Independent Bank Corp (Massachusetts) (INDB) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Independent Bank Corp. First Quarter 2017 Earnings Call. (Operator Instructions) This call may contain forward-looking statements with respect to the financial condition, results of operation and business of Independent Bank Corp. Actual results may be different. Factors that may cause actual results to differ include those identified in our annual report on Form 10-K and our earnings press release.

Independent Bank Corp. cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly any forward-looking statements, whether to respond to new information, future events or otherwise.

Please note, this event is being recorded.

I would now like to turn the conference over to Christopher Oddleifson, CEO. Please go ahead.

Thank you, and good morning, everyone, and thank you for joining us today. As always, I'm accompanied by Rob Cozzone, our Chief Financial Officer. And we're also delighted to be joined by Gerry Nadeau, our long-time Head of Commercial Banking and newly appointed President of Rockland Trust. More on that a bit later.

We carried our momentum into the new year with another strong financial performance. Inclusive of M&A expenses, EPS on a GAAP basis came in at $0.76 per share in the first quarter. Excluding these costs, net income rose to $21.1 million or $0.78 per share, nicely above both prior quarter and prior year results. Rob will cover the quarter in more detail and Gerry will provide some added color following my comments.

Business momentum was sustained on many fronts during the quarter. The commercial loan portfolio continued its steady ascent, as we continue to develop new and existing relationships. Our small business initiative has been a nice story for us with loan balances up 22% in the past year, albeit on a smaller -- small balance.

On the consumer side, we saw healthy growth in both our home equity and residential portfolios. Core deposits have now grown to over 90% of total deposits. Our Investment Management business continues to prosper and reached a milestone with assets under administration crossing a $3 billion mark.

Credit quality remains in good shape as evidenced by a lower nonperformance and net credit recoveries in the first quarter. Our approach to intelligent expense management has resulted in a solid operating efficiency ratio in the low 60s, and of course, ever-rising capital levels. Tangible book value per share has grown by over 9% in the past year. So a well-rounded performance driven by strong fundamentals.

Now I'd like to turn to some other positive developments in our company. (inaudible) integration planning for our Island Bancorp acquisition, on Martha's Vineyard, is very going very smoothly, we've retained and attracted lenders who know the market very well and are prime to hit the ground running. Needless to say, we're excited about our prospects there, and we still expect the transaction to close this quarter.

We also just had our first full quarter of Bank of Cape Cod under the Rockland Trust umbrella and all has gone as planned. Both the acquisitions are expected to be accretive to earnings and considerably deepen our presence in the attractive Cape Cod market.

Internally, we have recently made moves to strengthen our management ranks and capitalize on existing talent. I am fully subscribed to the belief that a company is only as good as its people, a big part of that is having the right people in the right jobs. So in that vein, we made various key appointments. My colleague here, Gerry Nadeau, has been serving us well for over 30 years and really has been instrumental to the tremendous success we've achieved through his management of the commercial banking franchise, which he'll continue to lead.

As President of Rockland Trust, he'll work closely with me and others to sustain our disciplined growth path. Gerry has also joined our Board of Directors.

Pam Frey very recently joined us to head up our consumer and business banking group. Pam has many years of proven success in the consumer banking arena with leadership positions in several banking organizations. She is busy getting up to speed. We look forward to working with her.

We've expanded duties of 2 talented Rockland executives, Jen Marino and Deb Smith, to lead, enhance and expand our customer experience and digital banking activities. Given the rapid changes in technologies and customer preferences, these are critical assignments.

And we've promoted another talented manager, Maria Harris, as our new Head of Human Resources, effective May 1, following the retirement of Ray Fuerschbach, who has served us well over many, many years.

We're also thrilled to announce the appointment of Michael Hogan to our Board of Directors. He brings much valued experience in commercial business, real estate and public policy to our board, and we welcome the [ added insights ] and oversight he will provide.

Turning to the microenvironment. Nationally the economic picture does seem to gradually improve, but, of course, there's a lot of uncertainty that persists for corporate America and the banking industry, in particular, in light of the ongoing political wrangling in Washington.

The timing and [ ultimate ] path of key issues, such as tax reform, health care, interest rates, trade and infrastructure spending will present varying scenarios for our customers and our bank. We're encouraged, though, by the growing consensus to provide some [ regulatory leads ] to smaller banks from the sweeping set of measures imposed in the wake of the financial crisis. Notwithstanding that, we remain vigilant in our compliance and risk management efforts. Locally, the Massachusetts economy continues to perform well, the most available state gross domestic product, the growth reached 3.8% in Q3, up from 1.7% in Q2. It's difficult to improve upon the 3.4% unemployment rate in the state, which is a full 1.1 percentage points below the national average.

Looking ahead, we are steadfast in our focus on creating strong and enduring relationships with our customers. We will continue to invest in our brand and strive to continue to deliver exceptional customer service that has consistently garnered high marks from third-party surveys.

We have an operating platform that can surely be leveraged further. And we are in a rapidly evolving and highly competitive industry where the ever-increasing rate of technological innovation presents opportunities as well as risk. So we'll stick to our long-held strategy of disciplined growth that has worked so well for us.

Our confidence in our approach and outlook is readily evidenced by the 10% increase in our dividend recently approved by the board, and we have a long track record of healthy dividend increases that is reflective of our desire to reward our loyal shareholders with a healthy return.

So with that, I'll turn it over to Rob.

Thank you, Chris, and good morning. As Chris said, I'll now provide some more details on our first quarter results. Independent Bank Corp. reported net income of $20.7 million and GAAP diluted earnings per share of $0.76 in the first quarter of 2017.

This compared to net income of $18.6 million and GAAP diluted earnings per share of $0.71 in the same quarter last year. Both quarters included merger charges, and the prior year's first quarter included a loss on extinguishment of debt. When excluding those charges, which management considers noncore, operating diluted earnings per share were $0.78 in the first quarter of 2017, an increase of 8.3% when compared to the same period a year ago and above last quarter's $0.76 per share.

Healthy earnings results led to a return on average assets of 1.12% on an operating basis and continued to drive growth in tangible book value per share, which has increased by an average of more than $0.50 per quarter over the last 3 years, despite the added goodwill from several acquisitions.

Continue growth in capital and earnings supported the recent decision to increase the quarterly dividends by 10%.

Although loan growth tends to be muted in the first quarter, 2017 is off to a good start. Total loans were up over 4% annualized, as a seasonal decline in new loan production was offset by a rate-driven reduction in pay-downs and payoffs. Total annualized commercial growth of 3.3% was buoyed by a $52 million increase in the combined CRE and construction portfolios. Competition remains tough, but we are holding our own on this space. Gerry will now provide some additional color on our commercial business and current market dynamics. Gerry?

Good morning. It's interesting as we've started the year with a great deal of uncertainty both from a political and interest rate environment where we're facing potential interest rate increases beyond what we have seen in over a decade. But we're very pleased with what we've seen recently in increases in our pipeline in deal activity. Our actual growth performance in the first quarter was nearly equal to last year's, just off by less than 3%. So we really feel comfortable this year is going to work out for us.

Looking at what activity we have, first maybe in Boston, which we get asked quite a bit. Our Boston activity is really centered on developers, local developers who seek to reposition smaller office buildings and retail properties that have been underinvested in over the years and they feel they can add value. The opportunity for them is to come in, buy it at a reasonable price, add physical improvements, greater base of tenancy, longer lease terms and oftentimes resell.

Another part of our business in Boston is really the small construction builders, where they're looking to build condominiums or single-family homes in the outlying suburbs of the city anywhere from 5- to 20-unit condominium projects. We are not involved in the office towers or the very large apartment buildings. In fact, the average size of our construction loan and balance is just a bit less than a $1.3 million, and that includes larger projects for us. So on average, we really focus on the smaller end of the market.

As we think about reaching (inaudible) also, our business -- in fact, our construction loan business, over 50% of it is for residential development, single-family homes and condominiums, spread throughout our entire footprint. We are fortunate to be a long-time bank in parts of the state where the most undeveloped land lies especially in Southeastern Massachusetts. The other activity we saw in the first quarter [ to affect the majority of the remainder ] was associated with the grocery, a small retail plaza anchored by a publicly traded grocer, who signed a long-term lease. Only 15% of our construction loan activity in the first quarter was in fact in Boston or the suburbs to it.

Other things that we actually wanted to -- we're very pleased about in the first quarter was our hiring activities. We were able to bring on board 4 very seasoned commercial bankers in the first quarter. And we have an accepted offer from a fifth to start in May. When we combine that with our success in our commercial banker training program, where we are developing highly skilled talented bankers to join their other colleagues, giving us a competitive advantage over other banks in our footprint.

I guess another thing that we're pretty pleased about learning in the first quarter was Banker & Tradesman, who is a local real estate publication, named us the #1 commercial real estate lender in Massachusetts based on dollars. That is something we're really proud of as again, as I mentioned a moment ago, the average loan size we have is relatively small. So for us to achieve that, we really had to work very had, making an awful lot of loans. Another accolade we received was SNL, part of S&P, recognized us as the #1 real estate lender -- commercial real estate lender in Massachusetts and Rhode Island measured in units. And again, that's evidence to the average -- small average loan size we have. So again, something that I think continues to protect us in the long term both from -- for growth and as well as from a safety and soundness.

Now perhaps the only other item I can mention is growth in business banking. Business banking in the smaller end of our commercial business is very important to us. These are oftentimes the future largest customers we have as they're able to grow with us over the years. One thing interesting on that, that portfolio grew by nearly 3% in the first quarter and 21% on a year-over-year basis. That's growth levels we haven't seen in a long time. And in the first quarter, what's perhaps most positive is the 2 segments of it the 2 loan types that grew the most were SBA loans and term loans, which are typically used by smaller business owners to buy new trucks and other equipment to help them grow their business. So we think that's really positioning us -- they and us, well for the rest of this year.

Thank you, Gerry. I'll now transition to our consumer portfolios. Trends in our commercial -- consumer real estate portfolios were quite favorable in the first quarter of 2017. Strong jumbo loan production contributed to a 6% annualized increase in our mortgage portfolio, despite a seasonal and partially rate-driven decline in overall mortgage production. In addition, home equity outstandings exceeded $1 billion for the first time during the quarter, and the home equity pipeline reached a multi-quarter high at March 31. Notably, the strongest growth over 13% annualized occurred within the first-lien category. With the spring season upon us, growth in the combined consumer real estate portfolios should begin to accelerate.

Total deposits were up a little less than 1% for the quarter, as strong new core account volumes were partially offset by continued decline in higher-cost term deposits. More expensive term deposit category now only comprises 9.5% of total deposits. Total core deposits continue to rise, despite the typical seasonal decline in demand deposits. And a 1 basis point increase in the total cost of deposits during the quarter resulted from lower average demand deposit balances and not increased pricing on interest-bearing deposits.

A 15 basis point increase in the net interest margin versus the fourth quarter reflected the deployment of liquidity, higher loan rates as a result of increases in market rates and a reduction in the interest expense on junior subordinated debentures. The 25 basis point increase in the Fed funds rate in March provided little benefit to the first quarter, but should further enhance the core net interest margin in future quarters. As of 3/31, more than 45% of the company's loan book was indexed to either LIBOR or prime.

Asset quality continues to be excellent. With another quarter of net recoveries and a 5% reduction in nonperforming assets, loan loss provision of $600,000 was primarily needed to support loan growth. The large commercial credit we reserved for last quarter continues to be managed closely by a workout team, and we concluded that no change to the specific reserve was needed as of March 31. In addition, a charge-off was not deemed appropriate, given no further deterioration in the borrower's condition. As we have said previously, we believe the credit metrics will eventually migrate towards long-term averages, but the strength of the local economy may continue to extend that transition.

Noninterest income decreased 13% versus a very strong fourth quarter. There were seasonal declines in deposit-related fees and mortgage banking income where the growth in jumbos also mitigated secondary market sales. This was accompanied by a significant decline in loan-level derivative income, which has proven to be quite variable on a quarterly basis. As Chris mentioned, assets under administration in our Wealth Management business exceeded $3 billion for the first time, a very nice milestone for a [ scale ] business. We expect most fee income categories to experience a rebound in the second quarter.

Excluding merger charges, noninterest expense increased 3% versus the fourth quarter. Typical first quarter increases in payroll taxes, advertising and snow removal, combined with a full quarter of New England Bancorp, drove the increase. The core efficiency ratio is expected to decline from a 61% recorded in the first quarter for the remainder of the year. The effective tax rate in the first quarter was 30.3% as opposed to full year guidance of 34%, as it benefited from the adoption of an accounting standard, which made changes to various accounting requirements related to stock-based compensation. The biggest impact to the company of this standard relates to the recognition of the excess tax benefit associated with certain stock compensation transactions. During the first quarter, approximately $920,000 of benefit was recognized as a discrete item within the company's effective tax rate. Prior to 2017, the benefit was recognized as an adjustment to additional paid in capital. The go-forward tax rate should revert to approximately 34%, as discussed last quarter, due to the expiration of some new markets' tax credits and higher earnings levels.

Now that the New England Bancorp acquisition is fully integrated, we turn our efforts to Edgartown. We anticipate final regulatory approval for the Edgartown transaction in the very near future and a legal closing soon after. Financial expectations for Edgartown remain intact, and we are confident that the very capable team will hit the ground running. The transaction is expected to add approximately $160 million in loans and deposits, and second quarter merger charges are anticipated to be approximately $2 million after tax.

As discussed in January, the variety of potential assumptions about the pace of interest rate changes and tax rate changes and the path of regulatory burden convinced us to discontinue our practice of providing specific EPS guidance. However, we will continue to be open with respect to the general direction of our business and we'll provide as much specificity as is prudent. In that vein, we provide the following general guidance. We expect organic loan and deposit growth to continue at the mid-single digit pace. With the March rate increase, the full year core net interest margin is now expected to increase more than the original 7 to 10 basis point guidance provided. We now anticipate 10 to 15 basis points of net interest margin expansion versus full year 2016.

Year-over-year, fee income is expected to increase at a low to mid-single digit pace. Noninterest expense will be closely managed, and the core efficiency ratio should gradually decline, finishing the year below 60%. And as previously stated, the tax rate for the remainder of the year is expected to approximate 34%.

That concludes my comments. Chris?

Okay, great. Anita, we are ready for some questions.

(Operator Instructions) Our first question comes from Collyn Gilbert with KBW.

Just to talk a little bit about, Gerry, your comments on the hiring activity and just some of the momentum that you're seeing on the lending side, can you just kind of put that in perspective for us? So you indicated you hired 4 bankers in the first quarter of this year. How that hiring behavior would have been different, say, a year ago or even 2 years ago? Just trying to sort of gauge where you guys are in sort of the development of this momentum?

I would probably say I can't remember a quarter in the past where we've ever hired 4 seasoned bankers. So if that helps. And the fifth has accepted an offer. So I don't quite know -- I mean, it's easy for me to take credit for it, but I don't think that's quite right. But I think there's certainly some forces happening in the marketplace that having us be viewed as a desirable employer.

Okay. And does this change your kind of longer-term view on where the growth of the company can go or within kind of the commercial loan growth bucket? I mean -- again, it sounds like there's a lot of things that are moving right, and I am just curious if that changes sort of where you see yourselves in the market and your ability to take share and kind of the growth trajectory from here? Maybe that's more for Chris.

Well, I guess, from my perspective, I think our benefit is that we know the markets we're in. We live here. We all work here. We have day to day contact with customers. So many of our competitors are seeking very large opportunities, leaving fertile ground for us on the small/medium-size opportunities that oftentimes is ignored by some of them. So by having experienced talented people on the street, we were able to create more opportunities for ourselves to meet for what our expected growth rates are, which may be less than what some of our competitors do.

Collyn, if you're sort of getting at are we sort of embarking on a strategy that we hear in -- at some banks around the country where you do lift outs and so on, really accelerates the commercial loan growth. I wouldn't sort of put that -- characterize sort of what we're doing in that vein. I'd say, no, we expect sort of the -- sort of Steady Eddie, at a mid-digit growth with solid commercial lending team that knows the markets really well, that produces great credit quality.

Okay. That's helpful. That's helpful. And then, Rob, just a couple of questions for you, one on your fee comments. You had indicated that most lines would be higher in second quarter, and I appreciate the guidance you gave kind of for the full year, but just trying to understand maybe where you wouldn't see a rebound coming in the second quarter.

Yes, probably, the only line item is the other income line item, where we may not see a rebound seasonal increases in deposit fees and to change in ATM fees, seasonal increase in mortgage banking income. Obviously, investment management income will increase both because of the increase in our assets under administration but also because of tax prep fees in the second quarter and then loan-level derivative income. We hope that this was kind of an annual low for us here in the first quarter, and we start to see a rebound. We do know that some transactions that likely would have closed in the first quarter in terms of swap transactions actually closed in the fourth quarter as some borrowers panicked a little bit as rates began to rise. So essentially, all [ cold-going ] items are anticipated to increase as we head into the second quarter.

Okay, that's helpful. And then just your comments on the NIM, the benefit that you'll see there. How do you see that breaking down between on the asset side versus the funding side and maybe how that ties into where you think future deposit pricing pressure could come?

Well, what we have said in the past just in terms of the deposit pricing and maybe cover that first is that we assume in our modeling a total deposit beta, including demand deposits of about 25%, if you -- which sounds low. But obviously, we have a large component of our deposit base in demand deposits, 32%, 33%. And so if you strip out the demand deposit component, it gets closer to the high 30s to 40% deposit beta, which we believe is reasonable based upon the work that we've done. We have not seen that deposit beta take hold through these most recent couple of increases. Now we are seeing some anecdotal evidence of pricing pressure in a couple of specific categories, but as you saw, our cost of interest-bearing deposits was flat at 26 basis points quarter-over-quarter. I would expect that our deposit cost for our interest-bearing category might increase just a little bit as we head into the second and third quarters, but the total cost of deposits will probably remain stable because demand deposits will increase. On the asset side, I would expect a little bit more of a lift in the second quarter than what we saw in the first quarter in terms of total earning asset yields, because the increase was muted in the first quarter, first of all because securities yields decreased relative to the fourth quarter because of a prepayment fee we received in the fourth quarter, and then a couple of other new launched items within loan yields slightly diluted the benefit of the rate increase.

Okay, that's very helpful. And then just a final question for Chris. Maybe just give us a thought or 2 on M&A. I mean, you guys -- obviously, it's a core part of the strategy. You've done a great job filling in with some of these smaller deals. Kind of which -- what are you seeing out there now? And has anything changed among kind of the market of potential sellers in your view?

I think, we've -- sort of the -- we're staying the course in our strategy, which is really asking being very obsessive about how we improve and enhance our existing business. And we have a lot of efforts and strategies underway to how do we grow organically. On the acquisition side, we are always ready to talk to management teams. So while there are fewer banks available to be bought simply because many have been, I mean, there are mutuals that are converting and there is a stream of sort of eligible banks, although the population is smaller (inaudible) any one of them raise their hands, we'd love to talk to them. Now I think I would say just one more point that the banks -- it's good environment for banking right now. And as a result, now with the market up, there is a probably not a lot of pressure for people to want to sell now and jump on to maybe a better currency or better operating platform. But that always shifts. I say that one day and something changes. So now I would hope that we would, over the next several years, be able to make an acquisition or 2 at the pace we've been making them in the past. They've been very helpful to sort of building scale, and we'd like to continue.

(Operator Instructions) Our next question comes from Laurie Hunsicker with Compass Point.

Just a follow-up on that M&A question. I wonder, as you talk about building scale and you approach M&A, and certainly you mentioned a stream of eligible conversions, can you talk about how big you would potentially go in terms of a deal? And I guess, Chris and Gerry, that's you. And then, Rob, can you just refresh us on where you are as far as the $10 billion threshold spend and what else you would potentially need to incur?

Okay. That's a lot that -- you packed a lot in those questions, so let me see if we can unpack them a little bit. In terms of how big we would go, I think the -- our rule would be that any solid franchise that is within or adjacent to our market, that is interested in talking about M&A, we would like to have the conversation. Now having said that, one of our successes in our -- and one of our really core successes in our M&A strategy is our ability to really bring on franchises in a very seamless, solid, momentum-generating way. And our biggest acquisition to date was Ben Franklin at $1 billion, and that's when we were much smaller. So -- and that went very, very well. I expect that we could do something that is substantially bigger than that. If we got -- if you're talking about sort of [ on the law ] of merger of equals -- of equal sizes, that would require a lot of reflection about how you maintain the franchise value of both firms and how 1 plus 1 could equal 3 in that situation. So I think we'd have to sort of be even more thoughtful than we have in the past of how a merger would come together. With respect to sort of the timing and size and how you get over $10 billion, no, we say we would love to sort of orchestrate it so we're at $9.5 billion for 6 months and then we leap to $12 billion and just jump right on through, but of course, you can't choose how sort of acquisition -- potential acquisitions come to the table. So we'll just have to play that as it comes.

And in terms of the cost part of that equation, Laurie, as I've said in the past, we've gradually made a number of investments. And obviously, areas like BSA and AML, and general compliance adds, hire a Director of Enterprise Risk Management, a Director of Capital Planning, and we've purchased some data sources to help with our DFAST modeling and are building internal capabilities. We're adding to our Portfolio Risk Management staff. So we probably have a couple million dollars already built into our run rate, but we probably have another couple of million dollars to go before we are finished.

Okay. And then just in terms of that $2 million additional spend, when in your mind does that start? Does that start next year?

Well, as I said, it's been ongoing. We are preparing and we want to be ready well beforehand, if we can. I mean, obviously, if we found an acquisition tomorrow, then we would have less time to prepare. But our plan is to be well prepared beforehand. So most of the cost associated with crossing the $10 billion threshold should be embedded in our run rate prior to crossing with the exception of Durbin, obviously, which we have talked about, is a meaningful impact for us, because the amount of interchange revenue we generate from our core checking base.

Okay. And just remind me, the Durbin impact is about $5 million, is that right?

No, it's closer to $6 million to $7 million.

$6 million to $7 million, okay. And then, Chris, just going back to your comments in terms of -- obviously, you were a lot smaller when you did Ben Franklin at $1 billion. I mean, if we were to do an extrapolation -- and again, just off your comments, potentially going $9.5 billion to $12 billion, you would potentially be comfortable doing a $3 billion to $4 billion bank?

Well, theoretically, yes. But the devil is in the details, right? And that's a hypothetical question. I think, it's -- when we approach every sort of bank we acquire, we take a very sort of fresh eye and customized look about what are the key opportunities, issues, development areas where we add, we need to subtract and so on. But conceptually, yes. I mean, I think that we'd be very engaged. We'd be very delighted to engage in a conversation like that. I think we have the platform, the capability, the capacity to do it very well.

And the currency. (inaudible)

And the currency. Yes, yes.

Our next question comes from Matthew Breese with Piper Jaffray.

Just to continue the M&A dialogue, you noted the adjacent markets, and does that mean you'd consider Rhode Island, New Hampshire, Western Massachusetts as adjacent markets? And then on that note, if you had to kind to rank those options in terms of desirability, how would it go?

Yes. So what we've said in the past is that if you think about a semicircle that sort of -- that starts in Worcester and sort of then arcs east, yes, it captures Rhode Island and captures Southern New Hampshire and up to maybe Southern Maine, that sort of where the bulk of the economic activity is in New England. And so we really believe we could create over time, and we don't have any specific plans such as you say get the crayons out and envision sort of what you could become, $15 billion or $20 billion bank within that arc. And in terms of jumping to Western Mass, the economic activity out there isn't as robust. So we'll probably -- sort of in terms of priority, that would be a second priority, lower priority.

And you know, Matt, that we're already -- we already have a lending center and an investment management center in Providence, Rhode Island, that has been very successful. Branching into Rhode Island is a little bit different equation, but we've been very pleased with our lending and investment management results in Rhode Island to date.

Right, right. And then from a de novo perspective, if the opportunities are lacking, could we see you push north and headed to Portsmouth and Portland from just an organic standpoint?

No, that's certainly within the realm of possibility. I'd say it's probably a lower priority than really fleshing out our Boston-centric markets.

And we wouldn't go directly there. You would see us make progress in between our -- the northern parts of our footprint and New Hampshire and Maine before we actually made a jump to that level if we were to consider that.

A lot of these are hypothetical questions, right? I mean, this is -- it's how -- what opportunities arise and so on really drive in large part, how we think about this.

Right, but if we talk about thinking about a $15 billion or $20 billion bank and how you get there, these become important questions.

Oh, absolutely. And thank you for asking them.

And then maybe switching gears to another big part of your business, which is Wealth Management. Are there opportunities there on that front to acquire? The pricing can be different, the earn-backs can be longer. And how do you think about that in terms of your discipline around acquiring different kinds of businesses?

I'll say, Matt, that it's extremely more difficult to acquire a wealth management operation with the confidence it will perform over the long term. We have, over the last decade, probably desk reviewed a couple of hundred sometimes with the help of some folks who know a lot about the M&A space in that industry, we probably talked to 20 or 30, and we've acquired one. And that is in large part, because the size of the entity we typically could acquire are very entrepreneurial, very independent and typically are interested in selling, working for a few years and then moving on and starting something else. So you have to be -- you have approach the M&A in investment management with a great deal of eyes wide open. The one acquisition we did make in this space was where the 2 principals were clearly at retirement age and the 2 secondary principals were clearly would adapt to our culture and invest and adopt our approach with enthusiasm. We would like to -- the accounting rules, and Rob could talk about this a little more, the accounting rules of -- when you do a earn-out structure are a little onerous when you're buying in this space. So that's certainly a consideration. But having said all that, which is kind of -- a little bit more negative, I would say that, that -- now if we find another opportunity locally, we'd love to do it, because there are literally hundreds of investment managers in that arc that I was talking about, that could potentially be part of this franchise. But it's much more difficult to do.

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

Well, thank you, everybody, and we look forward to talking with you again at the end of the second quarter. Have a good next few months.

Thank you.

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