Beacon Financial Corp. (BBT) Q4 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to the Berkshire Hills Bancorp Fourth Quarter Earnings Release Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Gonci, Investor Relations Officer. Please go ahead.

Good morning. Welcome to America’s most exciting bank and thank you, all, for joining this discussion of our fourth 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, including statements regarding our pending acquisition of CBT, the Connecticut Bank and Trust Company. For a discussion of related factors, please see our earning release and our most recent SEC reports on Forms 10-K and 10-Q, as well as SEC documents related to the CBT transaction as described in our earnings release. Now I'll turn the call over to Mike Daly, President and CEO.

Thank you, David. Good morning, everyone. Welcome to our fourth quarter conference call. With me this morning is Kevin Riley, our Chief Financial Officer. We have a number of management team members here, and I think we also have a couple of board members here that were on other business. So good morning to all of you as well. I am pleased to report, we closed out the year in line with our plans producing $0.44 in fourth quarter core EPS. Our quarterly and annual core EPS were up more than 50% compared to the prior year and we continue to maintain double-digit growth momentum, which is consistent with our plan to reach a $2 annualized core run rate by the end of 2012. For the year, we produced core EPS of $1.56, which was a 53% improvement over the prior year core results of a $1.02. We also exceeded our original expectations of $1.40 to $1.50 for 2011, which I feel was attributable to both our organic growth and our merger results. Our GAAP net income included non-core items related to merger expense and discontinued operations, which were in line with our expectations. So our GAAP EPS was $0.40 for the fourth quarter and $0.98 for the year including these items. In the fourth quarter, we completed our merger integrations with Rome and Legacy, and we have completed the Legacy branch divestitures in accordance with our merger agreement. The market reception has been good and we're moving forward to build our business in these and all of our markets. The fourth quarter was the first full quarter that included our acquired operations from Rome and Legacy. And during the fourth quarter, we completed all of our targeted cost saves. Now this will allow us to have the full benefit of these saves as we move in to 2012. I think it’s important to note that we increased our tangible book value per share by $0.30 for the year despite absorbing the impact of these 2 bank acquisitions. Our tangible book value per share now stands at $15.61 at year end. So both acquisitions achieved a better-than-expected result, which have benefited the growth of both our EPS and our tangible book value. This year, we were also able to increase our core return on tangible equity in the fourth quarter to nearly 12%. Now this provides strong internal funds generation to support future growth. This improvement allowed us to increase our quarterly cash dividend by 6% in the third quarter, and so we're pleased to be able to pass this on to our shareholders, who continue to support our objectives. While our mergers occupied a lot of our focus in 2011, we also maintained our ongoing focus on organic growth in targeted areas. Our commercial loans grew by 6% for the year, including 7% organic growth in the fourth quarter. Importantly, we produced this growth in our C&I portfolio, which is where we feel we have the greatest market opportunity to bring in strong new commercial relationships, which use multiple bank services. I think we're well positioned at this point to build this business by continuing to be competitive with the larger institutions. The lending teams that we’ve recruited throughout our footprint have extensive reach into these markets, and our growth in C&I lending also contributes to our portfolio diversification. Our Boston area asset based lending group met or exceeded its goals that were put in place when we brought them aboard. Our core markets continue to show great market penetration and, our New York lending teams have seen good C&I opportunities that reflect both our competitive positioning there, as well as the positive economic dynamics. We had a good year in our residential and consumer lending areas, and we continue to calibrate the retention and/or sale of mortgages, while we balance it against our current period earnings and our asset sensitivity. Looking at deposits, we had 10% organic growth for the year, including 8% annualized growth in the fourth quarter. More importantly, we had 22% organic growth in demand deposit accounts and throughout the year, we promoted relationship accounts that tie in multiple product sale opportunities. Now this includes our money market promotions, which emphasized relationships, tying them to demand deposit accounts. Additionally, our strong growth in the commercial area has contributed to overall deposit growth, particularly in the institutional sector, where we have been able to attract accounts from national providers. We made good progress with our wealth management business in 2011, including the integration of the acquired Legacy business and the consolidation of our teams in a new headquarters in Lenox, Massachusetts. We had good new business development results, and I think our team is getting increased recognition not just for our customer focus, but also for their investment expertise. While the insurance environment has continued to be challenging, we have produced positive account growth and as I've stated before, we're closely focused on the integration of insurance with our retail and commercial banking. So we look forward to continued development of this business line as a real earnings contributor to the company. Our organic growth continues to be supported by our business initiatives. In the fourth quarter, we announced the recruitment of a new commercial team, which we've located in our new commercial office in Westborough, Massachusetts. Now this team has extensive contacts in the Boston outer corridor and in Worcester, including relationships extending to Springfield and to Hartford. This team also has expertise in the health and education sectors and they’ll contribute strongly to our C&I loan growth going forward. On the retail side, we opened up a branch in Latham, New York, right around the start of the year. And then added a new branch in Rotterdam a few months later. In the first quarter or 2, we are opening another 2 offices, one on Wolf Road in Albany, and a second in North Greeenbush, an Albany suburb. Additionally, we continue to consolidate and upgrade our branch offices. Our most recent upgrade took place in Lenox, Mass, where we took a previous office and upgraded it to a new facility that showcases our new branch layout for the first time in our traditional market. This new office has been very well received, and I think it demonstrates how we're positioning our America’s most exciting bank brand and culture as we continue to develop our retail delivery. In line with my earlier comment, our retail team is positioned to sell mortgage and insurance services, and these new branches provide an environment targeted for this kind of relationship development. Now I'll just comment briefly that our asset performance metrics remain favorable. Our charge-offs remain under 30 basis points of loans and our nonperforming-assets-to-assets ratio has been generally stable throughout the entire year. We have seen some firming of conditions in our markets, and while the national economic and financial picture remains a little cloudy, we do expect our markets to hold their own and actually to firm in certain sectors as we move forward in 2012. Now at this time, I'm going to ask Kevin to provide further color on the quarter and our guidance looking forward. Kevin?

Thank you, Mike, and good morning, everyone. As Mike has mentioned, we had a solid fourth quarter. Core earnings continue to grow, posting a $0.44 for the quarter, up 57% over the prior year and 11% over the third quarter results at an annualized rate. GAAP earnings for the quarter were $0.40, which include some additional Rome and Legacy merger-related expenses, and a gain on the 4 branches we sold to NBT, recorded in discontinued operations. It's nice to say that at this time, all integration work has been completed for Rome and Legacy. Now let’s get into the earnings details. Our net interest margin for the fourth quarter came in a little lower than we had forecasted at 3.61%. As we stated on our last call, the third quarter’s margin was 3.74%, which included about 9 basis points of purchased loan discounts on loans that were paid off. So we were projecting an adjusted core run rate for the margin of about 3.65% for the fourth quarter. This quarter, the flip side happened. The number of loans we had purchased on premiums paid off, causing the core margin to be reduced by 3 to 4 basis points. Looking forward, we still believe our core margin to be in the range of 3.64% to 3.66%. In the future, recognition of purchased loan discounts and premiums on loans that pay off will continue to have an impact on our quarterly core margin forecast. With that said, we are projecting a margin for 2012 to be in the range of 3.55% to 3.65%. And for the first quarter, to being around 3.65%. Turning to the balance sheet. Earnings release separated out organic growth from balance sheet impacts due to acquisitions and divestitures. We continue to emphasize growth in commercial loan business lines, while maintaining our commercial real estate book. This allowed our total commercial loans to post organic growth for the fourth quarter in the high-single digits. Our regional and asset based lending teams allowed us to accomplish this by taking market share. Our total organic loan growth was flat for the quarter due to our residential mortgage portfolio, slightly contracting during the quarter, as we sold the majority of our fixed mortgage production. Looking forward, we expect organic loan growth for the coming year to be in the high-single digits, as well as the first quarter, as we continue our strong growth in commercial and add to our residential mortgage book. On the deposit side, we continue to have strong organic growth. We came in at 8% for the quarter and 10% for the year. Demand in money market accounts recorded double-digit growth for the quarter and for the year, as we promote our relationship strategy. Our New York de novo expansion continues to allow us to take market share in that region, which also supports this strong growth. As we have mentioned in previous calls, even with this growth, we are reducing our funding cost. Cost of deposits fell to 73 basis points in the fourth quarter from 82 basis points in the third. For the coming year, in the first quarter, we expect organic deposit growth to be maintained in the mid-single digits. Turning to the income statement. Our net interest income for the fourth quarter came in a little less then we forecasted at $31.1 million. This was caused mainly by the premium recorded on purchased loans that paid off. Looking ahead, for the balance sheet and margin projections previously mentioned, we are targeting our net interest income for the first quarter to be in the range of $32.5 million to $33 million. And for the year, before CBT acquisition, we believe this quarterly number will continue to increase as the balance sheet growth will more than cover any loss in net interest income due to margin declines. For the fourth quarter, we reported $8.8 million in non-interest income. This was slightly less than our forecast. Lesser-than-expected overdraft revenue during the holiday season and the divested branch impacts slightly greater than we anticipated, were causes for this shortfall. For the first quarter, we are projecting non-interest income to approximate that of the fourth quarter. In the past years, the first quarter would have seasonal contingency insurance fee income. Over the past 12 months, we have adjusted our insurance business model, which has done away with reliance on this seasonal income. Insurance income is now reported evenly throughout the year. We do feel that, for the year, non-interest income will be an area of great growth as we continue to gain momentum in insurance, wealth management, cash management and customer service fees. Our loan loss provision for the fourth quarter came in at approximately $2.3 million, which was in our projected range. This was due to loan losses being less than expected. This quarter, our provision exceeded our charge-offs by approximately $250,000 as we conservatively added to a reserve for the loans we acquired in our last 2 bank mergers. When we look ahead to the coming year, with the growth projection previously mentioned and our asset quality measures we are aiming to improve, we are projecting a 2012 annual provision to be around $9 million. This provision, we believe, will be recorded evenly over the 4 quarters. Our core non-interest expense for the quarter came in better than we projected at $25.9 million. Our employees are disciplined in the way they spend money. In the last 2 acquisitions, management was focused on achieving all cost saves projected. As of year end, all these cost saves have been accomplished. As we have stated, we have been targeting the core efficiency ratio below 60%. This ratio has improved from the prior year’s fourth quarter of 71% to 59% this year. We believe that with all the investment we are making in supporting growth, this ratio is in a good place. We're projecting the first quarter core non-interest expense to be in the range of $26.5 million to $27 million. Our non-core expenses for the coming year, which includes CBT and our core system conversion, are projected to be in the area of $10 million before tax, or $6 million after tax. Our core tax rate for the quarter was 22% and 24% for the year. Since we are projecting higher earnings for 2012, and our tax advantage items are becoming less proportional. We are forecasting a tax rate in the range of 26% to 27%. Based on the projections we provided, we believe the first quarter earnings will be around $9.4 million or about $0.45 a share. And for the year, $1.90 to $1.95 earnings per share. This includes about $0.03 accretion we are projecting for the CBT merger. As we start the new year, our capital is strong and our employees are eager to execute on the forecast we have laid out for you. Now I'll turn the call back over to Mike.

Thanks, Kevin. Well done. As Kevin noted, our quarterly guidance of $0.45 for the first quarter keeps us on track with our growth momentum, that we're targeting to reach our year’s goals. Now this guidance reflects a positive change in our insurance business, which is to eliminate the seasonality in our results for this business line. Something we've been working on for a long time, which is to reduce the overall contingency income, which is unpredictable and increase the premium income, which is more predictable. So with this, we're planning single-digit revenue growth for the full year, with results spread more evenly throughout the quarters. The seasonal component represented about $0.03 a share after-tax in the first quarter in previous years. Despite the elimination of these $0.03, we still plan to hit our $0.45 target and show ongoing revenue growth. The current analysis consensus of $0.48 for the first quarter is based on our past seasonal trend, so we view our guidance as consistent with analysts' expectations adjusted for this change. Our annual goal of $1.90 to $1.95 in core EPS, represents an increase, again, over 20% over the $1.56 core result that we have reported for 2011. And this is also in line with the current consensus. The guidance includes about $0.03 in earnings accretion in the mid to latter half of 2012. And while CBT recorded a loan charge in its fourth quarter, we had factored that potential into the range of our estimated credit marks on the deal. CBT's asset performance and condition, as well as its overall operations through year end, remain right within the range of our expectations. We're actively working with the CBT team and we look forward to our merger and integration planning, with the merger planned in the second quarter. Now the CBT team built a solid market position as a de novo bank in a few short years. And we know they had the energy. And we believe we can take that energy, harness it with our brand, our culture and our resources to build on this franchise in Northern Connecticut, just as we've done in New York. As I've previously said, this deal was central to our expansion in Central and Eastern New England, it follows the Springfield regional headquarters we opened a couple of years ago, and the recent opening of our Westborough commercial office last month. So we look forward to developing more commercial presence in the Worcester, Springfield, Hartford triangle, as we build on these initiatives in markets that do offer us profitable opportunities to build market share and strengthen the franchise. When we announced the Westborough expansion, I commented on our focus towards executing on various strategies for 2012. Those include, of course, achieving our financial goals for the year as Kevin outlined. Completing the CBT acquisition successfully and on time. Accelerating the pace of organic growth across the business lines. Enhancing our product offerings with emphasis on our small business banking program and expanded mortgaging consumer loan originations. Continued retail development, including additional New York offices, further cross licensing of retail producers for mortgage and insurance products, and other service and technology initiatives. Converting our core systems to a stronger, more scalable platform and further improvement in our already favorable credit matrix. Our internal earnings generation has now grown close to a 12% core return on tangible equity. So we do feel we have the internal capital resources to achieve our growth objectives. I do feel that conditions remain favorable to enhance the franchise and to build shareholder value through sensible acquisitions that may become available. But frankly, we are internally focused at this point in getting all we can out of all we've already done. As in the past, we remain committed to the disciplines for evaluating M&A and we're only interested in those situations that will contribute strongly to our objectives, including our 15% return on equity target. Our stock generated a total stock return close to 4% in 2011. And our stock prices moved higher since year end. The S&L Index for all U.S. banks and thrifts was down 22% for the year, demonstrating the shifts in investor sentiment towards the sector as a whole. So I'm pleased that we generated a positive return in this low-yield environment and that we outperformed our industry benchmarks. As sentiment returns to a more favorable outlook, we do expect that we will see higher total returns on our stock, particularly as we go forward quarter-by-quarter, delivering on the goals that we've set out. I appreciate the support of our many constituents who have played a part in producing the strong results that we delivered this year, and we'll continue to be active reaching out to the investor community. We increased our outstanding shares by 50% this year and our market cap is once again near the $0.5 billion level. And I believe that our enterprise, our business enterprise, will find new interest among new investors. And we'll be active in reaching out to tell this story. We appreciate the sentiment of our analysts, who have been unanimous in expecting our stock price to improve based on the performance that we're producing and projecting. Our team is energized. It’s already hard at work on these 2012 strategies, and I can assure you that we are dedicated to nothing less than the full achievement of our goal and to producing attractive returns for our shareholders. I do view our company as a combination of both growth and value, so I always look forward and I continue to look forward to future calls as we deliver results during this year. Now this completes my prepared remarks, and I now invite the operator to open the lines and we'll take some questions.

[Operator Instructions] Our first question comes from Damon DelMonte of KBW.

My first question, I think, is probably for Kevin. Could you -- I apologize, if you had said this in your remarks. But could you tell us what the impact to the margin was from the purchase loan premiums that came off this quarter?

It was like 3 or 4 basis points.

Three or 4 basis points, okay. All right, great. And then, again, I'm sorry if I missed this in the comments. But what was your outlook for the securities portfolio for the coming year? Are you expected to expand the outstandings in there?

We use the security -- Damon, we use the security portfolio, really, to balance up the balance sheet. If we have deposit growth that’s tripping our loan growth, we buy a few securities. But we had no anticipate to balloon our security portfolio.

Okay, great. And then I guess my last question, probably a little bit bigger picture from Mike. You guys are reporting here on the tail end of earnings and I'd say that most of the banks have a less than favorable outlook as we look into ’12. I think a lot of people are expecting it to be extremely challenging operating environment. Could you kind of tell us a little bit about your thoughts as to why you think Berkshire is in a better position than many others, and why you see your earnings continue to accelerate.

Well, sure. I always like to answer that question, Damon. And I don’t know, I haven’t listened to too many of the other conference calls at this point. So I don’t know why anyone is looking at the operating environment in a pessimistic way. But we have new markets that we have entered. And the New York market, the Rome market, certainly, the Hartford market. I think the teams that we've been able to acquire outside of Boston, Worcester market. We have a real, a pipeline of business that appears to be developing in all of these areas. We've done, I think, a real good job of keeping expenses down. I talked a few years ago about the fact that this company really maintained a Six Sigma mentality here and that some of the process improvements that we were making, which start to show and produce real results as we went forward. So I am actually pretty optimistic. I don’t think that too many of the big guys have recalibrated their position in our marketplace to the degree that they'd like to at this point. So I think there's still business to be had. I think Sean Gray is doing a great job in driving retail deposits. So I can't tell you why nobody else is singing this song, but we have no intention of missing a beat and some of the promises we've made to the Street over the last 2 years.

Our next question is from Theodore Kovaleff of Horwitz & Associates.

I'm interested in the future of M&A for you. Firstly, roughly, how much of a breathing period do you think you're going to need getting Connecticut fully under your umbrella?

Well, I don’t know that it’s really a breathing period. The CBT deal is a smaller deal when you compared it to the 2 deals that we did last year. So I don’t know that it’s necessarily a need to get the CBT fully integrated. We do have a lot of initiatives underway here to help squeeze that orange in all the areas that we're in, for all the juice we can and then squeeze it again and get some more juice. So I think we're focused on making sure that the areas that we're in were doing the very best we can to generate as much EPS accretion as we can. Now nobody can tell and certainly, I can't, when the deal will come along that fits the metrics, the discipline metrics that we have been using. So I don’t know that I could tell you whether it’s a month or 2 months or 3 months or 6 months or 9 months, or whether we do any M&A this year. It really comes down to whether the seller and the buyer can come to terms and what a post-target is worth and whether they went to sell their bank.

Okay. And if you had your choice then, which direction would you be moving? In the New York direction or westwards -- or eastwards, in Massachusetts?

Well, I think, that we always have interest in the New York area because that’s one of our real growth areas. I absolutely believe that the Northern Connecticut and Connecticut market is an area that we're going to put as much emphasis on as almost anywhere else in the organization. And I still believe that in the Central and Western Massachusetts areas, there are opportunities there. But I'd say, New York and Connecticut, are probably the 2 areas that we'd be most interested in. Does that answer your question?

Yes.

Oh, I am sorry, we didn’t get the -- we didn’t hear it on this end. So, any other questions?

The next question is from Laurie Hunsicker of Stifel, Nicolaus.

Just a sort of follow-up with that M&A question. I guess as we look to de novo branches, you're doing 2 in Albany this quarter. How many branches are on the drawing board for 2012? And where are you with thinking about de novo in Connecticut?

That’s a great question and it’s one that Sean spends a lot of time with a lot of smart people, looking at. Sean, you want to give us a little color on it.

Sure. First part of the question was what's on the docket for this year. And I think we're targeting 2 to 3 in New York. And with some of the acquisitions we've done, we're also always looking at consolidating our franchise to the most efficient and cost effective distribution. So all in all, just to put it in perspective, we'll have about 13 Albany proper de novo branches. And including the new ones, those branches are already running over the $40 million to $45 million mark. So we feel really good about that, and that allows us a benchmark to compare with the acquisition. So we do anticipate and invested in Connecticut to apply a lot of those same metrics. And like Mike said, there's a ton of opportunity in Connecticut, so a de novo can and maybe a piece of that going forward.

Okay. And I guess to that point, Mike, you mentioned Northern Connecticut and Connecticut as sort of top areas of focus. So outside of Northern Connecticut, I mean, does that suggest that at some point you would, maybe even push down onto Fairfield County or?

Well, again, a step at a time. Much of M&A as you and I have discussed in the past, Laurie, has to do with a good deal, both from the buyer and seller’s perspective. I actually was just on a panel out in Arizona, and I talked specifically about M&A and that good deals are deals that generally are negotiated between 2 partners. One that wants to either improve or add liquidity to their currency or to latch on to someone else’s currency and create a better combined currency for their shareholders. And I really believe in that. And so I think, where we find M&A opportunities is really more to do with where you would find a good M&A opportunity rather than geographically. So Connecticut, I don’t know if we get down closer to Fairfield. But, again, all that depends on potential deals and potential partners.

Okay. And then I guess to that too, can you talk about, you mentioned a new commercial team that you added. When did they come on and how many people and what are you expecting in production?

Pat, you can grab that one, can you? Pat Sullivan.

Hi, Laurie, Pat Sullivan, how are you doing? The new team came on December 1. They're a team that have been based in Worcester for 20, 25 years. A team of 6. They've built a healthy backlog. They are going after and soliciting middle market type relationships, very similar to our asset based lending area. And we feel pretty positive about their opening reception and where they're at.

Where did they come from?

They came from Sovereign.

Okay. And what is the average size loan that they would be putting on?

Average size loan is probably between -- I’d give you more a range between $5 million and $15 million.

$5 million and $15 million. Okay. And what kind of production are you expecting total for them to add this year?

We think that they'll do about $100 million in new commitments this year.

Okay, great. Okay. And then, Kevin, maybe you could just help me with math. I have just sort of 2 questions. One related to the non-interest income, delighted for modeling purposes that it will be more even. But I'm just sort of extrapolating from the $11.1 million you had for full year December. And I realize, obviously, you can't totally reduce that contingency piece. But, I mean, can we expect them, for example, in the first quarter of 2012 that number will come in at about, say, round numbers $2.8 million?

Can you repeat your question, Laurie, I didn’t...

Yes. So just looking at your insurance commission and fee line for this quarter, fourth quarter, came in at $2.1 million. And for March, a year ago, came in at $3.7 million. As we look to March 2012, can we assume given that that’s a more even kill that, that number will be, round numbers of maybe $2.8 million?

Yes. Q1 -- somewhere around $2.6 million, $2.8 million, yes.

Okay. And then also, if you could help me with the math on the 4 branches that you sold in the fourth quarter. So you -- and I'm sure I'm just missing something here and I can't figure it out. So you sold it for 6% deposit premium, you got $8.9 million. Obviously, you paid out the Legacy holders of $1.1 million. And your pretax was $5 million. How did the net income to the bottom line amount to $1.1 million?

Part of it is because we had a write-off, a portion of goodwill associated with the Legacy acquisition that you don’t have a tax timing difference. So it’s a permanent difference, which increased our effective tax rate on that.

Okay. And so as we look to what's going to be closing in the first quarter, you've obviously -- you've got 4 more branches that you sold. I'm just calculating a rough deposit premium of closer to $1.4 million. How much -- $1.4 million pretax, I guess, pre write-off. How much of that will drop to the bottom line?

We're looking at -- really, it’s going to be kind of a breakeven. It’s not going to bring much to the bottom line, once we write goodwill off because the premium on deposits is lower. So we're looking at that to be about a breakeven.

The next question is from Mike Shafir of Sterne Agee.

I was just wondering, on the loan growth guidance that you guys gave, could you repeat that? Because I was confused, was it annualized for the first quarter? Or was it for the annual growth rate for the year and whether it was just commercial or total loans?

That was total loans and it was in the mid high-single digits. I mean mid- to high-single digits.

For the first quarter?

And for the first.

The year and the first.

The year and the first.

The year and the first. Mid-single digits. So...

Well, mid- to high-single digits.

I think we've said 6%, 7%, 8%. I think I might have used 8% for the year.

Okay. And then just going back to that securities portfolio and Damon’s question earlier. The portfolio did rise about 5% this quarter. Are we going to continue to kind of see 3% to 4% increases in securities as deposit growth continues to offset some of that liquidity?

Right now, we're projecting really -- we might see a little bit but we're really projecting loan growth to soak up the liquidity that’s going to be -- we gain in deposit growth.

And our next question comes from Matt Forgotson from Sandler O'Neill.

I got just a quick question here on capital management. I see that there was a nice sequential pop in the TC ratio up to 8.80%. Mike, are you managing the balance sheet towards a particular ratio?

Well, I think the balance is that we don’t want capital to sit around idle. We think that’s a mistake and I think we certainly need to make sure that we don’t drive our capital down to a level that gives the regulators any pause. So I think 8%, you know 7.75%, 8% is probably a good range.

Okay. And then just in terms of how you guys are thinking about branch profitability, in particular, making your de novos profitable. Maybe Sean could just talk us through a little bit, in terms of average deposits you need to carry and so forth in order to make those new endeavors profitable.

Sure. We're talking about $30 million as of the breakeven, and like I mentioned, we're happy -- we also use the S-curve analysis. So every new branch that’s coming on now is having that incremental benefit to the overall franchise because you've got a more effective overall franchise. So in that Albany market, even as we add on 2 to 3 new ones a year, we keep a close look at what the average balance per branch is. And we've been running in that $40 million to $45 million range, which keeps the overall region profitable, covering all of that direct expense. So that’s just kind of the long and the short of how we look at it. And we feel, as we look at that incremental benefit going forward, that when we end up at our scale, a competitive scale in that marketplace, it could be a real profitable earnings generator for us.

Okay. So just to make sure I understand it. You're saying, across the franchise, on average, you need to carry about $30 million or so in...

Each. If you want to look at a branch individually, $30 million is a good breakeven target. Not across the franchise, but just looking at Albany proper and our de novo strategy. We typically keep on average between $40 million and $45 million in those branches. So even with the new ones coming on in that curve early on, where the first year, say, it’s $10 million to $15 million. The average balances in the overall franchisers are keeping high enough to keep profitability in that de novo franchise where we need it.

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

The only closing remarks are thank you for your participation. I want to thank everyone for joining us of course, and we look forward to speaking with all of you again in April to discuss what will then be our first quarter results.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.