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spk01: Hello and welcome to today's Berkshire Hills Bank Corp second quarter 2022 earnings conference call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. I would now like to turn the call over to Kevin Kong. The floor is yours. Please go ahead.
spk00: Good morning, and thank you for joining Berkshire Bank's second quarter earnings call. My name is Kevin Kahn, Investor Relations and Corporate Development Officer. Our news release is available in the Investor Relations section of our website, berkshirebank.com, and will be furnished to the SEC. Supplemental investor information is provided in an information presentation at our website at ir.berkshirebank.com, and we will refer to this in our remarks. Our remarks will include forward-looking statements, and actual results could differ materially from those statements. For details, please see our earnings release and most recent SEC reports on Forms 10-K and 10-Q. In addition, certain non-GAAP financial measures will be discussed in this conference call. References to non-GAAP measures are only provided to assist you in understanding our results and performance trends and should not be relied on as financial measures of actual results or future projections. A comparison and reconciliation to GAAP measures is included in our news release. On the call, we have Nitin Mahatre, President and Chief Executive Officer of Berkshire Hills Bancorp, Shubhideet Basu, our Chief Financial Officer, Sean Gray, our Chief Operating Officer, and Greg Lindenmuth, our Chief Risk Officer. At this time, I'll turn the call over to our CEO, Nitin Mahatre.
spk04: Thank you, Kevin. Good morning, everyone, and welcome once again to Berkshire's second quarter earnings call. I'll begin my remarks on slide three that captures the highlights of the quarter. Overall, this was a strong quarter with significant improvement in EPS and ROTC, quarter over quarter and year over year. Revenues were up 9% versus the first quarter, driven by strong net interest income growth. Loan balances growth was robust and net interest margin grew significantly and those tailwinds more than offset the headwinds in fees. Expenses were flat quarter over quarter and slightly lower year over year as we continue to be disciplined on expense management while continuing to self-fund our best program. Earnings per share of 51 cents was up 19% quarter over quarter and up 17% year over year. Return on tangible common equity improved to 8.48% and improvement of 99 basis points quarter over quarter and 40 basis points year over year. On capital front, our balance sheet remains strong. We ended the quarter with a common equity tier one ratio of 12.9% after returning about $61 million of capital to shareholders. We have ample capital to both fund the loan growth and continue stock repurchases. Our credit matrix improved again in the second quarter, and thanks to the tremendous work by Berkshire team members across frontline to workout groups, our net charge-offs for the quarter were at historically low level of less than half a million dollars. On a related note, in June we announced that Moody's assigned us an investment grade issuer rating of BAA3 with a positive outlook. The rating outlook is positive for both the holding company and the bank. On the best strategy front, we continue to make steady progress. We continued our optimization initiatives, including the consolidation of five branches scheduled for third quarter. Getting better before getting bigger was an important part of our strategic focus in 2021. And now, even as we've begun to grow our balance sheet in 2022, we continue to look for opportunities to improve our balance sheet mix and align it better with our core strategy. And to that extent, we've decided to stop originating Firestone loans, even to existing customers, to have that portfolio runoff in due course. Important to note that this is a strategic decision and not related to the performance of the portfolio, which is in fact quite strong, as non-performing loans were less than 1% of portfolio balances at the end of second quarter, loan deferrals were at zero, and we recorded net recoveries of 118,000 in the quarter. Similarly, the economic uncertainty, given the economic uncertainty, we will stop new originations from Upstart. Important to note that our experience with Upstart has been terrific. We are pleased with the quality and demographics of the customers acquired through that partnership and the corresponding opportunity to deepen banking relationships with those customers over time. Credit performance of this portfolio is strong, and life-to-date annualized charge-off rate on that portfolio is about 35 basis points compared to our model 4 to 5 percent annual charge-off rate. That said, we believe that given the economic uncertainty, taking a pause in new originations from this partnership is a prudent course of action, and it will enable our teams to focus on the core business of the bank that represents about 98 percent of loans, that continue to grow and perform well. On ESG strategy, we continue to improve our ESG program performance. Additionally, we became the first bank under $150 billion in assets to issue a sustainability bond through our issuance of $100 million of subordinated debt in the second quarter. Our customer experience and net promoters score part of our best strategy. We continue to make good progress. Our mobile app rating on iOS improved further to 4.7 stars this quarter, and our net promoter score measured directly through J.D. Power showed further gains in the quarter. Slide four highlights the continued strength of our loan originations and balances. As we reported in the previous quarter, Q122 was the inflection quarter where our total loan books started to grow again after a gap of six quarters. We are pleased to see that the momentum continues with loan balances growth of 7% quarter over quarter on both average and end of period basis. Loan growth was driven by new loan originations that were up significantly year over year. Our strategy to invest in our bankers, customer experience, and technology is helping us win new business across the board. Finally, I'd like to thank all of our Berkshire Bank colleagues for their continued hard work and passionate commitment to our vision of becoming a high-performing, leading, socially responsible community bank. Their commitment to our strategy and dedication to our customers is what is driving our improving performance and continued progress. With that, I'll turn the call over to Shubhadeep to discuss our financials in more detail. Shubhadeep.
spk05: Thank you, Nitin. Slide five shows our quarterly income statement. Please see the appendix for reconciliation of gap and adjusted financials. My comments will be on an adjusted basis and not gap. Revenues were up 9% quarter over quarter and up 1% year over year. Net interest income grew 18% sequentially given strong loan growth, increased asset yields, and stable funding costs. Fee revenues were down 19% quarter over quarter. I'll speak to fees in more detail in a moment. Our continued expense discipline resulted in flat expenses quarter-over-quarter and down 1% year-over-year. While we had a $4 million provision benefit last quarter, we recorded a provision expense of zero this quarter. After-tax income rose 13% and 7% quarter-over-quarter and year-over-year, respectively. Our pre-tax, pre-provision net revenue, PPNR, grew significantly and was up 38% quarter-over-quarter and up 4% year-over-year. We also had positive operating leverage quarter-over-quarter and year-over-year. Slide 6 highlights changes in our earning assets. As Nitin mentioned, we had another quarter of robust loan growth, a 7% increase in average loans with loan growth across all business lines. The commercial loan portfolio, which accounts for about 70% of our loan broke, grew 5% quarter-over-quarter with particular strength in asset-based lending. Our loan yields rose sharply with higher interest rates, up 38 basis points versus the first quarter. Our short-term investments and securities book was down 20% as we deployed cash into high-yielding loans. The makeshift in our balance sheet from lower-yielding cash and investments to high-yielding loans is driving growth in our net interest income and NIM. Moving on to slide seven, it shows our average liabilities. Total deposits declined 3% and 2% quarter over quarter and year over year, respectively. However, excluding payroll deposits, which were unusually high in the first quarter, and broker deposits, our deposits were down 1% quarter over quarter and year over year. Noticeably, our cost of deposits were unchanged at 17 basis points quarter over quarter and our cost of funds increased one basis point versus the first quarter to 24 basis points. While our deposit costs have remained stable, we do expect deposit costs to increase during the second half of the year. During the second quarter, we issued $100 million of subordinated debt that was also the first sustainable bond issued by a bank under $150 billion in assets. I note that in third quarter of 2022, we plan to redeem $75 million of subordinated debt with a coupon of 6.875%. Moving on to the next slide, slide eight, shows more detail on our net interest income and margin. Net interest income grew 18% quarter over quarter, driven by loan balance growth, increased asset yields, driven by the rate environment, and stable funding costs. Our reported NIM is up 49 basis points year over year. Our NIM adjusted for purchase loan accretion and PPP impact is up 65 basis points over the same period. While we were pleased with our lift in the NIM, we don't expect increases of similar magnitude going forward. Turning to the next slide, slide nine, we show our fee revenues, which were weaker than expected this quarter. Excluding securities gains and losses, our fee revenues were down 19% quarter over quarter and down 23% year over year. Excluding the impact of our insurance divestiture, fees were down 14% year over year. Loan fees and revenues were unusually low this quarter driven by lower interest rate swap revenues and fair market value adjustments on the swap portfolio driven by the rising rate environment. The decline in other fees A line item that can be lumpy reflect a large seasonal revenue sharing agreement in the first quarter. Wealth management fees and deposit related fees showed good momentum. On slide 10, we show our expenses. Continued expense discipline resulted in flat expenses quarter over quarter and down 1% year over year. I would like to point out that we have kept our expenses essentially flat for the last five quarters as we continue to self-fund our best strategy. We also continue to benefit from expenses from vendor management, branch consolidations, and other real estate optimization efforts which have resulted in lower occupancy and equipment expenses. Slide 11 is a summary of our asset quality metrics. Our credit quality remains strong. Non-performing loans are down 44% year-over-year and 9% sequentially. Our net charge-offs dropped to historically low levels of two basis points. Continuing strong credit performance, offset by loan growth, led to zero provision expenses for the quarter. Our allowance for credit losses to loans ended the quarter at 1.27% of loans. Moving to the next slide, slide 12, shows details of our capital and liquidity positions. Our common equity tier one capital ratio ended the first quarter at an estimated 12.9%. Our top priority is to deploy capital to support organic growth. We are also biased to opportunistic stock repurchase given our low stock valuation and repurchased about $55 million of stock in the second quarter. We also expect to grow our cash dividends over time. I would have to point out that like many banks, in the second quarter, we also recorded a negative bond mark to other comprehensive income in our equity account of about $45 million on an after-tax basis. I'd reiterate that the OCI bond mark does not impact our regulatory capital ratios, and we expect those bonds to pull to power over time. So in summary, a strong quarter with robust balance sheet, net interest income, and net interest margin growth, strong capital position, enabling us to continue returning capital to shareholders, ample deposits to fund future growth, and strong credit performance and expense management. Now, I would like to close with comments on our outlook for the rest of 2022, which is depicted on slide 13. We'll provide 2023 guidance in January. We are clearly aware of the ongoing economic uncertainty, including the impact of higher rates, supply chain disruptions, and inflation. We are not seeing a meaningful slowdown in economic activity in the markets we operate. The labor market is still quite strong, and demand is still recovering from the pandemic. We continue to closely monitor asset quality. We have a strong balance sheet, differentiated strategies for organic growth, continued expense discipline, and multiple self-help levers. We're focusing on things that we can control. Consistent with our best plan, we expect 5% to 7% average loan growth for full year 2022 versus full year 2021. We now expect average deposits to be flat to down 2% for full year 2022 versus full year 2021. Also recall that our net interest income guidance in April was for mid single digit growth of reported net interest income in 2021 of $291 million. It was based on a modeled year end FED funds rate of 1.75%. We are now modeling to year end FED funds rate of 3.25%. We are also modeling deposit betas to be low near term and to be between 30 to 40% later in the rate hike cycle. and expect our deposit cost to increase for the second half of 2022. We are raising our net interest income guide on a GAAP basis from mid single digit to nine to 11% and 17 to 19% on an adjusted basis. We expect fees to be down 10 to 15% in 2022 versus adjusted 2021 fees. I would like to remind you that 2021 was a record year for our SBA lending business, and the slowdown is more than we expected. Our wealth management business is impacted by headwinds from weaker equity and fixed income markets. However, both franchises remain fundamentally healthy and present long-term growth opportunities for us. Our asset quality remains strong. We expect credit provision expense to start to normalize in the second half of 2022. We expect ACL2 loans to be in the range of 110 to 120 basis points for 2022. We expect to continue to focus on expense discipline and expect to maintain a quarterly run rate of $68 to $70 million. However, expenses could be lumpy and at the higher end of that range.
spk04: In 2014, we have our best program North Star chart, which shows our progress on five key performance metrics. We've just finished the first year of our three-year best journey. And as you'll see, our financial metrics, ROTC, ROA, and PPNR, continue to show steady improvement compared to the baseline and are headed in the right direction towards our stated three-year goals. Our EHE score remained in the top quartile at the 22nd percentile nationally. We have enhanced our NPS score measurement process and have hired JD Power to provide us with a net promoter score directly through our customer service. We've seen steady improvement in the absolute net promoter score this quarter. With an increased sample size, we hope to have a relative ranking versus New England banks at the year end of 2022. Our strategy is driving us forward towards becoming a high-performing, leading, socially responsible community bank in New England and beyond. Consistent with that vision, slide 15 highlights the progress we've made in empowering community comeback and some of the external recognition that we've received. Over the last eight weeks, I've had an opportunity, along with my leadership team, to participate in what we call as our best community comeback tour. Through this tour, we visited all nine markets across five states, covering 80 cities, and meet over 80% of our employees and over 100 business customers and community partners. It was incredibly energizing to see how engaged our bankers are in our transformation, and we're committed to continue to listen to their feedback on an ongoing basis to get better every day in providing exceptional service to our customers. Our best community comeback program is tracking well overall, and as part of that program, our wealth management group launched our Center for Women, Wellness, and Wealth to provide women with tools to support financial stability and overall wellness. This initiative is in addition to the socially responsible investing program we'd launched earlier in the year in our wealth management division that has already generated over 40 million in assets under management program to date. Issuance of sustainability bond that we mentioned earlier further enhances our community comeback program. And while all of this is creating a lot of energy internally, we're also excited about the external recognition that's coming our way. Newsweek ranked us number nine on their list of America's most trustworthy banks in 2022. We were also awarded Communitize Award for leadership in corporate social responsibility for best community comeback program. We ranked among the top 1% of all U.S. banks for ESG in Bloomberg this year. And while absolute ranking can change frequently, we were pleased to reach number one spot towards the end of second quarter on Bloomberg. So in summary, a strong quarter with steady progress on our best plan, strong loan growth and net interest income and margin expansion, disciplined expense control, improved financial returns along with solid progress on our ESG performance. With that, I'll turn it over to the operator for questions. Elliot?
spk01: Thank you. For our Q&A, if you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Our first question comes from Mark Fitzgibbon from Piper Sandler. Your line is open. Please go ahead.
spk08: Hey, guys. Good morning, and congrats on a good quarter.
spk04: Good morning, Mark.
spk08: Thanks. First question I had, I wondered how much of the payroll deposits left this quarter and how much you expect those to return on the balance sheet in the third quarter, roughly? Okay.
spk05: So I think, Mark, this is Shubhadeep. If you look at our second quarter numbers, you know, I think our payroll deposits were unusually high in the first quarter. I think it was around $1.7 billion. I think, you know, on a sort of normalized basis, I would put a range between, you know, $700 to, you know, $1 billion. Okay.
spk08: So somewhere between $700 to $1 billion you think will flow back on the balance sheet?
spk05: Yeah, I think if you look at sort of historically, you know, where we have been, that's kind of the, I would say, the average balances.
spk04: Hey, Mark, just to make sure I understand you correctly, though, you're saying will it flow back 700 to a billion? I think what Shubhadeep is saying is 700 to a billion has been an average on a quarterly basis for the last, let's say, five quarters before first quarter. We ended this quarter at 1.3. We think it's going to normalize around that 1 billion mark.
spk08: Gotcha. Okay. Secondly, on wealth management fees, you know, they were surprisingly good this quarter. I wonder if you could share with us what assets under management are and maybe what flows look like this quarter and market depreciation of assets.
spk05: So I think, Mark, you know, we will look into our disclosures around sort of assets under management and potentially could get back to you. However, I think this quarter we had good inflows, and that was actually offset by weaker equity markets and fixed income markets. So I think that speaks to the resilience of the business so far. However, on a go-forward basis, we expect weakness to persist in the equity and fixed income markets, and do not expect wealth managers to grow at the clip that you've seen this quarter.
spk08: Okay. And then I just want to touch on the upstart relationship. You all had been pretty positive on it in past calls. Is there a conscious move away from third-party originated loans now, or was it more upstart specific?
spk04: No, I think it's really just the fact that we anticipated to get those volumes to that partnership to about 3% of the total loans. And we feel just given the environment that we are in and all the provisions that we have to build along the way, 2% is the right number to cap it at, and we've reached that volume. And as I said in my remarks, the performance of the portfolio is pristine. It's operating at 35 basis points of annualized loss rate compared to the 4% to 5% expected. No, it's not the quality of production or partnership. It's really limiting our exposure in the environment that we are in.
spk05: Hey, Mark, this is Shubhadeep. I just want to get back to you on your question around assets under management. We have $1.6 billion in assets under management for wealth.
spk08: Okay, great. And then last question, I wondered if you could share with us what the loan pipeline looks like and maybe any color on the mix would be great. Thank you.
spk04: I would say, Mark, in the third quarter and pretty much the second half, we expect the volumes to slow down as compared to the first half. But the pipeline looks strong. It's not as high as it was at the end of first quarter, but it's significantly strong. And I think if we continue at the same clip, we should get to the growth numbers that Shubhadeep outlined in his outlook. Thank you. Thanks, Mark. Thanks, Mark.
spk01: Our next question comes from Billy Young from RBC. Your line is open.
spk11: Hey, good morning, guys. Great quarter. I guess I just want to follow up on the upstart loans. Just so I'm clear, is the partnership of upstart terminated and it's entirely going forward or are you just only originate up to 2% of loans?
spk04: No, we're pretty much reaching that 2% cap once we clear up the pipeline. So we're going to pause originations for the foreseeable period.
spk11: Okay. Okay. And then on the Firestone loans, how quickly do you expect those to kind of run off the balance sheet?
spk04: We take about 10 to 12 quarters for it to fully run off. We're not going to originate new loans. I think at earlier stage, we are originating to accommodate existing customers. We're going to stop doing that. So I think it'll go through a traditional CPR, which will take it to about 10 to 12 quarters.
spk11: Got it. Got it. Thanks for that. And I guess just to touch on the loan deposit ratio, You know, there's a bigger step up this quarter that's, you know, close to 77%. I believe your three-year target for best is around 90%. You know, I guess if growth continues to remain good and we, you know, we reach that 90% sooner rather than later, how does that impact management thinking on, you know, funding longer term?
spk05: Hi, Billy. This is Shubhadeep. I think in terms of our best strategy and in terms of our balance sheet and liquidant funding, at this point we don't anticipate any changes. I think it's good that our loan-to-deposit ratio has increased. However, that also, if you take into account some of the payroll deposits moving out, and that has impacted the loan-to-deposit ratio. But we remain comfortable about our capacity to fund the growth in our balance sheet as targeted and best.
spk11: Got it. Got it. Okay. And final question for me, just, I guess, more of a philosophical question, but, you know, in the last tightening cycle, you know, your margin reached an approach to a mid 3% level. Can you maybe speak a little bit about, you know, how much your balance sheet has changed since that cycle? And, you know, what that might mean for the margin this time, this cycle?
spk05: So, you know, I think as outline your best strategy, you know, we have a goal of, you know, 70, 30 commercial consumer, you know, residential mix. In terms of, you know, our net interest margin, you know, I would say that was impacted by three factors. Obviously, you know, our asset sensitivity. Secondly, you know, cash got deployed into loans. And, you know, our deposit pricing remained surprisingly sticky, which we are happy about. I think on a go-forward basis, we don't expect a quarter of this magnitude for NIM increase. We do expect a modest NIM increase throughout the rest of the year.
spk11: Great. Thank you.
spk01: We now turn to Chris O'Connell from KBW. Your line is open. Please go ahead.
spk10: Morning, gentlemen. This quarter.
spk05: Good morning, Chris.
spk10: Hey, um, so just wanted to start, uh, with the loan growth guidance, um, and just confirm the 7.3 billion average for last year that includes, um, PPP, I believe, um, is the growth of the five to 7% off of that 7.3 billion as an average for 2022.
spk05: Yes, Chris. Hi, this is Shubhideep. Yeah, it's based off that $7.3 billion number.
spk10: Okay, great. And then I was just hoping to get a little bit of color as to what you guys are seeing, you know, in the, you know, updated pipeline in terms of rates for the different loan categories that you're putting on.
spk05: Hi, Chris. This is Shubhideep again. Yeah, I can give you a little bit of color in terms of the new originations that are coming in. You know, I would say commercial in the mid 4% yield range, you know, mortgages around, I would say 4%.
spk10: Okay. Got it. And then the residential portfolio growth this quarter, uh, you know, still particularly strong despite, you know, the macro environment becoming a little bit more negative for that market. How are you guys seeing the split of that growth going forward versus the commercial portfolio into the back half of the year?
spk05: Hi, Chris. This is Subedit again. In terms of our overall guidance, we have factored in the resi portfolio growth. I think we are monitoring it closely. We are fully aware that in the rising rate environment that could potentially slow down like what other banks are seeing. So we affected some of that in, but, you know, if there is a change in terms of our guidance and the growth we are seeing in the book, we'll come back to you guys in the next quarter.
spk04: Hey, Chris, if I could just add on that. I think you probably were looking at the mix as well. I think in terms of Resi, we will see some growth. We're also in a different – state of evolution in terms of how we're growing the organic growth muscle. As we talked about in the BEST program, we'd invested in the frontline bankers and the partnerships. So I think the book will continue to grow at a slower pace in the second half. But most importantly, the overall mix. Today, the commercial book is about 70%. And I think it's going to remain to be in that mid to high 60s through the year and beyond.
spk10: Okay, got it. That's helpful. And then just given the moves and the balance sheet this quarter and what you guys are seeing for your deposit outlook, where is the eventual level that you want to get cash to as a percentage of assets, earning assets given the deployment this quarter? And how are you thinking about utilizing cash and securities to fund loan growth going forward versus the deposit flows?
spk05: Hey Chris, this is Shubhadeep. I think standing where we are and looking at our balance sheet at this point, approximately cash would be like 5% of total assets. However, as the balance sheet grows, we continue to assess that number and sort of review that on an ongoing basis. In terms of funding our loan growth, I think looking at what we're expecting from a deposit trajectory perspective and the funding sources we have, we expect to be able to fund our balance sheet and the growth that we expect in the foreseeable future through what we have today.
spk02: Okay.
spk10: Last one for me, just a couple of questions on the fees side. One, are you thinking about the contract tax line going forward? I know, you know, it's run a little bit, you know, lower in the past couple quarters than it was, you know, during the back half of last year. And then also, you know, how much of the loan fees this quarter was a drop in the swaps versus, you know, drop in SBA? And how are you thinking about how those rebound or how much they rebound by going forward as well? Thanks.
spk05: Sure. So the first part of your question was, Chris, could you just repeat it? There was a bit of a sound.
spk09: The Contra tax line?
spk05: Oh, sure.
spk09: Yeah, the Contra tax line.
spk05: Right, got it. So the, you know, we have a very active, you know, tax credit strategy. And I think you have seen our tax rate creep up marginally higher and you're seeing sort of lower impairments. We do expect to normalize around 19, 20 percent. So that number will, you know, potentially grow as we deploy our tax credit strategy. In terms of your question around loan fees and revenues about, you know, that variance, About $3 million of it is, you know, related to swap valuations and swap fee declines. I would split it, you know, halfway between the two of those. Yeah. Happy to provide... Okay.
spk10: How are you doing about, like, the outlook on the environment, you know, for maybe the swap fees or SBA fees for the back half of the year?
spk05: Sure. So first let's talk about the SBA fees. The SBA fees actually grew marginally this quarter, but if you look on a year-over-year basis, right, it was, you know, quite a bit of a decline, right? And so, you know, the SBA business, and we are not unique in that position, I think the industry is experiencing a slowdown there. I think in the gain on sales, and the premiums actually have declined, and the SBA guarantees, the guarantees that we have on those loans have fallen from 90% to 75%, so that's impacting the industry as well. So, you know, we are expecting, you know, slowdowns in sort of the SBA business.
spk02: Okay, great. That's all I have. Thank you.
spk05: Thanks, Chris. Thanks.
spk01: Our next question comes from Rory Hunsaker from Compass Point. Your line is open. Please go ahead.
spk03: Great. Hi, thanks. Good morning. Good morning, Rory. Super excited to hear you're stopping by. I think that's great. Can you just give us a refresh on the balances at Upstart? I had a 1Q22 balance of $73 million. Where was it as of 2Q?
spk04: It was about $152 million.
spk03: $152 million. Okay. And then did you continue to add to Upstart in early July or did you cease as of June 30?
spk04: No, we're ceasing as of now. So it'll get effective from here on. So whatever pipelines get cleared and that's going to be... Perfect.
spk03: Okay. And then can you just refresh us on what the loan yields are running at the moment in the Upstart book?
spk04: It's in the same range, Laurie. It's about 12, 12.5%. Okay, great.
spk03: Okay, and then same, and sorry, charge-offs in the quarter, what were upstart charge-offs in the quarter in dollars?
spk04: I think, cumulatively, I think it's about 35 basis points. I don't know specifically for the quarter. Yeah. Yeah, $30,000, so it's, you know, a fraction of it. $110. $30,000 in the first quarter, $100,000 in the second quarter, so still well below half a percent.
spk03: Got it. Okay. And then Firestone, what are the balances there? I had that as of $167 million as of 1Q. What was it as of 2Q? $165. Okay. Great. And then can you just give us a refresh on just some of the other categories that we watch? If we think about, you know, restaurants and hotels and leveraged lending, do you just have those three categories? If not, I can follow up with you offline.
spk05: Hey, Laurie. Greg, can you answer some of those questions from Laurie?
spk07: Absolutely. Hi, Laurie. Hospitality is $360,000.
spk06: 360 in hospitality. Restaurants is 90. And leverage lending is really de minimis just a fraction of a percent at 66. Okay, great.
spk03: And then just in terms of the criticized in those categories, if you have it.
spk00: Laurie, this is Kevin. You know, I think we've been really responsive in terms of credit data for everybody, especially recall we did all the detail on the COVID-sensitive industries. So we're happy to share exposure data. But on further credit data, I would refer you to the queue that will come out in, what, 45 days or so.
spk03: Yep. Okay. Okay. That works. And just on loan balances, just to touch on, I think, some of the questions that Chris was asking, I mean, the RESI book – You added $250 million this quarter, 64% annualized, obviously not continuing at the same rate. Can you just help us think about it and create remarkably strong, same with CNI. Is that purchased or is that your team originating? Is that a combination? Is that all in footprint? Can you just help us think a little bit about those three categories in terms of how those loans actually came about? Because I can't remember a time that we've seen this sort of strong growth from you guys?
spk04: Nor is predominantly what we call as the retail production, which is what our mortgage loan officers produce and support it through our correspondent partner. So that's the predominant thrust of it, and purchase volume will pretty much go down to zero as we get into third quarter.
spk03: Got it. Got it. Okay. Buybacks. Very, very active. Love seeing that. How do you think about that going forward?
spk05: Hey, Laurie. This is Shubhadeep. So as you may recall, our board authorized $140 million in buybacks. As of now, I think we have around $55 million remaining in that program, and we intend to execute on that through the remainder of the year. Obviously, we remain opportunistic and depending on share prices.
spk03: Got it. Okay. All right. And then, Sibideh, obviously you had mentioned the $75 million sub-debt that you plan to redeem in the third quarter. What about the $23 million of trust preferred? I think that was LIBOR plus 185 basis points. Is that also going to be redeemed, or are you hanging on to that?
spk05: At this point, we intend to hang on to it.
spk03: Okay. Okay. And then the branch closures, so you're closing five, that takes you down to 100%. How are you thinking about branch rationalization here in coming quarters and as we look forward to 2023?
spk04: Yeah, Laurie, we looked at the branch as part of the whole BEST program. And if you recall, we talked about we felt there was potential opportunity for 5% to 8% that we could consolidate that roughly translated about 5% to 9% consolidations. We've announced 5%. We continue to look for opportunities, but our team is also looking at opportunities to enhance productivity and kind of find different locations where we could actually get better production. So I think we're coming closer to the finish line on the objective. And we announced five, and there might be a couple more that might come along. But then after that, we're going to focus on getting more production and productivity from the centers.
spk03: Okay, great. And then just kind of last question on that. The one-time charges associated with that, what are those, and what's the geography on the branches you're closing?
spk05: So are you talking about the charges to the P&L, Laurie?
spk03: Yeah.
spk05: The non? Yeah, so those are mostly related to securities related, you know, mark-to-marks. You know, we have one holding, and then, you know, we have some other holdings related to CRA.
spk03: No, sorry. The branch closure cost, the five branches you're closing, are you not taking any one-time charges associated with that?
spk05: At some point, you know, we will, but, you know, we don't intend to. We'll have more details coming in the future for you.
spk03: Okay, okay. And then obviously any cost savings there, I'm just looking at your expense guide, which is helpful, but any cost savings from those branch closures, I assume you're plowing those back into the business. We're not going to really see a drop to the bottom line. Am I thinking about that the right way?
spk05: That's the intent, Laurie, in tune with self-funding our best program.
spk03: Okay, great. And then just sort of one housekeeping, your AOCI, do you have an actual as of June 30th? In other words, the drag in terms of your tangible comment as of March 30th was $78.2 million. Do you have an as of June 30 number there?
spk05: Yeah, I think the mark for the second quarter was $45 million on an after-tax basis.
spk03: You mean so 45 plus the 70, is that right?
spk05: Yeah, correct. So at the end of June, I think you're looking at $121 million in cumulative marks.
spk03: Perfect. Okay, great. Thank you. I'll leave it there.
spk05: Thanks, Laurie.
spk01: This concludes our Q&A session. I'll now hand over to Nitin Mahatrey for final remarks.
spk04: Thank you all for joining the call today, and thank you for your interest. Have a good day and be well.
spk01: Today's call is now concluded. We'd like to thank you for your participation. You may now disconnect.
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