Berkshire Hills Bancorp (NYSE: NYSE:BHLB) reported a decline in operating net income and earnings per share (EPS) for the fourth quarter of 2023 during their earnings call on January 25, 2024. The bank announced a new $40 million share repurchase program and outlined strategic priorities for the coming year, focusing on expense optimization, deposit growth, and credit management. Despite a challenging operating environment anticipated for 2024, the bank is aiming for profitable organic growth and has detailed plans for branch rationalization and investments in technology.
Key Takeaways
- Operating net income for Q4 2023 stood at $20.2 million with an operating EPS of $0.47.
- Non-performing assets and net charge-offs decreased by 14% linked quarter.
- A new share repurchase program of $40 million for 2024 has been announced.
- Strategic priorities include expense optimization, deposit growth, and credit management.
- The company plans to self-fund investments to enhance its position as a high-performing, relationship-focused community bank.
- Berkshire Bancorp has prepared for economic uncertainties by increasing reserves and improving capital ratios.
- The bank's office portfolio is considered well underwritten and diversified with solid asset quality.
- Plans for 2024 include loan growth, deposit growth, and managing provision expenses, with a focus on expense management and improving efficiency.
Company Outlook
- Berkshire Bancorp expects a challenging operating environment in 2024.
- The bank aims to control factors within its reach to achieve profitable organic growth.
- Guidance for 2024 includes expectations for loan and deposit growth, provision expense, overall expenses, and tax rate.
Bearish Highlights
- The reported decline in operating net income and EPS indicates a decrease in profitability linked quarter.
- The bank anticipates a challenging operating environment for the upcoming year.
Bullish Highlights
- Capital ratios have improved, positioning the bank to deploy capital for organic loan growth and stock repurchases.
- The bank has reported returns over the past five quarters and has aligned its ROTCE with peers.
- Recent hires have positively impacted loan and deposit balances, with potential to capture over $20 billion in deposits.
Misses
- The bank experienced lower operating net income and EPS compared to the linked quarter.
Q&A Highlights
- The economic effect of the accounting change regarding tax credit fees is neutral, with a positive economic benefit of approximately $600,000 to $650,000 each quarter.
- Higher expenses in the first quarter are expected due to FDIC expense and 401(k) matches.
- There are ongoing efforts to improve efficiency and self-fund investments.
- Branch rationalization will continue as part of the bank's optimization strategy.
- The bank's cannabis offering is in the early stages and currently limited to deposit services.
Berkshire Hills Bancorp concluded the earnings call with an emphasis on their vision to continue as a high-performing, relationship-focused community bank. The bank's strategic initiatives and updates provided during the call reflect a commitment to navigating economic uncertainties while pursuing growth and efficiency.
InvestingPro Insights
Berkshire Hills Bancorp's (NYSE: BHLB) recent earnings report may have shown some challenges, but a deeper dive into the company's performance using InvestingPro data reveals additional layers to the story. Here are some key metrics and tips to consider:
InvestingPro Data:
- The company's market capitalization stands at a robust 1060M USD, indicating a significant presence in the market.
- A P/E Ratio (Adjusted) for the last twelve months as of Q4 2023 at 15.05 suggests a company that may be reasonably valued in the context of its earnings.
- The dividend yield as of the most recent data is 2.94%, which is a positive sign for income-seeking investors, especially considering the company has maintained dividend payments for 24 consecutive years.
InvestingPro Tips:
- Berkshire Hills Bancorp has demonstrated a strong return over the last three months, with a 26.29% price total return, which may be attractive to investors looking for short-term gains.
- Analysts predict the company will be profitable this year, aligning with the company's own guidance and strategic priorities for 2024.
It's worth noting that while the company suffers from weak gross profit margins, it has been profitable over the last twelve months. This dichotomy suggests that despite some operational challenges, Berkshire Hills Bancorp has been able to maintain financial health.
For investors looking to delve deeper into Berkshire Hills Bancorp's financials and future outlook, InvestingPro offers additional insights and tips to aid in making informed decisions. Currently, InvestingPro has a special New Year sale with up to 50% off on subscriptions. Using the coupon code "SFY24" will grant an additional 10% off a 2-year InvestingPro+ subscription, or "SFY241" for an additional 10% off a 1-year subscription. With these tools at your disposal, you can access a wealth of knowledge, including numerous additional InvestingPro Tips for BHLB, to help you navigate the market with confidence.
Full transcript - Berkshire Hills B (BHLB) Q4 2023:
Operator: 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. [Operator Instructions] This call is being recorded on Thursday, January 25, 2024. I would now like to turn the conference over to Mr. Kevin Conn. Please go ahead, sir.
Kevin Conn: Good morning, and thank you for joining Berkshire Bank's fourth quarter earnings call. My name is Kevin Conn, Investor Relations and Corporate Development Officer. Here with me today are Nitin Mhatre, Chief Executive Officer; Sean Gray, Chief Operating Officer; David Rosato, Chief Financial Officer; and Greg Lindenmuth, Chief Risk Officer. 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 2 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 Nitin. Nitin?
Nitin Mhatre: Thank you, Kevin. Good morning, everyone, and thank you for joining us today. I'll begin my comments on Slide 3, where you can see the highlights for the fourth quarter and the full year. While the rate environment remains challenging, we are encouraged by the early trends in deposit balances. 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. We also incurred a severance charge of $3.7 million related to a workforce reduction across the organization. For 2024, 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. David will review these items and our 2024 guidance in more detail in a few minutes. Operating net income for the quarter was $20.2 million, and operating EPS of $0.47 declined 6% linked quarter, primarily from a decline in net interest income. Full year 2023 EPS of $2.14 was down 2% year-over-year. We are encouraged by the trends in asset quality and deposit growth in the quarter. Our credit costs have trended down, and our loan books are performing well. Non-performing assets and net charge-offs declined 14% linked quarter and we increased our loan loss allowance by 3 basis points to 1.17% of loans. Average deposits were up 3% linked quarter, largely driven by an increase in money market and time deposits. Our liquidity position is robust and our available liquidity coverage of core uninsured deposits was 146%. We've included a page in the appendix with more details. Our average loan balances were up 11% year-over-year and up less than 1% linked quarter given lower loan demand and disciplined underwriting. Our balance sheet remains strong. We ended the quarter with a common equity Tier 1 ratio of 12% and a tangible common equity ratio of 8%. We repurchased 328,000 shares in the fourth quarter and 1.1 million shares in 2023, which reduced our share count by 3% over the year. 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. 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. Both of these pages highlight that our portfolio is granular, geographically diverse and resultantly less risky. David will cover some of these metrics in more detail in a few moments. We continue to make steady progress on our strategic priorities. Optimizing real estate, branch network and balance sheet. In 2023, we consolidated four branches and exited two office buildings. We will continue to look for opportunities to lower our occupancy expenses further. Our team successfully converted our digital banking platform for consumer and small business clients to improve the client experience and platform efficiency. 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 5 star rating. The disruption in our markets has enabled us to opportunistically hire deposit and relationship-focused frontline bankers. These bankers have strong deposit books and complement our existing team. Gaining even a small part of the opportunity presented by the market disruption would be meaningful for Berkshire. Slide 4 shows our progress on five key performance metrics. 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. Our full year PPNR grew to $142 million. Our ESG score remains in the top quartile nationally and our full year Net Promoter Score improved further to 45. We have made steady progress over the last three years and are energized about significant opportunities for improving our financial performance further. 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. 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. With that, I'll turn the call over to David to discuss our financials in more detail. David?
David Rosato: Thank you, Nitin. Slide 5 shows an overview of 2023, but I'll jump to Slide 6, which details the fourth quarter. As Nitin mentioned, operating earnings were $20.2 million or $0.47 per fully diluted share, down $0.03 linked quarter. Our net interest margin was 3.11% down 7 basis points linked quarter, and net interest income declined $1.9 million or 2%. Operating non-interest income was $16.7 million, down 5% linked quarter. I note that several fee line items are below historic quarterly run rates and should recover over the coming quarters. Operating expenses were $75.3 million, up 2% linked quarter. Average loans increased $38 million linked quarter, while average deposits increased $306 million or 3% from Q3. 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. Slide 7 shows more detail on our average loan balances, which were up $38 million linked quarter. We had growth of $84 million in commercial real estate and $38 million in residential with a $69 million decline in C&I and a decline of $15 million in consumer, which reflects runoff of nonstrategic loan portfolios. Slide 8 provides details of our security sale. We sold $267 million of securities and incurred a pretax loss of $25.1 million or $0.44 per fully diluted share after tax. Our earn-back period is about three years, and proceeds were used to pay down wholesale funding. FHLB borrowings were down $419 million and ended the quarter at $385 million, which was down 52% linked quarter. Our securities to total assets was 13% at year end. Slide 9 shows our average deposit balances. Average deposits increased $306 million or 3% in the quarter. As expected, the deposit mix shifted with a modest decline in the non-interest-bearing deposits and an increase in money market and time deposits. Non-interest-bearing deposits as a percentage of total deposits were 25% in the fourth quarter versus 26% in Q3. Deposit costs were 211 basis points up 30 basis points from the third quarter. Our cumulative total deposit beta is 37% through 525 basis points of Fed tightening. Borrowings were 6% of total funding, down from 9% in Q3. Turning to Slide 10, we show net interest income. Higher deposit costs contributed to the $1.9 million or 2% decrease in NII. Our net interest margin was 3.11%. Slide 11 shows operating fee income down $791,000 or 5% linked quarter. Loan-related fees were down $821,000 linked quarter driven primarily by lower swap income that was about $600,000 below our normal quarterly run rate. Gain on sale of SBA loans were down $166,000 due to lower premiums in the market. A line item that is also running about $900,000 below normal run rate. Other fees were up $594,000 from fair value adjustments on equity securities. Slide 12 shows expenses. Operating expenses were up 2% linked quarter to $75.3 million. Importantly, there was a modest fourth quarter technology expense true-up so I'd encourage you to look at our '24 guidance for thoughts on run rate expenses. 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. GAAP expenses of $79 million includes $3.7 million of severance charges or $0.06 per share after tax related to the aforementioned workforce reduction. 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. 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. Slide 13 is a summary of asset quality metrics. Non-performing loans were down $5.2 million linked quarter and $9.7 million year-over-year. 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. We've included a chart in the appendix with Berkshire's net charge-off rates for the industry since the year 2000. We've moved some of the credit pages from the appendix into the body of our deck. Slide 14 shows that our CRE book is well diversified in terms of geography and collateral type. Credit quality of the CRE portfolio remains solid with non-accrual loans at 10 basis points of period end loans. Slide 15 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 have also shared more granular credit data for the office book. We believe our office portfolio is very well underwritten, diversified and the asset quality of this portfolio remains solid. 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. 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. Recall, we added several new roles to the financial tables starting last quarter. Prior to last quarter, we have been reporting return on tangible common equity with a denominator that excludes the negative AOC mark from our AFS securities portfolio. We are now also reporting ROTCE with a denominator that includes the negative AOC mark, which lowers the denominator and increases ROTCE. 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. Slide 17 shows our capital ratios. With the decline in rates and our security sale, our AOCI improved by $75 million from a negative $218 million to a negative $143 million. Common equity Tier 1 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. Our top capital management priority is to deploy capital to support organic loan growth. Secondly, we remain biased to stock repurchases, given that our stock price is trading below intrinsic value. 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 and in 2023, we repurchased $24 million of stock at an average cost of $20.85. We believe Berkshire stock is undervalued given our growth potential and low-risk business model. We will continue to opportunistically repurchase shares. Slide 18 shows our 2024 guidance. Our guidance incorporates five rate cuts. However, one of which is in December of 2024 and does not impact guidance which is in line with current Bloomberg and market consensus. We expect loan growth of 5% to 7% off end-of-period loans. Payroll deposits were elevated at year-end, so we'd encourage you to model deposits off an adjusted ending balance of $10 billion, which excludes payroll balances above normal run rates. We expect 2% to 3% normalized deposit growth. 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 increasing our effective tax rate. Our 2023 fees adjusted for PAM would have been $75.9 million, and we expect growth of 0% to 3% off that base. We expect provision expense to be $33 million to $36 million, and expenses to be down 1% to up 1%. Our tax rate increases with the change in accounting, and we believe it will be in the range of 20% to 22%. Our Board is authorized and regulators have approved a new $40 million stock repurchase program, which we expect to use opportunistically. With that, I'd like to turn it back to Nitin for further comments.
Nitin Mhatre: Thanks, David. 2023 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. We expect that in 2024, the operating environment will continue to be challenging. While we cannot control the macro environment, we are focused on controlling what we can and have several levers, including rigorous expense management, opportunistic hiring for deposits and loan growth and de-risking the balance sheet. We look forward to a more normal banking environment later in 2024 and into 2025. When I started as the CEO in early 2021, we faced rapidly declining loan balances that we steadily turned into loan growth. We will similarly overcome the current challenges, including deposit growth and expense management. We remain focused on selective, responsible and profitable organic growth. With that, I'll turn it over to the operator for questions. Laura, please open the line for Q&A.
Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Billy Young from RBC. Please go ahead.
Bill Young: Hey. Good morning, guys. Can you hear me, okay?
Nitin Mhatre: Yes, we can. Good morning, Billy.
Bill Young: How are you? I guess let's just first start on NII and the margin. Can you elaborate first how much do you think the repositioning this quarter should benefit kind of 1Q and the run rate going forward?
David Rosato: Yeah. Well, it's about a three year payback on the securities transaction. It's worth about $7 million on an annualized basis increase in net interest income.
Bill Young: Got it. That $7 million at beginning of 2024.
David Rosato: Yeah. Well, that's a full year number. But yes, so the security sale occurred very late in December, third week in December. So it really had no impact of any significance in Q4 margin, which as reported was 3.11%. So we'll see a step-up from that. As you know, we don't provide margin guidance, but it's obviously in the NII guide.
Bill Young: Understood. Thanks. And then just to follow up on that theme. Kind of how does timing of the rate cuts impact your outlook if we start seeing more aggressive Fed rate actions earlier in the year versus if the Fed cuts rates less than the five be contemplated kind of how does that impact the NII trajectory?
David Rosato: Sure. Let me -- so a couple of comments. The first is the transaction obviously occurred late in the quarter, it increased asset sensitivity for us because we paid down wholesale borrowings, which were short, had longer term securities. That's why you also see an elevated cash position at 12/31. You saw a large jump in cash on the balance sheet. That's not steady state, right? So the transaction is accretive to the margin and net interest income dependent on where rates go over the course of 2024, we could put more securities back on the balance sheet. We've telegraphed rather consistently over the last year that were just have been plus or minus neutral from an asset liability perspective. So three rate cuts or five, which is really only four from an NII perspective because the last meeting in December 18, 2024. Will has a very modest impact on us either way, whether it's three or five. I think more importantly, you didn't ask the question, but when we think about the margin over the course of 2024, I think our work is basically in line with what we're hearing from a lot of other banks. We expect the margin to bottom into late in the second or in the third quarter of this year, and then you will see margin expansion. That's whether the Fed eases as telegraphed by them or weather a little bit more aggressively by what the market has priced in. So that's a real important message, I think Billy.
Bill Young: I appreciate that. That was actually one of the follow-ups I had, but just I guess shifting gears to just expenses. I appreciate kind of the flat expense guide for this year versus last. Are there any additional efficiency actions being assumed within that guidance, firstly? And then secondly, is there a target efficiency ratio you'd like to exit this year at when all said done? Thanks.
David Rosato: Sure. Two questions there, one of which I'll answer in detail, one of which I'll not answer. The first part is the important part. So Nitin 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 at the beginning of this year. Going forward, we still recognize the need for expenses. We should think about that in a more targeted manner as the year progresses. So thinking about how we do things and how we're staffed. So they are -- it's technology, its process. It's a lot more granular. And I think that the end results can be significant, but they take more time to achieve. So that's what we're focused on in 2024. That some of our thoughts around that is obviously embedded in the expense guide. Holding expenses flat year-over-year when you think about merit increases and escalators in real estate contracts and other contracts, software contracts, etc., is a lot. And we're one of our focuses besides making sure that we continue to get more efficient and manage costs and I've 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 spent also a lot of time making sure as we continue to work on controlling expenses and lowering expenses that we don't damage the growth potential of the company. So Billy, so your second question was essentially a targeted efficiency ratio. I think at this point, we'll just decline to put that number out there. What I would say is, our efficiency ratio has been going up. It went up in 2023. We're not excited at all about it. We need -- we recognize it needs to come down and improve, and we're very committed to that.
Nitin Mhatre: Hey, Billy. If I may just add a little bit of comment, I think David laid it out well. And I just want to connect it to what you've heard us say before as part of our best plan where we talked about optimization as being our key lever and within those, we talked about -- we have -- we believe and we still do have significant opportunities on rationalizing real estate, procurement, optimizing our channels, processes and deploying business process automation to improve efficiency. So all of those levers have been deployed and will continue to deploy. So this is an ongoing thing. It's not a one activity, it's an ongoing activity at Berkshire.
Bill Young: Understood. Thank you for taking my questions.
Nitin Mhatre: Thank you.
Operator: Thank you. Our next question comes from the line of Chris O'Connell from KBW. Please go ahead.
Christopher O'Connell: Hey. Good morning.
Nitin Mhatre: Good morning, Chris.
Christopher O'Connell: I appreciate all the detailed guidance. I was hoping to just start off on the fees. For the tax credit fees and the change in accounting on a year-over-year basis, where do you think that just starts off for kind of averages out for the year on that line item within the fees on the contractor.
David Rosato: 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. It's just the geography between showing higher fee income, but also showing a higher tax rate. If you look back in the tables in the press release. We actually provide each quarter the details of the expense savings and the fee -- contra fee revenue that runs through the fee income line. And you'll see that, that business timing makes the numbers move around a little bit more, but the core is probably $600,000, $650,000 of positive economic benefit each quarter. So did -- have I answered your question?
Christopher O'Connell: Yeah. I'm all set. And then just following up on the expense discussion. I appreciate the full year guide in the comments that you guys made. Talk a little bit about just the cadence of that given the charges that were taken in the fourth quarter, is that an immediate drop to start the year or is there some offsetting factors here in the first quarter?
David Rosato: Well, as you know, the first quarter, usually the comp line runs high just because FDIC expense, 401(k) matches, etc. So that's just in the comp line. I guess the way I think about it is if you look at our numbers, the quarter-over-quarter, our top line was actually marginally down and occupancy and equipment was down. That's to Nitin's comments around at the top where we talked about two office buildings and some branch consolidations. What was up linked quarter and which is where the opportunity lies, but where things take more time is technology and communication expense up $710,000 linked quarter and professional and other services, which was $994,000. So in professional services, we also have regulatory examination fees and FDIC expense. And everyone knows the pressure banks have been under on FDIC. But what's also in there is use of consultants outside help. So that's where we're highly focused is core operating expenses and professional service expenses, that's changing the way we do things that's changing whether we do it internally or externally with partners, etc. That was the comment I was trying to make was there's opportunity there. It will improve our efficiency rate show to Billy's question. However, it's not just a quick fix.
Nitin Mhatre: Hey, Chris. I would also add, David made that point earlier in his comments as well. Our outlook is calling for flat expenses like you pointed out. 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 industry will be. But for us, the most important is it's an ongoing focus. And secondly, we also self-fund the investments that we will continue to make that will improve our revenue line as well. So that will cumulatively impact favorably our efficiency ratio.
David Rosato: Yeah. And just last comment, Chris, is I mean you did ask about essentially quarterly expenses and what are they going up or going down, right? I would peg it as very steady, would be our thought. There may be 1 million plus or minus, maybe even a million in a quarter (ph) variation quarter-to-quarter, that's kind of the way we see it, but nothing significant in that from our perspective.
Christopher O'Connell: Helpful. Thanks, David. And just last one for me, if I could. Can you just remind us of the percentage of loans that are floating would reprice immediately any Fed funds.
David Rosato: Well, the whole book is 57% floating, 43% fixed. A vast majority of that 57% is SOFR and Prime. So almost immediately, right? So for it tends to be one month. There's a little bit -- there's a few hundred million dollars of one year T-bill based there. But for all intents and purposes, think of it as one month -- overnight to one month repricing on that 43 -- I'm sorry, 57%.
Christopher O'Connell: Great. That’s all I had. Thank you.
David Rosato: Thanks, David.
Nitin Mhatre: You’re welcome. Thanks.
Operator: Our next question comes from the line of Mark Fitzgibbon from Piper Sandler. Please go ahead.
Mark Fitzgibbon: Hey, guys. Good morning.
Nitin Mhatre: Good morning, Mark.
David Rosato: Good morning, Mark.
Mark Fitzgibbon: David, in your comments, you said that you've been buying back the stock below your estimate of intrinsic value. Could you share with us what you perceive the intrinsic value of the company to be?
David Rosato: I won't put a firm number on it, Mark. I mean, as you know, we all come up with different values, we all have different valuation techniques and methodologies. What I will say is we -- and I tried to say this in my comments around growth potential, low-risk business model. I really believe that. I think layered on top of that is a significant ability to -- 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. That was proved back in March. I see opportunities in the Eastern mass market, and I think will be effective as we get bigger and stronger in this large market. Remember, a lot of our markets are smaller towns and west of the population -- major population center of this state. When I put all that together and think about the next couple of years, we see our stock at much higher levels than where we're trading today. So that's my high-level definition of intrinsic value for you.
Mark Fitzgibbon: 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 the numbers, but what are kind of the pieces of the expense synergies that you see?
David Rosato: Sure. I'll take a whack out and I'll give it to Nitin. And so I think about the process. There are certain parts of our organization that are very nimble and leading edge, the work long before I got here, that Nitin and Sean would talk about Narmi. You've heard that name. So our online consumer and business platform. Very leading that project allows us to get off the core, right? We still have to talk to the core every day via APIs. But really nice platform that has led to decreases in operating expenses. I talked about this in the second and third quarter. So more things like that, where we go from the old way of doing business to more dependent on a large embedded provider to being more nimble, meaning customer centric to me, but also cheaper. So I see we have opportunities like that across the bank to make things faster, simpler, less paper-based. We just have to execute on them, and there are things that take a lot of work.
Nitin Mhatre: Yeah, Mark. I would just add on to that. You've heard us talk about this previously as well. We have unique opportunities for optimization. Through our legacy acquisitions, we do have excess real estate that I think we can easily rationalize. We have channels that we can rationalize. We have procurement opportunities that we are exploring and deploying more technology in there. 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, an internal process. We call it EMRAC (ph). It's an expense management and resource allocation kind of council that looks at every dollar of spend in pretty low thresholds that we track to make sure every dollar is spent thoughtfully and where there are opportunities to 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 efficiency that we're building. That's going to create more opportunities for us.
David Rosato: I was just going to say the follow-up to what Nitin was saying, kind of tied into the point I was trying to make about 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 or thoughtful on expenses, but we're also going to be careful to make sure that the momentum that's happened over the last three years needs to not only continue, but it needs to accept.
Mark Fitzgibbon: 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 have branches in. Would you consider selling a piece of that geography or some branches in a particular area to try to create more density in the footprint and improve efficiency.
Nitin Mhatre: Yeah. Mark, the short answer would be, yes. And I think that's 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 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 best value for customers and how they're getting serviced and then creating opportunities for consolidation and rationalization as it comes along.
Mark Fitzgibbon: Thank you.
David Rosato: Thanks, Mark.
Operator: Our next question comes from the line of Laurie Hunsicker from Seaport. Please go ahead.
Laurie Hunsicker: Yeah. Hi. Thanks. Good morning.
David Rosato: Good morning.
Laurie Hunsicker: Just staying on expenses here. So your branch footprint is currently 96%, is that right?
Nitin Mhatre: Correct.
Laurie Hunsicker: Okay. And so, Nitin, when you think about that branch rationalization over the course of the next year, is that 96% going to 90%, 96.8%, I mean how do we think about that a little bit to sort of Mark's question?
Nitin Mhatre: Yeah. I think the answer would be it will be fewer. And I think that's broadly through the entire sector, right? I think most the branch networks. If you think about how it will look like two, three years down the line, it's going to be fewer branches that will be more automated, more digitized and more advisory services. So we're no different there. We're not going to 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're down by about 25, 26 branches and we'll continue to look at opportunities.
Laurie Hunsicker: Okay. And then the tech true-up expense in the fourth quarter that you mentioned, how much was that?
David Rosato: Yeah. It was $800,000.
Laurie Hunsicker: Okay. And was that in that $3.7 million restructure number or was that separate?
David Rosato: It was separate.
Laurie Hunsicker: Separate. Okay. Great. And then how should we be thinking about your restructuring charges going forward? When do we look to see that line item be closer to zero? How should we think about that?
David Rosato: Well, I mean, the expectation today, that restructuring charge, as we said was employee driven across the company, a reduction in force we termed it. So there's no additional actions like that. So severance charges from that particular type of activity, we shouldn't see that going forward. Yeah. What we were talking about, about how do we further improve efficiencies in the organization. As I said, some of that it's more detailed, it's systems, it's technology oriented. You try there -- I wouldn't say there won't ever could be or there won't be in 2024 further severance charges like that, but there's nothing anticipated today. Those types of projects are either the employee side is via attrition or redeployment into other parts of the company.
Laurie Hunsicker: Okay. That's very helpful. Okay. And then, David, the tax rate, I just want to make sure that I've got this right. So as we think about it, that line item in noninterest income that tax advantage commercial projects number that was $2.06 million, basically, that's going to be dropping down now to the tax line. Is that the right way to be thinking about this?
David Rosato: Yes. So if you go to -- you got it. We tried to be crystal clear in the outlook, making the '23 adjustment for both fee income and the tax rate.
Laurie Hunsicker: That's great. No, that's more transparent. That's great. Okay. And then just going back to margin here, Billy's question. Do you have a December spot margin? And maybe also, do you have a December spot margin if you appreciate that the restructure occurred in the third week here of December. I mean do you have a December spot margin? And do you have a December spot margin may be adjusted with the securities restructure?
David Rosato: Honestly, I haven't bothered to do the adjustment. I've been so focused on 2024. So our December spot margin was roughly $3.10.
Laurie Hunsicker: 3.10, okay. That’s great. Okay. Great. And then last question, Nitin or maybe David, whoever, can you just very high level, take us through your cannabis plans? I realize this is newer, but just how you're thinking about it and what the loan and deposit balances look like? Thank you.
Nitin Mhatre: Sure. Laurie, it's a deposit service really to support deposit generation activities. It's an early stage pilot. We're not doing any lending and the deposit balances are less than $10 million at this point.
Laurie Hunsicker: Okay. And any plans to do lending or is it just deposit only in terms of how you're looking at this?
Nitin Mhatre: At this point of time, it's only deposits and cash management type of activities.
Laurie Hunsicker: Great. Thanks for taking my question.
Nitin Mhatre: Thank you, Laurie.
David Rosato: Thank you.
Operator: Our next question comes from the line of Dave Bishop from Hovde Group. Please go ahead.
David Bishop: Yeah. Good morning.
David Rosato: Good morning, Dave.
Nitin Mhatre: Good morning.
David Bishop: I hopped on late, so I apologize for that. But you guys have been adding and augmenting the ranks of the senior executives, senior commercial lenders within the market given the disruption. Just curious, are you starting to see green shoots or growth out of these hires either on the loan or deposit side or both? And are they contributing to the bottom line growth or the pipeline? Just curious sort of the impact they're having to date from the hires? Thanks.
Nitin Mhatre: Yes, Dave, we are. We clearly are and I think not only are we seeing significant 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 a significant number of high-value relationships as a result of this transition. I think what's that doing is it's improving the overall quality of production that we've seen over the last couple of quarters, and we believe that it will accelerate as we move forward.
David Bishop: Got it. And then are you seeing that on both sides of the house too or are there fee income on the wealth management side, opportunities to cross-sell as well?
Unidentified Company Representative: Yes, Dave. As Nitin mentioned, the new hires are definitively focused on deposit generation, deposit acquisition, private banking, which blends very well with wealth management. They are green shoots right now, but we think there are future opportunities.
David Bishop: Great. Appreciate the color.
David Rosato: Yeah. I would obviously agree with everything that said -- I think of this in a multiyear time frame, right? If we are successful in bringing in the right people, we are successful in a more balanced or even skewed towards deposit type of lift in activity 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. We're Boston headquartered, 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 tell me how much to take out Q1 earnings because of that. That's how do I think about Berkshire Bank over the next couple of years if they are successful.
Nitin Mhatre: And Dave, you had asked us this previously as well. How large is this opportunity? We believe it's 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're bringing in new folks that are coming to us through the market disruptions to the whole First Republic, Silicon Valley events have benefited us to that extent. We're bringing new players that are bringing new relationships that we didn't have before, and they're looking to grow it. And I think when we mentioned it at one point, it looked like significant about over $20 billion of deposit opportunity to be captured. So if we get a fraction of that, it will help us quite a bit.
David Bishop: Perfect. Appreciate all the color, guys. Thanks.
Operator: Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Mhatre for final closing comments.
Nitin Mhatre: Thank you all for joining us today and for your interest in Berkshire. Have a good day and be well.
Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Nitin Mhatre: Sure. Have a good day and be well.
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