Good morning and welcome to the Independent Bank Corp. First Quarter 2017 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 to response new information, future events or otherwise. Please note this event is being recorded. I would now like to turn the conference over to Christopher Oddleifson, CEO. Please go ahead.

Thank you and good morning everyone and thank you for joining us today. As always, I am companied by Rob Cozzone, our Chief Financial Officer. I am also delighted to be joined by Gerry Nadeau, our longtime Head of Commercial Banking and newly appointed President of Rockland Trust. More on that a bit later. We carried our momentum into the New Year with another strong financial performance inclusive of M&A expenses. EPS on a GAAP basis came in at $0.76 per share in the first quarter excluding these costs. Net income rose to $21.1 million or $0.78 per share, nicely above both prior quarter and prior year results. Rob will cover the quarter in more detail and Gerry will provide some added color following my comments. This show business momentum was sustained on many points during the quarter. The commercial loan portfolio continued its steady ascent as we continue to help new and existing relationships. Our small business initiative has been a nice story for us with loan balances up 22% in a past year albeit on a smaller balance. On the consumer side, we saw healthy growth in both our home equity and residential portfolios. Core deposits are now grown over 90% of total deposits. Our investment management business continues to prosper, a recent milestone with assets under administration crossing a $3 billion mark. Credit quality remains in good shape as evidenced by a lower non-performance and net credit recoveries in the first quarter. Our approach to intelligent expense, management has a resulted in a solid operating efficiencies ratio in a low 60s, and of course ever-rising capital levels, tangible book value per share has grown by over 9% in the past year. So well round of performance driven by strong fundamentals. Now, I'd like to turn to some…

Thank you, Chris, and good morning. As Chris said, I'll now provide some more details on our first quarter results. Independent Bank Corp reported net income of 12.7 million and GAAP diluted earnings per share of $0.76 in the first quarter of 2017. This compared to net income of 18.6 million and GAAP diluted earnings per share of $0.71 in the same quarter last year. Both quarters included merger charges and the prior year's first quarter included a loss on extinguishment of debt. When excluding those charges which management consider as non-core, operating diluted earnings per share was $0.78 in the first quarter of 2017, an increase of 8.3% when compared to the same period a year ago and above last quarter's $0.76 per share. Healthy earnings results led to a return on average assets of 1.12% on an operating basis and continue to drive growth and tangible book value per share, which is increased by an average of more than $0.50 per quarter over the last three years, despite the added goodwill from several acquisitions. Continued growth in capital and earnings supported the recent decision to increase the quarterly dividends by 10%. Although, loan growth tends to be muted in the first quarter, 2017 is off to a good start. Total loans were up over 4% annualized as a seasonal decline in new loan production was offset by a rate driven reduction in pay downs and pay offs. Total annualized commercial growth of 3.3% was [booed] by a $52 million increase in the combined CRE and construction portfolios. Competition remains tough, but we are holding our own on this space. Gerry, will now provide some additional color on our commercial business and current market dynamics. Gerry?

Good morning. Now, it's interest as we have started the year with a great deal of uncertainty, both from a political and interest rate environment, we were facing potential interest rate increases beyond what we had seen in over a decade, but we are very pleased to what we are seeing recently in increases in our pipeline and deal activity. Our actual growth performance in the first quarter was nearly equal to last year's just up by little less than 3%. So, we really feel still comfortable this is going to work out for us. Looking at what activity we have, first maybe in Boston which we can ask quite a bit. Our Boston activity is really centered on developers, local developers, who seek to reposition smaller office buildings and retail properties that have been under invested in over the years, and they feel they can add value. The opportunity for them is to come and buy at a reasonable price, add basic improvements, greater base of tenancy, longer lease term and often time resell. Another part of our business in Boston is really the small construction builders where they're looking to build condominiums or single family homes in the outline suburbs of the city anywhere from 5 to 20 unit condominium projects. We are not involved in the office towers of the very large pilot buildings, in fact the average size of our construction loan and balance is just a bit less than a 1.3 million and that includes larger projects for ourselves. On average, we really focus on the smaller end of the market. As we think about reaching at also our business in fact our construction loan business over 50% of it is for residential development, single family homes and condominium spread throughout entire footprint. We are…

Thank you, Gerry. I'll now translation to our consumer portfolios. Trends in our consumer real estate portfolios were quite favorable in the first quarter of 2017. Strong number one production contributed to a 6% annualized increase in our mortgage portfolio, despite a seasonal and partially rate driven decline in the overall mortgage production. In addition, home equity outstanding exceeded a $1 billion for the first time during the quarter and the home equity pipeline reached to multi-quarter high at March 31. Notably, the strongest growth over 13% annualized occurred within the first lien category. With the spring season upon us growth in the combined consumer real estate portfolios should begin to accelerate. Total deposits were up a little less than 1% for the quarter as strong new core account volumes were partially offset by a continued decline in higher cost term deposits. The more expensive term deposit category now only comprises 9.5% of total deposits. Total core deposits continue to rise despite the typical seasonal decline in demand deposits and a 1 basis point increase in the total cost of deposits during the quarter resulted from lower average demand deposit balances and not increased pricing on interest bearing deposits. A 15 basis points increase in the net interest margin versus the fourth quarter reflected the deployment of liquidity, higher loan relates as a result of increases in market rates and a reduction in the interest expense on junior subordinated debentures. The 25 basis points increase in the fed funds rate in March, provided little benefit to the first quarter, which had further enhanced the core net interest margin in future quarters. As of 331, more than 45% of the Company's loan book was indexed to either LIBOR or Prime. Asset quality continues to be excellent with another quarter of net…

Okay, great. We are ready for some questions. Anita, we're ready for some question.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Collyn Gilbert with KBW. Please go ahead.

Just to talk a little bit about Gerry your comments on the hiring activity and to some of the momentum that you're seeing on the lending side. Can you just kind of put that in prospective for us? You indicated you've hired four bankers in the first quarter of this year. How that hiring behavior had been different than a year ago or even two years ago? Just trying to sort of gauge where you guys are in sort of the development of this momentum.

I would probably say I can't remember a quarter in the past where we've ever hired four season bankers. So, that helps and a fit that's accepted in office. So, I don’t -- quite know, I mean it's easy for me to take credit, but I don’t think that’s quite right, but I think there is certainly some forces happening the marketplace that having us to be viewed as a desirable employer.

Does this change your kind of longer tern view on where the growth of the Company can go or within kind of the commercial loan growth bucket? I know again it sounds like there is a lot of things that are moving right and I'm just curious about changes sort of where you see yourself in the market and your ability to take share and kind of the growth trajectory from here? I mean that's more for Chris.

I guess from my prospective, I think our benefit is that we know the markets we're in. We live here. We all work here. We have day-to-day contact with customers. So that many of our competitors are seeking very large opportunities leaving further ground for us on the small, medium sized opportunities that often times is ignored by some of them. So, by having experienced talented people on the street, we were able to create more opportunities for ourselves to meet for our expected growth rates up, which may be plus then when some of our competitors do.

Collyn, if you are set of getting how we sort of embarking on a strategy that we hear in that some banks around the country where we do left out and so you -- we really accelerate the commercial long growth. I wouldn’t sort of put that characterize sort of what we are doing in that vein. I'd say now where we expect sort of the steady-eddie as a mid-digit growth with solid commercial earning team that knows the markets really well and that produces great credit quality.

Okay, that’s helpful. And then Rob just a couple of questions for you, one on your fee comment, you had indicated that most lines would be higher in second quarter and I appreciate the guidance you gave kind of sort of full year, but just trying to understand maybe where you wouldn’t see a rebound coming in the second quarter?

Probably the whole line item is the other income line item where we may not see a rebound, seasonable increases in deposit fees and to change in ATM fees, seasonal increase in mortgage banking income obviously, investment management income will increase both because of the increase in our assets under administration, but also because of tax proceeds in the second quarter. And then in a loan level derivatives income, we hope that this was kind of an annual loan for us here in the first quarter and we start to see a rebound. We do know that some transactions that likely would have closed in the first quarter in terms of swap transactions, actually closed in the fourth quarter as some borrowers panicked a little bit as rates begin to rise.

Okay.

So, essentially all core willing items are anticipated to increase as we head into the second quarter.

Okay, okay that’s helpful. And then just your comments of the NIM, the benefit that you will see there. How do you see that breaking down between on the -- the asset side versus the funding side? And maybe how that ties into where you think future deposit pricing pressure could come?

Well, what we have said in the past just in terms of deposit price we maybe cover that first is that, we assume in our modeling a total deposit beta including demand deposits of about 25%. If you -- which sounds well, but obviously we have a large component of our deposit base in demand deposits, 32%, 33%. And so if you strip out the demand deposit component, it gets close to the high 30s to 40% deposit beta, which we believe is reasonable based upon the work that we have done. We have not seen that deposit beta to take hold through these most recent couple of increases. We are seeing some anecdotal evidence of pricing pressure and couple of specific categories, but as you saw our cost of interest bearing deposits was flat at 26 basis points quarter-over-quarter. I would expect that deposit cost for our interest bearing category might increase just a little bit as we head into the second and third quarters, but the total cost of deposits will probably remain stable because demand deposits will increase. On the asset side, I would expect a little bit more of a list in the second quarter than what we saw in the first quarter in terms of total earning asset yields because the increase was muted in the first quarter, first of all because securities yields decreased relative to the fourth quarter because of a prepayment fee we received in the fourth quarter and then a couple of other new launched items within in loan yields slightly diluted the benefit of the rate increase.

Okay. Okay, that’s very helpful. And then just a final question for Chris, maybe just give us a thought or two on M&A, I mean you guys obviously -- it’s a core part of the strategy. You've done a great job selling in with some of these smaller deals. What do you seeing out there now? And has anything changed among kind of the market of potential sellers in your view?

I think we said the -- we're seeing the growth in our strategy, which is really and very obsessed about how we prove and enhance our existing business. And we have a lot of efforts and strategies underway to how do we grow organically. On the acquisition side, we're always ready to talk to management team, so while there are fewer banks available being bought simply because many have them. I mean there are mutuals that are converting and there is a stream of sort of eligible banks although the calculation is small. So, any of them raise their hand, we'd love to talk to them. So I think I would say this one more point that the, all banks need to -- it's a good environment for banking right now. And as a result with the market up, there is a probably not a lot of pressure for people to want to sell now and jump on to may be a better currency or better operating platform. But that’s always a shift, I say it one day and something changes, so now I would hope that we would over the next several years be able to make an acquisition or two at the pace we've been making in the past. It's been -- they been very helpful to sort of building scale and we like to continue.

[Operator Instructions] Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Just a follow-up on that M&A question, I wonder as you talk about building scale in your approach M&A and certainly you mentioned, a straight and eligible conversion. Can you talk about how big you would potentially go in terms of a deal? And I guess, Chris and Gerry that’s you. And the Rob, can you just refresh us on where you are as far as the $10 billion threshold spent? And what else you would potentially need to incur? Thanks.

Okay, that's a -- you've tagged a lot in those questions. So, let me see, if we can un-tag a little bit. In terms of how they could have go, I think our rule would be that any solid franchise that is with that in our adjacent to our market, that is interested in a -- I'm talking about M&A, we would like to have the conversation. Now have been said that, one of our successes and one of our really core successes in our M&A strategy is our ability to really bring on franchises in a very seamless, solid momentum generating way. And our biggest acquisition to-date was Ben Franklin at a 1 billion and that’s when we're much smaller. And that went very, very well. I expect that we could do something that substantially bigger than that. If we got, if you're talking about sort of on the low order of merger equals, of equal sizes that was referring a loss of reflection about how you maintain the franchise value on both firms and how one plus one is equal to three in that situation. So I think we would have to sort of be even more thoughtful than we have in the passive how our merger was coming together. With respect to sort of the timing and size and how you get over $10 million, we say we would love to sort of orchestrated toward 9.5 for six months and that we lead to 12 and just jump right on through, but of course, you can't choose how sort of acquisition, potential acquisitions come to the table. So, we'll just have to play that as it comes.

In terms of the cost part of that equation, Laurie, as I've said in the past, we've gradually made a number of investments and obviously areas like BSA and AML, and general compliance adds higher a director of enterprise risk management, a director of capital planning. We have purchased some data sources to help with our DFAST modeling and are building internal capabilities. We are adding to our portfolio risk management staff. So, we probably have a couple million dollars already built into our run rate, but we probably have another couple million dollar to go before we are finished.

Okay, and then just in terms of that 2 million additional spent. When in your mind does that start? Does that start next year?

Well, as I said it's been ongoing. We are preparing and we want to be ready well beforehand, if we can. I mean obviously if we found an acquisition tomorrow then we would have less time to prepare, but our plan is to be well prepared beforehand. So, most of the cost associated with crossing the $10 million threshold should be embedded in our run rate prior to crossing with the exception of Durbin obviously, which we have talked about is a meaningful impact for us because the amount of interchange revenue we generate from our core checking base.

Okay. And just remind me the Durbin impact is about 5 million, is that right?

No, it's closer to the 6 million to 7 million.

6 million to 7 million, okay thanks. And then Chris, just going back to your comments in terms of obviously you were a lot small when you did Ben Franklin at a 1 billion, and if we were to do an extrapolation and again just talking about your comments, potentially 9.5 to 12. You would potentially be comfortable doing a $3 billion to $4 billion bank?

Well, theoretically, yes.

What's the math for it?

That goes in detail right and that's a hypothetical question, I think it's -- when we approach every sort of bank we acquire, we take a very sort of fresh eye customize look about, sort of what they key opportunities issues development or where we're at, we need to track this going. But conceptually, yes, I mean I think that we would be very engaged, we would be delighted to engage in a conversation like that and I think we have the platform, the capability, the capacity to do it with very well.

And the currency. Your point is correct.

Yes.

Our next question comes from Matthew Breese with Piper Jaffray. Please go ahead.

Just to continue the M&A dialog, I have noted the adjacent markets and does that mean you would consider Rhode Island, New Hampshire, Western Massachusetts as the adjacent markets? And then and I note, if you had to kind of wink those options in terms of desirability, how would it go?

Yes, so what we've said in the past is that if you think about a semester call that sort of stood the start in Western sort of then embarks East that captures Rhode Island and captures Southern New Hampshire and up to maybe Southern Maine. That sort of work the bulk of the economic activity is in New England. And so we really believe we could create overtime and we don’t have any specific plans such as sort of at you said, different plans out and visions sort of what you could become, $15 billion or $20 billion bank within that arc. And in terms of jumping to Western Massy activity out there isn’t as robust. So, we're probably in terms of priority that would a second priority, more priority.

And you know math that we already have a lending center and an investment management center in Providence, Rhode Island that has been very successful. Branching into Rhode Island is a little bit different equation, but we've been very pleased with our lending and investment management results in Rhode Island today.

And then some de novo prospective, if the opportunities are whacking. Could we see you push north and headed to Portsmouth and Portland from just an organic standpoint?

That certainly is going to allow us possibility. I'd say it's probably a lower priority than really flushing out of Boson centric markets.

And we would go directly there, you would see us make progress in between our, the northern parts of our footprint and New Hampshire and Maine before we actually made a jump to that level, if we were to consider that.

A lot of these are hypothetical questions, right. I mean it’s a -- how -- what opportunities would rise and so on, really to drive a large part how we think about this.

Right, but if we talk about thinking about $15 billion or $20 billion bank and how you get there at least become important questions.

We call absolutely and then thank you for asking them.

And let me be switching gears to another big part of your business which is wealth management. Are there opportunities there on that front to acquire, the pricing can be different, the earned back can be longer? And how do you think about that in terms of your discipline around acquiring different kind of businesses?

I will say that it is extremely more difficult to acquire a wealth management operation with the confidence that to perform over the long term. We have over the last decade probably desk reviewed a couple hundred, sometimes with the help of some folks who know a lot of the M&A space in that industry. We probably talk to 20 or 30 and we've acquired one. And that is in large part because the size of the entity we typically could acquire are very entrepreneurial, very dependent and typically our interest in selling, working for few years and then moving on and starting something off. So, we have to be -- we have approach the M&A and invest management where the great deal of eyes wide open. The one acquisition we did make in this space was where the two principals [0:39:12.0] both clearly have time and age and then two secondary principals were clearly -- would adapt to our culture and invest and adopt our approach with enthusiasm. We would like to be accounting role and [Indiscernible] talked about more of the accounting roles of acquire -- when you do an earn-out structure or I will [Indiscernible] your point you when you're buying in a space, so that's certainly the consideration. But have been said all that which is kind of negative -- little bit more negative, I would say that that now if we find a right opportunity, look, we like to do because there are literally hundreds of investment managers in that arc that I was talking about that could potentially be part of the franchise, but it's much more difficult to two.

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

Well, thank you everybody and we look forward to talking with you again at the end of the second quarter. Have a good next few months. Thank you.

This conference call is now concluded. Thank you for attending today's presentation. You may now disconnect.