Berkshire Hills Bancorp Q2 2024 Earnings Call Transcript

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July 18, 2024

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Brookshire Hills Bancorp's Second Quarter 20 24 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. This call is being recorded on July 18, 2024. I would now like to turn the conference over to Kevin Kahn, Investor Relations Officer.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you for joining Berkshire Bank's 2nd quarter earnings call. My name is Kevin Khan, Investor Relations and Corporate Development Officer. Here with me today are Nitin Mahathre, Chief Executive Officer Sean Gray, Chief Operating Officer Brett Berbovic, 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.

Speaker 1

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?

Speaker 2

Thank you, Kevin. Good morning, everyone, and thank you all for joining us today. I'll begin my comments on Slide 3, where you can see the highlights for the Q2. Overall, I'm pleased to report that we had a strong quarter with solid improvement in operating earnings quarter over quarter. Operating EPS of $0.55 was up 12% linked quarter.

Speaker 2

Operating net income of $23,200,000 was up 11% linked quarter. ROTCE was 9.65%, up 92 basis points linked quarter and operating ROA was 79 basis points, up 8 basis points linked quarter. We are encouraged by the trends in key performance metrics, especially credit and expenses. Credit costs continued to trend down with net charge offs at 7 basis points of loans, the 6th consecutive quarter of declining net charge offs. Loan loss allowance closed at 1.22 percent of loans, modestly above the upper end of our guidance range.

Speaker 2

We've updated the slides on overall CRE office and multifamily portfolios. The information on those slides highlights that our portfolio remains granular, geographically diverse and resultantly less risky. The performance of those loan books remains strong. Our expense optimization focus continues to gain traction. Operating expenses of $71,300,000 were down 2% linked quarter, reflecting lower compensation, occupancy and equipment expense.

Speaker 2

Our balance sheet remains strong. Capital ratios remain robust with common equity Tier 1 ratio of 11.6% and a tangible common equity ratio of 8.2%. We repurchased about 600,000 shares in the 2nd quarter for $13,000,000 Asset quality remained strong with a modest decline in non performing loans with net charge offs at a low point of 7 basis points and ACL to loans at a high point of 1.22%. Liquidities remained solid and loans to deposit ratio was at 96% 92% respectively, excluding and including New York held for sale balances. Average deposits were down 2% linked quarter and up 2.2% year over year.

Speaker 2

Deposit costs were up by 6 basis points in the quarter, while reflecting a reduction in the rate of increase in deposit costs and beta. Average loan balances were up 2% linked quarter and up 5% year over year, reflecting solid loan growth versus a relatively soft first quarter. We continue to make steady progress on optimizing our branch network. We'd announced the sale of 10 branches in New York in March, which tightens our footprint and enhances the efficiency and profitability of our network. We remain fully committed to and invest in our remaining presence in New York.

Speaker 2

The transaction remains on track to close in the 3rd quarter. I'd note that we also consolidated 3 additional branches in the 2nd quarter, bringing our total branch count to 93 today and projecting to 83 by the end of Q3. We believe that we are now at about the right size for our branch network. We launched Berkshire 1, an expanded suite of digital deposit product proposition for our customers. We intend to make banking with Berkshire when, where and how you want it easier than ever.

Speaker 2

We continue to invest to digitize the client experience, which is reflected in our net promoter scores that reached a record high of 60 and mobile app ratings, which averaged over 4.5 stars for iOS and Android devices with the latter reaching 4.8 stars for the first time. I want to thank all of my Berkshire Bank colleagues for their continued hard work and commitment to the bank. Through this challenging environment for the banking sector, their commitment to our strategy and dedication to our customers is what continues to bring us together and truly set us apart. We had previously announced Brett Berbovic's promotion to the CFO position after David Rosato's departure in the Q2. Brett has been with the bank for over 12 years and has deep institutional knowledge.

Speaker 2

Brett's prior role was as Chief Accounting Officer for us and prior to Berkshire Bank, Brett worked at KPMG for about 9 years. I'd like to formally welcome Brett as our new CFO and thank him for stepping up to guide us through our journey ahead. I'll now turn it over to Brett to cover our financials in more detail and share our updated outlook for 2024. Brett?

Speaker 3

Thank you, Nitin. I'm excited to step into the new role and energized to work with my team to help us achieve our vision to be a high performing relationship driven community focused bank. With that, I'll turn to the slides. Slide 4 shows an overview of the 2nd quarter. As Nitin mentioned, operating earnings were 23,200,000 or $0.55 per share, up $0.06 linked quarter.

Speaker 3

Net interest income of $88,500,000 increased $400,000 linked quarter. Operating non interest income was $20,100,000 up 16% linked quarter. Total operating revenue was up 3% linked quarter. Operating expenses were $71,300,000 down 2% linked quarter and down 4% year over year, delivering operating leverage of 5% linked quarter. Net charge offs were $1,700,000 or 7 basis points of average loans and were down 11 basis points linked quarter.

Speaker 3

Provision expense was $6,500,000 up $500,000 linked quarter, bringing our coverage ratio to 122 basis points of loans. Slide 5 shows our average loan balances. Average loans were up $155,000,000 linked quarter or 2%, primarily driven by growth in CRE and C and I. The modest decline in consumer balances year over year reflects the continued runoff of the Upstart portfolio. We've updated a page in the appendix, which shows the data on Upstart and Firestone.

Speaker 3

The books combined are down to $124,000,000 or 1.3 percent of total loans and are performing as expected. Slide 6 shows average deposit balances. Average deposits decreased 199,000,000 dollars or 2% linked quarter, primarily driven by lower payroll deposits. Year over year deposits were up $211,000,000 or 2%. I'd note that payroll deposits can move higher or lower depending on the day of the week that the quarter ends.

Speaker 3

Payroll deposits have generally risen over time, but we expect lower payroll deposits in the 3rd Q4 given that those quarters end on a Monday Tuesday respectively, which are typically lower balance days for the business. Non interest bearing deposits as a percentage of total deposits remained at 24% consistent with last quarter. Deposit costs were 2 35 basis points, up 6 basis points linked quarter. The pace of the increase in deposit cost has dropped meaningfully over the last three quarters. Our cumulative total deposit beta is 42% through 5 25 basis points of Fed tightening.

Speaker 3

Turning to Slide 7, we show net interest income. Net interest income was up modestly linked quarter and down 5% year over year. Net interest margin was up 5 basis points linked quarter to 3.20 versus 3.15 in the Q1 and 3.11 in 4Q 2023. While we expect continued funding cost pressure, the worst of the NIM compression is behind us and we're seeing NIM tailwinds emerging such as fixed rate assets maturing and repricing higher. Also, our received fixed swaps will roll off in the medium term and provide another tailwind to NIM.

Speaker 3

Slide 8 shows operating non interest income up $2,800,000 or 16% linked quarter. The growth was primarily driven by gains on SBA loan sales given higher volumes. The growth in other fee revenues year over year was primarily driven by the reversal of tax credit amortization under new tax credit investment accounting. The modest drop in loan related fees linked quarter was caused by a high level of swap fees recognized in the Q1 and wealth management fees were also down linked quarter due to seasonal tax prep fees recognized in the Q1. Slide 9 shows expenses.

Speaker 3

Operating expenses were down 2% linked quarter to $71,300,000 and down 4% year over year. Part of the sequential drop is due to seasonally higher payroll taxes in the Q1, but we also had a nice drop in occupancy and equipment due to our expense initiatives. Technology expense was up linked quarter on investments in digitizing the Bank's offerings. GAAP expenses of $70,900,000 include an expense reversal relating to buildings sold during the quarter, which added $0.02 to GAAP earnings. Slide 10 is a summary of asset quality metrics.

Speaker 3

Non performing loans were flat linked quarter and down 25% year over year. Net charge offs were $1,700,000 and were down $2,400,000 linked quarter and down $4,100,000 year over year. I'd note that our 10 year average net charge offs to loans is 26 basis points. We've included a chart in the appendix with Berkshire's net charge off rates versus the industry since 2000. Slide 11 shows that our CRE book is well diversified in terms of geography and collateral.

Speaker 3

The credit quality of the CRE portfolio remains solid with non accrual loans at 13 basis points of period end loans. Slide 12 details our office portfolio. As noted last quarter, the weighted average loan to value ratios are about 60% and a majority of the portfolio is in suburban and Class A space. I want to highlight an office study published by the Kansas City Federal Reserve in April. The Fed data, which we've included in an appendix slide, shows that the probability of default rises meaningfully as the square footage of the property financed increases, that is tall towers and central business districts.

Speaker 3

As you know, we have very limited exposure to Boston's Financial District and 80% of our office properties financed are under 150,000 square feet, suggesting our portfolio has lower default probabilities. Slide 13 shows details of our multifamily portfolio. The multifamily portfolio is $665,000,000 or 7.2 percent of loans. The book is well diversified across our footprint and we currently do not have any non performing loans or net charge offs and criticized assets are 1.2%. While current credit quality metrics are strong, we recognize that the economic uncertainties exist and we're monitoring both new originations and existing portfolios carefully.

Speaker 3

Slide 14 shows our available liquidity versus uninsured deposits. Coverage of uninsured deposits was 128% at the end of 2nd quarter. As Nitin mentioned, we have strong capital levels. Our top capital management priority is to support organic loan growth. In Q2, we did repurchase $13,400,000 of stock at an average cost of $21.88 Year to date, we've repurchased $17,400,000 of stock at an average cost of $21.94 All of our repo this year has been completed below tangible book value per share.

Speaker 3

Our tangible book value per share increased 7% year over year and if you adjust to add back the AOCI bond mark on our adjusted tangible book value per share would be 25.85 dollars Slide 15 shows our outlook for the rest of 2024. We plan to give annual guidance in detail in January and each year and provide updated guidance on each mid year earnings call. In the Q3, we expect to book a $19,000,000 non operating gain on the branch sale. We do expect loan growth to be closer to the low end of the range provided in January and our NIM to be stable around 3.20. We expect deposits to be lower than January guidance largely driven by the New York branch sale and payroll balances normalized for period end.

Speaker 3

We expect net interest income to be down modestly between $352,000,000 $354,000,000 Despite a strong second quarter, we expect non interest income to be between $75,000,000 $77,000,000 Offsetting the modest revenue weakness, we anticipate both provision expense and operating expenses to be below January guidance. We expect the provision to be between $25,000,000 $27,000,000 and we expect expenses to be between $287,000,000 $290,000,000 Taxes for the year will be closer to the high end of the range of 20% to 22%. And with that, I'll turn it back to Nien for further comments. Nien?

Speaker 2

Thank you, Brett. 2nd quarter marks the end of our 3 year best plan. I'm proud of what our team has accomplished and how far we've come. We've streamlined the bank's footprint, channels and businesses including the sale of Berkshire Insurance Group, the sale of Mid Atlantic and New York branches. We reactivated our organic growth muscle by restarting our loan growth engine starting 2021 and by implementing new deposit generation initiatives subsequently, including the addition of new bankers to supplement our strong existing team of bankers.

Speaker 2

We have digitized many of our services to enhance client experience and position the bank better for the future. In a difficult macroeconomic environment, we achieved the low end of our ROTCE target with 10.1 percent ROTCE for full year 2023. We had a few misses too. We missed our ROA target by a small amount and we decided to run off our upstart book mid year 2022 to de risk our balance sheet. We also outsourced facilities management and reversed course to in source that function about 18 months ago.

Speaker 2

We still have work to do. Our focus near term is to accelerate our deposit growth engine, tightly manage expenses and credit and expanding our digital banking offerings. The operating environment for the banking industry continues to be challenging given historic increases in interest rates to quell inflation. As noted last quarter, the yield curve is in its longest period of inversion in recorded We've included a slide in the appendix which provides historic context for the current unusual period. It highlights that the yield curve has been positively sloped for 83% of the time since 1976.

Speaker 2

The slide also sizes the potential net interest margin and net interest income increase for the industry during the periods of yield curves deepening. While no one can call interest rates, you can see from the historic data that the revenue lift for the industry could easily be $100,000,000,000 or more when the yield curve normalizes. We look forward to a more normal banking environment heading into 2025 and 2026. With that, I'll turn it over to operator for questions. Operator?

Operator

Thank you. First question comes from Laurie Hunsicker from Seaport Research Partners. Please go

Speaker 2

ahead.

Speaker 4

Yes. Hi, good morning. And Brett, I just want to say congratulations and welcome in your new role. Thanks, Laurie. Can you just take us through in terms of non interest income, can you just help us think a little bit about what SBA loan sales will look like?

Speaker 4

Wealth management fees obviously down a little bit. Just what that will look like? And then that other, other line, it was $3,300,000 was there anything non recurring in that? If you could just comment on those 3 in any order that would

Speaker 3

be great. I'll start with the other line, Laurie. That's driven by our tax credit amortization, the change in the accounting that we did in Q1. So if you recall, we used to have tax credit amortization as a contra fee income or contra non interest income. So now under the new accounting, that goes away and goes all below the line.

Speaker 3

So that's why we're seeing an uplift there. Plus in the Q1, we also had a one time adjustment for the change in accounting. So now we believe the tax credit amortization portion of that line is right sized.

Speaker 4

Sorry, Brett, what was the one time adjustment there?

Speaker 3

That was a drop of about $700,000 in Q1. So it was negative non interest income. Okay. That obviously didn't reoccur in Q2.

Speaker 4

Got you. Okay. So the $3,300,000 roughly is a good run rate, the 1.87 percent sort of the one time item adjustment was a $700,000 hit in 1Q. Is that correct? Correct.

Speaker 4

Got you. Correct. Okay. Got you. Thanks.

Speaker 4

And then the sorry, I didn't mean to cut you off. The SBA

Speaker 3

No problem. The SBA side, we really like the business. They had a good quarter. It was slightly above our kind of 8 quarter average, but they have strong momentum going forward. So we look forward to seeing the results in the next quarter.

Speaker 4

Great. And then the last

Speaker 1

Laurie, over the last 8 quarters, it's averaged closer to $2,700,000 a quarter, so they had a really good quarter. But as Brett said, they got a really strong momentum. So we're optimistic about that business.

Speaker 4

That's great. That's helpful. And then just the wealth management line, I mean, it's moved around. Any just any general comments with the drop between March June, a small drop, but how should we be thinking about that?

Speaker 3

1st quarter I'm sorry, Nayan.

Speaker 2

Yes, I was just going to say the drop is really corresponding to the tax prep fees in the Q1 that's seasonal. So I think that just normalizes for it. But outside of that, I think the business is moving along quite well. The assets under management or administration were up about 6% to 7% year over year. So we believe the momentum is there.

Speaker 2

We just have to see how that plays out in the fees and revenues.

Speaker 4

Got you. Okay. That's helpful. And then on the expense side, the $384,000 of sort of merger restructuring charge reversal, You had mentioned that was related to a building sale or do you have any other color on that?

Speaker 3

So we had previously moved 3 buildings to held for sale, probably about a year ago. Those sales just closed this quarter and we realized a small gain.

Speaker 4

Okay. And were those the Connecticut branches that you closed or was that something different?

Speaker 3

No. These were other office buildings that had been previously moved out for sale.

Speaker 4

Got you. Got you. Okay. And then just in terms of merger and restructuring charges going forward at the moment, that's looking completely clean. There's nothing on the horizon.

Speaker 4

Is that right?

Speaker 3

That's about right. We should see a little bit in Q3 as we close on the New York branch sales, but shouldn't be overly significant.

Speaker 4

Okay. Perfect. And then the CFO transition, were there any one time costs associated with that in this quarter or will there be next quarter? How should we think about that?

Speaker 2

No, Laurie, they weren't any.

Speaker 4

Okay. Okay, great. And then, tax rate and I appreciate the refreshed guidance here, but your tax rate of 23% this quarter seems to be over that high end of the guide. How should we think about that? Just an anomaly and it's come down?

Speaker 3

Yes. We have another tax credit coming in later in the second half of this year, that will help drive the tax rate down to kind of the high end of our guidance between 20% 22%.

Speaker 4

Okay. Okay, great. And then just two more for me. Margin, can you just comment a little bit, I mean, you obviously made some comments that it does seem like it still might be under a little bit of pressure just because of the funding side. Can you help us think about what that looks like from that relative to the 3.20 level just as we look towards next quarter?

Speaker 3

Yes. We feel strongly that you will be able to maintain the 3.20 level. Like I mentioned, we have some tailwinds coming, our fixed our received fixed assets repricing over the next 12 months. We also have our fixed hedges rolling off over the near moderate term. So we believe those tailwinds will help maintain the $320,000,000 guidance.

Speaker 4

Okay, great. And then just last question here on office. Really, really appreciate all your details here. The 8% and I'm looking at Slide 12 here, the 8% that's maturing in 2024, is that 8% maturing for the rest of 2024? Was that full year 2024?

Speaker 4

I guess, round numbers, that's about $40,000,000 Can you help us think about what that's looking like for the next two quarters? And any color you can give us on vacancies in that bucket or Class A, B, C? Just any other details you can provide on that.

Speaker 2

Yes. Greg, you want to take that?

Speaker 3

Sure. Hi, Laurie. How are you?

Speaker 4

Hey, Greg. Thanks so much.

Speaker 5

No problem at all. When we started the year off, 23% of the portfolio was maturing. So we're down to 8% for the remaining part of the year. So, so far so good. We've had some real success stories in our maturities with payoffs from sales all getting out at par.

Speaker 5

If you look at that Class AD, it's almost evenly split the remaining amount this year. It's $21,000,000 in A and a roughly $18,000,000 $19,000,000 in cost B. And then the buckets for the maturities are relatively balanced as well. It's about 60% of that remaining is in 3Q, 40% in 4Q.

Speaker 6

Yes. Okay.

Speaker 4

And then any comment on vacancies on those properties? Any color there?

Speaker 5

Yes, the vacant yes, it's very consistent with the average of the portfolio. So most are 90% occupied, our lowest being probably around 80% occupied, 1 to 1 cash flow. It is one of our criticized assets that we're keeping an eye on that's coming up in the Q3.

Speaker 4

Okay, perfect. Very helpful. That's great. That's all for me. Thank you.

Speaker 2

Thank you, Laurie. Thanks, Rick.

Operator

Thank you. Next question comes from Mark Fitzgibbon at Piper Sandler. Please go ahead.

Speaker 7

Hey, guys. Good morning. Good morning, Mark. Good morning. 3 years ago when you set out your targets, those 3 year targets for BEST, many of us thought they were low because they were below where your peers were.

Speaker 7

And you guys ultimately came up short of those targets. And so I guess I'm wondering, does that change the strategic thinking of senior management and the Board? And what are your new strategic goals and what kind of timeline are you looking at?

Speaker 2

Yes, Mark, thanks for the question. As we set out the plan, the intent was we were literally operating at the bottom of our peer group with the broad sea and ROA and all other financial metrics. Our intent was to get to the median of the peer group over a mid term outlook and then get to build a journey towards getting to the top quartile. And I think we're roughly about 65th percentile. So we've climbed up about 35 percentile points in the relative ranking on ROTC and ROA.

Speaker 2

And obviously, we didn't anticipate the whole inverted yield curve and March madness as we call it last year. So I think with that said, we're proud as to how far we've come from where we were. And at this point of time, I think the journey is going to be how do we continue to improve our momentum. As we talked about in my remarks, the focus is on growing deposits, managing expenses and credit. And I think you've seen it consistently over the last 4 years that expense delta year over year in the last 4 years has significantly outpaced the delta for the peers, which means our expenses were growing at a lower pace than the market and the peers.

Speaker 2

So I think we believe that's going to continue to be the case. We believe our initiatives that we implemented for loans have turned out well and now the deposit initiatives are kicking in and credit has continued to be monitored tight and our Head of Commercial, which is where almost 65%, 66% of our book is, is incredibly focused on quality of relationships, quality of sponsors

Speaker 1

leading with deposits and

Speaker 2

managing credit tightly. So I think we will have a lot of those tailwinds as we get into the next 3 years. And I think Brett mentioned in his remarks, when we give the annual guidance in January, we would also think about do we give mid term outlook somewhere in the middle of next year when there is better clarity on the macro environment.

Speaker 7

Okay. So you're not recalibrating quite yet. You're going to have to wait till year end for that?

Speaker 2

Yes.

Speaker 7

Okay. Changing gears a little bit, it looked like you grew commercial real estate about $113,000,000 this quarter. Can you share with us what kind of the breakdown of the types of CRE you're booking and maybe what the average rates were?

Speaker 2

The average rate for the book was about it is closer to 8%, Mark. I think it was about 7.85 something for the overall commercial book. So closer to 8. And again, most of these existing clients, existing and well known sponsors and some part of it is also the draws on the construction loans that are in the portfolio.

Speaker 7

Okay. And then I was curious, has the Biden proposal to cap rent increases nationwide on multifamily up to 5% a year kind of changed how you think about multifamily long term?

Speaker 2

Not fundamentally. I think we've been prudent about it all along and especially in the last few years that I've been here. We've been consistently focused on more of the quality of the sponsor, the borrower risk rate as well as the facilities. So I think really the focus remains to be staying prudent. And in fact, even now, as you know, the market demand has somewhat subsided, but the lenders have backed away as well.

Speaker 2

So we do have potentially more swings at the plate, but we're being very prudent and judicious and leading with relationship and quality of deposits and sponsors.

Speaker 7

Great. And then lastly, the NIM guidance that you gave, does that assume any rate cuts this year?

Speaker 3

It assumes 1 this year in Q4.

Speaker 2

Thank you. Thanks, Mark.

Operator

Thank you. Next question comes from Christopher O'Connell from KBW. Please go ahead.

Speaker 3

Hey, good morning. Good morning.

Speaker 6

Following that last question, can you just remind us how much of the loan portfolio is short term or re prices with the short end of the curve?

Speaker 2

The rough breakout, Chris, is about 42%, I believe, of the portfolio is fixed and 58% is floating. And roughly of the floating, about 2 thirds of that has floors as well, if that is your question.

Speaker 6

Okay. Yes, that's helpful. And so in the event that we do get more cuts than what's in your guide, how much do you think each additional rate cut, what that impact has on NIM initially?

Speaker 3

We remain relatively neutral right now, so it won't have much of an impact.

Speaker 6

Yes. And do you think that eventually you would begin to benefit from the cuts over time as we get further along into 2025? And any sense of if that is the case, how long that might take to kind of materialize?

Speaker 3

Yes, I think eventually, we will obviously start to see some of the benefit there, especially as the deposit costs slow. I would say probably the next 12 months or so.

Speaker 1

Chris, we've got $1,400,000,000 of CDs that are maturing over the next 12 months and they're rolling over at sort of flat rates to where they were issued. So there's much less pressure on the CD book from a cost perspective. And as they start to roll, they'll eventually start to roll at lower rates.

Speaker 2

Hey, Chris, I don't know if you I think hey Chris, just to add to that, I think the as Brett said, the balance sheet is neutral. So we're relatively agnostic to the rate environment at the moment. But in this cycle so far, our deposit betas have been at 42 cumulative and that's kind of where the peer averages are. But on loans, our beta has been about 47 whereas the peer is about 35. So we believe it allows us to have better spreads if we continue down this path.

Speaker 6

Okay, great. And what is the current CD or kind of highest all starting rate on deposits?

Speaker 3

Currently, the highest is about 4.5 right now from a promotional perspective.

Speaker 6

Okay, great. And then on the expense guidance, is that inclusive of the 3.3 percent more or less of the non operating that's been occurred so far this year or no?

Speaker 3

No, that does not include non operating. The guide is for operating expenses.

Speaker 6

Okay. Thank you. All right. Great. And then on the rest of the portfolio outside of office, it seems like the Rydall portfolios have been holding up pretty well.

Speaker 6

I mean, is there anything else, any areas of concern, any pockets of CRE that you guys are feeling a little bit more cautious on here?

Speaker 2

No, Chris, I think as we said, this quarter was really at 7 basis points. That's really low. I think we'll have to go back many, many quarters to go find such a good quarter, but we recognize that this is this has episodic elements. So we remain cautiously optimistic. The trend has been good for the 6 quarters.

Speaker 2

Charge offs have gone down, but we recognize that it's not going to be 7 basis points, right, in the outer quarters. And to that extent, our teams, both on the frontline and the risk management teams, continue to manage portfolios, monitor them very closely. And yeah, everything that the Street worries about, Cree office, multifamily, there is heightened attention paid to those portfolios.

Speaker 6

Got it. Like anything in particular that as you guys look in terms of like loan growth going forward that you guys are trying to stick away from or that you do feel a little bit better about putting money to work at?

Speaker 2

No, I think we continue to look at our commercial portfolio is about 66% of the book. The way we're continuing down the path, we hope that becomes 70 percent or higher over time and to that extent get as much of commercial originations in the portfolio as possible. And within that, trying to get as much of C and I and business banking type of loans to improve the asset mix within that as well. So that remains to be our priority.

Speaker 6

Great. We appreciate the time. Thanks for the call.

Speaker 2

Thanks, Chris. Have a good one.

Operator

Thank you. Next question is a follow-up from Laurie Hunsicker from Seaport Research Partners. Please go ahead.

Speaker 4

Yes. Hi, thanks. Good morning, Brett. Just quick follow-up here. The gain on sale of the New York branches, the $19,000,000 how much of that is actually going to drop to the bottom line?

Speaker 4

And what's the after tax on that looking like? Thanks.

Speaker 3

So it should I mean, it obviously will reinvest, but the majority of it should drop to the bottom line. I think from an after tax impact, it should be about $15,000,000 $16,000,000

Speaker 4

Okay. Okay, great. Thanks so much.

Speaker 3

No problem, Warren.

Operator

Thank you. We have no further questions. I will turn the call back over to Nitin Mahathir for closing remarks.

Speaker 2

Thank you all for joining us today on our call and for your continued interest in Berkshire. Have a great day and be well. Joanna, I can close the call now.

Operator

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.

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Berkshire Hills Bancorp Q2 2024
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