Independent Bank Corp.

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 Bancor 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 CNI and small business loan segments. Importantly, our average deposits grew at an approximate 3%. annualized rate. Our pre-provision net revenue ROA was 148 on an operating basis, and 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. CNI and small business loans were up 4% and 12% respectively in 2024. Conversely, CRE and construction loan balances were essentially flat due to normal amortization and the intentional reduction of transactional CRE business. At year end, our Cree concentration stood at 305, down 2% from the third quarter. We will continue to reduce transactional Cree business and free up capacity to support our legacy commercial real estate relationships. In 2024, we hired 10 new CNI bankers, reflecting the desirability of our platform and the award-winning culture of Rockland Trust. CNI loan production of approximately 785 million was up 28% in 2024. Importantly, CNI 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 bolster both commercial loans and deposits. I would note that this quarter we reclassified owner-occupied CRE loans from the CRE bucket to the CNI bucket. We believe this more accurately reflects the purpose and risk of owner-occupied loans and is consistent with industry standards and regulatory guidance. The prior periods have been restated to allow for ease of comparison. Second, in December, we entered into an agreement to acquire Enterprise Bancorp. This transaction will add density to our existing markets while expanding the Rockland Trust franchise into northern Mass and southern New Hampshire. As we mentioned in December, our franchises fit together like two puzzle pieces. We have made in-person visits to all 27 enterprise branches, all of which will remain open post-close, and have had numerous cross-functional meetings with the enterprise team across all business units. No surprise, we've been extremely pleased with the collective outcome of these meetings, which have validated our assumption, namely that their business practices, strong focus on the customer experience, and engagement of their colleagues mirrors that of Rockland Trust. We are even more convinced about the strategic and financial merits of this deal. Third, we finalized plans to upgrade our core FIS processing platform. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiency, and support the future growth of the bank. We plan to convert our systems in May of 2026. Fourth, we prudently grew deposits, which has been a historical strength of ours. In the fourth quarter, the cost of deposits was 1.65%. highlighting the immense value of our deposit franchise. Mark will provide additional color on our deposits in a few minutes. Fifth, our wealth management business continues to be a key value driver. We grew our AUA by 7.6% in 2024 to $7 billion, inclusive of the December market pullback. This business works seamlessly with our retail and commercial colleagues to deliver a holistic experience that resonates with our clients. The breadth of these services provides one-stop shopping for our clients that includes not only investment management, but financial planning, estate planning, tax prep, insurance, and business advisory services. This full suite of products is a differentiating factor for our wealth business. And lastly, I would be remiss if I did not mention our historical discipline credit underwriting and portfolio management. Rockland Trust's solid loan underwriting has consistently resulted in low loan losses through various economic cycles. Net charge-offs have averaged five basis points over the last 10 years. While we clearly have some already identified troubled office loans, we have been proactive in monitoring and addressing these credits, many of which were originated by banks that we acquired. As we look into 2025, We remain optimistic about our abilities to navigate an uncertain interest rate environment. We will continue to focus on those actions we have control over and look to capitalize on our historical strengths. There's no magic to our value proposition. We just do community banking really well and believe our current market position represents a high level of opportunity. We remain focused on long-term value creation. A top priority in 2025 will be closing the enterprise acquisition and integrating the two companies. There are a lot of synergies to be captured that are not in any of our estimates. We will also continue to focus on loan portfolio diversification and prudent expense management while we build a best-in-class organization. Underscoring every measure of success is a talented team of engaged, passionate, and highly talented colleagues focused on making a difference for the customers and communities we serve. That is why we are proud to be named a top place to work in Massachusetts by the Boston Globe for the 16th consecutive year. In summary, we are fully equipped to deliver the consistent results the market expects with a skilled and experienced management team, ample capital, attractive markets, disciplined credit underwriting, strong brand recognition, operating scale, a broad consumer, commercial, and wealth customer base, and an energized and engaged workforce. In short, I believe we are well positioned to realize the benefits of the enterprise acquisition and continue to take market share in the Northeast. On that note, I'll turn it over to Mark.

Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our 8 filing and is available on our website in today's investor portal. Starting on slide three 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 39 cents during the quarter, reflecting solid earnings retention, offset by a negative 30 cent 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 four, the deposit story continues to be a positive one, as average balances 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 remains stable, with non-interest 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 stabilization provides a clear path for us to be able to reduce the cost of deposits in conjunction with the fourth quarter and any future Federal Reserve rate cuts. Moving to slide five, I'll quickly note that these balances reflect the owner-occupied commercial real estate reclass that Jeff just alluded to earlier. Regarding activity for the quarter, advances in the construction book and solid closings in CNI drove a healthy net increase in total commercial balances, while small business regained strong growth after a fairly muted prior quarter. The approved commercial pipeline sits at $259 million as of December 31st. On the consumer side, both residential mortgage and home equity balances were up nicely in the quarter, as we continue to see consistent demand across the footprint in both products. Shifting gears to asset quality on slides 6 and 7, I'll highlight some of the key developments for the quarter. In summary, total non-performing loans remained relatively stable at $101.5 million, or 0.70% of total loans as of year-end. Notable developments on the largest non-performing loans as detailed here on slide six are as follows. The $53.8 million office loan remains in workout status with resolution expected from a short sale of the underlying collateral. There is a signed offer pending with the offer price serving as the basis for the increase in the specific reserve of $3.9 million to a total of $26.3 million. As the process is still in the early stages, we are anticipating resolution to occur in the second quarter of 2025. The second loan on the list, an $11.7 million office loan, is also anticipated to be resolved via a short sale of the property. This too has a pending offer with the office price serving as the basis for an increase in the specific reserve on that loan of $2.2 million during the quarter. We are hopeful for a 2025 first quarter resolution on this loan. And third, the equipment rental C&I loan remain unchanged in balances as of December 31st. But on a positive front, a $6 million partial pay down was received subsequent to year end as a result of collateral sales under the bankruptcy proceedings. Ultimate resolution of the remaining $5.8 million in outstandings will be determined by additional collateral sales. As noted on slide seven, these loans, along with the modest loan growth noted earlier, drove the $7.5 million in provision for loan loss for the quarter, increasing the allowance as a percentage of loans to 1.17% as of year end. Jumping to slide nine and a deeper dive on office exposure, we highlight that the total criticized and classified office loans remain virtually unchanged from the prior quarter. We already touched upon the two largest non-performing office loans, while one other notable update would be in regards to the $30 million syndicated loan that reached maturity in the fourth quarter. For this loan, the borrower is receiving new tenant interest for some of the recently vacated space, as well as renewing some existing leases, which will all be incorporated in a new appraisal expected to be finalized and presented to the bank group during the first quarter. With the potential modification and or ultimate resolution still unknown, no impact on balances or specific reserve was warranted in the quarter. In terms of office loan maturities for calendar year 2025, the vast majority and number of units are pass rated and performing without any known issues, with the status of the large first quarter non-performing loan already discussed. Switching gears to slide 11, We highlight the net interest margin improved by four basis points in the fourth quarter to 3.33% and improved two basis points on a core basis when excluding outsized benefit from interest recoveries on payoffs and purchase accounting accretion. The drivers of the fourth quarter margin performance should remain intact as we think about the environment going forward. Along those lines, we have added slide 12 to provide additional detail on the company's expectations regarding the overall interest rate risk profile. To summarize, the bank has approximately 21% of its loan portfolio net of hedge positions that are tied to the short end of the curve and would reprice consistent with any future Fed Reserve rate moves. Similarly, we estimate an approximate 20% deposit beta on our overall non-time related deposits and an approximate 80% beta on time deposits the effective timing of which would be in line with the future maturities of that book. Lastly, we currently have low levels of cash and borrowings that are tied to the short end of the curve. From a fixed rate repricing perspective, we project that the cash flows on our securities and loan books will reprice into a longer-term rate curve that will drive yield spread increases on those cash flows of approximately 250 and 125 basis points, respectively, based on the current yield curve. The estimated impact of these moving pieces is reflected here on this slide and serves as the basis for the margin guidance that I'll share with the rest of the full year 2025 guidance shortly. Moving to slide 13, non-interest income decreased in the fourth quarter, driven primarily by reduced loan level derivative swap income and reduced unrealized gains on equity securities. Overall wealth management income stayed relatively consistent with the prior quarter as the market correction in December challenged revenue growth, with overall assets under management ending the year at $7 billion. Total expenses increased during the quarter, though partially impacted by a couple of large non-recurring items, including a $550,000 one-time expense for final resolution on a lease termination of an exited East Boston branch as well as $764,000 of unrealized losses on equity securities and the aforementioned $1.9 million of merger and acquisition expenses. And lastly, the tax rate for the quarter was approximately 20.5% down from prior quarters as a result of additional tax credit investments made during the quarter, as well as the statutory release of a $1.2 million uncertain tax position in conjunction with the 2023 tax return filing during the quarter. In closing out my comments, I'll turn to slide 17 for full-year 2025 guidance. As Jeff mentioned, we will keep you apprised of any new developments related to the closing of Enterprise Bancorp as that process develops. For now, we reaffirm the high-level results as presented at announcement with the caveat being the uncertainty for fair value adjustment impact depending on the rate environment at closing. The rest of the guidance I'll provide now relates to independent Bancorp as a standalone entity. In terms of loan and deposit growth, we anticipate low to mid single digit percentage increases for the full year. Regarding the net interest margin, as I laid out earlier, we believe the repricing of fixed rate assets will drive approximately 12 to 15 basis points of margin expansion over the course of the year, meaning approximately three to four basis points of expansion each quarter. Given the overall profile of the balance sheet, any additional Federal Reserve cuts are expected to have a neutral to slightly modest benefit on the overall margin forecast for the year. Regarding asset quality, we anticipate resolution of the larger non-performing assets already discussed with minimal impact on provision levels as the expected loss on those loans has already been recognized. As we have been saying through the entire year, we will still expect to see some more bumps along the way, but given our view of the portfolio today, we would expect provision levels to come down from 2024 results and be driven by loan growth and any negative credit migration that's not already identified. Regarding non-interest income, we expect a mid-single-digit percentage increase for full year 2025 versus 2024. And for non-interest expense, we would suggest core expenses, excluding M&A, to increase at a mid-single-digit pace as well. As we work through integration with enterprise, we are also committed to moving forward with a significant core system upgrade, which Jeff just mentioned earlier. The upgrade will likely be effective in the first half of 2026 with no material impact on the future expense run rate. However, we anticipate one-time expenses in 2025 in the $3 million range related to non-capitalized implementation costs, and we will highlight that spend separately throughout the year. Lastly, the tax rate for the full year is expected to be around 23%. And with that, we will now open it up for questions.