Berkshire Hills Announces First Quarter Results

BOSTON, April 28, 2021 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today announced first quarter 2021 net income of $13 million, or $0.26 per share, compared to $15 million, or $0.30 per share, in the prior quarter.  The first quarter non-GAAP measure of adjusted earnings totaled $16 million, or $0.32 per share, compared to $14 million, or $0.28 per share, in the prior quarter.   First quarter adjusted income excludes $3 million in restructuring and other expenses.  Quarterly results benefited from higher revenues and lower credit loss provision expense.

FIRST QUARTER FINANCIAL HIGHLIGHTS (Comparisons are to the prior quarter unless otherwise stated; non-GAAP measures are reconciled on page F-8)

• 33% increase in total non-interest income excluding gains/(losses)
• 13% decrease in GAAP income; 14% increase in adjusted income (non-GAAP measure)
• 2.62% net interest margin, stable for last four quarters
• 35% reduction in provision for credit losses on loans
• 42% reduction in annualized net loan charge-offs to 0.51% of loans from 0.80%
• 86% decrease in COVID-19 loan modifications compared to June 30, 2020
• 26% reduction in wholesale funding to 7% of assets
• $23.05 book value per share; $22.39 tangible book value per share (non-GAAP measure)

CEO Nitin Mhatre stated, "Berkshire's operating results improved in the first quarter, driven primarily by higher loan-related fees and revenues.  The quarter also benefited from growth in demand deposits and the paydown of higher cost wholesale funding.  This increase in our lending and deposit activities reflected the benefit of our engagement with our customers in processing government lending and fiscal relief to support further economic recovery in our markets from pandemic conditions.  We also consolidated nine of our branch offices during the quarter as part of our branch optimization plan.  This resulted in restructuring charges which reduced our GAAP results."

Mr. Mhatre continued, "Public health and the economic outlook improved in our footprint during the quarter.  Key measures of loan performance improved, resulting in reductions in net loan charge-offs, nonperforming loans, and loans with COVID-19 related modifications.   Our loan loss provision decreased quarter-over-quarter, contributing to our improved operating results."

Mr. Mhatre concluded, "During the quarter we announced key appointments to further strengthen the Company, including welcoming Subhadeep Basu to the position of SEVP/Chief Financial Officer, and Kevin Conn, as SVP/Investor Relations and Corporate Development.  We announced other senior hires supporting our financial planning and our diversity, equity, and inclusion program.  We also recently recruited new senior hires in our growing asset based lending and private banking business lines and added to our business banking team.   Consistent with our longstanding emphasis on diversity and replenishment, we are nominating two new directors to our board.  Our management team and board are focused on the development of our transformational strategic plan, which we plan to announce on May 18, 2021.  This plan will make our purpose-driven community-dedicated bank better and stronger, faster; with the goal of enhancing results for all stakeholders."

BALANCE SHEET

Total assets remained steady at $12.8 billion in the first quarter, and there was further progress in improving the structure and composition of the balance sheet.

Investments:  Short-term investments increased by $352 million to $1.82 billion in the first quarter due to the funds inflows from loan paydowns.  The Company is targeting to use some of these balances to settle the planned branch sale and also to fund payoffs of maturing wholesale funds.  The portfolio of investment securities increased by $68 million to $2.29 billion. 

Loans:  Total loans decreased by $423 million, or 5%, including $189 million attributable to the forgiveness of SBA guaranteed Paycheck Protection Program ("PPP") loans.  Through its relationship with a funding third party, Berkshire participated in the origination of $206 million of new PPP loans during the quarter, many of which provided further assistance to existing borrowers.  Loan balances decreased in the other major loan categories reflecting targeted runoff and impacts from the pandemic and government relief programs.  Included in assets held for sale are $284 million in Mid-Atlantic loan balances which are targeted to be sold as part of the planned branch sale.

Asset Quality:  Most loan performance metrics improved during the first quarter.  Total net loan charge-offs decreased by 42% to $10 million from $17 million in the prior quarter. Total non-performing loans decreased by 14% to $56 million due primarily to loans exited during the quarter.  Total COVID-19 related loan modifications, including in-process modifications, decreased to $214 million, or 2.8% of total loans from $350 million, or 4.3% of total loans, at the start of the quarter.  

The Company's estimate of expected credit losses at quarter-end resulted in a ratio of the allowance to total loans measuring 1.62%, which was little changed from 1.58% at the start of the quarter.  Excluding the $444 million balance of PPP loans, the allowance was also little changed, measuring 1.72% of total loans at quarter-end.

Deposits and Borrowings:  The Company continues to pay off maturing brokered deposits, which decreased by $179 million to $431 million during the quarter.  Higher cost retail deposit accounts decreased by $102 million and daily fluctuating payroll balances decreased by $81 million to $965 million.  Growth of other deposits was concentrated in non-interest bearing deposits, which increased by $266 million.  Payroll balances shifted from money market accounts to NOW accounts due to calendar impacts related to payroll cycles.  Due to deposit growth and the reduction in total loans, the ratio of loans/deposits decreased to 75% at quarter-end.  Wholesale funds, which include brokered deposits and borrowings, decreased during the quarter by $303 million to $880 million, or 7% of total assets.  At period-end, liabilities held for sale included $647 million in Mid-Atlantic branch deposit balances which are targeted for sale in the second quarter.

Equity:  Quarter-end book value per share totaled $23.05 and the non-GAAP measure of tangible book value per share measured $22.39.  Capital metrics remained strong, with equity/assets measuring 9.2% and the non-GAAP measure of tangible equity/tangible assets was 9.0%.  Changes in shareholders' equity included the impact of lower unrealized bond gains on accumulated comprehensive income due to the increase in medium term interest rates during the quarter.

RESULTS OF OPERATIONS

Earnings:  Berkshire reported $0.26 in GAAP EPS and $0.32 in the non-GAAP measure of adjusted EPS in the first quarter of 2021.  GAAP EPS decreased by $0.04, or 13%, quarter-over-quarter primarily due to $3 million in charges related to the consolidation of nine branch offices during the quarter.  Adjusted EPS increased by $0.04, or 14%, and benefited from the 6% increase in revenue before gains and losses.  The impact of a higher tax rate was partially offset by the benefit of a lower credit loss provision.   Adjusted earnings exclude restructuring and certain other expenses.  GAAP Pre-tax Pre-Provision Net Revenue ("PPNR") totaled $23 million, while Adjusted PPNR totaled $27 million.  The measure of ROTCE was 5.0%, and adjusted ROTCE was 6.0%.  GAAP ROA was 0.42% and Adjusted ROA was 0.51%.

Revenue:  First quarter results benefited from Berkshire's engagement with its markets in bringing federal pandemic support to customers.  The Company processed nearly $200 million in PPP loan forgiveness requests to the SBA, resulting in recognition of deferred interest income.  It handled more than $200 million in new PPP loan requests, which provided new fee income in the quarter.  Funds from these loans and other support programs contributed to growth in non-interest bearing balances, which lowered funding costs and supported net interest income.

Total net revenue increased quarter-over-quarter by $2 million to $101 million.  Total revenue excluding gains and losses increased quarter-over-quarter by $6 million to $101 million due primarily to a $5 million increase in loan fees and revenue.  This included $1.5 million related to new PPP loan requests handled in the quarter.  This also included a $3 million increase in revenue related to fair valued instruments as a result of the increase in medium term interest rates during the quarter.  Net interest income decreased by $1 million due to the decrease in total loans.   The first quarter net interest margin of 2.62% was little changed from 2.61% in the prior quarter.   The cost of deposits was reduced by 0.11% to 0.36% due to the paydown of higher cost time deposits, including brokered deposits. First quarter gross interest income included $3.5 million in deferred PPP fees recognized from loan forgiveness, compared to $1.5 million in the prior quarter.  The unamortized balance of deferred PPP fees decreased to $7 million from $13 million during the quarter.

Credit Loss Provision:  The provision for expected credit losses on loans decreased to $6.5 million from $10 million in the prior quarter.  The provision expense is an amount sufficient to maintain the allowance for expected credit losses on loans.  The decrease in the provision primarily reflects the impact on the allowance of the decrease in the loan portfolio during the quarter.  The allowance also reflects improvements in economic conditions and non-accruing loans. 

Expense:  Non-interest expense increased quarter-over-quarter by $6 million, or 9%, including a $3 million increase in restructuring expenses primarily related to branch consolidation.  Excluding these expenses, the non-GAAP measure of adjusted non-interest expense increased by $3 million, or 5%.  This was primarily due to a $3 million increase in professional services expense, including legal, financial, and other advisory services related to management and board matters during the quarter.    During the first quarter, the Company completed the consolidation of nine branch offices, reducing its total branch count from 130 offices at the start of the quarter to 121 offices at the end of the quarter.  Full-time equivalent staff decreased to 1,467 positions at quarter-end, compared to 1,505 positions at year-end 2020.  The first quarter effective income tax rate was 22%.

CORPORATE RESPONSIBILITY UPDATE

Berkshire is committed to purpose-driven, community-dedicated banking that enhances value for all its stakeholders. Learn more about the steps Berkshire is taking at www.berkshirebank.com/csr and in its most recent Corporate Responsibility Report.

Key developments in the quarter include:

• Corporate Responsibility Report- Earlier this month, the Company released its 2020 Corporate Responsibility Report, Meaningful Moments: Answering the Call. The report highlights how the Company's 175 year heritage guided its response to the COVID-19 pandemic as well as its environmental, social, and governance performance. Berkshire seeks to enhance its purpose-driven, community-dedicated approach to banking to be the leading socially responsible bank in the communities it serves.
• Chief Diversity Officer- As the Bank continues to build on its efforts to be a diverse, inclusive and equitable Company, it has appointed Angela Dixon, a 30-year veteran in the Human Resources and the Diversity, Equity, Inclusion space to the role of Chief Diversity Officer. As Chief Diversity Officer, Dixon will be responsible for driving the Company's diversity, equity and inclusion strategy in collaboration with executive management and each of Berkshire's business lines. She will also work to enhance the impact of Berkshire's existing diversity initiatives and programs.
• Bloomberg Gender Equality Index – Berkshire Bank's focus on diversity, ensuring gender equality and pay equity was highlighted as Bloomberg announced the company would be included in the 2021 Bloomberg Gender-Equality Index (GEI) for the second consecutive year. The GEI tracks the performance of public companies committed to disclosing their efforts to support gender equality through policy development, representation and transparency and rewards the top performing companies with inclusion in the index.
• Human Rights Campaign Best Places to Work for LGBTQ Equality- Berkshire received the top adjusted score of 100 on the Human Rights Campaign Foundation's 2021 Corporate Equality Index (CEI), the nation's foremost benchmarking survey and report measuring corporate policies and practices related to LGBTQ workplace equality. The CEI rates employers providing these crucial protections across four central pillars including non-discrimination policies; equitable benefits for LGBTQ workers and their families; supporting an inclusive culture; and corporate social responsibility

INVESTOR CONFERENCE CALL AND INVESTOR PRESENTATION

Berkshire will post an investor presentation at its website at ir.berkshirebank.com with additional financial information and other information about the quarter.

Berkshire will also conduct a conference call/webcast at 10:00 a.m. Eastern time on Thursday, April 29, 2021 to discuss the results for the quarter and provide guidance about expected future results.  Participants are encouraged to pre-register for the conference call using the following link:  https://dpregister.com/sreg/10153685/e58f650abb.  Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call.  Participants may pre-register at any time prior to the call and will immediately receive simple instructions via email. Additionally, participants may reach the registration link and access the webcast by logging in through the investor section of Berkshire's website at http://ir.berkshirebank.com.  Those parties who do not have Internet access or are otherwise unable to pre-register for this event, may still participate at the above time by dialing 1-844-792-3726 and asking the Operator to join the Berkshire Hills Bancorp (BHLB) earnings call.  Participants are requested to dial-in a few minutes before the scheduled start of the call.  A telephone replay of the call will be available through Tuesday, May 6, 2021 by dialing 877-344-7529 and entering access number 10153685.  The webcast will be available on Berkshire's website for an extended period of time.

ABOUT BERKSHIRE HILLS BANCORP

Berkshire Hills Bancorp is the parent of Berkshire Bank, which is committed to purpose-driven, community-dedicated banking and to be the leading socially responsible omni-channel bank in the communities it serves.  Headquartered in Boston, Berkshire operates 121 banking offices primarily in New England and New York. 

FORWARD LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements from the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. There are many factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see Berkshire's most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission and available on the SEC's website at www.sec.gov.

Accordingly, you should not place undue reliance on forward-looking statements, which reflect our expectations only as of the date of this document. Berkshire does not undertake any obligation to update forward-looking statements.

NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles ("GAAP").  These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition.  They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information.  A reconciliation of non-GAAP financial measures to GAAP measures is included on page F-8 in the accompanying financial tables.  In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders. 

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for adjusted revenue and expense.  These measures exclude items which the Company does not view as related to its normalized operations.  These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations.  In 2020, the Company recorded a full impairment of its goodwill and exited its discontinued national mortgage banking operations. Other non-adjusted expense in 2020 was primarily related to costs of the separation with the former CEO, as well as consulting for the CEO succession process.  A 2020 non-adjusted gain was recognized on the sale of a specialty commercial insurance business line.  In 2021, restructuring expense was primarily related to branch consolidation costs.

The Company measures of Adjusted Pre-Provision Net Revenue ("Adjusted PPNR") which measures adjusted income before credit loss provision and tax expense.  PPNR is used by the investment community due to the volatility and variability across banks related to credit loss provision expense under the Current Expected Credit Loss accounting standard.  The Company also calculates adjusted PPNR/assets in order to utilize the PPNR measure in assessing its comparative operating profitability.

Non-adjusted adjustments are presented net of an adjustment for income tax expense.  This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to adjusted income.  The efficiency ratio is adjusted for non-adjusted revenue and expense items and for tax preference items.  The Company also calculates measures related to tangible equity, which adjust equity (and assets where applicable) to exclude intangible assets due to the importance of these measures to the investment community.

CONTACTS

Investor Relations Contacts

Kevin Conn, SVP, Investor Relations & Corporate Development
Email: [email protected]
Tel: (617) 641-9206

David Gonci, Capital Markets Director
Email: [email protected]
Tel: (413) 281-1973

Media Contacts:

John Lovallo
Email: [email protected]
Tel: (917) 612-8419

Cate Cronin
Email: [email protected]
Tel: (202) 738-7302

SOURCE Berkshire Hills Bancorp, Inc.