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MANAGEMENT DISCUSSION SECTION
Operator: Good morning and welcome to the Independent Bank Second Quarter 2011 Earnings
Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note
this event is being recorded.
I would now like to turn the conference over to Chris Oddleifson. Please go ahead, sir.
Chris Oddleifson, President, Chief Executive Officer & Director
Thank you and good morning, everyone, and thank you for joining us today. I am accompanied, as
always, by Denis Sheahan, our Chief Financial Officer, who will elaborate on our financial results
following my comments.
But before I start, I want to say this call may contain forward-looking statements with respect to the
financial conditions, results of operations and business of Independent Bank Corp. Actual results
may be different. Independent Bank Corp. cautions you against unduly relying upon any forwardlooking
statements and disclaims any intent to update publicly any forward-looking statements,
whether in response to new information, future events or otherwise.
Okay, well, we continued our positive momentum into 2011 with another solid performance in the
second quarter. Our net income came in at $11.1 million or $0.52 per share. The bottom line did
include modest security gains and contributed $0.02 to EPS, which we generally dont consider a
part of operating earnings. Even on that lower basis, we came in well ahead of last years $0.38 per
share. Once again, the quarter was marked by very strong customer volumes emanating in our
priority businesses.
Our commercial banking has continued its great momentum. Commercial loans grew by a
resounding 15% annualized rate in the second quarter. Much of this is driven by the C&I sector
where we continue to add quality names to our client base. The commercial real-estate portfolio
grew nicely as well, and we continue to see good, well-structured deals. Our overall commercial
pipeline is strong and this trend is not an aberration, but one in a series of double digit growth
quarters in our commercial portfolio, and importantly I can assure you that our success here is not
coming from any relaxation of credit standards on our part. Rather it is a direct result of our focused
efforts over the last two years to cultivate and grow this business. Our emphasis on serving as a
reliable source of credit through thick and thin, maintaining high visibility in the marketplace and
adding experienced lenders to our ranks is really paying off.
The commercial business is definitely a competitive strength of ours that we intend to keep
investing in and capitalizing on. Towards that end, we are contemplating various initiatives such as
expanding our array of commercial loan centers into other key markets, adding proven seasoned
lenders or teams to our cadre of relationship managers. Overall loan growth was also helped by
steady upward trajectory of our home equity portfolio. It grew by over 8% annualized in Q2.
Moving to deposits, the picture in the second quarter was very encouraging. Total deposits grew by
nearly 6% on un-annualized over first quarter levels. Core deposits led the way once again and now
stand at 82% of the total. Growth came from all segments, retail, corporate and municipal. We
kicked off a major brand marketing campaign across a range of TV and print media earlier this
year. Its generating a terrific response. Its centerpiece is a new word, freeness. We mean we do
not have all of the nuisance charges that customers detest.
We also hired a Chief Marketing Officer, Mark Gibson, to lead our combined branding, marketing,
product management and PR activities. Mark brings over 25 years of banking experience from
larger financial institutions and he joins our executive leadership team.
Our other high priority business, investment management continues to achieve considerable
progress as well. Revenues are up 15% for the first six months and assets under management
have reached $1.7 billion.
Turning to the balance sheet, we continue to be in excellent shape here too. NPAs continue their
downward trajectory. Net charge-offs and provisions were up in the second quarter, but trends here
are inherently lumpy and we have not altered our original assumptions for the full year. Delinquency
rates fell within the quarter as well. Capital ratios are healthy and remain well above regulatory
guidelines. So all in all a good quarter.
Our performance track record has not gone unnoticed. Last week Fitch upgraded our long-term
issuer rating, citing the consistency in our financial performance, solid credit quality and liquidity,
and our good core funding base. And, needless to say, we were very encouraged by this
announcement.
I always have some commentary on the macro picture on these calls. In terms of our overall
posture, we remain solidly in the middle between the rose colored crowd and the
doom and gloomers. We do stay grounded within our current realities. Fortunately, Massachusetts
continues to paint a better picture than the nation at large.
Our economy grew at a 4.2% last year. Unemployment for this state remains below 8%. And
actually the Boston area unemployment rate is below 7%. We are reflecting the resilience of some
of our indigenous industries. We are also seeing the beginning of a revival of some stalled large
scale construction projects in the Greater Boston area. If the housing picture does remain a model
and real sustainable growth in our region ultimately depends upon a fundamental improvement in
the national picture.
For us were certainly not waiting around for external environment to get better, were generating a
lot of good momentum. Were focused on growing our customer base and investing in our
franchise. My colleagues are really engaged and doing a fabulous job in enhancing the Rockland
Trust franchise. In fact, our most recent internal survey, 98% of my colleagues expressed
themselves as either being satisfied or extremely satisfied working at Rockland Trust. And its an
extraordinarily high number.
So on that very positive note, Ill end it here and hand it over to Denis.
Denis K. Sheahan, Chief Financial Officer & Treasurer
Thank you, Chris, and good morning. Independent Bank Corp. reported net income of $11.1 million
and GAAP diluted earnings per share of $0.52 in the second quarter of 2011 as compared to net
income of $11.2 million and diluted earnings per share of $0.52 in the first quarter of this year.
The second quarter, as Chris mentioned, included security gains of $723,000 pre-tax or $0.02 per
diluted share. On a year-over-year basis operating earnings improved by 24% to $1.02 per diluted
share.
Key topics in the second quarter. We are very pleased with this quarter and the year-to-date
performance and feel were on a really good track for the year. Loan growth, deposit growth and
asset quality trends are exceptional, and Ill comment on each of these separately. Key
performance ratios were also solid in the second quarter with return on average assets at 95 basis
points; return on equity, 9.78%; and the net interest margin reporting at 3.97%.
Loan growth was strong again in the second quarter with total loans growing almost 3% and
commercial lending, again, a standout. Commercial loans are up over 11% year-to-year. And its
fair to say the total loan growth of almost 5% year-to-date has greatly exceeded the expectation we
established at the beginning of the year.
The good news is we dont believe the growth is done. We expect growth will continue, albeit at a
more modest pace, for the rest of the year through growth in both share and new lender hires due
to the continued turmoil in the market.
Deposit growth in the quarter was a real positive due to a combination of our typical seasonality
and growth in the municipal and commercial deposit base. Our increased marketing presence in
the consumer deposit space is beginning to pay dividends, as new consumer DDA openings are 40
plus percent ahead of last years pace.
Asset quality trends remain excellent and top decile among banks in the nation. Net charge-offs
were up somewhat in the second quarter as they increased to $3.3 million or 36 basis points of
loans. And loan workout expense increased, as reflected in the non-interest expense category.
However, these actions resulted in a decrease in non-performing assets to $31 million or 64 basis
points of assets, and loan delinquency fell to a low 83 basis points.
Early stage delinquency thats the 30 to 89-day bucket also fell nicely to 48 basis points of
loans. These delinquency trends and level of non-performing assets bode well for the level of
charge-offs and provisioning levels for the remainder of this year. We expect charge-offs to be
around $11 million for the year and loan loss provision to be approximately $13 million, at the low
end of the ranges previously discussed.
The net interest margin decreased to 3.97% from 4.02% in the first quarter. With the higher level of
loan growth experienced year-to-date and the continuing prospects of good growth, in addition to
our relative inability to further reduce the cost of deposits, we expect this trend to continue with the
net interest margin reducing in the second half of the year to a range of 3.90% to 3.95%.
Non-interest income, excluding securities gains, improved modestly in the second quarter due to
improved service charge, interchange and investment management revenue, somewhat offset by
lower mortgage banking and derivatives fee revenue.
Non-interest expense was up 1% on a linked quarter basis, with the timing variances seen in the
other expense category, largely loan workout expense, which is up about $800,000, and marketing
up about $800,000 on a linked quarter basis.
And now earnings guidance. At the end of the first quarter we provided an estimate of diluted
earnings per share on an operating basis of $2.07 to $2.17. We remain comfortable with that range.
That concludes my comment. Chris?
Chris Oddleifson, President, Chief Executive Officer & Director
Okay. Thank you very much. Operator, were ready for questions.
QUESTION AND ANSWER SECTION
Operator: Okay, thank you. [Operator Instructions] Our first question is from Mark Fitzgibbon with
Sandler ONeill. Please go ahead, sir.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: Hey, gentlemen, good morning.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Good morning, Mark.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: First question, could you maybe share with
us the size of your loan pipeline right now?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Sure. Okay. Mark, Ill give you two
numbers. The gross pipeline, which is approved and everything thats been received is very
strong. It ranks number four out of the last 12 months, so the fourth highest in the last 12 months.
The approved pipeline is low because of all the closings that we had here, both in the first and in
the second quarter. It ranks 10th out of the last 12 months. I think the way Id translate
that is assuming that the gross pipeline, which is very strong, continues to move its way through our
process, I think we could expect a decent fourth quarter. But near-term, third quarter with this being
10th out of the last 12 months, third quarter for commercial may be slower.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: Okay. And then secondly, and its sort of
related to that. As you see balance sheet growth start to resume here, do you think you have
sufficient capital to be able to support that growth or might you need to get some additional capital?
<A Denis Sheahan Chief Financial Officer & Treasurer>: No, were still feeling very
good about our capital levels. One of the great things about this company is we generate a lot of
capital on a quarterly basis. Yes, tangible common equity/tangible assets dropped on a linked
quarter basis, but we feel very good about growing it between now and the end of the year.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: Okay. And then could you just maybe
update us on your de novo plans, what you have in process?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Mark, this is Chris.
The way we approached it was by establishing what our high priority markets are throughout our region
and continue to looking for a really good location in high priority markets. So we have a list of
10 or 15 markets wed like to explore entering. But, as you might imagine, the gating factor is
finding a location. So, no, we wont go sequentially to that list. But we would anticipate that over the
next hopefully six to nine months, well find a couple locations and announce some openings.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: And are those, sort of, in
<A Chris Oddleifson President, Chief Executive Officer & Director>: Youre reading some
of these big banks are growing are building hundreds of branches a year. Were not in a
mode, were very, very careful with our denovo strategy.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: Okay. So they would sort of extend out
your existing franchise you would expect?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Yes.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: No leapfrogging to new markets or
anything?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Well, I mean new
micro markets. I mean in terms of leapfrogging into like cities and so on, thats less likely, although
still possible.
<Q Mark Fitzgibbon Sandler ONeill & Partners>: Okay. Thank you.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Thank you.
Operator: Our next question is from Damon DelMonte with KBW. Please go ahead.
<Q Damon DelMonte Keefe, Bruyette & Woods, Inc.>: Hi. Good morning, guys. How are
you?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Hi, Damon.
<Q Damon DelMonte Keefe, Bruyette & Woods, Inc.>: I was wondering if you could talk a
little bit about Reg E. I believe you guys were in a position to actually benefit from the
implementation of the rule changes. Has that been fully reflected in the numbers yet?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yeah, Damon, this is Denis. I think
to a great degree, yes. But we were a little late in getting the program rolling out when others were
seeing a lot of benefit, in I think the third quarter last year, we were later than most. So, I think most
of it is reflected at this point, but were going to continue to offer the services associated with Reg E
to our customer base and see if theres a greater uptick.
<Q Damon DelMonte Keefe, Bruyette & Woods, Inc.>: Okay. So, what we saw this quarter is
probably a decent run rate?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes.
<Q Damon DelMonte Keefe, Bruyette & Woods, Inc.>: Okay, great. And then could you just
provide a little commentary on some of the pricing trends youre seeing on the commercial lending
side?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes. We talked to our senior
lender and we talk to our treasury group frequently. It certainly is becoming increasingly
competitive. But just simply, were not seeing the kind of credit spreads that existed a couple
of years ago, but thats understandable, right. I mean as those banks that had issues repair themselves,
they are going to get more aggressive on the commercial side and consumer side again.
And were seeing that. But were very happy with the kind of business that were booking.
<Q Damon DelMonte Keefe, Bruyette & Woods, Inc.>: Okay. And who would you say your
biggest competitors are? Has the landscape on the competitive front changed? Are you seeing
different names enter into the mix now?
<A Chris Oddleifson President, Chief Executive Officer & Director>: No.
<A Denis Sheahan Chief Financial Officer & Treasurer>: No.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Not really, no. Thats
the same names.
<Q Damon DelMonte Keefe, Bruyette & Woods, Inc.>: Okay. Thats all I have for now. Thank
you.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Thanks.
Operator: Our next question is from Laurie Hunsicker with Stifel, Nicolaus. Please go ahead.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Yeah. Hi, good morning.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Good morning, Laurie.
How are you?
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Good, thanks. Wondered if you could just
address the trends in the non-interest income. The wealth management was incredibly strong and I
remember that historically 2Q is strong. And I wonder if you could just help us going forward with
that line item and just remind me again why thats strong?
<A Denis Sheahan Chief Financial Officer & Treasurer>: We do a lot of tax prep
work in the second quarter. So a lot of that income falls in the second quarter.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: And so if we were to look at that just say,
for example, for third quarter, it would likely be back to about $3.2, $3.3 from the $3.6 that it was?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Probably be trending slightly
higher, but...
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes, trending slightly and then the
$3.3 is a reasonable number to use.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Okay, great. And then just jumping on to
your other, other non-interest expense, linked quarter you went from $8.7 million to $11 million. And
you have some discussion of that in the press release. But I just wonder if you could give us a little
bit more color. I mean obviously that includes OREO write-downs that you also had last quarter.
You said the marketing increased to $800,000 approximately. What is there anything nonrecurring
in that number?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Well, were not going to have that
level of marketing spend continually. This was a real burst in the campaign. So we expect that
marketing spend to taper down. Loan workout, to try and get the delinquency and nonperforming
numbers that we do, sometimes youve got to spend a little bit more on workouts. So we wouldnt
expect to necessarily have that level of workout expense for the rest of the year either. I mean our
trend.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: I guess just looking at it linked quarter, it
was up $2.3 million, even if I took out the entire marketing spend and the REO cost in full
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Theres still such an increase to that
number? In other words, even if I netted it down to completely zero that youre still $700,000 up
linked quarter. I mean is there anything non-recurring there?
<A Denis Sheahan Chief Financial Officer & Treasurer>: $300,000 if it was examined audit.
Some of that is the annual state assessment. There was an increase in rate in the annual division
of banks assessment. What happens there is then you have to not only recognize the
current period but go back and accrue current for the increase in rate. Thats part of it. We also had
a number of audits, like the 401(k) audit, our new market tax credit area audit. So those things inflated examined
audit expense in the quarter as well. Overall, I can give you a sense, if it will be helpful where we think total
non-interest expense will land in the second half of the year. It will be in the region of our current forecast
has us at about $35.5 million each quarter for the rest of the year.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Okay. And then I guess just going back to
Marks question on de novo, assuming that in the next whenever, six to nine months you do find
locations, do you guys have a cap on how many branches you would open per year, so that youre
cognizant of drag of earnings? Are you looking at it this the expansion opportunity and it could be
two, it could be six or? I mean
<A Chris Oddleifson President, Chief Executive Officer & Director>: Yes, I think from a
practical perspective we havent actually discussed what the cap is, but I think for practical
purposes, it would not be more than two or three a year. Yes, anything, Denis?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes. For a variety of reasons,
thats about right to manage and thus the way we talk internally is that kind of growth pattern.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Okay, great. And then I guess last
question, Chris, to you, I ask you this every quarter but we like to sort of get your feedback here.
On the acquisition opportunities generally that youre seeing or not seeing or seller expectations,
whats your feeling out there? You guys certainly have the currency.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Yes, well, Laurie,
were opportunistic when boards of directors raise their hand and say they want to talk, wed love to
be at the table. Having said that, two things were very disciplined and thinking about, our past
acquisitions really have demonstrated that, that were going to pay a price that is fair and gives our
shareholders an adequate return. And two, as the last few quarters growth
have indicated, we are not dependent on growing through acquisition. I mean we have lots of
opportunity in organic growth and so our real focus is there. And if an opportunity comes up, we
would love to engage.
<Q Laurie Hunsicker Stifel, Nicolaus & Co., Inc.>: Okay, great. Thanks.
Operator: Our next question is from David Darst with Guggenheim Securities. Please go ahead.
<Q David Darst Guggenheim Securities LLC>: Hi, good morning.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Good morning, David.
<Q David Darst Guggenheim Securities LLC>: Could you go over some of the marketing
programs that youve put in place? What your type of clients youre targeting and the length of the
program? And then do you attribute the DDA growth I think you said it was up 40% for accounts
above a year ago. Is that in conjunction with this program or is that prior to the launch?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes theres a lot in your
question, David. To start with, the DDA growth, the number that I gave, the 40% growth is growth in
consumer DDA. That would not account for all of the increase in demand deposits that we saw in
the quarter. One of the reasons we have such a good base of DDA is commercial business. And
when we solicit credit from a client, we also solicit the deposit business. And thats why our DDA
growth has been so good. I think you need to relate that back to the lending businesses.
So, that growth in 40% DDA, its in consumer free checking. So thats not
going to account for a lot of necessarily the deposit growth. Its mostly on the commercial side. As
far as the length of the program, we have been running this program for the entire year, but with a
much greater emphasis in the second quarter including TV, print, online, et cetera.
That campaign has largely run its course here at the end of the second quarter. And were
evaluating additional strategies in the second half of the year that we may add. Does that answer
your question, David?
<Q David Darst Guggenheim Securities LLC>: Yes. And then with the deposit service
charges, how much of the growth this quarter is seasonal and how much of it would you attribute to
the new account growth? And then whats your impact for interchange that you expect to have just
from a competitive standpoint? Do you think youll have some pressure or not relative to bidding
against larger banks?
<A Denis Sheahan Chief Financial Officer & Treasurer>: I think, and Chris you can have a
comment on this. So I think the whole industry is debating this issue of interchange above and
below $10 billion and will it have an effect or wont it. So we think it will have some effect.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Yes, you can read
the expert commentary that argues both sides and the argument that the market will find the lower
price and then the argument that the big box retailers are not going to decline the sale if somebody
does not have a debit card from an institution $10 billion or higher. So our sense is that its not
going to have an immediate effect, and were going to monitor it very closely.
<A Denis Sheahan Chief Financial Officer & Treasurer>: Then on the service charges,
David, I think some of it is seasonal in nature. But its also weve seen a pretty steady
increase over the past, I guess, the past two and three quarters as a result of this whole opt-in
program. And so, I wouldnt expect a big falloff in service charges in the third quarter, certainly
maybe some in the fourth.
<Q David Darst Guggenheim Securities LLC>: Okay. Thanks.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Thank you.
Operator: Our next question is from Mac Hodgson with SunTrust.
<Q Altaf Noormohmad SunTrust Robinson Humphrey>: Hey good morning guys, this is
Altaf Noormohmad filling in for Mac Hodgson. Just had some questions on the commercial loan
growth that you guys saw this quarter. More specifically, if you can tell us if the growth was driven
by utilization or if there was new relationships, and also if you can talk about the industries and
geographies that drove that growth?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Sure. Most
of the growth was new relationships and new business from existing relationships. There certainly
was a component of it that was utilization. We believe that the increase due to utilization is around
the 40% level and the rest is new business, as I said, either from existing or new clients. As far as
the kind of industries and C&I, its consistent with the broad diversification that we have across our
entire loan portfolio. It ranges from equipment rental and leasing, the medical services industry,
manufacturing, computer programming services, its across the board, electrical equipment
manufacturer, medical imaging...
<A Chris Oddleifson President, Chief Executive Officer & Director>: And we deal with
businesses that are within our geography.
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Businesses that we
know.
<Q Altaf Noormohmad SunTrust Robinson Humphrey>: Okay, thats helpful. And, also in
your remarks, youd mentioned investing continuing your commercial lending focus and investing
in it. Just thinking about the M&A and the disruption thats taking place in the Northeast, what is
your sense for additional opportunities that may exist for market share gain and are you looking to
pursue hiring bankers that may be looking for opportunities to move somewhere else?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Yes, of course, we
cant get too specific here, but I think you point out two opportunity areas. With acquisitions comes
disruption and some dislocation both in the customer and the lender side. And we have benefited
and hope to benefit from that in the future as well.
<Q Altaf Noormohmad SunTrust Robinson Humphrey>: Okay. And last one on credit. Given
of course the strong improvement in your non-performers and also the fact that your inflows into
non-performing were steady, how should we think about reserves going forward and do you expect
provision to continue matching charge-offs?
<A Denis Sheahan Chief Financial Officer & Treasurer>:Thats our
current thinking. But things can change on a quarterly basis depending on what happens in non-
performing, delinquency, charge-off levels, et cetera. But our current thinking is, we would likely be
providing in excess of net charge-offs. But it depends on the situation.
<Q Altaf Noormohmad SunTrust Robinson Humphrey>: Okay, great. Thanks, appreciate
the color.
<A Denis Sheahan Chief Financial Officer & Treasurer>: Sure.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Thanks.
Operator: Our next question comes from Bryce Rowe with Robert W. Baird. Please go ahead.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Thank you, good morning.
<A Chris Oddleifson President, Chief Executive Officer & Director>: Good morning, Bryce.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Just a couple questions.
Denis, what is the absolute level of the loan workout costs for the second quarter?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Bryce, I have to get
back to you. As I will have to add up a bunch of categories to give you that. So I can get back to you on that.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: And while you look for that,
Ill ask another question. If we look at the balance sheet, you had a pretty big spike in cash
balances or cash and cash equivalents. Any guidance as to how you deploy that cash and maybe
talk a little bit about the effects of seasonality on deposit flows for the second half of the year?
<A Denis Sheahan Chief Financial Officer & Treasurer>: The cash will be deployed into
loans. We dont plan to deploy it into securities to any great degree. We think, again, you look at
our loan growth year-to-date, we knew that we had to get on raising deposits a little bit here
because weve had very good growth. And as I said in my comments, we see it continuing not
necessarily at the robust pace of the first half, but certainly some pretty good growth. We see loans
for the year being up in that 6% to 7% range. So, that cash will get deployed into loans.
And as far as the seasonality in deposits, Bryce, I mean if you look at our trends over the years, we
typically come up in Q2, it holds in Q3, and then late Q4, begins to dip. And that dip continues into
Q1 and then it rebuilds. Its a seasonality largely in our business base. But also some
consumers would head to Florida or what have you for the good weather. But its largely in our
businesses that that happens and those are the kind of trends that weve seen over time.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Okay. Last question, if you
could talk is there a possibility of kind of attributing loan growth to newer lender hires versus kind
of share takeaway?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Bryce, sorry,
what was the question?
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: You guys have talked
about hiring new lenders over the recent past. Any way to attribute growth to the newer lenders
versus just, I guess, existing business and taking share from competitors?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Well, the two overlap
of course. We dont have at our fingertips the new lender youre talking about what new lenders
generate versus what our existing lenders generate?
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Right. And I know its
tough to extrapolate, but perhaps you had it there?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Yes, I will say this,
Bryce, that we have a pretty robust performance management to the system across our bank
including the commercial arena. So, we expect good production from all our lenders, new
lenders, existing lenders, younger-tenured lenders, longer-tenured lenders.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Chris, how many lenders
have you guys hired in the last year or so?
<A Chris Oddleifson President, Chief Executive Officer & Director>: Oh, I dont have that in
front of me. I would imagine we have a total of about 45 lenders across our system. Id say we
probably have hired, I think, probably in the six to eight category over the last 12 to 18 months.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Okay. Thats all I have...
<A Denis Sheahan Chief Financial Officer & Treasurer>: Bryce?
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Yeah.
<A Denis Sheahan Chief Financial Officer & Treasurer>: Id give you an estimate of all the
different workout categories because its contained in a variety of areas, legal loan collection,
selling an OREO asset at a loss, revaluation of OREO properties. If they sit in OREO for too long,
they end up getting reappraised, revalued. You occasionally have to write those down
and then foreclosure expenses, taxes, other, et cetera. Id estimate in the second quarter, its in the
$1.3 million to $1.5 million all in.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Okay. And do the OREO
related costs, did they account for a larger percentage of the loan workout costs for the second
quarter?
<A Denis Sheahan Chief Financial Officer & Treasurer>: Yes, its about $0.5
million between a loss and the sale of a property and revaluing the OREO properties. So, those
were pretty significant.
<Q Bryce Rowe Robert W. Baird & Co. Equity Capital Markets>: Okay, thank you.
<A Denis Sheahan Chief Financial Officer & Treasurer>: Sure.
Operator: Once again, as a reminder, if you do have a question, please press *, then one, on your
touchtone phone. Gentlemen, yes, I have no further parties in the question queue.
Chris Oddleifson, President, Chief Executive Officer & Director
Well, thank you very much everybody. We look forward to talking to you next quarter.
Denis K. Sheahan, Chief Financial Officer & Treasurer
Thank you.
Chris Oddleifson, President, Chief Executive Officer & Director
Have a good weekend.
Denis K. Sheahan, Chief Financial Officer & Treasurer
Bye.
Operator: The conference has now concluded. Thank you for attending todays presentation.
Please disconnect your lines.
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