Good morning, and welcome to the Independent Bank Corp. Fourth Quarter 2016 Earnings Call Conference call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. 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-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. In addition, presenters on the call may speak to certain financial metrics that are considered to be non-GAAP. As such, please refer to Independent Bank Corp’s earnings release filing for reconciliations of the non-GAAP information to GAAP. Please note this event is being recorded. I would now like to turn the conference over to Christopher Oddleifson, Chief Executive Officer. Please go ahead.

Thank you, Daniel. Good morning, everyone, and thank you for joining us today. With me, as usual, is Rob Cozzone, our Chief Financial Officer, who will take you through our financial results following my comments. We ended 2016 with a continuation of strong fundamentals and positive operating trends. Inclusive of M&A expenses, EPS on a GAAP basis was $0.64 per share in the fourth quarter. Excluding these costs, net income totaled $20.2 million, or $0.76 per share. Rob will cover the quarter in more detail shortly. I'd like to focus my comments on the full-year just completed. Our record financial performance for the year was marked by strength on many fronts including: organic loan growth despite rising competition; very strong core deposit generation; continued low funding cost; growing fee revenues led by our high priority investment management business; disciplined expense management that has driven our operating efficiency ratio down further; steadily building capital trends; tangible book value per share grew another 10% this year, even while absorbing another acquisition. And lastly, sound credit quality, despite an increase in nonperformance in Q2 which Rob will cover in a moment. Our loss rate for the full-year was a paltry 1 basis point, but I've consistently said that we fully expect to return to mean loss experiences that benign credit cycle inevitably reverse. Beyond the numbers much was accomplished last year moving the Rockland Trust franchise forward. We considerably strengthened our Southeastern Massachusetts presence with the New England Bancorp acquisition in Cape Cod, which closed in November, and acclaim to acquire Island Bancorp at Martha's Vineyard, which is expected to close in Q2. We are often running in the former and focus on integrating the latter. Both are expected to be accretive to earnings and bring us attractive customer bases in familiar markets.…

Thank you, Chris, and good morning. Before I review fourth quarter and full-year earnings in more detail, a quick update on the acquisition front. As Chris remarked, the integration of New England Bancorp and Bank of Cape Cod is complete, and thanks to our exceptional colleagues, the conversion was virtually seamless. But work to further enhance the former Bank of Cape Cod relationships has begun. In addition, The Edgartown National Bank integration plans are well underway and all expectations for earnings accretion and customer inroads remain intact. We received a very warm welcome from both employees and customers, and we are excited to join forces with a very capable team. We still expect that transaction to close during the second quarter. Acquisition activity in general will continue to be unpredictable but we remain opportunistic and open to exploring discussions with willing partners. Now turning to our earnings. Inclusive of mergers and acquisition costs of $4.8 million in the quarter, net income and diluted earnings per share were $17.2 million and $0.64 respectively for the final quarter of 2016. For the year, net income and diluted earnings per share increased to 18% and 16% respectively to $76.6 million and $2.90. When excluding items the company considers non-core, full-year operating earnings and diluted earnings per share increased 12% and 10% respectively, to $80.4 million and $3.04 for 2016, another record performance and consistent with the upper end of our most recent guidance. Strong earnings results continue to drive growth and tangible book value per share, which increased by $0.37 to $23.45 at December 31, despite having absorbed the New England Bancorp acquisition and the rate driven reduction and the unrealized gain on our available for sale securities. As Chris referenced, for the year, tangible book value per share has increased 10%. Net…

Thank you, Rob. Daniel, we are ready to take some questions.

We will now begin the question-and-answer session. [Operator Instructions]. At this time, we will pause momentarily to assemble our roster. Our first question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Good morning. How are you?

Hi Laurie.

Hi Laurie

Good. Rob, I wondered if we could just go back to relationship that went non-performing and I appreciate the [Technical Difficulty] just how large that is currently?

The total exposure is $34 million.

$34 million, okay. And do you have any other loan relationships with this family, or is this it?

There are multiple credits within that $34 million number I gave you. Part of that is a working capital line and the remainder is a term notes specific collateral.

Got it, okay. And with respect to the mention that you had on the sale of the commercial loan decreasing the concentration, was any of that regulatory-driven?

No. Just internal concentration limits. Associated with probably not surprising multi-family as well as a hotel, Bank of Cape Cod probably not surprising as well had a fair number of hotel loans, so that increased our overall concentrations.

Okay. And just remind me, what is your overall hotel exposure?

I don't have that number with me, Laurie, but I can get that for you.

Okay. And then just one more question here, obviously your stock price has gone up a lot since the election. Can you just, I guess, update us in terms of your thoughts on M&A? Are you seeing increase in the structures [ph], what do you think? Thanks.

Yes, Laurie, this is Chris. I had sort of given the standard response that we’d be ready to talk to anybody who would want to talk to us. I can't - things happened notably sort of there hasn’t been a buzz, increase in buzz or decrease in buzz or rumors. These things happen even from our perspective, these at a random. You can speculate about different bank situations and where they are, but it doesn’t happen until it happens, so it’s tough to really speculate. I would say that they are serving a lot of talk in the bank industry and the banking trade troops about the new administration’s posture on regulatory relief and I think if President-elect Trump had not won the election, we would have seen - we would have believe the regulatory rules would have increased. There is a lot of anticipation that are going to decrease but it's really a question that in what form and what are the practical implementations to us as community bank here in local towns and cities. So there is a lot to be discovered and I have to say it’s interesting times.

I would just add, Laurie, related to value of our currency, obviously all of the banks currencies have improved as well and there is some evidence that seller expectations have gone up. Although it's nice to have a stronger currency, it doesn't necessarily help when expectations increase.

Okay, that makes sense. And then, Rob, I’m sorry, just one last question for you. You had mentioned the $2 million saving beginning in January. Was that beginning in January 1 relative to the capital?

Yes, it’s right around 1. It might be the first week, Laurie. But we'll get the vast majority of that benefit in the first quarter.

Okay, perfect. Thank you.

Thank you, Laurie.

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

Thanks. Good morning guys. Just not to start off on a bad note, but just back to the credit this quarter. Can you give us a little bit more color as to the nature of the business, and was it something that took you guys a little bit by surprise? I know you said the borrower came to you at year-end but just - and then also how you sort of see this relationship in this credit playing out kind of the process from here?

Yes. In terms of, well, color on the nature of the business itself, not something we are comfortable doing because protecting the customers’ privacy. They are in the heavy equipment leasing business. In terms of how it's evolved, their business did kind of gradually decline over a period of time, but didn't get to a concerning level until the fourth quarter. And then how we expect it to play out is a little bit uncertain at this time. The customer is very cooperative and we're working through a couple of different scenarios, and since we wouldn't have taken that reserve if we didn't anticipate a corresponding charge-off with it. So at this point our best guess is that we’ll take that charge-off in the first quarter, however there are some scenarios where we could potentially avoid that, but too soon tell at this moment. From a long-term perspective, we’ll be working through kind of a restructuring plan with the borrower to try to get them back on their feet.

Okay, that's helpful. And then was it in your current footprint, the credit, or where did they just extend?

They are headquartered locally, yes.

Okay. Was it a national business?

It is a broad business, yes.

Okay. All right, that's helpful. And then just can you - I guess, given your tax guidance, Rob, do we assume that you guys did not apply for any new market tax credits for the year, or how is that business?

We did apply but we did not receive them.

Okay.

It’s a very - it’s become extremely competitive for us as you might imagine and somewhat political.

Okay. And then one area, I guess, surprising on the derivative income and I know obviously it's lumpy every quarter. It's hard to predict but just in general, are you guys anticipating greater transaction volume from your borrowers as we move into ‘17 or do you think ‘16 was maybe a peak year for some of that?

‘16 was - our current expectations are that we won't realize the level of derivative income that we realized in ‘16 and certainly that was a meaningful increase over 2015, but they are unpredictable and we’ll continue to have customers with longer durations swap if they want a fixed-rate, so that creates some base level of business for us. However in 2016, we benefited from customers taking advantage of the decline in rates and kind of re-swapping existing swaps prior to maturity but that is business with likely decline meaningfully.

Okay, that's helpful. And then just in the NIM guidance, the 7% to 10% for the year, I just was curious if you could update us on how you guys are thinking about the deposit data going into that assumption?

Yes, I’ll model for the deposit data, our total core deposit data is about 25 basis points and our net interest income simulation, so that includes demand deposits in that calculation but excludes CDs, CDs reprice over time, and for CDs we typically use about 75% data. So that's the general assumption to get to that level. But again, we haven't assumed any further rate increases, just what's already occurred in December of ‘16.

Okay. So no rate increases, okay, that's helpful. And then in general, have you guys seen much of a move in deposit pricing post the rate hike just in the markets?

We haven't really seen any with the exception of the municipal business. There is some elevated competition for municipal bank and deposits.

Okay, that's helpful. And then just one final question, I guess, maybe kind of just broadly bigger picture and I appreciate you not giving EPS guidance. This isn't where I'm going with this question, but just in general, as you kind of look at the business, you guys have created really good momentum in almost every line. As you look out over the next couple of years, is there one area over another that you think will be a key driver to improving earnings growth for the company?

Well, the composition of our balance sheet is commercial, right. So how commercial goes, so goes the whole company. And we’re optimistic that we are going to continue our modest growth rate into the future. You're not going to see us with giant growth rates as some other banks are able, but we are disciplined and focus. We’ll continue our past modest growth rate, and consistent with that, we think that the deposit franchise is going to continue to improve. The deposit franchise is one of our amazing strategic assets, to core deposits being 89%, 90% net deposits it’s extraordinary. And with our branding and our awareness, that’s going to keep on strengthening. And as our general franchise increases, we’re able to translate that into expanding investment management business. So we’re slow and steady, Collyn. One step ahead, modest growth on all fronts.

Okay, that's great. That's awesome. Thank you very much.

Thanks Collyn.

[Operator Instructions]. Our next question comes from Varun Bhandari with Piper Jaffray. Please go ahead.

Good morning guys.

Good morning.

Most of my questions have been answered but just wanted to ask you guys about commercial real estate in Boston, and what you guys have been seeing in terms of yield coming on post-election and as the rates have moved up?

Yes, the larger banks are certainly moving up. We've moved up. We have a disciplined pricing process, and when market rates move, we move our rates and we did see an increase in our average new volume rate in the fourth quarter which is good because we only had piece of that increase in the fourth quarter but we saw a decent increase in our average new volume rate. The other thing that's impacting pricing is the fact that a number of banks are pulling back from multi-family construction in particular, so there are less banks participating in certain space as we are, and so pricing has adjusted as a result of that as well. So I wouldn't say the increase is fully felt yet but it looks like it's moving in the right direction.

So in terms of the yield that we saw in 4Q not fully felt but in terms of things as they've been coming on early in the year, potentially we can see that?

Yes. And just when looking at Q4 versus Q3, I just remind you that we had significant prepayment penalties in CRE in Q3 which we did not have recur in Q4, so that's the reason you saw the decline in the CRE yield from Q3 to Q4. But yes, we would expect that to gradually extend up from here.

Okay. Thank you.

You’re welcome.

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

Thank you, Daniel. Thank you everybody for joining us today. We look forward to talking with you in three months about our first quarter. Have a good weekend.

Thank you.

Yes, bye.

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