Beacon Financial Corp (BBT) 2011 Q2 法說會逐字稿

Good morning and welcome to the Berkshire Hills Bancorp Q2 earnings release conference call and webcast. All participants will be in a listen-only mode. (Operator Instructions.) After today's presentation there will be an opportunity for you to ask questions. (Operator Instructions.) Please also note that today's event is being recorded.

At this time I would like to turn your conference over to Mr. David Gonci. Mr. Gonci, please go ahead.

Good morning. Welcome to America's most exciting bank, and thank you all for joining this discussion of our second 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.

Now I'll turn the call over to Mike Daly, President and CEO.

Thank you, David. Good morning everyone. Welcome to our second quarter conference call. With me this morning is Kevin Riley, our Chief Financial Officer, along with other members of our management team.

I'm pleased to report on a very good quarter -- one of our best quarters really -- because I believe this is the beginning of the beginning for us. Our earnings release headlined the 40% increase in core earnings per share that we posted during the quarter. Now that's a big number in any environment, and particularly given the economic challenges of the current environment.

Earnings exceeded our budget expectations as well as the consensus estimate. I'll have more to say about our quarterly results, but first I want to comment on our recent bank acquisitions. At the time of our last earnings call we had just completed the acquisition of Rome Bancorp. We completed the integration of the Rome operations during the second quarter and I'm very pleased with the smooth combination that we have achieved. We're now busy building our position further in that market.

We also executed our cost-savings strategies according to plan and we fully expect to achieve our targeted earnings results for that acquisition.

Our earnings release noted we had $0.03 core EPS accretion from this deal during the second quarter and our profitability metrics have improved significantly, and Kevin will have more to say about that in just a few minutes.

When we look at that increase in our core earnings compared to the increase in our capital, we had more than a 10% annualized marginal return on our new capital in the very first quarter of this acquisition. We have a sharp focus on achieving strong returns on all new investments, and of course, these results are fully consistent with that.

We worked hard during the second quarter towards the completion of our acquisition of Legacy Bancorp. As most of you know, we closed on this acquisition last Thursday. Now this merger involved a number of steps, including an agreement for the divestiture of four Legacy branches, which we also announced recently.

We worked closely with several regulatory agencies to process our applications and they were very efficient, by the way, including one that went away on the day we closed the deal. We worked with the Legacy team throughout the process and it has helped that this is an in-market merger that facilitated close cooperation. As we planned, the Legacy Bank CEO, Pat Sullivan, has joined our executive team, as Executive Vice President and head of Corporate Banking and Wealth Management.

Prior to joining Legacy, Pat held positions at Sovereign Bank as Managing Director of Corporate Banking and CEO, New England. Pat was previously an executive at Community Banks in Vermont and New Hampshire, so we welcome the expertise and contacts that Pat has developed over his 30-year career. And he's fully engaged with our teams and is hitting the ground running. He's been very helpful in assuring a successful transition of the Legacy team.

We also look forward to welcoming Bill Dunleavy, another Legacy director to our Berkshire Board and we're also coordinating the activities of our two foundations which will continue to support the communities that we serve.

The Legacy acquisition was a third-quarter event at Legacy operations, therefore, did not contribute to our second quarter results. And again, Kevin will provide more color on the Legacy merger benefits that we're expecting beginning in the third quarter.

The back-to-back Rome and Legacy acquisitions have taken strong efforts by our team, and I'm very proud of their results to date. Our team now has several successful bank acquisitions under its belt. But beyond this, I'm most proud that we have also kept up strong organic growth in the second quarter and our good results on the merger front should not distract from the ongoing strong organic results that we're posting.

Now turning back to our second quarter results, we reported 27% organic annualized growth in our core earnings per share compared to the prior quarter. This represents the fifth consecutive quarter with year-over-year core organic EPS growth exceeding 25%. Now this momentum is based on positive operating leverage resulting from strong revenue growth and disciplined expense management.

Our GAAP earnings results include one-time merger related charges based on current purchase accounting standards -- of course, charges which are not related to our ongoing operations.

Our organic growth was led by our commercial team, which posted 16% annualized organic growth in loans during the quarter. While there has been some modest improvement in our local economies, this growth primarily results from increased market share developed by the teams that have joined our Company.

We saw good business development across the board during the quarter. We posted 3% annualized organic deposit growth during the quarter with 5% annualized organic growth for the first half of the year. Additionally, our mortgage loans grew at a 6% organic annualized rate, continuing their momentum from the first quarter.

Now these results came at the same time as our margin increased to 3.52.

Fee revenue was also up in the quarter. Deposit fees naturally reflected the additional volume from organic growth and from Rome. Annualized deposit fees were stable at around 55 basis points compared to average deposits and this show that we have offset the modest negative impact of the Reg E changes to overdraft fees in the third quarter last year.

We had a great quarter on the wealth management side, with a 22% revenue increase compared to last year. Our new business development was strong and now with the Legacy business, our total assets under management are over $900 million.

We have focused on changes in this business line to broaden our investment product offerings and improve our delivery platform and the market is responding. Rome did not offer wealth management and insurance products, so all the revenue growth reported in these business lines was organic growth. As we noted in our news release, our insurance commissions were up 4% over 2010 and this primarily reflected commercial account growth and some modest improvement in market pricing conditions.

Of course, our total insurance revenues were down in the quarter due to lower contingency pay-outs reflecting industry conditions as we have previously reported.

Now while the size the revenues continues to grow, so does their quality, as we pursue multiple initiatives to deepen wallet share across several balance sheet and fee-based business lines. The quality of our revenues is also reflected in the strong quality of our asset performance which continues to improve and to compare very favorably to industry averages.

We also maintain real focus on our controls and risk management as we grow. We added three Senior Vice President positions in the most recent quarter. One heads our new Office of Project Management. We have a new head of Audit & Compliance, and a new managing Senior Credit Officer. All of these individuals bring us decades of experience and business process knowledge from major banks, and they provide the further depth to assure that revenue quality remains strong as we expand our reach.

Now, at this time, I'm going to ask Kevin to provide some further color on the quarter and on our guidance looking forward. Kevin.

Thanks, Mike, and good morning, everyone. As Mike mentioned, we had a good second quarter with a posting of core earnings per share of $0.35. This was slightly higher than the guidance we provided you last quarter of $0.33, $0.34. Better than expected net interest income fueled by a higher than expected margin and a benefit from the reduction in FDIC deposit premiums offset partially by an increase of REO write-downs allowed us to report these stronger than expected results.

Our core earnings of $0.35 for the quarter was $0.05 increase over the $0.30 core earnings of the first quarter. Since we had the benefit of the Rome acquisition for the full quarter, we were well on our way of achieving our 35% cost saves. We estimate the Rome acquisition's core earnings per share accretion to be about $0.03 for the quarter.

At this time we feel confident that all remaining cost saves will be accomplished over the next two quarters.

As you know, with new accounting rules, all non-core one-time M&A charges flow through current-period GAAP earnings. So for the second quarter, our GAAP earnings per share was $0.11. These expenses were in line with our expectations and related primarily to employee benefits/severance or professional fees from both Rome and Legacy.

These charges are reconciled on page F-9 of our earning release and are net of applicable taxes.

In this quarter we also had the impact of approximately 2.7 million shares being issued with the acquisition of Rome.

Now getting into more detail on the financial results -- as you would expect with the addition of Rome, most of our financial statement line items increased, both on the balance sheet and income statement. However, you exclude the impact of Rome on loans and deposit balances, we were able to post an annualized organic loan and deposit growth rate of about 9% and 3% respectively.

Our net interest margin for the quarter was slightly higher than we expected, coming in at 3.52%. We had forecasted it to be in the range of 3.4% to 3.45%. This was up from the first quarter margin of 3.30%. With declines in the deposit cost of 104 basis points in the first quarter to 94 basis points in this quarter, and the addition of Rome's higher margin business mix, the margin reacted favorably for the quarter.

As in the past, we remain committed to being slightly asset-sensitive to protect the bank's earnings against rising rates after the acquisitions.

Looking forward, excluding the impact of Legacy, we continue to expect our organic balance sheet growth rates to be in the same range as we saw in the second quarter, high single-digits for loan and mid-single-digits for deposits.

For our existing business, we expect that the net interest margin will be stable with earning asset yields and funding costs declining together. With Legacy included, we expect our margin to stay in the range we saw in the second quarter, around 3.50 to 3.55 and net interest income coming in around $30 million.

For the second quarter, non-interest income came in within the range we expected. As Mike commented, our fee income showed continuing strength in the second quarter even with the inclusion of our accounting change for tax credit investments that we noted in our release.

As you know, insurance contingency revenue is recorded in the first half of the year causing some seasonal impact on our earnings. In the second quarter, we recorded about 0.5 million of such revenues. For the third quarter, we expect that we will produce about $8.7 million in non-interest income with the addition of Legacy.

Our loan loss provision for the second quarter was $1.5 million and fell right in line with our expectations. Our asset quality ratios continue to improve and our net charge-offs fell below 30 basis point on an annualized rate.

I'd like to note that under current purchase accounting standards for loan loss allowance for Rome acquisition was not added to the Berkshire's existing allowance. Rome loans were brought on to Berkshire's books with individual fair value/credit mark placed against them.

Legacy will be handled in the same manner. As a result, the ratio of the allowance to outstanding loans is decreasing in line with current accounting standards.

For the third quarter, we expect our credit experience to remain favorable so we're projecting our provision for loan losses to be in the same range as the second quarter.

Our core non-interest expense for the second quarter came in a little over $23 million and was within the range we expected. We expect over time, our core non-interest expense to grow at an annualized rate of about 4% which includes investment in infrastructure to support future growth.

As I mentioned earlier, we are well on our way in achieving our 35% cost saves from the Rome acquisition and feel confident that the 42% cost saves in the Legacy transaction will be realized. All these saves will be completed by year-end.

With Legacy, we expect core non-interest expense to be a little less than $27 million for the third quarter. We also expect to record non-core one-time merger related charges, relating primarily to Legacy's acquisition in the quarter. These charges will depend on final posting acquisition analysis, so at the time, we are not presently making any projections on these amounts and the timing of them.

With the change in accounting for investment tax credit, our core earnings tax rate fell to approximately 23% from 28% in the prior quarter. The investment tax credit change lowered both non-interest income and our tax rate expense by about $550,000 and $650,000 respectively. We currently project, with these changes, our core effective tax rate to be around 22% for the second half of the year.

Based on the outlook we provided, we believe our total core earnings to be in the range of $8.5 million and that they should produce about $0.42 in core earnings per share. Based on the July 21st closing of Legacy transaction and the issuance of approximately 4.4 million shares, we expect to have about 20 million in average outstanding shares for the third quarter.

Before I turn the call back over to Mike I'd like to note that at the time of the announcement of the Rome and Legacy acquisitions, we stated that we expected all of our financial ratios would improve. The second quarter's core ratios showed some nice improvement. We expect these ratios to continue to improve in the third quarter with a return on assets approaching 80 basis points, an efficiency ratio of under 65%, and a return on equity in excess of 6%.

As we stated in the past, our goal is to get our return on assets over 1%, our efficiency ratio below 60% and our return on equity over 10%.

We feel confident with the integration of our acquisitions and the continued organic growth we will see significant progress toward our goals. Our team has been very disciplined in planning of this year and I am pleased that the financial results and metrics are currently a little ahead of our plans. We have a lot of work still in front of us for the rest of the year and our team is eager to continue building on the strong momentum that we have already started.

With that, I'll turn the call back over to Mike.

Kevin, thank you, and I think you did a great job in taking complicated numbers from the purchase accounting standards and making them clear and simple, and I appreciate it.

So let me start with this -- a $0.42 third quarter would be up almost 70% over the prior year for core results. It's a $0.7 increase from the current quarter. Now excluding the estimated $0.3 to $0.4 accretive core benefit from Rome, and another $0.3 pro forma from Legacy, this would represent a big increase in our annualized organic growth rate. Remember, this is on top of the fact that we had a seasonal component of insurance contingency income of $0.5 million in the second quarter.

Our $0.42 target for the third quarter matches the current consensus estimate for us and we'll work hard to make that happen. While we beat expectations in the second quarter, this represents a top-end estimate for us in the third quarter. Now if we can achieve this, and build on it a little in the fourth quarter, we can achieve the $1.50 core EPS target which was at the high end of the $1.40 to $1.50 range that we provided at the beginning of the year.

Now we don't normally provide fourth quarter guidance at this time, and we're not trying to provide such estimates now. The fourth quarter outlook is going to depend a lot on economic and competitive factors that emerge over the next few months. But we feel good about meeting our targets at the top end of our earlier estimates for the year.

As most of you know, we're targeting a $2.00 core EPS run rate by the end of 2012. Our organic EPS growth is on a pace for us to achieve this result. The consensus estimates for us for 2012 are currently ahead of this pace , and while I appreciate the confidence in us that this shows, we're delivering solid results for our investors based on our current targets.

And I want to caution against expectations beyond these goals. Now we always look to work to meet or exceed our objectives and we'll continue to be investing in our franchise, including absorbing current period costs that we determine are appropriate to maintain our momentum and quality. Now this includes the cost of continuing de novo branching. Also we'll continue to balance our loan and deposit pricing disciplines in light of our growth targets and market competition.

We are well positioned to continue to improve our market share and we'll be careful about sacrificing this opportunity at this time just to maximize the current period margin. Additionally, it looks as though we may continue to see the low current interest rates for the foreseeable future. Now for those of us with the discipline to maintain our asset sensitivity and our asset liability management, this is going to keep our margins under pressure.

So we have good opportunity, but we also want to be measured in our earnings expectation, which already include a doubling of our core EPS run rate in 2011 and 2012. I'm very pleased that our tangible book value per share at mid-year is higher than when we announced the Rome and Legacy mergers and we have demonstrated that we can grow solidly through acquisition without significant dilution to tangible book value.

We also increased our capital ratios with tangible equity to assets increasing to 8.3% in mid-year.

I'm also quite pleased with the strength in our stock price, which hit a high of $24.14 after we announced the Legacy merger. Now it's eased off a bit since then, but this demonstrates the strong support we are receiving from investors based on our current strategies.

Now this is up more than 25% from where we were trading before we announced these two mergers. Based on our plans, we feel there is significant upside potential to our stock price, as do the analysts who cover us. Our pricing multiples continue to offer room for growth compared to the other peer banks in our region, and we expect to realize this growth as we continue to post strong performance.

We feel that our stock offers a compelling combination of value and growth that will be attractive in the low-return environment that currently exists in many capital markets. With around 21 million shares outstanding, we are now trading with nearly a $500 million market cap and expect stronger liquidity in daily trading volume. We think we're becoming eligible for investment by a larger group of institutional investors and we've expanded our investor road trips to give more exposure to our stock.

I also feel that these developments show the solid value of our merger disciplines to us and to the banks that chose to partner with us. We're well positioned to participate in further regional consolidation opportunities that may develop and to offer superior partnership potential in our region.

So it's been an exciting quarter for us, and the challenges included a direct hit on our Springfield Regional Headquarters by the extraordinary tornadoes that caused widespread damage in Springfield and central Massachusetts. I'm pleased to report that we are back in these headquarters now, thanks to the hard work of many of our team. We're also working with others in the community to find ways to assist in the reconstruction that will be needed to recover from these storms.

Our Company now has over 4 billion in assets and operates through more than 60 branches. We've improved our market share and expanded our franchise footprint. We have more capital resources to support our markets in a bigger, experienced and energetic team that's eager to deliver greater revenues.

We are well positioned to continue to execute on our strategy of taking market share from national providers where we have the scale to match their offerings and the engaged local management that is responsive to local needs.

So as I said at the start of this call, it feels to us like this is the beginning of the beginning and we look forward to producing exceptional results for our investors and all of our constituencies in the future.

Now this completes my prepared remarks and I now invite the operator to open the lines to questions.

(Operator Instructions.) Our first question comes from Damon Delmonte from KBW. Please go ahead with your question.

Hi, good morning, guys. How are you?

Good, Damon, how are you?

Great. Thanks, Mike.

My first question deals with the mention of the change in the accounting treatment for limited partnerships. Kevin, I was hoping you could give us a little guidance as to how we could model out that impact, both from the non-interest income side as well as forecasting out a tax rate.

What I measured for this quarter is going to be similar as quarters going forward. It's about a $550 hit in non-interest income and about a $650,000 reduction in tax expense.

Okay. Okay, great. Thank you. Then I guess my other question, could you guys talk a little bit about loan pricing and what you're seeing as far as competition and spreads and which areas of your footprint are you feeling the most competitive pressures?

Sure. Actually, we've got two guys here that could answer that question. Pat Sullivan is here and so is Richard. So you guys decide who wants to answer. Pat, talk to us about what's going on in the regions, from a pricing standpoint.

Damon, how are you doing?

Good, Pat, thanks.

I think it's very competitive when you look at the -- as we look to our east, especially in the asset-based lending area. However I would tell you that I think we're getting treated very fairly because, again, our teams have a lot of loyalty from those customers, so we're getting what I would call the market pricing at the time, and we're getting a lot of fee income. So I feel good about that.

I think in our traditional markets, which are Berkshire County -- which is about half our bank today -- and Vermont and in the Albany market, again, I would say we're following competition. I think we have a competitive advantage, particularly in the Berkshire County market, because customers know us, both our institutions, longer. They trust us and I think trust is a big word today with commercial customers and they're willing to pay a little more for the longevity of the relationship. I hope that gives you a little color, Damon.

Yes, it's tighter than it has been, Damon. I don't think there's any question, and it's more competitive than it has been. But as you can see by our numbers, we're still getting our share of commercial business, and I think, as Pat said, it's got a lot to do with relationship building and the teams we're bringing have relationships that are very long-standing. It's tight and it's getting tighter.

Great. I appreciate the color. Thank you. That's all for now; I'll go back in the queue. Congrats on a nice quarter.

Thank you, Damon.

Our next question comes from Mike Shafir from Sterne Agee.

Hey, good morning, guys.

Hi, Mike, how are you?

I'm doing well -- yourself?

Great.

Listen, I was wondering, could we just get a little bit more color on the margin because the Legacy margin's considerably lower -- or has been considerably lower -- than the 3.50, so maybe we could just kind of walk through the thought process of how we're going to have that remain at those stable levels or that 3.50 to 3.55 level over the next several quarters.

The only part of accounting I really love, Kevin. Go ahead.

A lot of it though is purchase accounting. We get to realign the actual balance sheet, and that will allow us to continue to have that margin higher. So, I mean, we get to re-price their investment portfolio, their borrowings and also the loans.

But we go in, basically, with a margin with them, different than what they would have seen prior to doing the deal. That's probably the easiest way to put it.

Yes.

All right. So as you mark that stuff to market, you get a considerable rise, basically, in their NIM.

You got it, exactly.

And then just as we think about the tax rate -- and I'm sorry, I still kind of remain a little bit confused. When you said the 22%, that's for the remainder of this year?

Yes, because the investment tax credit partnerships, they're going to flow on a quarterly basis at the same rate they were in the third quarter -- I mean the second quarter. The thing is -- the reason why it was 23 in the second quarter is we had to make up a little bit more tax from the first quarter. As you produce more earnings, you've got to go back and kind of pick up more tax from the prior quarters.

This is Dave Gonci . I would just also add when we have the non-core expenses, they'll drive down our GAAP effective tax rate even further as they did in the second quarter, but we tried to give our guidance around the core ongoing rate so you could understand that.

Okay. So then when we think about the tax rate in the out years, how should we be thinking about it then, since this is kind of done on a quarterly basis?

They're going to increase. As earnings increase, the marginal tax rate will increase because you've almost got to look at that as you move forward, incremental income is going to be taxed at more of a marginal tax rate, so you've got to bleed that kind of in. We will have some more tax preference items, but you've almost got to bleed in the additional earnings growth at the marginal tax rate, which will increase our effective tax.

Kevin, if they're talking about putting out their 2012 estimates and trying to model them, the tax rate we're using now, which is offset by that reduction in the income section for the tax credits, will that be similar in 2012?

No. It will go up.

So, can you give them an example, so they can model?

25% .

Yes, that's probably close, 25% 26%.

We were running -- when we were at $2.00, we were running about 32%, so you've got to take about 6% or 7% off of that. So yes, I'd say about 25%, 26%.

Does that help, Mike?

That does. Thank you very much, guys.

You're welcome.

And then just as far as the organic growth that you guys are seeing, it certainly has been continued, and very much kind of out-performance versus a lot of the other bank peers. I was wondering what has continued to drive that? I mean, are you still taking talent away from other larger institutions? And you guys spoke to a much more competitive environment, so maybe you could just kind of provide some color on that.

Mike, from my standpoint, a lot of it is momentum. If you get in early into an area, you establish a team and you establish a certain amount of dominance in a particular area, you're the first player that people go to. They'll go to town, they'll talk to accountants, they'll talk to lawyers and you get kind of listed as the one or two banks to go to.

So getting in early with a team, establishing some dominance and then picking off a player here and a player there that that team knows is relevant to garnering commercial loan growth in the markets that we're in.

As Pat said, you get down closer to the Boston area, it's not quite so simple. There are a lot of teams down there and there's a lot of competition, but in some of the rural markets that we do business, if we can become the player of choice, we can really put some numbers up on the board, which is, as you've seen, has been kind of our strategy over the past few years.

So we're going to continue, as we do these -- get into some of these particular areas, we're going to really focus on those areas. We don't do an acquisition in an area, and then go on to the next thing. We really focus on making sure that we become a dominant player in that area. So I think that we'll see some softening here and there. There will be some up quarters and down quarters. There will be some pipelines that get executed on quicker in some quarters than other quarters, but I do think that the talent will continue to come and I think that the stronger base we build in some of these markets, the stronger the momentum becomes for garnering additional commercial banking. Do you guys want to add anything to that or does that --

Yes. Michael, I would just add, or maybe just sort of dovetail from what you said, I think it's all about two things. One is talent and the other one's culture, and I think the talent in the markets that we're in, we have the dominant talent in those markets and we've done that by design. That's number one. And then number two, it's the culture that we've built in this organization which makes America's most exciting bank, but also it makes the process very simple and we push it down, so the decision point is close to the client and we can respond and we can beat our competition.

Those are great points, Richard. Thank you.

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

Our next question comes from Laurie Hunsicker from Stifel Nicolaus.

Yes, hi, good morning.

Good monring.

I just wondered, you mentioned you just hired a senior credit manager. Who is that?

[Vachi Galupa] -- I know I've learned how to pronounce the last name.

Laurie, , it's [Vachi Galupa] who -- his former stint was at TD and Bank North for 10, 15 the last 10 or 15 --

17 .

: 17 years.

A well known guy.

Okay, great. And just wondered if you can update us a little bit with respect to your de novo plans, both in terms of your recent openings -- I think Rotterdam was your most recent and then you had Latham at the end of the year -- just how those branches are doing, and then

what your plans are for this year, for next year, that type of thing. And then, obviously, finally Mike, now that you guys have just closed two deals, if you could lay out for us what your thoughts are on acquisition as we look forward to the next one or two years.

Okay. The first question on where we're branching. New York continues to be an area that we have a long running room with respect to where we want to be on that S-curve. So we've got some additional branches we're going to want to put in into that Albany area. And Sean Gray's here, who's done, I think, a remarkable job of turning profitable these branches in a pretty short period of time. Where are we with all the branches and the new ones we've put up, Sean?

Sure. As Mike mentioned, we do a detailed S-curve analysis, so our de novo plan isn't reactionary; it's very proactive. We target about two to three a year, Laurie, within the organization. We feel those costs and expense associated with that keeps us on track with the growth rates and the EPS that we're looking to drive.

We're very much focused in the Albany area. Our metrics and our demographic studies show us that the most positive growth we can obtain is moving up on that S-curve right there in downtown Albany, so really the community surrounding Albany is the target area. We're very happy and pleased at the pace they're growing and it's definitely a core strategy that we're going to continue.

And I'll take the last two questions, and kind of combine them together, Laurie, and that is that any additional branching areas and any other potential deals we might look at. As you know, and I think others know, we've got a pretty strict formula about who and how and where we would do any additional partnering, and it really comes down to somebody wanting to partner with us as much as us wanting to partner with them, so that we can take a collective look at the earnings growth and minimal tangible book dilution and real upside for both sets of shareholders, and those will occur when they occur.

And we continue to be active, and I obviously continue to spend time talking with other CEOs, but it's not really our primary focus. Our primary focus, frankly, is to continue to execute well in the areas that we're in. As I say that, we know that we'll need to do some additional branching in that New York area, and if there are other areas of either Massachusetts, or southern Vermont, or northern Connecticut or other areas where we don't find an opportunity to partner, and we want to put a branch and put an LPO office in, we're going to look at that as well. So I wouldn't limit us specifically to New York, but that's certainly going to be our focus. Does that cover your questions?

Yes, and I guess just with respect to your acquisitions, would you say that you're more in digestive mode now and you're open to it or you're still actively pursuing acquisitions?

Oh, I don't know. I'd say that's somewhere in the middle. Look, I'm always willing to discuss a good partnership with somebody because I think we do a real good job of execution on these things and it builds momentum in the Company. And I think one of the things we've shown is that we're able to do -- and integrate these deals without losing focus on what we're doing on the organic side.

One of the guys that's in the room is a guy named Dave [Idel]. Dave was a former executive with Sovereign Bank. He came over here with Pat, and he took the helm of our Project Management Office and I have all kinds of confidence that Pat will be able to put even better systems than we have now and coordinate our integration methods with these banks. So I guess it's just a toss-up between when you say "We're out eagerly looking" and accepting invitations. It's somewhere in between.

These things happen because we get into areas, we develop relationships and people say, "Hey this is a good partner for us", and in those situations, we want to jump on them and do them. So I know that's probably not a specific enough answer for you, but it's kind of the best I can do right now.

Okay. And then I guess just one last question. Obviously, one of the things I think the market liked, and certainly I liked about both your Rome and Legacy deals, outside of the expansion, is that more specifically with respect to the numbers and even the tangible book, there was very, very limited dilution. How do you look at that going forward? Is that going to continue to be a priority? Would you consider a tangible book dilutive deal? If so, what's your earn-back? How do you look at that landscape now that you're about 4 billion?

Well, I do think the earn-back is probably more important than the actual tangible book value dilution. If we get something back in three years, four years, in some ways, it's a little irrelevant as to what the tangible book value dilution is immediately because our overall earnings, in many cases, can get it back in less than a year.

Having said that, we do look at a minimal tangible book value dilution percentage when we look at deals. And as I said before, I think we're creating a bit of a culture at this point where potential partners can sit down with us and say, "What makes the most sense, a one-day premium, or a deal where you can take and look at the experience we've had with two or three deals where the stock has risen in both sets of shareholders, made a lot more money over the long-term." That hasn't always been in vogue. I think it's becoming a little bit more evident to potential partners, so we're going to continue along those lines.

Okay, great. Thank you, Mike.

You bet.

And our next question comes from Mark Fitzgibbon from Sandler O'Neill & Partners. Please go ahead with your question.

Hi, good morning, guys. This is actually Matt filling in for Mark.

Hello, Matt.

Hi, how are you? A quick question for you here just on the systems conversions for Rome and Legacy. Can you just remind us when those are scheduled to take place?

Kevin, the Rome one's done, right?

Rome is done and Legacy is happening in November, November 12th approximately, and the reason why Legacy is pushed out a little later in November is due to the fact that we want to do the divestiture of the four branches to the [NBT] before we do the conversion of their systems. We don't want to convert the customers twice.

Perfect. And can you also just talk to us a little about your pipeline, maybe put some metrics around that if you could?

Commercial pipeline?

Yes, commercial pipeline would be great, and the residential pipeline as well. I saw that you had some nice [lean] quarter growth there as well. Just trying to see what the run rate is, say, movingforward.

It's pretty steady, wouldn't you say, Pat?

Yes, I would say, Matt, definitely steady, very good play from our asset base group and again -- and I also think it will be reinforced with our Legacy Berkshire market presence here, that we'll have a lot more opportunities to really do even more here than we used to. So -- and the fact that our balance sheet's also bigger -- not that we're trying to take big, big positions -- we're not, but we can expand the lending capacity and feel pretty comfortable with some bigger clients.

And we can take some -- and the New York guys are doing a great job there. They're aggressive, and we can take some bigger deals and peel them off to some clubs and run the deals to keep our exposure low. So it's pretty steady. On the residential side, Sean, that's a little up and down, right?

I mean, assets are hard to come by right now, but what favors us is our ability to get into a Rome market, bring in our product set, which is deeper, and really compete stronger in those markets, and help those branches start selling mortgages deeper through their branches. So selling more products through the branches, deeper product set and new geographies allows us to kind of keep growing while the market itself is struggling a bit.

And Rome's doing good. Our pipeline up there with mortgages and deposits is really terrific.

Healthy.

Yes, it's very healthy. Does that help?

That's great. Thanks, guys.

All right, Matt.

This concludes today's question-and-answer session. At this time I would like to turn the conference call back over to Mr. Mike Daly for any closing remarks.

Well, thank you all. This does conclude the call. I want to thank everyone for joining us, and of course, we look forward to speaking with you all again next quarter, and I especially want to thank our team that was here today. You guys did a great job as well.

And with that, we will conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your telephone lines.