working on that as you look to integrate and close the Marine deal and if there is anything else kind of at play to drive that decrease? Yes. Certainly, in terms of occupancy and equipment post Meridian, we've talked about sort of our cost save assumptions. And I think that will play out as we've anticipated and where we've made a lot of great progress and are on track to, we believe, achieving those cost saves. But certainly, the absolute dollars will increase with the expansion of the branch locations and the office space we're taking on there. But as a standalone, Rockman Trust entity, we think we've been pretty careful about where to spend money, especially on technology and equipment. We need to continue to invest in our capabilities. We need to continue to invest in our infrastructure. And that requires a constant care and feeding of the environment and that isn't where we think it makes sense to shortchange the investment. A couple of tangible items I'd point to and I actually don't have exact numbers in front of me, but just a reminder, we did make a decision to close the Seaport and the Medford branches last year, and we pulled a lot of that expense forward. But there was still some level of incremental sort of run rate expense, and we actually just completely closed those branches and exited those branches in the Q2. So there should be some modest benefit in terms of fully exiting those two branches. But in terms of other line items, I think, we've extracted probably as much as we can, but we're always looking at that and looking for efficiency gains where it makes sense. Great. And then Edmond, earlier in the call, you Chris, I believe you spoke about getting new lenders and lockup agreements in place. Just wondering how that initiative is going, if it's mostly completed at this point? And if you could just go over whether that's for Meridian specifically or how you're doing with recruitment from other banks as well? Thank you. Great. I'll let Jerry comment more extensively. I will say that this is one of the stories that will never end, I think, in our business. We will be constantly looking for lenders through acquisitions, through hires, through internal development, through promotion. But Jerry, you can expand on that. Sure. Thanks, Chris. Hi, Kelly. Yes, I think in the context Chris was speaking about earlier, it was about Wister. And we're very fortunate to have been able to bring over a couple of folks from TD when we opened in Wister last year. And so that's been really giving us some nice growth. And we're actually having meetings, and it's almost as we speak now with some lenders from other banks that are in play at the current time. So even though we are joining together with East Boston, we're continuing to find opportunities to add incrementally to our team in a couple of our different groups. So I think we have a couple that we're pretty close to right now. So I think that's something we always want to be opportunistic about. There's great value to finding relationship managers that have been in the market for a long time and generally been able to bring relationships over to us. Great. Thanks, Jerry. And maybe one last one, probably for Mark. Just to attach rate, it looks like it bumped up a bit. Just wondering if there's any kind of dispute items there or kind of net net how to think about the tax rate for the rest of the year? Thanks. Yes. That level for Q2 of high-24s, 25% is right in line and we should expect to see that for the rest of the year. The Q1 was the anomaly because of some one time benefits on low income housing tax credits where we get updated information and have to revalue the tax benefit. And then equity compensation typically creates some noise in the Q1 because of when the awards vest, that triggers a onetime impact through the tax rate. So Q1 is noisy and then the rest of the year should fall out into that high 24% range. Great. Thank you. That's all for me. Thank you, Kelly. Have a good weekend. This concludes our question and answer session. I would like to turn the conference back over to Chris Oddleifson for any closing remarks. Great. Thank you, Betsy, and thank you everybody for joining us today. We look forward to talking to you in 3 months and update you on our Q3. Have a good weekend. Goodbye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.