Earnings Call Transcript - INDB Q4 2022

Operator, Operator

Good day, and welcome to the INDB Independent Bank Corp. Fourth Quarter 2022 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures include 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. Please also note that this event is being recorded. I would now like to turn the conference over to Christopher Oddleifson, President and CEO. Please go ahead.

Christopher Oddleifson, President and CEO

Good morning, everyone, and Happy New Year. Thank you for joining us today. I am once again joined by Mark Ruggiero, our Chief Financial Officer; and Rob Cozzone, our Chief Operating Officer. As I'm sure most of you know by now, we recently announced my decision to retire as CEO after 20 years at the helm of our terrific bank. There really is no mystery here, just customary thoughtful succession planning overseen by our independent directors. The decision to retire was mine. I am healthy and well. After two decades, I just felt it was time to pass the baton to someone else to lead the next phase of our growth and long-term success. The Board has made a great choice in Jeff Tengel to lead that effort. Jeff will formally assume the CEO role on Monday, February 6. I'll remain in an Executive Advisory role until the end of this year. I will also continue to serve as a Director until my term expires in May 2023. The CEO transition does not reflect a change in our strategic direction whatsoever. Also, after many years of succession planning, we recently elevated two long-term commercial colleagues, Jim Rizzo and Catherine O'Malley, to our executive leadership team, both will continue to report to our President, Gerry Nadeau. On the earnings front, we capped the year with another strong and fundamentally sound performance. Net income in the fourth quarter rose to $77 million or $1.69 per share. Mark will take you through the quarter shortly, while I'll be focusing my comments on the full year just concluded. Financially, it was another in a string of strong annual performances in a difficult economy, our operating EPS grew by 8% in 2022. Loan activity remained robust, with commercial loan closings rising 14% to $2.1 billion, while combined residential mortgage and home equity originations totaled $1.2 billion. We continue to generate record levels of consumer checking account openings, and core deposits comprised 88% of total deposits. Astute balance sheet management drove a 44 basis point improvement in the full year net interest margin. The strength of our investment management business was on full display this year, as strong new inflows totaled $1.2 billion, way above previous levels. Our assets under administration or management increased versus a year ago to $5.8 billion despite the sharp decline in market valuations. Now one fun footnote or historic footnote I'd like to share with you is that the $1.2 billion of new money in 2022 is almost three times the total assets of our management we had when I arrived in 2003. This business has come a long way. Credit quality continued in excellent shape with a total loss rate of a mere 1 basis point for the full year. Capital remains at Apple levels, which accommodated ongoing share repurchases and healthy dividend increases, and expense levels are being well managed, bringing our operating efficiency measure to nearly 50%. We also made significant strides in advancing our franchise on a number of fronts. Most significant has been the seamless integration of East Boston Savings Bank, our largest acquisition to date, which has materially strengthened our presence in the coveted Boston market while being both accretive to earnings and tangible book value. We continue our expansion in and around Worcester, the second largest city in Massachusetts. Customer reception to our brand has been excellent. We continue to make critical enhancements to our digital banking offerings, covering a full range of account access and openings, payment networks, and front-end loan processing. And our ability to attract experienced senior talent into our company continued throughout the year, including the hiring of a Chief Risk Officer successor, and this will enable us to capitalize on the new business opportunities arising from our larger size and expanded footprint. Now looking ahead, our near-term priorities lie in the following areas: talent, a real focus there to accomplish our long-term goals and capitalize on opportunities; building our businesses in areas where we enjoy competitive advantages; streamlining and modernizing to remain competitive and nimble while keeping pace with the rapid technology advances. Our branch network optimization continues, finding the right balance between the physical presence and satisfying the widely varying preferences of different generational consumer groups. Of course, Enterprise Risk Management continues to evolve, ensuring that our risk management infrastructure and skill sets keep pace with our growth, and of course, continued integration of new businesses and new colleagues. We must continue to develop and motivate our colleagues to meet the challenges, both organic and acquired growth. These priorities are all supported by detailed plans, which will prove a great help to Jeff as he comes on board. A few quick observations on the economic front: the job market continues to be a bright spot for e-commerce activity with consistent and strong payroll gains, but retail sales printed back-to-back monthly declines and point to a cooling in the overall economic activity, which may be consistent with the recent inflationary reports showing signs of easing with broad-based declines in prices. The Fed remains hawkish, and as indicated, there is more room for rate hikes in 2023. So as a final economic prognostication as CEO, I'll say that while the risk of overtightening shouldn't be overlooked, the window for a soft landing remains a possibility. So before signing off, my last of 80 earnings calls, I'd like to say that it has been an honor and a privilege to serve as CEO of INDB and Rockland Trust for the last 20 years. I've seen our company grow from $2.3 billion in assets to nearly $20 billion, from annual operating income of $24 million to $269 million. Our market cap has gone from $339 million to $3.9 billion. Our investment management assets grew from $334 million to $5.8 billion. Now from my precise February 24, 2003, CEO start date, our share price has increased 305% versus a KBW Bank Index increase of 42% and NASDAQ Bank Index increase of 84%. Tangible book value per share has grown from $8.64 to $41.12, an increase of 376%. We've accomplished a great deal by nurturing and building a relationship-oriented culture of care and respect. And we believe that a great place to work in retaining excellent colleagues is the essential foundation of a high-performing bank over the long term. We've been recognized by the Boston Globe Top Places to Work employee survey for 14 consecutive years. And we've earned high rankings across a range of customer satisfaction, service, and loyalty categories, as surveyed by J.D. Power, Greenwich Associates, and Forbes, among others. J.D. Power currently ranks us number one in retail customer satisfaction in New England. I'm extremely proud of all my colleagues. Now while culture may start at the top, our entire team deserves credit for the culture of the bank and the success and momentum of INDB. I am so grateful that I've been able to work alongside my amazing colleagues to build INDB into what it is today. I can't thank them enough. They've been extraordinarily engaged and resilient over the years and bring so much enthusiasm and passion to excel day in and day out. My successor, Jeff Tengel, will benefit from a deep and accomplished executive management team, including Rob and Mark, who are here on this call with me, and I'm deeply indebted to all my fellow executives. Together, we have been focused, disciplined, and unwaveringly committed to nurturing a culture in the banks and have produced consistently solid results over a long period of time. I will truly miss leading the bank with them. I'm also grateful to our Board of Directors for giving me this opportunity in 2003 and for their unflagging support of me over the last two decades through good times and occasional difficulties. And finally, I wish to thank you, the investment and analyst community for your support. We've always maintained an open and honest dialogue. I have learned a lot from you, and I thank you for your interest and insights. I'll now turn it over to Mark.

Mark Ruggiero, Chief Financial Officer

Thank you, Chris. Certainly, a tough act to follow, but I will now take us through the earnings presentation deck that was included in our 8-K filing and is available on our website in today's investor portal. Jumping to Slide 4 of that deck. To summarize results, 2022 fourth quarter GAAP net income was a company record $77 million and diluted EPS was $1.69, reflecting 7.2% and 7.6% increases, respectively, from prior quarter results. In addition, the fourth quarter results produced a 1.56% return on assets, a 10.70% return on average common equity, and a 16.57% return on tangible common equity, all up significantly over prior quarter results. Regarding tangible equity, the tangible book value per share increased an impressive $1.56 to $41.12 as of December 31, reflecting strong earnings and stabilized other comprehensive income. There were no share repurchases during the fourth quarter. As we move our way through the deck, we will hit on the additional details behind the quarterly performance key drivers noted here on the slide. Turning now to Slide 5. We provide a high-level summary of our loan portfolios for the quarter. As noted here, reported balances for the quarter increased 1.7% or 6.6% on an annualized basis. As anticipated, with the rising rate environment, payoff and refinance activity decreased when compared to prior quarters, which, along with the strong closing activity Chris noted, fueled solid commercial loan growth across both C&I and commercial real estate. Residential balances also increased nicely but at a slower pace than the prior quarters. Slide 6 provides some additional details around the loan activity for the quarter. As I just alluded to, new commercial commitments for the quarter were strong at $636 million, up over 20% from the prior quarter. This naturally drove a decrease in the approved pipeline from $383 million last quarter to $317 million at year-end. However, the current balance should still bode well for good closing activity heading into 2023. And as noted on this slide, you can see the majority of activity is in the asset classes and industries we've been referencing for most of the year. On the right side of the slide, consumer portfolio closings were down compared to the prior quarter as expected, with the vast majority of Q4 residential volume once again placed into the portfolio, driving solid balance sheet growth. Moving now to Slide 7, the combination of inflationary pressures impacting customer liquidity and competitive pricing led to a 2.8% decrease in overall deposit balances. New account opening activity remains strong, but it's no secret we are in a different deposit environment than we were just a few quarters ago. As such, we remain focused on core relationships and operating accounts while addressing pricing pressures where needed. As noted on this slide, the majority of outflow occurred in our business savings and money market balances, with consumer balances experiencing some net flow as well, while the CD product set served as a compelling alternative to retain some level of higher rate-sensitive customers. As expected, these dynamics resulted in an increase in the cost of deposits to a still low 35 basis points for the quarter, up from the prior quarter level of 15 basis points, reflecting the inherent value of our deposit franchise. Based on the effective date of the Federal Reserve rate hikes, the total deposit beta for the quarter was 14%, with the cumulative beta on all deposits at only 8.4% or 13% when isolated to only interest-bearing deposits. However, we do not deny that pricing pressure has increased, and we will touch upon deposit cost outlook in our forward guidance. Slide 8 reflects our customary snapshot of the reported margin as well as a breakdown of volatile or non-recurring items to reconcile back to a core net interest margin. The 21 basis point increase in margin and 23 basis point increase on a core basis is right in line with previous quarter guidance and a reflection of the asset sensitivity positioning noted in the bottom right of the slide. With absolute levels of cash significantly reduced, our overall asset sensitivity has also been reduced, with the balance sheet well positioned to manage interest rate risk heading into 2023. Moving on to asset quality. Slide 9 provides some key metrics worth highlighting. Addressing the key notable development referenced in the earnings release first, the C&I credit, making up the majority of that category's non-performing balances in both Q3 and Q4, is still in workout. Though still very fluid, a specific reserve allocation of $14 million has been built over the last two quarters and is reflected in the provision levels already recorded with actual charge-off amount in the 2023 timing still being assessed. Not surprisingly, the now delinquent status of this loan is the main driver of the fourth quarter increase in the overall delinquency rate. Aside from that one loan, no other pervasive credit concerns are noted with non-performing assets staying relatively consistent at $54.9 million and negligible charge-offs of only $394,000 for the quarter or 1 basis point annualized. Shifting gears to non-interest items. Slide 10 provides details on the strong net interest income results for the quarter, a few of which I will highlight. Decreases in deposit account interchange and ATM fees reflect typical seasonality. Regarding investment management income, the significant increase in revenue reflects continued very strong new money inflows, as Chris noted, solid market performance, strong retail commission income, and a one-time non-recurring earned incentive of $650,000. Though a portion of the growth is tied to a meaningful increase in customer demand for shorter-term cash strategies, the increase of assets under administration from $5.1 billion last quarter to $5.8 billion at year-end is a testament to investment performance as well as the inflows generated from the relationship synergies developed over many years between wealth and bank colleagues. Loan level derivative income increased nicely as customers have become more comfortable with expectations over the pace of future rate changes. And lastly, other non-interest income includes a $900,000 gain on the sale of a previously closed branch building. Turning to the next slide. Total operating expenses of $94.9 million reflect a 2.3% increase from the prior quarter. While the quarter contains some specific notable variations to the prior quarter results, such as changes in the fair value of split dollar insurance obligations and increased technology spend, the overall increase is in line with expectations. And lastly, the tax rate for the quarter dropped to 23.2% as the fourth quarter typically reflects some level of discrete adjustments related to the filing of the corporate tax returns. We'll now shift gears to Slide 12 and cover 2023 forward guidance, which will obviously remain fluid throughout the year. With the level of overall economic uncertainty still at play, we expect overall loan growth in the low-single digit percentage range. With the payoff activity in commercial real estate decreasing from 2022 levels, we should see more balanced growth across both the commercial and consumer books. As deposit pressures continue, we anticipate additional decreases in balances in the first quarter of 2023 in the low-single digit percentage range. Though we will remain focused on customer acquisition efforts, insight into deposit balance volatility for the rest of the year is difficult to predict at this time, and we will certainly provide quarterly updates on deposit balance expectations throughout the year. Given the current balance sheet profile at year-end, we anticipate securities will attrite modestly over the course of the year, while cash and/or some level of wholesale borrowings will be a function of actual loan and deposit activity throughout the year. Regarding net interest income, we currently expect loan yield betas to stay in the range of 20% to 25%, reflecting the overall composition of portfolios tied to short-term rates combined with the $1.45 million current macro hedge portfolio. Deposit betas are expected to continue to increase from prior quarters with the cumulative total deposit beta to reach approximately 15% through the cycle. In terms of shorter-term guidance, assuming an early February 2023 Fed Reserve rate increase of 25 basis points, we expect the net interest margin to expand in the first quarter by 3 to 5 basis points, with a reminder that fewer days during the first quarter will drive lower net interest income results on a relative basis. Regarding asset quality and provision levels, we think it's prudent to keep our guidance anchored more in the near term than a full year outlook. As the previously mentioned large C&I loss estimate has already been provided for, future provision levels will continue to be driven by loan growth, any future migration of asset quality metrics, or changes in the overall economic outlook. Regarding noninterest income, despite an anticipated late Q1 change in our overdraft program anticipated to reduce 2023 fees by approximately $3.5 million, total fee income is anticipated to grow by a low-single digit percentage compared to 2022 totals. Key drivers of the growth are expected in deposit account interchange and ATM given the focused growth on core operating accounts, continued growth momentum in wealth management, though likely not to the degree experienced in Q4, and a continued demand over loan level derivative product driving fee income similar to the levels noted in Q4. Given the reduction in mortgage refinance opportunities and decreased pipelines, mortgage banking income will continue to be challenged for much of 2023. Regarding more immediate guidance, given the increased level of non-recurring fee income noted in the fourth quarter and reduced levels of days in Q1, Q1 fee income is expected to be down a high-single digit percentage when compared to Q4 levels. Regarding non-interest expenses, inflationary pressures, increased investment in continuously improving the customer experience, and some one-time items associated with the recently announced CEO transition are expected to drive increases in total expenses in the mid to high-single digit range for the full year as compared to 2022 operating levels, which exclude M&A. In terms of more immediate guidance, Q1 2023 expenses are expected to increase at a low to mid-single digit percentage over 2022 Q4 levels. And lastly, the tax rate is expected to be in the 24% to 25% range for the full year. That concludes my comments, and we will now open it up to questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question comes from Mark Fitzgibbon with Sandler O'Neill. Please go ahead with your question.

Mark Fitzgibbon, Analyst

Hey, guys. Good morning.

Christopher Oddleifson, President and CEO

Good morning.

Mark Fitzgibbon, Analyst

I just wanted to start by saying, Chris, congratulations on your retirement. You've done an absolutely amazing job at the helm. Congrats.

Christopher Oddleifson, President and CEO

Well, thank you very much, Mark. It's been a pleasure to know you for these 20 years.

Mark Fitzgibbon, Analyst

First question I had for you. You referenced in your early comments about the investment management business. You had about $470 million of net flows this quarter. Did that come from existing clients or did you bring in some new teams that really drove that?

Mark Ruggiero, Chief Financial Officer

Yeah. A little bit of both, Mark. We had a couple of hires in 2022, one of which really was very successful in tapping into his connections and networking and brought in about $80 million of gross money during the year. I also mentioned we really found a good opportunity given the rate environment to work with both existing customers and some new customers who are looking for more shorter-term treasury security cash strategies, and that equated to about $240 million of new money in the year. So that's a little bit of a different kind of product set from our typical wealth management business, but I think a good reflection of really leveraging the retail bank and being creative to look for opportunities, given the interest rate environment. So those are really the two drivers. But the team still finds really good opportunity in our typical larger wealth products. We talk a lot about the long-standing relationships that our wealth advisers and commercial lenders have created over the many years, and you're really seeing that on display lately.

Christopher Oddleifson, President and CEO

Yeah. Just Mark, one thing that I want to add to this is that the code that we cracked a number of years ago is to completely eliminated any reluctance from the vast majority of our commercial lenders and the branches to work with wealth and providing referrals to wealth. So a stumbling block that exists in many other financial institutions.

Mark Fitzgibbon, Analyst

Okay. And then what was that $650,000 one-time incentive in the wealth business?

Mark Ruggiero, Chief Financial Officer

We switched a few of our wealth products to a different platform, and the third party for the new platform encouraged us to make that change. Thus, there is a one-time fee related to transferring that money from a platform perspective.

Christopher Oddleifson, President and CEO

Something there was also a win-win for sort of our customer service and access and so on.

Mark Fitzgibbon, Analyst

Okay. I know credit isn't a significant concern, but I have a couple of quick questions about it. Regarding the C&I loan you mentioned, I believe you said there is a $14 million reserve set aside for it. Do you believe that amount is adequate to cover the expected charge? Also, when do you anticipate recognizing that charge?

Mark Ruggiero, Chief Financial Officer

Yeah. At this point, we feel that's sufficient. As I noted in my comments, there's a lot of moving pieces to it. So obviously, actual loss is still somewhat undetermined at this point, which is why we have not taken a charge-off and have taken a specific allocation. But there's really additional work being done; the company did file bankruptcy, and there is a liquidation expected of the company which will drive collection on receivables. That's our primary collateral. So it's truly just a function of how well those receivables hold up in terms of what sort of repayment we'll get through the process. We expect that timing, unfortunately, to linger a bit. This is a large, syndicated deal, with many banks involved. So I wouldn't anticipate a charge-off. Well, I wouldn't expect full resolution in the first quarter, whether we'll be in a position to take a charge-off is still to be determined.

Mark Fitzgibbon, Analyst

Okay. And then lastly, can you remind us, Mark, how large your Boston office book is and maybe what the average LTVs and debt service coverage ratios look like on that?

Mark Ruggiero, Chief Financial Officer

Sure. The total exposure in true downtown Boston office properties is approximately $240 million, which is slightly higher than previous figures. It's worth noting that this includes around $50 million of owner-occupied properties. Overall, we feel confident about this portfolio, especially considering it represents a small portion of our total office portfolio of about $1.5 billion. Additionally, there are some exposures in nearby areas like Brighton and Jamaica Plain, totaling around $80 million to $100 million. We are comfortable with this exposure. While I don't have all the loan-to-value and debt service metrics available, I can say that they have been performing well. At this stage, there are no significant concerns.

Mark Fitzgibbon, Analyst

Thank you.

Mark Ruggiero, Chief Financial Officer

Sure.

Christopher Oddleifson, President and CEO

Thanks, Mark.

Steve Moss, Analyst

Good morning.

Christopher Oddleifson, President and CEO

Good morning, Steve.

Steve Moss, Analyst

And Chris, congratulations again on your retirement here.

Christopher Oddleifson, President and CEO

Thank you.

Steve Moss, Analyst

Maybe just starting off on the margin and NII outlook. Just curious, where is loan pricing these days? And then if we think about the Fed, moving to stay around 5% on Fed funds and holding there for the rest of the year, how are you guys thinking about that margin trajectory?

Mark Ruggiero, Chief Financial Officer

Sure. Yeah. So the first element of your question, Steve, in terms of new volume. Certainly, from a fixed-rate perspective, we continue to see the lift of the increase in rates. So for the fourth quarter, keep in mind, there's a bit of a lag in terms of when loans are committed to versus when they hit the books. So focused primarily on new out standings for the quarter. We saw fixed-rate pricing on the commercial side certainly move north to the high 5% to 6% range. For mortgage, it was more in the mid 5% range in terms of what got booked in the quarter and similarly, home equity slightly north of that. So obviously, a reflection of the rising rate environment. We've seen good churn over in terms of the yield on new volumes getting booked. In terms of longer-term margin guidance, we talked about the 3 basis point to 5 basis point increase expected here in the first quarter that would be a function of expectations around the Fed raising 25 basis points in their next meeting, which is late January or early February. If they do another 25, as you indicated, to get to that 5% Fed funds target, I think you'll find that the continued pressure on the deposit pricing will certainly mitigate really any meaningful increases of asset repricing going forward. So I think you'll see the margin. Our expectations would be that it would kind of get stabilized around that high $3.80, $3.90 range, if that forward curve plays out as you indicated.

Steve Moss, Analyst

Okay. Regarding deposit pricing, do you believe that maintaining a margin in the high $3.80 range is viable for the second half of 2023, or do you expect it to be lower?

Mark Ruggiero, Chief Financial Officer

I believe that due to the value of our deposit franchise and our proven ability to efficiently manage costs, we should be able to maintain a margin in the high $3.80 range, even as we continue to raise deposit prices where necessary.

Steve Moss, Analyst

Okay. That's helpful. And then curious here with the CEO change, kind of what is your internal thought process on M&A activity going forward here? And any color you can give around the discussion level in the market these days?

Christopher Oddleifson, President and CEO

We are still very much interested in M&A opportunities, and as the CEO for the next 10 days, I am ready to respond if someone reaches out. One of my first tasks with Jeff will be to discuss our impressive history and the reasons behind our success, and I am confident he will be open to this conversation. In terms of the current marketplace, we maintain a list of potential candidates, and occasionally, someone expresses interest in discussions. With the reduction in the number of banks, these situations have become more random rather than a continuous flow of opportunities. However, I predict that over time, M&A activity will persist.

Steve Moss, Analyst

All right. Thank you very much.

Operator, Operator

Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead with your question.

Laurie Hunsicker, Analyst

Yeah. Hi. Thanks. Good morning.

Christopher Oddleifson, President and CEO

Good morning.

Laurie Hunsicker, Analyst

Just hoping we could start over with credit. Can you just remind us, the C&I loan that's in non-performers? What is the actual net number now, net of that $14 million reserve? And then within your loan loss provisioning this quarter, did you take anything? In other words, the $5.5 million, did you take anything specific to that loan?

Mark Ruggiero, Chief Financial Officer

Yeah. So it's about a $23 million outstanding balance. So our exposure on the books, you could say, is about $9 million, given the specific reserve we've allocated. So that primarily was the driver of the $5.5 million provision, Laurie, is that one credit. We allocated money through our pooled approach in the third quarter, specific to that loan. So the $5.5 million provision recorded in the fourth quarter was to get the total allocation up to the $14 million I referenced.

Laurie Hunsicker, Analyst

Got it. Okay. So just to make sure that I'm hearing that right, Mark. So the $5.5 million that you provided this quarter, that was entirely related to the C&I loan.

Mark Ruggiero, Chief Financial Officer

For the most part. I mean we have a couple of other moving elements, but that's the main driver, correct.

Laurie Hunsicker, Analyst

Got it. Okay. And then on your guidance, I just want to make sure that I'm thinking about this the right way. Your full year 2023 non-interest expense guidance expected to be mid to high-single digits relative to 2022. Are you stripping out the $7.1 million of merger charges from your '22 base? Are you including that in that number?

Mark Ruggiero, Chief Financial Officer

I'm stripping that out. So we're looking at it on an operating basis in terms of expenses.

Laurie Hunsicker, Analyst

Perfect. And then same thing with the 2023. Are you stripping out CEO search expenses or how do we think about that?

Mark Ruggiero, Chief Financial Officer

Those are embedded in that guidance as well. There's certainly one-time in nature. There's some transition expenses associated with that, that will be one-time in nature, but we are including that in the expense guidance we've provided.

Laurie Hunsicker, Analyst

Okay. Great. Lastly, I want to mention that I will really miss you, Chris. Your entire team is incredible, and I appreciate your clarity and transparency over the years. Congratulations, Chris, you are fantastic, and we will miss you. However, I am trying to understand your involvement; you are engaged in so many activities, sit on numerous boards, and hold a significant amount of stock. You're younger than some board members, and the market really values you. Why are you not continuing on the board? Can you share your thoughts on that? I realize this might put you in a difficult position. You're on this earnings call, and I just want to comprehend your decision better. Your popularity has been evident in the premium your presence has brought over the years, so I'm curious about why you're stepping back. Thank you.

Christopher Oddleifson, President and CEO

Thank you, Laurie. We've known each other for a long time, dating back to when you were the first analyst I met in 2003. I attended many of your events and met several CEOs through you, which helped me grasp the market better, and I'm truly grateful for that. Your question is flattering, and it makes me feel good about our work over the years. To address your question, I'm following in the footsteps of my predecessor, who was an excellent CEO and saved the bank. We wouldn't be having this conversation without Doug Phillipson, who recapitalized the bank and brought in great talent, setting a solid foundation for this management team over the past two decades. Doug was always there for me when I needed guidance, but he also gave me the space to inject new energy and direction in areas like wealth management, retail, home equity, and technology. I plan to do the same for Jeff; I'll be available for him throughout the rest of the year and will continue to represent Rockland Trust in community activities even after my official role ends. On a personal level, I want to have more time for other pursuits. I’m nearing 65 and believe I have another 20 active years ahead. My wife and I are planning our activities based on how physically demanding they are, and I'm excited about that as well. Thank you once again.

Laurie Hunsicker, Analyst

Thank you, Chris, and have fun in Paris, and it's been lovely working with you. Congratulations. That’s it from me.

Christopher Oddleifson, President and CEO

Thank you.

Chris O'Connell, Analyst

Good morning and congratulations, Chris, on your retirement and incredibly successful and consistent track record here over the past 20 years.

Christopher Oddleifson, President and CEO

Well, thank you.

Chris O'Connell, Analyst

So I wanted to start off on capital levels, which remain robust and increase this quarter. No share repurchases, it seems like during the quarter, but you still have an authorization outstanding here. How are you guys thinking about the utilization of the share repurchases going forward, given that balance sheet growth appears to be more muted in 2023?

Mark Ruggiero, Chief Financial Officer

Yes. Great question, and I think we always answer this question pretty consistently, and that is, the share repurchase plan is in place to be opportunistic. We're very comfortable with our capital levels. This gives us a lever we can pull in the event, the economics and the situation on hand makes sense to. So we always think about share repurchase activity as being the right decision for value for our shareholders. We only execute at prices that we feel represent a fair price and given our historical track record would give us a tangible book earn back period that we are comfortable with in terms of that immediate dilution of buying back. So we typically don't talk to what that exact number is, but that is constantly in the analysis that we performed throughout the year to gauge what is the right level that we're comfortable with, and it's there in place if the stock price does come under some pressure, and we think it's appropriate to buy back at levels. So we're happy it's there. It gives us plenty of flexibility moving forward.

Chris O'Connell, Analyst

Got it. I mean, the share price is relatively similar to where you guys were doing repurchases in 2Q and 3Q? Have there been any repurchase activity so far in the new year?

Mark Ruggiero, Chief Financial Officer

We haven't disclosed that, Chris, yet. So we'll certainly provide quarterly updates on that.

Chris O'Connell, Analyst

Okay. Got it. And switching over to loan growth, the pipelines, it seems like, although down a little bit quarter-over-quarter, it seemed to be a relatively strong or similar levels to where they were in the past quarter. And you're talking about in the prepared comments a little bit about less CRE payoffs coming up for 2023. So putting that together, can you talk a little bit about the first quarter and how you see the cadence of loan growth progressing throughout the year?

Mark Ruggiero, Chief Financial Officer

I believe there is significant uncertainty in the current environment, and we are focusing on the next three to six months. As for our approved pipeline at year-end, it has decreased slightly from the fourth quarter, but not significantly. We saw growth in the fourth quarter across most of our commercial portfolios, which gives us confidence about future opportunities. The current rate environment is contributing to a reduction in payoffs. While there are some credits that may still be exiting or in the process of refinancing, that activity has mostly decreased. Therefore, despite taking a cautious approach to new deals due to the uncertainty, we anticipate that the reduction in payoffs will lead to modest growth as reflected in our guidance. No. When we look at liquidity balances as a whole, Chris, we're comfortable with absolute levels of liquidity, whether that's cash or other short-term investments. So there isn't a specific cash number that we're targeting. Just a reminder, we have zero wholesale borrowings on the balance sheet today. So we have plenty of access to off-balance sheet liquidity. We have different avenues we could go down when and if that need arises. So we're comfortable borrowing overnight. We're comfortable extending into longer-term borrowings if pressure on cash subsides. So we think we're very well positioned to just take that. And as it comes over the first three months to six months, certainly monitoring our deposit outflow will be a big driver as to any decisions we make on any long-term financing. But at this point, I think it's still very fluid that you'll likely see at least in the first quarter, some level of cash and/or overnight borrowings if that situation arises.

Chris O'Connell, Analyst

Understood. Appreciate the time. Thanks for taking my questions.

Mark Ruggiero, Chief Financial Officer

No problem.

Operator, Operator

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

Christopher Oddleifson, President and CEO

Yeah. Thank you very much, everybody, for joining us today. And for 20 years, I said, I'll see you and talk to you in three months. That's not the case. It's been a real pleasure being on these calls all these years, and thank you for your interest and support, and I wish you very well. Goodbye.

Operator, Operator

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