Beacon Financial Corp (BBT) 2015 Q4 法說會逐字稿

Good morning and welcome to the Berkshire Hills Bancorp fourth-quarter earnings release conference call.

(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 Ali O'Rourke, EVP of Investor Relations. Please go ahead.

Good morning and thank you for joining this discussion of fourth-quarter results. Our news release is available on 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.

With that I will turn the call over to Mike Daly, CEO. Mike.

Thank you, Ali, good morning, everyone. Thanks for joining us this morning for our fourth-quarter call.

I will provide an overview of the quarter and the year and then I will turn it over to Josephine Iannelli, our Chief Financial Officer. She will take you through some of the details in our financials and then I will wrap it up.

I will start with the performance in 2015. It was a solid year for us: we recorded 13% were revenue growth, 16% core EPS growth and double-digit loan and deposit growth, we expanded our margins and we posted significant improvements in our profitability ratios. So a good year.

For the fourth quarter, core EPS came in at $0.54. That is a 13% increase year-over-year. Core revenue group 2% quarter over quarter and 17% over the same period last year.

And I think these results reflect a healthy combination of disciplined growth, expense management and continued solid credit quality. Total loans grew at a 4% annualized pace in the fourth quarter and 8% for the year, excluding of course the impact of acquisitions. And this included 9% organic growth in commercial loans and 13% organic growth in the residential portfolio for the year.

Overall commercial loan growth was 3% annualized in the fourth quarter as some originations did fall in the first quarter and we continued to execute on some additional sales and runoff tied to our margin strategy. We continue to see above average originations from our Eastern Massachusetts and Albany, New York markets and I do anticipate commercial loan growth will be back in the mid to high single-digit range on a net basis for the first quarter. And I will talk a little bit more about that a little later.

I do think, though, this team has done just a great job executing on our balance sheet strategy. And as a result we were able to stabilize and grow our margin in a competitive market and we are able to drive our ROA and our ROE metrics toward our goals. The continued runoff of super prime indirect auto loans is a piece of that along with disciplined originations of commercial and residential loans and the sale of some participations of good but lower yielding loans.

Firestone's diverse portfolio has also been a benefit. And the integration of that team has gone very well.

With respect to deposits we posted 6% annualized growth this quarter and again 10% for the year, of course exclusive of the Hampden acquisition. We continue to focus on relationship-based BDA growth and those balances grew by 8% in the fourth quarter and a very healthy 25% for the year.

We completed the sale of the Tennessee branch in December and we ended the year with 93 branches in our footprint. And as we have said before we continue to evaluate the overall branch network to ensure we are meeting customer demand at the appropriate level and at the appropriate cost. And this includes potential new offices in high-traffic areas and further consolidation where the economics have changed.

We also recently introduced a unique instant feedback tool for our customers that is going to be available in all of our branches across the footprint. Now this simple interface allows each customer to rate their experience in real time and it allows us to try to track service levels and customer engagement. And we anticipate the rollout to take place over the next several months and the data should lead to even better decision-making at the branch level.

Now with that I'm going to turn it over to Josephine. She will walk you through some more of the detailed financials and then I will conclude. Jo?

Thanks, Mike, good morning, folks. This was another strong quarter for us and a solid way to finish the year.

We demonstrate disciplined growth, solid expense management and positive shareholder returns. Core EPS came in at $0.54 for the fourth quarter and $2.09 for the year, compared to $0.48 and $1.80 for the same periods in 2014. Our corresponding GAAP EPS was $0.52 and $1.73 in 2015, reflecting the non-core charges mostly related to the recent acquisitions.

We had solid loan and deposit generation this quarter. Our effort to shift the balance sheet mix towards higher yielding commercial loans and away from lower yielding assets and to evaluate opportunities at the relationship level continued to benefit our margin and profitability metrics. Our loan yields improved and we avoided the modest margin compression before accretion that we were anticipating.

Our net interest margin ended the year at 3.35%, a 12 basis point improvement over the fourth quarter of 2014. The margin before loan accretion remained steady at 3.22% this quarter and represents a 10 basis point improvement over the fourth quarter of 2014.

We expect to continue to keep loan yield compression to a minimum in 2016 even with the continued low rate environment. I anticipate the overall margin to remain steady for the first quarter.

As a reminder our forward starting balance sheet swaps begin to roll on in 2016 and will add incremental cost to the margin. We continue to examine the swap strategy, the overall cost in today's market for asset sensitivity and view it as insurance against a future rate spike. Given the uncertainty in the environment we will remain nimble and continue to actively evaluate this position.

Purchase loan accretion for the fourth quarter totaled $2.4 million. We've moved out some additional acquired impaired loans during the quarter and recorded more recoveries than we were initially anticipating. As you have heard me say in the past, I expect the recoveries to continue to be bouncy in future quarters as we work through the Hampden and Firestone acquisitions.

Scheduled accretion came in under $0.5 million as expected and should remain in that range next quarter. Total purchase loan accretion, including recoveries, should come down, however.

Overall net interest income for the first quarter in 2016 is expected to be generally flat, maybe up a little quarter over quarter. Fee income grew at 19% annualized pace into Q4. Specifically we were pleased with the growth in the loan category which included stronger swap fee income as we closed the year.

I expect fee income to show further improvement in the first quarter, including seasonal improvements in insurance and wealth management and solid loan-related income. Now taking into account the improvement in non-interest income we expect overall core revenue to be up in Q1.

The provision came in at $4.4 million in the fourth quarter exceeding net charge-offs and reflecting continued growth. We expect the provision to remain in that range or slightly below for the first quarter to match our loan growth expectations.

As we look at expenses I am pleased with the progress we continue to make here. Core non-interest expenses were up 2% quarter over quarter, allowing for the full impact of the Firestone acquisition.

At this point we feel we have achieved the 35% cost savings expected from the Hampden deal. We may continue to see some additional benefits as the year goes on but we have hit our targets.

We continued to make additional investments in developing our business lines throughout the quarter. This included the expansion of our wealth management and small business teams as well as further developing revenue synergies with Firestone. Our efficiency ratio came in at 60.6% and we are targeting to improve on that as we move through 2016.

We expect non-interest expenses to remain generally flat in the first quarter or even cut down a little as we continue to look for more opportunities. Our core tax rate for the fourth quarter was 16%, in line with our guidance. Our GAAP tax rate was 12%, which reflects the tax benefit related to the non-core charges.

Looking at our expected tax rate for 2016 we have committed to some new tax advantaged investments with more in the pipeline for later in the year. We anticipate that the full-year core tax rate will be in the 20% range and that the tax benefits will be more back loaded in the second half of the year due to timing of the underlying projects and the mechanics of the tax accounting.

In the first quarter we expect our core tax rate to be closer to 30%. Now I would also note the related charge that gets recorded to non-interest income will also decrease in the first quarter, offsetting some of the impact of the higher tax rate. This charge will increase in subsequent quarters as additional tax benefit credits are recorded.

So as we look to Q1 we expect to deliver $0.54 in core EPS. This would result in an 8% increase year-over-year with stronger revenue growth offsetting a higher tax rate. Our profitability measures are similarly expected to show good improvement year-over-year due to the benefit of our operating and acquisition strategies.

Non-core charges for the fourth quarter totaled $1.1 million and were primarily tied to the recent acquisitions. Our quarter return on tangible equity came in at 12.7% to end the year. That is a 6% improvement over the fourth quarter of 2014.

At quarter-end our tangible equity was 7.4% of tangible assets, up from 7% in the prior year. Tangible book value per share ended the year at $17.84, a 4% improvement year-over-year despite the addition of Hampden and Firestone.

We continue to focus on disciplined, profitable growth and diversifying our revenue sources. Credit remained very strong and we intend to remain selective emphasizing margin, profitability and relationships above all else. You combine this with our diligent expense management and I believe our team is poised to do very well in 2016.

With that I would like to turn it back over to Mike.

Thanks, Josephine. That was a lot you did a great job. So as Jo said we think $0.54 is a good number for next quarter and we are pleased with how 2016 has started.

And if there is any question about the effectiveness of last year's reinvestment strategy this is good evidence of it. We are expecting to deliver a $0.54 quarter with a 30% first-quarter tax rate and lower purchase loan accretion.

Now let me just go back to something I talked a little bit about earlier, which is an important component of our 2016 strategy. I think we have demonstrated we can grow this Company successfully both organically and through acquisition. We have the ability to be nimble and to diversify, we are gaining share in our footprint and we are extending our reach, we are executing on a balance sheet strategy that addresses margin pressures and firmly adhering to our credit disciplines in an uncertain market.

We are steadily growing our earnings and our shareholder value and we have made improvements to our profitability ratios. These improvements of course could be better. 2016 is about continuing to get the ROA, the ROE and the efficiency ratio more in line with our high-performing peers.

To that end we are making further adjustments to our balance sheet strategy. So while we intend to grow our business volumes, our first focus will be on profitability and diversifying our revenues. And we expect that our commercial loan originations will remain robust.

We do expect to sell more of that line production going forward. Combined with the continued development of our SBA and financial institution businesses this is expected to translate into further fee income growth.

So loan balances on the balance sheet are expected to increase in the low to mid single digits in 2016, of course depending on market conditions, with deposit growth to match. Now this focus on further improvement to fee income revenues should move us closer to our goal of a fee income to total revenue ratio of 30% and move the needle on our returns.

Now I am sure you saw the Board voted to raise the dividend by another 5% this year. That keeps the dividend yield close to 3% for our shareholders. We also posted a double-digit improvement in our core return on equity this year and ended the year with a core return intangible just below 13%.

Total shareholder return in 2015 was over 10%. That is good performance in an otherwise flat market.

But looking ahead we will remain focused on developing the revenue channels we see in front of us and closely monitoring our expenses. And I believe this discipline will give us the long-term positive operating leverage we need to continue to improve our profitability.

And while the economic and geopolitical issues are way out of our control, we have learned to act with flexibility, taking advantage of those areas that can be most beneficial to our growth and profitability. And this I believe will create a strong, consistent level of franchise value for our shareholders.

And with that I will open it up to any questions.

(Operator Instructions) Casey Haire, Jefferies.

Mike, just wanted to follow-up on your latest comments there. Just on the -- it sounds like you guys are going to be the originations are going to continue at a pretty good clip but you are going to be looking to sell more of it. Is that why we saw the loan-related fees tick up nicely this quarter and we should expect that to sort of stick as you sell more of their production going forward?

Yes, I mean that is beginning of a strategy that we think could be helpful to us. And as you know the fastest way for us to improve that ROA is to increase the fee income revenues as a percentage of overall revenues. Jo, did you want to add to that?

We also have strong swap originations in the fourth quarter, too.

Yes.

Okay so -- all right, so there was some capital markets activity as well. Okay.

And then, Jo, on the forward starting swaps I believe it is $300 million. Can you just refresh us on when that comes in and what -- at what point -- what kind of Fed policy do we need for those to be in the money?

And it sounded like you guys are navigating or monitoring that and you mentioned being nimble in the event we do get a lower for longer Fed policy. What can you guys do to offset that pinch to the NIM that is coming I believe next quarter?

Sure, Casey. So it is $300 million, they are in three equal tranches. They start to phase in in the first quarter towards the end of the quarter and then they gradually phase in and they will be fully implemented at the end of the Q3.

So they provide a three-year coverage, if you will. And the average weighted coupon is 230. They are hedging our short-term borrowings.

And as it relates to being nimble we actively managed the balance sheet both from yield and duration. And to the extent that are balancing it with our mortgage portfolio and durations from there we will continue to monitor them and make sure that we stay between asset sensitive and neutral as we navigate it.

Jo, I think that when we look at our lovers it is one of the reasons that we are taking the tact we are with increasing our fee revenues, we have got the lower tax rate in the second half of the year. I think there are a lot of levers because that protection to me is critically important.

And we just don't know anymore where rates are going to go and when. So we just have to be prepared for whatever environment gets thrown at us.

Okay, understood. It will -- I mean, so if I look at your average borrowing cost just under 1% this will -- the 230 coupon will obviously tick that up. So I mean we will start to see the funding cost ratchet up in the next couple of quarters if you guys do not mitigate this current position.

That is a fair statement, yes.

Yes.

Okay. All right and just lastly.

On the M&A front obviously you guys got two deals under your belt last year. Obviously in the new year with pricing coming in I am just wondering if you guys are seeing any opportunities that are of interest?

You know I actually think that 2016 is going to be a very tough year for a lot of banks. We have got a pretty good strategy in place, we feel pretty good about executing on that strategy. And the more we execute on our strategy the more strength we get in our stock, I think the opportunities will be there for us to help and to partner with companies that are going to struggle.

So if I had anything in the pipeline I wouldn't tell you, Casey. But I just think that as we head into 2016 if the environment stays the way it is I think there will be opportunities for us to do some partnering.

Excellent. Fair enough. Thanks.

Mark Fitzgibbon, Sandler O'Neil.

Josephine, I wondered if you could help us think through the margin, some of the purchase accounting adjustments that are going to be running off during the course of 2016. And I know that you said the reported margin would be fairly stable in 1Q. But is it likely we will see the reported margin declining modestly during the remainder of 2016 as those purchase accounting adjustments runoff?

Yes, I would say if there is no rate change we would expect to see pressure on the margin throughout the remainder of the year. We will look to minimize it.

You will have the impact of the swaps and as you said the lower purchase loan accretion. But given all of the groundwork we have laid here in 2015 with our margin strategy we will be looking to manage that in a very disciplined approach.

Okay. And then secondly I heard what you said on the tax rate.

And you indicated the other income line would be less negative. Could you help us sort of give us a sense for rough timing on those, how it will flow through during the course of the year?

Yes, so, if you look at where we were in 2015 and [S9] does a nice job at reconciling the other income line with our tax rate, you can get a sense for the bottom-line impact. You can back into it, Mark, if you are assuming a 30% tax rate and again it is as good other proxy as any for 2016 in proportion to how much less charge you will see flowing through in the other income item.

Okay. And then lastly, I wondered if you could share with us the size of the commercial loan pipeline? And also how much -- I know you are making a big push in equipment financing, how much of that stuff you booked in the fourth quarter?

Mark, this is George. Our pipeline is holding steady at $150 million.

We are getting a good mix of that between commercial real estate, C&I, ABL and really a strong construction backlog as well. So we feel pretty good about 2016.

About the equipment financing, is it --

Equipment financing primarily through Firestone, really had a good end of the year. A little bit of a seasonal business in December is generally a good month for them.

[Rates] and materials for the overall (multiple speakers)

Yes, right.

Well, just curious in total volume how much did you book and Firestone in 4Q?

Does anybody have that?

It is approximately $30 million. Their transactions move off very quickly, Mark. So that $30 million basically left them flat quarter over quarter.

Great, thank you.

[Broderick Preston], Piper Jaffray.

Yes, hi, it is Matt Kelley. Just to stay on the C&I balances, it was down sequentially.

What did you sell out of the C&I portfolio during the quarter? Or was it a runoff?

Well we sold a fair amount of C&I loans, non-relationship loans really finishing up where we had in our margin strategy. These are non-relationship C&I loans.

So if we had commercial loans on our books in 2015 we looked for those that were transactional in nature in that relationship base and we put together a strategy to move those out. And in the fourth quarter we actually executed on a few of the lower yielding non-relationship-based transactions-type commercial loans that we had been looking to do.

The actually came a little quicker, I think there were people that were hungry for some loans. So those moved out in the fourth quarter.

And so what was the dollar balance of what was sold? And what was the gain that was booked in fee income, that $2.7 million of total loan-related fees, how much of that was the gain that we saw in the C&I loans sold?

Matt, give me a second, I will look it up for you.

Okay. And in the other question I had just while Josephine is looking for that is on the forward starting swaps is the right way to think about that is about 130 basis point drag on $300 million, so it's about a 6 basis point standalone drag on the margin? Am I thinking about that right?

Yes, it is probably somewhere between that 6 and 8 basis point drag on the margin.

Assuming rates are right where they are today.

Assuming we are flat.

Right. And what is the fair value of that $300 million in notional? What is the fair value of that today?

I can tell you with the volatility we are seeing in the market, Matt, at 12/31 they were out of the money by about $8.5 million. It is probably up from there just given some of the last couple of weeks volatility but it has been bouncing around.

And with what you were talking about earlier being nimble, would you ever consider taking a charge to get rid of those if we looked -- if it looks like we are going to be in a lower for longer type of environment? Or you like keeping that protection on the balance sheet?

It is part of our active balance sheet management. It is something we look at every month as part of our ALCO and it is really just a function of wanting to maintain our asset sensitivity position and looking at how we are growing and balancing it from there.

I wouldn't get excited about getting rid of them.

Yes.

Okay, okay. And do have that balance of what was sold?

Yes, Matt, let me get back to you on that. I am not finding it.

Okay, okay. And then just one must question on the tax rate.

Do you feel like in a way you might have got yourself on a little bit of a treadmill here where you have to keep these tax credits going? And it's introduced some volatility to the earnings stream clearly. Longer term is a something that you are committed to as we think about the next couple of years?

Yes, here is how I would tell you my thoughts are on the tax credits, right. I think it is providing us solid shareholder returns. We have been able to take advantage of opportunities on our developers, our relationship-based customers and invest in these projects.

And we are able to lower the tax rate, which drops bottom-line EPS and we are using that bottom-line EPS to reinvest in our fee businesses and we are seeing that here in Q1. So, as Mike said, as you heard me say we are looking to deliver $0.54 with a much higher tax rate and that should pretty much tell you the benefit of what we have been able to lay in 2015.

Now as I look to 2016 we are going to continue to look for those opportunities. We have some already closed, we are looking at a pipeline where there is more scheduled. But the way the mechanics work you don't really stop those into your effective tax rate until they are closed.

So it is really just a mechanical thing. And, yes, it does grate some volatility. But at the end of the day it is a smart strategy and it is something that benefits the shareholders.

I think the way that we have approached it, too, has been disciplined -- in a disciplined manner. So when we look at the beginning of last year and we talked about having these tax advantages we were very specific about the fact that we were going to take some portion of those benefits and reinvest it in the Company so that we would increase the quarter run rate of the Company without them. And I think we will continue to do that.

Okay, fair enough. Thank you.

Collyn Gilbert, KBW.

Just wanted to ask a little bit about the -- your strategy, your thoughts on residential mortgage growth. It grew a bit this quarter, just how are you thinking about that and what are the kind of mortgages that you are putting on your balance sheet?

Hey, Laurie, Sean here.

It is Collyn, Sean.

Sorry, hey, Collyn. We want to replace any of the amortization that we do have. We look to sell more than we are going to be putting back into portfolio.

We are keeping that ratio, we are selling approximately 60% to 70% right now. And it depends on that amortization. We are seeing that what we are putting back into the portfolio as we move to a purchase market is more of our jumbo fixed and that is still -- that product still remains in that 30-year fixed bucket predominantly, although we do produce in the ARM space as well as well.

We see this as a balance sheet. You know, Jo and I are talking through ALCO with the whole ALCO committee in regards to how do we use the product to balance from a borrowings perspective, from a pledging to the Federal Home Loan Bank. So we don't see, although we did see a quarter of growth we don't see it as a big growth strategy or a long term but we do like it as it replaces our amortization, continues to produce fee income as we look to sell from our secondary channels and then use it as a complement to anything we are doing big picture within ALCO.

Okay, that is great. That is helpful.

And then, Sean, while we have got you just if you could talk a little bit about the deposit initiatives? You know I know you guys did a promotion this quarter, money markets rates were up, it looks like deposit costs have been migrating slightly higher.

Just sort of how you are thinking about that trending longer term. I know, Jo, you gave us color around the drag on the swaps coming into 2016 but just how should we think about the all-in deposit costs as we roll into 2016?

Sure. I think we are seeing all-in deposit costs, it will be pretty flat, maybe a little bumpy, it could go up a basis point or two or down a basis point or two.

Any of our promotions we are really looking to drive the core DDA or the demand product. So any of the promotion i.e. the money market rate or the money market growth has to come with the check-in growth and that core new relationship back to the bank. So we are going to use those promotions on that basis only.

So we also do a look back. We will look to see how much of that business is retained from a new business perspective. And any of the promotional things we are not doing on a long-term basis.

So short-term promotion, use it as a leading driver to a new relationship. Then we measure, and we have good discipline in regards to looking at how do we keep that new relationship at the bank and we create thresholds for ourselves to make sure those customers are staying. And we won't be doing any promotional elements that are going to be long term or have any really long-term volatility to the deposit process.

Okay, okay, that is helpful. And then, Jo, just a question on expenses. Marketing professional fees were up a fair bit this quarter, just sort of how are using those lines trend again as we look out through the year?

Yes, marketing was somewhat elevated in the fourth quarter. We did see some additional marketing around Firestone and some of the vet programs that we ran in the fourth quarter. I would see that flat to slightly down as we go forward Q1.

And professional fees.

Professional fees, too, were up and some of that, Collyn, it has to do with legal fees at the end of the year. And also quite honestly as part of that tax strategy, we vetted that out as we look to 2016 and those come with a cost as well. So those are slightly elevated too, they should come down slightly too.

Okay, and then just one final question. Mike, you made the comment one of the strategic objectives is trying to get that fee to revenue in that 30% range. Was there a timeline that you had in mind for that?

Yes, you know, Collyn, I hate to give timelines. But I think that if we do this right 2016 is going to be a good year to move that north.

I don't know if we get there by the end of 2016 but we start to get closer to that mark. And as you know the closer we get to that mark the better effective -- more effective it is going to be on the ROA.

Okay, great. I will leave it there. Thanks, guys.

Laurie Hunsicker, Compass Point.

Just wondered if we could go back, just to follow up on a question that Mark asked regarding the accretion income. And I realize that is a bouncy line but can you help us think about the accretion income that you had projected for 2016?

Yes, and we look at it in two parts, right? There is the scheduled accretion and I would say that that is generally going to be $0.5 million or less.

And then as it relates to recoveries our guys actively work them out. It is harder to predict, Laurie. I do expect them to be down in Q1 but again a little bit difficult to predict in exact amounts.

Okay, so we if we were right about $1.5 million or so per quarter. And again I realize that is jumpy but that would be potentially the right level?

You are in -- that would be a safe zone. We had $2.4 million in Q4, we expect it to be less. There is 500 in schedules, so less than $2.4 million and $1.5 million, you are in that range.

Okay, great. And then, George, I just wanted to follow back up. So the balance on Firestone as of December 31 was about $190 million?

Yes.

I think it was actually $183 million. But again as we said good originations but also the portfolio amortizes fairly quickly. So although we are happy with the originations balances haven't moved significantly.

Okay, great. And then within your non-accruals within C&I, C&I non-accruals of $8.3 million, how much of that was Firestone?

I think it was $200,000. Laurie, it was about $200,000.

$200,000 okay and that compares to $500,000 last quarter or there about? Okay.

And then can you just update us on as Collyn mentioned the residential growth was strong, what is the construction balance in the resi portfolio as of 12/31? And then also on commercial real estate what is the construction balance there and how are you thinking about construction lending going forward?

Looking it up.

Okay. And then maybe while you are looking that up just to clarify something with Hampden, I thought expenses were still going to continue to roll through in the March quarter. You are saying all of that is now fully baked?

Yes. Laurie, we have hit that 35% mark. You may see some additional synergies but at this point we feel pretty comfortable we realized those savings.

Okay, great. And then your assets under management, do you have an updated number on where that stood at 12/31?

Laurie, this is Ali. Essentially relatively flat to where we were, so right around $1.4 billion.

Okay. Maybe I will just ask one more question as we are waiting.

Mike, you made some comments right at the start of the call that you were looking to do the new offices in high-traffic areas and maybe close some that have economically changed. Can you give us a little color around where is the high-traffic areas you are focused on?

We still believe that Eastern Mass and Albany, even maybe even the Syracuse area, those are areas that we continue to look at how to further service customers. That is not to say that there aren't branches in some of those areas that the economics aren't good.

Sean does a really good job of making sure pretty much every week, he and Tami go through every single branch. And if something is not hurtling, it gets put on a list and if we believe it is not going to hurdle it will be put one of the ones we look to consolidate.

At the same time we know that we are going to have to add a couple of branches. And I guess the three markets that I mentioned might be the markets that we would look at at some point, Boston, Albany, Syracuse, maybe even Connecticut, because Connecticut is doing very well at this point as well. Would that be fair, Sean?

Yes. We want to improve our penetration in growth markets and we have got a very formal branch profitability model that we review with executive management to help us make those decisions and redeploy if needed.

Is that helpful, Laurie?

Great. Thanks. And were you able to find the construction numbers or should I just follow up?

From a residential perspective it is anywhere between $25 million and $30 million. So very immaterial. And commercial is -- sure, Jo, do you have commercial?

Sure. Commercial outstanding at the end of the quarter was $250 million.

That is about 9% of our commercial book and that has been holding steady for the last several years.

Okay, great. Thank you.

Broderick Preston, Piper Jaffray.

Actually Matt Kelley again. So year to date we are seeing a pretty big selloff in the bank stocks, broader markets increasing fears I would say across the system. How would you characterize the economy and the conversations with your commercial lending customers today versus the last time we spoke in October?

You know, look, I think that the uncertainty across the globe with respect to the economy is something that we are just all going to have to continue to deal with. I like the markets that we do business in, Matt, because they are much more stable than they are in some of the high-growth areas around the country.

And there was a time when people yawned when I said that. Today it is a form of stability. So when you look at the way that we are generating our commercial business, for instance, it is still the lion's share of the commercial business that we generate is by grabbing market share from the six or eight large banks across our footprint.

And these are second- and third-generation businesses in many cases rural areas that will be with us forever. I don't see any let-up in that pipeline or the ability to continue to grab that business. There are literally billions of dollars worth of loan portfolios across our footprint from Syracuse to Boston that is owned by six or seven large banks.

And I just don't see any let-up there. I see our guys continuing to be able to pound away and grab some of that good business.

So while the economies in these areas are always important and I would say that if you looked at the Eastern Mass and the Boston economy it is as hot as a pistol. If you go across the rest of our footprint it is stable and it is better but it is never really gotten terrible and it has never really gotten red-hot.

So I get your question and I think it is a good question. But it is less material to our strategy because our strategy has been and continues to be taking market share. Richard, did you have something you might add?

Yes. I guess and just as an aside I mean we operate in New York, our primary footprint is in Albany which is the capital of New York, it is a very stable environment. And Massachusetts, Boston is the capital of Massachusetts, again very stable, not a lot of boom nor bust.

Okay, fair enough. And then just a quick follow-up.

During the quarter the regulators were out with some inter-agency guidance on commercial real estate in particular, kind of raising the yellow flag, telling banks to be careful. What is your interpretation of how the industry is going to respond to that? And what are your thoughts on that?

Well, I am going to let Richard, you handle that, but again I think it goes to the heart of the real value proposition of this Company. We are not in downtown Boston financing a high-rise, we are not in some of the highest growth markets.

And I think that is going to insulate us in some respects. But, Richard, do want to add to that?

Yes. I guess from the inter-agency we already do that. So we look at transactions, we already do specific loan to values and this debt service coverage on deals we already have a third-party that gives us market intel and market studies.

And we always have looked at global cash flows in any of our underwriting. So from a transactional perspective we are already there. We take it a step further, we look at things holistically on a portfolio level and so we start to look at concentrations either from an industry perspective, from a risk-based capital perspective.

So we already have the things in place and we have had them in place for three or four years to really monitor the portfolio. And so when we look at these things we are hopeful that other banks do this because I guess a smart competition is good competition.

And don't you also think that while none of us are going to be exempt from the problems of a real collapse in that sector, transactions versus relationship-based loans will make a difference.

Yes.

And we have done an awful lot of work to ensure that we move out transactional-type product, and some of that was commercial real estate related, to relationship-based products.

And that goes to the point we brought up before about how we are kind of looking at originating and then starting to move things off balance sheet. And that gets to what Michael just said, you have got to kind of weed out the transactions which we have done over the last year or so and then you have to take care of the relationships.

And having said that again we have hold limits in place based on risk-based capital. So as we get a relationship, a client that keeps everything with us we then have to find room in order for us to properly base the risk on our balance sheet.

Okay. And then just -- go ahead.

No, I said does that make sense?

One last quick one for Sean. On deposit services, kind of end the year roughly flat running about the same levels as 2014 despite the fact that average deposits are up a good chunk, some of that is due to organic growth, some of that due to acquisitions. Are we finally at the inflection point in deposit service fees relative to your average deposit balances or does that continue to drift down in 2016?

I don't think it continues to drift down. I think as an industry we now have to re-examine how we look at deposit service fees. A big portion of this has been overdraft from an industry perspective.

And so the growth in that category with some of the new regulation you are just not going to see it. So but I do think I know we are internally we will be looking at anything from an innovative perspective, we will be looking to see how our competitors and market are changing, we will implement new fees, so this category should remain flat to grow. But you are right, some of the robust growth that you had seen in the past that was driven largely from an OD fee income perspective is probably not there.

Got you. All right, thank you very much.

So did we get back to everyone with questions?

I have one question to Matt which we will follow up.

Great.

Okay. So this concludes our question-and-answer session. I would like to turn the conference back over to Mike Daly for any closing remarks.

Okay, well appreciate everybody joining us today. And of course we look forward to speaking with all of you again in April when we will discuss our first-quarter results.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.