Independent Bank Corp (Massachusetts) (INDB) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Independent Bank Corporation first quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Denis Sheahan, Chief Financial Officer of Independent Bank Corp. Thank you, sir, you may begin.

Thank you, Donna. Good morning, and thank you for joining us for our earnings call.

This morning's agenda will include my review of the first quarter 2004 earnings release, followed by comments from Chris Oddleifson, our Chief Executive Officer regarding our progress on strategic initiatives and an update on the Falmouth Bank Corp. acquisition. I will then provide earning guidance and will end the call with a Q&A period.

With me on the call today are Chris Oddleifson, President and Chief Executive Officer of Independent Bank Corp., and Barry Jensen and Rob Cazone of our finance department.

Before I review our Q1 earning release, I will read the cautionary statements. This conference call may contain certain forward-looking statements with respect to the financial condition, results of operations, and business of Independent Bank Corp. Actual results may differ from those contemplated by these statements. Independent Bank Corp. wishes to caution listeners not to place undue reliance on any forward-looking statements and disclaims any intent to update publicly any such forward-looking statements whether in response to new information, future events, or otherwise.

I will now review our earnings release.

Independent Bank Corp. reported net income of $6.7 million, an increase of $4.3 million from the quarter ended March 31st, 2003. This represents diluted earnings per share of 45 cents for the first quarter of 2004, as compared to 17 cents in the same period a year ago.

The first quarter of 2003 was negatively impacted by a retroactive change to Massachusetts tax law which resulted in a charge of $4.1 million after tax or 28 cents per share. This charge is captured entirely in the provision for income taxes in that quarter.

You will recall the company settled this tax dispute with the Massachusetts Department of Revenue in the second quarter of 2003 resulting in a credit of $2.1 million, or 14 cents per share in that quarter.

Balance sheet changes in the quarter, investments increased by $64 million or 10%. Purchases were concentrated in mortgage backed securities collateralized by 15-year mortgages. This brings securities to 29% of total assets.

Purchases were executed at the higher end of the volatile trading range that existed in the first quarter of 2004.

Loans grew by $45 million or 3% for the first quarter. Increases were strong across all loan categories with the exception of commercial real estate which decreased by $13 million for the quarter due to the prepayment of a large credit.

Deposits increased by $58 million or 3% for the quarter, with growth concentrated in the money market and time deposit categories.

And now the income statement.

The net interest margin for the first quarter of 2004 was 4.14%. This represents a contraction of 12 basis points from the fourth quarter of 2003 and is due to a combination of assets continuing to reprice in historically low rate environment, change in deposit mix, increased liability pricing, and the extension of borrowings earlier in the year than originally anticipated.

Non-interest income improved by $1.2 million for the first quarter of 2004 due to a combination of increased securities gains, $750,000, improved service charge revenue, $248,000, and loan prepayment fees, which increased $447,000 due to the previously mentioned commercial real estate loan prepayment.

The company took advantage of the volatility in the bond market selling $44 million of securities and realizing gains of $997,000 as compared to $247,000 during the same period last year. Sales were comprised of low coupon near-term maturity agency securities and odd lot seasoned mortgage backed securities.

The balance of the mortgage servicing asset was $3 million and loans serviced amount to $385.3 million as of March 31st, 2004.

Investment management revenue improved by $79,000, or 8%, and assets under administration increased to $496 million.

Non-interest expense increased by $900,000 or 5% in the first quarter of 2004 as compared to the same period last year. The largest contributor to the increase was in salaries and benefits, an increase of $600,000, or 5.8%, primarily due to increased pension expense of $400,000.

Occupancy and equipment expenses decreased by $119,000 as a result of reduced building maintenance costs. Other non-interest expense increased by $414,000 or 10%, due to costs associated with strategic initiatives as well as increased loan collection expense of $195,000.

Chris will provide an update on the progress of our strategic initiatives including expense incurred in this first quarter to support those initiatives.

Asset quality.

Non-performing assets of $5 million represented 20 basis points of total assets and the reserve for loan losses as a percentage of loans was 1.44% at March 31st, 2004. Non-performing assets increased by $1.5 million since year end 2003.

The increase is due to a bankruptcy filing involving a well collateralized floor plan relationship for which management does not anticipate loss. Net charge offs for the quarter were $440,000.

I will now turn over the call to Chris Oddleifson for comments on our strategic initiatives and an update on the Falmouth Bank Corp. acquisition.

Thank you, Denis and good morning everybody. Denis did his usual excellent job describing our financial performance.

I'd like to move right into providing you an update on where we stand on initiatives I outlined three months ago. Collectively, the set of actions that will lead to top line growth are deliberate investment decisions for 2004 that will provide a partial return this year and a full return starting in 2005. Our earnings will grow modestly in 2004 and then begin to accelerate in 2005.

After I provide the update I will discuss the level of investment we are making and then Denis will provide some specific guidance.

Now as a bit of background, late last year we engaged in a three-year strategic plan, 2004 through 2006, that resulted in division level plans and financial and key metric targets. As I said in the first quarter, or the last earnings call, there are no surprises or we're sticking to what we know best and that is being a community-based commercial bank.

The first initiative that I'd like to focus on is our effort to expand commercial lending. This is development capabilities and invest in process improvement.

Specifically we are targeting to add a net three new commercial lenders. Commercial lending is one of our strengths, and we've had a success adding one good lender at a time. We have plenty of room to grow, to the north, to the west, and to the southwest, but, of course, there is a ramp-up period while loans and deposits are generated by these new officers.

We're also evaluating our process. As I'm sure many of you are aware, once a commercial lender achieves a portfolio of a certain size the time available for new business development diminishes greatly, looking for ways to streamline our internal processes can have a profound effect of increasing the time available to develop business.

Since the end of last year, since 12/31/03, we've hired one lender and our recruiting efforts are moving aggressively ahead looking for the other two. While we're on schedule I'd say that the market for recruiting commercial lenders in the region is proving a little bit more difficult than we anticipated, but we have a very aggressive effort behind it.

On the process improvement front we've hired an outside firm that is working intensely with a group of people inside the company. We're about a third of the way through a 12-week process that includes, by the way, comprehensive review of our cash management capabilities.

I anticipate having a lot more to say about the results of this work at our next earnings conference call. I'd like to add here that our commercial backlog is strong and at about at the same level as this time last year.

Our second initiative is establishing a new business banking division. I talked a little bit about this at our last earnings call.

One of our most important growth initiatives, it's a new division focused on smaller businesses. Over the last several years our commercial lenders have focused on larger and larger relationships and loans.

We believe that we have a tremendous opportunity to increase the number of smaller business customers we serve with our extensive branch network, our product capabilities are key building blocks on which we construct what we believe is a formidable small business banking franchise. This will be modestly not accretive this year but it ramps up very quickly in '05 and '06.

Since the first of this year, Amy Goegan, a very experienced business banker has started at the company and is leading this new unit. We've also hired a very skilled operations leader who has extensive experience in the quick score-driven process that is needed for a unit of this nature.

We also have underway an effort to revamp our product in this arena. Expect a revamped product line sometime in the late second quarter, early first quarter. Amy and her now small team has already improved the process somewhat but the bulk of their work will unfold over the next two quarters and I will keep you updated.

Our third initiative, our growth agenda initiative, is really focusing on generating core deposits, and we're doing a number of things here that support than endeavor.

First of all, we're building two de novo branches. We will bring North Attleboro on line in June, Raynham on line in August.

I'd like to note that we are not moving down the de novo path aggressively. I believe that the large amount of de novo branching going on in our industry across the nation is building -- is fundamentally flawed, the pendulum has swung too far in that direction. Our approach will be back-building where we've established business relationships, where we see our consumers moving, and building very, very carefully.

We are also investing in retail relationship development skill building and coaching. The training is underway and the management team of the branch networks have had its first round of development and over the year staff development will be unfolded for the rest of the branch staff. I've had very, very good success with this approach in previous positions.

Coupled very, very closely with that is implementing a balance scorecard for our branches. We piloted this in the last quarter of last year.

In one small segment our branch network we have fully rolled that out now in January across all 52 branches and the balance scorecard along with the higher skills and relationship development and the coaching skills combined will I'm sure produce good results.

We are introducing a new product set for consumers. This was reviewed and approved in March. We're rolling out early in May.

We have introduced online account opening in March. And we're also taking a good hard look at our complete branch network and asking what I like to coin, "The Goldilocks Question" which is, do we have too many, too few, or just the right number of branches and the corollary question which is, are they in the right places?

We're taking advantage of the beginning of the end market disruption due to the M&A activity. I will say that while there's been certainly a lot of activity the real disruption probably hasn't occurred and as I said in the past it's not a huge, won't be a huge bonanza for us but we certainly are seeing the beginnings of some once solid relationships with some of the acquired banks to be loosening up a bit and we've had some success there.

We're increasing our focused calling efforts and we've run a promotion in the first quarter that emphasized our localness. We are also working extensively with our agency to review our brand and we are developing plans to refresh it as the M&A disruption begins to really take hold.

On a personnel note, I'd like to add that Richard Driscoll, our EVP responsible for retail consumer lending, residential lending, technology and operations decided to retire during the first quarter. Dick had a distinguished career with Rockland Trust for over ten years and we wish him the very best.

I'm delighted to say that we've hired Jane Lundquist, the former President and COO of Cambridge Port Bank to on an interim basis oversee retail banking, our retail banking and marketing areas. We have a lot of change underway and someone with her experience and skill will help us tremendously in the implementation of our growth agenda goal.

Our fourth growth initiative I'd like to talk about today is expanding our mortgage banking division and product set and expanding investors This process began late third quarter of last year with the hire of an experienced mortgage banker who has experienced developing investor relationships in addition to portfolio lending.

We've done a number of things since then. We've strengthened our operations, streamlined our processes, we've significantly increased the number of product offerings and product investors and given our extensive branch network and franchise presence we've found that we were not meeting our customers' mortgage needs and we have been leaving some opportunities on the table so were intended to take advantage of that.

Our goal is to have the options of a mortgage company from a local bank you can trust. We've implemented a desktop underwriting in the field for our originators, implemented some AVM techniques, we've pun in place an in-house origination team that's accounted for 30% of our originations year-to-date which is good. An in-house origination has a slightly lower commission structure, of course, as it calls our inbound.

We have filled out our management ranks. We are behind on the number of originators we anticipated at this time. We had hoped to have 30, we have 21 with a few more nearing the end of the pipeline.

But speaking about pipelines our volume pipeline has increased from $28 million at the end of last year and it now stands at over $50 million. That's an increase of 89% and I take that as evidence that our revamped business model here is beginning to get a little traction.

One last note I'd like to make. With all these things that we're doing in mortgage banking they're immediately accretive since much of our production is for sale.

The fifth agenda, growth agenda I'd like to briefly review is expanding our retirement service and improving our model portfolio product. In our investment management division we are maintaining our staffing levels year-over-year but have reallocated how we staff various capabilities.

We have increased our capability and retirement services, asset allocation and manager selection and business development by reducing the number of trust administration staff and we are beginning to be able to provide our customers with not only our core investment management capability, domestic blue chip value orientation and then we'll have, be able to show how we can, with other managers, build out a full loan asset allocation.

Our sixth area of focus is technology. We are looking at our core processing capability. Our contract is up for renewal.

We're taking the opportunity to look at our core processing and ask what we want to do, ought we change providers and how might we gain more efficiencies and cost saves. We have a number of other smaller things underway in this area, too.

The last item I'd like to talk about, relative to our growth agenda, is being opportunistic with acquisitions, and acquisitions is not part of our core strategy. However, we are opportunistic when appropriate, as we talked about in our last earnings call, the Falmouth Bank Corp. acquisition really fit our goals very, very well, hand in glove.

We are on track, the regulatory process is moving along well, we expect it to be done sometime in early May. Right now we believe we're on track to close at the very, very beginning of Q3, first couple of days of Q3.

System conversion is in the same quarter and depending on the exact timing in this system conversion we anticipate a half to 1 cent accretion during 2004 as we previously conveyed a 2 to 3 cent accretion in 2005.

That ends the update on the various initiatives. As I mentioned in the last call it's all about execution, execution, and execution. And we've planned the work, we are now working the plan.

We are tracking, now moving on the expense of how much all this is costing now we are tracking very carefully the level of expenditures associated with our growth agenda. Of our total expenses in the first quarter, we spent about $550,000 on the initiatives I've just outlined, or about 2.5 cents a share.

In addition, compared to the first quarter of 2003 we have spent $2,000 more on marketing and business development expenses or about a penny a share. So in total we've spent about 3.5 cents per share on the growth agenda initiatives we've been now discussing on this call and the last call.

And I'd like to just comment that our first quarter results are not consistent with our expectations once these initiatives begin to gain traction. I would characterize the results as pregrowth initiative results.

In future quarters I'll begin discussing the specific revenue gains from these initiatives, but at the risk of sounding like a broken record right now, I'd like to say once again that this year is a building year for '05 and '06.

We have our work cut out for ourselves. I think that we have a point of view on how we grow. We have action items and we have quantitative goals and we are making good progress.

Continue to be very pleased with the energy we have. We operate in a very attractive area of Massachusetts, it's growing nicely, and we're focused on building on our solid set of fundamentals and I anticipate continuing our track record of excellent performance.

Denis.

Thank you, Chris. I just want to clarify one comment Chris made. We actually spent $200,000 more in marketing and advertising in our first quarter. I think you might have said $2,000.

Oh, did I? I apologize. $200,000, yes. Thank you.

Okay.

Now, earnings guidance.

As discussed in our first quarter earnings conference call in January management anticipates EPS growth for 2004 in the 4 to 7% range excluding the impact of the Falmouth Bank Corp. acquisition and we remain comfortable with that range.

As indicate in Chris's comments we've made material investments in the first half of this year in order to position Independent Bank Corp. for future growth. The second quarter's performance will also be dampened by this investment and will be similar to Q1's performance but we do expect improved performance in the second half of the year.

As mentioned previously the net interest margin contracted to 4.14% during the first quarter. We expect continued contraction for the rest of this year and now project the margin to gradually decrease throughout the year to approximately 3.9%. 20 basis points of this change is due to the adoption of Financial and Accounting Standards Board Interpretation Number 46 revised on March 31st, 2004.

You will note on the face of our balance sheet a new line item in the borrowing section titled, "Junior Subordinated Debentures" and a corresponding reduction in the line item called, "Corporation Obligated Mandatorily Redeemable Trust Preferred Securities, et cetera". The interest expense associated with this debt will be reflected in net interest income in future quarters, thus the reason for the additional decrease in the net interest margin.

The adoption of this new guidance does not impact net income and is merely a reclass between categories. Prior period net interest margin will not be restated. This concludes the presentation and I will now open the call for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Once again that is star one to register your question at this time. Our first question is coming from Jared Shaw of KBW. Please proceed with your question.

Good morning.

Good morning.

Congratulations on the quarter, and congratulations on hiring Jane Lundquist. I worked with her at Port, so I'm sure she'll help you out well there. Just had a few questions for you. On the provision growth this quarter how much of that was dependent upon the addition of that one loan for the MPA, the floor plan model, or the floor plan loan?

None of it was associated particularly with the increase in the floor plan loan. If you look at our provision versus Q4 I think our provision for loan loss is -- I think it's down. Provision, it's up modestly from Q4 '03, it's up from $630,000 in the last quarter to 744 in this quarter. Very modest growth in the provision for loan losses. And actually versus the same period last year, Jared, it's down about $200,000.

Then on the expenses, under occupant, you said under the sellers and benefits some of that was one-time associated with retirement costs. How much of that was associated with retirement costs?

Well, the salaries and benefits, there's really three components to it. There's the increased pension expense of $400,000, there's a reduction in supplemental executive retirement costs from the prior year of about $300,000, and then there's an increase in executive retirement costs. As Chris mentioned one of our senior executives retired and there's an increase of about $380,000 associated with that.

Okay. And then you had mentioned that in terms of the commercial lending you're looking to hire three new lenders and it's a little more difficult than you thought. Is that just, is it tough to get people to leave where they're working now or is it there's more competition for those --.

It's more the former, Jared, than the latter. But we expect that to change over the next couple of quarters.

So people are sticking around for a little while to see what happens?

To see what happens, exactly.

Okay. And then on your small business initiative do you have a cost associated with that? You said that it could be slightly dilutive to '04. I guess what's the total cost of implenting that project?

In '04, the total incremental sort of cost net of incremental revenues, incremental expenses about $250,000.

Okay. And finally, you said that you spent about $550,000 this quarter or 2.5 cents on the combination of your initiatives for '04.

That's correct.

What is, I guess, the total cost of that for a year out, if you have that?

First of all, Jared, just to clarify that again, the $550,000 on the initiatives, we also have $200,000 in advertising. I think we mentioned in the last conference call that our advertising and business development expense will be up almost a million dollars versus 2003. You're going to see a ramp-up in advertising and business development, particularly in this second quarter. The total cost of the initiatives is, in addition, is about $1.1 million.

That's reflected in our earnings guidance.

Great. Finally this will be the last one, you said that the margin we'd expect it to dip to 390, including the 20 basis points, so if FIN 46 didn't come into play you'd be looking at a 410 margin?

That's right.

Thank you very much.

Sure.

Thank you. Our next question is coming from Chris Mutascio of Legg Mason. Please proceed with your question.

Good morning, Chris, Denis, and Rob.

Good morning.

Trust you guys had a good holiday this past weekend?

It was wonderful. Thanks for asking.

Good. I wanted to drill down a little bit on the expenses and hope some of this isn't redundant but I want to try to get to the core, what I would consider core run rate. Denis you were mentioning some of them and I wanted to go over them if I could. The retirement cost of roughly 380, that's a one-time event that occurred in first quarter, correct?

Correct.

The pension of 390, that's kind of been an issue for the past couple of quarters. Is that done away with after this quarter or do we have another quarter of this?

No, we have it for the rest of this year, Chris, the pension expense, it's going to be about, actually, a million eight this year.

Okay. So the first two quarters will be in the region of $400,000, and then it will ramp up to about $500,000 for the last two quarters of '04. Great.

You'll recall that, you know, we didn't have a pension expense in the first two quarters of last year. Our pension plan year runs from July through June.

Right.

So we had to fund beginning July 1st of last year.

Okay. That's good for clarification. Now, there's something else mentioned in terms of the recovery and collection expense was about $200,000 in the quarter. What was that, and is that something that goes away relative to second quarter over first quarter?

Yeah, that was primarily associated with this floor plan relationship. The majority of the costs have been run through the income statement in our first quarter. There will be some additional costs in the second. Don't expect it to be at the same magnitude, but that is also somewhat one-time, you know, we don't expect material costs going forward in that relationship, nor do we anticipate loss. We're very well collateralized.

If I could keep going with this theme, I realize that the strategic initiatives that I think Chris certainly well described for the company are going to be somewhat of a drain on earnings in the near term. Have you given a thought as revenues are produced by the strategic initiatives then the incremental expenses that are associated with them start to decrease, what a goal or target on the efficiency ratio may be, a year or two or three years out?

Well, Chris, I think as you know, our efficiency ratio is in the low 60s. I think that we'd certainly like to get that into the upper 50s. We've been there in the past. We'd like to get to the upper 50s. That will take some time.

Also, as you know, we have a lot of branches. We have 52 branches, and for a company with our asset size that is a lot of branches, and as Chris mentioned in his comments we will be looking to make sure that we have the right number of branches, do we have enough or do we have too many.

I think, my hypothesis there, there's some opportunity. I don't want to put a stake in the ground yet.

Two follow-up and these are real quick. Can you just mention again what the loan prepayment fee was in the quarter that you gained, and also was there a restatement on prior-year levels in the mortgage and expense line? It seems like when go back to my first quarter '03 numbers the bottom line is the same but both the fee income and my expenses are lower than they originally reported.

First question was, on the loan prepayment fee, that was $447,000. Again, it was associated with, we had an extraordinary prepayment in commercial real estate in the first quarter. An $11 million credit that was prepaid, and that's the result of, and the fee resulted from that.

The mortgage banking income, any, you know, prior period restatement is associated with, you know, I think we recorded commission on sold loans in non-interest expense when it should be properly recorded in non-interest income. I think that's the restatement.

Thank you, guys.

Once again, ladies and gentlemen, if you do have a question, please press star one on your telephone keypad at this time. Our next question is coming from Bill McCrystal of McConnell, Budd and Romano. Please proceed with your question.

Good morning, Denis, Chris.

Good morning.

I think I had some questions on the expenses but I think that's been taken care of. I did want to go to the deposits, the growth in the first quarter on a linked basis. The growth in the money market and checking, is there any initiative behind that? Are you paying above market rates for some promotion that resulted in that increase?

Sure. The, Bill, there's not, you know, we're not -- we certainly have promotional pricing, and I would say in general, throughout our market, liability pricing is on the increase. We don't price at the top of the market, we generally try and be in the middle of the market given our overall, you know, the number of branches that we have, the convenience that we have in the market, we try and position in the middle level of, in terms of pricing. There was some promotional pricing in the quarter that led to that.

We also, our municipal deposit gathering has improved in the quarter and we look for that to continue for the rest of this year.

There is also some -- you noted that money market increased and time deposit category increased. Demand was down somewhat in the DDA category, about $10 million.

There is a measure of seasonality in our market as I think you know, and as we get into the second and third quarters, you know, the deposit generation generally picks up. And coupled with that, as Chris mentioned in his comments, we have a new product set introduction that we think will be well received in the market and will position us well for continued good deposit growth in 2004 and beyond.

Just going back to this floor plan loan. Is this one that you've had either on a watch list or something that you've been watching for awhile or is it sort of a surprise in terms of the bankruptcy?

This has been -- I wouldn't call it a surprise. It was one of sort of a -- I wouldn't say we have any weaker credit, but on -- sort of characterize all of our loans, sort of on the lower end our total portfolio. We're very well collateralized there and we expect to fully recover and probably even recover the interest payable.

Thanks very much.

Sure.

Thank you. Our next question is coming from Adam Egelberg of Silvercrest Asset Management. Please proceed with your question.

Good morning.

Good morning, Adam.

First question, I apologize, I might have missed this if you said it, what was the jump in other income?

The other non-interest income, that's for the commercial loan prepayment penalty was recorded, and that's about $447,000. So I'd consider that to be very much one-time in nature.

Okay. The next question is, you know, you guys have been growing your balance sheet, you know, at a decent rate for awhile now, I guess 10% on loans this quarter, it's been in the 10 to 12% range the last four quarters before this one, your core deposits are growing in the low double digits. Not a bad showing, and I guess what I'm wondering, maybe for Chris to answer is, where do you want this to be? Do you want loan and deposit growth in the mid teens, or instead are you looking for your initiatives to more leverage the non-interest income line?

I think it's a bit of both. We have our efforts we talked about in mortgage banking and in our investment management group are going to be focusing on mostly the income side.

I would say as the commercial lending, the business banking and our deposits are all on the improving the balance sheet. And in terms of specific sort of guidance, if you will, I'd say about --.

Yeah, I'd say around -- Adam, I think you said it very well. I view 10% balance sheet growth as very good, and we'd like that to continue. In some years it will be better than that, in other years it will be less than that. It really depends on the environment, both the interest rate and economic environment. So 10% balance sheet growth as a long-term goal, I think is, you know, would be very good growth rate for us.

I just -- organic growth strategy versus what you see many others in our marketplace doing, looking for generating growth through acquisition, our growth agenda is designed to produce this level of growth from our internal growth engines.

So then the investments are more toward preserving what you guys have accomplished historically rather than necessarily driving an acceleration in balance sheet growth from here. Is that right?

Adam this is Denis again. I would say yes. I think that a lot of, when you listen to our strategic initiatives there's nothing jumping off the page as being overly exciting.

We are very focused on improving the performance of what we have, and we're fortunate enough to be in a market that is a very attractive market, as evidenced by everybody trying to get into this market, and good demographics and growth rate. So we're very focused on improving the performance of, you know, the largest branch network of any company in this region.

Okay. Well, I hope you understood my -- the question. I think you guys have done a great job. It wasn't meant as a criticism. I just wanted to sort of frame what you're targeting.

Thanks, Adam. Those were good questions.

No, we don't take it as criticism at all.

I just had one other. I was curious if you could just give a little bit more color into some of these coaching and development and sales initiatives on the retail side. And I didn't quite catch whether you had hired a third party to come in and help with you that or you were just doing that internally.

I can probably provide you with a lot more color commentary than you really want in this call. I'd be happy to do that off line.

The opportunity is this: It has three components. In a well-managed branch network, in which we are acquiring and developing customer relationships, we need a staff who understands how to have a conversation with a customer that really gets at the needs. And rather than selling, you know, I don't like to think about selling, I think about how do we really meet the customer needs, understand where they are in their financial, sort of, journey through life.

And that is not something that comes naturally to any of us, and it requires -- there are a number of what we call interaction models. How does a good customer interaction go.

The second piece of the whole thing is because if you train everybody how to do this, it has a half-life of about week if you don't overlay that with a very disciplined management coaching process. In many, many branch networks, and this is probably universally true, when I first got into working on this issue ten years ago, the supervisory structure of branch networks would have what I would call howdy-doody visits to branches. You walk in, how's it going, did I solve a problem today, did you watch the game last night, here are a couple messages from corporate, I got to go.

The management process that we have in mind is much more tuned to watching, actually observing customer and staff interactions, providing feedback and coaching, and that sort of moves up the line. So actually the supervisors of our regional executives will be coached by the branch management staff on how they coach.

And then the third component to all this is supported by a scorecard. You cannot have good conversation unless you have set goals, you track goals on a monthly basis, and you have conversations about why we did well in a branch level in some areas, why we didn't do so well, and there's a real art to those coaching sessions, and, of course, there's a lot of best practice sharing.

We have hired a firm that I have used in the past with great success. Omega. They got their start in credit training and about ten years or so ago where they started fleshing out this area and have a very good program.

And our first session with the regional managers and the branch management it happened a couple weeks ago. And the regionals, some regionals who have been in the business for 10 and -- 20 and 25 years, shared with their manager that it was the absolute best training they've ever experienced in their entire career. We've started out on a good foot.

That's probably a lot longer than you anticipated. I can wax eloquently some more if you'd like but perhaps we can do that off line.

That was actually a great answer. That's exactly what I was looking for. Thank you very much.

Thank you. Our next question is coming from Kelly Hinkle of Lycos Capital Management. Please proceed with your question.

Hi, Denis, hi, Chris. This may seem like a silly question but just wondering off of what base are you figuring your earnings guidance off of? I just can't get it to add up, and I wonder if you guys are looking at GAAP or core --.

Sure. I think that, you know, the analyst community recorded, I think, a 193 or 194 performance for Independent Bank Corp. in 2003 and we're assuming a 4 to 7% growth in that number for 2004.

Okay. So it would appear then that there would be a considerable ramp up in quarters three and four?

That's right.

Thank you. That's it.

Thank you. At this time, we're showing no further questions in queue. I would like to turn the floor back over to management for any additional or closing comments.

Thank you everyone for joining us on the call. We look forward to speaking to you again following the announcement of our second quarter earnings.

Great. Thank you from me, too, Chris.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.