Independent Bank Corp (Massachusetts)
NASDAQ:INDB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
46.1159
74.1
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Independent Bank Corp (Massachusetts)
You don't have any saved screeners yet
Good morning, and welcome to the Independent Bank Corp. First Quarter 2022 Earnings Conference Call.
Before proceeding, let me mention that this call may contain forward-looking statements with respect to the financial condition, results of operation 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-K and our earnings press release.
Independent Bank Corp. 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.
Please note that during this call, we will also discuss non-GAAP financial measures as we review Independent Bank Corp's performance. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website and a copy of our earnings press release, which contains reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional information regarding our non-GAAP measures. Also, please also note that this event is being recorded.
I would now like to turn the conference over to Chris Oddleifson, President and CEO. Please go ahead.
Thank you, Anthony, and good morning, everyone. Thank you for joining us today. With me, as always, is Mark Ruggiero, our Chief Financial Officer, and we are once again joined by Rob Cozzone, our Chief Operating Officer.
Following last year's strong performance, we kicked off 2022 with solid results driven by our core underlying fundamentals. Excluding merger-related charges, operating net income for the first quarter came in at $58.2 million or $1.23 per share.
Needless to say, profound macroeconomic and geopolitical uncertainty persist, we've been able to keep our heads down and focused on a day-to-day task to service the needs of our growing customer ranks. Mark will be taking you through the quarter shortly, but highlights include while underlying loan growth continues to be masked by the ongoing expected runoff in the PPP and acquired East Boston Savings Bank portfolios, origination volumes across the board continue to be strong, and our loan pipeline continues at robust levels as well.
Core deposit levels continue as a major source of strength and carry great intrinsic value in the rising rate environment. The total cost of deposits remained at a very low 5 basis points.
The core net interest margin rose nicely this quarter, while we remain well positioned for rising rates. Our Investment Management business continues to shine despite compressed market valuations for much of the quarter, our assets under administration remained at the record level of $5.7 billion.
Tight expense control remained in place as our operating efficiency ratio remained well below 60%, and our capital levels remain in excellent shape. So we're off to a good start in 2022.
Beyond the numbers, we continue to move the franchise forward in a host of ways. Most importantly, the integration with East Boston Savings banks are proceeding very smoothly. We're especially encouraged by the high deposit retention rates we've experienced. The assimilation of the branch network and personnel has been excellent, and we're already getting good traction with expanding relationships with East Boston's customers with our expanded product set. Similar opportunities are being actively pursued across the full range of our consumer, commercial and investment management businesses.
We continue to make inroads into the coveted Worcester market in Central Massachusetts. We'll be opening a new branch in Whisborou next month, bringing our total retail footprint to eight branches in this region, which also serves as a nice complement to our existing commercial banking and investment management presence there. New business generation in this market has been quite good over the last past two years.
We continue to expand our digital banking capabilities to keep pace with the customer preferences in this arena. Most recently, we incorporated Zelle digital payments into our mobile banking system, continued the rollout of our Europe banking digital platform and are planning for an Encino implementation, greatly enhancing our commercial and business loan front-end system. And we continue to attract experienced professionals into our ranks to our attractive to both our growth potential and corporate culture.
And just one example. This past quarter, we've added signed five senior professionals in our investor management business. Some of whom will help us capitalize on the opportunities with the East Boston Savings customer base.
One accomplishment we're especially proud of is having just received the number 1 ranking in New England in the J.D. Power 2022 U.S. Retail Banking customer satisfaction study. This is the third such time where we received top ranking in this highly regarded survey. And what is particularly noteworthy is that we achieved this honor even while we were engaged in assimilating East Boston Savings in its large customer base. This recognition is a true testimony to the enormous care, respect and relationship orientation of my Rockland Trust colleagues.
Turning to the economic picture. Overall economic activity was robust to end 2021 with fourth quarter 2020 GDP growth of 6.9% nationally and 7.8% locally. The labor market continues to be a bright spot, both nationally and locally in March, unemployment had a post-pandemic, and labor force participation rose to a post-pandemic high, and we hope that continues as hiring does remain challenging.
Needless to say, the focus remains heavily on inflation with a surge. The Fed continues to emphasize our hawkish tone reiterating commitment to combat inflation rate hikes, and Mark will address the impact on rising rates in his comments.
Now versus a year ago, we certainly entered the New Year as a materially different company with $20 billion in assets 123 branches, 19 commercial banking centers, 10 investment management centers and nine mortgage locations.
And we worked very hard to maintain the same focus and discipline that has served well over these many years, which at its core is a relentless focus on relationship banking, which extends across all the customers and communities we serve. We fostered an environment of highly engaged colleagues to provide exemplary service to our customers, who in turn reward us with more business.
As such, we remain confident in our ability to continue growing our franchise and delivering solid results. I am pleased to say that our Board of Directors shares that view and recently approved a 6% increase in our dividend to continue to reward our loyal shareholders.
And with that, I'll turn it over to Mark.
Thank you, Chris. Before we get into the details, just a reminder that we provided a deck to accompany the financial update for the quarter, and I'll be referring to that deck throughout my prepared comments.
As such, as noted on Slide 4 of that deck, 2022 first quarter GAAP net income was $53.1 million, and diluted EPS was $1.12, reflecting the first full quarter of operations subsequent to the mid-November merger with Meridian Bancorp and its East Boston Savings Bank subsidiary.
When excluding pretax onetime merger expenses of $7.1 million and the related tax effect, operating net income and diluted EPS were $58.2 million and $1.23, respectively, for the first quarter.
As noted on this slide, key drivers of the quarterly results include 3.3% annualized net loan growth when excluding PPP loans, despite the expected runoff in the recently acquired East Boston Savings Bank commercial real estate portfolio.
In addition, we continued modest cash deployment into the securities portfolio, and this combination led to a core net interest margin of 3% when excluding purchase accounting and PPP-related impact, up nicely from the prior quarter.
Despite an uptick in nonperforming assets, we continue to experience strong asset quality with minimal credit losses, resulting in a negative $2 million provision for the quarter.
In addition, the quarter saw solid fee income results, a few components of which I'll provide more detail a little bit. And overall, operating expenses were in line with our merger-related cost save expectations.
In summary, we view the quarter's results as a reflection of our strong core fundamentals in a balance sheet position and poised to increase profitability moving forward.
On a GAAP basis, the results reflect a 1.06% return on assets and 7.16% return on average common equity while the operating basis results, excluding the nonrecurring merger expenses just noted, were 1.17% and 7.85%, respectively.
And although unrealized losses on the AFS securities portfolio resulted in a $1.10 decline in tangible book value per share, the return on tangible common equity for the quarter on an operating basis was a solid 11.86%.
As we move to Slide 5, we'll now cover some key components of the quarter results. As shown here, inclusive of PPP, the loan portfolio stayed essentially flat at $13.6 billion. However, as I mentioned, excluding PPP, total loans grew at a healthy 3.3% annualized rate for the quarter.
Excluding PPP loans, the majority of this growth occurred in the C&I and residential portfolios with line utilization increases driving growth in C&I while the vast majority of mortgage production for the quarter was retained on balance sheet.
The 1.2% decline in commercial real estate was primarily due to continued attrition of the East Boston Savings Bank balances, which was in line with expectations, while the legacy book experienced solid net growth for the quarter.
Turning to Slide 6. We'll cover some additional insight into loan activity for the quarter. As noted on the left side, commercial loan origination activity was strong for the quarter, with total closed commitments of $392 million, and we remain optimistic for continued strong closing activity with a March 31 approved commercial pipeline of $307 million, up from the prior quarter level of $242 million.
As for opportunities in our market, we continue to see the majority of CRE and construction activity centered around one to four family, condo and apartment asset classes as well as pockets of office and industrial buildings. While on the C&I side, the majority of activity was in the technical service and retail trade industries.
Also noted on this slide, you can see the PPP balances paid down to $100 million as of March 31, generating $3.4 million of net fees recognized this quarter compared to $7.5 million in the prior quarter, with remaining unearned net fees totaling $2.4 million.
On the right side of the slide, we reflect some key metrics around the consumer books, including data on both mortgage and home equity closings, which were both very strong for the quarter.
As alluded to before, 83% of the quarter's mortgage activity was retained in the portfolio as the company's overall asset sensitivity and secondary pricing volatility allowed for a more consistent flow of closings into the balance sheet.
And although home equity balances continue to be muted by low line utilization, strong current pipelines and application volumes should improve future results.
Moving to Slide 7. Deposit activity for the month reflects a continued focus over core household growth, with volatility over municipal and larger business deposits, resulting in relatively flat overall core deposit balances, while higher cost time deposits continue to roll off.
Core deposits as of March 31 now make up 85.8% of total deposits and allowed for the cost of deposits to remain at a low 5 basis points for the quarter, which also serves as a reminder that we certainly believe this strong deposit base will prove its value in the likely future rising rate environment, which I'll provide a little more color on shortly.
Turning to Slide 8. We continue to provide insight on our reported net interest income and net interest margin, along with details over PPP, purchase accounting and other volatile or nonrecurring items to reconcile back to a core net interest margin.
And as you can see here, the reported net interest income and margin increased over the prior quarter reflects the full quarter benefit of the East Boston acquisition, offset by $4.1 million and $1.1 million reductions in net PPP fees and purchase accounting, respectively, versus the prior quarter. Excluding these and other smaller nonrecurring items, the core margin was 3%, up nicely from the prior quarter level of 2.83%.
As we think about the margin going forward, balance sheet asset sensitivity is certainly a topic that is of importance given future expectations. As noted on the slide, any movement in short-term interest rates, primarily Fed funds, 1-month LIBOR, term SOFR or prime, we would see immediate repricing benefit in our Federal Reserve cash balances of $1.7 billion and approximately 33% of our loan book that is tied to these indices.
Partially offsetting the loan benefit, we have about $900 million of macro level hedges and another subset of loans with index floors that are currently in the money, which on a combined basis, mitigate approximately 11% to 12% of that immediate loan pricing benefit.
Moving over to asset quality. Slide 9 provides some key metrics worth highlighting. As noted previously, nonperforming loans increased to $56.6 million as of March 31, driven primarily by a large commercial syndicated credit that is expected to be worked out with 0 loss. Net charge-offs remained benign at $400,000 or 1 basis point on an annualized basis. Total delinquencies ticked down to only 0.29% of the portfolio. And lastly, total loan deferrals at March 31 of approximately $305 million or 2.2% of the total portfolio, reflecting a $78 million decrease from the prior quarter.
Consistent with the strong current asset quality metrics and outlook, a $2 million credit reserve release was recognized reducing the allowance for credit loss as a percentage of loans, 2 basis points to 1.06 as of March 31.
Shifting gears to noninterest items. Slide 10 provides details on noninterest income results for the quarter and as noted here, deposit account fees increased nicely from the prior quarter.
As mentioned earlier, with only 17% of the closing activity driven to the secondary market, mortgage banking income decreased to $1.4 million, which is inclusive of a positive $257,000 mortgage servicing asset increase.
Similarly, our capacity to absorb more fixed rate volume directly on balance sheet has momentarily resulted in decreased swap volume, resulting in a reduction in swap fee income to $600,000 for the quarter, and wealth management income decreased primarily as a result of market depreciation for most of the quarter. However, as Chris mentioned, with an exceptionally strong quarter of new money inflows. As of March 31, total assets under administration rebounded back to $5.7 billion.
Turning to the next slide. Total expenses of $95.5 million reflect a full quarter of the post-East Boston Savings Bank pro forma results, including $7.1 million of merger-related expenses. Excluding the merger expenses, total expenses are reflective of quickly meeting our East Boston savings 45% cost save target.
Having said that, we are working through a couple of remaining lease terminations that will have modest onetime costs in the future, the timing of which will be dependent on executing final negotiations. Lastly, the tax rate for the quarter was 24.4%.
Finishing up on Slide 12 is an update on full year guidance provided last quarter. We essentially reaffirmed the majority of key drivers noted here on Slide 12 with a couple of updates or points of emphasis noted.
Regarding loan growth on the heels of slightly better results in Q1 than planned, we anticipate better first half results than originally expected with modest low single-digit growth for the full year.
Also with the March rate increase and some level of future rate height expectations at almost near certain levels, the guidance we provided earlier regarding the immediate asset repricing impact will certainly drive core net interest margin benefit going forward. All other elements of our prior guidance remains generally unchanged, with the one exception noted being a reduced level of loan level derivative income for the full year.
That concludes my comments, and we'll now open it up to questions.
[Operator Instructions]. Our first question will come from Mark Fitzgibbon with Piper Sandler. You may now go ahead.
Hey guys, good morning. First, I want to say the new slide deck looks great. It's helpful. Thank you.
I appreciate the feedback.
You bet. First, I wondered if you could give us a little more color on that $130 million syndicated credit that is in the workout process. Any detail you could provide us on that would be great. And also I was curious, is that -- was that an East Boston loan? Or is that a legacy independent loan?
Sure. It's a legacy independent loan. And as you noted and you referenced, it's a piece of a larger syndicated credit. Essentially, in conjunction with it being set for maturity in late Q4, one of the major tenants that vacated the space and a refinancing is in the works. It's very highly likely. There's a forbearance agreement that was executed to allow for additional time to work through that refinancing. The nuance problem there, Mark, was that the forbearance agreement was executed 90 days after that maturity date. So we took a conservative position and put it on NPAs. I think it's a little bit of a gray area from the accounting guidance. But needless to say, we feel very comfortable with that credit. It's at a 60% LTV. It's making payments its current and we expect to see a refinance and full pay off either late Q2 or early Q3.
Okay. Great.
It's $24 million, not $30 million.
$24 million?
Yes, there's one other $6 million new item in NPA this quarter as well, but the majority was this $25 million.
What was the other $6 million?
That's an -- it's a one of or if not our only enclosed mall commercial real estate exposure they're working through an anchor tenant. And again, there's plenty of collateral protection on that one. It just slipped into nonperforming.
Okay Secondly, I wondered if you could share with us what your commercial line utilization rate was in the first quarter. I think you referenced it, it starts to tick up a little bit. I was curious what the metrics were around that?
Yes. We look at sort of multiple elements of line utilization. So C&I, in general, had ticked up to about 30%, and that is still 6% lower than where we were pre-pandemic. Our ABL line utilization, which is a subset of C&I is slightly under 50%. That's about 4% lower than where we are pre-COVID. The one area that we're seeing line utilization really remain pretty consistent and at pre-pandemic levels is in the dealer floor plan, which is of a lower exposure.
But what we're seeing some finally some increases in utilization rates, but I think it's important to note, we're still well below where we were pre pandemic. So I think that serves as a lever for growth, should we start to see continued increases there.
Okay. And then it looks like balance sheet liquidity is maybe around 10% right now. What would be your target for that over time, Mark?
Specific to just our cash balances?
Yes.
Yes. What's interesting is we're having a lot of discussions around deposit volatility and potential outflow of deposit balances. You can see here in the first quarter, we stayed flat. I think that's the first quarter in a while, we actually haven't grown deposits.
So we're being cautious about ensuring we maintain a level of liquidity on balance sheet and our cash position. I think we're certainly -- as you know, we're a bank that historically operates with fairly low levels of cash. So I think getting down to 5% of assets is certainly a comfortable level for us, but we are being cautious about being too aggressive and letting too much outflow.
Okay. And then last question, assuming the Fed follows the forward curve, which I think assumes eight more hikes this year, how much do you think the margin could rise to by the end of this year?
Yes. I thought a lot about how to best answer that because as you know, it's a tricky question depending on the assumptions of when those increases happen. So I think the best way I can frame it up for you, Mark, is any 25 basis point increase would result in about $800,000 to $1 million of net interest income benefit on a monthly basis. So I think that's the anchor to think about the dollar benefit. So if the March increase would give you nine months' worth of that benefit or essentially $8 million to $9 million.
The way the Fed expectation rate increases are layered in because it's going to happen over time, you won't see full 7 times that number of benefit in 2022. But if you do the math on assuming a 25 basis point hike at each of the Fed meetings, that 7 hike scenario, we peg would add about $25 million to net interest margin for the year as you get later in that hike cycle, we'd expect some level of the benefit to go back on deposit pricing.
I don't know that helps but it's just tricky with the timing of when those hikes actually have 2022 impact versus full year benefit in 2023, right?
That’s super helpful. Thank you.
Our next question will come from Laurie Hunsicker with Compass Point. You may now go ahead.
Yes, hi, thanks. Good morning. Just staying with asset sensitivity here, do you have a refresh and obviously, I can back into it, I guess, with what you just gave, but do you have a refresh on your actual asset sensitivity with 100 basis point stock, i.e., as of December 31, that was a positive 5.4% on net interest income. Do you happen to have a refresh on that as of March 31?
Yes, you'll find it will be a similar answer there, Laurie. And just, I think, reiterating the math I just talked through with Mark, if you run that math and if you use the $900,000 a month number that I referenced and you do that 4 times and a 100 basis point cycle that would be $3,600 a month or $43 million, give or take. That's about an 8% benefit.
What we obviously have to anticipate when we're modeling out those shock scenarios is that some deposit pricing increase given our historical deposit betas, we think anywhere between 2% and 3% of that would be mitigated with elevated deposit pricing over time as well. So that's how you get to the 5% to 5.5% number we've been disclosing. But the immediate asset benefit is more like 8% on the margin, and then we get some of that back on the deposit side.
Okay. Great. And then just can you refresh us to how you're thinking about deposit betas?
Yes. Again, we really see so much value in our core deposit franchise. I think for these first couple of rate hikes, we feel, given our liquidity position and our deposit base. We're hoping we -- there will be an opportunity to not have to move much at all on deposits out of the first couple of hikes. And then history itself, we experienced on our interest-bearing deposits somewhere between 20% to 25% deposit betas. But keep in mind, we have a very sizable noninterest-bearing portfolio as well. So the combination of that brings you to about 15% or 16% deposit beta for all deposits excluding time. I think that serves as a good barometer expectation of what we should expect going forward.
Okay. Perfect. And then just quickly on the accretion income, and I realized merger math jumps around here, but that was a huge drop. How should we be thinking about that for the rest of 2022?
Yes. Certainly, the first quarter, I would expect that to be a bit of an anomaly. So as you can imagine, with rates where they were for still most of the first quarter, there was still opportunity for loans to refinance out at lower rates. So the loans that did pay off are likely loans with higher coupons that actually carried a premium on them. So you saw -- the negative impact on the margin as we had to recognize premium on those payoffs.
I think going forward, you'll not see that impact as much at all. And I would expect you'll see the loan accretion back to a positive number, whether that's $1 million, $1.5 million per quarter. That's a little bit of a guess at this point, but I would certainly expect it to be a positive number and not flat like you saw in the first quarter.
Okay. Great. That's helpful. And then just on to noninterest income. A couple of moving parts, I guess, maybe helping us think about -- I mean, mortgage banking, obviously, will continue to be weak. But NSF and OD fees that's been a hot button. How should we think about that? How should we think about swap fees, maybe just putting some of that together, if you can drill down a little bit on are you going to do any kind of customer relief on the NSF and OD side? Or just how you're thinking about that? And then high level, how you're thinking about noninterest income for the back half?
Sure. I'll give you some color on the bigger picture perspective and Rob will provide a little more detail on how we're thinking about the overdraft and NSF question. But you hit on a couple of the major noninterest components there with mortgage banking and swap fees. And I think what you're seeing in the first quarter is a temporary impact of essentially, what I think is two elements of our overall income statement that, quite honestly, serve is very good natural hedges to rate volatility.
So when you look back at 2020 as rates came down significantly and we lost benefit in the margin, we saw a record mortgage banking and loan level swap fee income.
As rates now are expected to increase, that demand certainly comes under pressure. We also have an asset sensitivity position that allowed us to put more fixed rate, direct fixed rate exposure on the balance sheet. So you saw a temporary dip in those two feed components. But I think it is important that we continue to look at them in perspective of the combined income stream, both the margin and those components. And over the longer term, those will continue to serve as a natural hedge and a good overall benefit to the income streams.
So I think you're seeing a little bit of the perfect storm given a three-month window where expectation of rates increasing for a temporary slowdown in those two fee components without the benefit of the margin increase hitting the books yet, and Rob can give a little bit of color on your overdraft as we're doing some work there.
Hi, Laurie. So total overdraft, NSS uncollected fees for the quarter, just over $4 million. That includes business, about 80% of that number, so $3.2 million, $3.3 million is consumer activity. Of course, we recognize the dynamics that are happening, both from a regulatory perspective as well as now and even more so now a competitive perspective. So we've engaged a consultant to help us look at both our overdraft programs, but also look at our consumer checking offerings. That work is underway.
We expect to make a whole lot of progress here in the second quarter, and we'll be able to provide you more color come the second quarter earnings conference call. Any changes would just be speculative at this point, Laurie. Safe to say, we should expect fees to go down, but I can't really give you a number as to how much that might be at this point.
Okay. That's helpful. And then just one last question, too, with the noninterest income. So obviously, EBS be folded in, their debit interchange, I know gets hit by Durbin. Was that already reflected into this quarter? Or do we see that come out? In other words, is that an immediate reflect because they're obviously fully merged with you. Or is there still a forward adjustment that occurs? How should we think about that?
That's already embedded in the current numbers.
Okay, perfect. I’ll leave it there. Thanks for taking my questions.
[Operator instructions] Our next question will come from Chris O'Connell with KBW. You may now go ahead.
Hey, good morning. Just start off on the deposit side. You saw some CD decline this quarter, and I know there is some planned runoff of EBS B's higher-cost CDs with the merger. How are you guys thinking about that runoff of the balances for the remainder of the year?
Yes. I think we anticipated that to be quite honest, Chris, and where -- what we found an opportunity to some degree is actually leveraging our wealth management offering. And in many cases, at least in this rate environment, we found opportunity to talk to those customers that are having fairly higher coupon CDs rolling off and look for opportunities to put them in an annuity product through our wealth management offering. So that's been a nice referral and synergy that we've been able to take advantage of.
So despite losing the CD, we haven't necessarily either lost a relationship or been able to place them in another offering.
So that's been a nice lever we've been able to pull, but I think we are, to be quite honest, comfortable allowing for the love CD runoff that we've been experienced, and we talk about the level of liquidity in cash we have on balance sheet today. I think the clip we're seeing the CD book runoff is well managed. It's in line with how we think about continuing to right-size the overall balance sheet. And a lot can happen between now and end of the year with the rate environment, but we have levers to pull to change CD pricing should we need to counteract that. But I think the level of payoff now has been very comfortable.
Great. And just following up on some of the fee questions. With regards to mortgage banking, obviously volumes are a bit under pressure from a macro level and you guys are holding more of the production on balance sheet, which makes sense. But given just the decline so far, I mean, does the actual fee line for mortgage banking moved substantially lower from here to $7 million, do you think, going forward? Or does it kind of hold it around the $1 million range?
Yes. No, I think you will see it come down. And I do want to be clear, the first quarter was actually a very strong quarter for mortgage banking. I think what we haven't probably truly articulated here is really the pricing dynamic. And again, our ability to win volume and have good closing volume in a portfolio of product at pricing we feel comfortable putting on balance sheet.
And as you can imagine, with the 10-year rising to where it is now and you've got market rates up over 5%. That's tough -- the customer, I don't think is quite appreciated that level of increase yet. So secondary market pricing is reflecting, I think, a bit of a disconnect from where the consumer is expecting to have a mortgage rate for 30-year quoted. So we're very fortunate and have been able to continue to take advantage of that and have a portfolio product offering that works for us. So first quarter volumes were still very strong. It just landed the majority of that into balance sheet.
I do think as rates continue to rise, and you'll hopefully start to see some of that market pricing be less aggressive, I think volume will start to dry up and I think overall mortgage banking will likely come down from where we were in Q1.
Got it. Yes, it makes sense. More valuable on the balance sheet. And then on the reserve, you guys gave guidance for the provision to trend below net charge-offs and it seems like no impact expected from NPL this quarter. Is the general trend still kind of towards the 1% level at year-end?
Yes. I think that's safe to say, all things being equal. Again, despite that uptick in NPAs, we still feel very, very good about the credit outlook here. So I think given all the uncertainty in the macroeconomic environment, you won't see significant reductions like we did in 2021, but 1% to where we are today feels like the right range to be thinking about.
Great. And then lastly, just on the M&A front, have you seen discussions pick up lately relative to last quarter? Is it something that you're thinking about with the proximity of the EBSB close? And what are the markets that you're finding attractive at this point?
Yes. We continue to be -- I mean you know our long track record of acquisition, and we'd like to see that continue over time. You know that we're very disciplined about it. We're -- so if something comes along that we find attractive and we price right, that's something we do. If not, we pass.
We've said in the past that sort of what we like is the Worcester East sort of arcing to the north and south towards the Atlantic Ocean, that sort of swap the bulk of New England economic activity and is a franchise that we can manage in our -- in the way we can really stay close to our markets and our colleagues and our customers. So still receptive definitely.
Great. Thanks for taking my questions.
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, everybody. Appreciate you joining us today, and we'll talk to you in three months. Bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.