Good afternoon, and welcome to the Independent Bank Corp. First Quarter 2014 Earnings Conference Call. [Operator Instructions] This call may contain forward-looking statements with respect to the financial condition, results of operations and business of Independent Bank Corp. Actual results may be different. Factors that may cause actual results to differ include those identified in our annual report on Form 10-K and our earnings press release. Independent Bank Corp. cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly any forward-looking statements whether in response to new information, future events or otherwise. Please note, this event is being recorded. I would now like to turn the conference over to Chris Oddleifson. Please go ahead.

Thank you, and good afternoon, everyone, and thank you for joining us today. We appreciate you joining us late in the day as we moved up the timing of this call in light of the market closing tomorrow. I'm accompanied by Chief Financial Officer, Rob Cozzone, who will take you through our financial results and outlook following my comments; and Chief Operating Officer, Denis Sheahan, who is also with us today. Our reported results of $13.4 million or $0.56 per share benefited from a life insurance policy gain, which we excluded from our derivation of core income. Excluding this and a few other minor items, operating earnings came in at $12.1 million or $0.51 per share. First quarter results of each year are commonly, a little lower due to seasonality and other factors. They are down further this time due to the timing of a charge-off taken on a single credit. As you know, commercial loan charge-offs can be lumpy -- can be lumpy, which is exactly what occurred this quarter. Our net charge-offs outlook for the full year remains intact with this first quarter level expected to be the highest of any quarter. The good news is that momentum in business generation and customer volumes, most assuredly carried over into the New Year. And our underlying fundamentals remained as strong as ever. As you will hear from Rob shortly, we're maintaining our EPS guidance for the full year that we provided last quarter. Among the many positives in the quarter, there were solid loan growth led by strong double-digit annualized growth in the commercial portfolio, especially in the C&I sector. Double-digit annualized growth as well in core deposits revenue, which is now grow -- risen at 86% of total deposits. Our resilient net interest margin reflected on this stable…

Thank you, Chris. Good afternoon. I will now review the earnings for the first quarter in more detail. Independent Bank Corp. reported net income of $13.4 million and GAAP diluted earnings per share of $0.56 in the first quarter of 2014. This compared to net income of $10.6 million and GAAP diluted earnings per share of $0.45 in the prior quarter. Both quarters included items that the company considers to be noncore, including $0.17 of M&A expenses in the prior quarter and $0.07 in gains on life insurance benefits in the current quarter. When excluding these and other minor noncore items, operating earnings per share were $0.51 for the first quarter of 2014 as compared to $0.61 in the prior quarter. On an operating basis, our returns on average assets and equity were 0.8% and 8.1%, respectively, for the first quarter. Due to seasonal factors, our first quarter financial results are typically lower than the fourth quarter results. As Chris mentioned, our first quarter results this year were also impacted by a relatively large commercial real estate charge-offs and associated higher loan-loss provisioning. The charge-off credit was a loan made by a bank we acquired a few years ago and it had unique characteristics, which significantly impacted its value. Despite this charge-off, our earnings expectations for the full year have not changed as our core business lines are performing quite well. Chris highlighted a number of areas of strength for the quarter that I will now expand upon. Annualized loan growth was 7.6% for the quarter, as continued strength in the commercial book across all categories, CRE, C&I and construction, led the way. As we had anticipated, the first quarter benefited from some closings that got pushed beyond year end. And although the approved pipeline declined to $166 million at…

Yes, thank you, Rob. Okay, operator, we're ready to take some questions.

[Operator Instructions] Our first question comes from Mark Fitzgibbon with Sandler O'Neill and Partners.

This is actually Matt filling in for Mark. So it looks like core operating expenses actually declined quarter-to-quarter to about $41 million or so. So the question is, what's driving the build across the balance of the year so as to achieve the 3% to 4% growth guidance that you initially proposed?

The quarterly growth, Matt?

Yes. I think you're targeting full year OpEx growth at 3% to 4%. Just wondering where you're going to be spending to achieve that level?

Yes, certainly, incentive program expense was lower in the first quarter. That's one of the line items that will gradually increase throughout the year with the performance. Advertising expense tends to tick up into the second quarter, that's kind of our top advertising season and there were a number of other categories that were lower in the fourth -- first quarter, sorry, partially due to timing, things like consulting fees.

Okay. And then just -- you mentioned at a recent Investor Conference that you were seeing tinges of 2007 in some of the underwriting across the footprint and yet, loans grew at a pretty healthy 8% annualized rate. Just wondering where you're pulling back and perhaps where you're stepping in, say, from a competitive standpoint, to garner some share?

Matt, I don't think that we're -- probably -- I mean, when you take a look at our originations over the first quarter, they're pretty well-distributed across a variety of asset classes. So I wouldn't say they were sort of stepping in or stepping out in a profound way. I will say, though, the -- we are looking at a lot of deals and the pull-through rate is -- not everything is pulled through because of the pricing and terms, but because we have so many commercial lenders in the market, we're able to deal a lot, and we can pick sort of what sort of loans we want to originate, the credit and pricing we would like.

The next question comes from Taylor Brodarick with Guggenheim Securities.

I guess first question would be, we've talked in the past about the asset sensitivity profile, and while I wouldn't ask you to forecast when the short end would come up, I didn't know if anything had changed from year end that you could report right now as far as your outlook or what's your ALCO model showed?

Yes, we continue to be very asset-sensitive, Taylor. You can look obviously and you probably have been, but we expanded the disclosure in our 10-K. We have about $2.2 billion of our loan book is tied to either prime or LIBOR. People certainly, as the majority of that does not have a floor associated with it, so certainly as short-term rates go up, we will benefit significantly. In terms of projecting when that might happen, your guess is certainly as good as mine. There's been some indication from the Fed that, that might happen sooner than originally thought. But we're certainly not holding our breath and we're still feeling like we can maintain the margin in this current environment, even though it is a challenging one.

[Operator Instructions] The next question comes from Collyn Gilbert with KBW.

Rob, if you could just -- just on your NIM commentary, I'm just trying to reconcile what would be driving further compression? I guess you've had 2 quarters now with the NIM gone higher. And I understand the components that you indicated on this quarter. But just looking at it, it looks like asset yields are somewhat stabilized. Funding costs -- I guess to me, it seems like there's -- it would beg for more stabilization than compression. What would be driving that compression?

Yes, well, so in the last 2 quarters, Collyn, going from the third quarter to the fourth quarter, we had $30 million of sub-debt repriced, down 300 basis points. Going from the fourth quarter to the first quarter, we had $50 million of FHLB advances at a higher rate run-off. And then during both the third quarter and the fourth quarter, we were able to reduce our average liquid balances that are at the Fed earning 25 basis points. So in the first quarter, we had about a $60 million of balances on average at the Fed. Certainly, we could deploy those should we continue to experience loan growth and that would help to benefit the margin. But I expect that we will have, on average, some level of balance at the Fed, maybe slightly lower than the $60 million. So I don't expect to get the benefit of deploying cash. However, I do expect our loan yield to gradually trend down. The last couple of quarters, it's only been about a basis point. But the commercial real estate book does continue to trend down 4 basis points this quarter and more than that last quarter. So I think we're going to see the loan yield continue to trend slightly lower. And I won't be able to offset that on the wholesale funding side or with the deployment of liquidity. So I think, in general, we're going to see a little bit of margin compression for the remainder of the year. Not significant, but I wouldn't expect to see an expansion.

Okay. Okay, that's very helpful. And then just in this quarter's occupancy expense, did you guys have -- was there a large amount of dollars tied to like snow removal that we should think about backing out?

Yes, about $600,000 associated with snow removal. There was a couple of things in occupancy expense this quarter. One, we adjusted out as a nonoperating item, that was the write-down, additional write-down, of some of the facilities we assumed from Mayflower that we never occupied. So these were branches that we closed, we still have the facilities, but we had to take further write downs because we just do not find that the market for them is that strong. And then there's the snow removal cost of $600,000.

Okay. Okay, that's helpful. And then, how are you guys thinking about fees sort of rebounding in the second quarter? I mean, the -- or what component would you say was somewhat seasonal or how is the trends looking on the fee line as we look at for the rest of the year?

Yes, so I mean if you think about the major categories, certainly deposit fee income will continue to trend up as we are very successful in selling our core checking accounts. And the more core checking accounts we have, the more overdraft fees and interchange revenue we generate. So we'd expect that to continue to trend upward for the rest of the year and that peaks in the fourth quarter with the holiday season. Investment management income saw a good growth this quarter, 4%, year-over-year. Next quarter, we have the benefit of tax services. So that will be further enhanced next quarter. Swap income can be a little bit uneven. We were stable quarter-over-quarter in the first quarter and that is really just a reflection of commercial loan activity. So we expect commercial loan activity to decline into the second quarter. So swap income might be down a little bit. And then mortgage banking income. Now I mentioned in my comments that we think industry-wide, we may have hit kind of the low watermark in terms of mortgage production. Our pipeline for mortgage is up pretty nicely, off of the end of the year. And so we're expecting mortgage banking income to certainly improve heading into the second quarter. And also, I think, all in all, most of the categories we should see improvement going.

Okay. Just one final follow up and if you said this in your comments -- or if Chris you covered it, I apologize, but why are you anticipating that commercial activity is slowing in the second quarter?

It's just that pipeline is down, the pipeline is $166 million at the end of the quarter. At the end of the year, $244 million. So we're at a point where we are now rebuilding the pipeline.

So, Collyn, the point is we expect good activity in the second quarter. The pipeline is rebuilding. So they won't all close in the second quarter. It could lead -- it trend into the third quarter by the time it closes.

As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Chris Oddleifson for any closing remarks.

Very well, thank you very much, everybody for joining us this afternoon, and we look forward to talk to you after the second quarter. Happy weekend.

Thank you.

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