Q4 2023 Independent Bank Corp Earnings Call

January 19, 2024

Good day and welcome to the I N D P fourth quarter 2023 earnings conference call.

Good day and welcome to the INDB fourth quarter 2023 earnings conference call.

Operator: Good day and welcome to the INDB fourth quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star again. Before proceeding, please note that during this call we will be making forward bookings. However, actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SBC filings.

All participants will be in a listen only mode.

all participants will be in a listen-only mode

Should you need assistance. Please signal a conference specialist by pressing the star followed by zero.

Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star then 1 on a touch-tone phone.

To ask a question you May press Star then one I'll touch chunk film.

To withdraw your question. Please press Star then two.

To withdraw your question, please press star,

Before proceeding. Please note that during this call we will be making forward looking statements.

Before proceeding, please note that during this call we will be making forward booking

Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SBC filings.

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.

Operator: We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP 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. 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.

We undertake no obligation to publicly update any such statements.

In addition, some of our discussion today may include references to certain non-GAAP

In addition, some of our discussion today may include references to certain non-GAAP financial measures.

Information about these non-GAAP measures, including reconciliation to GAAP measures, maybe found in our earnings release and other SEC filings.

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.

Finally, please also note that this event is being recorded.

I would now like to turn the conference over to Jeff Tangle CEO. Please go ahead.

I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead.

Jeffrey J. Tengel: Thanks, Betsy, and good morning, and thank you for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero.

Jeffrey J. Tengel: Thanks, Betsy, and good morning, and thank you for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. Our fourth quarter and full year performance was a solid one, all things considered. Mark will take you through the details in a few minutes.

Jeffrey J. Tengel: Thanks, Betty and good morning, and thank you for joining us today.

Jeffrey J. Tengel: The company this morning by our CFO and head of consumer lending Mark Ruggiero.

Jeffrey J. Tengel: Our fourth quarter and full year performance was a solid one, all things considered. Mark will take you through the details in a few minutes.

Jeffrey J. Tengel: Our fourth quarter and full year performance was a solid one all things considered mark will take you through the details in a few minutes.

Mark J. Ruggiero: I'd just like to share some thoughts briefly. I've been at Rockland Trust now almost a year, and it's been clear from my very first week here that our North Star is the connections we build with our customers, community members, and one another. What drives our colleagues is a shared vision to be the bank where each relationship matters.

Jeffrey J. Tengel: I'd just like to share some thoughts briefly. I've been at Rockland Trust now for almost a year, and it's been clear from my very first week here that our North Star is the connections we build with our customers, community members, and one another. What drives our colleagues is a shared vision to be the bank where each relationship matters; the resiliency and purpose that is inherent in our culture, combined with our strong balance sheet and a commitment to creating long-term value, is the winning combination and secret sauce that has carried Rockland Trust through various credit and economic cycles over the last century and will carry us forward.

First, though I'd just like to share some.

Jeffrey J. Tengel: But briefly I've been at Rockland Trust now almost a year and it's been clear from my very first week here that are our north star is the connections we build with our customers community members and one another what drives our colleagues is a shared vision to be the bank where each relationship matters.

Jeffrey J. Tengel: The resiliency and purpose that is inherent in our culture.

Mark J. Ruggiero: the resiliency and purpose that is inherent in our culture combined with our strong balance sheet and a commitment to creating long-term value

Jeffrey J. Tengel: With our strong balance sheet and our commitment to creating long term value is.

Mark J. Ruggiero: is the winning combination and secret sauce.

Jeffrey J. Tengel: Is the winning combination in secret sauce.

Jeffrey J. Tengel: That is carried Rockland trust through various credit and economic cycles over the last century and will carry us forward.

Mark J. Ruggiero: that has carried Rockland Trust through various credit and economic cycles over the last century and will carry us forward.

Mark J. Ruggiero: Thankfully, last year's banking march madness is in our rearview mirror, and with what appears to be a pause and possible rate cut by the Fed, the current backdrop appears to be stabilizing.

Jeffrey J. Tengel: Thankfully, last year's banking march madness is in our rearview mirror, and with what appears to be a pause and possible rate cut by the Fed, the current backdrop appears to be stabilizing. While we don't expect this year to be easy by any means, we will continue to focus on those actions we have control over and look to capitalize on our historical strengths. There's no silver bullet to our value proposition. We do community banking really well and believe We remain focused on long-term value creation. Our goal is to achieve top quartile financial performance while delivering a differentiated customer experience where each relationship matters.

Jeffrey J. Tengel: Thankfully last year's banking March madness, as in our rearview mirror and with what appears to be a pause in possible rate cut by the fed the current backdrop appears to be stable stabilizing well.

Mark J. Ruggiero: While we don't expect this year to be easy by any means, we will continue to focus on those actions we have control over and look to capitalize on our historical strengths.

Jeffrey J. Tengel: Well, we don't expect this year to be easy by any means we will continue to focus on those actions, we have control over and look to capitalize on our historical strengths.

Mark J. Ruggiero: there's no silver bullet to our value proposition we do community banking really well and believe our current market position

Jeffrey J. Tengel: There's no silver bullet to our value proposition, we do community banking really well and believe our current market position.

Jeffrey J. Tengel: Present, a high level of opportunity, we remain focused on long term value creation.

Mark J. Ruggiero: present a high level of opportunity. We remain focused on long-term value creation.

Mark J. Ruggiero: Our goal is to achieve top quartile financial performance while delivering a differentiated customer experience where each relationship matters.

Jeffrey J. Tengel: Our goal is to achieve top quartile financial performance, while delivering a differentiated customer experience or each relationship matters.

Jeffrey J. Tengel: Evidence that this approach resonates with our commercial customers is our industry-leading net promoter score as measured by Greenwich Associates. In order to provide this differentiated experience, we need employees who feel a sense of purpose at work and are supported in their efforts. That is why we are proud of being named a top place to work in Massachusetts by the Boston Globe for the 15th year in a row.

Mark J. Ruggiero: Evidence that this approach resonates with our commercial customers is our industry-leading net promoter score as measured by Greenwich Associates.

Evidence that this approach resonates with our commercial customers is our industry, leading net promoter score as measured by Greenwich Associates.

In order to provide this differentiated experience, we need employees, who feel a sense of purpose that work and supported in their efforts that is why we are proud of being named a top place to work in Massachusetts by the Boston Globe for the 15th year in a row.

Mark J. Ruggiero: In order to provide this differentiated experience, we need employees who feel a sense of purpose at work and supported in their efforts. That is why we are proud of being named a top place to work in Massachusetts by the Boston Globe for the 15th year in a row.

Jeffrey J. Tengel: 2024 will be about generating organic growth and expanding relationships, credit risk management, and expense control. At nearly 20 billion in assets, we believe we have the scale to invest in product capability to compete with larger institutions while delivering products and services locally. It is this high touch, high service level that differentiates us from many of our competitors.

'twenty 'twenty four will be about generating organic growth.

Mark J. Ruggiero: 2024 will be about generating organic growth

Mark J. Ruggiero: and expanding relationships, credit risk management and expense control. At nearly 20 billion in assets, we believe we have the scale to invest in product capability to compete with larger institutions while delivering product and service locally. It is this high touch, high service level that differentiates us from many of our competitors.

And expanding relationships credit risk management and expense control at nearly $20 billion in assets. We believe we have the scale to invest in product capability to compete with larger institutions, while delivering product and service locally.

It is this high touch high service level that differentiates us from many of our competitors.

Mark J. Ruggiero: And while we may be in the early innings of managing through our commercial real estate office exposure, we will draw upon our decades of demonstrated credit

Jeffrey J. Tengel: And while we may be in the early innings of managing through our commercial real estate office exposure, we will draw upon our decades of demonstrated credit and portfolio management skills to mitigate any inherent risk. It's difficult to paint the entire office portfolio with one brush because they all have unique characteristics. That is why we have action plans, if needed, tailored to each individual loan and relationship.

And while we may be in the early innings of managing through our commercial real estate office exposure, we will draw upon our decades of demonstrated credit.

In portfolio management skill to mitigate any inherent risks.

Mark J. Ruggiero: and portfolio management skills to mitigate any inherent risk.

Mark J. Ruggiero: it's difficult to paint the entire office portfolio with one brush because they all have unique characteristics that is why we have action plans if needed tailored to each individual loan and relationship

It's difficult to paint the entire office portfolio with one brush because they all have unique characteristics that is why we have action plans if needed tailored to each individual loan and relationship.

Mark J. Ruggiero: With that in mind, we do see near-term growth opportunities to exploit our proven operating model in a variety of ways, including leveraging the Rockland Trust business model in our newer markets like the North Shore and Worcester. We recently hired a seasoned executive to manage our North Shore market to leverage the market and branch presence we acquired from the East Boston Savings Acquisition.

Jeffrey J. Tengel: With that in mind, we do see near-term growth opportunities to exploit our proven operating model in a variety of ways, including leveraging the Rockland Trust business model in our newer markets like the North Shore and Worcester. We recently hired a seasoned executive to manage our North Shore market to leverage the market and branch presence we acquired from the East Boston Savings Acquisition. We've continued to invest in technology and data analytics to deliver actionable insights for our bankers. As I mentioned on previous calls, we are in the middle of upgrading our core FIS operating system to a newer version.

With that in mind, we do see near term growth opportunities to exploit our proven operating model in a variety of ways, including.

Leveraging the Rockland Trust business model in our newer markets like the north shore and Worcester.

We recently hired a seasoned executive to manage our northshore market to leverage the market and branch presence, we acquired from the East Boston savings acquisition.

We've continued to invest in technology and data analytics to deliver actionable insights for our bankers.

Mark J. Ruggiero: We've continued to invest in technology and data analytics to deliver actionable insights for our bankers.

Mark J. Ruggiero: As I mentioned on previous calls, we are in the middle of upgrading our core FIS operating system to a newer version. We are installing a new online account opening platform, Mantle, and we continue to leverage tools like Salesforce and Encino. And those are just a few examples of some of the projects that will enable us to deliver on our relationship promise.

As I've mentioned on previous calls we are in the middle of upgrading our core F. I S operating system to a newer version we are installing a new online account opening platform mantle.

Jeffrey J. Tengel: We are installing a new online account opening platform, Mantle, and we continue to leverage tools like Salesforce and Encino. And those are just a few examples of some of the projects that will enable us to deliver on our relationship promise.

Jeffrey J. Tengel: And we continue to leverage tools like Salesforce in Encino.

Jeffrey J. Tengel: Those are just a few examples of some of the projects that will enable us to deliver on our relationship promise.

Mark J. Ruggiero: Ongoing Focus on Organic Loan and Deposit Growth is another letter.

Jeffrey J. Tengel: Ongoing Focus on Organic Loan and Deposit Growth is another letter. We have a number of 2024 initiatives here to facilitate growth, including things like a bank-at-work program, a new inside sales team for commercial deposits and treasury management, recalibrating incentive programs to more heavily weight deposit gathering, and a focus on deposit-rich industry segments. We also expect to more fully leverage some of our industry verticals to drive growth in CNI, and finally, opportunistically attract high-performance talent who can drive revenue. We've had some success in 2023 and expect our unique value proposition will resonate with talent in the market and enable us to continue that trend in 2024. While M&A activity remains somewhat muted, we will continue to be disciplined and poised to take advantage of opportunities that fit our historical acquisition strategy and pricing parameters when conditions improve.

Ongoing focus on organic loan and deposit growth is another lever.

Mark J. Ruggiero: We have a number of 2024 initiatives here to facilitate growth to include things like a bank-at-work program,

Jeffrey J. Tengel: We have a number of 'twenty 'twenty four initiatives here to facilitate growth to include things like a bank at work program.

Jeffrey J. Tengel: Our new inside sales team for commercial deposits and Treasury management Recalibrating incentive programs to more heavily weight deposit gathering.

Mark J. Ruggiero: A new inside sales team for commercial deposits and treasury management, recalibrating incentive programs to more heavily weight deposit gathering, and a focus on deposit-rich industry segments.

Jeffrey J. Tengel: And our focus on deposit rich industry segments.

Mark J. Ruggiero: We also expect to more fully leverage some of our industry verticals to drive growth in CNI.

We also expect to more fully leverage some of our industry verticals to drive growth in C&I.

Mark J. Ruggiero: and finally, opportunistically attracting high performing talent who can drive revenue. We've had some success in 2023 and expect our unique value proposition will resonate with talent in the market and enable us to continue that trend in 2024.

Jeffrey J. Tengel: And finally, opportunistically, attracting high performing talent, who can drive revenue.

<unk> had some success in 2023 and expect our unique value proposition will resonate with talent in the market and enable us to continue that trend in 2024.

Mark J. Ruggiero: While M&A activity remains somewhat muted, we will continue to be disciplined and poised to take advantage of opportunities that fit our historical acquisition strategy and pricing parameters when conditions improve.

Well M&A activity remained somewhat muted we will continue to be disciplined and poised to take advantage of opportunities that fit our historical acquisition strategy and pricing parameters when conditions improve.

Jeffrey J. Tengel: It's been a proven value driver in the past, and we expect it to be one in the future. This pause in M&A activity has also allowed us to successfully deploy some of our excess capital via a stock buyback at what we believe were very attractive prices. The current environment has also allowed us to focus on upgrading and adding to our technology platforms. I mentioned a number of examples a few minutes ago. It has also allowed us to examine our internal processes in order to become more efficient and effective.

Mark J. Ruggiero: It's been a proven value driver in the past and we expect it to be one in the future.

It's been a proven value driver in the past and we expect it to be one in the future.

Mark J. Ruggiero: This pause in M&A activity has also allowed us to successfully deploy some of our excess capital via a stock buyback at what we believe were very attractive prices.

This pause in M&A activity has also allowed us to successfully deploy some of our excess capital via a stock buyback at what we believe were very attractive prices.

Jeffrey J. Tengel: The current environment has also allowed us to focus on upgrading and adding to our tech platform I mentioned a number of examples a few minutes ago. It has also allowed us to examine our internal processes in order to become more efficient and effective.

Mark J. Ruggiero: The current environment has also allowed us to focus on upgrading and adding to our tech platforms. I mentioned a number of examples a few minutes ago. It has also allowed us to examine our internal processes in order to become more efficient and effective.

Some examples of this strategic review, where we expect to create cost savings and efficiencies over time or a more strategic look at our facilities management and our procurement functions.

Mark J. Ruggiero: Some examples of this strategic review where we expect to create cost savings and efficiencies over time are a more strategic look at our facilities management and our procurement functions.

Jeffrey J. Tengel: Some examples of this strategic review, where we expect to create cost savings and efficiencies over time, are a more strategic look at our facilities management and our procurement functions. We will continue to be diligent and prudent managers of expenses while investing in talent and technology. To summarize, we have everything in place to deliver the results the market has become accustomed to over the years, including a talented and deep management team, ample capital, highly attractive markets, good expense management, disciplined credit underwriting, strong brand recognition, operating scale, a deep consumer and commercial customer base, and an energized and engaged workforce.

Jeffrey J. Tengel: We will continue to be diligent and prudent managers of expenses, while investing in talent and technology.

Mark J. Ruggiero: We will continue to be diligent and prudent managers of expenses while investing in talent and technology.

Jeffrey J. Tengel: To summarize we have everything in place to deliver the results the market has been accustomed to over the years.

Mark J. Ruggiero: To summarize, we have everything in place to deliver the results the market has been accustomed to over the years, including a talented and deep management team, ample capital, highly attractive markets, good expense management, disciplined credit underwriting, strong brand recognition, operating scale,

Including a talented and deep management team.

Jeffrey J. Tengel: Ample capital highly attractive markets good expense management discipline.

Jeffrey J. Tengel: Disciplined credit underwriting strong brand recognition operating scale.

Mark J. Ruggiero: a deep consumer and commercial customer base

Deep consumer and commercial customer base.

Mark J. Ruggiero: and an energized and engaged workforce

Jeffrey J. Tengel: And an energized and engaged workforce.

Jeffrey J. Tengel: In short I believe we are well positioned to not only navigate through the current challenging environment, but to take market share and continue to be an acquirer of choice of choice in the northeast.

Mark J. Ruggiero: In short, I believe we are well positioned to not only navigate through the current challenging environment, but to take market share and continue to be an acquirer of choice in the Northeast.

Jeffrey J. Tengel: In short, I believe we are well positioned to not only navigate through the current challenging environment but to take market share and continue to be an acquirer of choice in the Northeast. On that note, I'll turn it over to Mark.

Mark J. Ruggiero: and on that note, I'll turn it over to Mark.

Jeffrey J. Tengel: And on that note I'll turn it over to Mark.

Mark J. Ruggiero: 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 and today's investor portal.

Mark J. Ruggiero: Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our AK filing and is available on our website in today's investor portal.

Mark J. Ruggiero: Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our AK filing and is available on our website in today's investor portal. Starting on slide three of that deck, 2023 fourth-quarter GAAP net income was $54.8 million, and diluted EPS was $1.26, with all major contributors essentially in line with expectations. Factoring into the EPS results, we bought back approximately 1.28 million shares during the fourth quarter at a total cost of $69 million, reflecting an average repurchase price of $53.73 per share. In summary, these results produced a strong 1.13% return on assets, 7.51% return on average common equity, and an 11.50% return on average tangible common equity. In addition, despite the buyback activity during the quarter, tangible book value per share grew an exceptional $1.53.

Mark J. Ruggiero: Starting on slide three of that deck, 2023 fourth quarter GAAP net income was $54.8 million and diluted EPS was $1.26, with all major contributors essentially in line with expectations.

Mark J. Ruggiero: On slide three of that deck 2023 fourth quarter GAAP net income was $54 8 million and diluted EPS was $1 26, with all major contributors, especially in line essentially in line with expectations.

Mark J. Ruggiero: Factoring into the EPS results, we bought back approximately 1.28 million shares during the fourth quarter at a total cost of $69 million, reflecting an average repurchase price of $53.73 per share.

Mark J. Ruggiero: In summary, these results produced a strong 1.13% return on assets.

Mark J. Ruggiero: In summary, these results produced a strong 1.13% return on assets of 7.51% return on average common equity and an 11 point, 50% return on average tangible common equity.

Mark J. Ruggiero: 7.51% return on average common equity and an 11.50% return on average tangible common equity.

Mark J. Ruggiero: In addition, despite the buyback activity during the quarter, tangible book value per share grew an exceptional $1.53.

Mark J. Ruggiero: In addition, despite the buyback activity during the quarter tangible book value per share grew an exceptional dollar 53 cents or three 6% in the fourth quarter.

Mark J. Ruggiero: 3.6% in the fourth quarter.

Mark J. Ruggiero: 3.6% in the fourth quarter, and I'll highlight a few key points in the additional slides provided. As noted on slide 4, total deposits declined $193 million, or 1.3%, to $14.87 billion for the quarter, while average deposits dropped 0.6%. Business customer cash flows drove most of the decrease, as consumer and municipal balances remained fairly consistent quarter over quarter. The main deposit story has not changed much as we continue to see the impact of some product remixing, persistent competitive rate pressure, and seedy maturity repricing. The underlying dynamic in the current rate environment for the banking industry continues to be customer pursuit of higher yields. However, the long-term stability of our deposit franchise remains intact, with total non-interest-bearing deposits comprising a healthy 30.7% at year-end, and the fourth-quarter cost of deposits of 1.31%, though up 24 basis points from the prior quarter, still reflects a strong cumulative deposit beta when compared to our peers.

Mark J. Ruggiero: and I'll highlight a few key points in the additional slides provided.

Mark J. Ruggiero: And I'll highlight a few key points and the additional slides provided.

Mark J. Ruggiero: As noted on slide four total deposits declined $193 million or one 3% to 14.87 billion for the quarter, while average deposits dropped to 0.6%.

Mark J. Ruggiero: As noted on slide 4, total deposits declined $193 million, or 1.3%, to $14.87 billion for the quarter, while average deposits dropped 0.6%.

Mark J. Ruggiero: Business customer cash flows drove most of the decrease, as consumer and municipal balances remained fairly consistent quarter over quarter.

Mark J. Ruggiero: This customer cash flows drove most of the decrease as consumer and municipal balances remained fairly consistent quarter over quarter.

Mark J. Ruggiero: The main deposit story has not changed much as we continue to see the impact from some product remixing, persistent competitive rate pressure, and seedy maturity repricing.

Mark J. Ruggiero: The main deposit story has not changed much as we continue to see the impact from some product remixing persistent competitive rate pressure and CD maturity repricing.

Mark J. Ruggiero: The underlying dynamic in the current rate environment for the banking industry continues to be customer pursuit of higher yields.

Mark J. Ruggiero: The long-term stability of our deposit franchise remains intact, with total non-interest-bearing deposits comprising a healthy 30.7% at year-end.

Mark J. Ruggiero: Despite those headwinds the long term stability of our deposit franchise remains intact with total interest no total noninterest bearing deposits comprising a healthy 37% at year end in the fourth quarter cost of deposits of 1.31% up.

Mark J. Ruggiero: and the fourth quarter cost of deposits of 1.31%, though up 24 basis points from the prior quarter, still reflects a strong cumulative deposit beta when compared to our peers.

Mark J. Ruggiero: Up 24 basis points from the prior quarter still reflects a strong cumulative deposit beta when compared to our peers.

Mark J. Ruggiero: As a quick reflection back on full year 2023 results, we reaffirm the message we shared on a number of occasions throughout this volatile period.

Mark J. Ruggiero: As a quick reflection back on full year 2023 results, we reaffirm the message we shared on a number of occasions throughout this volatile period. We grew total households by 2.7% during the year, building on our already strong and established deposits. The vast majority of balance outflows reflect usage of excess funds from still existing relationships with no notable change or acceleration in closed accounts during the year. We feel our loyal customer and deposit bases provide a real source of strength over both the near and long term.

Mark J. Ruggiero: As a quick reflection back on full year 2023 results.

Mark J. Ruggiero: We reaffirmed the message we shared on a number of occasions throughout this volatile period, we grew total households by 2.7% during the year building on our already strong and established deposit base.

Mark J. Ruggiero: We grew total households by 2.7% during the year, building on our already strong and established deposits.

Mark J. Ruggiero: The vast majority of balance outflows reflect usage of excess funds from still existing relationships with no notable change or acceleration in closed accounts during the year.

Mark J. Ruggiero: We feel our loyal customer and deposit bases provide a real source of strength over both the near and long term.

Mark J. Ruggiero: Jump into slide seven.

Mark J. Ruggiero: Jumping to slide seven.

Mark J. Ruggiero: Total loans increased $54 million or 0.4% to $14 3 billion for the quarter the.

Mark J. Ruggiero: Total loans increased $54 million or 0.4% to $14.3 billion for the quarter.

Mark J. Ruggiero: Total loans increased $54 million, or 0.4%, to $14.3 billion for the quarter. The balance increase was driven primarily by adjustable-rate residential loans, while CNI paydowns and a reduced appetite for commercial real estate drove a modest decline in total commercial balances during the quarter.

Mark J. Ruggiero: The balance increase was driven primarily by adjustable rate residential loans, while CNI paydowns and a reduced appetite for commercial real estate drove a modest decline in total commercial balances during the quarter.

Mark J. Ruggiero: The balance increase was driven primarily by adjustable rate residential loans, while C&I pay downs and a reduced appetite for commercial real estate drove a modest decline in total commercial balances during the quarter the.

Mark J. Ruggiero: The increase noted in commercial real estate is primarily driven by conversion of existing construction projects and to permanent status.

Mark J. Ruggiero: The increase noted in commercial real estate is primarily driven by conversion of existing construction projects into permanent status.

Mark J. Ruggiero: The increase noted in commercial real estate is primarily driven by the conversion of existing construction projects into permanent status, and while slide eight provides an overall snapshot of the makeup of the various loan portfolios, we will take a deeper dive into overall asset quality along with an update on non-owner occupied commercial office exposure. Moving to slides 9 and 10, which provide various updates and risk viewpoints on a number of facts. I'll highlight a few now. First, total non-performing assets increased to $54.4 million but still represent only 0.38% and 0.28% of total loans and assets, respectively, in terms of the key drivers of non-performing assets.

Mark J. Ruggiero: And while slide eight provides an overall snapshot of the makeup of the various loan portfolios, we will take a deeper dive into overall asset quality, along with an update on non owner occupied commercial office exposure.

Mark J. Ruggiero: and while slide eight provides an overall snapshot of the makeup of the various loan portfolios, we will take a deeper dive into overall asset quality along with an update on non-owner occupied commercial office exposure.

Mark J. Ruggiero: Moving to slides nine and 10, which provide various updates and risked viewpoints on a number of factors I'll highlight a few now.

Mark J. Ruggiero: Moving to slides 9 and 10, which provide various updates and risk viewpoints on a number of facts.

Mark J. Ruggiero: I'll highlight a few now.

Mark J. Ruggiero: First total nonperforming assets increased to $54 4 million, but still represent only 0.38% and 0.28% of total loans and assets respectively.

Mark J. Ruggiero: First, total non-performing assets increased to $54.4 million, but still represent only 0.38% and 0.28% of total loans and assets respective.

Mark J. Ruggiero: In terms of key drivers of nonperforming assets.

Mark J. Ruggiero: in terms of key drivers of non-performing assets.

Mark J. Ruggiero: The remaining $9 million of upstandings from the previous office property foreclosure was paid in full, while the new to non-performing amounts are primarily driven by the migration of two commercials.

Mark J. Ruggiero: The remaining $9 million of outstandings from the previous office property foreclosure were paid in full, while the new to non-performing amounts were primarily driven by the migration of two commercials. Net charge-offs during the quarter were well-contained and declined to $3.8 million, or 11 basis points of loans on an annualized basis, and the provision for loan loss of $5.5 million brought the allowance to an even 1% of loans.

Mark J. Ruggiero: The remaining $9 million of Outstandings from their previous office property foreclosure was paid in full.

Mark J. Ruggiero: The new to nonperforming amounts are primarily driven by the migration of two commercial loans.

Mark J. Ruggiero: Net charge-offs during the quarter were well-contained and declined to $3.8 million, or 11 basis points of loans on an annualized basis.

Mark J. Ruggiero: Net charge offs during the quarter were well contained and declined $3 8 million or 11 basis points of loans on an annualized basis.

And the provision for loan loss of $5 5 million brought the allowance to an even 1% of loans.

Mark J. Ruggiero: and the provision for loan loss of $5.5 million brought the allowance to an even 1% of loans.

Mark J. Ruggiero: Within the closely monitored non-owner-occupied office portfolio, there are a couple of highlights worth noting. Total outstanding balances decreased modestly, while total criticized and classified balances remained very manageable at only 11 loans. In addition, we continue to closely monitor our top 20 office exposures, which make up approximately $516 million in balances, or 49% of the office portfolio at year-end.

Mark J. Ruggiero: But then the closely monitored non owner occupied office portfolio Theres, a couple of highlights worth noting.

Mark J. Ruggiero: Within the closely monitored non-owner-occupied office portfolio, there's a couple of highlights worth noting.

Mark J. Ruggiero: Total outstanding balances decreased modestly, while total criticized and classified balances remained very manageable at only 11 loans.

Mark J. Ruggiero: Total outstanding balances decreased modestly while total criticized and classified balances remained very manageable at only 11 loans.

In addition, we continue to closely monitor our top 20 office exposures, which make up approximately $516 million in balances of 49% of the office portfolio at year end.

Mark J. Ruggiero: In addition, we continue to closely monitor our top 20 office exposures.

Mark J. Ruggiero: make up approximately $516 million in balances, or 49% of the office portfolio at year-end.

Mark J. Ruggiero: Within these top 20, we note zero non-performers, 55 million in a criticized status, and only 19 million as classified.

Mark J. Ruggiero: Within these top 20, we note zero non-performers, 55 million in a criticized status, and only 19 million as classified. Turn to slide 11. As anticipated, the continued pressure on the cost of deposits outpaced asset yield repricing benefits, resulting in a 3.38% margin for the quarter, which reflects a 9 basis point drop from the prior quarter or 12 basis points when excluding non-chloride. While the margin results were in line with If this pressure remains for a prolonged period, some of the previously anticipated benefit from asset repricing would be negated, and this dynamic is factored into the forward-looking guidance I'll provide shortly.

Mark J. Ruggiero: Within these top 20, we note zero non performers 55 million and our criticized status and only $19 million is classified.

Mark J. Ruggiero: turn into slide 11 as anticipated the continued pressure on cost of deposits outpaced asset yield repricing benefits.

Mark J. Ruggiero: Turning to slide 11 as anticipated the continued pressure on cost of deposits outpaced asset repricing benefit, resulting in a 3.38% margin for the quarter, which reflects a nine basis point drop from the prior quarter or 12 basis points when excluding non core items while the.

Mark J. Ruggiero: resulting in a 3.38% margin for the quarter which reflects a 9 basis point drop from the prior quarter or 12 basis points when excluding non-chloride.

Mark J. Ruggiero: While the margin results were in line with our previous quarter guidance, it is worth noting the recent emerging downward rate pressure on longer-term fixed rate prices.

Mark J. Ruggiero: <unk> results were in line with our previous quarter guidance. It is worth noting the recent emerging downward rate pressure on longer term fixed rate pricing.

Mark J. Ruggiero: If this pressure remains for a prolonged period, some of the previously anticipated benefit from asset repricing would be negated. And this dynamic is factored into the forward-looking guidance I'll provide shortly.

Operator: Good day, and welcome to the IMDb 4th Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode.

If there's pressure remains for a prolonged period some of the previously anticipated benefit from asset repricing would be negated and this dynamic is factored into the forward looking guidance I will provide shortly.

Mark J. Ruggiero: Moving to slide 12, fee income remains strong and was fairly consistent with the prior quarter, which, as a reminder, benefited from $2.7 million of non-recurring gains on bank-owned life insurance and loan-related expenses. In summary, deposit, interchange, and ATM fees remain strong, and assets under administration on the wealth management side grew nicely by nearly 7% to $6.5 billion at year end, which should bode well for revenue moving forward. Turn to slide 13. Total expenses increased $3 million, or 3%, when compared to the prior quarter, and the increase was driven primarily by a one-time FDIC assessment accrual of $1.1 and one-time charges of $657,000 related to the write-off of acquired facilities.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on a touch-tone phone.

Mark J. Ruggiero: Moving to slide 12, fee income remains strong and was fairly consistent with the prior quarter, which as a reminder, benefited from $2.7 million of non-recurring gains on bank-owned life insurance and loan-related expenses.

Mark J. Ruggiero: Moving to slide 12 fee income remained strong and was fairly consistent with the prior quarter, which as a reminder, benefited from $2 7 million of nonrecurring gains on bank on life insurance and loan related fees.

Operator: To withdraw your question, please press the star key then. 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 SBC filings. We undertake no obligation to publicly update any such statement. In addition, some of our discussion 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.

Mark J. Ruggiero: In summary, deposit, interchange, and ATM fees remain strong, and assets under administration on the wealth management side grew nicely by nearly 7% to $6.5 billion at year end, which should bode well for revenue moving forward.

Mark J. Ruggiero: In summary deposit interchange and ATM fees remained strong and assets under administration on the wealth management side grew nicely by nearly 7% to $6 5 billion at year end, which should bode well for revenue moving forward.

Mark J. Ruggiero: Turning to slide 13, total expenses increased 3 million four 3% when compared to the prior quarter.

Mark J. Ruggiero: Turn into slide 13. Total expenses increased $3 million for 3% when compared to the prior quarter.

Mark J. Ruggiero: The increase was driven primarily by a one time FDIC assessment accrual of $1 1 million and one time charges of $657000 related to the write off of acquired facilities.

Mark J. Ruggiero: and the increase was driven primarily by a one-time FDIC assessment accrual of $1.1

Mark J. Ruggiero: and one-time charges of $657,000 related to the write-off of acquired facilities.

Mark J. Ruggiero: And lastly, the tax rate for the quarter of 22.7% includes $840,000 of outsized benefit, with the largest component being the expiration and release of reserves on uncertain tax positions in conjunction with the October filing of the 2022 tax return.

Mark J. Ruggiero: And lastly, the tax rate for the quarter of 22.7% includes $840,000 of outsized benefits, with the largest component being the expiration and release of reserves on uncertain tax positions in conjunction with the October filing of the 2022 tax return.

Mark J. Ruggiero: And lastly, the tax rate for the quarter of 22, 7% includes $840000 of outsized benefit with the largest component being the exploration and release of reserves on uncertain tax positions in conjunction with the October filing of the 2022 tax return.

Jeffrey J. Tengel: Finally, please also note that this event is being recorded. I would now like to turn the conference over to Jess Tengel, CEO. Please go ahead.

Jeffrey J. Tengel: Thanks, Betsy, and good morning, and thank you for joining us today. I'm accompanied this morning by CFO and head of consumer lending, Mark Ruggiero. Our fourth quarter and full-year performance was a solid one, all things considered. Mark will take you through the details in a few minutes.

Mark J. Ruggiero: As we move to slide 14, and focus on forward looking guidance. We remain confident that we are well positioned to thrive when the environment begins to turn.

Mark J. Ruggiero: As we move to slide 14 and focus on forward-looking guidance, we remain confident that we are well-positioned to thrive when the environment begins to turn.

Mark J. Ruggiero: As we move to slide 14 and focus on forward-looking guidance, we remain confident that we are well-positioned to thrive when the environment begins to turn. Having said that, we recognize the level of uncertainty still driving near-term impact on credit and funding pressures. As such, we have provided some level of full-year guidance while staying grounded in our operating assumptions to provide outlook over specific components limited to the near term, big picture we anticipate 2024 will bring modest loan and deposit growth first 2023 year-end levels with net growth likely skewed towards the second half More specifically, for the first quarter, we expect we will again experience our normal seasonal outflow of deposits, resulting in a low single-digit decrease from December balance, but as I just mentioned, growth is projected for the second half Loan balances are anticipated to stay relatively flat for the first quarter as mortgage production starts to shift toward more saleable activity.

Mark J. Ruggiero: Having said that, we recognize the level of uncertainty still driving near-term impact on credit and funding pressures.

Having said that we recognize the level of uncertainty still driving near and near term impact on credit and funding pressures.

Jeffrey J. Tengel: First, though, I'd just like to share some thoughts briefly. I've been at Rockland Trust now for almost a year, and it's been clear from my very first week here that our North Star is the connections we build with our customers, community members, and one another. What drives our colleagues is a shared vision to be the bank where each relationship matters. The resiliency and purpose that is inherent in our culture, combined with our strong balance sheet and a commitment to creating long-term value, is the winning combination and secret sauce that has carried Rockland Trust through various credit and economic cycles over the last century and will carry us forward. Thankfully, last year's Banking March Madness is in our rearview mirror, and with what appears to be a pause and possible rate cut by the Fed, the current backdrop appears to be stabilizing. While we don't expect this year to be easy by any means, we will continue to focus on those actions we have control over and look to capitalize on our historical strengths. There's no silver bullet to our value proposition.

Mark J. Ruggiero: As such, we have provided some level of full-year guidance while staying grounded in our operating assumptions to provide outlook over specific components limited to the near term.

As such we have provided some level of full year guidance, while staying grounded in our operating assumptions to provide outlook over specific components limited to the near term.

Mark J. Ruggiero: big picture we anticipate 2024 will bring modest loan and deposit growth first 2023 year-end levels with net growth likely skewed towards the second half

Mark J. Ruggiero: Big picture, we anticipate 'twenty 'twenty, four will brain modest loan and deposit growth for 2023 year round levels with net growth likely skewed towards the second half of the year.

Mark J. Ruggiero: More specifically, for the first quarter, we expect we will again experience our normal seasonal outflow of deposits.

Mark J. Ruggiero: More specifically for the first quarter, we expect we will again experience our normal seasonal outflow of deposits, resulting in a low single digit decrease from December balances, but as I. Just meant then mentioned growth is projected for the second half of the year.

Mark J. Ruggiero: resulting in a low single-digit decrease from December balance.

Mark J. Ruggiero: but as I just mentioned, growth is projected for the second half

Mark J. Ruggiero: Loan balances are anticipated to stay relatively flat for the first quarter as mortgage production starts to shift toward more saleable activity.

Mark J. Ruggiero: Loan balances are anticipated to stay relatively flat for the first quarter as mortgage production starts to shift toward more salable activity.

Mark J. Ruggiero: As I alluded to earlier, the shape of the curve matters, and not all Fed reserve decreases are created equally.

Mark J. Ruggiero: As I alluded to earlier, the shape of the curve matters, and not all Fed reserve decreases are created equally. With the potential for a prolonged, even steeper inverted curve, loan and deposit pricing challenges will persist, and we now expect the margin percentage to decrease and stabilize in the mid-320s range in the first half of the year. As it relates to asset quality, we have made no significant changes to our guidance regarding asset quality and provision for loan loss.

Mark J. Ruggiero: As I alluded to earlier the shape of the curve matters and not all fed reserve decreases are created equal.

Mark J. Ruggiero: But with the potential for a prolonged even steeper inverted curve loan into pilot and deposit pricing challenges will persist and we now expect our margin percentage to decrease and stabilize in the mid three twenties range in the first half of the year.

Mark J. Ruggiero: With the potential for a prolonged, even steeper inverted curve, loan and deposit pricing challenges will persist, and we now expect the margin percentage to decrease and stabilize in the mid-320s range in the first half of the year.

Jeffrey J. Tengel: We do community banking really well and believe our current market position presents a high level of opportunity. We remain focused on long-term value creation. Our goal is to achieve top quartile financial performance while delivering a differentiated customer experience where each relationship matters. Evidence that this approach resonates with our commercial customers is our industry-leading net promoter score as measured by Greenwich Associates. In order to provide this differentiated experience, we need employees who feel a sense of purpose at work and support it in their efforts.

Mark J. Ruggiero: As it relates to asset quality, we have no significant changes to our guidance regarding asset quality and provision for loan loss.

Mark J. Ruggiero: As it relates to asset quality, we have no significant changes to our guidance regarding asset quality and provision for loan loss, which we believe will continue to be driven primarily by the near term performance of our investment commercial real estate portfolio.

Mark J. Ruggiero: We believe will continue to be driven primarily by the near-term performance of our investment commercial real estate portfolio.

Mark J. Ruggiero: We believe it will continue to be driven primarily by the near-term performance of our investment commercial real estate portfolio. Regarding fee income and non-interest expense, we expect both to experience low single-digit percentage increases in 2024 versus 2023 fourth quarter annualized levels.

Mark J. Ruggiero: Regarding fee income and non-interest expense, we expect both to experience low single-digit percentage increases in 2024 versus 2023 fourth quarter annualized levels.

Regarding fee income and noninterest expense, we expect both to experience low single digit percentage increases in 'twenty 'twenty four versus 2023 fourth quarter annualized levels.

Jeffrey J. Tengel: That is why we are proud of being named a top place to work in Massachusetts by the Boston Globe for the 15th year in a row. 2024 will be about generating organic growth. MacArthur, Kurt, And while we may be in the early innings of managing through our commercial real estate office exposure, we will draw upon our decades of demonstrated credit and portfolio management skills to mitigate any inherent risk. It's difficult to paint the entire office portfolio with one brush because they all have unique characteristics.

Mark J. Ruggiero: And similar to prior years Q1 expenses should reflect slightly higher salary and benefits expenses due primarily from increased payroll taxes.

Mark J. Ruggiero: Similar to prior years, Q1 expenses should reflect slightly higher salary and benefits expense.

Mark J. Ruggiero: Similar to prior years, Q1 expenses should reflect slightly higher salary and benefits expense, primarily due to increased payroll tax.

Mark J. Ruggiero: do primarily from increased payroll tax.

Mark J. Ruggiero: To echo Jeff's comments controlling expense levels and seeking operating efficiencies our priority objectives for us.

Speaker Change: to echo Jeff's comments, controlling expense levels and seeking operating efficiencies are priority objectives for us.

Mark J. Ruggiero: To echo Jeff's comments, controlling expense levels and seeking operating efficiencies are priority objectives for us. Lastly, the tax rate for 2024 is expected to be around 23% for the full year, down slightly from full year 2023 levels, due in part to increased low-income housing tax credit investments.

Speaker Change: Lastly, the tax rate for 2024 is expected to be around 23% for the full year, down slightly from full year 2023 levels, due in part to increased low-income housing tax credit investments.

Lastly, the tax rate for 2024 is expected to be around 23% for the full year.

Mark J. Ruggiero: Slightly from full year 2023 levels due in part to increased low income housing tax credit investments.

Speaker Change: That concludes my comments and we will now open it up for questions.

Operator: That concludes my comments, and we will now open it up for questions. We will now begin the question and answer session. To ask a question, you may press star and 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing. If at any time your question has been answered and you would like to withdraw your question, please press star then 2.

Speaker Change: That concludes my comments and we will now open it up for questions.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star and 1 on your touchtone phone.

Speaker Change: I asked the question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing

Speaker Change: You are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Jeffrey J. Tengel: That is why we have action plans, if needed, tailored to each individual loan and relationship. With that in mind, we do see near-term growth opportunities to exploit our proven operating model in a variety of ways, including leveraging the Rockland Trust business model in our newer markets like the North Shore and Worcester. We recently hired a seasoned executive to manage our North Shore market to leverage the market and branch presence we acquired from the East Boston Savings Acquisition. We've continued to invest in technology and data analytics to deliver actionable insights for our bankers. As I mentioned on previous calls, we are in the middle of upgrading our core FIS operating system to a newer version. We are installing a new online account opening platform, Mantle, and we continue to leverage tools like Salesforce and Encino.

Speaker Change: At this time, we will pause momentarily to assemble our rock.

Operator: At this time, we will pause momentarily to assemble our rock.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Thomas Fitzgibbon: The first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Thomas Fitzgibbon: Hey guys, good morning and happy Friday.

Jeffrey J. Tengel: Hey guys, good morning and happy Friday!

Mark Thomas Fitzgibbon: Hey, guys, good morning, and happy Friday.

Speaker Change: Thank you, Mark.

Jeffrey J. Tengel: Thank you, Mark.

Hello, Mark.

Mark Thomas Fitzgibbon: Mark just to follow up on on some on your guidance slide there.

Speaker Change: Mark, just to follow up on your guidance slide there, deposits have been trending down for a while now. What gives you confidence that we're going to see low single-digit deposit growth in 2024? Is that a function of you guys sort of nudging rates up on deposits, or you feel like we've kind of gotten to the bottom and things are starting to normalize?

Mark J. Ruggiero: Mark, just to follow up on your guidance slide there, deposits have been trending down for a while now. What gives you confidence that we're going to see low single-digit deposit growth in 2024? Is that a function of you guys sort of nudging rates up on deposits, or do you feel like we've kind of gotten to the bottom and things are starting to normalize?

Deposits have been trending down for a while now.

Mark Thomas Fitzgibbon: What gives you confidence that we're going to see low single digit deposit growth. In 2024 is that is that a function of you guys sort of nudging rates up on deposits or if you feel like we've kind of gotten to the bottom and things start to normalize.

Mark: Yeah, you know, it's been continuing to tick down, as you suggest. It does feel like

Mark J. Ruggiero: Yeah, you know, it's been continuing to tick down, as you suggest. It does feel like you know things will be stabilizing here in the very near term you know we look at the components of our deposit franchised consumer balances actually stabilized very well in the fourth quarter and were relatively flat. And really the decline we experienced in the fourth quarter was mostly business customers drawing on what appears to still be some level of excess liquidity. And we do see typically some year-end outflows, a lot of family-owned businesses, a lot of small businesses where tax planning, tax distributions, year-end bonuses create some pressure on balance and that spills over into the first quarter as well so I think there's a little bit of that we'll continue to see but all in all we're growing households we're not seeing accounts close so we do think we're getting to a point here where the decline should bottom

Mark Thomas Fitzgibbon: Yeah, you know, it's been continuing to tick down as you suggest it does feel like.

Mark: you know things will be stabilizing here in the very near term you know we look at the components of our

Mark Thomas Fitzgibbon: Things will be stabilizing here in the very near term you know when you look at the components of our.

Jeffrey J. Tengel: And those are just a few examples of some of the projects that will enable us to deliver on our relationship promise. Ongoing focus on organic loan and deposit growth is another key letter. We have a number of 2024 initiatives here to facilitate growth, including things like a Bank at Work program, a new inside sales team for commercial deposits and treasury management, recalibrating incentive programs to more heavily weight deposit gathering, and a focus on deposit-rich industry segments. We also expect to more fully leverage some of our industry verticals to drive growth in C&I. And finally, opportunistically attracting high-performing talent who can drive revenue.

Mark: deposit franchised consumer balances actually stabilized very well in the fourth quarter and were relatively flat. And really the decline we experienced in the fourth quarter was mostly business customers drawing on what appears to still be some level of excess liquidity. And we do see typically some year-end outflows, a lot of family-owned businesses, a lot of small businesses where tax planning, tax distributions, year-end bonuses create some pressure on balance

Mark Thomas Fitzgibbon: Deposit franchise consumer balances actually stabilize very well in the fourth quarter and were relatively flat and really the decline we experienced in the fourth quarter was mostly business customers are drawing on what appears to still be some level of excess liquidity and we do see typically some year round outflow.

Mark Thomas Fitzgibbon: Those a lot of family owned businesses, a lot of small businesses, where tax planning tax distributions year end bonuses create some pressure on balances.

Mark: and that spills over into the first quarter as well so I think there's a little bit of that we'll continue to see but all in all we're growing households we're not seeing accounts close so we do think we're getting to a point here where the decline should bottom

Mark Thomas Fitzgibbon: That spills over into the first quarter as well so I think there's a little bit of that we'll continue to see but all in all we're growing households, we're not seeing accounts close so.

Jeffrey J. Tengel: We had some success in 2023 and expect our unique value proposition will resonate with talent in the market and enable us to continue that trend in 2024. While M&A activity remains somewhat muted, we will continue to be disciplined and poised to take advantage of opportunities that fit our historical acquisition strategy and pricing parameters when conditions improve. It's been a proven value driver in the past, and we expect it to be one in the future.

Mark Thomas Fitzgibbon: So we do think we're getting to a point here, where the bigger declines should bottom out.

Speaker Change: I also if I could add mark we have a number of initiatives.

Speaker Change: I also, if I could add, Mark, we have a number of initiatives, some of which I alluded to in my opening comments, really completely focused on gathering deposits, whether it's modifying incentive compensation programs to skew towards deposits or inside sales groups, we have a number of initiatives focused on just that. It's a focus of ours in 2024 to be sure.

Jeffrey J. Tengel: I also, if I could add, Mark, we have a number of initiatives, some of which I alluded to in my opening comments, really completely focused on gathering deposits, whether it's modifying incentive compensation programs to skew towards deposits or inside sales groups. We have a number of initiatives focused on just that. It's a focus of ours in 2024, to be sure.

Speaker Change: Some of which I alluded to in my opening comments really completely focused on gathering deposits, whether it's modifying incentive compensation programs to skewed towards deposits or inside sales groups.

Jeffrey J. Tengel: This pause in M&A activity has also allowed us to successfully deploy some of our excess capital via a stock buyback at what we believe were very attractive prices. The current environment has also allowed us to focus on upgrading and adding to our tech platform. I mentioned a number of examples a few minutes ago.

Speaker Change: We have a number of initiatives focused on just that it's a it's a focus of ours in 2024 to be sure.

Speaker Change: Okay, and then I wonder if you could share with us what the spot NIM was in the month of December.

Speaker Change: Okay. And then I wonder if you could share with us what the spot NIM was in the month of December?

Mark Thomas Fitzgibbon: Okay. And then, I wonder if you could share with us what your NIM spot was in the month of December?

Speaker Change: Yes, so december's margin was 333.

Speaker Change: Yes, so December's margin was $3.33.

Mark J. Ruggiero: Yes, so December's margin was $3.33.

Speaker Change: Okay.

Speaker Change: And then I think you mentioned there were two commercial loans for, I think, $26 million that migrated to non-accrual this quarter. What industry were those in? And maybe if you could just give some high-level color on what the issues were.

Mark Thomas Fitzgibbon: And then I think you mentioned there were two commercial loans for, I think, $26 million that migrated to non-accrual this quarter. What industry were those in? And maybe you could just give some high-level color on what the issues were.

Jeffrey J. Tengel: It has also allowed us to examine our internal processes in order to become more efficient and effective. Some examples of this strategic review, where we expect to create cost savings and efficiencies over time, are a more strategic look at our facilities management and our procurement functions. We will continue to be diligent and prudent managers of expenses while investing in talent and technology. To summarize, we have everything in place to deliver the results the market has been accustomed to over the years, including a talented and deep management team, ample capital, highly attractive markets, good expense management, disciplined credit underwriting, strong brand recognition, operating scale, a deep consumer and commercial customer base, and an energized and engaged workforce. In short, I believe we are well positioned to not only navigate through the current challenging environment but to take market share and continue to be an acquirer of choice in the Northeast. And on that note, I'll turn it over to Mark. Thanks, Jeff.

Speaker Change: And then I think you mentioned there were two commercial loans for I think 26 million that migrated to non accrual this quarter, what industry, where those in and maybe if you could just give some high level color on what the issues were.

Speaker Change: Sure.

Speaker Change: Sure, so the largest, let me take that, Jeff.

Mark J. Ruggiero: Sure, so the largest one, let me take that, Jeff. Yes. The largest was actually a C&I relationship. It's actually a participated deal that's still in operation; it's an ABL loan with essentially Yellen Iron equipment, a much larger facility. That company declared bankruptcy but is still in operation. We believe from initial appraisals that there's some level of solid collateral protection. It's just a matter of how those equipment sales will unfold and ultimately what sale price we would see get recognized on them, but that is actually a loan that we did a specific impairment on and is included in our reserve.

Speaker Change: So the largest want me to take that Joe.

Speaker Change: Yes.

Speaker Change: Yes, okay. So the largest was a actually a C&I relationship it's a it's actually a.

Speaker Change: The largest was actually a C&I relationship. It's actually a participated deal.

Speaker Change: Dissipated deal.

Speaker Change: that

Speaker Change: That.

Speaker Change: It's still in operations, it's an ABL loan with essentially Yellen Iron equipment, much larger facility. That company declared bankruptcy but is still in operations. We believe from initial appraisals that there's some level of solid collateral protection. It's just a matter of how those equipment sales will unfold.

There's still an operations its an ABL loan with essentially yellen iron equipment much larger facility.

Speaker Change: That company declared bankruptcy, but it's still in operations we believe.

Speaker Change: From initial appraisals that there's some level of solid collateral protection and it's just a matter of how those equipment sales will unfold and ultimately what sale price. We would see you get recognized on them, but that is actually a alone that we did do a specific impairment on and is included in our <unk>.

Speaker Change: and ultimately what sale price we would see get recognized on them but that is actually a loan that we did do a specific impairment on and is included in our reserve

Speaker Change: <unk>.

Mark J. Ruggiero: I will now take us through the earnings presentation deck that was included in our 8K filing and is available on our website and today's investor portal. Starting on slide three of that deck, 2023 fourth quarter gap net income was $54.8 million, and diluted EPS was $1.26, with all major contributors essentially in line with expectations. Factoring into the EPS results, we bought back approximately 1.28 million shares during the fourth quarter for a total cost of $69 million, reflecting an average repurchase price of $53.73 per share.

Speaker Change: And then lastly, sorry, sorry, the second loan is is actually an office loan that had matured in the fourth quarter. We did not renew that and is actually expected to go through to a sale of the note.

Speaker Change: And then lastly, sorry, the second loan is actually an office loan that had matured in the fourth quarter. We did not renew that and is actually expected to go through to a sale of the note.

Mark Thomas Fitzgibbon: And then lastly, sorry, the second loan is actually an office loan that matured in the fourth quarter. We did not renew that, and it is actually expected to go through to a sale of the note, and we believe that sale will be at about 75 cents on the dollar. So that is the charge-off you're seeing as well in the fourth quarter. It's about a $2.8 million charge-off on an $11 million loan. So that net balance is one Nod to non-perform. Okay.

Speaker Change: and we believe that sale will be at about 75 cents on the dollar. So that is the charge off you're seeing as well in the fourth quarter. It's about a $2.8 million charge off on an $11 million loan. So that net balance is one

Speaker Change: And we believe that Seattle will be at about 75 cents on the dollar. So that is the charge off you are seeing as well in the fourth quarter. It's about a $2 8 million dollar charge off on an 11 million all alone so that net balances as one of the new not new to non performers.

Speaker Change: Nod

Speaker Change: to non-perform.

Okay and.

Speaker Change: Okay.

Speaker Change: I guess sort of a bigger picture question do you think Bank M&A is sort of possible in this environment and do we need interest rates to come down and sort of the regulatory environment to become more certain in order for you guys to consider doing an acquisition right now?

Jeffrey J. Tengel: I guess sort of a bigger picture question: do you think bank M&A is sort of possible in this environment, and do we need interest rates to come down and the regulatory environment to become more certain in order for you guys to consider doing an acquisition right now? It all depends, right? It depends on how big the deal is. I'm speaking just for us. Obviously, a smaller deal; we think the regulatory environment might be a bit more accommodating versus a transaction that's much larger, which has more integration risk and might be a bit more challenging.

Speaker Change: I guess sort of a bigger picture question do you think bank M&A is sort of possible in this environment do we need interest rates to come down and sort of the regulatory environment to become more certain in order for you guys to consider doing an acquisition right now.

Mark J. Ruggiero: In summary, these results produced a strong 1.13% return on assets, 7.51% return on average common equity, and an 11.50% return on average tangible common equity. In addition, despite the buyback activity during the quarter, tangible book value per share grew an exceptional $1.53.

Speaker Change: Well it's.

Speaker Change: It all depends, right? It depends on how big the deal is. I'm speaking just for us. Obviously, a smaller deal, we think the regulatory environment might be a bit more accommodating versus a transaction that's much larger that has more integration risk and might be a bit more challenging. The numbers have gotten a little bit better. They're moving in the right direction when we do our modeling. Not sure we're quite there yet, but it feels like we're getting closer. So, I would say net-net, as I sit here today, the possibility or the probability of the M&A environment, it feels better than it did three or six months ago. I don't think it's where it needs to be, but it's trending in the right direction.

Speaker Change: It all depends right it depends on the how big the deal is I'm speaking just for us.

Mark J. Ruggiero: 3.6 percent in the fourth quarter. I will now highlight a few key points in the additional slides provided. As noted on slide 4, total deposits declined $193 million, or 1.3%, to $14.87 billion for the quarter, while average deposits dropped $0.6 billion. Business customer cash flows drove most of the decrease, as consumer and municipal balances remained fairly consistent quarter over quarter.

Obviously, a smaller deal we think the regulatory environment might be a bit more accommodating versus a transaction. That's much larger that is more integration risk and and it might be a bit more challenging than.

Jeffrey J. Tengel: The numbers have gotten a little bit better. They're moving in the right direction when we do our modeling. I'm not sure we're quite there yet, but it feels like we're getting closer. So, I would say, net-net, as I sit here today, the possibility or the probability of the M&A environment feels better than it did three or six months ago. I don't think it's where it needs to be, but it's trending in the right direction.

Speaker Change: The numbers have gotten a little bit better they're moving in the right direction when we do our modeling.

Not sure we're quite there yet but feels like we're getting closer.

Speaker Change: So I would say net net as I sit here today.

Speaker Change: The possibility or the probability of the M&A environment.

Mark J. Ruggiero: The main deposit story has not changed much as we continue to see the impact of some product remixing, persistent competitive rate pressure, and CD maturity repricing. The underlying dynamic in the current rate environment for the banking industry continues to be customer pursuit of higher yields. Despite those headwinds, the long-term stability of our deposit franchise remains intact, with total non-interest-bearing deposits comprising a healthy 30.7% at year-end. And the fourth-quarter cost of deposits of 1.31%, though up 24 basis points from the prior quarter, still reflects a strong cumulative deposit beta when compared to our peers. As a quick reflection back on full year 2023 results, we reaffirmed the message we shared on a number of occasions throughout this volatile period. We grew total households by 2.7% during the year, building on our already strong and established deposits.

Speaker Change: Feels better than it did three or six months ago I don't think it's it's where it needs to be but it's trending in the right direction.

Thank you.

Speaker Change: Thank you.

Mark Thomas Fitzgibbon: Thank you.

Speaker Change: The next question comes from Mark <unk> with Raymond James. Please go ahead.

Speaker Change: The next question comes from Steve Moss with Raymond James. Please go ahead.

Stephen M. Moss: The next question comes from Steve Moss with Raymond James. Please go ahead.

Mark: Hey, good morning, guys.

Stephen M. Moss: Good morning, guys.

Jeffrey J. Tengel: Good morning, guys.

Stephen M. Moss: Thank you.

Jeffrey J. Tengel: Thank you.

Mark: Okay.

Mark: Oh just.

Stephen M. Moss: Just going back to the margin for a second here, just curious, does your first half, 24, you guys mentioned you're following the forward curve, I think, or the treasury curve, I should say. So to me, that implies you're not really dialing in any rate cuts in your margin guidance. Just curious, you know, if the Fed were to cut this year, how do you think that would impact the margin?

Mark: Going back to the margin for a second here just curious does your.

Mark: First half 'twenty for you guys mentioned that you found the forward curve I think so.

Mark: The treasury curve I should say so to me that implies you're not really dialing in any rate cuts in your margin guidance. Just curious you know if the fed were to cut this year, how it how do you think that would impact the margin here.

Speaker Change: Yes, it's certainly an interesting question, Steve I mean, we would think longer term that would certainly be beneficial to us I think the ability to move on deposits over the long term would suggest it gives us margin stabilization and likely margin improvement going forward I think the reality.

Speaker Change: yeah it's certainly an interesting question Steve I mean we would think longer term that would certainly be beneficial to us I think the ability to move on

Mark J. Ruggiero: Yeah, it's certainly an interesting question Steve. I mean, longer term, that would certainly be beneficial to us. I think the ability to move on would suggest it gives us a little bit more time, margin stabilization, and likely margin improvement going forward. But I think the reality is, as you know, the very short term. First quarter, second quarter after a Fed cut, I think the challenge will be how quickly we can move on deposits. We will have, net of our hedges, about 25% of our loans that would reprice down on the short end of the curve. We have a number of overnight borrowings that would move as well to mitigate that. We have purposely created most of our time deposits to be short-term in nature so that

Mark J. Ruggiero: The vast majority of balance outflows reflect usage of excess funds from still existing relationships with no notable change or acceleration in closed accounts during the year. We feel our loyal customer and deposit bases provide a real source of strength over both the near and long term. Jump into slide seven, total loans increased $54 million or 0.4% to $14.3 billion for the quarter. The balance increase was driven primarily by adjustable-rate residential loans, while C&I paydowns and a reduced appetite for commercial real estate drove a modest decline in total commercial balances during the quarter. The increase noted in commercial real estate is primarily driven by the conversion of existing construction projects into permanent status.

Speaker Change: would suggest it gives us a little bit more time.

Speaker Change: margin stabilization and likely margin improvement going forward. I think the reality is as you know the very short term

As you know, they're very short term.

Speaker Change: First quarter, second quarter after a Fed cut, I think the challenge will be how quickly we can move on deposits.

Speaker Change: First quarter second quarter. After a fed cut I think the challenge will be how quickly we can move on deposits. So we will have <unk>.

Speaker Change: We will have net of our hedges about 25% of our loans that would reprice down on the short end of the curve.

Speaker Change: Net of our hedges about 25% of all loans that would reprice down on the short end of the curve. We have a number of overnight borrowings that would move as well to mitigate that and we have purposely created most of our time deposits to be short term in nature. So that you should see mature.

Speaker Change: We have a number of overnight borrowings that would move as well to mitigate that. We have purposely created most of our time deposits to be short-term in nature so that

Speaker Change: Thank you very much.

Stephen M. Moss: Thank you very much.

<unk> and repricing on the CD book benefit as well, but how quickly we can move on some of our exception in rack rate deposit pricing I think that it'll still be partly driven by competitive pressures in our market. So I think that's a little bit of where there's probably some wildcard as to whether you can completely negate the app.

Mark J. Ruggiero: And while slide eight provides an overall snapshot of the makeup of the various loan portfolios, we will take a deeper dive into overall asset quality along with an update on non-owner occupied commercial office exposure. Moving to slides 9 and 10, which provide various updates and risk viewpoints on a number of factors. I'll highlight a few now.

Speaker Change: I think that'll still be partly driven by competitive pressures in our market. So I think that's a little bit of where there's probably some wildcard as to whether you can completely negate

Mark J. Ruggiero: I think that'll still be partly driven by competitive pressures in our market. So I think that's a little bit of where there's probably some wildcard as to whether you can completely negate the asset repricing down and fully offset or whether it'll take a little bit of time to materialize.

Speaker Change: and the asset repricing down and fully offset or whether they'll take a little bit of time to materialize.

Speaker Change: Asset repricing down and fully offset or whether they will take a little bit of time to materialize.

Speaker Change: Alright, Okay. That's that's fair and then Mark you also mentioned excuse me downward pressure.

Speaker Change: right okay that's that's there and then Mark you also mentioned excuse me downward pressure on new loans here given the change of the old curve just curious you know where is loan pricing these days and you know also just curious you know you have lower construction balances here if that's also kind of driving a component of your loan yields going forward lower going forward

Stephen M. Moss: right okay that's that's there and then Mark you also mentioned excuse me downward pressure on new loans here given the change of the old curve just curious you know where is loan pricing these days and you know also just curious you know you have lower construction balances here if that's also kind of driving a component of your loan yields going forward lower going forward

Mark J. Ruggiero: First, total non-performing assets increased to $54.4 million but still represent only 0.38% and 0.28% of total loans and assets, respectively, in terms of key drivers of non-performing assets. The remaining $9 million of outstandings from the previous office property foreclosure was paid in full, while the new-to-non-performing amounts are primarily driven by the migration of two commercials. Net charge-offs during the quarter were well-contained and declined to 3.8 million, or 11 basis points of loans, on an annualized basis, and the provision for loan loss of $5.5 million brought the allowance to an even 1% of loans. Within the closely monitored, non-owner-occupied office portfolio, there are a couple of highlights worth noting. Total outstanding balances decreased modestly, while total criticized and classified balances remained very manageable at only 11 loans.

Speaker Change: On new loans here, given the change of the old curve, just curious where is loan pricing. These days and you know.

Speaker Change: Also just curious you know you have lower construction balances here. If that's also kind of driving a component of your loan yields going towards a lower going forward.

Mark: Yeah, it is. I mean, so some of the products that are typically priced off the short end of the curve, like construction, we've seen declining and less opportunity there. So that's somewhat of a little bit of a new.

Mark J. Ruggiero: Yeah, it is. I mean, some of the products that are typically priced off the short end of the curve, like construction, we've seen declines and less opportunity there. So that's somewhat of a little bit of a new trend, not a new trend, but you know we're seeing more of that, and you know my reference to the yield curve when you look at anywhere between the 3 or 7

Speaker Change: Yeah. It is I mean, so some of the products that are typically priced off the short end of the curve like construction, we've seen declining and less opportunity. There. So that's somewhat of a little bit of a new.

Mark: not a new trend but you know we're seeing more of that and you know my reference to the yield curve you when you look at anywhere between the 3 or 7

Speaker Change: Not a new trend, but you know we're seeing more of that and you know my reference to the yield curve. When you look at anywhere between the three or seven.

Mark: Mark Ruggiero

Mark J. Ruggiero: Mark Ruggiero So we'd like to think we can still get some fixed rate commercial pricing around 7% in this environment, but that is down from how we were thinking about it just a few months ago, and I think on the consumer side, similarly, home equity continues to be pretty constrained in terms of net growth because of the high rate on lines of credit. So we're not seeing much of an ability to increase there. And customers are just not drawing on some of these lines as well, so utilization rate, both on home equity and I mean in the CNI business are at are at lows low points over the last year or so so it's been a combination of things that you know we're putting a little bit more pressure on you know what we still think will be benefit of asset and loans repricing, but I think it's going to be a bit more mitigated than how we were thinking about.

Speaker Change: Part of the curve just from September to where we are today on average its down about 50 or 60 basis points.

Mark: So we'd like to think we can still get some fixed rate commercial pricing around 7% in this environment, but that is down from how we were thinking about it just a few months ago.

You know, we'd like to think we can still get some fixed rate commercial pricing around 7% in this environment, but that that is down from how we were thinking about it just a few months ago.

Mark J. Ruggiero: In addition, we continue to closely monitor our top 20 office exposures, which make up approximately 516 million in balances, or 49% of the office portfolio at year-end. Within these top 20, we note zero non-performers, 55 million in a criticized status, and only 19 million as classified. Turn to slide 11. As anticipated, the continued pressure on the cost of deposits outpaced asset yield repricing benefits, resulting in a 3.38% margin for the quarter, which reflects a 9 basis point drop from the prior quarter, or 12 basis points when excluding non-chloride. While the margin results were in line with our previous quarter guidance, it is worth noting the recent emerging downward rate pressure on longer-term fixed-rate prices. If this pressure remains for a prolonged period, some of the previously anticipated benefit from asset repricing would be negated, and this dynamic is factored into the forward-looking guidance I'll provide shortly.

Mark: and I think on the consumer side, similarly, home equity continues to be pretty constrained in terms of net growth because of the high rate on lines of credit. So we're not seeing much of an ability to increase there. And customers are just not drawing on some of these lines as well, so utilization rate.

Speaker Change: And yeah.

Speaker Change: I think on the consumer side. Similarly, you know.

Speaker Change: Home equity continues to be pretty constrained in terms of net growth because of the high rate on lines of credit so.

Speaker Change: So we're not seeing much of a of an ability to increase there and customers are just not drawing on some of these lines as well so utilization rates.

Mark: both on home equity and I mean in the CNI business are at are at lows low points over the last year or so so it's been a combination of things that you know we're putting a little bit more pressure on you know what we still think will be

Speaker Change: Both on home equity and in Maine, and the C&I business are at are at lows low points over the last year or so so it's been a combination of things that you know, we're putting a little bit more pressure on you.

Speaker Change: What we still think will be.

Mark: benefit of asset and loans repricing, but I think it's going to be a bit more mitigated than how we were thinking about.

Speaker Change: Benefit of of assets and loans re pricing, but I think it's going to be a bit more mitigated in how we were thinking about it.

Mark: One other thing I would...

Jeffrey J. Tengel: One other thing I would do...

Speaker Change: One other thing.

Speaker Change: Sorry, Mark. I was just going to add one other thing to that, which is as we, as you think longer term, as we move forward and we begin to focus a bit more on the CNI segment of our business, those typically are going to be a lot of lines of credit, which will be priced, you know, very short term, right? So that they offer SOFR. And so I think, you know, kind of long term secular trend would be a greater percentage of our loan portfolio would be floating rate versus fixed rate.

Stephen M. Moss: Sorry, Mark. I was just going to add one other thing to that, which is as we, as you think longer term, as we move forward and we begin to focus a bit more on the CNI segment of our business, those typically are going to be a lot of lines of credit, which will be priced, you know, very short term, right? So that they offer SOFR. And so I think, you know, a kind of long-term secular trend would be a greater percentage of our loan portfolio would be floating rate versus fixed rate.

Speaker Change: Sorry, Mark I was just going to add one other thing to that which is as we as you think longer term as we move forward and.

Begin to focus a bit more on the CNI.

Speaker Change: Segment of our business those typically are going to be a lot of lines of credit which will be priced.

Mark J. Ruggiero: Moving to slide 12, fee income remained strong and was fairly consistent with the prior quarter, which, as a reminder, benefited from $2.7 million of non-recurring gains on bank-owned life insurance and loan-related benefits. In summary, deposit, interchange, and ATM fees remained strong, and assets under administration on the wealth management side grew nicely by nearly 7% to $6.5 billion at year-end, which should bode well for revenue moving forward. Turning to slide 13, total expenses increased $3 million by 3% when compared to the prior quarter.

Very short term rates typically help them sofa.

Speaker Change: And so I think kind of long term secular trend would would be a greater percentage of our of our loan portfolio would be floating rate versus fixed rate.

Speaker Change: Okay.

Mark: Okay, that's all very helpful. And then maybe just on the credit front here, delinquencies were up 44 bps this quarter versus 22 last. Just curious what's driving that, if you have any color there.

Mark J. Ruggiero: Okay, that's all very helpful. And then maybe just on the credit front here, delinquencies were up 44 bps this quarter versus 22 last. Just curious what's driving that, if you have any color there. The biggest drivers are the two new to non-performers as well, so those were performing as of last quarter. Those are now new to delinquency, and there's essentially one other office loan that is now in early-stage delinquency. That'll be maturing here in the first quarter of 2024. We're working with that bar to see what the resolution may be, but it is basically limited to three loans, the two that are non-performing, and one other office.

Speaker Change: That's all very helpful. And then maybe just on on the credit frontier delinquencies were up.

Speaker Change: The 44 bps this quarter versus 22 last just curious what's driving that.

Speaker Change: If you have any color there.

Speaker Change: Yes, the biggest draw.

Mark: The biggest drivers are the two new to non-performers as well, so those were performing as of last quarter. Those are now new to delinquency, and there's essentially one other office loan that is now early-stage delinquency. That'll be maturing here in the first quarter in 2024. We're working with that bar to see what the resolution may be, but basically limited to three loans, the two that are non-performing and one other office.

Drivers of the two new to non performers as well. So those were performing as of last quarter. Those are now new to delinquency and theirs.

Mark J. Ruggiero: The increase was driven primarily by a one-time FDIC assessment accrual of $1.1 million and one-time charges of $657,000 related to the write-off of acquired facilities. And lastly, the tax rate for the quarter of 22.7% includes $840,000 of outsized benefits, with the largest component being the expiration and release of reserves on uncertain tax positions in conjunction with the October filing of the 2022 tax rate. As we move to slide 14 and focus on forward-looking guidance, we remain confident that we are well positioned to thrive when the environment begins to turn. Having said that, we recognize the level of uncertainty still driving near-term impact on credit and funding pressure. As such, we have provided some level of full-year guidance while staying grounded in our operating assumptions to provide outlook over specific components limited to the near term.

Speaker Change: Essentially one other office loan that is now early stage delinquency that'll be maturing here in the first quarter in 2024.

Speaker Change: We're working with that bar to see what the resolution may be but basically limited to three loans are the two that are nonperforming and one other office.

Stephen M. Moss: Okay.

Mark: Okay.

Speaker Change: Okay.

Speaker Change: and maybe just curious you know you mentioned that office loan maturing here you have 125 million of office loans maturing in the upcoming year just curious you know do you expect that'll be the primary source of potential credit issues and that drives your loan loss provision as you guys referenced in the deck or

Stephen M. Moss: and maybe just curious, you mentioned that office loan maturing here you have 125 million of office loans maturing in the upcoming year. Just curious, do you expect that'll be the primary source of potential credit issues and that drives your loan loss provision as you guys referenced in the deck, or will maybe potential office NPAs just be idiosyncratic, just kind of and Collyn Gilbert.

Speaker Change: If maybe just curious you know you mentioned that office loan maturing here you have 125 million of office loans maturing in the upcoming year just curious.

Do you expect that'll be the primary source of potential credit issues and that drives your loan loss provision that you guys referenced in the decker.

Speaker Change: you know will maybe potential office NPAs just be idiosyncratic just kind of

Speaker Change: You know it will maybe potential office MTA just be idiosyncratic just kind of any color you can give there.

Speaker Change: and Collyn Gilbert.

Speaker Change: Yeah.

Speaker Change: So I'll start, Mark. I think you hit the nail on the head. It's going to be idiosyncratic. As I said in my prepared remarks, it's difficult to paint that portfolio with one brush. Every loan has a unique characteristic, whether it's location, sponsor, resources that they can bring to the party as we look at extending or if they look to refinance elsewhere. So each one is different. We feel pretty good as we sit here today about managing through that because we are on top of all of them, but I don't think we're going to necessarily feel like we're going to see a bunch of new non-performers out of that $125 million of maturing loans.

Jeffrey J. Tengel: So I'll start, Mark. I think you hit the nail on the head. It's going to be idiosyncratic. As I said in my prepared remarks, it's difficult to paint that portfolio with one brush. Every loan has a unique characteristic, whether it's location, sponsor, resources that they can bring to the party as we look at extending or if they look to refinance elsewhere. So each one is different. We feel pretty good as we sit here today about managing through that because we are on top of all of them, but I don't think we're necessarily going to feel like we're going to see a bunch of new non-performers out of that $125 million of maturing loans.

Speaker Change: So I would I will I'll start Mark I think you hit the nail on the head it's gonna be.

Speaker Change: Idiosyncratic.

Speaker Change: As I said in my prepared remarks, it's difficult to paint the portfolio with with one brush every loan every.

Mark J. Ruggiero: Big picture, we anticipate 2024 will bring modest loan and deposit growth first to 2023 year-end levels with net growth likely skewed towards the second half. More specifically, for the first quarter, we expect we will again experience our normal seasonal outflow of deposits, resulting in a low single-digit decrease from the December balance. But, as I just mentioned, growth is projected for the second half. However, loan balances are anticipated to stay relatively flat for the first quarter as mortgage production starts to shift toward more saleable activity.

Speaker Change: The unique characteristics, whether it's location sponsor.

Speaker Change: Resources that they can.

Speaker Change: Bring to the party as we look at.

Speaker Change: The extending or.

Speaker Change: The refinance elsewhere. So each one is different.

Speaker Change: We feel pretty good as we sit here today about managing through that because we are on top of all of them, but I don't think there is.

I don't think we're going to we're necessarily feel like we're going to see a bunch of new non performers out of the $125 million of maturing loans.

Mark J. Ruggiero: As I alluded to earlier, the shape of the curve matters, and not all Fed Reserve decreases are created equally. With the potential for a prolonged, even steeper, inverted curve, loan and deposit pricing challenges will persist, and we now expect the margin percentage to decrease and stabilize in the mid-3.20s range in the first half of the year. As it relates to asset quality, we have no significant changes to our guidance regarding asset quality and provision for loan loss, which we believe will continue to be driven primarily by the near-term performance of our investment commercial real estate portfolio. Regarding fee, income, and non-interest expense, we expect both to experience low single-digit percentage increases in 2024-2023 fourth quarter annualized levels. Similar to prior years, Q1 expenses should reflect slightly higher salary and benefits expenses, due primarily from increased payroll tax. To echo Jeff's comments, controlling expense levels and seeking operating efficiencies are priority objectives for us. Lastly, the tax rate for 2024 is expected to be around 23% for the full year, down slightly from full year 2023 levels, due in part to increased low-income housing tax credit investment.

Speaker Change: I concur. When you look out over the other portfolios, there's really been no uptick of any note in terms of delinquencies or early downgrade credit migration, so the rest of the portfolio continues to feel really bad.

Mark J. Ruggiero: I concur. When you look across the other portfolios, there's really been no uptick of any note in terms of delinquencies or early downgrade credit migration, so the rest of the portfolio continues to feel really bad. And even on the near term on the office side, you know, when you look out over even just as short term as the next two quarters, it's really just a handful of larger credits that we have really good eyes and ears on and are working directly with the borrowers to hopefully find good resolution plans. So it does feel very well.

Speaker Change: Okay.

Speaker Change: Look out over the other portfolios, there's really been no.

Speaker Change: <unk> you know of any no in terms of delinquencies are early.

<unk> grade credit migration. So the rest of the portfolio continues to feel really good.

Speaker Change: And even the near term on the office side, you know, when you look out over even just as short term as the next two quarters, it's really just a handful of larger credits that we have really good eyes and ears on and are working directly with the borrowers to hopefully find good resolution plans. So it does feel very well.

Speaker Change: And even in the near term on the office side.

Speaker Change: When you look out over even just as short term as the next two quarters. Its really just a handful of larger credits that we are really good.

As in years on and are working directly with the borrowers to to hopefully find good good resolution plans. So it does feel very well contained.

Speaker Change: I appreciate all the color thanks, guys.

Speaker Change: Appreciate all the color. Thanks guys.

Stephen M. Moss: I appreciate all the color. Thanks guys.

Okay.

Speaker Change: The next question comes from Laurie Hunsaker with SRP. Please go ahead.

Laurie Hunsaker: The next question comes from Laurie Hunsaker with SRP. Please go ahead.

Speaker Change: The next question comes from Laurie Hunsicker with SRP. Please go ahead.

Laurie Hunsicker: Yeah, Hi, Thanks, Good morning, Jeff and Mark.

Laurie Hunsaker: Yeah, hi, thanks. Good morning, Jeff and Mark. Just staying on office, of the

Mark J. Ruggiero: Yeah, hi, thanks. Good morning, Jeff and Mark. Just staying on office, of the office loan that's in an early stage of delinquency, how much is that loan, and is it class A or class B? Anything that you can share on that?

Just staying on offense.

Laurie Hunsicker: The.

Laurie Hunsaker: The office loan that's in an early stage delinquency, how much...

Laurie Hunsicker: The office fund that's in an early stage delinquency and how much is that loan and.

Laurie Hunsaker: is that loan and

Laurie Hunsaker: Is it class A or class B? Anything that you can share on that?

Laurie Hunsicker: Is that class a or class me anything that you can share on that.

Speaker Change: Yeah, that balance is about $11 million.

Mark J. Ruggiero: Yeah, that balance is about $11 million.

Speaker Change: Yeah that balances about $11 million I believe it's a class a R.

Speaker Change: I believe it's a class A.

Jeffrey J. Tengel: I believe it's a class A.

Mark J. Ruggiero: That concludes my comments, and we will now begin the question and answer session. To ask a question, you may press star and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the button.

Speaker Change: I mean that one.

Speaker Change: I mean, that one, to be fully transparent, I mean, we may see that move to non-performing in the first quarter, but again, we're working closely with the borrower on that.

Mark J. Ruggiero: I mean, that one, to be fully transparent, I mean, we may see that move to non-performing in the first quarter, but again, we're working closely with the borrower on that.

Speaker Change: Fully transparent I mean, we may see that moved to nonperforming in the first quarter, but again, we're working closely with the bar on that end.

Speaker Change: I think

Mark J. Ruggiero: I think if there's any lost exposure there, that's also one. We're not the agent. We participate in somebody else's deal like that.

I think if there's if there's any loss exposure there it feels pretty well contained.

Speaker Change: if there's any lost exposure there,

Speaker Change: And that's also one where we're <unk>.

Speaker Change: That's also one. We're not the agent. We participate in somebody else's deal in that.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star, send to email. At this time, we will pause momentarily to assemble our raft. The first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Speaker Change: Not the agent we participated in somebody else's deal.

Speaker Change: Okay.

Mark J. Ruggiero: Okay, and then of the 125 million that's maturing in 24, how much of that matures in the first quarter? In the first quarter, it's probably probably a little under half. There's a couple, there's 34, 35 million comprised of just two loans, and then you know much smaller after that, so

Speaker Change: Okay.

Speaker Change: and then the of the 125 million that's maturing in 24 how much of that matures in the first quarter?

And then that that's the <unk>.

Speaker Change: $25 million, that's maturing in 'twenty four how much of that matures in the first quarter.

In the first quarter, it's probably.

Speaker Change: In the first quarter, it's probably...

Mark Thomas Fitzgibbon: Hey guys, good morning and happy Friday, and Mark. Mark, just to follow up on your guidance slide there, deposits have been trending down for a while now. What gives you confidence that we're going to see low single-digit deposit growth in 2024? Is that a function of you guys sort of nudging rates up on deposits, or do you feel like we've kind of gotten to the bottom and things are starting to normalize? Yeah, you know, it's been continuing to take down, as you suggest, but it does feel like, You know, things will be stabilizing here in the very near term. When you look at the components of our, The deposit franchise consumer balances actually stabilized very well in the fourth quarter and were relatively flat.

Speaker Change: Probably a little under house because a couple of those are just 34 $35 million comprised of just two loans and then much smaller after that so.

Speaker Change: probably a little under half. There's a couple, there's a

Speaker Change: 34, 35 million comprised of just two loans and then you know much smaller after that so

Speaker Change: If I had to peg a number, I don't have all the details in front of me. It's probably around somewhere in the $30.

Jeffrey J. Tengel: If I had to peg a number, I don't have all the details in front of me, but it's probably around somewhere in the $30.

Speaker Change: If I had to peg a number I don't have all the details in front of me its probably around somewhere in the 30% to 40% range.

Speaker Change: Okay. One of those we've already actually are in the process of renewing as we speak and we think will resolve in habit, a three year extension on it at a really good debt service and LTV levels. So one out of those two.

Speaker Change: One of those we've already actually are in the process of renewing as we speak and we think we'll resolve and have a three-year extension on it at a really good debt service and LTV level. So one out of those.

Mark J. Ruggiero: One of those we're already in the process of renewing as we speak, and we think we'll resolve and have a three-year extension on it at a really good debt service and LTV level. So one out of those is already in the works. Okay. Okay. And then what are the actual loan balances on the two commercial loans that came over? How big was the ABL loan? I mean, I'm thinking it's $17 million, but do you have an AVL? The AVL was $17.5 million, and the office loan came in at 11, but we wrote off 2.8 million of it. So it's in NPAs at the net, call it eight and a half.

Speaker Change: is already in the works.

Speaker Change: As already in the works have been renewed and we feel good about.

Speaker Change: Okay. Okay. And then what are the actual loan balances on the two commercial loans that came over? How big was the ABL loan? I mean, I'm thinking it's $17 million, but do you have a...

Speaker Change: Okay. Okay, and then what are the actual loan balances on the two commercial loans that came over how how big was the a b alone I mean, I'm thinking at 17 million, but do you have that.

Mark Thomas Fitzgibbon: And really, the decline we experienced in the fourth quarter was mostly business customers drawing on what appears to still be some level of excess liquidity. And we do see, you know, typically some year-end outflows, a lot of family-owned businesses, a lot of small businesses where tax planning, tax distributions, year-end bonuses create some pressure on balances, and that spills over into the first quarter as well.

Speaker Change: The AVL was $17.5 million.

Speaker Change: Yeah, the ABL was $17 5 million.

Speaker Change: And the office long was came in at 11, but we wrote off $2 8 million of it. So it's an N P as out than that call it $8 5 million.

Speaker Change: and the office loan came in at 11, but we wrote off 2.8 million of it. So it's in NPAs at the net, call it eight and a half.

Speaker Change: Gotcha Gotcha, Okay, and then what what was that class Sanger classy.

Speaker Change: And then what was that Class A or Class B?

Laurie Hunsaker: And then what was that Class A or Class B? The write-off? That was a class. That was a Class 8. Okay. And then I know you had $100 million in office maturities in the fourth quarter. Was this $11 million or $8.5 million net loan one of the ones that hit the maturity wall? Was that what drove this in the first quarter? Anything you can share on that?

The write off.

Speaker Change: The write-off?

Speaker Change: That was a class

Speaker Change: Correct.

Speaker Change: Yeah that was that was a class b.

Jeffrey J. Tengel: So I think there's a little bit of that we'll continue to see. But all in all, we're growing households. We're not seeing accounts close.

Speaker Change: That was a Class 8. Okay. And then I know you had $100 million in office mature in the fourth quarter. Was this $11 million or $8.5 million net loan one of the ones that hit a maturity wall? Was that what drove this in the first quarter? Anything you can share on that?

Speaker Change: That was a classmate okay.

And then.

Speaker Change: I know you had 100 million in Opex mature in the fourth quarter was dead right.

Jeffrey J. Tengel: So we do think we're getting to a point here where the decline should bottom out. Also, if I could add, Mark, we have a number of initiatives, some of which I alluded to in my opening comments, really completely focused on gathering deposits, whether it's modifying incentive compensation programs to skew towards deposits or inside sales groups. We have a number of initiatives focused on just that.

Speaker Change: Yes.

Speaker Change: <unk> million or eight and a half million net loan one of the ones that hit a maturity wall was that what drove that in the first quarter or anything you can say on that.

Speaker Change: Yes, it does.

Speaker Change: Yes, it did hit maturity in the fourth quarter and we elected not to

Mark J. Ruggiero: Yes, it did hit maturity in the fourth quarter, and we elected not to invest in that one.

Speaker Change: I'd hit maturity in the fourth quarter, and we elected not to renew.

Speaker Change: on that one.

Speaker Change: That one so yeah.

Speaker Change: Oh, yeah, you did say that in your comments. Thank you. Okay. Great. And then just one last question. Just going back to the deposit side here, you know, just thinking about sort of the mixed shift change and maybe just the overall your loans to deposits sitting at 96%.

Laurie Hunsaker: Oh, yeah, you did say that in your comments. Thank you. Okay. Great. And then just one last question. Just going back to the deposit side here, you know, just thinking about sort of the mixed shift change and maybe just the overall loans to deposits sitting at 96%, or for backing out CDs, that's 112%. How should we think about those feelings? How do you think about... you know, as high as you want to get there? How should we be thinking about that thing?

Speaker Change: Oh, Yeah, you did say that in your comments. Thank you Okay. Great and then just one last question just going back to the deposit side here.

Jeffrey J. Tengel: It's a focus of ours in 2024, to be sure. Okay, and then I wanted you to share with us what the spot NIM was in the month of December. Yes, so December's margin was $3.33. And then I think you mentioned there were two commercial loans for, I think, $26 million that migrated to non-accrual this quarter. What industry were those in?

Speaker Change: Thinking about sort of the mix change and maybe that.

Speaker Change: The overall your loan to deposit sitting at 96%.

Speaker Change: or for backing out CDs, that's 112%. How should we think about those feelings? How do you think about...

Speaker Change: Or for backing out Cds at the 112% how should we think about the ceiling. How do you how do you think about you.

Speaker Change: you know

Speaker Change: You know.

Speaker Change: As high as you want to get there how should we be thinking about that thanks.

Speaker Change: as high as you want to get there. How should we be thinking about that thing?

Mark J. Ruggiero: And maybe if you could just give us some high-level color on what the issues were. Sure. The largest... Do you want me to take that, Jeff?

Speaker Change: Yeah, I'll start we're pretty close to.

Speaker Change: Yeah, I'll start. We're pretty close to being where we want to be. I mean, we don't have a bright line on it, but we definitely would have a very, very strong preference at having a loan-to-deposit ratio of less than one, which is why we're very focused on growing deposits in 2024.

Jeffrey J. Tengel: Yeah, I'll start. We're pretty close to being where we want to be. I mean, we don't have a bright line on it, but we definitely would have a very, very strong preference for having a loan-to-deposit ratio of less than one, which is why we're very focused on growing deposits in 2024.

Speaker Change: Where do we want to be I mean, we don't have a bright line on it but we definitely would have a very very strong preference it.

Mark J. Ruggiero: Yeah. The largest was actually a CNI relationship; it's actually a participated deal that's still in operation. It's an ABL loan with essentially Yellen Iron Equipment, a much larger facility. That company declared bankruptcy but is still in operation.

Speaker Change: Our loan to deposit ratio of less than one and which is why we're very.

Very focused on and.

Speaker Change: Growing deposits in 2024.

Speaker Change: Great. Okay. Thanks for taking my questions. Appreciate the detail.

Laurie Hunsaker: Great. Okay. Thanks for taking my questions. I appreciate the detail. Sure.

Speaker Change: Right. Okay. Thanks for taking my question I appreciate the detail.

Speaker Change: Sure.

Speaker Change: As a reminder, if you would like to ask a question, please press star then 1 to be joined into the question queue.

Operator: As a reminder, if you would like to ask a question, please press star then 1 to be joined in the question queue.

Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one joined into the question queue.

Mark J. Ruggiero: We believe from initial appraisals that there is some level of solid collateral protection. It's just a matter of how, you know, those equipment sales will unfold, and ultimately what sale price we would see get recognized on them.

Speaker Change: The next question comes from Chris O'Connell with KBW. Please go ahead.

Christopher Oddleifson: The next question comes from Chris O'Connell with KBW. Please go ahead.

Speaker Change: The next question comes from Chris O'connell with <unk>. Please go ahead.

Good morning.

Chris O'connell: Good morning.

Jeffrey J. Tengel: Good morning.

Christopher Oddleifson: Thank you very much.

Jeffrey J. Tengel: Thank you very much.

Yes.

Speaker Change: Sure.

Christopher Oddleifson: Yeah, I was just hoping to hone in on some of the fee and expense guide, specifically on the fees with the 1Q number being relatively flat to the 4Q number. You know, other income, you know, has been pressed up over the past couple quarters, you know, quite a bit. I know you guys noted, you know, a couple of kind of seasonal or one-time-ish factors in Q4. How do you see that settling out, you know, into the first quarter?

Mark J. Ruggiero: Yeah, I was just hoping to hone in on some of the fee and expense guide, specifically on the fees, with the 1Q number being relatively flat compared to the 4Q number. You know, other income, you know, has been pressed up over the past couple quarters quite a bit. I know you guys noted, you know, a couple of kind of seasonal or one-time-ish factors in Q4. How do you see that settling out, you know, into the first quarter? Yeah, the total fee income, I think the strength of the total fee income will continue to be primarily on the heels of the wealth management group. As we mentioned in our comments, the AUA was up to 6.5 billion. That should bode very well for strong revenues heading into 2024.

Speaker Change: Yeah, I was hoping to.

Mark J. Ruggiero: But that is actually a loan that we did a specific impairment on and is included in our reserve. And then lastly, sorry, the second loan is actually an office loan that matured in the fourth quarter. We did not renew that, and it is actually expected to go through to a sale of the note.

Speaker Change: Hone in on some of the fee and expense guide.

Speaker Change: Specifically.

Speaker Change: On the fees.

Speaker Change: With the <unk> number being relatively flat.

Speaker Change: The <unk> number you know other income.

Speaker Change: <unk> been crushed.

Speaker Change: Over the past couple of quarters.

Speaker Change: A bit.

Speaker Change: As noted in a couple of kind of seasonal or one time ish factors in Q4.

Mark J. Ruggiero: And we believe that sale will be at about $0.75 on the dollar. So that is the charge-off you're seeing as well in the fourth quarter. It's about a $2.8 million charge-off on an $11 million loan. So that net balance is one of not to non-perform. Okay.

Speaker Change: How do you see that settling out.

Into the first quarter.

Christopher Oddleifson: Yeah, the total fee income, I think the strength of the total fee income will continue to be primarily on the heels of the wealth management group. We mentioned in our comments, the AUA being up to 6.5 billion. That should bode very well for strong revenues heading into 2024. And, you know, we're not necessarily banking on significant increases, but we are.

Speaker Change: Yeah. The total fee income I think the strength of the total fee income will continue to be primarily on the heels of the wealth management group, we mentioned in our comments the UA being up to $6 5 billion.

Mark Thomas Fitzgibbon: I guess sort of a bigger picture question, do you think bank M&A is sort of possible in this environment? And do we need interest rates to come down and the regulatory environment to become more certain in order for you guys to consider doing an acquisition right now? Well, it all depends, right? It depends on how big the deal is. I'm speaking just for us.

Speaker Change: That should bode very well for strong revenues heading into 2024.

Mark J. Ruggiero: And, you know, we're not necessarily banking on significant increases, but we are, you know optimistic that in this environment we're continuing to see more of the mortgage production shift to saleable now overall volumes are down but we should see some levels shift back to saleable and hopefully give us a little bit of lift on mortgage banking and our deposit fees we feel are very stable you know we we think there's probably some pressure coming on the regulatory front perhaps on overdraft but I think we have already made changes and have most of that behind us so we might see some modest decreases related to overdraft but all in all there's been good momentum on deposit interchange ATM fees etc

Speaker Change: And you know, we're not necessarily banking on significant increases, but we are.

Christopher Oddleifson: you know optimistic that in this environment we're continuing to see more of the mortgage production shift to saleable now overall volumes are down but we should see some levels shift back to saleable and hopefully give us a little bit of lift on mortgage banking and

Speaker Change: I'm optimistic that in this environment, we're continuing to see more of the mortgage production shift to salable now overall volumes are down, but we should see some level shift back to saleable and hopefully give us a little bit of lift on mortgage banking income.

Jeffrey J. Tengel: Obviously, a smaller deal; we think the regulatory environment might be a bit more accommodating versus a transaction that's much larger that has more integration risk and might be a bit more challenging. The numbers have gotten a little bit better. They're moving in the right direction when we do our modeling. I'm not sure we're quite there yet, but it feels like we're getting closer.

Christopher Oddleifson: our deposit fees we feel are very stable you know we we think there's probably some pressure coming on the regulatory front perhaps on overdraft but I think we have already made changes and have most of that behind us so we might see some modest decreases related to overdraft but all in all there's been good momentum on deposit interchange ATM fees etc

Speaker Change: Our deposit cheese, we feel are very stable.

Think there's probably some pressure coming on the regulatory front, perhaps on overdraft, but I think we have already made changes and have most of that behind us. So we might see some modest.

Speaker Change: Decreases related to overdraft, but all in all there's been good momentum on deposit interchange ATM fees et cetera.

Jeffrey J. Tengel: So, I would say net-net, as I sit here today, the possibility or the probability of the M&A environment feels better than it did three or six months ago. I don't think it's where it needs to be, but it's trending in the right direction. Thank you.

Speaker Change: And then lastly, you know what.

Christopher Oddleifson: And then lastly, you know, I was going to mention in some of the conversations earlier around pricing, we think this opportunity is, you know, this environment gives us an opportunity to think hard again about swaps, some of our commercial lending, and whether to shift pricing strategies to take on a bit more swap volume and generate additional fees there. So I think there are a few levers there that bode well and have the run rate to increase in the very near term, and that's what's anchored in our guidance.

I was kind of mentioned in some of the conversations earlier around pricing. We think this opportunity as you know this environment gives us opportunity to to think part again about swaps for some of our commercial lending and whether we can.

Christopher Oddleifson: some of our commercial lending and whether

Christopher Oddleifson: shift pricing strategies to take on a bit more swap volume.

Speaker Change: Shift pricing strategies to take on a bit more swap volume.

Christopher Oddleifson: and generate additional fees there. So I think there's a few levers there that bode well and have run rate to increase in the very near term and that's what's anchored in our guidance.

Speaker Change: And generate additional fees there. So I think there's a few levers there that you know that bode well and have.

Stephen M. Moss: Good morning, guys. Thank you. Just going back to the margin for a second here, just curious, does your first half, 24, you guys mentioned you're following the forward curve, I think, or the treasury curve, I should say. So, to me, that implies you're not really dialing in any rate cuts in your margin guidance. Just curious, you know, if the Fed were to cut this year, how you think that would impact the margin? Yeah, it's certainly an interesting question, Steve.

Speaker Change: Run rate to increase in.

Speaker Change: In the very near term and that's what's anchored in our guidance.

Speaker Change: Great, that's helpful.

Mark J. Ruggiero: Great, that's very helpful.

Speaker Change: Great that's helpful.

Speaker Change: And then on the expense side, you guys mentioned.

Speaker Change: and then on the expense side you know you guys mentioned uh you know the initiatives that you have uh going on you know including you know the potential you know for some cost savings you know on the branch and fulfillment side um any sense of you know the timing of how that could play out over the course of the year and is that uh you know those potential cost savings that that embedded in the overall you know expense guide?

Christopher Oddleifson: and then on the expense side you know you guys mentioned uh you know the initiatives that you have uh going on you know including you know the potential you know for some cost savings you know on the branch and fulfillment side um any sense of you know the timing of how that could play out over the course of the year and is that uh you know those potential cost savings that that embedded in the overall you know expense guide?

The initiatives that you have.

Going on.

Speaker Change: Including the potential for some cost savings on the branch and fulfillment side.

Speaker Change: <unk>.

Speaker Change: Any sense of the timing of how that could play out over the course of the year and is that.

Mark J. Ruggiero: I mean, we would think, longer term, that would certainly be beneficial to us. I think the ability to move on, deposits over the long term, which suggests it gives us margin stabilization and likely margin improvement going forward. I think the reality is, you know, the very short term, first quarter, second quarter after a Fed cut, I think the challenge will be how quickly we can move on deposits. So we will have, net of our hedges, about 25% of our loans that would reprice down on the short end of the curve. We have a number of overnight borrowings that would move as well, you know, to mitigate that. And we have purposely created most of our time deposits to be short-term in nature so that you can spend time with Brother Joe. That's Shopper, also Brother Joe.

Speaker Change: Those potential cost savings is that embedded in the overall.

Speaker Change: <unk> guide.

Speaker Change: They're not embedded in the overall expense guide, so those would be just incremental savings that we would experience. And I think on the facility side, that probably would be skewed towards the back half of the year or maybe even bleed into next year, so a little bit of both. On the procurement side, I think we'll see some savings from that in 2024, but we haven't put a number on that yet.

Jeffrey J. Tengel: They're not embedded in the overall expense guide, so those would be just incremental savings that we would experience. And I think on the facility side, that probably would be skewed towards the back half of the year or maybe even bleed into next year, so a little bit of both. On the procurement side, I think we'll see some savings from that in 2024, but we haven't put a number on that yet.

Speaker Change: They're not embedded in the overall expense guide so those would be.

Speaker Change: Incremental savings.

Speaker Change: That we would experience and I think in the facilities on the facility side, that's probably.

Speaker Change: It would be skewed towards the back half of the year or maybe even bleed into next year, maybe a little bit of both.

Speaker Change: On the procurement side I think we will see some savings.

From that in 2024, but we haven't put a number on that yet.

Speaker Change: Got it any sense of that.

Speaker Change: Got it. Any sense of the potential range, even if pretty wide, as to what the magnitude of those cost savings could be once all said and done?

Christopher Oddleifson: Got it. Any sense of the potential range, even if pretty wide, as to what the magnitude of those cost savings could be once all said and done?

Speaker Change: Potential range, even if pretty wide as to what the magnitude of this cost savings could be once all of a sudden done.

Speaker Change: Okay.

Mark J. Ruggiero: And special thanks to all three of you for spending your day with us today. I think that'll still be partly driven by competitive pressures in our market. So I think that's a little bit of where there's probably some wild card as to whether you can completely negate the asset repricing down and fully offset or whether that will take a little bit of time to materialize. Right, okay, that's there. And then, Mark, you also mentioned, excuse me, downward pressure on new loans here, given the change in the O curve. Just curious, you know, where is loan pricing these days? And, you know, also just curious if you have lower construction balances here if that's also kind of driving a component of your loan yields going forward. Yeah, it is.

Speaker Change: Yeah, I don't have an estimate, Mark. I don't know if you do.

Mark J. Ruggiero: Yeah, I don't have an estimate, Mark. I don't know if you do either.

Speaker Change: Yes, I don't have an estimate mark I don't know if you.

Speaker Change: I don't know if you do.

Mark: Yeah, I think it's fair to say it isn't.

Jeffrey J. Tengel: Yeah, I think it's fair to say it isn't at a range where it's worth highlighting at this point, but we'll give more guidance on that probably in the next quarter or two, as we and hopefully get to a little bit more of a clear path. Honestly, that's not a game changer for us, to be sure, but it's really illustrative of a whole host of things that I mentioned that in my prepared remarks as an example of some of the things that we're looking at. There are a whole host of other examples I could have given you. Each one of them in and of itself isn't going to move the needle, but when you add them all up, we think it all just kind of funnels back into being good expense managers.

Yeah, we're calculating at this point, Yeah, I think I think it's fair to say it's.

Speaker Change: It isn't.

Mark: at a range where it's worth highlighting at this point, but we'll give more guidance on that probably in the next quarter or two.

Speaker Change: Well out of range, where it's worth highlighting at this point, but we'll give more guidance on that probably in the next quarter or two as.

Mark: as we

Speaker Change: As we as we hopefully get to a little bit more a clearer path on some of it.

Mark: and hopefully get to a little bit more of a clear path

Mark: Honestly, that's not a game changer for us, to be sure, but it's really illustrative of a whole host of things that we're looking at as we examine our expense base and as we think about the environment that we're in. I mentioned that in my prepared remarks as an example of some of the things that we're looking at. There's a whole host of other examples I could have given you. Each one of them in and of themselves aren't going to move the needle, but when you add them all up, we think it all just kind of funnels back into being good expense managers.

Speaker Change: And honestly that.

Speaker Change: Not a game changer for us to be sure, but it is really illustrative of a whole host of things that we're looking at as we.

Speaker Change: As we examine our expense base and as we think about the environment that we're in.

Speaker Change: I mentioned I mentioned that in my prepared remarks is that there is an example of some of the things that we're looking at there's there's a whole host of other.

Mark J. Ruggiero: I mean, some of the products that are typically priced off the short end of the curve, like construction, we've seen declining sales and less opportunity there. So that's somewhat of a little bit of a new, not a new trend, but you know, we're seeing more of that. And, you know, my reference to the yield curve, when you look at anywhere between the three or seven-year part of the curve, just from September to where we are today, on average, it's down about 50 or 60 basis points. So, you know, we'd like to think we can still get some fixed rate commercial pricing around 7% in this environment, but that is down from how we were thinking about it just a few months ago. And, you know, and I think on the consumer side, similarly, home equity continues to be pretty constrained in terms of net growth because of the high rate on lines of credit. So we're not seeing, you know, much of an ability to increase there. And customers are just not drawing on some of these lines as well.

Speaker Change: Examples like sort of giving you each one of them.

Speaker Change: In it of themselves aren't going to move the needle, but when you add them all up.

Speaker Change: We think it all just kind of funneled back into being a good expense managers.

Speaker Change: Got it.

Christopher Oddleifson: Got it.

Speaker Change: Got it.

Speaker Change:

Speaker Change: And on the on the deposit side, you know, how much of this CD portfolio, I guess, has, you know, yet to reprice and, you know, I guess we'll start there.

Christopher Oddleifson: And on the deposit side, you know, how much of this CD portfolio, I guess, has, you know, yet to reprice, and, you know, I guess we'll start there.

Speaker Change: And.

Speaker Change: On the on the deposit side.

Speaker Change: Hum.

Speaker Change: How much of the CD portfolio I guess has.

Speaker Change: Yet to reprice.

Speaker Change: Uh huh.

And.

Speaker Change: I guess, we'll start there.

Speaker Change: Yeah, the impact is becoming less and less, which is which is the good news moving forward. So and then in Q1, we expect about 800 million to mature and reprice. But I guess the positive there is that the weighted average coupon

Mark J. Ruggiero: Yeah, the impact is becoming less and less, which is the good news moving forward. So, and then in Q1, we expect about 800 million to mature and reprice. But I guess the positive there is that the weighted average coupon on that pool right now is in the high threes, about 3.8%. So the repricing dynamic. Now the issue is not as severe as it once was, and then I believe there is another $750 million or so in Q2 that is set to mature that is also at a high 3.8% weighted average coupon.

Speaker Change: Yeah, the impact is becoming less and less which is just the good news moving forward. So and then in Q1, we expect about 800 million to mature and reprice, but I guess the positive there is that the weighted average coupon.

Speaker Change: on that pool right now is high threes, about 3.8%. So the repricing dynamic.

Speaker Change: On that pool right now is high threes about three 8%. So the repricing dynamic now is not as severe as it once was and then I believe it's another $750 million or so in Q2 that is set to mature that is also at a high three 8%.

Speaker Change: Now is not as severe as it once was.

Mark J. Ruggiero: So utilization rates, both on home equity and in the C&I business, are at low points over the last year or so. So it's been a combination of things that you know, we're putting a little bit more pressure on, you know, what we still think will be the benefit of asset and loans repricing, but I think it's going to be a bit more mitigated than how we were thinking about it. One of the things I would do...

Speaker Change: and then I believe it's another $750 million or so in Q2 that is set to mature that is also at a high 3.8% weighted average coupon. Assuming today's rain environment stays as is, you'd see that level potentially price up anywhere up to

Mark J. Ruggiero: Assuming today's rain environment stays as is, you'd see that level potentially go up anywhere up to, you know, a full a full percentage point, but we, we hope that that would be more like a 50 or 75 basis point increase in terms of the impact.

Speaker Change: Weighted average coupons so yeah.

Speaker Change: Assuming today's rate environment stays as is you'd see that level potentially price up anywhere up to.

Speaker Change: you know a full a full percentage point but we we hope that that you know that would be more like a 50 or 75 basis point increase

Speaker Change: A full a full percentage point, but we hope that that that would be more like a 50 or 75 basis point increase over.

Jeffrey J. Tengel: Sorry, Mark, I was just going to add one other thing to that, which is as we, as you think longer term, as we move forward, and we begin to focus a bit more on the C&I segment of our business, those typically are going to be a lot of lines of credit, which will be priced, you know, very short term, right, typically off of SOFR. And so I think, you know, a kind of long-term secular trend would be a greater percentage of our loan portfolio would be floating rate versus fixed rate. Okay, that's all very helpful. And then maybe just on the credit front here, the delinquencies were up 44 basis points this quarter versus 22 last. Just curious what's driving that if you have any color there.

Speaker Change: the next couple of quarters in terms of the impact.

Speaker Change: The next couple of quarters in terms of the impact from CD pricing.

Speaker Change: Great that's perfect. Thanks for taking my questions.

Speaker Change: Great, that's perfect. Thanks for taking my questions.

Christopher Oddleifson: Great, that's perfect. Thanks for taking my questions.

Speaker Change: Go on.

Jeffrey J. Tengel: Go on.

Speaker Change: Right.

Speaker Change: Thank you.

Jeffrey J. Tengel: Thank you.

Speaker Change: Thank you.

Speaker Change: The next question comes from Steve Moss with Raymond James. Please go ahead.

Speaker Change: The next question comes from Steve Moss with Raymond James.

Stephen M. Moss: The next question comes from Steve Moss with Raymond James.

Stephen M. Moss: Please go ahead.

Stephen M. Moss: Please go ahead. I just want to follow up on the buyback here. You guys bought $69 million worth of stock, and I know you have $100 million authorized. Just curious about your thoughts on the pace here going forward and how you guys are thinking, maybe, about issuing a new repurchase.

Stephen M. Moss: I just want to follow up for me on the buyback here. You guys bought $69 million worth of stock, and I know you have $100 million authorized. Just curious about your thoughts on the pace here going forward and how you guys are thinking maybe about issuing a new repurchase.

Stephen M. Moss: Just one follow up for me on the buyback here.

Stephen M. Moss: That's about $600 million worth of stock and I know you have a 100 million authorized just curious.

Stephen M. Moss: And about your thoughts on the pace, you're going forward and how you guys are thinking maybe about issuing a new repurchase plan.

Speaker Change: Yeah, Mark do you want to take the kind of the pace of play to date.

Speaker Change: Yeah, Mark, do you want to take the kind of the pace of play today?

Mark J. Ruggiero: Yeah, Mark, do you want to take the kind of pace of play today?

Speaker Change: Enjoy.

Jeffrey J. Tengel: Enjoy.

Speaker Change: Sure.

Mark: Yeah. As you mentioned, you're spot on. There's about 30 million left under the existing plan.

Mark J. Ruggiero: Yeah. As you mentioned, you're spot on. There are about 30 million left under the existing plan. Our posture hasn't changed. It's there to be opportunistic. We continue to think about executing on that plan through the lens of ensuring appropriate initial capital dilution and feel comfortable about the earn back and executing on that. So that'll serve as the framework through the first quarter, meaning really just opportunistic depending on where the stock price is, barring all other things staying equal. And then I think it's fair to talk about and be thinking about re-upping on a plan given our overall capital levels.

Speaker Change: Yeah.

Mark: This as you mentioned youre spot on is there's about $30 million left under the existing plan.

Mark: Our posture hasn't changed. It's there to be opportunistic. We continue to think about

Mark: Our posture hasnt changed its there to be opportunistic.

Stephen M. Moss: Yeah, the biggest drivers are the two new to non-performers as well. So those were performing as of last quarter. Those are now new to delinquency.

Mark: We continue to think about.

Mark: executing on that plan through the lens of ensuring appropriate initial capital dilution and feel comfortable about the earn back and executing on that. So that'll serve as the framework through the first quarter, meaning really just opportunistic on depending where the stock price is.

Executing on that plan through the lens of ensuring appropriate initial capital dilution and feel comfortable about the earn back and executing on that so you know that.

Mark J. Ruggiero: And there's essentially one other office loan that is now in early stage delinquency that'll be maturing here in the first quarter of 2024. We're working with that bank to see what the resolution may be. But basically, limited to three loans, the two that are non-performing and one other office. OK. And it's maybe just curious, you know, you mentioned that office loan maturing here. You have 125 million office loans maturing in the upcoming year. Just curious, you know, do you expect that'll be the primary source of potential credit issues? And that drives your loan loss provision, as you guys referenced in the deck, or..., you know, will potential office NPAs just be idiosyncratic, just kind of, and Collyn Gilbert? I'll start, Mark. I think you hit the nail on the head. It's going to be idiosyncratic.

Mark: That'll that'll serve as the framework through the first quarter, meaning you know really just opportunistic on depending where the where the stock price is.

Mark: Barring all other things staying equal and then I think it's fair to <unk> to talk about and be thinking about re upping on a plan given our overall capital levels.

Mark: barring all other things staying equal.

Mark: And then I think it's fair to talk about and be thinking about re-upping on a plan given our overall capital levels.

Mark J. Ruggiero: We still feel we have a really good handle on credit and stabilization of the funding. So I think, you know, as a tool for the deployment of capital going forward, we haven't made any decisions on that, but I think it's fair to suggest, you know, that would, however, we would continue to look to throughout again being very opportunistic over where it makes sense to

Mark: We still feel we have really good handle on

Mark: We still feel we have really good handle on.

Mark: Credit and stabilization of the funding. So I think, you know, as a tool for deployment of capital going forward, we haven't made any decisions on that, but I think it's fair to suggest, you know, that would.

Mark: Credit and stabilization of the funding. So I think you know as a tool for deployment of capital going forward.

Mark: We haven't made any decisions on that but I think it's fair to suggest that would be a lever. We would continue to look to throughout most of 2024.

Mark: however, we would continue to look to throughout

Jeffrey J. Tengel: As I said in my prepared remarks, it's difficult to paint that portfolio with one brush. Every loan has a unique characteristic, whether it's location, sponsor, resources that they can bring to the party as we look at extending or, you know, if they look to refinance elsewhere. So each one is different.

Mark: Again, being very opportunistic over where it makes sense to execute.

Mark: again being very opportunistic over you know where it makes sense to

Speaker Change: Okay I appreciate that and then one more if I may mark on on the margin going back.

Speaker Change: Okay, appreciate that. And then one more, if I may, Mark, on the margin going back. You guys had some swap expirations in the second half of this past year. Just curious if there are any swap expirations in 2024 or 2025 that we should expect to help?

Stephen M. Moss: Okay, I appreciate that. And then one more, if I may, Mark, on the margin going back. You guys had some swap expirations in the second half of this past year. Just curious if there are any swap expirations in 2024 or 2025 that we should expect to help?

Speaker Change: You guys had some swap explorations.

Speaker Change: In the second half of this past year, just curious if there are any swap explorations in 2024 or 2025 that we should expect to help the margin.

Jeffrey J. Tengel: We feel pretty good as we sit here today about managing through that because we are on top of all of them. But I don't think there's – I don't think we're going to – we necessarily feel like we're going to see a bunch of new non-performers out of that $125 million of maturing loans.

Mark: Yeah, in fact, we have probably on average about 100 million matures on a quarterly basis throughout 2024. So I know for sure it's 100 million in Q1 and

Mark J. Ruggiero: Yeah, in fact, we probably have about 100 million matures on a quarterly basis throughout 2024. So I know for sure it's 100 million in Q1 and somewhere between 50 and 100 million in the other quarters as well. So that's a reason why we've always talked about stabilizing the margin. There are a couple of levers like that. It's the hedge maturity. It's allowing the securities portfolio to continue to run off without, you know, essentially just either paying down borrowings or holding.

Speaker Change: In fact, we have probably on average about 100 million matures I'm on a quarterly basis throughout 2024 so.

Speaker Change: I know for sure that's $100 million in Q1, and then it's.

Mark: somewhere between 50 and 100 million in the out quarters as well. So that's a reason why we've always talked about stabilization of the margin. There's a couple of levers like that. It's the hedge maturity.

Speaker Change: It's somewhere between 50 and $100 million in the out quarters as well. So that's a reason why we've always talked about stabilization of the margin. There's a couple of levers like that it's the hedge majorities, it's allowing the securities portfolio to continue to run off without <unk>.

Mark J. Ruggiero: When you look out over the other portfolios, there's really been no uptick, you know, of any note, in terms of delinquencies or early, you know, downgrade credit migration. So the rest of the portfolio continues to feel really, and even the near term on the office side, you know, when you look out over even just as short term as the next two quarters, it's really just a handful of larger credits that we have really good eyes and ears on and working directly with the borrowers to hopefully find a good, good resolution plan. So it does feel very well. I appreciate all the color.

Mark: It's allowing the securities portfolio to continue to run off without, you know, essentially just either paying down borrowings or holding.

Mark J. Ruggiero: Cash at 5%. A lot of what's running off on the securities book is at weighted average coupons of about one, one and a quarter.

Speaker Change: Essentially just either paying down borrowings are holding.

Mark: Cash at 5%. A lot of what's running off on the securities book is at weighted average coupons of about one, one and a quarter.

Speaker Change: Cash at 5% you know a lot of whats running off on the Securities book is that weighted average coupons are about one one and a quarter.

Mark: So we're seeing

Mark J. Ruggiero: So we're seeing good lift just from hedge maturities and security runoff in addition to the loan repricing dynamic that we've been talking about. So, you know, at some point once the deposit state, you know, deposit pressures. I think those three factors will be enough to offset and maintain the margin at the level we've got it.

Speaker Change: So we're seeing.

Speaker Change: Good lift just from hedge maturities and securities run off in addition to the loan repricing dynamic that we've been talking about so you know.

Mark: Good lift just from hedge maturities and security runoff in addition to the loan repricing dynamic that we've been talking about. So, you know, at some point once the deposit state, you know, the deposit pressures.

Stephen M. Moss: Thanks, guys. The next question comes from Lori Hunziker with SRP. Please go ahead. Yeah, hi, thanks. Good morning, Jeff and Mark.

Speaker Change: At some point once the deposit the deposit pressures subside I think those three factors will be enough to to offset and maintain the margin at the level, we've got it too.

Mark: I think those three factors will be enough.

Mark: to offset and maintain the margin at the level we've got it.

Speaker Change: Okay.

Lori Hunziker: Just staying on the office loan that's in an early stage delinquency, how much... use that loan and, Is it class A or class B, anything that you can share on that? Yeah, that balance is about $11 million. I believe it's a Class A. I mean, that one, to be fully transparent, I mean, we may see that move to non-performing in the first quarter, but again, we're working closely with the bar on that. You know, I think... there is any lost exposure there. That's also one.

Speaker Change: Thank you very much. Appreciate all the call.

Stephen M. Moss: Thank you very much. Appreciate all the calls, problem.

Speaker Change: Thank you very much appreciate all the color.

Speaker Change: problem.

Speaker Change: No problem.

The next question comes from Laurie Hunsicker from RP.

Speaker Change: The next question comes from Lori Hunziker from SRP. Please go ahead.

Laurie Hunsaker: The next question comes from Lori Hunziker from SRP. Please go ahead.

Laurie Hunsicker: Go ahead.

Laurie Hunsicker: Yeah, Hi, Thanks, Good morning, I'm, just just one follow up Mark the noninterest income of 32 million that are there other piece that were $7 8 million.

Lori Hunziker: Yeah, hi, thanks. Good morning. Just one follow-up, Mark. The non-interest income of $32 million, the other, other piece that was $7.8 million, look,

Laurie Hunsaker: Yeah, hi, thanks. Good morning. Just one follow-up, Mark. The non-interest income of $32 million, and the other, other piece that was $7.8 million. Look,

Mark: looks outside, looks a little bit outside. Can you help us think about what's non-recurring in that?

Mark J. Ruggiero: Looks outside, looks a little bit outside. Can you help us think about what's non-recurring in that?

Laurie Hunsicker: Looks outsized.

Can you help us think about what's nonrecurring in that.

Speaker Change: yeah this we have um a big piece in this quarter is our unrealized gains on equity six we have a very small equity securities portfolio that's tied to a defined benefit plan um that requires mark to market accounting so you see a little bit of volatility um each quarter if it's a loss you'll typically see that get recognized through other non-interest expenses

Mark J. Ruggiero: Yeah, this we have um, a big piece in this quarter is our unrealized gains on equity six. We have a very small equity securities portfolio that's tied to a defined benefit plan that requires mark to market accounting, so you see a little bit of volatility each quarter. If it's a loss, you'll typically see that get recognized through other non-interest expenses again, you'll see it go through other non-interest income. That So I think your Q3 number and the quarters prior to that are probably the right levels for that lineup.

Laurie Hunsicker: We have a big piece in this quarter as our unrealized gains on equity six we have a very small equity securities portfolio. That's tied to a defined benefit plan that requires mark to market accounting. So you see a little bit of volatility each quarter. If it's a loss you'll typically see that get <unk>.

Mark J. Ruggiero: We're not the agent. We participate in somebody else's deal on that. Okay. And then of the 125 million that's maturing in 2024, how much of that matures in the first quarter? Probably about half.

Laurie Hunsicker: Nice to other noninterest expense.

Speaker Change: again, you'll see it go through other non-interest income. That was about $700,000 this quarter. So I think your Q3 number,

Laurie Hunsicker: So it's again, you'll see it go through other noninterest income that was about $700000 this quarter.

Mark J. Ruggiero: Probably a little under half, there's a couple, there's 34, 35 million comprised of just two loans and then, you know, much smaller after that. So, If I had to peg a number, I don't have all the details in front of me, it's probably around somewhere in the 30s. One of those we're already in the process of renewing as we speak, and we think we'll resolve and have a three-year extension on it at a really good debt service and LTV level, so one out of those is already in the works. Okay, okay, and then what are the actual loan balances on the two commercial loans that came over? How how big was the ABL loan? I mean, I'm thinking it's 17 million, but do you have a... Yep, the AVL was $17.5 million when the office loan came in at $11 million, but we wrote off $2.8 million of it, so it's in NPAs at the net, call it $8.5 million. Okay, and then was that class A or class B?

Laurie Hunsicker: I think your Q3 number in quarters prior to that probably the right level.

Speaker Change: quarters prior to that are probably the right level for that lineup.

For that line item.

Speaker Change: Great. Thanks.

Laurie Hunsaker: Great. Thanks.

Speaker Change: Yes.

Speaker Change: This concludes our question answer session I would like to turn the conference back over to Chad Congo for any closing remarks.

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

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

Jeffrey J. Tengel: Thank you for your continued interest in Independent Bancorp, and we will talk to you next quarter.

Chad Congo: Thank you for your continued interest in independent Bank Corp, and we will talk to you next quarter.

Speaker Change: Have a good day.

Operator: Have a good day!

Speaker Change: Good day.

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

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

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

Speaker Change: Yeah.

Operator: transcript Emily Beynon

Speaker Change: [music].

Lori Hunziker: The write-off. Correct. Wasn't that the Office?

Mark J. Ruggiero: Yeah, that was a class. I know you had $100 million in office mature in the fourth quarter. Was this $11 million or $8.5 million net loan one of the ones that hit the maturity wall? Was that what drove this in the first quarter or anything you can share on that? Yes, it did hit maturity in the fourth quarter, and we elected not to on that one.

Speaker Change: Thanks for watching!

Operator: Thanks for watching!

Speaker Change: Thank you for watching!

Operator: Thank you for watching!

Operator: transcript Emily Beynon

Lori Hunziker: Thank you. Oh, yeah. You did say that in your comments.

Lori Hunziker: Thank you. Okay. Great. And then just one last question. Just going back to the deposit side here, you know, just thinking about sort of the mixed shift change and maybe just the overall, your loans to deposits sitting at 96 percent, and for backing out CDs, that's 112%. How should we think about those feelings?

Mark J. Ruggiero: How do you think about? you know, as high as you want to get there? How should we be thinking about that thing? Yeah, I'll start. We're pretty close to being where we want to be. I mean, we don't have a bright line on it, but we definitely would have a very, very strong preference for having a loan-to-deposit ratio of less than one, which is why we're very focused on growing deposits in 2024. Great. Okay. Thanks for taking my questions. I appreciate the detail.

Jeffrey J. Tengel: Sure. As a reminder, if you would like to ask a question, please press star, then 1 to be added to the question queue. The next question comes from Chris O'Connell with KVW. Please go ahead.

Christopher Oddleifson: Morning. Thank you very much. Thank you. Yeah, I was just hoping to, you know, hone in on some of the fee and expense guide, specifically on the fees, with the 1Q number being relatively flat to the 4Q number. You know, other income, you know, has been pressed up over the past couple quarters quite a bit. I know you guys noted a couple of kind of seasonal or one-time-ish factors in Q4. How do you see that settling out, you know, into the first quarter?

Mark J. Ruggiero: Yeah, total fee income. I think the strength of total fee income will continue to be primarily on the heels of the wealth management group we mentioned in our comments, the AUA being up to $6.5 billion. That should bode very well for strong revenues heading into 2024. And, you know, we're not necessarily banking on significant increases, but I'm optimistic that in this environment, we're continuing to see more of the mortgage production shift to saleable. Now, overall, volumes are down, but we should see some levels shift back to saleable and hopefully give us a little bit of a lift on mortgage banking. Our deposit fees, we feel, are very stable.

Mark J. Ruggiero: We think there's probably some pressure coming on the regulatory front, perhaps on overdrafts, but I think we have already made changes and have most of that behind us. So we might see some modest decreases related to overdraft, but all in all, there's been good momentum on deposit, interchange, ATM fees, etc. And then lastly, you know, I was going to mention in some of the conversations earlier around pricing, we think this opportunity is, you know, this environment gives us an opportunity to think hard again about swaps, some of our commercial lending, and whether you know, shift pricing strategies to take on a bit more swap volume and generate additional fees there. So I think there are a few levers there that, you know, that bode well and have, you know, run rates to increase in the very near term.

Mark J. Ruggiero: And that's what's anchored in our guidance. Great, that's helpful. And then on the expense side, you guys mentioned the initiatives that you have going on, including, you know, the potential for some cost savings on the branch and fulfillment side. Any sense of, you know, the timing of how that could play out over the course of the year?

Christopher Oddleifson: And are those potential cost savings embedded in the overall, you know, expense guide? They're not embedded in the overall expense guide, so those would be just incremental savings that we would experience. And I think on the facilities side, that probably would be skewed towards the back half of the year or maybe even bleed into next year, so a little bit of both. On the procurement side, I think we'll see some savings from that in 2024, but we haven't put a number on that yet. I got it.

Jeffrey J. Tengel: Any sense of the, you know, potential range, even if it's pretty wide as to the magnitude of those cost savings could be once all said and done? Yeah, I don't have an estimate, Mark. I don't know if you do.

Mark J. Ruggiero: Yeah, I think I think it's fair to say it isn't at a range where it's worth highlighting at this point, but we'll give more guidance on that probably in the next quarter or two and hopefully get to a little bit more of a clearer path. And honestly, that's not a game changer for us, to be sure, but it's really illustrative of a whole host of things that we're looking at as we examine our expense base and as we think about the environment that we're in. So I mentioned that in my prepared remarks as an example of some of the things that we're looking at. There are a whole host of other examples I could have given you.

Jeffrey J. Tengel: Each one of them, in and of itself, isn't going to move the needle, but when you add them all up, we think it all just kind of funnels back into being good expense managers. And on the deposit side, you know, how much of this CD portfolio, I guess, has, you know, yet to reprice? And, you know, I guess we'll start there. Yeah, the impact is becoming less and less, which is the good news moving forward. So, and then in Q1, we expect about 800 million to mature and reprice. But I guess the positive there is that the weighted average coupon on that pool right now is in the high threes, about 3.8%. So the repricing dynamic now is not as severe as it once was.

Jeffrey J. Tengel: And then I believe it's another $750 million or so in Q2 that is set to mature. That is also at a high 3.8% weighted average coupon. So assuming today's rain environment stays as is, you'd see that level potentially go up anywhere up to, you know, a full percentage point, but we hope that that would be more like a 50 or 75 basis point increase over the next couple of quarters in terms of the impact. Great, that's perfect.

Christopher Oddleifson: Thanks for taking my questions. Thank you. Thank you. Thank you.

Stephen M. Moss: The next question comes from Steve Moss with Raymond G. Please go ahead. I just want to follow up for me. On the flyback here, you guys bought $69 million worth of stock, and I know you have $100 million authorized. Just curious about your thoughts on the pace here going forward and how you guys are thinking maybe about issuing a new report. Yeah, Mark, do you want to take the kind of pace of play today? Joe

Mark J. Ruggiero: Yeah, you know, with this, as you mentioned, you're spot on. There are about 30 million left under the existing plan. I think our posture hasn't changed; it's there to be opportunistic.

Mark J. Ruggiero: We continue to think about executing on that plan through the lens of ensuring appropriate initial capital dilution and feel comfortable about the earn back and executing on that. So, you know, that'll serve as the framework through the first quarter, meaning, you know, really just opportunistic depending on where the stock price is, barring all other things staying equal. And then, you know, I think it's fair to talk about and be thinking about re-upping on a plan given our overall capital levels. We still feel we have a really good handle on credit and stabilization of the funding. So I think, you know, as a tool for the deployment of capital going forward, we haven't made any decisions on that, but I think it's fair to suggest, you know, that would be, all ever, we would continue to look to throughout, again being very opportunistic over, you know, where it makes sense to execute.

Stephen M. Moss: Okay, appreciate that. And then one more thing, if I may mark on the margin going back, you guys had some swap expirations in the second half of this past year. Just curious if there are any swap expirations in 2024 or 2025 that we should expect to help. Yeah, in fact, we probably have probably on average about 100 million matures on a quarterly basis throughout 2024. So I know for sure it's 100 million in Q1, somewhere between 50 and 100 million in the other quarters as well. So that's a reason why, you know, we've always talked about stabilizing the margin. There are a couple of levers like that.

Mark J. Ruggiero: It's the hedge maturity. It's allowing the securities portfolio to continue to run off without, you know, essentially just either paying down barrings or holding, you know, cash at five percent. A lot of what's running off on the securities book is that weighted average coupon of about one, one and a quarter. So we're seeing, could lift just from hedge maturities and security runoff, in addition to the loan repricing dynamic that we've been talking about. So, you know, at some point, once the deposit state, you know, the deposit pressures side, I think those three factors will be enough to offset and maintain the margin at the level we've got. Thank you very much. I appreciate all the calls, problem solving. The next question comes from Lori Hunziker from SRP. Please go ahead. Yeah, hi, thanks. Good morning.

Lori Hunziker: I've got just one follow-up. Mark, the non-interest income of $32 million, and the other other piece that was $7.8 million looks, looks outside, looks a little bit outside. Can you help us think about what's non-recurring in that? Yeah, we have a big piece in this quarter of our unrealized gains on equity. So we have a very small equity securities portfolio that's tied to a defined benefit plan that requires mark to market accounting. So you see a little bit of volatility.

Mark J. Ruggiero: Each quarter, if it's a loss, you'll typically see that get recognized through other non-interest expense. And again, you'll see it go through other non-interest income. That was about $700,000 this quarter.

Mark J. Ruggiero: So, I think your Q3 number and the quarters prior to that are probably the right levels for that line. Great, thanks. This concludes our question and answer session. I would like to turn the conference back over to Jeff Tengel for any closing remarks. Thank you for your continued interest in Independent Bancorp, and we will talk to you next quarter. Have a good day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thanks for watching. Don't forget to Like, Comment, and Subscribe. May 1955 Pope Innocent XI March 1955 Bloody Jesus Please write the Bible F liar, BF-WATCH TV 2021

Q4 2023 Independent Bank Corp Earnings Call

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