Berkshire Hills Bancorp(BHLB) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Operating net income increased by 11% linked quarter to $23.2 million, with operating EPS up 12% to $0.55 [23] - Net interest income rose modestly by $400,000 linked quarter to $88.5 million, while net interest margin increased by 5 basis points to 3.20% [28][42] - Net charge-offs were $1.7 million or 7 basis points of average loans, marking the sixth consecutive quarter of declining net charge-offs [23][29] - Provision expense increased by $0.5 million linked quarter to $6.5 million, with a coverage ratio of 122 basis points of loans [29] - Operating expenses decreased by 2% linked quarter to $71.3 million, reflecting lower compensation, occupancy, and equipment expenses [24][43] Business Line Performance - Average loan balances increased by 2% linked quarter and 5% year-over-year, driven by growth in CRE and C&I loans [25][40] - Operating non-interest income rose by 16% linked quarter to $20.1 million, primarily due to gains on SBA loan sales and the reversal of tax credit amortization [4][39] - Wealth management fees declined linked quarter due to seasonal tax prep fees recognized in the first quarter [4] - The Upstart and Firestone portfolios combined are down to $124 million or 1.3% of total loans, performing as expected [40] Market and Regional Data - Average deposits decreased by 2% linked quarter, primarily due to lower payroll deposits, but were up 2% year-over-year [30][35] - Deposit costs increased by 6 basis points linked quarter to 235 basis points, with a cumulative deposit beta of 42% through 525 basis points of Fed tightening [57] - The company consolidated three additional branches in Q2, reducing the total branch count to 93, with a projection to reach 83 by the end of Q3 [36] Strategic Direction and Industry Competition - The company is focused on accelerating deposit growth, managing expenses and credit tightly, and expanding digital banking offerings [47] - The sale of 10 branches in New York is on track to close in Q3, enhancing the efficiency and profitability of the branch network [25] - The company aims to maintain a stable net interest margin around 3.20% and expects loan growth to be at the low end of the range provided in January [45] Management Commentary on Operating Environment and Outlook - The operating environment remains challenging due to historic increases in interest rates and the longest period of yield curve inversion in recorded history [47] - The company expects net interest income to be down modestly between $352 million and $354 million, with non-interest income projected between $75 million and $77 million [5] - The company anticipates provision expense to be between $25 million and $27 million and operating expenses between $287 million and $290 million [5] Other Important Information - The company repurchased 600,000 shares in Q2 for $13 million, with year-to-date repurchases totaling $17.4 million at an average cost of $21.94 [24][64] - The company expects to book a $19 million non-operating gain on the New York branch sale in Q3, with an after-tax impact of approximately $15 million to $16 million [45][108] Q&A Session Summary Question: Breakdown of CRE growth and average rates - The company grew commercial real estate by $113 million in Q2, with a focus on quality sponsors and relationship-driven lending [88][87] Question: Impact of rate cuts on NIM - The company expects to maintain a stable NIM around 3.20%, with tailwinds from fixed-rate assets repricing higher and fixed hedges rolling off [96] Question: Office portfolio maturities and vacancies - 8% of the office portfolio is maturing in 2024, with $21 million in Class A and $19 million in Class B properties, and vacancies consistent with the portfolio average of 90% occupancy [77][80] Question: Wealth management fees and SBA loan sales - Wealth management fees declined due to seasonal tax prep fees, while SBA loan sales were above the eight-quarter average, with strong momentum expected [50][72] Question: Tax rate guidance - The tax rate is expected to drop to the high end of the guidance range (20%-22%) due to a tax credit coming in later in the year [75]