Q1 2024 Berkshire Hills Bancorp Inc Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to the Berkshire Hills Bancorp First Quarter 2024 Earnings Conference Call. At this time, please note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. To ask a question at that time, you will need to press a star followed by one on your touch-tone phone. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also, note that this call is recorded on Thursday, April 18, 2024. And I would like to turn the conference over to Kevin Conn. Please go ahead, sir.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Berkshire Hills Bancorp first quarter 2024 earnings conference call. At this time I'd note that all participant lines are in a listen only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session to ask a question at that time, he will need to press star followed by one on you touched on phone and if at any time. During this call you require immediate assistance. Please press star zero for the operator also note that the call is recorded Thursday April 18th 2002.
Speaker Change: Before and I would like to turn the conference over to Kevin Khan. Please go ahead Sir.
Kevin Conn: Good morning, and thank you for joining Berkshire Bank's first quarter earnings call. My name is Kevin Conn, investor relations and corporate development. Here with me today are Nitin Mhatre, Chief Executive Officer; Sean Gray, Chief Operating Officer; David Rosado, Chief Financial Officer; and Greg Lindenmuth, Chief Risk Officer. Our remarks will include forward-looking statements and refer to non-GAAP financial measures. However, actual results could differ materially from those statements. Please see our legal disclosure on page two of the planning presentation referencing forward-looking statements and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our news. At this time, I'll turn the call over to Nitin.
Kevin Conn: Good morning, and thank you for joining Berkshire Bank's first quarter earnings call. My name is Kevin Kahn, Investor Relations and corporate development Officer here with me today are <unk>, Chief Executive Officer, Sean Gray, Chief Operating Officer, David Rosato, Chief Financial Officer, and Greg Lindon, Chief Risk Officer.
Kevin Conn: Our remarks will include forward looking statements and refer to non-GAAP financial measures actual results could differ materially from those statements. 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.
Kevin Conn: I'll turn the call over to Nick.
Nitin J. Mhatre: Thank you, Kevin. Good morning, everyone.
Nick: Thank you Kevin Good morning, everyone and thank you for joining us today.
Nitin J. Mhatre: And thank you for joining us today. I'll begin my comments on slide three, where you can see the highlights for the first quarter. Overall, it was a solid quarter. Operating net income of $20.9 million and operating EPS of $0.49 were both up 4% compared to the linked quarter, supported by a reduction of non-interest expenses of 4%. ROTC was 8.73%, down 17 basis points versus the fourth quarter.
Nick: In my comments on slide three where you can see the highlights for the first quarter.
Nick: Overall, it was a solid quarter.
Nick: Operating net income of $20 9 million and operating EPS of 49 cents were both up 4% linked quarter supported by a reduction of noninterest expenses of 4% loss.
Nick: <unk> was 8.73% down 17 basis points versus fourth quarter.
Nitin J. Mhatre: We are encouraged by the change in the key performance matrix, especially credit and expense. Credit costs continued to trend down, with net charge-offs declining by 9% linked quarter to $4 million. This is the fifth consecutive quarter of declining net chargeoffs, while we increased our loan loss allowance by one basis point to 1.18% of loans, the fifth consecutive quarter of building up our loan loss reserve. Our continued expense optimization focus is gaining traction. Expenses of $72.4 million were down 4% on a link order basis, reflecting lower technology and professional service expenses, and were below the midpoint of our quarterly run rate guidance provided in January.
Nick: We are encouraged by the trends and key performance metrics, especially credit and expenses.
Nick: Credit costs continued to trend down with net charge offs declining by 9% linked quarter to $4 million.
Nick: This is the fifth consecutive quarter of declining net charge offs, while we increased our loan loss allowance by one basis point to 1.18% of loans the fifth quarter in a row of building up a loan loss reserve.
Nick: Our continued expense optimization focus is gaining traction expenses.
Nick: Expenses of 72.4 million were down 4% linked quarter, reflecting lower technology and professional service expenses and were below the midpoint of our quarterly run rate guidance provided in January.
Nitin J. Mhatre: Our previously provided guidance for expenses reflected flat year-over-year expenses for full year 2024 compared to low to mid single-digit expense growth guidance by peer banks, and we continue to look for opportunities for further efficiency improvement while self-funding deposit generation and growth initiatives. Our balance sheet remains strong. We ended the quarter with a common equity tier one ratio of 11.6% and a tangible common equity ratio of 8.2%. We repurchased 182,000 shares in the first quarter for $4.3 million.
Nick: Our previously provided guidance for expenses reflected flat year over your expenses for full year 2024, compared to low to mid single digit expense growth guidance by peer banks and we continue to look for opportunities for further efficiency improvement, while self funding deposit generation and <unk>.
Nick: Both initiatives.
Nick: Our balance sheet remains strong we ended the quarter with common equity tier one ratio of 11, 6% and a tangible common equity ratio of eight 2%.
Nick: We repurchased 182000 shares in the first quarter four $4.3 million.
Nitin J. Mhatre: Net interest margin was up last quarter, and while we expect continued funding cost pressure, we believe that the worst of the NIM compression is behind us. Average deposits were up modestly last quarter and were up 3% year over year. Average loan balances were up less than 1% last quarter and up 6% year over year.
Nick: Net interest margin was up linked quarter and while we expect continued funding cost pressure, we believe that the worst of the NIM compression is behind us.
Nick: Average deposits were up modestly linked quarter and were up 3% year over year.
Average loan balances were up less than 1% linked quarter and up 6% year over year.
Nitin J. Mhatre: We could potentially grow loans at a faster rate, given that the larger banks have reduced their lending appetite, but we've opted to extend credit selectively while continuing to serve our clients and deepen relationships. We've updated pages on our overall commercial real estate and office portfolio, and now have added a new slide detailing our exposure to our multifamily property. Those slides highlight that our portfolio is granular, geographically diverse, and resultantly less risky.
Nick: Could potentially grow loans at a faster rate given that the larger banks have reduced their lending appetite, but we've opted to extend credit selectively while continuing to serve our clients and deepen relationships.
Nick: We've updated pages on our overall commercial real estate and office portfolio and now have added a new slide detailing our exposure to our multifamily properties.
Nick: Those slides highlight that our portfolio is granular.
Nick: Rafik lead worse and Resultingly less risky.
Nitin J. Mhatre: We continue to make steady progress on our strategic priorities to optimize the real estate branch network and balance. We announced the sale of 10 branches in New York, which tightens our footprint further and enhances the efficiency and profitability of our network. We remain fully committed to our remaining presence in New York.
Nick: We continue to make steady progress on our strategic priorities to optimize real estate branch network and balance sheet.
Nick: We announced the sale of 10 branches in New York, which tightens, our footprint further and enhances the efficiency and profitability of our network.
Nick: We remain fully committed to our remaining presence in New York.
Nitin J. Mhatre: We sold securities to offset the deposits sold with the branch sale. You may recall we sold eight branches in the Mid-Atlantic region three years ago. The New York branch sale similarly aligns with the strategy of tightening our footprint and improving our focus and profitability. I'd note that we intend to consolidate three additional branches in the second quarter, bringing our total branch count to 83. We believe we are now close to the right size of our branch network.
Nick: We sold securities to offset that deposit soul with the branch sale.
Nick: You May recall, we sold eight branches in the mid Atlantic region, three years ago that New York branch sale. Similarly, aligns with the strategy of tightening our footprint and improving our focus and profitability.
Nick: I'd note that we intend to consolidate three additional branches in the second quarter, bringing our total branch count to 83.
Nick: We believe we are now close to the right size of our branch network.
Nitin J. Mhatre: David will cover the details of the transaction and corresponding security sales in more detail in a moment. Lastly, we're honored to be recognized by Newsweek as one of the most trustworthy companies in America for the third consecutive year. We were ranked number 10 in the country for the most trustworthy banks in the country. We are grateful to our customers for their vote of confidence and to our bankers who deliver exceptional service and advice to our clients every day.
Nick: David will cover the details of the transaction and corresponding security sale in more detail in a moment.
Nick: Lastly, we're honored to be recognized by Newsweek as one of the most trustworthy companies in America for third consecutive year.
Nick: We were ranked number 10 in the country for most trustworthy banks in the country.
Nick: We are grateful to our customers for their vote of confidence and to our bankers, who deliver exceptional service and advice to our clients every day.
Nitin J. Mhatre: We have moved our best target slide to the appendix for this quarter as we come close to the end of our three-year program. We are near the low end of our target range for operating return on assets at 71 basis points and our operating return on tangible common equity at 8.7%. BPNR was $33 million, or $132 million on an annualized basis.
Nick: We have moved our best target slide to the appendix toward this quarter as we come close to the end of our two year program.
Nick: We are near the low end of our target range for operating return on assets at 71 basis points and our operating return on tangible common equity at eight 7%.
Nick: <unk> was $33 million or $132 million on an annualized basis.
Nitin J. Mhatre: Our ESG score remains in the top quartile, and our first quarter net promoter score improved further to 54. I want to use this opportunity to thank all of my Berkshire Bank colleagues for their continued hard work and commitment to the bank. Through this difficult external environment and corresponding changes being made internally, their commitment to our strategy and dedication to our customers and all stakeholders is what brings us together and truly sets us apart.
Nick: Our ESG score remains in the top quartile and our first quarter net promoter score improved further to 54.
Speaker Change: I wanted to use this opportunity to thank all of my Berkshire Bank colleagues for their continued hard work and commitment to the bank.
Speaker Change: This difficult external environment, and corresponding changes being made internally their commitment to our strategy and dedication to our customers and all stakeholders, that's what brings us together and truly sets us apart.
Nitin J. Mhatre: We intend to self-fund investments in strategic priorities that support our vision to be a high-performing, relationship-driven community bank. With that, I'll turn the call over to David to discuss our finances in more detail. David. Thank you.
We intend to sell fund investments in strategic priorities that support our vision to be a high performing relationship driven community bank with that I'll turn the call over to David to discuss our financials in more details David.
David Rosato: Thank you Ned and slide.
David Rosado: Slide four shows a summary of our branch sale transaction. We sold branches in the western part of the franchise, including Syracuse and locations north and south of Albany.
David Rosato: Slide four shows a summary of our branch sale transaction, we sold branches in the western part of the franchise, including Syracuse and locations North and South of Albany. The sale also includes $485 million in deposits and $58 million of allowance.
David Rosado: The sale includes $485 million in deposits and $58 million in loans. The sale avoids real estate closure costs, ensures the employment of Berkshire employees, and reduces expenses going forward. We expect an annualized revenue loss of $4.3 million and an expense reduction of $6.4 million post the transaction. We expect the branch sales to close in the third quarter and the approximate pre-tax gain to be $19.3 million. We recorded restructuring expenses in Q1 related to the branch sale of $2.8 million after tax, or $0.07 per share. Slide five shows details of the security sale.
David Rosato: The sale of avoids real estate closure costs insurers employment of Berkshire employees and reduces expenses going forward, we expect annualized revenue loss of $4 3 million in expense reduction of $6 4 million post the transaction.
David Rosato: We expect the branch sales to close in the third quarter and the approximate pre tax gain to be $19 $3 million.
David Rosato: We recorded restructuring expenses in Q1 related to the branch sale of $2 8 million after tax or seven cents per share.
David Rosato: Slide five shows details of the security sale, we saw $362 million of market value of securities and incurred an after tax loss of $38 3 million or <unk> 89 per share.
David Rosado: We sold $362 million of market value of securities and incurred an after-tax loss of 38.3 million, or 89 cents per share. We sold securities to offset the mismatch between the amount of deposits and loans that we sold and to reduce below market assets on the balance sheet. Slide 6 shows an overview of the first quarter.
David Rosato: We sold securities to offset the mismatch between the amount of deposits and loans that we sold and to reduce below market assets on the balance sheet.
David Rosato: Slide six shows an overview of the first quarter.
David Rosado: As Nitin mentioned, operating earnings were $20.9 million, or $0.49 per fully diluted share, up $0.02 linked water. That is, net interest margin was 315, up four basis points from the previous quarter, and net interest income of 88.1 million declined 281,000 or less than 1% from the previous quarter. Operating non-interest income was $17.3 million, up 4% from the previous quarter. Operating expenses were $72.4 million, down 4% from the previous quarter
As Ned mentioned operating earnings were $29 million or 49 per fully diluted share up to <unk> linked quarter.
David Rosato: And that is net interest margin was $3 15 up four basis points linked quarter and net interest income of $88 1 million declined 281000 or less than 1% linked quarter.
David Rosato: Operating non interest income was $17 3 million up 4% linked quarter.
David Rosato: Operating expenses were $72 4 million down 4% linked quarter.
David Rosado: Average loans increased $69 million, and average deposits increased $42 million. Net charge-offs were 4 million or 18 basis points of average loans, and we're down 14 basis points year over year. Provision expense for the quarter was $6 million as credit trends remain positive. We increased our allowance for credit losses by $2 million in the quarter, bringing our allowance for credit losses to 118 basis points of loans. Slide seven shows more detail on our average loan balances, which were up $69 million in link water, or 1%, primarily driven by modest growth in CRE.
David Rosato: Average loans increased $69 million.
David Rosato: And average deposits increased $42 million.
David Rosato: Net charge offs were $4 million or 18 basis points of average loans and were down 14 basis points year over year.
David Rosato: Provision expense for the quarter was $6 million as credit trends remain positive.
We increased our allowance for credit losses by $2 million in the quarter, bringing our allowance for credit losses to 118 basis points of loans.
David Rosato: Slide seven shows more detail on our average loan balances, which were up $69 million linked quarter or 1%, primarily driven by modest growth in Cree.
David Rosado: The modest decline in consumer balances reflects the continued runoff of the upstart portfolio. Slide 8 shows the average deposit balance. Average deposits increased $42 million last quarter. The deposit mix shifted with the decline in non-interest-bearing deposits and an increase in money market and time deposits.
Modest decline in consumer balances reflects the continued run off of the upstart portfolio.
David Rosato: Slide eight shows average deposit balances.
David Rosato: Average deposits increased $42 million linked quarter.
David Rosato: The deposit mix shifted with the decline in noninterest bearing deposits and and an increase in money market and time deposits.
David Rosado: Non-interest bearing deposits as a percentage of total deposits were 24% in Q1 versus 25% in Q4. Deposit costs were 229 basis points, up 18 basis points a length quarter. Our cumulative total deposit beta is 41% through 525 basis points of Fed type. Turning to slide nine, we showed net interest income. Net interest income was flat, link water, and down 10% year over year.
David Rosato: Noninterest bearing deposits as a percentage of total deposits were 24% in Q1 versus 25% in Q4.
David Rosato: Deposit costs were 229 basis points up 18 basis points linked quarter.
David Rosato: Our cumulative total deposit beta is 41% through 525 basis points of fed tightening.
David Rosato: Turning to slide nine we show a net interest income.
David Rosato: Net interest income was flat linked quarter and down 10% year over year.
David Rosado: The net interest margin was $3.15, up four basis points linked quarter. Given the sale of lower yielding securities, we expect our NIM to increase by five basis points in the second quarter and to remain relatively flat for the rest of the year. Slide 10 shows operating fee income up $636,000 or 4% linked to water. Loan related fees were up $605,000, driven primarily by higher swap fees and commercial loan services. Wealth management income was up $490,000 on higher seasonal tax preparation fees and market appreciation.
David Rosato: The net interest margin was $3 15 up four basis points linked quarter gives.
David Rosato: Given the sale of lower yielding securities, we expect our NIM to increase by five basis points in the second quarter and to remain relatively flat for the rest of the year.
David Rosato: Slide 10 shows operating fee income up 636000, or 4% linked quarter.
Loan related fees were up 605000, driven primarily by higher swap fees and commercial loan servicing fees.
David Rosato: Wealth management income was up 490000 on higher seasonal tax preparation fees and market appreciation.
David Rosado: Gain on sale of SBA loans was down $683,000 due to lower premiums in the market and some of Q1 production sliding into Q2. Recall, we had a fair value gain on securities in the fourth quarter, and we swung to a modest loss in the first quarter. Other fees reflect changes in PAM accounting, which lowered tax credit amortization expense and lower BOLI income linked quarter. Slide 11 shows expenses. Operating expenses were down 4% in the last quarter to $72.4 million.
David Rosato: Gain on sale of SBA loans were down 683000, due to lower premiums in the market and some of Q1 production sliding into Q2.
David Rosato: Recall, we had a fair value gain on securities in the fourth quarter, and we swung to a modest loss in the first quarter.
David Rosato: Other fees reflects changes in Pam accounting, which lowered crack tax credit amortization expense and lower barley income linked quarter.
David Rosato: Slide 11 shows expenses operating expenses were down 4% linked quarter to $72 4 million.
David Rosado: Recall there was a fourth quarter technology expense true up of $800,000. So normalized fourth quarter expenses were closer to $74.5 million. The expense decline this quarter is driven by lower technology and professional services expenses, partially offset by an increase in compensation and occupancy expenses. Compensation includes seasonally higher payroll taxes, which were about $1.2 million above normal quarterly run rates.
David Rosato: Recall, there was a fourth quarter technology expense true up of $800000. So normalized fourth quarter expenses were closer to $74 5 million.
David Rosato: The expense decline this quarter was driven by lower technology and professional services expenses, partially offset by increase.
David Rosato: Compensation and occupancy expenses.
David Rosato: <unk> include seasonally higher payroll taxes, which were about $1 2 million above normal quarterly run rates.
David Rosado: Other expenses, which is a number of smaller items, declined, driven by lower loan work out expenses and lower stationary imposed. GAAP expenses of $76 million include $3.6 million of pre-tax restructuring costs, or $0.07 per share, related to the branch sale. As I've said before, we are committed to managing expenses with discipline and transparency. The granular approach we are taking is starting to reduce our expenses. We remain committed to ensuring that every dollar we spend is thoughtful and necessary to run the bank efficiently or to grow revenue and earnings. Slide 12 is a summary of asset quality metrics. Non-performing loans were flat in the latest quarter and down 20% year over year.
David Rosato: Other expenses, which is a number of smaller items declined driven by lower loan workout expense and lower stationary and postage.
David Rosato: GAAP expenses of $76 million include $3 6 million of pre tax restructuring costs or seven cents per share related to the branch sale.
David Rosato: As I've said before we are committed to managing expenses with discipline and transparency the.
David Rosato: The granular approach we are taking is starting to reduce our expense base. We remain committed to ensuring that every dollar we spend is thoughtful and necessary to run the bank efficiently or to grow revenue and earnings.
David Rosato: Slide 12 is a summary of asset quality metrics nonperforming loans were flat linked quarter and down 20% year over year net.
David Rosado: Net charge-offs of $4 million, or 18 basis points of loans, were down $400,000 in link water and down $2.9 million year-over-year. I'd note that our 10-year average charge-offs to loans is 27 basis points. We've included a chart in the appendix with Berkshire's net charge-off rates versus the industry since the year 2000. Slide 13 shows that our Cree book is well diversified in terms of geography and collateral type.
David Rosato: Net charge offs of $4 million or 18 basis points of loans were down 400000 linked quarter and down $2 9 million year over year.
David Rosato: I would note that our 10 year average charge offs to loans is 27 basis points.
David Rosato: We've included a chart in the appendix with Berkshares net charge off rates versus the industry since the year 2000.
David Rosato: Slide 13 shows that our Cree book is well diversified in terms of geography and collateral type.
David Rosado: The credit quality of the CRE portfolio remains solid, with non-accrual loans at 11 basis points of period end loans. Slide 14 has more details on our office portfolio. As noted last quarter, the weighted average loan-to-value ratios are about 60%, and a large majority of the portfolio is in suburban and Class A space. We believe our office portfolio is well underwritten, diversified, and the asset quality of this portfolio remains solid. Slide 15 shows details of our multifamily portfolio, which is $618 million or 7% of loans. The book is well diversified across our foot.
David Rosato: The credit quality of the <unk> portfolio remained solid with non accrual loans at 11 basis points of period end loans.
David Rosato: Slide 14 has more details on our office portfolio as noted last quarter. The weighted average loan to value ratios are about 60% and a large majority of the portfolio is in suburban and class a space.
David Rosato: We believe our office portfolio as well underwritten diversify and the asset quality of this portfolio remains solid.
David Rosato: Slide 15 shows details of our multifamily portfolio multi.
David Rosato: Multifamily portfolio of $618 million or 7% of loans.
David Rosato: The book is well diversified across our footprint.
David Rosado: We currently have no non-performing loans or net charge-offs, and criticized assets are 1% of the total book. While current credit quality metrics are positive, we recognize that economic uncertainties exist, and we are monitoring both new originations and existing portfolios very carefully. Slide 16 shows returns over the past five quarters on a gap in an operating base. As you know, the current operating environment is presenting headwinds.
David Rosato: We currently have no nonperforming loans or net charge offs and criticized assets are 1% of the total book.
David Rosato: While current credit quality metrics are positive we recognize that economic uncertainties exist and we are monitoring both new originations and existing portfolios very carefully.
Slide 16 shows returns over the past five quarters on a GAAP and operating basis.
David Rosato: As you know the current operating environment is presenting headwinds, but we remain focused on improving medium term performance and look forward to a more normal operating environment.
David Rosado: But we remain focused on improving medium-term performance and look forward to a more normal operating environment. Slide 17 shows our available liquidity for uninsured deposits; coverage of uninsured deposits was 134% at the end of the first quarter. Slide 18 shows capital ratios. The common equity tier one ratio was 11.6%. And the TCE ratio improved 20 basis points to 820. Our top capital management priority is to deploy capital to support organic loan and deposit growth.
David Rosato: Slide 17 shows our available liquidity purse uninsured deposits coverage of uninsured deposits was 134% at the end of the first quarter.
David Rosato: Slide 18 shows capital ratios, our common equity tier one ratio was 11, 6% and the TCA TCE ratio improved 20 basis points to 820.
David Rosato: Our top capital management priority is to deploy capital to support organic loan and deposit growth.
David Rosado: Secondly, we remain biased to stock repurchases, given that our stock price is trading below tangible book value per share. In Q1, we repurchased $4.3 million of stock at an average cost of $22.14. In terms of outlook, we expect the branch sale combined with this quarter's security sale to be effectively neutral to our 2024 earnings outlook, which was provided in January. With that, I'd like to turn it back to Nitin for further
David Rosato: Lee we remain biased to stock repurchases given that our stock prices trading below tangible book value per share.
David Rosato: In Q1, we repurchased $4 $3 million of stock.
David Rosato: Average cost of $22 and 14 sets.
David Rosato: In terms of outlook, we expect the branch sale combined with this quarter security sale to be effectively neutral to 2024 earnings outlook, which was provided in January.
Speaker Change: With that I'd like to turn it back to net <unk> for further comments.
Nitin J. Mhatre: Thanks David. The operating environment for the banking industry continues to be challenging, given the historic increases in interest rates to quell inflation. The yield curve hit its longest inversion on record this March at 21 months, exceeding the previous record of 624-day inversion in 1978. And the expectations for the Fed's pivot to lower rates have been extended even further. While we can't control for the macro environment, we are intently focused on controlling what we can and have several levers, including rigorous expense management, opportunistic hiring for deposit and loan growth, and proactive asset quality management. We look forward to a more normal banking environment in late 2024 and into 2025. In the meantime, we remain focused on selective, responsible, and profitable organic growth.
Net: Thanks, David.
Speaker Change: The operating environment for banking industry continues to be challenging given the historic increases in interest rates to quell inflation.
Speaker Change: The yield curve hit its longest inversion on record. This march at 21 months exceeding the previous record of 624 day inversion in 1978, and the expectations for the fed pivot to lower rates has been extended even further.
Speaker Change: While we can't control the macro environment, we are intently focused on controlling what we can and have several levers, including rigorous expense management opportunistic hiring for deposit and loan growth and proactive asset quality management.
Speaker Change: We look forward to a more normal banking environment in late 2024 and into 2025 in the Meanwhile, we remain focused on selective responsible and profitable organic growth with that I'll turn it over to the operator for questions. Operator. Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please.
Speaker Change: Press Star followed by one on your Touchtone phone you will hear a three Tom prompt acknowledging your request and should you wish to withdraw from the question queue.
Operator: With that, I'll turn it over to the operator for questions. Operator. Thank you, sir. Ladies and gentlemen.
Speaker Change: Need to press star followed by two and if you're using a speaker phone. Please lift the handset before pressing any keys. Please go ahead and press Star one now if you do have any questions.
Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and should you wish to withdraw from the question queue, you will need to press the star followed by two. And if you're using a speakerphone, please lift the handset before pressing any key. Please go ahead and press star 1 now if you do have any questions. And your first question will be from David Bishop at Huffday Group. Please go ahead.
Speaker Change: And your first question will be from David Bishop at Hub Group. Please go ahead.
David Jason Bishop: Yes, good morning, gentlemen.
David Jason Bishop: Morning, Dave.
Dave just curious.
David Jason Bishop: You've seen the press releases in terms of some of the senior talent, you've been able to hire as of late here.
David Jason Bishop: Is that starting to impact in terms of number one.
David Jason Bishop: Reported loan growth or and number two is that starting to bleed into the pipeline for both loans and deposits.
David Jason Bishop: Yes.
Speaker Change: Yeah, David the short answer is yes, we are seeing the.
David Jason Bishop: Morning, Dave. Good morning.
Nitin J. Mhatre: Nitin, Dave, just curious, you know, you've seen the press releases in terms of some of the senior talent you've been able to hire as of late here. Is that starting to impact in terms of, number one, reported loan growth, or, number two, is that starting to bleed into the pipeline for both loans and deposits?
Speaker Change: The pipelines build up both for deposits and the deep relationships that we're building with the existing clients and in fact some of the of the benefit of new hires is also showing up in our wealth management group, where the number of referrals is at its highest level. So yes.
Nitin J. Mhatre: Yeah, Dave, the short answer is yes. We are seeing pipelines build up both for deposits and deeper relationships that we're building with existing clients. And in fact, some of the benefit of new hires is also showing up in our wealth management group, where the number of referrals is at its highest level. So, yes, we're beginning to see results, and the pipelines are built up, and pipelines for both deposits and loans are up year over year on both sides of the balance sheet, partly driven by those hires.
Speaker Change: Yes, we are beginning to see results and the pipelines have buildup and pipelines for both deposits and loans are up to a year over year.
Speaker Change: Both sides of the balance sheet, partly driven by those hires.
Speaker Change: On any segment.
Speaker Change: In terms of those hires.
Speaker Change: <unk>, then or is it just sort of broad based.
Speaker Change: Commercial banking.
Speaker Change: It is it is a little more targeted Dave it's a highly targeted towards the professional segments and CPA and law firms and not for profits and I think that's where most of the hires that have joined us have specialized and so we are beginning to see new types of clients and higher value clients that we preview.
Nitin J. Mhatre: and any segments in terms of those hires that they specialize in, or is it just sort of broad-based commercial banking?
Nitin J. Mhatre: It is a little more targeted, Dave; it's highly targeted towards the professional segments and CPAs and law firms and not-for-profits. And I think that's where most of the hires that have joined us have specialized. So we're beginning to see new types of clients and higher-value clients that we previously didn't have as much access to.
Speaker Change: Asleep didn't have as much access to.
David: Hey, David its David.
David: The only thing I would add to that is the.
David: The focus for US is more on the deposit side than the loan side, we have really strong existing.
David: Loan origination capabilities it's.
Speaker Change: While these individuals or do both sides of the balance sheet.
David Rosado: Hey, David. It's David. The only thing I would add to that is that our focus for us is more on the deposit side than the loan side. We have really strong existing loan origination capabilities. While these individuals do both sides of the balance sheet, our interest is to lead on the deposit side.
Speaker Change: Our interest is.
Speaker Change: To lead on the deposit side.
Speaker Change: Got it and then I always appreciate the disclosure on the capital side. There just curious from a holistic basis, obviously, a little bit more growth year.
Speaker Change: On the 100% risk weighting categories C&I leading growth.
David Jason Bishop: Got it. And then I always appreciate the disclosure on the capital side there. Nitin, just curious, from a holistic basis, obviously, a little bit more growth here on the 100% risk weighting categories, you know, C&I leading growth, you know, risk-based capital, I think about 11.6, 11.7. Are there any sort of internal targets you're sort of guiding or managing to? Don't want to go below on the risk-based capital perspective.
Speaker Change: Risk based capital I think about 11 611, seven are there any sort of internal targets you. So regarding our vantage it too.
Speaker Change: Don't want to go below on the on the risk based capital perspective.
No not really I think we were pleased with where we are in terms of our capital matrix.
Speaker Change: We don't have a specific targets for where we would like our risk weighted assets to be at we do manage internal kind of guardrails around the low point of the high points and we're operating well within those ranges.
Nitin J. Mhatre: No, not really. I think we're pleased with where we are in terms of our capital matrix. We don't have a specific target for where we would like our risk-weighted assets to be. We do manage internal kind of guardrails around the low point and the high points, and we're operating well within those ranges.
Speaker Change: Got it and then final question just credit bumping along fine.
Speaker Change: It looks like upstart continues to drive the bulk I guess that the majority of credit losses.
Yeah.
Speaker Change: As our time here, where maybe you could pursue a bulk sale of that portfolio and clean up credit even more just curious.
Nitin J. Mhatre: Got it. And then final question, just, you know, credit, you know, bumping along fine, looks like, you know, upstart continues to drive, you know, the bulk, I guess the majority of credit losses. You know, is there a time here where maybe you could, you know, pursue a bulk sale of that portfolio and clean up credit even more? Just curious, you know, just I know it's a small part of the portfolio, but just are we just going to continue to see that, you know, slowly tripped off the balance sheet?
Speaker Change: It's a small part of the portfolio, but just.
Speaker Change: Or are we just going to continue to see that slowly have tripped off the balance sheet.
Speaker Change: Yes, David I think you are right. It is less than 1% of the portfolio. It's been on runoff mode for about five quarters now and it continues to run off at the pace, we anticipated and our teams are working with with our partners to manage and monitor the portfolio tightly to improve its current performance, but we're also looking at opportunities to.
Speaker Change: Accelerate that chanoff, including opportunities to divest so I think all options are on the table, but our current focus is to manage monitor and contain the <expletive>.
David Jason Bishop: Yeah, Dave, I think you're right. It is less than 1% of the portfolio. It's been in runoff mode for about five quarters now, and it continues to run off at the pace we anticipated. And our teams are working with our partners to manage and monitor the portfolio tightly to improve its, you know, current performance. But we're also looking at opportunities to accelerate that runoff, including opportunities to divest. So I think all options are on the table. But the current focus is to manage, monitor, and contain the curve there.
The curve there.
Speaker Change: Great. Thank you for all the color.
Speaker Change: Thanks, Dave.
Speaker Change: Next question will be from Mark Fitzgibbon Piper Sandler. Please go ahead.
Mark Thomas Fitzgibbon: Good morning.
Mark Thomas Fitzgibbon: First question I had in March.
Mark Thomas Fitzgibbon: Our first question I had is on the fee line you guided previously for the full year 'twenty, four with $76 million to $78 million and if you sort of annualize this quarter's run rate.
Nitin J. Mhatre: Great, thank you for all the color.
Operator: The next question will be from Mark Fitzgibbon at Piper Sandler. Please go ahead. Hey guys.
Mark Thomas Fitzgibbon: Come up pretty far below that so I was wondering if you could help us think through what some of the big.
Mark Thomas Fitzgibbon: Hey guys, good morning. Good morning.
Mark Thomas Fitzgibbon: Changes are likely to be that will will get you closer to that that guide number is at SBA loan sale gains are or theres. Some other items in there that we should we should look for pretty good uptick during the course of the year.
Mark Thomas Fitzgibbon: The first question I had is on the fee line. Your guide previously for the full year 24 was $76 to $78 million. And if you sort of annualize this quarter's run rate, you come up pretty far below that. So I was wondering if you could help us think through what some of the big changes are likely to be that will get you closer to that guide number. Is it SBA, you know, loan sale gains, or are there some other items in there that we should look for a pretty good uptick during the course of the year?
Speaker Change: Yeah, Mark fees were a little light in the first quarter.
Speaker Change: Theirs.
Speaker Change: SBA.
Speaker Change: I called out.
It was was down.
Speaker Change: Little less than $700000 linked quarter, what I tried to say in the comments was the sum of what we thought would hit in the first quarter wound up close.
David Rosado: Yeah, Mark fees were a little light in the first quarter. But there's SBA.
David Rosado: I caught out. It was down a little less than $700,000 in the first quarter. What I tried to say in the comments was the sum of what we thought would hit in the first quarter wound up close being pushed to the second quarter. That line has been down for about three quarters in a row.
Speaker Change: Pushed to the second quarter.
Speaker Change: That line has been down for about three quarters in a row.
Speaker Change: Over the last couple of quarters its been lower premiums.
Speaker Change: Premiums are starting to recover so we're feeling better about that line item as as the year unfolds.
David Rosado: Over the last couple quarters, it's been lower premiums, but premiums are starting to recover. So we're feeling better about that line item as the year unfolds. The I also called out just what I would call noise, just some fair value adjustment on the securities line or fair value adjustment on securities just bounces around. There are a few there's a few items that we marked to market that will bounce back as well.
Speaker Change: I also called out just.
Speaker Change: What I would call noise is just fair value adjustment on the Securities line.
Speaker Change: Our fair value adjustment on securities just bounces around there's a few there's a few.
Speaker Change: Items that we mark to market that will bounce back as well, we had a really good quarter for swaps.
Speaker Change: Which have been light for a couple of quarters now and.
David Rosado: We had a really good quarter for swaps, which have been light for a couple quarters now, and on other loan-related fees, meaning servicing fees, some syndication fees. So the only other thing I would point out is the PAMA accounting had a small impact on a negative impact on fee income, so that'll fall out. So we, admittedly, while light, I think I'm not really worried about the fee line and think we'll see better fees in the coming quarters.
Speaker Change: On other loan related fees, meaning.
Servicing fees.
Speaker Change: Syndication fees.
Speaker Change: The only.
Speaker Change: Other things I would I would point out is the Pam accounting had a one time small impact on a negative impact.
Speaker Change: <unk>.
Speaker Change: On the fee income so that will fall out so we admittedly while light I think I'm not really worried about the fee line and think we'll see we'll see better fees.
Speaker Change: In coming quarters.
Mark Thomas Fitzgibbon: And secondly, David, are we likely to see any more security sales? Or was this kind of a one-time deal in conjunction with the branch sale that just kind of made sense and kind of cleaned up the portfolio to the point that you wanted it to be?
Speaker Change: Okay great.
Speaker Change: And then secondly, David.
Speaker Change: Are we likely to see any more security sales or was this kind of a one one time deal in conjunction with the branch sale that just kind of made sense and kind of cleaned up the portfolio to the point that you wanted it to be.
David Rosado: Yeah, I think we're essentially done for now. You know, I'd call it two and done since it's been two quarters in a row. But clearly, the second one was linked to the branch sale. Our securities are now down to about 10%, just under 10% of the balance sheet. On the low end of the peer group, we still have pledging requirements for some of our municipal customers, so I don't anticipate any further, bundled security sales like we've had in the last two quarters.
Speaker Change: Yeah.
David: I think we're we're essentially done for now.
David: I'd call it two and done since its been two quarters in a row, but clearly the second one was was linked to the.
The branch sale our securities are now down to about 10% just under 10% of the balance sheet.
David: On the low end of the peer group.
David: We still are pledging requirements for some of our municipal customers. So I think we are.
I don't anticipate any further.
David: Box security sales like we've we've had the last two quarters.
Mark Thomas Fitzgibbon: Okay. And then, Nitin, in your opening comments, you referenced the fact that you felt like at 83 branches, you were sort of close to the right size of the branch network. I guess it surprised me because it still feels like your franchise is pretty geographically spread out and the 10 branches that you sold didn't really pull in the reins very much. Given that you're getting close to that June target date for the best program, and you're still a decent amount below the financial goals that you set, I guess I'm wondering, wouldn't it make sense to take some more draconian actions to try to maybe shrink the footprint Mark, I would
David: Okay.
David: And then in your opening comments you referenced the fact that you felt like at 83 branches you were sort of close to the right size of the branch network.
David: I guess it surprised me because it still feels like your franchises pretty geographically spread out in the 10 branches that you sold didn't really pull in the reins very much given that youre getting close to that June.
David: Our target date for the best program and you're still.
David: A decent amount below the financial goals that you set I guess I'm wondering.
David: Wouldn't it make sense to take some more draconian actions to try to maybe shrink the footprint and improve the profitability.
David: So mark I would say Oh, we used to be a really sprawling geography based network, which we had mid Atlanta taken all the way going into Syracuse on the western part of the geography of Rich's been taught you Didnt know we were about 130 plus branches network and if you look at the peer to peer group.
Nitin J. Mhatre: So, Mark, I would say we used to be a really sprawling geography-based network, which we had Mid-Atlantic and all the way going into Syracuse on the western part of the geography, which has been tightened now. We were about a hundred and thirty plus branches. And if you look at the peer peer groups, that's about the mid seventies.
David: <unk>, that's about mid Seventy's and that's the deference to say we are coming close to the right size in terms of where the peers are.
Nitin J. Mhatre: And that's the reference to saying we are coming close to the right side in terms of where the peers are. This is not going to stop our teams from evaluating opportunities to consolidate or swap locations and things of that nature. That's always determined by the footprint and the footfalls in those branches and the business that's coming in. What we have today are all profitable branches. And in the part of the geography that's our core geography, we continue to hold on to the high market share that we have while investing in new markets, where we anticipate new growth.
David: This is not going to stop.
David: Teams to evaluate opportunities to consolidate or swab locations and things of that nature, that's always determined by the day.
David: The footprint and the footfall, Cindy and those branches in that business that covenant.
David: What we have today are all profitable branches and the part of the geography, that's our core geography, we continue to hold onto the high market share that we have while investing in the new markets, where we anticipate new growth. So I think it's not to say we're done but it's to say that its becoming pretty close to what we believe to be that.
Nitin J. Mhatre: So I think it's not to say we're done, but it's to say that we're coming pretty close to what we believe to be the right size network, with the caveat that we'll continue to look for opportunities to consolidate and swap as opportunities arise.
David: <unk> network with the caveat that we'll continue to look for opportunities to consolidate and swap as the opportunities arise.
Speaker Change: Thank you.
Operator: The next question will be from Laurie Hunsicker at Seaport Research. Please go ahead.
Speaker Change: Thank you Mark.
Speaker Change: Next question will be from Laurie Hunsicker at Seaport Research. Please go ahead.
Laura Katherine Havener Hunsicker: Hi, good morning, gentlemen. I'm hoping we can start back with the security sale. David, can you just remind us when those were sold and what was the yield? Or just approximate, I think, in the quarter. I assume it was...
Laura Katherine Havener Hunsicker: Hi, good morning, gentlemen.
Laura Katherine Havener Hunsicker: I'm, hoping we can start back with the security.
Laura Katherine Havener Hunsicker: Can you just remind us.
Laura Katherine Havener Hunsicker: What was the date.
Laura Katherine Havener Hunsicker: <unk> first of all again, what was the yield.
Laura Katherine Havener Hunsicker: Okay.
Laura Katherine Havener Hunsicker: Florida <unk> March end of March but.
David Rosado: Yeah, so we started a few days after the announcement. So security sales occurred throughout the month of March, and on the slide, you see the average we were just under 2% on the market yield of 198.
Yeah. So we started a few days after the announcement so security sales occurred.
Laura Katherine Havener Hunsicker: Throughout the month of March.
Laura Katherine Havener Hunsicker: And.
Laura Katherine Havener Hunsicker: The slide you see the average we're just under 2% on on the market yield 198.
Laura Katherine Havener Hunsicker: And then do you have the spot margin for the month of March?
Speaker Change: Okay, Great and then do you have the spot margin for the month of March.
David Rosado: Sure. The spot margin for March was $3.14. [inaudible] If you're not exactly sure where you're going, but what my comment around the 314 would be the impact of the security sale, very similar to the discussion we had three months ago, talking about the December security sale was it was not, it's not fully reflected in the March spot.
Speaker Change: Sure.
Speaker Change: Spot margin for March was $3 14.
Speaker Change: So.
Speaker Change: If youre, if youre not exactly sure where youre got away, but what are my comment around the $3 14 would be the impact of the security sale very similar to the discussion we had three months ago.
Speaker Change: Talking about the December security sale was it was not.
Speaker Change: Not fully reflected in the March spot.
Speaker Change: Okay.
David Rosado: Makes a lot of sense. Okay, good. And then just around your comments, I guess, you know, Nitin, you and David, the three additional branch closures coming up in 2Q, where are those located? And do you have the charges? And are you expecting to retain all the deposits and loans? How are you thinking about that?
Speaker Change: A lot of sense okay.
Speaker Change: Okay, Great and then just around your comments, yes suraj.
Suraj: And David the three additional branch closures coming up in Q, where we're at.
Speaker Change: And do you have the charges.
Speaker Change: Are you expecting to retain all the deposits and loans how are you thinking about that.
Nitin J. Mhatre: Yeah, they're all based in Connecticut, Laurie, and we have had conversations with our key clients there, and they're pretty comfortable kind of managing the transition through our mortgage bankers and private bankers there. So we feel pretty good about retaining those deposits while kind of consolidating those locations on the charges, I think.
Suraj: Yes, they're all based in Connecticut, Laurie and though we have had conversations with our key clients, there and they're pretty comfortable kind of managing the transition through our my bankers and private bankers. There. So we feel pretty good about retaining those deposits while kind of consolidating those.
Suraj: <unk>.
Suraj: On the.
David Rosado: Yeah, we, no, we have, we have, we don't have a number yet, Laurie. Okay, okay.
Suraj: Charges I think yes.
Suraj: We have we don't have a number yet laurie.
Laura Katherine Havener Hunsicker: Okay, Okay, and then what about the costs and so what are you expecting there.
Laura Katherine Havener Hunsicker: Okay, okay. And then what about the cost savings? What are you expecting there?
Okay.
David Rosado: [inaudible] I mean, one is a very small limited service branch. The other two are consolidations. So, I wouldn't pencil in too much for that at this point. I'd focus on how well expenses were controlled this quarter, especially with the seasonal uptick in
Laura Katherine Havener Hunsicker: Not significant.
Laura Katherine Havener Hunsicker: I mean, one is as a very small limited service branch.
Laura Katherine Havener Hunsicker: The other two there are consolidations so.
Laura Katherine Havener Hunsicker: I wouldn't pencil in too much for that at this point I'd focus on how well.
Laura Katherine Havener Hunsicker: Expenses were controlled this quarter.
Laura Katherine Havener Hunsicker: Especially what the seasonal uptick in payroll.
David Rosado: And I'd focus on our comments around what we're doing, you know, trying to change the focus of expense management in the company. That's the real message.
Speaker Change: And I would focus on our comments.
Speaker Change: Around what we're doing.
Speaker Change: Trying to change the focus of expense management in the company. That's the that's the real message.
Laura Katherine Havener Hunsicker: Absolutely. And just to that point, yeah, your guidance for last quarter's expenses for this year, 293 to 297, you're clearly coming in way below that, which is great. I just want to make sure I'm thinking about this the right way. So if I look at your expenses for this quarter, x-ing out the mergers, x-ing out the FICA, you're at around $71 million. You get another $1.6 million or so down, just the expense reduction associated with the 10 branches. Yeah, maybe just a tiny bit on the three closers.
Speaker Change: Absolutely Yeah, just to that point, yeah your guidance last quarter.
Speaker Change: Sensors for this year at <unk> 93 to 297, you're clearly coming in way below that which is great. I just wanted to make sure I'm thinking about this the right way. So if I look at your expenses for this quarter axing out the merger's axing out the FICA.
Speaker Change: Around $71 million, you got another $1.6 million or sat down just the expense reduction associated with the 10 branches.
Speaker Change: And maybe just a tiny bit on the three closures is there any spending that you're you're going to be is there any additional sort of significant spend that you're doing in <unk>.
Laura Katherine Havener Hunsicker: Is there any spending that you're going to be doing, is there any additional sort of significant spend that you're doing in, You know, as we head, obviously, we're only a quarter way through this year. But as we head into next year, how should we be thinking about that? Are you really kind of at a quarterly run rate of 69 or 70 million? Or is there any other spending coming down the pike? How should we think about that? Is it all dropping through? Or what else are you?
Speaker Change: As we had obviously, we're only a quarter away through this year, but as we head into next year, how should we be thinking about that are you really kind of at a quarterly run rate of $69 million to $70 million or is there any other spending coming down the pike, how should we think about that is that all dropping trail.
Speaker Change: Or what else taking a heightened so.
Speaker Change: Okay.
Laura Katherine Havener Hunsicker: Maybe a better question is, yeah, or maybe just help us think about, as we look to the fourth quarter, when everything should be largely pretty clean, what should we expect on a fourth-quarter, just dollar expense run rate? How should we think about that?
Speaker Change: Let me back up.
Speaker Change: Yeah, or maybe just help us think about as we look to fourth quarter, when everything should be largely pretty clean.
Speaker Change: Should we expect on a fourth quarter or just a dollar of expense run rate how should we think about that thanks.
Nitin J. Mhatre: Laurie, I'll give David a minute to think through that. But just on a strategic level, what we will continue to do is invest in opportunities to grow deposits, as David highlighted earlier, and also deepen relationships with the clients that we have. So if you asked about things that we're looking to invest in, I think it's going to be investments in finding more frontline bankers, especially in the commercial, private banking, cash management types of areas where we get larger deposit relationships and opportunities for fees.
Speaker Change: L'oreal I'll give David a minute to think through that but just on a strategic level. What we will continue to do is.
Speaker Change: Invest in the opportunities to grow deposits as David highlighted earlier and also deepen relationships with our clients that we have so if you asked about.
L'oreal: Things that we're looking to invest and I think it's going to be investments in finding more frontline bankers, especially in the commercial private banking cash management types of areas, where we get larger deposit relationships and opportunities for fees.
Nitin J. Mhatre: We're also looking to continue to improve our digital platform. We launched our online and mobile platform. We're looking to do our public website refresh, so I think there's going to be a little bit of investment there. We're also looking to do a swap location within Boston. So I think those are the elements that are ensuring that we also invest in the future. So those would be the types of investments that will continue to go on, improving the banker experience, the client experience, and our technology stack.
L'oreal: Also looking to continue to improve our digital platform, we've launched our online and mobile platform. We're looking to do a public website refresh. So I think there's going to be a little bit of investment. There. We're also looking to do a swap location within Boston. So I think those are the elements that are ensuring that we also invest in the future.
L'oreal: So those would be the types of investments that will continue to go on improving banker experience client experience and our technology stack.
David Rosado: David Lindenmuth. David Fitzgibbon. Thank you. Bye.
Speaker Change: Got it okay, and so it really well.
L'oreal: Well.
Speaker Change: Yeah go ahead.
David Rosado: Now, what I was... I was going to answer kind of in the context of the full quarter, the full year, and the guidance we put out in January at a high level. You know, what are the goods and what are the bads, right? So, you know, we were light on NII, and we were light on fees. As Mark was questioning earlier, we were better on credit, and we were better on expenses.
Speaker Change: Now what arris.
Speaker Change: I was going to answer kind of in the context of the full quarter the full year and the guidance, we put out in January and at a high level.
Speaker Change: You know what are the goods and what are the bads right. So yes.
Speaker Change: We are light on NII and we were light on fees as Mark was questioning earlier, we were better on credit and we were better on expenses.
David Rosado: Project A, we made the point we called out the cost saves and the income give up. But we made the point that there was no change to 24 earnings from Project A, right? Because that's inclusive of the security sale. So while where you're going is, yes, we are light on expenses compared to the guidance that we gave, we're not. At this point, because of all the investments that we continue to make in conjunction with all the expense controls we have, we're not ready to take the expense guide down yet. We're only through one quarter of the year. Now we'll probably have this discussion mid-year.
Speaker Change: Project day, we made the point, we called out the.
Speaker Change: Cost saves and the.
Speaker Change: Income give up but we made the point that.
Speaker Change: No change to 'twenty four.
Speaker Change: Earnings from project day, right that cause that's inclusive of the.
Speaker Change: The security sale, so while where you're going is yes, we are light on expenses to the guidance that we gave we're not.
Speaker Change: At this point because of the.
Speaker Change: All the investments that we continue to make in conjunction with all of the expense controls we have we're not ready to take the.
Speaker Change: The expense guide.
Speaker Change: And yet we're only through one quarter of the year we.
Speaker Change: We will probably have this discussion mid year.
Laura Katherine Havener Hunsicker: Okay, sounds good. Thanks for taking my questions.
Speaker Change: Okay sounds good thanks for taking my question.
Operator: Thank you. Good question. Next question:
Speaker Change: Thanks, Larry Good question.
Chris O'connell: The next question will be from Chris O'Connell at KBW. Please go ahead.
Speaker Change: Next question will be from Chris O'connell.
PW: PW. Please go ahead.
Good morning.
Chris O'connell: I just want to start off by saying that on the average balance sheet, you know, I know they were, you know, truncated in terms of, you know, the held for sale amounts on there. Are the yields there good in terms of, you know, the 572 loan yield and the 275 deposit cost? Is that reflective, or is it a little bit skewed due to, you know, the short duration that they were on, on the averages there?
Chris O'connell: I just wanted to start off.
Chris O'connell: For the you know on the average balance sheet and you know I know they were truncated in terms of the held for sale amounts on there are the yields there are good in terms of the $5 70 to loan yields in the $2 75, a deposit cost.
Speaker Change: Is that reflective or is it a little bit skewed.
Speaker Change: Due to the short duration that they were on the average there.
David Rosado: So if you're talking about the margin, we tried to call this out on the margin page in the press release, Chris. So You know, it's a short answer. Are the numbers good? Yes. What we tried.
Speaker Change: So if you're talking.
Speaker Change: The margin we tried to call. This out on the margin page in the press release, Chris. So yes. So the short answer are the are the numbers good yes.
David Rosado: Yeah, there's a big, big difference between endings and averages related to loans and deposits associated with Project A. And that shows up on, I'm sorry, I think I said page seven on page 10 of the press release. So you see low average balances, for example, for loans that we sold for only $18 million in the quarter. The footnote tells you the day that we moved them out of the regular portfolio into a help for sale portfolio. Does that answer your question? Just one thing I noticed, you said $544 and $275. I think it's $544 for earning assets and $245 for total liabilities, just for apples to apples.
Speaker Change: The.
Speaker Change: Well we tried.
Theres, a big a big difference between endings and averages.
Speaker Change: <unk> to loans and deposits associated with project K.
Speaker Change: And that shows up on I'm, sorry, I think I said page seven on page 10 of the press release.
Speaker Change: So you see low average balances for example for loans.
That we sold of only $18 million in the quarter. The footnote tells you the day that we move them out of the.
Speaker Change:
Speaker Change: Regular portfolio into held for sale portfolio.
Speaker Change: Does that answer your question yes.
Speaker Change: One thing I noticed you said 544 and 275 I think.
Speaker Change: It's 544 for earning assets and 245 for total liabilities just to put apples to apples.
Chris O'connell: Oh, no, I was just referring to the held-for-sale yields.
Speaker Change: Oh, no I was just referring to the held for sale yields.
David Rosado: Yeah, yeah, just to have the five and just the nuance there, Chris is, so the 572 is the loans impact on the quarter. If you look carefully, you can see that we broke out the deposit between interest bearing and non-interest bearing as well. So the 275 is just the interest bearing.
Speaker Change: Yeah, just to help you out of the five and just the nuance there Chris is the $5 72 is the loans impact on the quarter.
If you look carefully you can see that we broke out the deposits.
Between interest bearing and noninterest bearing <unk>.
Speaker Change: Well.
Speaker Change: So the $2 75 is just the interest bearing peers.
Chris O'connell: Great. And then, so just wanted to talk about the impact on the margin, you know, once the actual sale occurs there. I mean, you seem to indicate in the, you know, the big commentary that, you know, the NIM going into 3Q should be, you know, fairly flat to 2Q. So there's really, you're expecting, you know, not much of an impact once the transaction occurs.
Great and then.
Speaker Change: So just wanted to talk to the impact on the margin.
Speaker Change: Once the actual sale occurs there.
Speaker Change: You seemed to indicate in the in the commentary that the NIM going into <unk> should be fairly flat to two Qs. So theres really youre expecting you know not much of an impact.
Speaker Change: Once the transaction occurs.
David Rosado: Yeah, so it's complicated, admittedly. So the point I was making with Laurie is the spotname in March really not reflecting the security sale. So you have the security sale in Q2, helping the margin, and you have the deposit sale in Q3, going the other way. Our interest rate risk position is neutral. I think that we haven't been asked that yet.
Speaker Change: Yeah.
Speaker Change: Yeah, So it's complicated admittedly so.
Speaker Change: The point I was making with Laurie as the spot NIM in March really not reflecting the security sales. So you have security sale in Q2, helping the margin you have deposit sale in Q3.
Speaker Change: Going the other way.
Speaker Change: Our interest rate risk position is neutral I think that's we haven't been asked that yet, but that's probably important in the context here.
David Rosado: But that's probably important in the context here. You know, we were talking about four to five months ago. Some people were talking about six Fed moves. Now we're talking about one, and now it's September. A month ago, it was July, and there were two.
Speaker Change: Three months ago.
Speaker Change: We were we were talking about four to five some people were six fed moves now we're talking about one and now at September <unk>.
Speaker Change: A month ago. It was it was July and there were two so that's an incredible amount of noise around interest rates for us, we basically have a neutral balance sheet.
David Rosado: So that's an incredible amount of noise around interest rates. For us, we basically have a neutral balance sheet, which is good. So all the market gyrations, you know, aren't moving our NIM all over the place. At the end of the day, the one thing, and from my perspective, that's going to drive margins this year is deposit costs. And deposit costs are the competitive pressure of how we all behave. Deposit costs were up 18 basis points in Q4 to Q1. You know, not great news. But the good news is that in the prior quarter, they were up 30 basis points. And the quarter before that, they were up 30 basis points.
Speaker Change: The good news.
Speaker Change: So all the market gyrations.
Speaker Change: Yes.
Speaker Change: Art.
Speaker Change: Moving our NIM.
Speaker Change: All over the place.
Speaker Change: At the end of the day, the one thing from my perspective, that's going to drive <unk>.
Speaker Change: Margins this year is deposit cost and deposit costs or the competitive pressure of how we behave.
Speaker Change: <unk>.
Speaker Change: Deposit costs were up 18 basis points Q4 to Q1.
Speaker Change: Not great news, but the good news is the prior quarter. They were up 30 basis points in the quarter before that they were up 30 basis points. So.
David Rosado: So, The While deposit costs are going up, the pressure is abating. We're all generally behaving as an industry. And the CD books that we all have are about a year old, and they're almost all rolled over.
Speaker Change: While deposit costs are going up the pressure is abating, we're all generally behaving as an industry and the CD books that we all have are about a year and they're all almost all.
David Rosado: So we're not going through that very low old rate to market rates. They're now kind of close to market rates. That's why the pace of increase in the second derivative is slowing down. But ultimately, the assumptions that we make around our cost of deposits for the balance a year are the number one issue that's going to drive our margin and everyone else's. Our asset yields are really quite steady, and we've improved them with the security sale. But we can lose all that benefit on the deposit side because deposits get much more aggressive pricing from competitors.
Speaker Change: Rolled over so we're not going through that very low old rates to market rates, there now kind of.
Speaker Change: Close to market rates to close to market. So that's why the pace of increase the second derivative is slowing down but ultimately.
Speaker Change: Assumptions.
Speaker Change: That we make around our cost of deposits for the balance of year is the number one issue that's going to drive our margin that everyone else is our asset yields.
Speaker Change: R R.
Speaker Change: Really quite steady and then we've improved them with the security sales.
Speaker Change: But we can lose all that benefit.
On the deposit side.
Speaker Change: Yes.
Speaker Change: Deposits get much more aggressive pricing from competitors.
Chris O'connell: God, that's helpful. And is the plan to keep cash somewhat elevated here until the time of the transaction in the third quarter and then, you know, bring that down?
Speaker Change: Got it that's helpful and is the plan to keep cash somewhat elevated here until the time of the transaction in the third quarter and then bring that down.
David Rosado: Yeah, two comments there. So we do have some more wholesale borrowings that'll come off in the second quarter. It's a little less than $200 million, if memory serves. So that'll take some of that cash balance down. Some of it is just excess liquidity we're holding. So expect it to come down, but not, not significantly. I don't think we'll wind up cutting it in half until after the transaction settles. So you're really talking, end of the third quarter into the fourth quarter.
Speaker Change: Yeah.
Speaker Change: Two comments there so we do have some more.
Speaker Change: Wholesale borrowings that will come off in the second quarter, it's a little less than $200 million.
Speaker Change: If memory serves.
Speaker Change: So that will take some of that cash balance down.
Speaker Change: Some of it is just.
Speaker Change:
Speaker Change: Excess liquidity, we're holding.
Speaker Change: So expect it to come down but not.
Speaker Change: Not significantly I don't think we'll wind up cutting it in half until after the transaction saddles, So you're really talking.
Speaker Change: Ended the third quarter into the fourth quarter.
Chris O'connell: Okay, great. And then, you know, as far as you know, the buyback appetite from here, you guys did, you know, 4 million here, you have a, you know, 40 million authorization, you know, and you're, you know, trading a touch below tangible book. Do you expect to get a little bit more aggressive throughout the year, especially with the upcoming game?
Speaker Change: <unk>.
Speaker Change: Got it.
Speaker Change:
Speaker Change: Okay, Great and then you know as far as you know the buyback appetite from here.
Speaker Change: You guys did 4 million here you have a 40 million authorization.
Speaker Change: You know trading it touch food you know a little bit below tangible book.
Speaker Change: Do you expect to get a little bit more aggressive throughout the year, especially you know with the upcoming game.
David Rosado: Um, yeah, I would say market-dependent, Chris, but, you know, we've been under just under tangible book value for quite a while now. I would point out in Q1, we blacked ourselves out because of Project A. So Q1 was a little lighter than it otherwise would have been.
Speaker Change: Yes, I would say market dependent Chris, but yeah, we've been under just under tangible book value for for quite a while now I would point out in Q1, we blacked ourselves out because of project day.
Speaker Change: Q1 was a little lighter than it otherwise would have been.
Chris O'connell: I appreciate your time. Thank you.
Nitin J. Mhatre: Thank you. At this time, I would like to turn the call over back to Mr. Mhatre. Please go ahead.
Speaker Change: Okay got it.
I appreciate the time thank you.
Speaker Change: Yeah.
Nitin J. Mhatre: Thank you, Sylvia, and thank you all for joining us today on our call and for your continued interest in Berkshire. Have a great day and be well.
Speaker Change: Thank you Chris.
Nitin J. Mhatre: Thank you at this time I would like to turn the call over back to Mr. Malhotra. Please go ahead.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your line.
Thank you Phil and thank you all for joining us today on our call and for your continued interest in Berkshire, I have a great day and be well.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Hum.
Speaker Change: [music].