Beacon Financial Corp. (BBT) Q4 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Berkshire Hills Bancorp, Inc. Q4 Earnings Release Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. David Gonci, Investor Relations officer. Mr. Gonci the floor is yours, Sir.

Thank you. Good morning. Welcome to America’s most exciting bank. And thank you all for joining this discussion of 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. For question of related factors, please see our earnings release and our most recent SEC reports on Forms 10-K and 10-Q. Now, I’ll turn the call over to Mike Daly, President and CEO.

Thank you, David, good morning everyone. Welcome to our fourth quarter conference call. And with me this morning are Kevin Riley our Chief Financial officer, and of course other members of our management team. We released our yearend earnings last night. I’m pleased to report that we delivered on our guidance of $0.54 in core earnings per share for the fourth quarter. This brings us to a $1.98 in core EPS for the year and that does exceed our original guidance. Now, that’s a 29% increase for the year and we maintain double digit momentum through the end of the year, with a 15% annualized increase compared to the linked quarter. We expect to maintain our double digit core EPS growth momentum in the New Year and you will hear a little bit more about that later in the call. We achieved record core and GAAP earnings, our annualized core EPS run rate reached $2.16 a share and if you include amortization of intangibles, we’re really nearing a record run rate of $2.40 a share in generating tangible capital from operations and that number is also moving north at a double digit rate. So positive notes. At these levels, we’re starting to hit some important profitability metrics that we’ve been targeting including core return on assets, which moved over 1%, core return on equity, which moved over 8%, core return on tangible equity now, over 15% and an efficiency ratio which is below 60%. I’ll have a few comments about our recent Investor Day later in the call. But as I noted, on that occasion, these levels are what we’re viewing as a base, and we plan to keep improving these metrics up, from here. We expanded our franchise nicely during the year and we increased our market share and our existing footprint. We also diversified our products and revenue streams and I believe that we made solid progress in the value that we offer to our markets, and in the value of the franchise we’re building for our shareholders. And the numbers flow from a pretty busy quarter. We completed the acquisition of Beacon Federal in October. That added more than $600 million in loans and deposits in 7 new branches. And this gives us a nice foothold in the Syracuse MSA that has a population as I’ve said before totaling about 700,000. We hired a seasoned commercial leader recently for the Syracuse market and this is always an important part of our strategy for effective market penetration. The Beacon Acquisition, of course, further strengthened our Rome market presence and now the Syracuse and Rome markets will comprise our central New York region. We also acquired our first Eastern Massachusetts office in Chelmsford with this transaction which will contribute to the presence that we have outside of Boston. And we do expect our cost saves and merger cost to fall right within our targets and it’s important to note that our tangible book value per share was only diluted by $0.30 or a 2% during the quarter in which we recorded this acquisition and we expect to have fully recouped that dilution by around Valentine’s Day. We’ll also have accreted tangible book value over the trailing 4 quarters even while absorbing to earnings accreted bank mergers in paying a 3% plus and dividend yield. Other accomplishments during the quarter included opening 2 new offices in the Albany area bringing our Albany total to 17, as we close in on our goal of 20plus offices there. And I’d also note that we redesigned and we opened our flagship office in Pittsfield, and it’s a really a terrific showcase of our retail brand. We completed the conversion of the CBT systems in November. Now that had been delayed until we completed our own system conversion in September, and with our director and spokesmen, Geno Auriemma, recently back from coaching Olympic gold. We hosted a very successful reception at the Connecticut Convention Centre in Hartford and we’re moving forward with the redesign and the relocation of our West Hartford office to be our first AMEB design branch in that market. Now speaking of core system conversions, the fourth quarter was the first full quarter of our operations on our new system. This conversion has gone very well. Our teams are starting to mine its capability and I’d also note that we relocated many of our Pittsfield operations in the second half of 2012 as we gain further efficiencies near our headquarters. And lastly, we generated a record of 400 million residential mortgages and we were named among the top 10 residential lenders in Massachusetts and Rhode Island. Our teams worked a lot of over-time to step up to the increase mortgage demand as we assisted our markets and taken advantage of improving real estate and capital market conditions. The close focus on our markets, we are pushing strong organic growth and I’m going to turn to that now. I’ll start with deposits, which is a little bit more straight forward growth story with 5% organic growth for the year, and 30% total growth including acquired balances. The organic themes were similar throughout the year, with an emphasis on lower cost relationship accounts, both commercial and retail. And as I’ve discussed before, we try to balance volume and price objectives as we continue to pursue market share growth to improve our scale and our wallet share advantages. Our Denoble [ph] branch growth continues to do well and we continue to gain commercial deposit share as a result of our C&I loan growth. Our commercial deposits now fund about 2 thirds of our commercial home book. Our release headlined our strong demand deposit growth in the quarter, and near 30% for the year. Meanwhile, our fourth quarter cost to deposit decreased to a 59 basis points from 73 basis points, on a year-over-year basis and from 66 basis points, compared to the prior quarter. Organic loan growth, of course it’s been led by commercial business loans. And they were up 25% for the year as our commercial teams have continued to have a good success competing against the national banks. Now this is a very solid business for us at this point in the cycle with growth coming from account acquisition and frankly, better utilization. And as I mentioned we brought in a commercial leader for our Syracuse market in January. And very soon, we’re going to be announcing another team in Middlesex County in Eastern Massachusetts which will complement our West Bourough and Woburn teams. Now this is by the way the most populist county in New England. I think we got a great opportunity to augment our strong commercial momentum in these markets. Residential mortgage originations have also contributed to organic loan growth during the year and of course, this is related to the higher business volumes that I spoke about earlier, together with the benefit of our expanded Eastern Massachusetts lending operations. So based on a strong ongoing business development we continue to man it run off of targeted commercial real estate as we build a balanced and diversified portfolio. And this is where we’re going to see some lumpiness and that balances quarter to quarter. For instance, at this quarter we reduced the old Legacy Bank national portfolio again, which by the way now is a half of what it was at the beginning of the year. And Pat, you can give some additional color on this during the Q&A if needed, and that’s what we’re doing. We’re pruning acquired loans that we’ve marked and non-relationships CRE loans and we’re offsetting that with 25% plus growth in relationship based C&I loans, and that’s good business. And that gives us more opportunity to further drive profitability and quality. Now as I noted last quarter, we have multiple levers we’re working for volume and margin management and changes in any one quarterly component may not reflect our forward macro outlook. And Kevin will address this and, some other items when we get to him in just a minute. Our objective is to deliver on our planned bottom line growth while building our franchise share and protecting the long run margin net of credit cost and there were no changes in the fourth quarter and our confidence in executing that strategy. So to conclude my remarks on revenues, our release noted our new record quarterly wealth management fees. They were up 13% year-over-year, with business generation during the year accounting for 11% of the portfolio at year end. Quarterly insurance revenues were also up 20% year-over-year, primarily due to the improved seasonality and revenue flows with commercial insurance revenues up 5% on the year excluding seasonal influences. And we’ll end the year frankly with a very robust new business pipeline in that business line. Our total fee income was 27% of our combined margin and fee income and as you know, this ratio does decrease when we acquire smaller banks, but future revenues synergies are expected to help offset what is inevitably a decrease in mortgage volume and ultimately this will keep us on track for our goals, which is income contributing more than 30% of our total revenues. Now, let me take a pause here, I’ll ask Kevin to provide some more details on the quarterly results and also on our forward looking guidance and then I’ll wrap up. Kevin?

Thank you, Mike, and good morning, everyone. As Mike had just mentioned, our core earnings for the fourth quarter came in at $0.54 and for the full year they were $1.98. Our GAAP earnings for the quarter and for the year were $0.38 and a $1.49 respectively. As you know, our GAAP earnings include non-core income and expense items relating to our mergers and our core system conversion. These non-core items equated to about $0.16 in earnings for the fourth quarter and $0.49 or the full year. These costs are now mostly behind us, however there will be some final charges as they relate to the final system integration of Beacon, which is planned for the end of the first quarter. Now let’s look at the balance sheet. With Beacon being added in the fourth quarter, loans increased by 17% and deposits increased by 19%. We continue to have momentum in organic business development, which in deposit resulted in them growing at a 3% annualized rate for the fourth quarter, excluding Beacon. As Mike mentioned, on the loan side, we offset new loans with the sale of our mortgage loan production and the repositioning of our commercial loan post Beacon. For the quarter, our net interest margin came in at 3.67%, as in prior quarters the realization of purchase accounting fair value marks has moved the margin higher or lower to our expected core run rate. This quarter, the impact was estimated to be a about a positive 18 basis points. So net at this, our underlying margin for the quarter came in around 350, as we projected. As with other banks, we are experiencing pressure on the margin, as deposit rates near 0 and loans and securities to continue to re-price in this low rate environment. Looking forward, we do expect to see our loans and deposit growth rates to be in the mid single digit range on annualized basis. This is similar to the organic results of 2012. There could be some fluctuation as rate of growth, from quarter to quarter as we have seen in the past. So for 2013, we are projecting of that our margin will stay in the range of 340’s as we continue to stay slightly asset sensitive in case rates start to move higher. Margin pressure will persist as long as we stay in this low rate environment. Our growth in C&I lending has helped fuel strong growth in interest free demand deposits, which has allowed us to let some higher cost CD money go. We continue to focus on our product pricing and balance sheet management, in order to minimize margin erosion. For the first quarter, our outlook for net interest income is around $41 million and then growing thereafter. Our fee income for the fourth quarter came in at $15.8 million and was what we expected with the operation of Beacon being added. For 2013, we are expecting fee revenue growth to be in the range of growth of that as balance sheet, mid to high single digits. But we do expect the revenue mix to change slightly during the year with mortgage fees slowing and the commercial fee revenue picking up with some speed. For the fourth quarter, we also recognized about $1.4 million in net security gains. The majority of this gain came from our pre-acquisition investment in Beacon and the benefit was recorded at planned merger date. We continue to maintain and manage portfolio of bank securities in our region and over the years, this portfolio has provided us with strong dividend yields and a significant non-core benefit when institutions have become merger partners. Our loan loss provision for the quarter was 2.8 million which exceeded our guidance. Overall, credit metrics continue to be positive and our provision continue to exceed our net charge offs as we grow the allowance to cover loan growth and the acquired portfolios due to bank acquisitions and the impact of loan purchase accounting. Our allowance now stands at 83 basis points of total loans. If you compare the allowance, the loans not acquired through acquisition which has their own credit marks, stands at around 1.26% as of year-end. Our portfolio quality metrics continue to remain favorable and are projected to further improve in 2013. So at this time we are anticipating our provision to be around 10 million for the year, with some variability by quarter. We believe this provision will cover both net charge offs as well as coverage for our new loan production. Moving on to non-interest expense, our GAAP numbers included some remains of our core system conversion expense as well as expense associated with the Beacon merger which these costs have come in below our original expectation. Our targeted cost saves of 30% relating to the Beacon merger are on track to be fully realized upon the system conversion, which will occur in March. Our core expense for the quarter was 35.4 million. This was larger than we expected and caused our efficiency ratio to back up a bit. We feel most of this increase is temporary and only fourth quarter related. We feel we have some running room to improve this metric as we move through 2013 with merged cost saves, efficiencies from our new core system, and a benefits of increased scale. So we are looking to keep our core expense growth to the low single digits for 2013. This will continue to allow us to produce positive operating leverage as we have in the past. Our core tax rate came in at 30% for the year and this was up from the 27% we anticipated at the start of the year. This increase was mainly due to increased earnings. Our fourth quarter core tax rate was 29% as we chewed up our annual rate following the Beacon merger. For 2013, we expect our core tax rate to be in the range of 32% to 33%. This is due to revenue growth and the tax preferred items having a smaller impact. So for 2013, we are estimating our core earnings per share to be in the range of $2.27 to $2.32 per share and for the first quarter we are expecting $0.54 and earnings per share of core earnings. Due to the shortness of the quarter and the full benefits of the Beacon acquisition not yet being fully realized, which when realized will increase quarterly earnings per share thereafter. Further non-core charges for Beacon yet to be encouraged, should be lesser than $4 million and most of it should be completed by the end of the first quarter. As Mike has discussed, we have gotten our profitability measures to new levels and we plan to improve on them to further in 2013. We look for our return on equity rate to be approaching 9% by year end and we are looking for the growth in core earnings per share to be closing at 15% or better. As I described at Investor Day, we are focused on a metrics that we think are most important in building our franchise value and the value of our stock. In 2013, we will constantly working on the build, on the foundation that we laid in 2012. With that I would like to turn the call back over to Mike.

Thanks a lot, Kevin. So our guidance shows continued strong growth and profitability improvement and it is in line with the guidance we have provided a couple of months ago at our Investor Day. Now we are pretty focused on the challenges and opportunities in front of us in the New Year. I think the industry challenges are pretty widely agreed on. Margin pressure due to low rates and business volume uncertainties do to an uneven economy. By positioning ourselves strategically and reacting flexibly, we believe that we are prepared to deal with those challenges. Our greatest opportunity is to add revenues in the markets that we have invested in 2012, Eastern Massachusetts, Northern Connecticut, and Central New York. We have recruited the right leadership in these markets to bring in business and I think we have got a track record of delivering revenue from this kind of market expansion. And as I mentioned, we have already started the New Year with further recruitment to augment our penetration in these markets. Our other opportunity is to work the levers and mine the information that we have at our new scale, to flexibly deliver top line and bottom line accretion from our infrastructure investments. We have brought in new talent, we have expanded our product set, and we have converted our systems to much more capable technology. I have made a comparison to the character Jonah Marcus in the Moneyball movie. We intend to run our business with the same kind of clear eyed and incisive decision making. We are combining this approach with the Six Sigma disciplines that we have been utilizing for years. Disciplines that sharpen processes, improve service, enhance team work, and ultimately increase profits. Now we have moved our efficiency ratios in to the high 50s and we are quite focused on keeping this moving in the right direction. At our Investor Day, we set out new long term objectives. To maintain the double digit pace of EPS growth and to move the ROE into double-digit territory. This would get us to a $3 EPS running rate by the end of 2015, and as a result the Tangible Book Value per share approaching $19 or more. As always, we also talked about our brand and culture at Investor Day. I think it’s going to take a passionate, focused and committed team to reach those targets. I think that’s the kind of team that we have built here. A team frankly that delivered nearly 40% revenue growth and a 29% increase in core-EPS in 2012. The market capital, the company has recently climbed over 600 million due to these efforts and the total return on our stock was nearly 11% in 2012. We are focused on the drivers that will propel customer preference in our markets and the results that shareholders value. Now, we enter 2013 with confidence in our condition, our prospects, and our strategy. I will conclude my remarks as I did in New York. This team is in, it’s all in, and we are going to give you everything we have to deliver the guidance and the value that we have set out here this morning. Now, this does conclude my prepared remarks and I now invite the operator to open the lines for questions.

[Operator Instructions] The first question we have comes from Mark Fitzgibbon of Sandler O'Neill & Partners.

The first question I had related to Greenpark, I wondered if you could share with us with a volume of loans they originated this quarter was and what the gain on sale margins looks like?

Sean, you got those numbers?

Sure. The net gain on margins run in that 110 or 115 basis point range. In Greenpark, it’s been averaging about 75% to 80% of overall production.

Of the company’s overall production?

Correct, the company’s overall mortgage production.

Okay. Secondly, on the bank stock portfolio, I wondered if you could share with us how big that portfolio is and roughly how many positions it entails?

We can give you a general idea. We run at somewhere between 20 million and 25 million. It probably has a couple of dozen banks.

And then, lastly on acquisitions, I wondered if you feel ready to do an additional bank acquisition with Beacon having just closed recently. And also, you have been sort of quite on the insurance and asset management acquisition front for a while. Is it likely, that we will see some transactions in that space in 2013?

Well, I would say this, Mark. We are in the same position as we have always been with respect to acquisition ready. I would tell you that, our guys are pretty jazzed at the moment of seeing if they can get from a Two Sigma to Three Sigma to a Four Sigma in all of their areas right now. And so, process improvement is on the front burner. If acquisitions becomes available, we will do the same thing, we always do, we will take a look and make sure that they match up to our parameters. As far as insurance and wealth management goes, I know Pat, you had conversations and you have talked to people on both the insurance and wealth management standpoint. So if the numbers work we would do something, but if the numbers aren’t working we won’t. So I don’t think that we have any burning desire to run out and do something just to do it.

Next we have Damon DelMonte of KBW.

My first question has to do with the margin, Kevin you mention in your comments about roughly 18 basis points of benefit this quarter from accreditable yield. Should we look at the starting point for the first quarter’s modeling perspective of around 350 then and kind of from there have it trend down to the lower 340s throughout the year.

Damon, I think that’s a good estimate, yes.

Okay, great. And then, with regards to the expenses, I think you mentioned 35.4 million is kind of your core operating expenses for the quarter. You also talked about some additional noise in there, I think from the timing of the BVED system conversion. And then you talked about low single-digit growth for the year. So what’s a good starting point for the expense base to kind of build in that low single-digit growth for the year?

Somewhere around 34 million.

Okay, alright. So you kind of expect to be able to get that savings, the 35.5 or so down to 34 in the first quarter and then from there kind of build just normally over the year?

That’s correct.

Okay, alright. That’s helpful. I guess, my last question, could you just talk a little bit more about the targeted run-off were some of the CRE loans, and maybe what you expect to see where volume on a quarterly basis?

Pat, you have got some detail on that one. Why don’t you give us a little update?

Sure. David, Pat here, how are you doing?

Good, how are you?

Good, good. Just to give you guys a little color on the quarter because there is a lot of different moving parts here. Let me talk about Beacon and CBT first. Beacon, we acquired, in roughly mid-October. We had some runoff in the fourth quarter and that was related to loans we had marked that we moved out. So there is some decrease in that portfolio. We are optimistic as we move into 2013 with a new leader Chris Popionikis [PH] and enhancing our team up in Syracuse that will grow that market on a modest spaces, again, C&I type focus, primarily. In Connecticut, we acquired Connecticut at the end of April and pretty much our portfolio has stayed flat to down a little bit through normal amortization. And that’s what we experienced in the fourth quarter. I think the big numbers that you kind of focus on is what the core bank was, including our Central and Easter Massachusetts operation, including ABL. And in the fourth quarter we grew our C&I loans another 2.5% from September to December and in the CRE loans we are off by about $10 million. So effectively we were about flat all in for the quarter when you take and add up those 4 pieces. A lot of our runoff in the fourth quarter was 2 things, a lot of it was some hospitality loans, we have been gradually reducing our hospitality exposure as we have acquired markets that have had hospital exposure. And the second thing is, when we acquired legacy, we had about $70 million of auto market, commercial real-estate loans, primarily investor owned income producing properties, we saw that reduce by roughly half and we probably saw half of that decrease in the fourth quarter. That’s kind of the summary of how we got…

Now, your pipeline, Pat, is strong, but again, there may be lumpiness in a quarter during the year, I think we will end the year on a net basis, I think we gave 5% guidance for loan growth on a net basis. Again, that’s going to include continuing to move out some of the national loans, some of the CRE loans and some of the marked loans that we have, I mean, that’s what we are supposed to do, and that’s what we are doing, where we place it, and we will offset it with growth in the new C&I stuff.

Yes, and the thing I would say, another positive thing is that last year, we increased our commercial commitment, 43% year-over-year and probably 70% of that was in the C&I space. And as you build that out throughout the year, again, you start seeing use building in your outstandings, and that’s another positive.

So I will anticipate another question is going to come up in the next pipeline?

Thanks, Mike.

And pipeline is sitting today at about $100 million, fairly solid as you move into this -

So it’s actually up.

It’s up.

Yes. That’s the only other questions I can think to ask for you, Damon.

And next we have Collyn Gilbert of Stifel Nicolaus.

Just a follow-up on the loan discussion, so in terms of moving out some of these non-relationship CREs, is this kind of just sort of fixing things as you go along or is there more of a larger strategic move going on here?

It’s both. We stated about a year-and-a-half ago, maybe a little longer that diversifying the portfolio, rebalancing the portfolio was important to us. We needed to reduce our commercial real estate outstanding and increase our C&I things for a lot of reasons, including profitability and relationship gathering. And when we do buy a bank, Collyn, we will mark the portfolio and the first thing we look at is, okay, if we mark a portfolio and we pick up some loans that we really don’t want long term, how fast can we get them out of the bank. And so, between those 2 things, we are going to continue to recalibrate. We are getting to a point where I would say at the end of next year from a CRE and C&I standpoint, we will probably be where we want to be strategically or close to it, but anytime we do an acquisition, we are going to pick up loans that don’t fit our model. It’s going to be important for us to get rid of them as quick as we can.

Okay. And that was kind of sort of - my next question, as you look at potential acquisition target, I would assume that most of the banks would be available for sale, would be more real estate-oriented, whether it’s commercial real estate or resi. So I just didn’t know if that would sort of deter you at all or you are fine doing it and you will just, as you said, sort of recalibrate as you go?

I think we are fine doing it and recalibrating as we go. We have shown the ability to do that. And I just think it’s important that everybody understand the numbers as we go and it’s important to look, as I have said before, at the complexion of our numbers. So if we have a quarter or we have 2 quarters where even on the deposit side, let’s say, deposits don’t look like they are growing, they look underneath it and you say, well, hell you had 20% increase in your DDA, you want that. It’s the same thing with the loan portfolio. If we are putting on C&I loans and C&I relationships at 22%, 23%, 24% on an annual basis, what if netting to 0 or 4% or 2%, we don’t necessarily care about that, because it’s giving us a decent calibration of the portfolio and it’s where we wanted to be.

Okay. That makes sense. And then does this movement at all change the guidance you guys had given I guess of kind of looking at average loans, I think you said of like 4.4 billion for 2013?

No, actually, I think we are really hitting the sweet spot now and frankly, you will hear more about this team we just hired from Middlesex. They come right in on that level, don’t they, Pat? I mean, these guys are middle market right down the middle for us.

Right down the middle, Mike. Collyn, these are - if you really look at the new team we just recruited and we will officially -

And we may have to get this announcement out today after we are talking about it this much.

Their average loan is very similar to our Central Mass team, slightly under our ABL team, it’s middle market, middle market type relationship. It’s good stuff.

Okay. But I mean, in terms of total loans targeted for the year -

Our total loans, we are going to continue to aim right for what we have given for guidance, which was I think 5%, Kevin, is that what you gave?

Yes.

It should have been, if he didn’t that’s what it should have been.

Okay. That’s helpful. And just one final question. The movement in the securities and borrowings, did you just see some cash flows from the securities to pay down some borrowings in the quarter or just give a little bit of color as to what was going on there?

Well, similar to the reposition of the commercial loan book, we have looked at the securities in the low rate environment, we got Beacon Securities that the lowest rate environment. So we mark that, that rate we felt that some of these securities we didn’t want for a long haul. So we jettisoned them. We also did some borrowing redo at that lower rate level, too. So we kind of looked at, it was trying to get out some of these securities, somewhat actually yielding almost a negative yield. So we just felt it was good to reposition our investment portfolio to have stronger earnings on it.

Okay. Great. And then just one final question, the charge that you guys took, the merger charges, the $7 million, I think it was less than the $14 million that you had talked about. Is that because part of that ended up flowing through Beacon or should we expect more charges going forward?

As I just mentioned, Collyn, in the first quarter, we are expecting about another $4 million, some of the cost of that merger.

Okay. Sorry about that. All right, thanks guys.

Hi Collyn, one other thing. And I just want to add, everybody has kind of asked the same question and I hope we have answered it adequately on the whole loan growth question, but this really does go to the heart of what we are trying to do in the company with mining and data mining and making sure that when we take a resource and we put that resource to work, that that resource is getting us back the best return we can on that investment, and so, these moving parts and the recalibration across the company will probably continue every time we do an overall Six Sigma project and that’s kind of the basis of where we are headed.

And next we have Matthew Kelly of Sterne, Agee.

So just to kind of stay on that subject, so you end the year at $4 billion loans, 5% growth gets you to $4.2 billion by year end, with an average of $4.1 billion. Is it the difference versus the $4.4 billion average loan balance you talked about at the Investor Day. So how do you make that up?

We will stay with those numbers because those are the numbers we are giving. We do better than that then good for us. But again, the loans that we would be putting on are better margin loans for us, number one, and 2, they bring with it additional fee income. So if you take down 2 non-relationship type real estate loans or some loans with the national portfolio and you jettison those and you replace that with a solid middle market C&I loan outside of Boston or in Central New York, and we pick up the wire fees and the cash management fees with that. We will make that up on the bottom line. That is what we have calculated. So I don’t know of anybody here wants to debate me on that or agree or disagree, but basically that’s the premise for our bottom line-driven approach.

Got it. So just so that I am clear, the offset that allows you to kind of keep your current guidance range, there is more fee income and potentially an improvement in the overall asset yield in the mix shift. Is that really what I am hearing?

Perfect.

Okay. All right. And then the total securities balance, is that going to stay right around the same level throughout the year. I assume you are not adding anything there, re-levering it anyway?

We will probably add some during the year as we go forward. As we are seeing, there is a positive time to do some investments we will be adding to the portfolio. So we do see that increasing a little bit over the year.

Okay. And Pat, can you just give us a little sense on what the C&I loan yields are looking like in the origination pipeline right now?

Gross or net?

Both.

Both? I would say that the average margin is between 250 and 300 over LIBOR. Then you see its fees that go on the unused commitment of fees upfront. They generate half in a quarter. So that’s kind of typical in the market and probably the gross coupon is in the mid-4 as you take in some of the fixed rate loans we make that average out.

Okay. And then, is it going to be a run-off for the remaining $30 million to $40 million of the legacy out of market CRE?

That’s where you get into some of the lumpiness of it, because those loans are heavy payment penalties, which is good. So we pick up fee income and they pay out.

So the question is are we going to run that off the rest of that off over the course of the year, and the answer to that is we don’t know because we can’t jettison them just because we want to.

And Kevin, question for you, the 340 margin guidance, how much accretable yield benefit does that include?

It includes about $1 million to $1.1 million, and we believe that accretable yield will be stable throughout all quarters of 2013.

$1.1 million for the year or for quarter? Quarterly, I assume, right?

Per quarter. And the reason why we looked at the increase of 18 basis points, that was unexpected over that run rate. We believe that run rate will continue through 2013.

Okay. And then, what about as you look out in ’14? How much accretable yield do you project on?

It starts decreasing and I got to tell you, it’s out there. I don’t know, as we move through 2013, a loan payoff that changed the accretable yield level. So I will stay with what I got for ’13 and recalibrate as we move towards 2014.

Okay. And then, a last question, in Greenpark, in the mortgage operation, what are the gain-on-sale margins currently and could you just quantify pipeline or rate lock at September 30th versus 12/31 and give us a sense of the volume change?

Okay. From a pipeline perspective, we are looking at about a $125 million and that’s bank-wide based on the percentages that I talked about prior. Three months ago, we were probably looking at the $175 million range, 3 months ago. From a execution perspective, from a net basis, we are looking at 110 to 115 basis points. From a gross basis, we are in that 150 to 160 basis points range.

That’s what you are doing currently?

Yes.

Okay. And what was that during the 3Q peak?

That has stayed pretty consistent.

It appears that we have no further questions at this time, we will go ahead and conclude our question-and-answer session. I will now like to turn the conference back over to Mr. Michael Daly, President and CEO. Sir?

Thank you very much. This does conclude the call and of course, I want to thank everyone for joining us, and of course, we look forward to speaking with all of you again in April when we have a chance to discuss our first quarter results.

And we thank you sir and to the rest of the management for your time. The conference is now concluded. We thank you all again for attending today’s presentation. At this time, you may disconnect your lines. Thank you and take care.