Good day, and welcome to the Independent Bank Corp Fourth Quarter 2024 Earnings Call. [Operator Instructions]. Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements. In addition, some of our discussions today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliation to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the Investor Relations section of our website. Matters relating to our pending acquisition of Enterprise Bank Corp, will be addressed in a registration statement on Form S4 to be filed by independent with the SEC that will include a proxy statement for a special meeting of Enterprise's shareholders to approve the proposed transaction and that will also constitute a prospectus for the independent common stock that will be issued as part of the proposed transaction. Information regarding the persons who may, under the SEC's rules be deemed to be participants in the solicitation of proxies from the enterprise shareholders in connection with the proposed transaction, will be set forth in the registration statement. We urge you to read the registration statement when it becomes available because it will contain important information. Finally, please also note that this event is being recorded. I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead.

Thank you. Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. I'm pleased to report solid fourth quarter results driven by net interest margin improvement, stable credit trends and double-digit annualized growth in our C&I and small business loan segments Importantly, our average deposits grew at an approximate 3% annualized rate. Our pre-provision net revenue ROA was 1.48% on an operating basis our tangible book value improved 1% from the third quarter and 6.4% from the year-ago quarter. As always, this performance reflects our team's continued commitment to developing and deepening customer relationships Mark will elaborate on our financial results in a few minutes. As I reflect on 2024, I believe we made solid progress on several of our key strategic priorities. First, we made steady progress towards reducing our commercial real estate concentration. C&I and small business loans were up 4% and 12%, respectively, in 2024. Conversely, pre- and construction loan balances were essentially flat due to normal amortization and the intentional reduction of transactional CRE business. At year-end, our CRE concentration stood at $305 million down 2% from the third quarter. We will continue to reduce transactional CRE business and free up capacity to support our legacy commercial real estate relationships. In 2024, we hired 10 new C&I bankers reflecting the desirability of our platform and the award-winning culture of Rockland Trust. C&I loan production of approximately $785 million was up 28% in 2024. Importantly, C&I loan production represented 50% of total commercial loan production in 2024, up from 40% in 2023. We also originated $81 million of business banking loans, up 8% from 2023. And finally, we hired a seasoned banker to lead a newly established not-for-profit vertical within our commercial banking business, which should…

Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our 8-K filing and is available on our website in today's investor portal. Starting on Slide 3 of the deck. 2024 fourth quarter GAAP net income was $50 million, and diluted EPS was $1.18, resulting in a 1.02% return on assets a 6.64% return on average common equity and a 9.96% return on average tangible common equity. Excluding $1.9 million of merger and acquisition expenses and their related tax benefit, the adjusted operating net income for the quarter was $51.4 million, representing a 1.05% return on assets, a 6.82% return on average common equity and a 10.23% return on average tangible common equity. The results are largely in line with expectations, highlighted by modest margin expansion, offset by some level of outsized expenses that I'll provide additional color on in a bit. Tangible book value per share increased by $0.39 during the quarter, reflecting solid earnings retention, offset by a negative $0.30 impact from other comprehensive unrealized losses. And as Jeff mentioned, tangible book value per share increased $2.83 for the full calendar year despite the approximately $31 million of share buyback activity earlier in the year. Turning to Slide 4. The deposit story continues to be a positive one as average balance is increased by $109 million or 0.7% for the quarter, while the period-end balance decline of $135 million reflects typical seasonal outflows within our business and municipal segments. The overall mix of deposits remained stable with noninterest-bearing DDA comprising 28.7% of total deposits at year-end. Fueling the positive deposit momentum, core households experienced net growth for the quarter with total net growth of 2.8% for the full year. In addition, as we have highlighted over the last few quarters, this deposit…

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Steve Moss with Raymond James. Please go ahead.

Hey guys, good morning. Maybe just starting off with the loan growth outlook for 2025 here. It feels like a little bit of a step-up with including mid-single digits for the upcoming year. Jeff, I know you mentioned at the beginning of the call highlighting a number of hires. Just kind of curious, have you seen an improvement in loan demand here in the last couple of months? Or is this more just the higher you highlighted in terms of expectations?

On balance, I think it's more the people that we've hired. The customer sentiment we get is still kind of cautiously optimistic, but I wouldn't characterize it as being -- we're seeing like any kind of robust economic activity. So, I would characterize it more as some of the people that we're hiring and taking share.

Okay. Great. And then in terms of the margin outlook here, I guess the details in the deck really were helpful, but I just was curious with regard to the reference rates you guys put for loans and securities. I'm assuming you're referring to the treasury curve. So are you thinking in terms of new loans coming on that come on around a 6% rate. Am I reading that correctly?

No. Fourth quarter, Steve, we experienced probably mid-6s. Certainly, with the tick up here in the last few weeks, the potential that we see new volumes coming on around 7%. But we are seeing the weighted average coupon of what's rolling off in the low to mid-5s in any given quarter. So that's sort of the basis for the 125 basis point spread that we referenced in the material.

Okay. Great. Appreciate that. And then just one last one for me. In terms of the $49 million in past dues in office, just curious as one of those, I'm assuming is the $30 million substandard that you guys gave you update on? And is there just -- is there another loan within that past due bucket there?

Yes. There is -- that's right. The $30 million is the largest. There's another office loan that we actually highlighted earlier in 2024 that at one point was subject to a note sale. That deal had fallen through. We believe there's another opportunity for a note sale here. that is pending. And then there is also, I believe, an $11 million past due that is also in negotiations right now. of a short sale. And that's the loan we took an additional $2.2 million reserve during the quarter on. So, it's primarily three loans that make up the majority of that.

Most of which we've talked about.

That's right.

The next question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark, just to be clear, that the uptick in delinquencies was the $11 million past due. Is that correct?

No. So there's a lot of moving pieces. The uptick in delinquencies this quarter is the syndicated downtown Boston loan for $30 million. So that reached maturity in the fourth quarter and obviously is now in early-stage delinquency without a modification at this point.

Okay. Fair enough. And then just sort of at a high level, another bank in your -- in New England did a call this morning and they said they see the inflection point in credit quality being sort of mid-2025. I'm curious if you guys would agree with that?

Kind of hard to say. It does feel like it's getting a little bit better, but do you think there's each loan is so unique. So, if we were talking -- if we were thinking broadly, I would say, I wouldn't necessarily argue with that. I'm not here to call the pivot point, but I wouldn't necessarily disagree per se, but it is because of the -- especially with some of the legacy [indiscernible] and savings loans we have that are sizable I'll feel a lot better answering that question. If we get a number of these note sales and short sales accomplished in the next quarter or two and are on the other side of that.

Okay. And then I guess I was curious, your thoughts around reclassifying owner-occupied commercial real estate to C&I. I guess I'm curious what, if any, benefit do you sort of get from that other than the optics of it.

Well, I mean, as long as I've been doing this, I've always thought of owner occupied three as C&I because your ultimate repayment is coming from typically a company that's making something or distributing something and it's a much different risk and a much different asset class than kind of investor commercial real estate. And so just even internally in our reporting, I think it helps orient you to what kind of risk we're taking on the balance sheet and what the composition of the balance sheet is. And then as it gets reflected externally, I'm assuming that the investment community is smart enough to know that when we break out the difference between owner-occupied and nonowner-occupied that they can do the math, but I guess we're just doing it for them in some respects. But I do think it's the right way to profile it. If you think about what goes into the CRE concentration that the regulators measure owner-occupied CRE is not included in that measure. So, it's just trying to be consistent across the entire portfolio as to how we view the risk.

Okay. And then lastly, on the wealth business, I guess I was curious if you could share with us what client flows look like in the quarter versus the impact from market appreciation.

Sure, Mark. We saw about $20 million or so of net outflows for the quarter as new originations have been strong, but slowed down a little bit in the last couple of quarters. Market for the quarter, we still saw net market appreciation. But the flows have been fairly neutral the last couple of quarters.

The next question comes from Laurie Hunsicker with FC Corp Research. Please go ahead.

Hi, thanks, good morning. Just wondered, Mark, if we could start with your spot margin here. Thanks.

Sure. So, December spot margin was 3.33% on a core basis.

Okay. Great. And then just going back to that $30 million Nick. There are no specific reserves on that at the moment, correct?

Correct.

Okay. And then the new appraisal comes this quarter. I just want to make sure I got that.

Yes, that's our expectation.

Okay. And then as of last quarter, I had in my notes that was 77% occupied. Do you have an updated occupancy number on that right now?

Yes. So, we think with the potential for a new tenant coming in to vacate some of the partially vacated space from a larger loss of a tenant that, that would get back to around 80% in the near term.

And the other thing to keep in mind here, Laurie, is some of the new tenants are still burning through a free rent period, which impact some of the near-term cash flows.

Got it. Yes. And along these lines, I had the debt service sitting at about 10. Do you have an update on that?

I think if -- again, some of it is when you say debt services at I/O or are we talking about amortization, which is obviously some of the things we're talking to the client about now if it's I/O at their current occupancy, I think they're positive cash flow.

Got it. Just wanted to shift over last question on expenses. Mark, and I appreciate the expense guide. But can you help us think about the mid-single-digit growth, what number you're specifically using? I'm looking at core noninterest expense at about $404.7 million. I don't know if that's a good number. And then -- yes. Is that the right number to use? Or is there a different number?

No, that's the right number. Yes.

And then the other, other expense line just looking linked quarter, going from $22.5 million to $26.8 million. I know you had some things in there like the life insurance adjustment last quarter and the credit on the debit processing, et cetera. But can you just maybe high-level step us through the difference in those two buckets just so that we have an apples-to-apples on a core comparison there?

Sure. So yes, one of the items I noted in the prepared comments was with some of the noise we get on the equity securities. So just to reiterate, we look at that on a quarter-to-quarter basis. So, if we see unrealized gains for the full quarter, we'll report that as noninterest income for that quarter. if there's unrealized losses net for the quarter, that will flow through as a noninterest expense. So, in the fourth quarter, we had net unrealized losses to the tune of about $800,000. So that's obviously a volatile number impacting the fourth quarter. We had some outsized consulting-related expenses in the fourth quarter. Some projects that just timing-wise had trailed into the fourth quarter. So, consulting that we typically have run rate in every given quarter, that was up about $700,000 or $800,000 quarter-over-quarter. We did see a bit more check fraud losses in the fourth quarter. One instance in particular, like we've heard with other banks as well, there's some issue with treasurers check, believe it or not, that are getting put back to banks. So, we conservatively took that loss now as we continue to research and negotiate to see if we get a recovery on that. So, we had some outsized check losses in the fourth quarter as well. So -- the Treasurer check situation is about $350,000, but we had some other check losses as well during the quarter of $200,000 or $300,000 outsized. I think those are the biggest components off the top of my head.

Our next question comes from Christopher O'Connell with KBW. Please go ahead.

Just wanted to see if you could provide any details on the core conversion set for next year and just how significant of an upgrade is it for you guys? What do you see as the largest benefits? And does it allow you to expand into any kind of new verticals or anything like that?

Yes. So, the platform we're on right now, just to put it in context, we're the largest bank on it. And the average size bank on the platform we're on right now is around $1 billion or $2 billion. So, we've really outgrown it. The platform we're migrating to would be very consistent with a number of our peers and some companies much larger than ours, 2 times, 3 times, 4 times as big as we are. So, it really -- it's one, it's way more efficient. And so, it will create some efficiencies. Two, it will enable us to have greater product capability because it's much easier to plug APIs into this platform. And it's just a more -- it's a platform that's more consistent with the size and complexity that we are can handle multibank loans, whereas the platform we're on right now struggles to do that a bit. So, it's a meaningful upgrade. It's something that we've spent a lot of time looking at it to make sure it was something we thought we should do. And ultimately, we came to the conclusion that if we were going to continue to grow and to service our customers the way that we want to in the way that they expect to be serviced. We really needed a platform that was -- would enable us to do that.

I would just add, Chris, a couple of specifics to areas that we're really good at where technology can only make us better. suggest cash management in our wire function right now could certainly use an upgrade, and this new platform provides meaningful efficiencies and treasury management capabilities. And then a second area, we have a lot of activity through the branches. It's one of our strongest core differentiators. But right now, that's a bit manual and inefficient in terms of getting some of the branch-related activity and communications to the back-office functions. So, this would streamline communication, case management, customer relationship type notes between the front lines and the back office, which for a bank like us is very valuable.

Great. Appreciate the color. And then is there any update, I guess, on the sub debt timing related to the deal?

No specific update quite yet on that, but we are still planning to look to execute here when we believe we'll get Brett's best pricing and certainty of execution. As I noted at announcement time, we're not going to necessarily try and time the market perfectly here to line it up right before we plan to close. We'll be working with our partners to like I say, assess the market and look to execute when we think the timing is right. So, if that means it's a couple of months before the close, we're okay with that.

Great. And then as it relates to the deal, we've seen a number of competitors with recently announced deals coming in at a little bit of a faster pace than they have perhaps over the past 2 years or 3 years. So far, I know it's early in the process. Have you seen any change in tone or in discussions or your relationship with the regulators so far with this deal?

Yes. So far, I would say no, but we had a really good relationship coming into prior to making the announcement. But we haven't heard anything that has given us pause and nor have we heard anything from the regulators that would suggest it's going to be an expedited approval. So, we're going to continue to plan the way we always would, and we'll react to the approval process as it unfolds.

And then on Slide 12, I just wanted to clarify on the longer-term fixed rate repricing for the loans and securities you have the annualized margin impact of the 12 basis points to 15 basis points. Is that longer term is in maturing over the next year, 2 years? Or is that the entire back book for the loans and securities.

It's a good question. That's essentially a 1-year outlook, meaning call it, a basis points a month of what we expect to reprice over the next year. So, point in time, a year from now is where we'd see sort of the full 12 basis points to 15 basis points baked into the margin.

Okay. Great. That's helpful. And then based on the rest of the details on that side, kind of the short-term net 1 basis point to 2 basis points and what we've already seen come through with 100 basis points of Fed cuts. And then on the prior side, you have a good detail on kind of the time deposit maturities which are heavily weighted towards 1Q and 2Q '25. Do you expect to see more of an outsized margin pickup in the first quarter or the first and second quarter of the year?

Yes. Certainly, the CD repricing dynamic I think would drive what we're reflecting on this slide, which is potentially a couple of basis points over the next quarter or two that you would not necessarily maybe get in the second half of the year. where maybe the CD repricing dynamic is not as beneficial. So, I think the core deposit and loan movements will essentially offset each other. And as you're highlighting, the CD repricing would give us that net lift of a few basis points in the first half of the year. And then if there are no other cuts, I think that short end of the curve impact essentially becomes a moot point, and it's the longer-term repricing that drives the margin expansion.

Great. Thank you, for taking my questions.

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

Thanks, and appreciate everybody's interest in Rockland Trust and IMDB. Have a great day.

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