Beacon Financial Corp (BBT) 2011 Q3 法說會逐字稿

Good morning, and welcome to the Berkshire Hills Bancorp Q3 Earnings 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'd like to turn the conference call over to Mr. David Gonci, Investor Relations Officer. Please go ahead.

Good morning, and welcome to America's Most Exciting Bank. And 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 CBT acquisition, which we announced in a separate news release.

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. CBT shareholders are urged to read the proxy statement/prospectus when it becomes available, because it will contain important information about Berkshire and CBT and the proposed transaction.

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

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

We actually sent out two news releases last night, one announcing a bank acquisition and the other announcing our third-quarter results. We also placed an investor deck at our website with more information about the bank acquisition. So, let me start with that news.

We have agreed to acquire CBT, The Connecticut Bank and Trust Company. They operate eight branches in the Greater Hartford area. While this is a comparatively small acquisition, I do think it has big upside potential for our franchise. We've targeted the northern Connecticut market for a number of years, as you know, and CBT has good branch locations and has built a nice franchise since its inception in 2004.

This combination gives us a good opportunity to provide the additional capital and resources to strengthen the offerings in CBT's current footprint and strengthen its competitive positioning. I'm confident that there is a lot of opportunity over time to expand the footprint and build market share through our business lines, including insurance and wealth management.

And we've had good success generating new business in our other markets and I see no reason based on our brand, and our culture, and our energy that we can't enjoy the same success in the Hartford market. We already have a regional headquarters in Springfield and we're already active in the Hartford/Springfield market and this is the second largest economic area in New England.

So, this is a natural step in our expansion and I feel good about the deal terms; they're good for both sides. And that's the formula that we attempt to bring to all of our merger situations. 70% of the merger consideration will be Berkshire stock and we see strong upside for our new and existing shareholders following this combination.

We projected a 15% internal rate of return and expect at least $0.03 per share, and immediate earnings accretion in 2012. And while we do not generally model revenue synergies in our M&A analysis, we do expect to see earnings accretion to increase quickly based on our cost reductions, our larger lending capacity, and our broader product set.

Now, this is important. We're on our way towards $0.20 annual EPS contribution from our Albany region, which is we started as a de novo around five years ago. Here in Hartford, we'll be building on an existing franchise and so we expect to quickly build EPS from the deal to pay back the $0.65 deal dilution.

Now, further because this deal is relatively small for us, we expect the dilution to tangible book value per share to be offset within just a few months. I'd also add that the premium on the core deposits is pretty attractive at around 4%. So, I think this is a good price to pay for entrants into this market where a -- much of the heavy lifting has already been done.

CBT's CEO, Dave Lentini, will be staying and working with us in the Hartford market, which has experienced changes in its own competitive landscape in recent years. We'll also be inviting a CBT Director to join our Board and we'll establish an Advisory Board for this market. Members of our Springfield team will begin immediately to engage with the CBT team to plan for the merger completion targeted to occur early in the second quarter of 2012.

I expect another smooth integration with this merger and, of course, this is a good segue for me to comment on the status of the two mergers this year, Rome and Legacy. As you know, we completed the Rome integration in the second quarter of this year. We've been very well received in that community, deposits are up, and we're moving forward with our business plan in central New York. Now, this gives us presence in the Rome-Utica area and proximity to Syracuse. So, I think we have some good long-run opportunities to develop that franchise. Here in Berkshire County, we completed the Legacy acquisition on July 21 and the integration process is moving forward there as well.

Through our project management office, we're on track for the conversion in November and we also announced just last week, the completion of the divestiture of four Berkshire County offices according to plan. Pat Sullivan, Legacy's former President, joined our executive team and has quickly moved forward with some solid initiatives in commercial banking and wealth management, as well as Legacy's former Chairman, Bill Dunlaevy, who is actively participating on our Board of Directors.

We expected good things from this in-market merger and I believe we're moving solidly in line with those expectations. We'll have this integration wrapped up in the fourth quarter, positioning us to then move on toward the CBT integration in 2012.

In our earnings release, we also announced a new agreement for the divestiture of an additional four Legacy offices in New York. Sean Gray, our executive who heads up our Retail Division, he keeps a close watch on branch profitability and his recommendation in this regard was consistent with our return on equity strategies as we continue to shape this franchise. We expect to complete this sale early in 2012 and, of course, Kevin will comment more on the specifics of the divestitures in just a few minutes.

Now, you can see we've been busy on the M&A front and these developments have been very positive for our shareholders, but I don't want our M&A activities to overshadow all of the positive fundamental trends of our business. So, I'll turn now to discuss our third-quarter earnings release.

We headlined a 72% year-over-year increase in third-quarter core earnings per share. We produced core EPS of $0.43. Our core return on assets improved to 89 basis points (sic - see press release) and our efficiency ratio improved to just under 60%. Our goal is to produce positive operating leverage, with revenue growth exceeding expense growth, and we're positioned to produce further improvements based on that formula as we move forward.

During the third quarter, we also recorded non-core charges primarily related to merger expenses. We are within our projections for these charges, which resulted in GAAP earnings of $0.22 a share. While current accounting standards do require that we expense these charges as incurred, the strength of our core results demonstrates the positive earnings strength of our franchise. Our core EPS was $0.01 ahead of expectations, mainly reflecting better-than-anticipated improvement in the net interest margin.

The margin increased by 22 basis points over the prior quarter. Now, this included a 14 basis point reduction in our funding cost, which was largely driven by improvements in our deposit costs. Despite this, we had 18% annualized organic growth in our deposit balances. For the year, our deposits are up at a 9% annualized organic rate. Including acquired balances, our deposits are up nearly 40% for the year and, of course, this excludes the deposits related to the eight branches being divested.

We produced good growth in all targeted lending areas. Commercial business loans grew at 11% annualized organic rate for the quarter and that rate is up 19% for the year. This is mostly the result of the growth in our asset-based lending and C&I balances despite some softening of credit usage.

Our mortgage lending growth has also been good with 4% annualized organic growth for the quarter and 6% growth for the year. And as we've stated previously, we do continue to de-emphasize commercial real estate lending, especially commercial construction financing and in select cases, we have been trimming down exposures where appropriate.

We continued with targeted runoff of consumer auto loans and in total, our loans decreased slightly on an organic basis during the quarter and are up 2% annualized for the year. However, the portfolio composition is stronger and more profitable. We remain disciplined in our underwriting and pricing. And I'm confident that Rich Marotta, our risk executive, and his team continue to push our portfolio management hard in the right direction in this current environment. Of course, with our acquisitions, total loans are up nearly 40% for the year.

And we're giving a lot of management attention to the oversight and integration of the credits that were on-boarded. Reflecting this management attention, our asset quality metrics continue to be positive with continued improvement from even a year ago. Our rate of net loan charge-offs has improved to under 30 basis points (sic - see press release) and our view of the portfolio condition continues to be favorable.

We continue to be proactive in identifying risk and this allows us to be proactive in reducing potential problem exposures. We had good progress with this approach in the third quarter and we'll continue to maintain and sharpen this discipline as we move forward.

I'd also add that when we do acquisitions, the marks have to be right. Now, we've had good experience in these to date and this helps the overall continuing credit metrics.

Moving on from the balance sheet, we continue to pursue initiatives for our fee income lines of business. We've been very active cross-licensing our branch teams for insurance sales, and we're beginning to see some encouraging results from this, which is a win for the customer, it's a win for our teams, and it's a win for us.

During the third quarter, we were busy integrating with Legacy's wealth management and pursuing further recruitment as we built this team. We relocated members of our Berkshire County wealth management teams to new, attractive and accessible offices. And with the strong results that they've been generating for their customers, I would expect to continue to see market inroads here.

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

Thanks, Mike, and good morning, everyone. Before I get into the financial details for the quarter and provide you with some insights for the fourth quarter, I would like to make a few comments about how the integration of our acquisitions are going and our new acquisition and how that will impact us. When we announced the Rome and Legacy merger, we stated that we expected all of our financial performance metrics to improve. We feel we're well on our way in achieving that goal. Our net interest margin is up and actually slightly higher than we anticipated. Our efficiency ratio was down around 60%, as we are doing well in achieving our cost saves.

Our merger-related expenses are well within our original budget for Rome and Legacy and our required divestitures have been financially better than we anticipated. And after all the purchase accounting, our tangible book value per share is higher than we previously projected. So far we see no major unfavorable variance associated with these mergers to report and we are pleased with the integration progress to date. We also feel comfortable that we are earning double-digit return on the new equity that we deployed.

Regarding CBT, this acquisition will cost us less than $30 million. And a new shares issue will be less than 5% of our total outstandings. In comparison this year for the Rome and Legacy mergers, we increased our outstanding shares by about 50%. For this deal we are projecting about $5.5 million in transactional cost, which is in line with other transactions. Our gross credit marks are about 5.5% of total loans. This is slightly higher than the 4% in our last two deals. However, CBT has a little higher levels of non-performing assets.

As usual, our experienced risk management team did a thorough loan level review of most of the portfolio and we feel confident with the credit marks they have come up with. We are projecting cost saves of 35%, which is in line with our previous deals; consideration is 70% stock, 30% cash, again, similar to previous deals. So, we see this deal structure pretty much in line with what we have done in the past.

With what Mike has mentioned, we see much more potential from this merger as this gives us a beachhead in the very attractive market that we can provide future organic growth, just as we have experienced in the Albany, New York market. We are pleased to add Hartford to our markets that we serve.

Before I get into the quarter, I want to take another minute to discuss the discontinued operations disclosed in our financial statements. When we announced the Legacy merger last year, we stated that we expected that we would have to be required to divest some deposit relationships due to market concentration. In July this year, we announced that we had arranged the sale of four Legacy Berkshire County branches to NBT Bank. That sale was just completed last week and will be reported in the fourth quarter. Under financial reporting standards, we had to separate these branches out from the rest of the bank and they were classified as discontinued operation until the sale was completed.

We also just recently announced that we have entered into another agreement to sell four additional branches to NBT out of our New York region. These branches did not meet our financial objectives. We expected sale of these branches to close early next year subject to regulatory approval. These branches were also classified as discontinued operations at September 30.

As discussed in our income statement, the income related to these branches is insignificant to our core earnings results. However, we do expect the sale to be tangibly book value accretive, as we move intangibles related to these branches over the next two quarters. The intangibles on these branches were included in the discontinued operations in our financials rather than the normal line items where the other intangibles are located.

Now, let's discuss the third quarter. As Mike mentioned, we reported $0.43 in core earnings per share for the quarter. Our GAAP earnings for the quarter were $0.22, which included $0.21 in non-core items, most of which were related to the Legacy merger. The net interest margin for the third quarter came in surprisingly strong at 3.74%, as compared to the prior quarter's 3.52%.

There were a couple factors that contributed to this increase. We continue to focus on our funding cost through our pricing discipline. This helped reduce our funding cost by 14 basis points for the quarter. It also reflected some higher market yields on acquired loans from Legacy and some purchase loan credit marks being released on some credit challenged loans that were paid off during the quarter.

Looking forward to the fourth quarter, we are anticipating the margin to [settle in] around 3.65%.

Turning to the balance sheet, our earnings release separated out organic growth from growth from acquisitions. We continue to emphasize commercial business loans and reported double-digit annualized organic growth here. This included our region's expansion, expanding their C&I originations and ongoing growth in our asset-based lending book.

During the quarter, we saw some softening in loan demand due to the economy, so reported total loans decreasing slightly this quarter. Looking forward to the fourth quarter, we see our commercial business loans returning to their growth path, as we continue to take market share. We expect our overall loan growth for the fourth quarter to be in the low single digits. On the deposit side, we continue to have strong organic growth, which came in at around 18% annualized for the quarter. Our new branches in our New York area continue to support strong growth as we see in this market.

As I mentioned earlier, even with this growth, we are decreasing our funding costs. For the fourth quarter, we are targeting deposit growth to be in the mid single digits. With this, the full-year organic deposit growth would be near double digits and this would be ahead of our original expectations.

So in summary, for the fourth quarter, we expect the balance sheet growth will offset the margin reduction. So, we expect the net interest income to be -- increase to about $31.5 million. As we have stated in the past, we are focused on remaining asset-sensitive in order to protect future earnings from any potential interest rate spikes.

We reported $8.9 million in non-interest income for the quarter. This was a little better than we expected. For the fourth quarter, we are expecting non-interest income to be around $9 million. As we stated in our earnings release, the third quarter included fee income from Legacy and also the normal seasonal drop-off of insurance contingency fee revenue, which occurs in the second half of the year. We are continuing to adjust our business mix to reduce the seasonality. So, this will help us lessen the impact of these revenues going forward.

Our loan loss provision for the third quarter was $2.2 million. The provision exceeded our charge-offs by approximately $300,000, as we conservatively started reserving for loans we acquired in the last two bank mergers. Given the growth in our portfolio, our asset quality metrics, we are projecting the fourth-quarter provision to be in the range of $2 million to $2.5 million. Charge-offs and loans are expected be at or below 30 basis points for the year. Our credit quality continues to be maintained at favorable levels.

Our core non-interest expense came in a little over $26 million, which was below our original expectation. Our team has been very disciplined in our integration of these acquired banks to ensure we're achieving all the cost saves we expected. As I stated earlier, the merger-related costs are coming in favorably. The combination of higher-margin and better-than-expected cost saves has helped us produce a core efficiency ratio for the third quarter of 59%.

We have been targeting 60% level for some time now, and our run rate is now in that area. Over time, we expect to gradually improve it from this level. For the fourth quarter, we expect our core non-interest expense to come in a little less than the third quarter based on our planned conversion of the Legacy system, which will occur in the first half of November. In the fourth quarter, we are still -- have some merger-related expenses, although they would be small in comparison to the prior two quarters.

Our core tax rate for the quarter was about 28%. This is up from 23% reported in the second quarter. As earnings increase, the proportional effect of tax-advantaged items becomes less. Also as earnings increase, there was a catch-up on the rate for the prior quarters in the calendar year. As for non-core items, the tax rate increased to 41%, as the expenses incurred achieved a more normal tax deductibility.

For the fourth quarter, we are expecting our core tax rate to be around 25% to 26%. Based on our projections we provided, we believe the fourth-quarter core earnings will be around $9 million or $0.44 per share. This would represent a 57% increase over last year's fourth quarter core results of $0.28 per share.

Before I turn the call back over to Mike, I would like to mention the core system upgrade we announced in the third quarter. We expect to complete this conversion in the second quarter of next year. Planning for this is well on its way. The new system provides leading-edge technology, which provides us flexibility and scalability. We continue to make these investments in our infrastructure in order to support our current revenue streams as well as new ones, while we become more effective in serving our customers' needs.

Now, I'd like to turn the call back over to Mike.

Thank you, Kevin. Obviously, we have a lot going into the numbers this quarter and, as usual, make ourselves available to our investors in the coming days to clarify any questions any of you might have.

Our $0.44 core EPS outlook for the fourth quarter is in line with the consensus estimate. Of course, fourth quarter GAAP results will also include additional non-core charges related to the remaining Legacy integration. Having met or exceeded our goals throughout the year, we are on track to grow our full-year core EPS by more than 50%.

As important, we are ahead of our expected pace for core profitability improvement, including our net interest margin, our efficiency ratio, our return on assets, and our return on equity. Additionally, we had a goal to maintain an earnings pace that would generally offset the per-share dilutive impact of our acquisitions, and our prospect is good to achieve that result.

While we've been delivering these operating results, we continue to set the stage for future enhancements, including the CBT acquisition and the future benefit of our core systems conversion. And we produced this result while also continuing to absorb the cost of our New York de novo expansion, which is contributing well to the growth that we're posting.

As is our custom, we don't plan to provide guidance on 2012 EPS until our next conference call. But as you know, we have been targeting to grow our EPS run rate to $2 per share by the end of 2012. Our ongoing progress encourages us to maintain that objective.

The economy continues to be uncertain and I'm sure we'll face some challenges along the way as we manage the increments of our growth, but we're confident that we have the momentum to achieve the targets we've set out. But I don't want to raise expectations beyond the high growth we're already targeting. These are top-performing metrics as they stand now.

Our executive team recently convened for some focused time on strategic planning. And I was pleased to see just how much more fine-tuned our evaluation of our environment and our strategies has become and how our team has developed in recent years. We make decisions with better information and better dialog about our values and about our view of the landscape. And I've always maintained that a challenging environment provides the opportunity to excel and that's how we're all approaching this environment.

Our first focus will continue to be on the team that we're building, the deepening of our culture and the strength of our operations and delivering on our brand promise. We've assembled a strong executive team and we're working actively to build out the senior and middle management levels below them. Our M&A processes will always be important, but not a substitution for the organic enterprise that we're developing, including the one we plan to develop in Hartford.

To wrap things up, we're producing strong results now and working on developing more opportunities in the future. In conjunction with our EPS growth, we're increasing our quarterly dividend by 6% to $0.17 a share. Our focus is on earnings and shareholder returns and we're pleased to provide part of this return in the form of the cash dividend.

Our stock yield is over 3% and it's an attractive combination of value and growth in the low return environment that currently exists in many capital markets. Additionally, we have increased our outstanding shares by more than 50% this year, improving the trading liquidity of our stock and our visibility to a broader range of investors. Our market cap grew to over $500 million for the first time in the third quarter and I anticipate that, as markets normalize, we will see significant price improvement in our stock and a return to this higher market cap level.

Now, finally, a little south of us some folks are camped out at Occupy Wall Street. And of course, this movement is active in many other cities. And banks have more than their share of negative publicity these days and large national competitors are on the defensive about their fees and their sales practices. Locally headquartered regional institutions with clear focus are meeting the basic banking needs of their markets and positioning themselves to gain market share, as the public increasingly looks for more reliable banking providers.

And I often get questions about our brand as America's Most Exciting Bank. While this brand is a positive message about engagement and fulfillment, I think the country and the industry is hungry for business leadership that has high aspirations for achievement and customer satisfaction. And frankly, that's what our Company is all about and that's why it's so easy for me to tell this story with enthusiasm.

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

(Operator Instructions) Mark Fitzgibbon, Sandler O'Neill & Partners.

Hey guys, good morning.

Good morning, Mark.

First question I had relates to the cost saves. Kevin, I think you said there was 35% cost saves expected from the CBT deal, but could you give us a sense on the timing of when you expect to extract those?

Normally, we do it in a quarter or two. Most of them come out in the first quarter of the acquisition and there's a slight hangover into the second quarter.

Okay. And then secondly, I know you're not quite ready to give your earnings guidance for 2012. But, I'm curious as you sort of look at the repricing that you're going to have in the balance sheet next year and assuming the yield curve holds here, how should we be thinking about the margin for 2012?

Well, I think that we're projecting at 3.65% for the fourth quarter, but you might start trailing down. I don't think it's going to get below maybe a 3.55% level or 3.50% level, but it might scale down a little bit going into next year if the rated stay where they are today.

Okay. And then in terms of your footprint, I guess, I'm curious which parts of your footprint are doing best? And also in that same vein, with respect to the C&I business where you guys are showing some pretty good growth, is that coming from any particular market and you're taking that share from some -- who are you taking from, big banks, little banks or who?

Sure, Mark. Albany has been leading the charge with respect to the C&I business. That market, we believe, continues to be vulnerable. There are a significant number of big players there, Bank of America, Citizens, KeyBank. So, I think there's fertile ground there and that continues to prove itself out. Even the middle part, the Springfield, western Mass, actually into the northern Connecticut market, we're seeing some pickup in availability of C&I business there. And of course, our asset-based lending guys are all over New England. And they knocking the cover off the ball.

Thank you.

Thank you, Mark.

Damon DelMonte, KBW.

Hi, good morning, guys. How are you?

Good, Damon. How are you doing?

Great. Thanks. I was wondering if, Kevin, could you just recap what you said about the margin quarter-over-quarter, kind of what drove the linked-quarter increase? And then what was driving the lower expectation for this upcoming quarter?

The lower expectation for the upcoming quarter is, because when I talked about -- there was some credit marks that released on some loans that were refinanced out. We had some credit marks on some credit challenged loans that we have already been able to work out of. And some of that 9 basis points was related to the credit marks being released.

Okay. All right, that's helpful. And then, I guess with the CBT deal, how does this change your outlook for other potential M&A opportunities throughout your footprint? Do you think that this will kind of keep you guys, keep your -- I should say keep your focus on the Greater Hartford area now for the next six months or so or would this preclude you from looking at other opportunities?

Well, Damon, as I said in my prepared remarks, the focus of the Company is to execute flawlessly on the things we're doing. And so, we concentrate on that first and foremost. I don't know whether or not there are other opportunities that will surface now or six months from now or a year from now. And frankly, I don't count on those with respect to driving the earnings engine of the Company.

So, at this point, we're spending pretty much all of our time, making sure that the things we promised we can deliver on, which means executing on the deals we've done. And I'm not really interested in looking ahead at the next deal, something services and we need to look at it, we will. But our primary objective is to make good on the promises we've made to the communities where we've moved into.

Okay, great. And then I guess just lastly, can you give us an update on the ABL Group and kind of what traction they've put forth this quarter?

ABL continues to do a terrific job. They had a good quarter. The pipeline is actually pretty strong. So, I would anticipate that the numbers we saw them deliver last year, which was about $100 million, we'll be close to delivering that again this year. And some of that will depend on line usage, of course, but certainly the committed -- the commitments out there would be close to what we did last year there. So, they're doing a great job.

Great. Thank you very much.

Thank you, Damon.

Mike Shafir, Sterne Agee.

Hey, Mike.

Hey, good morning, guys.

How are you doing?

I was just wondering -- I'm doing all right. Yourself?

Great.

I was just wondering if I can get a little bit more detail on the transaction. What's the core deposit intangible on that deal?

It's at 1.25% of core deposits.

And about $185 million of core deposits.

Mike?

Yes. And then just on the Hartford market, I know historically as you guys go into these markets, you kind of have a greater plan. Now, this is going to set you up as kind of a foothold into that. Are you now kind of actively seeking other commercial lenders in that market and so forth? Is that part of the plan to kind of growth that out?

Well, I think you answered you own question. Our M.O. is to go into these areas, find the best of breed, put them to work and make a mark and that's what we'll do here just like we have everyone else.

And then just, Kevin, on your guidance for loan growth, when you said low single digits, were you speaking to the commercial or just in total?

In total.

In total. Okay. Thanks a lot, guys.

Thank you, Mike.

Laurie Hunsicker, Stifel Nicolaus.

Yes. Hi, good morning.

Good morning, Laurie. How are you?

Good. Thanks. Just wondered if you could take us through a little bit of the commercial with respect to CTBC. And I guess, maybe if you could spend just a little time, just -- I guess telling us what their commercial real estate book looks like in terms of what type and with respect to -- I'm sitting here looking at the numbers, your owner occupied is $60 million, your non-owner occupied is $57 million. I don't know where it is with respect to geography.

But I guess my other question is with respect to looking at how these are categorized. If I look at the loans that are rated five, this is just out of their Q here, they've got $23 million that are five rated, i.e. substandard and then a small amount that are six, but specifically within that group, the commercial real estate piece is $13 million and the C&I piece is $7 million, the construction is $2.4 million. And I assume that some of this obviously was accounted for in your 5.5% loan marks, but maybe if you could take me through -- take us through what you like, what you don't like?

Sure. Yes, hard to give you much more detail than you just gave us, Laurie, but Richard is here and I got to say, some of the benefits that we have at this Company is we've got a guy that has tremendous experience at this. So, when he looks through a portfolio, he and his team are able to ascertain whether there is real value there or not. Not get troubled because he opens a credit file and sees something and walks away, but he digs in. Richard, why don't you just give us a little overview of what your due diligence look like in this case?

Yes, Laurie, this is Richard. I'll give you just the broad-brush parameters. We basically looked at approximately 100% of anything that was criticized or classified when we walked in and obviously, 100% of anything that was impaired or on non-accrual.

In addition to that, when you looked at the overall book, we had a read rate of about 80%. So, we had a real good flavor of the overall portfolio. Off the top of my head, I don't remember what the smallest deal we've looked at was, but we even spot checked some small deals. So again, good flavor of the overall portfolio.

And as Mike just said, you've got the breakout there. I mean, fundamentally, it's about two-thirds real estate, one-third C&I. The real estate is about 50% non-owner occupied. Average loan size, when you look at the overall portfolio is under $1 million. Their largest transaction is actually secured by marketable securities. So, that was very good. Their sweet spot is in that $1 million range.

I would categorize the book as small business, business banking, middle market type of transactions, a lot of lines, a lot of owner-occupied real estate. And overall, a good quality book for in that area and no weird odd estate things or fundamentally out of their footprint. They played in their own backyard and that's basically what the book looked like.

It's all -- so it's all local? It's all Connecticut mostly?

Predominantly.

Okay. And I'm sorry, going back to the commercial real estate, what is the primary type of commercial real estate? Is it --?

Again, it's split out between non-owner occupied, which is about half of it. That is all over the place from retail to office buildings and just a smattering of those. Minimal development loans, so a lot of it is a cash flowing transactions.

Okay. So, retail and office predominantly. And then do you have an -- do you have an average LTV?

Probably, the average LTV was south of 80%. And if you pull out some of the, what I'll call their troubled assets, it was in a good spot between 75% and 80%.

Okay. And I guess, as you look kind of going forward, you're going to maintain similar type of underwriting or I assume it would be better just given their credit history. Can you talk --

Well, I think what we're going to do, and you're asking the wrong guy. I obviously think our credit underwriting standards are the best in the industry. So, obviously, they'll improve.

Right. Right, right, relative to CTBC is what I meant, yes.

Right. But what we will do is we will take the -- our culture and spread it through as we have through the entire footprint.

Okay. Okay, okay, great. Thanks, Richard. And, Mike, just a more general question for you. Obviously, this is your third deal now in a year; that's a lot. Are you still shopping?

We're spending our time, Laurie, really making sure that everybody is doing their job. We're deepening the human capital in the Company and preparing ourselves to make sure that we executed every step of all of these deals. So, I don't really -- I'm not shopping. As you know, we get calls from people from time to time that say, we like the story, we like the currency, we like the people, we think you could help us to continue to move forward with what we've done. And those are the kind of partnerships that work best. So, shopping is kind of a word I like to stay away from.

Okay. And then, I guess, with respect to CTBC, was this a negotiated deal? Was this a management team you had known for a while or --?

That's -- that'll be out, I think in some of the public disclosures pretty soon and probably inappropriate for me to speculate on that ahead of time.

Okay. Fair enough. Great. Thank you.

(inaudible) the lawyer in the room.

Thank you very much.

Thanks, Laurie.

Julienne Cassarino, Prospector Partners.

Hi, good morning.

Well, good morning. How are you?

Good. Thank you. I think it's exciting. I just have a question, since Connecticut Bank and Trust was my first bank actually or first bank account I ever had. Are you going to --

Is it still there?

The bank account, no. But I remember going to the ATM, taking out like $10 at a time. Are you going to keep the name or what are your plans for that?

We're going to spend some time like we do in all of these regions with the management teams and the CEO and some of the Board people there and the Advisory Board. And, initially it'll stay Connecticut Bank and Trust. And then we'll have to work out how the branding fits that region, it fits the overall Company, and I'm sure we'll come to some conclusion that's beneficial for us and the region. So, no real decisions on that yet.

Okay. Okay. And then just on some credit, you gave some ratio, but I just want to make sure I'm calculating them correctly. I don't know what denominator you're using, if you're using end of period or averages. But first of all, were there any accruing renegotiated loans in the quarter?

Minimal.

Minimal.

Okay. The 90 -- you gave a ratio for 90 day plus past dues. Does that back into $6.5 million?

We're looking now, Julienne.

Again, I just wasn't sure if your ratio was on an average loan or a period end?

It would be period end, wouldn't it?

Did you say over 90?

Right.

You're right on the money.

That are still accruing?

Yes.

$6.5 million?

Close enough. Yes, $6.6 million.

Okay. And likewise 30 to 89 day, that comes out to $23.3 million?

Yes.

Okay. And non-accruals $21.7 million, right?

Perfect.

Okay. And just on the deal metrics, when you're calculating intangibles, are you taking deal value minus tangible equity, including the TARP or deal value minus tangible common equity?

Well, this is Dave Gonci. Our focus is on the common equity and we look at the common equity we're creating and we subtract out the intangibles in the deal and the deal costs. In this case, they pretty much balance out, so that the dilution in the deal is pretty much just to the additional shares that we're offering. And that's about a 4.3% dilution on a tangible book value around $15 and that gives you a number around $0.65 per tangible book value dilution.

Right. I'm just trying to get to that number myself. So, you're taking the deal value minus tangible common equity?

Yes.

Okay. And then the loan marks net of tax, net of the current reserve, looks like $5.75 million, does that look right?

I think it's actually a little less. I'm happy to go over this in more detail with you offline.

Okay.

I don't have all of the details on marks in front of me.

Okay. What about estimated cost to repay TARP, because that's going to come out of tangible book too, right? What's that estimated?

Well, the TARP warrants have been fair valued. And, Kevin, do you want to comment?

Yes. How are you doing, Julienne? They gave a value of about $600,000.

And so, is that the -- so that's the cost to get out of TARP?

Right, because the --

Okay.

The other part of TARP, you just pay off dollar for dollar.

So, it's just the $0.6 million and you might even tax effect that or no, I don't know?

It could be.

Okay. All right. Okay. And what's the pro forma tangible assets approximately?

Pro forma tangible assets.

Well, the CBT -- you're talking for CBT?

No, combined Company?

Well, I would just comment that, CBT has got $283 million in total assets and no intangibles to speak of on their books. And we're creating about $13 million of intangibles in the deal. And then our tangible -- our total assets and intangibles are on our balance sheet. I don't have the net of the two right in front of me.

Okay. Okay. Thank you very much. Appreciate it.

Great to hear from you, Julienne.

Thank you, guys.

And, Mike, I'd just -- just in response to Julienne's last question, there have been a couple questions we received. We do have some intangible assets related to the discontinued operations. And I know a couple people have run into that when they're looking at that. And anybody is welcome to follow up with Kevin to straighten that out.

Great. Thanks, Dave.

Mike Shafir, Sterne Agee.

Hey guys. I just have a follow-up, but I think actually Julienne kind of went through a lot of my detail on the transaction. Thank you.

Okay, Mike. Thanks.

And gentlemen, at this time, I'm showing no additional questions and would like to turn the conference call back over to President Daly for any closing remarks.

Well, thank you very much. This does conclude the call. I want to thank everyone for joining us, and of course, we look forward to speaking with all of you again in January to discuss fourth quarter and full-year results.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your telephone lines.