Q4 2023 Berkshire Hills Bancorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Berkshire Hills Bancorp fourth quarter 2023 earnings Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Any time during this call you require immediate assistance. Please press star zero for the operator on this call is being recorded on Thursday January 25th 2024.
I would now like to turn the conference over to Mr. Kevin Cohen. Please go ahead Sir.
Nitin Malhotra: Good morning, and thank you for joining Berkshire Bank's fourth quarter earnings call. My name is Kevin Kahn, Investor Relations and corporate development Officer here with me today are knitting Malhotra, Chief Executive Officer, Sean Gray, Chief Operating Officer, David Rosato, Chief Financial Officer, and Greg Lindenmuth, Chief Risk Officer, a rim.
Nitin Malhotra: <unk> will include forward looking statements and refer to non-GAAP financial measures actual results could differ materially from those statements.
Nitin Malhotra: Please see our legal disclosure on page two of the earnings presentation referencing forward looking statements and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in our news release at this time I'll turn the call over to Nick.
Nick: Thank you Kevin Good morning, everyone and thank you for joining us today.
Nick: I'll begin my comments on slide three where you can see the highlights for the fourth quarter and full year.
Nick: The rate environment remains challenging we are encouraged by the early trends in deposits balances.
Nick: We executed a security sale late in the fourth quarter and used those proceeds to pay down wholesale borrowings eliminating the negative carry associated with those securities.
Nitin Malhotra: We also incurred a severance charge of $3 7 million related to a workforce reduction across the organization.
For 2020 for expense optimization deposit growth and credit management will be our top priorities.
We intend to self fund investments in strategic priorities that support our vision to be a high performing relationship focused community bank.
Nitin Malhotra: David will review these items and at 2024 guidance in more detail in a few minutes.
David: Operating net income for the quarter was $20 2 million and operating EPS of <unk> 47 declined 6% linked quarter, primarily from a decline in net interest income.
David: Full year 2020, EPS of $2.14 was down 2% year over year.
David: We are encouraged by the trends in asset quality and deposit growth in the quarter.
David: Our credit costs have trended down and our loan books are performing well.
David: Nonperforming assets and net charge offs declined 14% linked quarter, and we increase that loan loss allowance by three basis points to 1.17% of loans.
David: Average deposits were up 3% linked quarter, largely driven by an increase in money market and time deposits at.
David: Our liquidity position is robust and our available liquidity coverage of core uninsured deposits was 146%.
David: We've included a page in the appendix with more details.
David: Our average loan balances were up 11% year over year and up less than 1% linked quarter, given lower loan demand and disciplined underwriting.
David: Our balance sheet remains strong we ended the quarter with a common equity tier one ratio of 12% and a tangible common equity ratio of 8%.
David: We repurchased 328000 shares in the fourth quarter, and one 1 million shares in 2023, which reduced our share count by 3% over the year.
David: Our board has authorized and regulators have approved a new share repurchase program of $40 million in 2024, and we expect to continue share repurchases opportunistically.
David: We've updated pages in our earnings deck on our overall commercial real estate portfolio and the page that provides details on our office portfolio.
Nitin Malhotra: Both of these pages highlight that our portfolio is granular geographically diverse and resultant Lee less risky Dave.
David: David will cover some of these may take some more detailed in a few moments.
David: We continue to make steady progress on our strategic priorities optimizing real estate branch network and balance sheet.
David: In 2023, we consolidated four branches and exited two office buildings.
David: We will continue to look for opportunities to lower our occupancy expenses further.
David: Our team successfully converted our digital banking platform for consumer and small business clients to improve the client experience and platform efficiencies.
Nitin Malhotra: Our employee engagement and customer net promoter score were at their highest level in 2023, and we were recognized by Newsweek as one of the best regional banks in the country and we're the only bank headquartered in Massachusetts with an overall five star rating.
Nitin Malhotra: The disruption in our markets has enabled us to opportunistically hire deposit and relationship focused frontline bankers. These.
Nitin Malhotra: These bankers have strong deposit books and complement our existing team.
Nitin Malhotra: Gaining even a small part of the opportunity presented by the market disruption would be meaningful for <unk>.
Nitin Malhotra: Slide four shows our progress on five key performance metrics.
Nitin Malhotra: Our full year 2023, we are near the low end of our target range for operating return on assets at 79 basis points and our operating return on tangible common equity was 10, 1% above the lower end of our target range.
Nitin Malhotra: Our full year <unk> grew $242 million.
Nitin Malhotra: Our ESG score remains in the top quartile nationally and our full year net promoter score improved further to $45.
Nitin Malhotra: We have made steady progress over the last three years and are energized about significant opportunities for improving our financial performance further.
Nitin Malhotra: I want to use this opportunity to thank all of my Berkshire Bank colleagues for their continued hard work and commitment to our vision to be a high performing relationship focused community bank.
Nitin Malhotra: Through this difficult external environment and corresponding changes being made internally their commitment to our strategy and dedication to our customers and communities is what brings us together and truly sets us apart.
David: With that I'll turn the call over to David to discuss our financials in more detail David.
David: Thank you Ned slide.
David: Slide five shows an overview of 2023, but I'll jump to slide six which details the fourth quarter.
David: As Nick mentioned operating earnings were $22 million or <unk> 47 per fully diluted share down three linked quarter.
David: Our net interest margin was 311% down seven basis points linked quarter and net interest income declined $1 9 million or 2%.
Nitin Malhotra: Operating noninterest income was $16 $7 million down 5% linked quarter.
Nitin Malhotra: I would note that several fee line items are below historic quarterly run rates and should recover over the coming quarters.
Nitin Malhotra: Operating expenses were $75 3 million up 2% linked quarter.
Nitin Malhotra: Average loans increased $38 million linked quarter, while average deposits increased $306 million or 3% from Q3.
Nitin Malhotra: Provision expense for the quarter was $7 million at the lower end of our July guidance and down $1 million from the third quarter and down $5 million year over year.
Net charge offs of $4 4 million or 20 basis points of average loans were down 38 basis points year over year.
We increased our allowance for credit losses by $2 $6 million in the quarter, bringing our allowance for credit losses to 117 basis points of loans.
Nitin Malhotra: Slide seven shows more detail on our average loan balances, which were up $38 million linked quarter.
Nitin Malhotra: We had growth of $84 million in commercial real estate and $38 million in residential.
Nitin Malhotra: With a $69 million decline in C&I, and a decline of $15 million in consumer which reflects runoff of non strategic loan portfolios.
Nitin Malhotra: Slide eight provides details of our security sale.
Nitin Malhotra: We sold $267 million of securities and incurred a pretax loss of $25 1 million or <unk> 44 cents per fully diluted share after tax.
Our earn back period is about three years and proceeds were used to pay down wholesale funding.
Nitin Malhotra: FHA Ob borrowings were down $419 million and ended the quarter at $385 million, which was down 52% linked quarter.
Nitin Malhotra: Our securities to total assets was 13% at year end.
Nitin Malhotra: Slide nine shows our average deposit balances average deposits increased $306 million or 3% in the quarter.
Nitin Malhotra: As expected the deposit mix shifted with a modest decline in the noninterest bearing deposits and an increase in money market and time deposits.
Nitin Malhotra: Noninterest bearing deposits as a percentage of total deposits were 25% in the fourth quarter versus 26% in Q3.
Nitin Malhotra: Deposit costs were 211 basis points up 30 basis points from the third quarter.
Nitin Malhotra: Our cumulative total deposit beta is 37% through 525 basis points of fed tightening.
Nitin Malhotra: Borrowings were 6% of total funding down from 9% in Q3.
Nitin Malhotra: Turning to slide 10, we showed net interest income.
Nitin Malhotra: Higher deposit costs contributed to the $1 9 million or 2% decrease in NII.
Nitin Malhotra: Our net interest margin was 311.
Slide 11 shows operating fee income down 791000, or 5% linked quarter.
Nitin Malhotra: Loans loan related fees were down 821000 linked quarter, driven primarily by lower swap income that was about $600000 below our normal quarterly run rate.
Nitin Malhotra: Gain on sale of SBA loans were down 166000, due to lower premiums in the market.
Nitin Malhotra: A line.
Nitin Malhotra: A line item that is also running about 900000 below normal run rate.
Nitin Malhotra: Other fees were up 594000 from fair value adjustments on equity Securities.
Nitin Malhotra: Slide 12 shows the expenses operating expenses were up 2% linked quarter to $75 $3 million importantly, there was a modest fourth quarter technology expense true up. So so I'd encourage you to look at our 24 guidance for thoughts on run rate expenses.
Nitin Malhotra: <unk>.
Nitin Malhotra: Compensation expense was flat to the third quarter and increases in technology and professional services expense were partially offset by declines in occupancy and equipment.
Nitin Malhotra: GAAP expenses of $79 million includes $3 7 million of severance charges or six cents.
Nitin Malhotra: Per share after tax.
Nitin Malhotra: Related to the aforementioned workforce reduction.
Nitin Malhotra: As I've said previously we are committed to managing expenses with discipline and transparency. We are taking a very granular approach to expense management that will have the desired impact of reducing our expense base.
Nitin Malhotra: We are committed to ensuring that every dollar we spend is thoughtful and necessary to run the bank efficiently or to grow our revenue and earnings.
Nitin Malhotra: Slide 13 is a summary of asset quality metrics nonperforming.
Nitin Malhotra: <unk> loans were down $5 2 million linked quarter and $9 $7 million year over year.
Nitin Malhotra: Net charge offs of $4 4 million or 20 basis points were down $1 million versus the third quarter and down $7 $3 million year over year.
Nitin Malhotra: We've included a chart in the appendix with Berkshares net charge off rates for the industry since the year 2000.
Speaker Change: We've moved some of the credit pages from the appendix into the body of our deck.
Speaker Change: Slide 14 shows that our pre book is well diversified in terms of geography and collateral type credit.
Speaker Change: Credit quality of the Cree portfolio remains solid with non accrual loans of 10 basis points of period end loans.
Speaker Change: Slide 15 has more details on our office portfolio as noted last quarter. The weighted average loan to value ratios are about 60% and in a large majority of the portfolio is in suburban and class a space.
Speaker Change: We have also shared more granular credit that data for the office book.
Nitin Malhotra: We believe our office portfolio is very well underwritten diversified and the asset quality of this portfolio remains solid.
Nitin Malhotra: While current credit quality metrics are benign, we recognize that economic uncertainties exist and we are monitoring both new originations and existing portfolios carefully and we have modestly increased our reserves.
Nitin Malhotra: Slide 16 shows returns over the past five quarters on a GAAP and an operating basis.
As you know the current operating environment is presenting headwinds, but we remain focused on improving our medium term performance and look forward to a more normal operating environment.
Speaker Change: Recall, we added several new rose to the financial tables, starting last quarter.
Nitin Malhotra: Prior to last quarter, we had been reporting return on tangible common equity with a denominator that excludes the negative ASC mark from our securities portfolio.
Nitin Malhotra: We are now also reporting ROTC with a denominator that includes the negative Aoc, mark which lowers the denominator and increases.
Nitin Malhotra: Proxy.
Nitin Malhotra: Most of our peers calculate return on tangible common equity. This way. So we have simply aligned our reporting to be more consistent with both peers and larger banks.
Nitin Malhotra: Slide 17 shows our capital ratios with the decline in rates and our security sale, our Aoc I improved by $75 million from a negative $218 million to a negative $143 million.
Nitin Malhotra: Common equity tier one declined 10 basis points to 12%.
The TCE ratio improved to 8% and our tangible book value per share increased 7% linked quarter to $22 82.
Nitin Malhotra: Our top capital management priority is to deploy capital to support organic loan growth.
Nitin Malhotra: Secondly, we remain biased to stock repurchases given that our stock prices trading below intrinsic value.
Nitin Malhotra: In Q4, we repurchased $6 $6 million of stock at an average cost of $20 15 versus our ending tangible book value of $22 82.
Nitin Malhotra: And in 2023, we repurchased $24 million of stock at an average cost of $20 and 85.
Nitin Malhotra: We believe Berkshire stock is undervalued, given our growth potential and low risk business model.
Nitin Malhotra: We will continue to opportunistically repurchase shares.
Nitin Malhotra: Slide 18 shows our 2020 for guidance.
Nitin Malhotra: Our guidance incorporates five rate cuts. However, one of which is in December of 2024 and does not impact guidance.
Nitin Malhotra: <unk>, which is in line with current Bloomberg and market consensus.
Nitin Malhotra: We expect loan growth of 5% to 7% off end of period loans.
Nitin Malhotra: Payroll deposits were elevated at year, Ed. So we'd encourage you to model deposits, often adjusted ending balance of 10 billion, which excludes payroll balances above normal run rate.
Nitin Malhotra: We expect 2% to 3% normalized deposit growth.
Nitin Malhotra: Recall that we are also adopting Pam accounting for our tax credit business in 2024, which lowers the amortization expense impacting fee income, thereby increasing fees and increase in our effective tax rate.
Nitin Malhotra: Our 2023 fees adjusted for Pam would have been $75 9 million and we expect growth of zero to 3% off that base.
We expect provision expense to be $33 million to $36 million and expenses down 1% to up 1%.
Nitin Malhotra: Our tax rate increases with the change in accounting and we believe it will be in the range of 20% to 22%.
Nitin Malhotra: Our board has authorized and regulators have approved a new $40 million stock repurchase program, which we expect to use opportunistically.
Nitin Malhotra: With that I'd like to turn it back to Nick <unk> for further comments.
Nick: Thanks, David.
Nick: 220, <unk> proved to be a challenging operating environment for the banking industry given the historic increases in interest rates to quell inflation.
The industry proved resilient amidst the failures of three large banks, which had idiosyncratic business models.
Nitin Malhotra: We expect that in 2022 and for the operating environment will continue to be challenging.
Nitin Malhotra: While we cannot control the macro environment, we are focused on controlling what we can.
Nitin Malhotra: And have several levers, including rigorous expense management opportunistic hiring for deposits and loan growth and derisking the balance sheet.
Nitin Malhotra: We look forward to a more normal banking environment later in 2024 and into 2025.
Nitin Malhotra: When I started as the CEO in early 2021, we faced rapidly declining loan balances that we steadily turned into loan growth.
Nitin Malhotra: We will similarly overcome the current challenges, including deposit growth and expense management.
Nitin Malhotra: We remain focused on selective responsible and profitable organic growth.
Laura: With that I'll turn it over to the operator for questions. Laura Please open the line for Q&A.
Laura Smith: Thank you, Sir ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone and then that star followed by the number of lines you, obviously, Tom Tom acknowledging your request should you wish to decline from the polling process.
Tim: Please press star followed by the number Tim Thank you.
Tim: We're using a speaker phone please lift your handset before pressing on okay. One moment. Please for your first question.
Tim: Yeah.
Tim: Our first question comes from the line of Billy Young from RBC. Please go ahead.
Tim: Hey, Good morning, guys can you hear me okay.
Billy Young: Yes, we can money Gordon.
Billy Young: Are you I guess, let's just first start on.
Billy Young: NII and the margin.
Billy Young: Can you elaborate first how much do you think the repositioning this quarter should benefit.
Dave Bishop: Kind of <unk> and the run rate going forward.
Dave Bishop: Yes.
Dave Bishop: <unk>.
Dave Bishop: It's about a three year playback.
Dave Bishop: Three year payback on the Securities transaction, it's worth about <unk> <unk>.
Dave Bishop: $7 million on an annualized basis increase in net interest income.
Billy Young: Got it.
Billy Young: And then that that $7 million in beginning in 2024.
Laura Smith: Yes, well, that's a full year number, but yes, so that the security sale occurred.
Laura Smith: Very late in December.
Laura Smith: Third week in December so it really had no impact of any significance.
Laura Smith: Q4 margin, which.
Okay.
Laura Smith: As reported was 311.
Laura Smith: So we will see a step up from that.
Laura Smith: As you know we don't we don't provide.
Laura Smith: Net we don't provide margin margin guidance, but it's obviously in the NII guide.
Laura Smith: Understood. Thanks, and then.
Laura Smith: And then just to follow up on that theme.
Laura Smith: How kind of how does the timing of the rate cuts impact your outlook.
Billy Young: If we started to seeing more aggressive fed rate actions earlier in the year.
It's as if.
Billy Young: <unk> cuts rates less than 5% contemplated.
Billy Young: How does that impact.
Billy Young: NII trajectory.
Laura Smith: Sure let me so a couple of comments the first is.
Dave Bishop: That transaction, obviously occurs occurred late in the quarter it increased asset sensitivity for us because we pay down wholesale borrowings, which were short and longer term.
Speaker Change: Secure days.
Speaker Change: That's why you also see an elevated cash position at 12 31, you saw a large jump.
Speaker Change: And cash on the balance sheet that's not.
Dave Bishop: <unk> state.
Dave Bishop: Right.
Dave Bishop: So the transaction is accretive to the margin and net interest income.
Dave Bishop: Dependent on where rates go.
Dave Bishop: Over the course of 2024, we could.
Dave Bishop: Put more securities back on the balance sheet, we've telegraphed.
Dave Bishop: Rather consistently over the last year that were just <unk>.
Dave Bishop: <unk> had been plus or minus neutral from an asset liability perspective, so three rate cuts or five which is really only for from a NII perspective, because the last one.
Dave Bishop: Meeting in December December 18, 2024.
Dave Bishop: Well.
Dave Bishop: Has a very modest impact on us.
Dave Bishop: Either way, whether it's three or five.
Dave Bishop: I think more importantly, you didn't ask the question, but when we think about the margin.
Dave Bishop: Over the course of 2024 I think.
Dave Bishop: The.
Dave Bishop: Our work is basically in line with what we're hearing from a lot of other banks.
Dave Bishop: We expect the margin to bottom.
Dave Bishop: Into late in the second or in the third quarter of this year and then you will see margin expansion.
Dave Bishop: That's weather.
Dave Bishop: The fed.
Dave Bishop: Eases as telegraphed by them or whether a little bit more aggressively by what the market.
Dave Bishop: Has priced in so that's the real important message I think Billy.
Billy Young: I appreciate that that was actually.
Billy Young: One of the follow ups I had but.
Billy Young: Just I guess shifting gears to just expenses.
Billy Young: <unk>.
Billy Young: I appreciate it.
Billy Young: <unk> the floor.
Billy Young: Flat expense guide for this year versus last.
Billy Young: Are there any additional efficiency actions.
Billy Young: Being assumed within that guidance firstly.
Nitin Malhotra: And then secondly is there a target.
Nitin Malhotra: Patiency ratio you'd like to exit this year at when all said and done thanks.
Nitin Malhotra: Sure.
Nitin Malhotra: Two questions there, one one of which I'll answer in detail one of which I'll.
Nitin Malhotra: Not answer.
Billy Young: The the <unk>.
Billy Young: First part is the important part so Nick alluded to in his opening comments, our focus on expenses and other initiatives. So we had a modest workforce reduction which was broad based across the organization.
Dave Bishop: The beginning of this year going forward, we still recognize the need for.
Dave Bishop: Expenses.
Dave Bishop: We should think about that in a more targeted manner as the year.
Dave Bishop: Progresses, so thinking about.
Dave Bishop: How we do things and how were staff. So they are it's it's technology. It's process, it's a lot more granular and I think they.
Dave Bishop: And resorts.
Dave Bishop: Can be significant but they are they take more time to achieve so that's what we're focused on in 2024.
Dave Bishop: That.
Dave Bishop: Some of our thoughts around that is obviously embedded in the.
Dave Bishop: The expense guide.
Dave Bishop: Holding expenses flat year over year, when you think about merit increases and escalators in.
Dave Bishop: Real estate contracts in.
Billy Young: Other contracts software contracts et cetera is is alive and well.
Billy Young: One of our focuses besides making sure that.
We continue to get more efficient and manage costs and I talked about that every quarter since I've been here. The granular approach. We're taking is to make sure. We don't hurt the revenue generation capabilities of the company. So we spend also a lot of time, making sure as we as we continue to.
Billy Young: Work on controlling expenses and lowering expenses that we don't damage.
Billy Young: The growth potential of the company.
Billy Young: So Billy So your second question was essentially a targeted efficiency ratio.
Billy Young: I think at this point I will just declined two to put that number out there what I would say is our efficiency ratio has been going up and went up in 2023, we're not excited at all about it we need we recognize that needs to come down and improve and we're very committed to that.
Billy Young: Hey, Billy if I may just add a little bit comment I think David laid it out well and I just want to connect it to what you heard us say before as part of our.
David: Best plan, where we talked about optimization as being a key lever and within those we talked about we have we believe and we still do have significant opportunities.
David: Rationalizing real estate.
Procurement opt.
Nitin Malhotra: Optimizing our channels processes and deploying business process automation to improve efficiencies. So all of those levers have been deployed and will continue to deploy so this is a ongoing.
Nitin Malhotra: Ongoing thing, it's not a one activity I'd say ongoing activity at Bush.
Nitin Malhotra: Understood. Thank you for taking my questions.
Nitin Malhotra: Thank you. Thank you.
Nitin Malhotra: Our next question comes from the line of Chris O'connell from Keybanc. Please go ahead.
Nitin Malhotra: Hey, good morning.
Chris O'connell: Good morning, guys I appreciate all the detailed guidance.
Chris O'connell: Sure.
Chris O'connell: I was hoping to just.
Chris O'connell: Start off on the fees.
Chris O'connell: <unk>.
Chris O'connell: For the tax credit fees and the change.
Chris O'connell: The accounting on a year over year basis.
Speaker Change: Where do you think that just starts to offer kind of averages out for the year on that line item within the fees on the contrary.
Speaker Change: Hi.
Chris O'connell: I'm not exactly sure what you're asking Chris what I would just say two things the economic effect.
The EPS effect of the change in accounting is zero its just the geography between.
Chris O'connell: Showing higher fee income, but also showing a higher tax rate if you look.
Chris O'connell: Back in the tables in the press release, we actually provide each quarter of the details.
Chris O'connell: Of.
Chris O'connell: The expense savings and the C <unk>.
Chris O'connell: Contra fee revenue that runs through.
Chris O'connell: The the fee income line and Youll see that that business.
Billy Young: Timing makes the numbers move around a little bit more but the core is probably 600006 hundred $50000 of positive economic benefit each quarter.
Billy Young: So.
Billy Young: Did I okay great.
Billy Young: To answer your question.
Billy Young: Okay I'm all set.
Billy Young: And then just following up on the expense discussion.
Billy Young: Appreciate the full year guide and the comments you guys made can you talk a little bit about just the cadence.
Billy Young: Of that given the.
Billy Young: The charges that were taken in the fourth quarter is that a immediate drop.
Billy Young: To start the year or is there some offsetting factors here in the first quarter.
Billy Young: Well as you know the first quarter usually.
Billy Young: The comp.
Speaker Change: <unk> runs high just because.
Speaker Change: FDIC expense 401, K matches et cetera.
Speaker Change: So that's just in the comp line.
Speaker Change: Yes, the way.
Speaker Change: I think about it is if you look.
At our numbers.
Speaker Change: <unk>.
Speaker Change: Quarter over quarter, our comp line was actually marginally down and occupancy and equipment was now.
To <unk> comments around the brand and at the top where we talked about two office buildings and some branch consolidations, what was up linked quarter and which is.
Laura Smith: Where the opportunity lies but where things take more time is technology and communication expense sub 710000 linked quarter and professional and other services, which was.
994000, so in professional.
Laura Smith: In professional services, we also have.
Laura Smith: Regulatory examination fees and FDIC expense and everyone knows the pressure banks have been under an FDIC, but what's also in there is use of consultants outside help so that's where we're highly focused.
Laura Smith: Is <unk>.
Chris O'connell: Core operating expenses.
Chris O'connell: And professional service expenses, that's changing the way, we do things that's changing whether we do it internally or externally with partners et cetera that.
Chris O'connell: That was the comment I was trying to make with Theres opportunity there it will improve our efficiency ratio showed abilities question. However, it's not just.
Chris O'connell: A quick fix.
Chris O'connell: Chris I would also add.
David made that point earlier in his comments as well.
Chris O'connell: Our outlook is calling for flat expenses like you pointed out.
Chris O'connell: And I know I think the consensus was about 3% growth. So I think this is certainly better than that and I think that's where maybe the the industrial will be but for us. The most important part is it's an ongoing focus and secondly, we also self fund the investments that we will continue to make that will improve.
Chris O'connell: Revenue line as well, so that'll accumulatively impact favorably our efficiency ratio.
Chris O'connell: Yes.
Chris O'connell: And.
Chris O'connell: Yeah, and just last comment Chris is I mean, you did ask about.
Chris O'connell: Essentially quarterly expenses and what what is it are they going up or going down right.
Chris O'connell: I would peg it.
Chris O'connell: As as very steady would be our thought.
Chris O'connell: There may be a million.
Chris O'connell: Plus or minus maybe even.
Chris O'connell: $1 million in a quarter variation.
Chris O'connell: Quarter to quarter, that's kind of the way, we see it but nothing significant from our perspective.
David: Helpful. Thanks, David and just last one for meaningful could.
David: Can you just remind us of the percentage of.
David: Loans that are floating or with.
David: Re price immediately.
David: Fed funds movement.
David: Well the whole book is 57% floating and 43% fixed a vast majority of that 57% is.
David: So for and prime so almost immediately right. So for it tends to be one month.
David: There is a little bit there is a few hundred million dollars of.
David: One year T Bill based there, but for all intents and purposes think of it as.
One month repo overnight.
Over 901 month repricing on that 40.
David: I am sorry, 57%.
David: Great.
David: Thank you.
Speaker Change: Thanks, Chris and welcome Thanks.
Speaker Change: Our next question comes from the line of Mark Fitzgibbon from Piper Sandler. Please go ahead, hey, guys. Good morning.
Speaker Change: Good morning, Martin and Martin.
Speaker Change: David in your comments, you said that you have been buying back stock below your estimate of intrinsic value could you share with us what you perceive the intrinsic value of the company to be.
David: I won't put a firm number on it Mark I mean, as you know, we all come up with different.
David: Values.
David: We all have different valuation techniques.
David: And methodologies, what I will say is.
David: We and I try try to say this in my comments around the growth potential low risk business model.
David: I really believe that I think.
David: Layered on top of that is.
David: A.
David: Significant ability to.
David: There is an ability for us to continue to improve the efficiency of this company on the cost side.
I have learned that we have a very resilient deposit base was.
David: <unk>.
David: Back in March.
David: See opportunities in the eastern mass market.
Chris O'connell: And I think it will be effective.
Chris O'connell: As we get bigger and stronger in this large market remember a lot of our.
Chris O'connell: R R.
Our markets are smaller towns west of the populations that major population center of this state when I put all that together.
Chris O'connell: Think about the next couple of years.
Chris O'connell:
Chris O'connell: We can we see our stock at much higher levels than where we're trading today.
Chris O'connell: So that's.
Chris O'connell: My high level.
Chris O'connell: Munition of insurance like value for you.
Chris O'connell: Okay, Great and then you mentioned potential efficiency improvements can you help us think about what might be the bigger pieces of those not necessarily numbers, but what are kind of the pieces of the expense synergies that you see.
Chris O'connell: Sure.
Nitin Malhotra: I'll take a whack at it then I'll give it to to knit and so.
Nitin Malhotra: I think about.
Nitin Malhotra: <unk>.
Nitin Malhotra: Process there are certain parts of our organization that are very nimble and.
Nitin Malhotra: Leading edge the work long before I got here that net and Sean would talk about about the army you've heard that name so our online consumer and.
Nitin Malhotra: Business platform.
Nitin Malhotra: Very leading edge Prod project allows us to get off the core right. We still have to talk to the core everyday via API, but really nice platform that has led to <unk>.
Nitin Malhotra: Decreases in operating expenses I talked about this in the in the second and third quarter.
Sean: So more things like that where we go from the old way of doing business.
Sean: More dependent on a large bed it provider to being more nimble meaning customer.
Chris O'connell: Trick to me, but also cheaper so I see.
Chris O'connell: We have opportunities like that across the bank to make things faster simpler less paper based.
Chris O'connell: We just have to execute on them and there are things that take a lot of work.
Speaker Change: Yeah, Mark I would just add onto that.
Speaker Change: You've heard US talk about this previously as well we have unique opportunities for optimization.
Mark: <unk> been through.
Mark: Legacy acquisitions, we do have excess real estate that I think we can easily rationalize we have channels that we can rationalize we have.
Mark: Procurement opportunities that we're exploring and deploying more technology in their automation opportunities that are kind of there for most organizations. We believe we have some of those as well and on a day to day basis, we have what I think David had referred to in the last quarter.
David: Total process, we call it <unk> its an expense management and resource allocation kind of council that looks at every dollar of spend.
David: Low thresholds that we track to make sure every dollar spend thoughtfully and where there are opportunities to.
David: Rationalize that and make it more efficient the team is coming back with solutions to do that so I think it's just the culture of.
David: The efficiency that we're building that's going to create more opportunities for us.
David: Yes.
One cost.
Laura Smith: I was just going to say the follow up to what <unk> was saying kind of tied into the point I was trying to make about.
Laura Smith: We don't want a slash and burn expenses here and hurt the revenue momentum of the company. So that's what I was trying to allude to in the script about we're thoughtful on expenses, but we're also going to be careful to make sure that the momentum.
Laura Smith: What's happened over the last three years needs to not only continue but it needs to accelerate.
Laura Smith: Okay, and then it strikes me that one of the challenges on the expense side for you. All is just the spread of the geography that you you have branches in.
Chris O'connell: Would you consider selling a piece of that geography, or some branches in a particular area to try to.
Chris O'connell: Create more density in the footprint and improve efficiency.
Billy Young: So the short answer would be yes, and I think thats been part of the ongoing process. We were a much broader network as you know, which we have consolidated and we as a team continue to look at opportunities for footprint rationalization based on the customer footprint kind of Footfalls and.
Nitin Malhotra: Our ability to service them and as we leverage more of digital services I think that creates more opportunities, but we do that all with the lens of what's the best value for customers and that's how they are getting serviced and then creating opportunities for consolidation in destination as it comes along.
Laura Smith: Thank you.
Mark: Thanks Mark.
Mark: Our next question comes from the line of Laurie Hunsicker from <unk>. Please go ahead.
Mark: Yeah, Hi, Thanks, good morning.
Mark: Bonnie.
Mark: Just staying on expenses here.
Mark: So your branch footprint. It is currently 96 is that right.
Mark: Correct.
Mark: Okay, and so when you think about that branch rationalization.
Mark: The course of the next year is that 96 going to 90% 96 going to 80, I mean, how do we how do we think about that a little bit to the threat of marks question.
Laura Smith: Yes, I think the answer would be it will be fewer and I think thats broadly true of the entire sector and I think most of the the branch networks. If you think about how it will look like two three years down the line is going to be fewer branches there'll be more automated more digitized and more advisory services.
So we know different they're up.
Laura Smith: We don't give a specific number we can just tell you that it's going to be more consolidated as the opportunities get created and we've done that I think over the last three years itself. We were down by about $25 26 branches and we will continue to look at opportunities.
Nitin Malhotra: Okay and then.
Nitin Malhotra: The tax true up expense in the fourth quarter that you mentioned, how much how much was that.
Nitin Malhotra: Yes.
Nitin Malhotra: It was $800000.
Nitin Malhotra: Okay and was that in that $3 7 million dollar restructure number or was that separate.
Laura Smith: It was separate.
Laura Smith: Alright, Okay, great and then how should we be thinking about your restructuring charges going forward when do we look to see that line item.
Laura Smith: B closer to zero, how should we think about that.
Laura Smith: Well.
Laura Smith: I mean, the expectation today.
That restructuring charge as we said was was employee driven.
Laura Smith: Yes.
Okay.
Across the company.
Laura Smith: A reduction enforce we termed it so there is no.
Laura Smith: Additional.
Laura Smith: Actions like that so severance charges from that particular type of activity shouldnt be we.
Laura Smith: We shouldnt see that going forward.
Laura Smith: Yes.
Laura Smith: What we were talking about about how do we further improve efficiencies in the organization as I said some of that.
Laura Smith: It's more detailed systems, that's technology oriented you try there.
Nitin Malhotra: I wouldn't say there won't ever be or are there won't be in 2024 further severance charges like that but there is nothing anticipated today those types of <unk>.
Nitin Malhotra: <unk>.
Nitin Malhotra: Or either the employee side is via attrition or redeployment into other parts of the company.
Nitin Malhotra: Okay.
Nitin Malhotra: That's very helpful. Okay and then.
David: David the tax rate I, just wanted to make sure that I've got this right. So as we think about it that line item in noninterest income that tax advantaged commercial projects number that was you pointed out 6 million basically that's going to be dropping down now to the tax line is that the right way to be thinking about that.
David: Yes, yes.
David: So if you go back to.
David: You got it.
We tried we tried to be crystal clear on the outlook.
David: Making a 'twenty three adjustment for both fee income and the tax rate.
David: That's great.
David: That's more transparent that's great Okay and then.
David: Just going back to the margin here.
David: Do you have a December spot margin and maybe also do you have a December spot margin. If you I appreciate that it this the restructure occurred in the third.
David: Third week here of December I mean, do you have a December spot margin and do you have a December if that margin may be adjusted with the security infrastructure.
David: Okay.
David: Honestly I haven't bothered to do the adjustment I have been so focused on 2024, so our December spot margin.
David: Roughly 310.
David: That's great Tom Okay, Thats great Okay.
David: Alright, Okay, Great and then last question.
David: You and.
David: And maybe David whoever.
David: Can you just.
David: A very high level take us through your your cannabis plants I realize this is newer but just how youre thinking about it and what the loan and deposit balances look like thank you.
David: Sure Lori I'd say.
David: So that's really to support deposit generation activities I'd say early stage pilot without doing any lending and deposit balances.
Lori: Less than $10 million at this point.
Lori: Okay, and any any plans to do lending or is it just deposit only in terms of how you're looking at that.
Lori: At this point of time, it's totally deposits and cash management type of activities.
Lori: Great. Thanks for taking my question.
Lori: Thank you Mark.
Lori: Our next question comes from the line of Dave Bishop.
Dave Bishop: Somehow could click please go ahead.
Dave Bishop: Yes, good morning.
Good morning, Dave Good morning.
Dave Bishop: Okay.
Dave Bishop: I hopped on late so apologize for that but you guys have been.
Dave Bishop: Adding.
Dave Bishop: And augmenting the ranks of.
Dave Bishop: The senior executives senior commercial lenders within the market given the disruption just curious are.
Laura Smith: Are you starting to see green shoots or growth out of these hires are either on the loan or deposit side or both.
Laura Smith: Contributing to the bottom line growth of the pipeline just curious.
Laura Smith: The impact.
Laura Smith: Impact they are having to.
Laura Smith: To date from the hires thanks.
Yes, Dave we are we clearly are and I think not only are we seeing.
Dave Bishop: A significant improvement.
Dave Bishop: Improvement in the pipeline and the deposit and some of the loan balances that have come in but the quality of client base is also changing and we're bringing in significant number of high value relationships. As a result of this transition and I think what's what's that doing it.
Dave Bishop: Improving the overall quality of production that we're seeing over the last couple of quarters, and we believe that it will accelerate as we move forward.
Dave Bishop: Okay.
Dave Bishop: Okay.
Dave Bishop: Got it.
Dave Bishop: Both sides of the house or their fee income.
Dave Bishop: On the wealth management side opportunities to cross sell as well.
Dave Bishop: Yes, Dave.
Dave Bishop: <unk> mentioned there is the.
Dave Bishop: The new hires definitively focused on deposit generation deposit acquisition private banking, which.
Dave Bishop: Blends very well with wealth management. They are green shoots right now, but we think there are future opportunities.
Dave Bishop: Great I appreciate the color.
Dave Bishop: Yes, I would obviously.
Dave Bishop: Obviously agree with everything that said I would think.
Dave Bishop: I think of this in a multi year timeframe right.
Dave Bishop: If we are successful in bringing in the right people we are successful in.
Dave Bishop: A more balanced or even skewed towards the positive.
Dave Bishop: <unk>.
Dave Bishop: Lift in activity.
Chris O'connell: That that has huge long term ramifications for us and that opportunity is really looking out the window from this conference room. It's all the people the economic engine of growth in the state is primarily in this market right here.
Chris O'connell: Where boston headquartered.
Chris O'connell: But we need to be bigger in Boston than we are today and that's what we're focused on and that's not a.
Chris O'connell: Tell me how much to take our Q1.
Chris O'connell: Earnings because of that that's okay how.
Chris O'connell: How do I think about Berkshire bank over the next couple of years, if they are successful.
Chris O'connell: Yeah.
Chris O'connell: And debut you'd asked is this previously as well.
Chris O'connell: How large is this opportunity we believe its significant I made that remark in my prepared remarks as well.
So we have.
Bankers that have been with us for a long period of time have deep client relationships that we continue to harvest and now we are bringing in new new folks that are coming to us through the market disruptions to the whole.
Chris O'connell: First Republic Silicon Valley.
Chris O'connell: Events have benefited us to that extent, we are bringing new players that are bringing new relationships that we didn't have before and they are looking to grow it and I think when we mentioned it at one point it looked like a bit of Cigna.
Significant about over $20 billion of deposit the opportunity to be captured so even if you get a fraction of that.
Chris O'connell: Help us quite a bit.
Chris O'connell: Perfect I appreciate all that color guys. Thanks.
Chris O'connell: Thank you.
Chris O'connell: No further questions at this time I would now like to turn the call back over to me.
Nitin Malhotra: Mr Malhotra for final closing comments.
Nitin Malhotra: Thank you all for joining us today and for your interest in Berkshire have a good day and be well.
Nitin Malhotra: Thank you Stanley <unk> and gentlemen, this concludes your conference call for today, we thank you for participating and ask Victor. Please disconnect your lines have a lovely day.
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