Beacon Financial Corp (BBT) 2010 Q3 法說會逐字稿

Good morning and welcome to the Berkshire Hills Bancorp Q3 earnings release conference call. All participants will be in listen-only mode. (Operator Instructions)

After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to David Gonci. Please go ahead, sir.

Thank you. Good morning, thank you all for joining this discussion of our third-quarter results. Our news release is available in the Investor Relations section of our website, BerkshireBank.com, and will be furnished to the SEC. Our discussion will include forward-looking statements and actual results could differ materially from those statements.

For a discussion of related factors please see our earnings release and our most recent SEC reports on Forms 10-K and 10-Q. In addition, we will speak to the Rome Bancorp acquisition. This discussion will include forward-looking statements. Certain factors could cause actual results to differ materially from expected results.

Berkshire will be filing a registration statement containing a proxy statement prospectus and other documents regarding the proposed transaction with the SEC. Rome shareholders are urged to read the proxy statement prospectus when it becomes available because it will contain important information about the Company and Rome and the proposed transaction.

Now I will turn the call over to Mike Daley, President and CEO.

Thank you, Dave. Good morning, everyone. Welcome to our third-quarter conference call. With me this morning is our CFO, Kevin Riley, along with other members of the management team.

We released our third-quarter results last night. Today we will discuss those results, we will provide some guidance regarding our fourth-quarter expectations, and I will comment on the announcement last week of our agreement to acquire and merge with Rome Bancorp. Now this is a transaction that I am confident will benefit all constituencies and we expect it to produce strong returns for the shareholders of both companies.

We have gotten some good feedback about this merger. I will touch on the highlights before we conclude our prepared remarks. And I will also be referencing some of the information that we have provided in the additional information slides on the merger which we have posted at our website.

First, let me turn to the most recent quarter where we posted earnings of $3.4 million. This was a 78% increase over the third quarter of 2009. We earned $0.25 a share, which is ahead of our previous guidance of $0.23. For the first nine months of the year we earned $0.73 per share and that is more than double the EPS that we posted at this point last year.

Now the key themes in the third quarter were similar to those in the prior quarter. Strong top-line and bottom-line growth, improvement in the net interest margin, the good credit metrics which are getting better, and tight expense control generating positive operating leverage. We saw a nice improvement in the net interest margin to 3.30% compared to our expectation in the low 3.20%s.

Now this was the result of three things. First, we stayed disciplined in our pricing; second, we got some help from a more disciplined, competitive landscape; and third, we concentrated on growing checking accounts as a central component of our relationship banking strategy. So average demand deposit balances increased at a 7% annualized rate during the quarter and over the last 12 months our personal checking account balances are up over 11%.

Now as I have cautioned previously and I will do it again today, margin gains are difficult in the current low rate environment so I wouldn't expect to see gains like this again in the near future. Our balance sheet growth also came in higher than we expected. Our commercial loan originations have been the primary driver of our growth with commercial loans growing at a 15% annualized pace during the quarter and an annualized rate of 11% for the year.

These were the result of market share gains by strong regional commercial leadership that have joined our company and they are sourcing quality relationships from some of the larger competitors. Now we have produced these gains in all our regions, although net growth, of force, has been strongest in our asset-based lending group and in our New York region where we just haven't had the amortizations and payouts that we do in our more mature markets.

On the retail side we also had a very strong quarter with residential mortgage originations totaling $165 million for the year with another $75 million in the pipeline at the end of the quarter. On the deposit side our third-quarter growth was a little better than we expected, especially since we were pretty disciplined with our pricing.

Our new Springfield private banking team has brought in more than $30 million in new balances so far this year, we just opened our 11th new branch in New York in September, and we have got another branch we will be opening in the next couple months. And as I said earlier, we are very focused on personal checking account growth which is running at a double-digit rate over the past 12 months.

Now a couple comments on asset quality. The release showed that our loan quality metrics continue to be favorable and improved. Tourism and recreation activities in the Berkshire and Vermont regions actually have been quite impressive this year.

Our overall loan performance continues to be good and will continue to be vigilant in light of the malaise hanging over the national economy, but we expect that our metrics will continue to be favorable and there is nothing we see in front of us at this point that suggests this outlook will change as we go forward into next year.

Now before I turn the call over to Kevin for more color on the quarter's income and expense I do want to mention the announcement in our earnings release about the change in our wealth management business. Now this business has been steadily and successfully cultivated by Tom Barney over many years. Tom has decided to retire from his leadership responsibilities here and he will continue to offer us assistance through a consultancy arrangement. We are very grateful for his long service to our company and I am grateful for his friendship.

We announced that we promoted Charles Leach to Senior Vice President and Chief Investment Officer and that we appointed Scott Schiff as Senior Vice President in Wealth Management. Scott joins us from Legacy Banks and Chuck joined us three years ago from TD Banknorth. Together they will work directly with me to manage the transition and to implement new programs and strategies to accelerate the growth and expansion of this business across all of our regions.

Now this is a business line that I think has great potential and it can be leveraged in combination with all of our other offerings.

Now at this time I will ask Kevin to provide some additional color on earnings and fourth-quarter guidance. Then I will return to comment on the Rome merger and I will provide some closing comments before we open the lines for questions. Kevin?

Thanks, Mike, and good morning, everyone. As Mike has alluded to, there is a lot of good things happening here at Berkshire.

We produced $0.25 in earnings per share for the third quarter. This exceeded our guidance of $0.23 which we gave you at the end of the second quarter. With this result we produced solid growth in earnings per share of 19% when compared to the prior quarter, when adjusting for the seasonality of insurance contingency revenue which is always received in the first and second quarter.

For the quarter we had solid balance sheet growth with loans growing at 7% and deposits growing at 6% annually. A significant part of this growth came at the end of the quarter which is going to position us well for higher average earning assets for the fourth quarter. We expect to continue growing organically in these areas for the remainder of the year.

As this growth is produced we remain focused on yields we earn and the cost of our funding. In the third quarter we saw a three basis point decline in our yield on earning assets. However, we saw our funding costs improve by 10 basis points. This helped our net interest margin to expand from 3.25% in the second quarter to 3.30% in the third. The current competition in our market is assisting us in this effort as banks continue to lower their deposit rates.

When looking at the fourth quarter we are expecting to maintain our net interest income around the 3.30% level. We remain committed to staying slightly asset sensitive in case rates start to move higher. So with our expected solid balance sheet growth and margin at our current level we expect to produce approximately $20 million in net interest income for the fourth quarter. This projected net interest income represents an annualized growth rate of around 6% over the third quarter.

Turning to non-interest income we produced $6.9 million in the third quarter. This was slightly below our guidance of $7.1 million. Continued softness in our wealth management fees accounted for most of the shortfall. As Mike mentioned, we have a great amount of focus being placed on this area with positive results anticipated in the future as we saw from our insurance reorganization. Our other fee income is in line with our expectations even with the effects of Reg E included.

Our insurance revenue is down quarter-over-quarter mainly due to the seasonality of insurance contingency revenue, which is recorded in the first and second quarter. In the second quarter we recorded approximately $1 million in contingency income. We continue to have policy growth, however, the downward pricing pressure we are experiencing in the current soft insurance market masks all the great work our insurance folks are doing.

For the fourth quarter we expect non-interest income to be around $6.9 million. This would be flat to the third quarter but up about 3% over last year's quarter results.

Our third-quarter provisioning came in as expected at $2 million. We are holding our guidance at this level for the fourth quarter. We expect this level of provisioning to be more than offset the net charge-offs as we expect a continued decline in these amounts in the future.

The ratio of allowance to total loans has decreased to 1.55% from the prior quarter's 1.58%. This is in line with the level of charge-offs and non-performers decreasing. Asset quality continues to improve as we anticipated it would this year.

Our third-quarter non-interest expense was $20.1 million. This was a little bit less than we expected and only marginally higher than the prior quarter.

As I have mentioned in the past, our employees are doing a great job in controlling expense growth. We have invested in our infrastructure over the last couple years and now we need to continue to leverage on it. For the fourth quarter we expect core operating non-interest expense to be about $20.2 million. This includes the expense of the two new branches in the Albany area.

In the fourth quarter we expect approximately $400,000 in non-core operating expenses relating to the pending acquisition which are not included in the previous mentioned amount for core non-interest expense.

Our effective tax rate for the third quarter was 24% and we expect our tax rate to remain at 24% for the fourth quarter. When you add all this up we expect to earn $0.26 per share in core operating income for the fourth quarter and $0.99 for the year. This $0.26 for the fourth quarter represents a 16% annualized growth rate over the third quarter.

When we came into this year we were estimating $0.85 to $0.90 earnings per share. We revise this midyear to $0.95 to $1.00. At this time we feel comfortable with the Street's consensus at $0.99 for core operating earnings. As I mentioned earlier, we have some merger-related charges that will hit us for about $0.02 in the fourth quarter.

In the past deal costs used to be capitalized and under the new accounting standards 141R these expenses need to be recognized when incurred. These expenses are costs relating to legal, advisory, and audit so we expect our GAAP number for the fourth quarter to be $0.24 and for the full year $0.97.

Before I turn the call back over to Mike I would like to highlight some of the benefits that we see in the combination of Rome Savings Bank. If you like what you see in our financial results, the Rome acquisition only helps us get there quicker. All of our financial metrics improve -- earnings per share, ROE, ROA, net interest margin, asset quality ratios, efficiency ratios, capital ratios, and others. You can find additional deal metrics on the Rome acquisition on our website.

I have heard Mike say many times, a deal is good when it benefits all parties. This is an example of that philosophy.

With that I will turn the call back over to Mike.

Kevin, thank you very much. Nice job as always.

Throughout this year we have operated above our original expectations for earnings growth. Our $0.99 guidance for core EPS continues to show the momentum of our core earnings growth. As we have said previously, our goal is to return to a normalized operating level of $2 EPS as a run rate by the end of 2012.

Every quarter this year we have established that our current growth is on pace for us to accomplish this and so confidence is building across the board in this regard.

Now before I comment on the strategic benefits of our Rome partnership, I would note that we have projected core EPS accretion of $0.09 in 2011 and $0.10 in 2012 from this transaction. These additional earnings have not previously been a component of our disclosed strategies to return to the $2 EPS run rate, so they give us additional confidence that this goal is achievable.

We have never included EPS gains from acquisitions as a general component of our projections, except in the case of an announced deal like this. I would hope that we will have other opportunities to build earnings through acquisitions in the next two years and that our future earnings results will exceed our plans. So back to Rome.

Now this partnership has a number of benefits, not only to the investors in our companies but also to the combined markets that we will serve. It represents the partnering of two strong institutions and Kevin has noted that all of our financial metrics are expected to improve and our investment rate of return is expected to exceed 18%.

It's a logical, contiguous expansion opportunity for us. It takes advantage of the strong leadership that we have recruited to the New York region, which is well acquainted with the Central New York markets, and has abundant capacity to absorb this growth and more. Gives us additional footprint in the New York Route 90 corridor, which is recognized as one of the stronger and more stable markets in the country.

We will be able to bring higher capital and broader product offerings to the Rome market. It also provides us with access to Utica and proximity to Syracuse. Now this is a combined population of nearly one million people. And this transaction builds our market cap, our stock liquidity, and overall financial profile which will support our ongoing growth objectives.

Now I must say I really enjoyed working with Charlie Sprock and his team in putting together this partnership, which we feel is really fairly priced to all sides. Rome's shareholders received a deal value per share which was an immediate premium to their stock and Rome's leadership recognized the excellent opportunity for stock price appreciation in receiving our stock as consideration for 70% of the transaction.

I know from a due diligence standpoint that nobody does a better job than Kevin Riley. He and his team were efficient, they were effective, and they were well received by the Rome team. And these things are important in a deal. I hope that other potential partners will recognize the benefits that can be delivered to all constituencies through a well-organized and well-structured business combination like this one.

Now when we open the lines to questions we will be happy to address any of the specifics of this merger agreement at that time. Before we do I would like to make a few closing comments.

Now our executive team did a little strategic assessment of our markets and our industry recently. We were pretty encouraged that the market and regulatory developments are creating a competitive advantage for banks like ours. We believe that there is and there will be re-intermediation in community and regional banks which are positioned with competitive products and service capabilities and, most importantly, local responsive management.

National banks and non-bank competitors continue to demonstrate the shortcomings of excessive size. The news is full of reports of inadequate controls and procedures for managing mortgage collections and foreclosures leading to legal challenges across the country. These things just have not happened here or with banks that I talked to and spend time with in New England and New York.

Local institutions have been responsible in their dealings with customers, both when they make loans and when they collect loans. In fact, we have only taken title to two residential properties through foreclosure this entire year.

Larger institutions will lose access to risky revenue streams which have propelled their capital and earnings in the past and there will, therefore, be a more level playing field for traditional bankers in the more narrow range of activities that will be allowed in the financial system. This seems certain to me.

And while capital standards remain to be defined, successful regional institutions have shown that they can attract capital and they do provide transparent and visible results to investors who can invest with much less risk and now potentially enjoy some very attractive upside returns. The new regulations will inevitably create more pressure and compliance fatigue for smaller institutions who many increasingly turn to merger partnerships as the best way to deal with the changed landscape and we want to be their partner of choice.

I think these advantages are becoming more apparent to the marketplace. As a result, we are benefiting from what I call increased reputational awareness and it helps us in a couple ways. We are getting more looks at opportunities to acquire quality new relationships. We have attracted best-of-breed business teams, players who can join us and bring a book of business to us.

New investors are interested in our company and we have not had the distractions of issues in other US regional markets. We know our territory, we have solid capital to serve our markets, and we are focused on consistently reaching out and building share organically and through opportunistic expansion.

So in conclusion, we know full well that this awareness is only a benefit as long as we continue to deliver the goods. We have shown that we can deliver quarter after quarter this year and I am confident in our prospects to deliver on the earnings growth goals that I have discussed here this morning.

Now this does conclude my remarks and I would ask the operator to open the lines for questions. Thank you.

(Operator Instructions) Damon DelMonte, KBW.

Good morning, guys. Mike, could you comment a little bit more on your asset-based lending operations, kind of what you are seeing for growth prospects and where in your footprint you are seeing it?

Sure. I am actually thrilled with the team we have. I am thrilled with the business they are doing. Rich Marotta is here, our chief risk guy, who has been really involved with all those operations and, Richard, I would ask you to make a couple comments from your vantage.

Damon, I guess my background -- I actually ran or had the asset-based lending group report to me at my former shop three times through my 20-year career. And the way we have structured it here it's truly an ABL. It's the natural form of asset-based lending.

What I mean by that is it's not airball lending. It's not finance lending. It's true middle market companies. And when you do it the right way, which is the way we do it, with all the bells and whistles and the cash dominion and the audit processes and procedures in place, it truly is the most prudent and safe form C&I lending that you can actually do.

And I would argue in some context it's probably the most prudent and safe commercial lending that you could do.

Okay. Are you saying the opportunity is across the entire footprint or is it more located in one particular area?

It's across the footprint and really what has kind of happened and it's kind of exciting is that the group was basically Boston, Massachusetts-based team. And because of some of the things Michael talked about about the leadership that we brought in on a regional basis, be it New York or Vermont or elsewhere in our footprint, we have been able to network and bring in some really quality clients.

The reason why we get the opportunities is two-fold. One, the teams are well respected in those markets and, number two, again something that Michael said before, the other players, the larger players in the market, are just -- they are occupied with other things and they are not really looking at what they should be looking at which is their good book of business.

Okay, that is helpful. Thank you.

I guess my next question is probably for Kevin. Could you comment a little bit on the leverage that was put on this quarter? It looks like you had an increase in short-term borrowings as well as securities balances?

Well, the thing is we put some securities on and we tried to get some better yields. We do have some maturities maturing in the fourth quarter so we just try to get a little bit ahead of those maturities. We get about somewhere between $15 million and $20 million maturing in the fourth quarter, so we just tried to put on some higher-yielding assets in the third quarter before they matured.

That is very helpful. Thank you very much, guys.

Mike Shafir, Sterne Agee.

Good morning, guys. I just had a couple of questions on -- actually to follow up on some of Damon's questions on the securities portfolio. It looks like those yields have been ticking up over the last several quarters, so I was just wondering in terms of duration what kind of stuff are you putting on.

We are staying short, below -- no more than three years duration on anything. We are trying to stay short. What we did last year, we did put on a bunch of corporate security because we thought rates were going to go up at one point in time and they only had a duration of like 12 to 18 months. But their yields were only about 1.5%.

Those are the securities that are rolling off so that is allowing us to go. We are not really extending, we are just staying within three years. Again, as I mentioned, you manage the whole balance sheet and we are managing to be slightly asset sensitive so that if rates do move we can move effectively north.

And then also just as we kind of look at commercial loan growth and historically you guys have kind of provided some guidance on where you see that going so I was just wondering if maybe we can get some updated guidance. Then specifically the C&I bucket which grew quite significantly this quarter, what kind of yields are coming on to that new product?

Let me just make a comments about growth and then Kevin or Richard can talk about yields. My expectation would be that there is no reason we can't continue to see double-digit growth on the commercial book. We have got some areas of New York, we have actually some areas in Vermont where our guys are starting to make some inroads, and we have got the Massachusetts market. We are small players in some of these markets so I would think that double-digit growth is something I would like to see continue.

As far as yields go, maybe one of you guys can speak to that.

I will comment a little bit more on yields. Again, it all stems around maintaining the interest sensitivity of the balance sheet.

In the past we have been putting in a lot of variable rate loans with swapping in fixed, but the thing is we kept on getting more and more asset sensitive. Now we are trying to do a balance of doing some variable rate commercial lending and some fixed. So the fixed rate commercial loans yield more than the variable rate loans so that is why you are seeing yields the hang up.

We just don't want to continue to become more and more and more asset sensitive in the process, but we want to maintain somewhere between 3% and 4% asset sensitive but we don't want to take that a lot higher. If we continue to doing the deals with regards to variable rate loans and swaps, we would have taken that asset sensitivity to a high level and it would have hurt current earnings.

And, Mike, if you can let us know when rates are going to move it will be easier for us to make this decision.

Fair enough. But the new product that is coming on, where are the average yields?

Again, we have a pricing model here with regards to commercial loans so we look at what the loss rate on these loans is going to be, what are the spread to the cost of those borrowings would be for the duration of the loan, and we build in and make sure that we are getting -- our target is a 15% return on equity that is being allocated to those loans. So we have a pretty sophisticated pricing model to make sure that we are getting the spreads that we need to cover the costs associated with the funds being laid out.

Yes, and when we are doing these transactions -- this is Richard Marotta -- I can safely say and honestly say that we are not moving on structure and we are not moving on rate and we are being very selective in what we are doing.

When you are looking at these deals to talk about or to repeat what Kevin just said, we have got a sophisticated pricing model which we are very -- we adhere to. We are getting 15% or more from a return on equity. When you are looking at these things, these things are 2.5 or better over the margin. So these are good, strong loans from a quality standpoint and they are good, strong loans from a yield standpoint.

Thanks for that detail, guys. Then just talking about capital for a minute. It looks like this quarter TC to tangible assets was right at 8% and it kind of looks like pro forma for the deal, it seems like those numbers are going to stay relatively similar.

Yes, (multiple speakers).

Slightly up, but that is pretty similar though.

Okay. And then (inaudible) in total risk-based capital is still going to be right around a little bit in excess of 11%?

Yes.

That is correct. (multiple speakers) That is right.

So I guess as we think about you guys, this transaction was actually obviously very solid because you got to use your currency. But as we think about moving forward and maybe potentially doing a larger transaction or looking at some other deals that would involve a larger cash component, how would you guys feel about going back to capital markets to raise additional equity?

I think going back to the capital markets is always going to be an option for the Company. If you look at every one of these deals on an individual basis, they are going to require different things. Some will require a little more cash in, some will be more currency.

If it was on a larger deal and it made a lot of sense for the companies on a combined basis and we needed to go back to the capital markets, we would have no fear of doing so. A good deal is a good deal and we expect that almost everybody would agree on it if it were a good deal.

So I don't expect that we are going to have to do that in the near future, but if we did, Mike, I don't think it's anything we would be fearful of.

And also, Mike, there is different forms of capital too. We could do debt capital versus stock.

Thanks a lot, guys. I appreciate all that detail.

Mike, it's our pleasure.

Mark Fitzgibbon, Sandler O'Neill.

Hey, guys. First question, you referenced in the press release that the borrowings hedge restructurings aided the NIM. What exactly are you referring to there?

Again, in the balance sheet management aspect what we did to try to stay in that 3% to 4% band what we did is we had some fixed rate -- and this is value when you put interest rate swaps on your debt. What we did is we had some variable rate debt that we fixed over a period of time and what we did is we prepaid that.

Under accounting standards you take that prepayment and you amortize it over the life of that debt. That allowed us to reduce some of the costs of our funding.

Okay. The second question I had is I guess for Rich. I guess I am curious how big you think that asset-based lending book will get and how important you think branches are in the Metro Boston area to support your business.

Let me answer the second question, I guess, first. I think with the network and the reputation that those folks have it isn't hurt by not having a network in the Boston area. I think anytime you do have a presence anywhere it helps you to generate the business that you don't have a network for it, but I think we are fine in the sense that they have a real established network.

They came from a large institution. They know all the players and ABL lending is really truly a word, relationship lending. Bankers like to use relationship lending a lot. ABL truly is a relationship product so it never hurts you; it would help you.

As far as how far we want it to grow, there is many different ways to look at it and one is our size and our size in the future. The way we are growing that book now is on a nice even level for our capital that is being used, for the reserves that are being used. So if you kind of look at the way we are trending right now those are the kind of trends we would like to see into the future.

Percentage of book of the overall portfolio I think also I think Mark is --.

10%.

Yes. 10%, 15%?

Yes, 10%, 15%.

Is that helpful, Mark?

It is. Also I am curious, NOW accounts had real strong growth this quarter. Was there a particular promotion or something that was really driving that?

Sean Gray is here; he runs our retail banking. Sean, how did you --?

More so from seasonality and some of our legacy institutions such as Factory Point. The NOW account was used as a primary demand deposit so back to Mike's point of relationship pricing, focus on the checking, aided the growth and then some seasonality with some of the larger institutions that do possess NOW accounts.

Okay. And then the last question is for you, Mike. I am curious with the Rome acquisition in process when do you sort of feel like you will have that integrated and be in a position to do other acquisitions?

This is a nice; I won't call it small, but smaller acquisition opportunity for us. There is nothing that is really complicated about it so I think the only time issue we have is when we can get regulatory approval. I would expect that we would get that and be able to close this in the first quarter.

But I would also suggest that this wouldn't preclude us from continuing to talk with other potential partners on top of it. We have got and put together maybe an overqualified team of M&A people in this company. We feel as though they are equipped and have the capacity to do more than one thing at a time.

Okay, thank you.

Brad Evans, Heartland.

Good morning, gentlemen. Nice quarter; congratulations to the team. Just could you give us the 30- to 89-day past due bucket, what does that number look like at the end of the quarter?

Yes, it was pretty anemic. Can somebody find that?

Yes, it was very low from --.

Like 30 bps, wasn't it?

Yes, actually I would say 28 bps.

Yes, it was 25 bps to 30 bps, Brad, and if we have a number that is materially different from that we will get right back to you. I guess we are going to get it now.

28 bps.

And do you have TDR balances handy?

TDR balances haven't moved so --.

Yes, they were under $3 million at June 30 and I don't think there was significant --

Under $3 million, Brad.

-- performing TDRs.

Yes, I would say it's under $3 million.

Okay, so that is -- I am sorry, do you have the number from the second quarter handy? I don't have that number.

It's about $2.5 million.

Okay, thank you. Can you just maybe walk us through what you are seeing just in a little more granularity from a loan pipeline perspective, just both by geography as well as by loan classification?

Sure. Why don't we start with the C&I book? I think one of the things I did say in my remarks was that we are getting loan growth in all of the regions where we are doing business. Of course, with amortizations and payouts.

One of the things I would point out that Richard has done is he is now looking at credits that are rated two and three. And if he believes that over a period of time that customer has weakness we are finding ways to move those customers out very, very early in the process. So in some of the more mature markets they are putting on good loan growth, say, in the Pioneer Valley, even in the Berkshire County market, but it's netting out to very little net growth because of that.

The bigger net growth areas certainly would be the New York region, which we continue to see, and we don't expect fierce amortization on that portfolio because of its size at this point. The ABL guys are actually -- while they are concentrating in the Massachusetts area, have really done a couple of deals in Vermont and they are looking at a couple of deals in the New York region.

So I don't know if that gives you enough granularity. If not, we can give you some more, Brad.

I am just curious, maybe if you could just comment on the commercial real estate side. It looks like you were up a little bit on a linked-quarter basis. I know there is a lot of concern about the health of the commercial real estate market. Your thoughts there within your markets?

Yes, I think -- again, this is Richard. The beauty of it is that when you are in the part of the economic cycle that we are in now, as we are starting to look at some real estate transactions we are doing what Michael just said we are doing.

In our more mature areas we are actually moving out transactions that are on our books either from a credit perspective or a yield perspective and we are starting to bring in more, I will call it high quality, higher-yielding loans. So from a real estate we are just basically treading water with a little bit of growth and concentrating on, again, kind of deleveraging our balance sheet from real estate by going more towards C&I and the ABL, which we discussed already.

Okay. There has been a lot of discussion about inorganic growth, which congratulations on the Rome transaction; it looks like a nice one. Michael, how does the Board and management think about the prospect of potentially raising the dividend going forward versus inorganic growth?

Are they -- maybe there is no -- maybe that is mutually exclusive. But what are your -- I realize that the yield at 3.3% is pretty attractive but I sense in this environment that raising the dividend a little bit might attract more investors to your stock. What are your thoughts there?

Well, as you know, we wouldn't discuss dividend policy publicly, Brad. I think your question is a good one. It's duly noted and we will take it under consideration.

We have got some earnings momentum at this point. We have got some things that we want to do, to produce, and get ourselves in the position that we have said we want to get into. And so I think the dividend is in a good place today.

Whether or not we raise that dividend and when will be subject to some discussions at the Board level. We will certainly let you know if there is any change.

Okay, thanks.

I think that is it for questions at this point. Andrea?

We have no further questions at this time. Mr. Daly, do you have any closing remarks?

Only closing remarks are to thank everybody very much for joining the call today. We enjoyed the questions, enjoyed answering them to the best of our ability, and we certainly look forward to speaking with you again at the end of next quarter.

Thank you. The conference has now concluded. Thank you for attending. You may now disconnect.