Jul 18, 2008
Executives
David Gonci - Corporate Finance Officer Mike Daly - President and CEO Kevin Riley - CFO Shep Rainie - Chief Risk Officer
Analysts
Alex Twerdahl - Sandler O’Neill Damon Delmonte - KBW Laurie Hunsicker - Stifel Nicholas Mike Shafir - Sterne Agee & Leach Ross Haberman - Haberman Funds John Stewart - Sandler O'Neill
Operator
Hello and welcome to the Berkshire Hills Bancorp Q2 Earnings Release Conference Call. All participants will be in listen-only mode.
There will be an opportunity for you to ask questions at the end of today’s presentation. (Operators Instructions).
Now I would like to turn the conference over to David Gonci, Corporate Finance Officer. Mr.
Gonci, please go ahead.
David Gonci
Thank you. Good morning and thank you all for joining this discussion of our second quarter results.
Our news release is available in the investor relation section of our website berkshirebank.com, and will be furnished to the SEC. Our discussion may include forward-looking statements, and actual results could differ materially from those statements.
For a discussion of related factors, please see our earnings release and our most recent SEC Reports on Forms 10-K and 10-Q. Now I will turn the call over to Mike Daly, President and CEO.
Mike Daly
Thank you, Dave. Good morning everyone.
Welcome to our second quarter conference call. I am Mike Daly, President and Chief Executive Officer and with me this morning are Kevin Riley, our Chief Financial Officer; Shep Rainie, our Chief Risk Officer and other members of the management team.
We released our second quarter financial results yesterday. Today we will our results and our outlook for the current year and at the conclusion of our prepared remarks, we will take questions from our callers.
I must say, I am pleased to be able to provide another strong quarterly earnings report. We are producing solid earnings growth driven by strong revenue growth and positive operating leverage as a result of lower core expenses and modest credit related charges.
Our loan performances actually improved during the quarter and are comparatively low problem loan measures improved further as a result. We posted a 6% increase in earnings per share with second quarter EPS of $0.55, which was up $0.03 from the $0.52 in the prior year and for the first six months EPS was up 6% to $1.13, this year compared to $1.07 last year.
And I think it’s also important to point out that our pre provision core earnings growth in the second quarter, since we had an unusually low provision last year related to portfolio changes in that period. Actually our pre-tax, pre-provision, core EPS growth was 15% in the second quarter, compared to the prior year.
We do expect to have generally higher normalized provisioning this year, but I think this is the measures that show some good underlining earnings momentum. Some of the key highlights included 24% revenue growth for the quarter a 345 net interest margin and that's the highest quarterly level since the year 2003, 13% annualized commercial loan growth in the first half of the year, 14% growth in consumer non-maturity deposit balances for the first half year and an 18% annualized growth in wealth management new business bookings in the second quarter.
And as I said before, our goal is to build shareholder value through core earnings growth. Now we are going to discuss our strong asset quality shortly, which of course remain the foundation of our business, but earnings growth is our basic mission and we are just focus now as we have ever been on sustaining that growth in this environment.
And I say that in part, because strong earnings, in addition to capital are major underpinning to bank safety and soundness and our 18% return on tangible equity provides, I think significant support to our capital base and I would also add that we continue to diversify our revenue sources and this also contributes to the growth and the strength of our earnings base. Now let me turn to the balance sheet results and then I will come back to discussing revenue impact in just a few minutes.
We had a strong second quarter for commercial loan originations; we closed some business that was in the pipeline in the first quarter. So our annualized commercial loan growth was 13% in the first half of the year and this is due to large part because we are seeing good deals that at one time, not that long ago were uneconomical because of national land lenders and conduits who where much more active in our markets.
Now we continue to be very selective in rate and underwriting but we are able to take advantage of our foothold as the largest local institution headquartered in our market for doing good quality business and more importantly to acquire new relationships. And the number of new quality new deals in our market is finite and there is still some very stiff local competition.
But we still tap on fair number or deals because our emphasis is on quality and it is not spread. And I feel pretty good about the overall mix of price and quality that we are getting.
Our residential mortgages and home equity loans are growing at 7% annualized rate and right now I think that is a fair number for us. This is exclusive by the way of our residential construction portfolio which actually declined by $12 million in the quarter.
Nothing terribly unusual there other than loans that were in the construction phase that slipped to permanent mortgages and naturally growth has slowed due to the economy and real estate markets. But we are pretty comfortable with this pace.
We continue to let our auto-loan balances run down, as I previously indicated and as a result our total portfolio of growth is 9% annualized in the second quarter. And I actually expect this may slow to low single digits in the second half of the year and again I am okay with that as we manage our volume to support the net interest margins and our profitability ratios.
Now, we did produce very strong 14% annualized growth in our consumer non-maturity deposits, which represents growth in our New York de novo region as well as gains in our other regions. Now excluding brokered CD’s we also grew our time deposits in the first half and the key ingredients for this success, are leveraging our brand as America’s most exciting bank, which is going very well and as I said to many of you both internally and externally.
Packaging key loan and deposit accounts with checking accounts and targeting price promotions, and this will lead to build money market accounts and now as I said, we are blending in more time deposits. And I also introduced to you before, Sean Gray.
He is our energetic retail exec, who uses the very detailed score cards throughout the entire retail network. He keeps very close tabs on how we deliver these ingredients to the market and I think its really produced results.
Our total deposits did decrease in the second quarter and I indicated in our last conference call that we were going to allow some run-offs of higher cost balances, particularly in the municipal sector. Now this run-off accounted for much of the second quarter change, including the run off of brokered CD's.
Also frankly, I think, we are seeing signs of less liquidity in the commercial sector in our markets and which is not surprising based on economic conditions. Importantly though we still were able to grow a number of commercial checking accounts at a 5% annualized pace in the first half and that is an important metric at this time.
So as you can see, we have taken very deliberate steps in managing our loans and deposits. The result was a 345 net interest margin in the second quarter and together with higher loan balances, this drove a $350,000 linked quarter increase in our net interest income and off course that was key to our earnings growth for the quarter.
Now turning to fee revenue, we made solid progress here as well and after a seasonal dip in the first quarter, our deposit fee income increased by 15% in the second quarter. The run rate of our wealth management fees this year is up about 8% over the fourth quarter of 2007, and this was the first quarter that did include our acquired Vermont operations.
We have very strong 18% annualized organic growth rate based on our new business originations in the second quarter, and at mid year we have got a very strong pipeline and new business opportunities for the second half of the year. Now as you know, most of our wealth management fees are tied to stock performance, stock market performance, and so this did impact second quarter revenues and it meet very well impact revenues in the second half of the year, and so we will have to see how that goes.
Nonetheless, we are building strong new relationship volume, which as I said continues to add, I think impressively to shareholder value. I want to mention that we receive a trust performance report that are produced quarterly and ranks banks nationally by trust performance.
Our wealth management function was rated 14th out of 400 institutions in terms of gross return on assets in this most recent ranking. And that was the highest rating among New England institutions.
And as you know, we expanded into New York in January with the acquisition of the Center for Financial Planning in Albany, and the outlook for growing our business in that large market I think is promising. Our insurance revenues were up a little over 1% for this first 6 months of the year compared to last year, and this is a little lower than our target for the year, but virtually all segments of property in casualty markets are going through a bit of a softening phase and with that the results that renewal premiums are often down by 10% or 20%, even more on some of the bigger accounts, and that does hold back our revenue growth.
And we have held the line on our expenses, so that insurance earnings have not been negatively impacted. We organize our sales management and we’ve increased our bank sale across sale referrals with the goal of boosting revenue, our growth going forward.
And again the metric here is growing new business, because insurance does have cycles and if the market comes back, I think this is going to provide again strong, long-term earnings potential. In addition to producing revenue growth by market penetration, we are also working on product development initiatives.
In the last quarter, we introduced our express business checking product. Now, this ties electronic delivery channels along with an attractive pricing structure, so we continue to focus on building business transaction accounts, as part of our overall relationship banking approach.
And we've also, we got some initiatives underdevelopment in our retail division right now that’s very exciting, and I’ll be able to discuss those with you in the very near future, and I am looking forward to that. Let me also say that some of the optimism here at Berkshire Bank is related to our attractive local markets.
Now we are enjoying a good summer season this year. It's boosting our tourism business in Berkshire County and Vermont and elsewhere in our franchise, but more fundamentally our markets have been comparatively steady.
Our growth has been measured, and lenders in these regions did not promote the aggressive practices that were commonplace in other parts of the country. Now all areas are experiencing some real estate softness.
That’s inevitable, but it’s been much more pronounced in other areas of the country. Now in a review of May foreclosure activity, we’ve seen that New England markets had relatively low foreclosure rates compared to the nation and foreclosure activity in our footprints has been lower when compared to coastal and urban communities in New England.
So, we do view our markets as sound and we are participating in that growth. This geographical strength is also evident in our long performance measures, which move in a favorable direction in the second quarter.
Our non-performing assets, delinquent loans and net charges-offs all declined from the prior quarter and these measures were pretty modest levels at the beginning of the quarter anyway. Generally speaking these indicators came back down to the same level they were at in the second quarter a year ago.
Our non-performing asset ratio dip to 42 basis points in total assets. Our accruing delinquent loans decrease to 37 basis points total loans.
And our annualized year-to-date net charge-off ratio fell to 15 basis points compared to loans. Since the beginning of the year, we have not had a delinquent loan over a $1 million.
Our totaled foreclosed real estate also remained nominal at a $1 million in mid-year. And I do also note, we have no non-performing construction loans.
We have no construction loan charge-offs and our residential mortgage and home equity performance continues to be very good. So, it’s a good quarter for overall loan performance.
And at our last conference call Shep Rainie, our Chief Risk Officer commented that, we had a lot of sonar buoys in the water to sound looming of potential credit risk. And he is here again and he can give us some additional color on that during the Q&A, if necessary.
We do recognize that economic issues that have emerged in the national markets and as you recall nearly two years ago, we took the initiative to boost our loan loss allowance in anticipation that the benign credit environment was ending and we pretty much maintained the allowance at this higher level since that time. Our systemic loan losses did increase from negligible levels, but they remain modest overall and I do feel that we are adequately reserved based on current conditions and at this time our outlook is, that loan performance should remain good and net loan losses should remain modest.
Now I am going to ask Kevin to provide some more detail on the second quarter, our results, maybe some guidance and then I'll come back and I'll sum things up. Kevin?
Kevin Riley
Thank you, Mike and good morning everyone. The second quarter was another strong quarter with $0.55 earnings per share, as Mike has stated.
This was up 6% over the prior year inline with our guidance. We did have some non-core items during the quarter, these are both on the positive-negative side and in sum total they are offset one another.
So, our core earnings per share were as same as our GAAP results. For the first six months we are in $1.13 per share, this was also up 6% over the prior year.
With these results we feel we have a great start to completing the year with solid earnings growth. The revenue trends in the second quarter were strong.
We were particularly pleased with the improvement in our net interest margin, which was up on 3.41% in the first quarter to this quarter's 3.45%, especially during these economic times. With this net interest income came in better than we expected.
Loan bounces were up, deposit balances were down. The decrease in deposits primarily targeted the run-off of higher cost accounts like brokered CDs and large municipalities.
Core customer accounts were up strong. Loan losses were modest and core expenses were down compared to linked quarters.
Before I get into more detail, I think it’s important to note that the results also include earnings from our acquisition of Factory Point to the year-to-year comparisons of revenue and expenses are affected. Also our revenue for the first and second quarter includes seasonally high insurance continues to grow.
Our second quarter net interest income rose by 2% or $350,000 compared to linked quarters. This exceeds our expectation both due to high volume and higher margin.
Our annualized commercial loan growth increased by 13% for the first half, as Mike has noted. We expect that the second quarter well will help us maintain a net interest margin at around 3.4% to 5% [margin] for the third quarter.
We expect total loan growth in a low single digit for the balance of the year. The commercial loan growth offsetting the auto-loan runoff, therefore we expect our net interest income will continue to grow in the third quarter toward the $19 million level.
Also worth noting, are the efforts to protect our margins and our net interest income stream. Our interest rate sensitivity at this time is neutral to slightly hypersensitive.
We do expect short-term rates to increase at some time in the future and we wanted to be ready. We have entered into interest swaps and are promoting time deposit to help us manage our sensitivity.
We feel, we are in a positioned to manage through any interest rate movement at this time. Turning to non-interest income; this totals about 8.5 million during the second quarter.
This is a little bit less than our guidance, due to softer stock and insurance markets. These market conditions had a negative impact on our wealth management an insurance piece.
Our underlying business continues to grow as Mike has mentioned. Our deposit fees as we mentioned in the first conference call, [April] conference call, are seasonal and they did pick up in the second quarter as we had expected.
In the third quarter we anticipate total non-interest income of about $7.3 million, which includes insurance fees of about $2.6 million, which will be feasibly down from the $3.7 million recorded in the second quarter, and will be about even with the results in the third quarter of 2007. Our loan loss provision was 1.1 million for the second quarter, which covered net charge off and provided allowance coverage for the growth in the loan portfolio.
We ended the quarter with an allowance of 1.14% of total loans and that is the same levels that we had in the last previous three quarters. Our annualized net charge-offs dipped to 13 basis points for the second quarter, which is low than our expectation for the year.
We expect our provision there to remain around 1.1 million for the third quarter and we feel this is adequate to cover charge-offs and lower loan growth projections. Turning to non interest expense we accomplished a 1% reduction in core non-interest expense to 17.9 million in the second quarter and we are targeting to keep these expenses at or below this level in the third quarter.
We are expecting an effective tax rate of 13.5% in the third quarter, which will be just a little higher than the 30% normalized rate we had in the second quarter. As we anticipated, our efficiency ratio was around 61% in the second quarter and this is expected increase slightly over a 62% in the third quarter, due to the seasonal decline in insurance revenues.
During the quarter we had offsetting non-core items as mentioned earlier. And as a result there was no difference in our core earnings and our GAAP earnings.
We had non-core benefits due to reduction of our tax asset valuation allowance, which reduced the GAAP effective tax rate to 23% for the quarter, compared to 30% quarter rate. This is offset by non core charge relating to miscellaneous severance write-offs of some differed loan costs and the write of some late fee receivables.
None of these items were related to the current year operations and non of them are expected to be repeated and we do not anticipate any non core items going forward in to the third quarter and fourth quarter. During the second quarter we repurchased 100,000 shares of stock and we still have less than a 100,000 shares remaining in our current authorization.
Our average diluted shares for the third quarter are expected to be at about the same levels as the second quarter. In conclusion, we expect the third quarter earnings per share to be in the range of $0.50 to $0.51.
This will be seasonally down from the first half's run rate, but will be higher than the $0.49 core run rate of EPS reported in 2007, where we end up in this range, will depend further on the directions of the stock in an insurance work it, since they impact the level of wealth management and insurance fees. I would like to note that we have built the first of five sources of revenue over the last few years, allowing the positive of one source to offset the negative of another.
This will help us to ensure stability of earnings over time. To change the subject, let me take a moment, and touch on our security portfolio.
We have no common or preferred equity securities issued by government agencies, except for the Federal home loan bank stock. Our total equity securities of all sorts are less than $3 million and there is no significant impairment issues there.
Our corporate debt securities including trust preferred securities totaled $40million and all are performing in are investment-grade rated. We don't anticipate any significant performance issues with their leader.
The rest of our investment securities are conforming mortgage-backed government agencies, along with some municipal securities and investor revenue bonds. We do not see any reason to have any significant credit concerns on any of our portfolio at this time.
We sold a limited amount of municipal securities that we had that were backed by insurers, from bond insurers that lost their investment-grade rating. We view our investment portfolio as traditional and conservative, and we are not actively adding to it.
With that, I'll turn the call back over to Mike.
Mike Daly
Thanks, Kevin, nice job. Our expectation for the third quarter is to continue to grow revenues and to maintain or reduce our expenses, so we can continue to produce positive operating leverage in year-over-year earnings growth.
We expect to grow earnings while we're also booking higher year-over-year normalized loan loss provisions related to modestly higher charge-off, and I think that’s just being realistic. As Kevin stated our third quarter guidance for earnings per share $0.50 to $0.51 depending primarily on how market fluctuations affect our fee income.
We are working hard to stay on course with the consensus estimate of 215 for full year EPS, and we continue to target our original 216 EPS goal for the year, and this would give us full year core EPS growth of about 13% of that. And our tangible capital improved to 6.3% of total assets at mid year and our tangible book value per share improved to $14.36.
As Kevin said, we have got almost 100,000 shares left in our current stock buyback authorization, and we do view our current stock prices undervalued, but we also hope to find other undervalued investment opportunities particularly wealth management and insurance operations that would be a strategic fit for us. So, we will continue to evaluate our investment opportunities with the ongoing objectives of finding the best means to enhance long-term shareholder value.
We will also continue to be active in considering bank acquisition opportunities. Now we would consider situations that might be accretive either to earnings per share or book value per share.
But we always feel there has to be a strategic fit and an appropriate long run return on investment in any acquisition situation and frankly we intend to be patient in finding and acting on any appropriate opportunities. So I am very pleased to report positive business fundamentals in this environment.
And I think, this reflects a lot of hard work by our team and a lot of motivation to keep the top line moving forward and the success of our brand is America's Most Exciting Bank was recently featured in a report in the American bank. And I believe success does breed success and our whole team gets energy and motivation from this.
In May we were named one of the top 100 performing companies in Massachusetts by the Boston Globe and this was the eight consecutive year that we received this commendation and I feel that attaining this kind of long run high performance, involves a balance of both adherence to long-term business discipline and a willingness frankly to constantly reinvent ourselves to adjust changing conditions. And providing new challenges for our staff and of course offering new benefits for our customers and we believe these results will continue to generate strong earnings growth, which we think makes our stock a very attractive investment.
And with that I am going to conclude my prepared remarks and of course invite our questions from all our listeners.
Operator
Thank you. (Operator Instructions).
Our first question comes from Mark Fitzgibbon of Sandler O’Neill. Please go ahead.
Alex Twerdahl - Sandler O’Neill
Good morning. Actually this is Alex Twerdahl from Sandler O’Neill.
Mike Daly
Hi, Alex, how are you?
Alex Twerdahl - Sandler O’Neill
Good how are you still?
Mike Daly
Very good, thanks.
Alex Twerdahl - Sandler O’Neill
My first question is, I was wondering if you could share with us the monthly net interest margins for the quarter?
Mike Daly
Sure, Kevin you must have that.
Kevin Riley
Hang on Alex.
Alex Twerdahl - Sandler O’Neill
No problem. And you said that for 3Q the net interest margins going to go to around 345 again?
Mike Daly
Yeah, we think it will be pretty steady in the third quarter from where it is today.
Kevin Riley
We have in April it was 335, May 343 and June 351.
Alex Twerdahl - Sandler O’Neill
351. Great.
And my second question is, in the insurance revenue line, do you still see that coming at around 60% in the first half of the year and 40% in the second half of the year or do you think that might change a little bit just with the follow-up in the second quarter.
Kevin Riley
No, I think that will be primarily the same because the contingency income is what drives that Alex and that’s really in the bag at this point.
Alex Twerdahl - Sandler O’Neill
And then my last question is, if you could share with us from which parts of your franchise the commercial real estate growth is coming from?
Kevin Riley
That’s a good question. Its actually been pretty spread out and we’ve actually done some business in Berkshire County that we’ve been chasing for a long time and we got some big deals here right at home, that some of the big guys had for a long time and our Pioneer Valley region has a bit of a stretch that will go into Northern Connecticut and some areas further down in Western Massachusetts because they have their own group there in the Pioneer Valley and they were able to pronounce some big deals as well.
Frankly I think the facts the conduits and some of the big guys have kind of walked away from the markets here gave us an opportunity to get some business that we might not otherwise we gotten.
Alex Twerdahl - Sandler O’Neill
Great, thank you guys. That’s it from me.
Kevin Riley
Great, thank you.
Operator
Thank you. Our next question comes from Damon Delmonte of KBW.
Please go ahead.
Damon Delmonte - KBW
Hi, good morning guys. How are you?
Mike Daly
Hi, Damon, how are you?
Damon Delmonte - KBW
Good, thanks, very nice quarter. My question is, Mike could you provide a little color on your (inaudible) on the M&A market and if opportunities were to arise what geographies you’ll be looking at, would you look to expand your footprint or you feel bolstering your in-market footprint is a better way to go?
Mike Daly
It’s a big question and I’m not sure I can give you a definitive answer, Damon. Only to say that the opportunity has to be the right opportunity, I think there is some opportunities in our footprint.
I think there is some opportunities around our footprint and it always come down to the strategic, fair its come down to price, it comes down to the willingness for both the buyer and seller to compromise on a deal situation. So, I think we would look at both and it is something I cannot jump over to areas like Pennsylvania but certainly in and around the areas that we do business or areas that we have interest.
And there are so many components that go into getting a deal done. It will be hard to say which of any would come first.
Damon Delmonte - KBW
Okay, great. You guys are very thorough on the call.
That is the only question I had. Thank you.
Mike Daly
Thank you, Damon.
Operator
Thank you, our next question comes from Laurie Hunsicker of Stifel Nicholas. Please go ahead.
Laurie Hunsicker - Stifel Nicholas
Hi, good morning Mike and Kevin, Dave and Shep.
Mike Daly
Laurie welcome back
Laurie Hunsicker - Stifel Nicholas
Thank you.
Mike Daly
Great to have you.
Laurie Hunsicker - Stifel Nicholas
Thank you. Just a couple of things your OCI mark, where does that stand?
Mike Daly
At December, it was a little over a $1 million and as of June we are about $200,000 negative.
Laurie Hunsicker - Stifel Nicholas
Great. Okay.
And then just kind of going back to credit a little bit just wondered if you could sort of touch on that. You saw improvement just in every single line item.
Did you have any sort of non-performing sale of any kind? Or how are you carrying it?
Mike Daly
I am going to actually let Shep make some comments on this but the answer is no. We did not sell any loans.
I think one of things we have said for some time Laurie is, that we are going to be very aggressive. And when something comes up, we are very aggressive about jump at it.
And there is going to be quarters, where we are going to see some reduction in some of our non-performing and delinquent loans. And we will have some others come into the pipeline.
I think there is going to be some variation up and down. I think this was an exceptionally good quarter.
We all are pretty happy with it. But Shep you must have some color on where we are.
I know you have done some additional digging and that will be good at the time, opportunity to share that with Laurie.
Shep Rainie
Sure Mike, Hi Laurie. The headline for us was between upgrades and collections and resolutions that totaled a little bit over $2 million this quarter.
That was the single biggest change. Then we had additions and things that moved off to OREO about imbalance and then there were just under $300,000 of charge-offs in the portfolio.
So those were the key elements.
Laurie Hunsicker - Stifel Nicholas
Okay great. And in terms of your potential problem loans, I know at March that was $18.8 million going down from the $23 million at December.
Do you have a corresponding number for June?
Shep Rainie
I am sorry for what component?
Laurie Hunsicker - Stifel Nicholas
The potential problem loans?
Shep Rainie
Sure. So your talking sub-standard?
Laurie Hunsicker - Stifel Nicholas
Exactly, in other words the corresponding number in March was $18.8 million. I guess that is primarily is consisting of the commercial business and commercial real estate?
Mike Daly
Its up around 20 – Kevin do you remember that?
Kevin Riley
Its around 30.
Mike Daly
So, it’s about 30.
Kevin Riley
Yeah.
Laurie Hunsicker - Stifel Nicholas
It’s around 30.
Mike Daly
Yeah.
Laurie Hunsicker - Stifel Nicholas
Okay. Any sort of thought on the jump there between March and June or not?
Shep Rainie
We are continuing to plough through our portfolio through a series of reviews that we now run every quarter, looking for problem. So we are pretty active about moving things into a watch-list status, so they get worked a little more aggressively early on.
A couple of them were construction loans, where we have a strong guarantor, so the project maybe slow but we put the project on guarantor paid interest. And so, there are not often delinquent but we are certainly watching them more careful and making sure that we are getting paid currently.
That is pretty typical of what we are trying do to stay ahead of this.
Laurie Hunsicker - Stifel Nicholas
Okay, great and then, I just wondered, within your commercial business portfolio that is about $200 million or $198 million. How much of that is loans to sort of the various small one-off type business, one-off restaurant, one-off trade, small retail?
People that might be herd in a deeper recession, I guess, I am just curious?
David Gonci
Right. It's hard for me to give you a firm number on that.
It's, I would say, if you broke it down into a small number of large loans, and a large number of small loans that's probably how it would work. It's probably close to the 80-20 row, 80% of the loans or 20% of the balance, and 20% of the loans or 80% of the balance.
Laurie Hunsicker - Stifel Nicolaus
Got it.
Mike Daly
Laurie, we can provide you some additional color on that if you want offline.
Laurie Hunsicker - Stifel Nicolaus
That's perfect. Okay and then just one last, one last question here.
Mike to the extent that you've stated you would look at under, under valued investments in other sectors wealth management, insurance and so forth, and bank acquisitions, and I guess just a follow up a little bit on Damon's question too, I mean, how big would you consider on the bank side, what's too big to look asset wise?
Mike Daly
It's a great Laurie question, but again I think a lot of it depends on the complexion of the deal. So, if you are looking at a deal that has capital accretion to it, there is you could do a bigger deal and actually enhance the tangible books of the company.
So I think, it's hard to say. You usually try to pin me down pretty close, I am going to say that some thing, somewhere between a $500 million and $600 million deal is good, and if it's capital accretive it could be as high as a $1.5 million to $2 billion and a lot of that depends on I think the way that's put it deal together.
And, we are not adverse to partnering with like companies that feel so we can move our agenda forward in the New England area.
Laurie Hunsicker - Stifel Nicolaus
Okay and then in theory where would you stand in terms of being on the other side, not that there are a lot of acquirers out there, but where would you, what are your thoughts on potentially selling.
Mike Daly
Well, again, I think we have taken a lot of time and a lot of effort to put together a group that’s starting to demonstrate that the results are in the fore front of our activities here, through New England and it would have to be I think a heck of a deal to move us off of that momentum. Doesn’t mean that there aren’t opportunities for us to share in management as we move forward if the right deal comes along, so I think, we are poised to take a look at partnering with people and also taking a look at acquisitions that enhance our tangible book and also accrete earnings.
Laurie Hunsicker - Stifel Nicolaus
Okay, great. And just one last quick question, your assets under management on the wealth side where does that stand?
Mike Daly
Go ahead Sean.
Sean Gray
Good morning Laurie. We are about $700, a little under $800 million at this point primarily due to the equity market in the first and second quarters.
Laurie Hunsicker - Stifel Nicolaus
Great, okay perfect, thank you all so much.
Mike Daly
Well, thanks Laurie.
Operator
Thank you our next question comes from Mike Shafir of Sterne, Agee & Leach
Mike Shafir - Sterne, Agee & Leach
Hey good morning guys.
Mike Daly
Hi Mike how are you.
Mike Shafir - Sterne, Agee & Leach
Doing well. I'm just curious, in terms of the loan growth projections, I am assuming that a lot of -- or the reduction of loan growth projection is really offset in terms of the run off in the indirect data on the consumer loan portfolios.
Mike Daly
You know it is, and there is another point to that Mike that I should share, and that is we have had a couple of a major commercial deals. One right here in Berkshire county where we financed the construction of the Dick's Sporting Goods and when that was put on, it was our thought that, at the time that it was completed that would probably go to a conduit or to one of the big guys for permanent financing.
And we found that at the end of the day there was an opportunity for us to do the deal, so in the first half of the year we closed on a couple of pretty good size commercial real estate deals that, frankly we didn’t anticipate. So, not only will the, I think indirect auto run-off effect the amount of loan growth we will see in the second half.
I just think that there maybe less robust commercial real estate activity in the second half because of that is well enough, anybody disagrees with me here just shout.
Shep Rainie
This is Shep Rainie. I think that’s true, but I think it will be counter balanced to some degree by product that’s coming out of the construction book, it will probably retain on the mini firm basis.
Mike Daly
Yes, it’s a good point. Does that help Mike?
Mike Shafir
Yes, absolutely. And also just wondering, you guys have spoken a lot to the conduits gone away, but what about I guess the local competition there is certainly a lot of commercially focused institutions in your markets with significant amount of capital that they are trying to deploy as well.
So, just wondering, who are you seeing on a competitive basis?
Mike Daly
I think for a lot of the larger deals, we’re still seeing more of the larger banks as far as competition goes. One of the things that kind of hamstring some of the smaller competitors even if they have a lot of capital, they look to do one of the larger deals and then look for participating partners.
While that can be good, sometimes it does have some inability to get the deal done with the borrower. So, I’d say that, on the medium size deals, there is certainly some pressure to do deals from some of the smaller banks on our footprint, but some of the larger deals we are still really competing with the big guys [CDs] and the Bank of Americas.
Mike Shafir
Well, thank you for that clarity. And also the one that really comes to mind is, I think sovereign’s kind of problems have been well advertised and so forth, and I know that they still have some stimulative institutions from their fleet acquisition back in the day in your markets.
Do you guys see them as well or you’ve seen any opportunity to may be acquire, maybe some branch divestitures or with them shrinking their balance sheet, is that something you would look at?
Mike Daly
Well, I think we look at that. We actually hired the Senior Executive from Sovereign in our Pioneer Valley, not long ago, so we certainly have seen some additional opportunities there in the Pioneer Valley.
But it’s the same, I think answer is I gave when we talk about acquisitions Mike, and that is we are certainly willing to look at opportunities to expand but it really takes a willing seller to get a deal done, and then it has to be a willing seller that’s willing to sell at a price that’s reasonable and that we can get a return. And so, we are going to be opportunistic and we’ll keep our options open and we’ll look at every opportunity but it's got to be the right one.
Mike Shafir - Sterne, Agee & Leach
Mike well, thanks a lot for that detail guys.
Mike Daly
Mike, thank you.
Operator
Thank you. Our next question comes from Ross Haberman of Haberman Funds.
Please go ahead.
Ross Haberman - Haberman Funds
Good morning gentlemen, how are you?
Mike Daly
Good Ross. How are you?
Ross Haberman - Haberman Funds
I just wanted to go back to, you touched upon your investments, and I didn’t quite understand whether you did specifically or did not have any Freddie Mac or Fannie Mae prefer and/or subordinated debt?
Mike Daly
We have no Fannie Mae or Freddie, and we have absolutely no subordinated debt either, right.
Kevin Riley
For those two. Yes.
Mike Daly
Okay, zero.
Ross Haberman - Haberman Funds
Do you own any other general bank trust prefers.
Kevin Riley
Yes we do own a couple of those.
Ross Haberman - Haberman Funds
What’s your general thought about those today? Are you keeping them, are you selling them?
I’m just curious what is your posture is there.
Mike Daly
Well, right now, not all are investment grade. None of the banks that they are concerning that that might be on the market.
So right now even though they are investment grade and good probably [in press reports], but as you know the market is not a market that you want to sell into.
Ross Haberman - Haberman Funds
And just from accounting standpoint is the – when you mark this market on a quarterly basis, do you run it through the income or just the equity section?
Mike Daly
We run it through OCI.
Ross Haberman - Haberman Funds
Okay thank you guys. The best of luck.
Ross Haberman - Haberman Funds
Thanks Ross.
Operator
Thank you. Our next question comes from [John Stewart] of Sandler O'Neill
John Stewart - Sandler O'Neill
Good morning guys.
Mike Daly
Hi John how are you?
John Stewart - Sandler O'Neill
I am good. How are you doing?
Mike Daly
Great.
John Stewart - Sandler O'Neill
Just a quick numbers question. I believe, just what was the renegotiated loan balances this quarter, I think my apologies if you have already mentioned that, but I think it was $2.4 million last quarter.
Do you have that number for this quarter?
Mike Daly
Looking right now.
Kevin Riley
2.6
Mike Daly
2.6
John Stewart - Sandler O'Neill
Okay and what was the linked quarter annualized loan growth in New York? I know you talked about the growth kind of coming all across the footprint, but I am just curious specifically what it was in your New York market?
Mike Daly
We will look at that but I would tell you that it was probably less than 25% of the overall commercial growth. Now that is not to say there is not a pipeline there, but as far as deals are closing I do not think we had – they were not a significant factor in the growth in the first half.
Is that right Shep?
Shep Rainie
Yes.
John Stewart - Sandler O'Neill
Okay and then how do you guys kind of view – .Citizens just sold, I believe it was 15 to 20 branches up there. Does that kind of present an opportunity for you guys or are they too far north for that to affect you at all and kind of what are you thinking about seeing that, as far as that goes.
Mike Daly
Well frankly I would have like to see a little look at those branches but we did not get a look. I am not so sure we would go this far north as all those branches reach.
But, I think there is going to be opportunity to look at branch acquisition in and around Albany and perhaps to Pioneer Valley. We will take a good look, and again as long its priced right and it make sense that, we would be interested.
John Stewart - Sandler O'Neill
And then for a couple of quarters or almost a year I suppose into the Factory Point acquisition. I was just curious, if you could kind of give us some color on how that is doing, kind of employ retention, deposit detention, things like that.
And I believe Guy Boyer has left or he is planning on leaving. Can you just kind of talk about that a little bit?
Mike Daly
Sure, Guy actually had come to Pittsfield and the Senior Commercial Officer really took over our regional Guy right from the beginning. And he has really done a remarkable job and we are now keeping I would say well over 95% of the employees that were there when we first made the acquisition.
And there are some positives, I think from a commercial standpoint. We just closed the largest deal that Factory Point had ever closed.
It was a $4-$5 million deal and it was a great deal. So it gave us an opportunity to get some traction in the commercial side.
Deposits are actually up in the Manchester and in [Vermont] region in the core areas that we want. Asset management is kind of holding its own, I wouldn’t say that's, we are not shooting the lights out there, but we've got some things underway to move that forward and of course we really haven’t done much insurance there but we intend to.
So we are pretty happy with what we are seeing. I would like us to accelerate what we can there to add to that kind of revenue.
But all in all there really has not been any fallouts. It’s been mostly positive in this Vermont region.
John Stewart - Sandler O'Neill
Okay, great.
Mike Daly
All right John. Thank you.
Operator
Thank you. We show no further questions at this time, I would like to turn the conference over to Mr.
Mike Daly, for any closing remarks.
Mike Daly
Well, thank you operator, and I want to thank everyone for being here today. And, let me just conclude with this comments.
Our strategy has been, it will remain a pretty simple, sound credit quality no sub-prime, no Alt-A programs, careful management of our net interest margin, a strong organic growth based on our brand in our market position, without question a motivated work force and diversifying our revenues, and adding to our product sets, and of course good expense control. I think, if we have the right business values, then we set the right results for our share holders.
So, I want to thank all of you for your continued support in the company, and I certainly look to forward to speaking with you again at next quarter end.
Operator
The conference has now concluded thank you for attending today’s presentation. You may now disconnect.