Beacon Financial Corp. (BBT) Q4 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Berkshire Hills Bancorp Q4 earnings release conference call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I will now like to turn the conference over to Allison O'Rourke, EVP of Finance. 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 sections 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 detail on related factors, please see our earnings release and our most recent SEC reports on Forms 10-K and 10-Q. In addition, certain non-GAAP financial measures will be discussed on this conference call. References to non-GAAP measures are only provided to assist you in understanding Berkshire's results and performance trends, and should not be relied upon as financial measures of actual results or future projections. A comparison and reconciliation to GAAP measures is included in our news release. With that, I'd like to turn the call over to CEO, Mike Daly. Mike?

Thank you, Ally. Good morning everyone. Thanks for joining us this morning for our fourth quarter call. I'll provide an overview of the year and the quarter and then I'll turn it over to Jamie Moses, our CFO, he'll walk you through some of the specifics in our financials, we'll discuss our outlook and our guidance. And then I'll wrap it up. So let me start with our 2016 performance. It was a solid year. We improved profitability. We executed on some disciplined expansion strategies. We saw good growth across our business lines and we reported record earnings and produced positive operating leverage. We closed the First Choice acquisition on plan and on schedule and will be fully integrating their operations this quarter. Now this added a little over a billion in assets to our balance sheet, 150 million to capital and improved our liquidity dropping our loan to deposit ratio back under 100%. We issued almost 4.5 million shares of common stock with the deal and we gained a presence in the Princeton New Jersey and Philadelphia areas, along with a high-quality national mortgage business. We're pleased with the quality of the franchise and its earnings as well as the team that joined us and we fully expect to earn strong returns on this investment. We anticipate achieving the projected cost saves and earnings accretion on schedule. With respect to the fourth quarter, we reported $0.56 in core EPS that includes the impact of the additional shares issued and the First Choice business operations. GAAP EPS was $0.32 for the same period primarily reflecting the deal cost. Core earnings per share increased 5% for the year while GAAP EPS was up 9% and overall revenues increased 11%. And we've worked on managing expenses and also shifting our revenue streams to incorporate more fee income. And fees ended the year at 25% of total revenue that's up from 20% a year ago and I fully expect that number will now move north of 30% with the integration of First Choice. Organic loan growth for the year was 6% for both total loans and commercial loans and for the quarter, total loans grew 5% annualized with C&I loans growing 17% annualized and commercial real estate being reduced by 6% annualized. And those numbers of course exclude the impact of First Choice. And during the back half of the year, we did restructure some of our lending operations. We moved specialty lending into its own group and we replaced some commercial real estate focused lenders with stronger C&I lenders. We sold some commercial real estate loans which of course impacts the overall net growth number. But I'd add we have the engines but we also intend to be smart with how we get the best returns. After the first quarter, our pipeline is strong indicating high-single digit annualized commercial loan growth with gains being driven again by C&I and coming across the franchise. Organic residential mortgage balances were up 3% for the year. First Choice loan services, our new mortgage origination platform sells its production to the secondary market as you know and therefore won't impact the balance sheet except for its warehouse of loans held for sale. Now despite the pick-up in rates, we're experiencing a pretty stable mortgage market for this time of year. And we're cognizant of the potential impacts of interest rates swings which is why we've worked to put in place a number of other diversified income drivers. Total loan growth for the first quarter is expected to be in the mid-to-high single digits lead by commercial and for the full-year; we continue to anticipate a more normalized low-to-mid single digit growth rate with some seasonality in the various businesses and potential activity in our secondary market operations. Now turning to deposits. Overall, deposits grew 3% organically in 2016 and importantly, demand deposits grew 10%. And we're doing a better job of mining commercial real estate, excuse me, commercial relationships and we’re continuing to drive overall market share in our expanded markets. And we expect total deposits to grow at a low-single digit annualized pace in the first quarter and low-to-mid single digits for the year. We're on target to open our first branch in Boston in the next couple weeks, complete with my bankers and virtual teller technology. Our philosophy has been that focusing on creating market presence and developing relationships was vital to entering the market. And we now have a $1.5 billion bank in and around Boston and brand recognition through our affiliation with NESN and the Boston Bruins and the new Boston Winter Garden. We've got the right people in place, so we're looking forward to getting our downtown branch open and becoming a bigger part of that community. We're also on track to close the three branches we've previously identified that will bring our total branch count down to 97. Our virtual teller technology is being rolled out in other locations as well and we continue to sharpen our retail distribution channels to ensure efficiencies and take the best advantage of market opportunities. With respect to fee income, we continue to deliver on our strategy here. Total fee income was 19% higher in 2016 than in 2015 primarily due to loan related revenues which were driven by higher primary and secondary market volumes. We're pleased with the momentum we're seeing from our Philadelphia-based SBA team and they contributed $1.5 million in fee revenue from SBA’s loan sales in the fourth quarter. We expect them to do at least as well in the first quarter and anticipate higher growth from there. With the addition of a full quarter of revenues from First Choice, we expect to generate significantly higher fee income overall in the first quarter. The new mortgage operations will add more seasonality to our earnings than we previously had and this means that during the course of a normal year we’d expect the second and third quarter to be our strongest in terms of revenue and overall earnings. I continue to be impressed by the quality of the mortgage banking operation we acquired and the business sense of the management team. I think there is a lot of opportunity here, but of course we're being reasonable in our estimates for what they can achieve this year given the economic environment and the integration process. And I also think it's worth noting that with all the growth we've had and the diverse revenue drivers we've developed, the new mortgage business while material from an origination standpoint still only represents a couple of cents a quarter to the bottom line. Now with that I'm going to turn it over to Jamie who’ll give you some additional financial detail and then I'll sum it up. Jamie?

Thanks Mike, and good morning everyone. This was a solid quarter. A strong finish to the year and we feel good about the future. We continue to be focused on disciplined growth, improving profitability, tight expense management and driving improved shareholder returns. Core EPS was $0.56 for the fourth quarter and $2.20 for the year. GAAP EPS came in at $0.32 for the fourth quarter and $1.88 for the year. Our GAAP EPS reflects the impact of non-core charges associated with the recent acquisitions and restructuring. Average earning assets grew 4% this quarter, including the impact of the First Choice acquisition. Our net interest margin ended the year at 3.19% and the margin ex-accretion was 3.09%. This reflects the impact of First Choice and commercial prepays. Looking ahead, we expect a small pick-up in the margin ex-accretion with the benefit from the December rate hike outweighing the additional pressure from a full quarter of First Choice balances. Purchase loan accretion for the fourth quarter came in lower at $1.9 million. With the impact of First Choice, we expect total purchase loan accretion including recoveries to be slightly higher in the first quarter. The provision came in at 4.1 million in the fourth quarter exceeding net charge-offs, we expect the provision to grow in the first quarter in line with our grown growth expectations. Moving on to expenses, we're demonstrating good discipline here with our organic operations. The increase in core non-interest expense quarter-over-quarter was primarily tied to one month of First Choice impact. This will have a temporary effect on the efficiency ratio. We're targeting to achieve the full cost saves on First Choice by the end of the second quarter and so we'd expect to see improvement in the efficiency ratio back down towards 60% in the second half of the year. Our core tax rate for the fourth quarter was 21% including the benefit of some additional tax credit investments. Our GAAP tax rate was 3% reflecting the impact of acquisition-related non-core charges. We continue to anticipate that 2017 full-year core tax rate will be in the 25% to 30% range. For the first quarter, we’re anticipating a rate near 30%, including tax credit investments which will have a corresponding charge of approximately $1.5 million. Looking at the big picture, we continue to expect to deliver 5% to 7% of EPS growth in 2017. Taking into account the integration of First Choice and seasonality factors, we expect the first quarter EPS to be a $0.01 or $0.02 lower from the fourth quarter. By the end of the second quarter, we expect to realize the full benefits of the First Choice integration, which will drive EPS growth higher. We're not factoring in any rate hikes, tax cuts or potential regulatory changes at this point and so any of those things would obviously be helpful. Our GAAP earnings will continue to be affected by the First Choice acquisition in the first quarter, where we anticipate most of the remaining $8 million in deal charges to show up. That would bring our total deal charges to around $20 million pre-tax in line with our original estimate. At quarter end, our tangible equity was 7.7% of tangible assets. Tangible book value grew to $18.81 per share and book value per shred grew 2% to $30.65. The total dilution from the First Choice deal is expected to be around $0.20 which we still expect to be earned back in less than two years. We issued 150 million in common stock with this acquisition bringing our shares outstanding to 35.7 million. Credit remained strong and we intend to remain selective taking advantage of our specialty lending platforms and diverse footprint, emphasizing relationships, margin and profitability. We don't expect any significant changes to overall credit or charge-off levels in the first quarter and right now don't anticipate much change as we go throughout the year. Now I'd like to take a minute to talk broadly about our balance sheet. We're pleased with the pick-up in liquidity and capital that we got from the First Choice combination. We're still sorting out how we plan to manage some aspects of their investment security and funding. Meanwhile we moved 200 million of our own muni and mortgage-backed securities to help the maturity during the fourth quarter. Additionally, we had a sizable improvement in our portfolio of equity securities due to the market run up following the election. We had a $17 million unrealized equities gain at the end of the year. So we're also reviewing aspects of our overall securities management and overall funding. We believe it's prudent to realize some of those equity gains at this time and expect that we will realize further gains as we move forward based on market conditions. We’re also reviewing our interest rate risk profile and our existing $300 million of hedged borrowings and may reposition some of our cash flow hedges during this quarter. Our current swaps had a $7 million unrealized loss at year end and we may realize some of this loss in the quarter. The equity gains give us a present period opportunity to potentially offset all of the remaining charges associated with First Choice and any balance sheet restructuring we undertake with no effect on current period earnings. Due to all the moving pieces, we're not giving GAAP earnings per share guidance at the time. We anticipate maintaining a neutral to slightly asset sensitive profile to any potential balance sheet adjustments and expect to benefit if the current forward curve plays out. I'd also like to take a minute to comment on the mortgage banking operations acquired with First Choice. This premier operation generated loan volume of 2.6 billion in 2016 and are originating 60% of loans for purchase. In the fourth quarter, they originated 640 million with stable gain on sale margins. As is typical for the end of the year, most of that volume was done in October and November which is why their impact to our income statement was minimal. Under their structure they generate higher gain on sale margins and record higher average expenses than our traditional model and generally run with production profitability around 30 bps. As we bring our complimentary models together, we’re encouraged that we will deliver consistent results. Overall, we're pleased with our performance this quarter as well as our prospects for delivering solid results in 2017. Our financial condition is good and we expect to make further progress towards our fee income and profitability goals. With that I'd like to turn it back over to Mike.

Thanks a lot Jamie. So as Jamie said we expect to deliver another solid year in 2017 with EPS growth, revenue growth and significant improvements toward our profitability and fee income goals. Our overall guidance for the year remains consistent with what we gave in October. While integration and seasonality will be a factor in the first quarter, by midway through the year, we expect to be delivering on the benefits of our recent acquisitions. All right now we're focused on fully integrating the First Choice acquisition and continuing to build on all the strategic investments that we've made over the last couple of years. We're starting to see real synergies through the companies we’ve added. Our specialty lending businesses are delivering on expanded product sets bringing new customers to the bank and new products and services to their traditional customers. We're also building out wealth management opportunities across the entire franchise. And I think we're only seeing the beginning of what can be accomplished on that front which will translate into better profitability and stronger shareholder returns. And we've worked hard to build a franchise that performs in various interest rate environments and diversifies our income stream which will benefit us going forward. Now we accomplished much of what we set out to do in 2016; expanding our footprint and products sets for customers, building on our infrastructure and our talent, and improving our earnings and profitability for shareholders. We bolstered our return to shareholders in the form of an increased dividend and a 30% total stock return. I'm sure you saw that the Board voted to raise the dividend by another 5% this year evidencing their confidence heading into 2017. Our year end is always a good time to reflect on our record. In the last several years, we've grown our company through a disciplined expansion from 5.5 billion in assets to more than 9 billion. We managed this while improving efficiency and profitability and steadily improving our strong asset quality metrics. Over the last twelve quarters we've moved our quarterly core EPS run rate up from the low 40s to the 50s and then to the mid-50s and this year we're clearly focused on reaching $0.60 which will drive further profitability gains. And meanwhile we're generating more than a 12% core return on tangible equity and that's supporting our growth in stronger capital metrics. And we would have liked more movement in the ROA but it’s coming. We’re confidence that we’ll deliver on our guidance. And also continue to develop revenue and earnings leverage to support the progress path we've laid out while giving up the flexibility to respond to changes in our environment. Our promise to shareholders is to support predictable earnings growth while strengthening our platform to consistently deliver on our progress. Now we got a lot of opportunity in front of us and the momentum to capitalize on it. We remain focused on reaching our profitability goals and creating value for our shareholders and we look forward to continuing to deliver that in 2017. And with that I'll open it up to any questions.

[Operator Instructions] Our first question comes from Mark Fitzgibbon with Sandler O'Neill. Please go ahead.

First, Jamie, with the prospect for lower corporate tax rates, has your view on the tax credit business changed at all. Is it likely that you'll shrink that down in the quarters ahead?

I don't think so, Mark, I mean, as we said before, it's still a benefit to the company and it's still good business and it's with commercial partners that we have. So we like the business. We’ve done some work on what the tax rate would look like under our shrunken tax regime and we think. So I’ve got to just kind of lay it out for you, if corporate tax rate was at 25%, we'd expect our tax rate to be something like 18%. So there's still a benefit there, it's an 8% delta today in our core guidance, whereas it would be a 7% delta between our tax rate and corporate going forward under that sort of tax regime.

Okay. And then secondly, I wondered if you could share with us your thoughts on the margin in maybe the first quarter or the next couple of quarters?

Yeah. Sure. So we expect the margin to tick up slightly here in Q1, as the impact of the December rate hike flows through our balance sheet, offsetting some of the first choice balances that came across. And then absent any other rate movements, we continue to expect the margin to sort of tick down 1 to 2 basis points a quarter.

Okay. And then with 10 billion sort of on the horizon, I wonder if you could update us on the things that still need to be done in preparation for that?

So I mean I think we're - I think we're in really good shape in terms of that. We've built out our risk infrastructure. We've built out our DFAST capabilities. We're still moving forward in all those areas. So I feel pretty good about where we're at in terms of 10 billion.

We’re probably 85% to 90% done and any additional costs will be based on the scalability of the company.

Okay. And then last question is I’m trying to get my arms around mortgage banking income in the first quarter, what it's going to look like with First Choice fully in the numbers. Is 10 million-ish a reasonable guestimate for that line item in the first quarter?

I think we will do a little bit better than that, Mark.

The next question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Yeah. Hi, thanks. Good morning. Just to follow-up on Mark’s question on mortgage banking, so if we think about the corresponding increase that comes with that, with First Choice fully baked into your thoughts that full expenses or cost saves won't be realized until the second quarter. How should we be thinking about that in the first quarter?

Well, I mean, I think, obviously, you're going to see a tick up in expenses. So our efficiency ratio is going to be sort of low mid-60s I guess if that's your question, Laurie. And then obviously, we're going to manage that as tight as we can and we're targeting a sub-60% efficiency ratio as our - that's our goal there.

Okay. I mean, I guess just sort of more directly, if we think about that line item with your mortgage banking fees, in the fourth quarter at 3.5 going to potentially 10, when we think about that delta, what would be the corresponding incremental add that we’d see run through the expense associated with the 10 million or if it's 11 million?

I mean, I'm not sure that we're prepared to sort of go into detail on those - on that kind of guidance. We're still 30 to 50 days in on their expenses. It will be a tick up in expenses. We’re not ready to go there with you yet on what that actually would be.

So, Laurie, this is Ally. If I could for a second. So one of the things that we said, in Jamie’s remarks was about the production profitability of the mortgage rate. So we originated 2.6 billion approximately in 2016. Production profitability is about 30 bps. So that gets you about $8 million to the bottom line. So if you kind of extrapolate off of that, I think you can get where you're trying to get to.

Okay. That's perfect. And then just the one-time charges you mentioned, you had said all-in, it would be 20 million and I actually have that as the higher number at 23 million projected, is it possible I just had that wrong or did you actually revise your projected one-time charges down?

No. I think we've always been at 20 million pre-tax.

Okay. And so with 8 million less, then you've taken - you're saying you've taken a combined 12 and again I have that number a little higher, but is 12 million the right number that you’ve taken in one-time charges just to be with First Choice?

Yes. That’s right, Laurie. 12 million is the right number.

Okay. And then just one last question here on First Choice. As we look at your accretion income for this quarter, the 1.9 million, how much of that was First Choice.

Minimal, if any, it was a very small amount.

Okay. And so when we think about the first quarter of ‘17 obviously, you have two more months if you will fully baked in there. Is First Choice just simply not adding that much in accretion income?

Well, it didn't in the four weeks that we had it. In Q1, we would expect a tick up in accretion because of the First Choice acquisition.

Okay. Let me ask in another way, if we think about what your accretion income potential and I realize there's some lumps there, but what our accretion income could look like for full year 2017, do you have a number on that?

We don't have a full year number on that. That's highly dependent on our ability to work loans out and things like that. I guess maybe a good number for Q1 would be somewhere around 2 million, 2.5 or so.

Okay. And then excluding the accretion income, I just want to make sure I heard you correctly, executing the accretion income, your core margin which for this quarter was 309 versus 313 last quarter, you expect your core margin to go up excluding that accretion?

That's correct.

Okay. Great. And then you mentioned the branch in Boston that opened, where was that?

Sean?

Sure. That's Congress Street in the financial district in Boston. And that is our new model Laurie as well.

Okay. And do you have more branches that you plan to open in Boston?

No. Mike said, we really believe leading with our loan product, our wealth management group, our relationship oriented processes and then we feel strong enough that there is enough momentum there to validate a branch. So this branch will help us mind deposit opportunities from all of those clients and service as a hub for us.

Okay. Great. And then just one last question, Jamie, can you just update us on Firestone, where we are as far as the balance, the non-accruals, the charge offs and loan originations in the quarter? Thanks.

Yeah. Laurie, it’s Richard Marotta. How are you doing? Where balances are up about 3%, so they went from what 200 million to about 207 million. Again, about 70% of that is generated out of clients that they've had for generations. And the other interesting fact is that about 70% of that portfolio is a variable rate. So it's got some uplift as we start to see hopefully see an increasing interest rate environment. Pipeline for the first quarter, strong NPLs and criticized and all credit metrics were down quarter-over-quarter. So they are at or better than anything in the C&I portfolio.

Okay. So do you have an actual non-performing number? I had it at 1.4 million last quarter?

900 and change.

900 and change. Okay. Good. And then I just wanted to make sure that I got the actual originations that were produced, in other words, your new production that came in, in the fourth quarter. So the corresponding number I had for that last quarter was 22 million. And I realize it’s fast payoff.

Yeah. It's about $40 million.

$40 million. Okay. And then charge-offs there?

The bps are about what the C&I portfolio was.

Okay. So I mean so your charge-off rate, I don't actually have it for the fourth quarter. For the third quarter, I had C&I charge-offs running 65 basis points.

No. It's probably half of that 30 bps.

30 bps. Okay. Perfect. Thank you.

Our next question comes from Dave Bishop with FIG Partners. Please go ahead.

Hey, good morning, guys. Hey, a lot of my questions have been answered, but Mike, I heard you during the preamble say that you had sold some loans as well beginning the quarter?

Yeah, some commercial real estate loans. And from time to time, as I think we've said before, there will be opportunities for us to take a look at things that potentially aren't relationship based or aren't hurdling for rate reasons. And our view is that if we can move, it goes out and do as we did this quarter, 15%, 17%, 18% new C&I loans, we’re in better place.

Got it. And quarter-to-quarter, much shift in terms of maybe the risk adjusted returns out there or maybe on the commercial real estate segment, are you seeing any sort of pullback from some competitor there that maybe would make you a little bit more optimistic for growth in that segment. Just curious what you're seeing within market conditions?

Probably the only area where we're seeing any differences in the Boston market and that remains pretty competitive. So unless you see something other than what I'm talking about Richard, there's no material changes from our standpoint, I don't see us getting into a major rebirth of commercial real estate.

No. If anything, the competition in the real estate sector is still pretty vibrant. And so as Mike indicated before, we took the opportunity to shed some of the real estate that did not really fit in what we're trying to do and we took our capital and resources and put it more towards relationship banking, which is really in the C&I sector where we can drive not only interest income, but also drive full relationships with deposits and products that we love to drive some fee revenue.

What was the dollar amount?

Hey, Dave. It’s Ally. It was 60 million.

Got it. And then Jamie, I jumped on a little bit late, in terms of the, I had to jump off and back on, I think I heard you talk about maybe repositioning the securities portfolio, maybe taking advantages from gains, maybe walk through that again?

Yeah. Sure. So at the end of the year, we had about $17 million in equities gains in our portfolio. And so we expect to realize some of those gains here in Q1. We think that makes a lot of sense from a portfolio management perspective. And the other way that we're looking at that is from the perspective of overall balance sheet management, we're also taking a look at the 300 million of swaps that we have on the books. And so the mark on that is about $7 million. And we're looking at that in context of overall balance sheet management and really looking at what the effects in terms of non-core income or expense might be here in Q1.

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

Thanks. Good morning, everyone. Jamie, just back to your comment on the NIM and putting the accretion component aside and again absent rate hikes that maybe would tick down 1 to 2 basis points a quarter, what are the composition of what's driving that? Is it the asset yield repricing or are you seeing higher deposit costs or just if you could talk about the movement there that you see evolving this year?

Yeah. Thanks, Collyn. So for the most part, that's going to be on the liabilities side or some of our wholesale funding is going to reprice higher. We've had those locked in over a period of time and those rates now will show up a little bit higher than where they were before. On the asset side of things, we are really close to the point where what's rolling on is equal to what's rolling off. And so, most of that accretion or sorry most of the dilution on the NIM is going to be on the liability side.

Okay. That's helpful. And then just, Mike, you had indicated, just talking about the SBA business, a similar expected level of gains in the first quarter, I think you said 1.5 million, somewhere what we saw fourth quarter and then growing from there, just and maybe in the complexion too of the overall fee component of your business, you guys are looking for big growth there. Can you just sort of quantify that a little bit and is it, how you sort of see that and I guess, what you, I guess you did by saying 30% revenues, is that like an end of the year target.

No. Actually, I think we might do better than that and I would expect that we'd start to realize that midway through the second quarter and certainly the third quarter for sure. So if you take a look at the SBA team in Philadelphia, you take a look at some of the mortgage production that we've conserved, we estimated in the second and third quarter and a variety of our other fee income levers, including wealth management, our hope is that 30% is a minimum.

Okay. That's helpful. And then just finally on the M&A side, can you just update us as to your thoughts of future expansion, especially in the Princeton market is, it looks like there's small banks that might come available for sale down there. Is that an area that you see an opportunity like to expand or how you're thinking about M&A now with the move in prices?

Very cleverly asked, Collyn. Thank you. Look, I think, we're going to continue to do what we have done historically and that is take a look at a variety of different partnering opportunities. It will be incumbent upon us to continue to have the same kind of financial metrics that we've always had when deciding whether a partner makes sense. In this particular case, now at over 9 billion, we've got $5 million to $7 million worth of Durbin cost and another 1 million or a 1.5 million, 2 million in DFAST costs. So any deal we do, whether it's 2 billion or 4 billion or 6 billion or 1 billion, the financial parameters of that have to cover those costs in order for us to continue to move our performance ratios north from where they are now. And so any deal we do, those will be the primary objectives for partnering with someone and in geography, all I’ll say is that anytime you have the opportunity to get cost saves, so you have overlap, there's a better chance you're going to be able to generate enough earnings accretion to offset those costs. Not to say that we wouldn't be able to find a deal that just was amazing from the standpoint of earnings accretion and did not have overlap, it's just hard for me to believe that that would occur. So I don't know if that gives you some indication of where our M&A strategies are, but they're likely in a market that we're in and they will entail a financial result that includes paying the Durbin income loss and the DFAST costs.

Our next question comes from Matthew Breese with Piper Jaffray. Please go ahead.

Good morning, everybody. Just real quick. Mike, you'd mentioned that incremental DFAST cost was 1 million to 2 million. Is that accurate, the incremental cost there's 1 million to 2 million.

Well, some of that will depend on the scalability of the company, but at this point, we look at this year, next year, having somewhere around $1.5 million to $2 million worth of additional DFAST cost and of course the Durbin costs, 5 million to 7 million.

Got it. Okay. And then going back to the equity portfolio, the potential gains there and what you might do with the swaps, if you were to unwind those, what would the impact be on the margin?

So the impact on the - so I guess that depends, Matt, right. I mean, we are, what we're looking at is an ability to recreate our interest rate risk profile at lower rates today. We also have the potential to extend our interest rate profile out even further at a rate similar to where we're at. So, we're looking at it in terms of the entire sort of balance sheet management. And so we're not ready, there's a lot of moving parts there. And so we're not quite ready to give that kind of guidance yet.

Okay. So potentially you give up the swaps, but you [indiscernible]?

You got it and we can do it at a rate that's lower than where the swaps are currently at.

Understood. Okay. And then one other just quick one. I noticed wealth management fees this quarter were down around 1.9 million. Was there anything driving that decrease and as we look through the first quarter and full year ‘17, what should expectations be?

Sure. During the quarter, we made the strategic decision to sell our Renaissance Investment Group. That's an SEC regulated group. So we're able to streamline our current model with a more efficient model. Also during the quarter, we were able to buy a team in Vermont where we quite frankly we dominate from a banking and a financial planning perspective. So we had a good scale, a good brand there. So we will realize the full benefit of both of those transactions into the first quarter and second quarter and early results look good. We've already on boarded of the acquisition 95% of the clients. So we’re above industry standards. And those clients now give us the opportunity to offer full financial planning with banking relationships, deposits and so on and that's why we're very much attracted to this deal in a market we already operate in.

It's a better fit.

Okay. But in terms of overall revenue streams, is 9 million, 9.5 million still a good goal?

I think so. Right in that target and it's a business we're committed to and we're going to see some additional gains in.

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

All right. Well, I just want to thank everyone for joining us today. We certainly look forward to speaking with you again in April. At that time, we'll discuss our first quarter results.

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