Berkshire Hills Reports Earnings Per Share Growth

BOSTON, Oct. 21, 2021 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today reported that third quarter 2021 earnings per share increased year-over-year by 212% to $1.31 compared to $0.42 in 2020, and compared to $0.43 in the prior quarter.  Results in the most recent quarter included $0.78 per share in net non-operating income, consisting primarily of net gains on the sales of the assets and operations of the Company's insurance subsidiary and Berkshire Bank's Mid-Atlantic branches. Excluding these amounts, Berkshire's non-GAAP measure of third quarter adjusted net income totaled $0.53 per share, which was unchanged from the prior year and up 20% from $0.44 in the prior quarter. Results in the most recent quarter included a $4 million benefit ($0.06 per share after-tax) to the provision for credit losses. Per share earnings also benefited in the most recent quarter from the completion of the 2.5 million share repurchase program that was approved by the Board in April 2021.

THIRD QUARTER FINANCIAL HIGHLIGHTS (Comparisons are to the prior year unless otherwise stated; non-GAAP measures are reconciled on pages F-9 and F-10).

• $52 million net gain on the sale of insurance and Mid-Atlantic branch operations
• 4% increase in total non-interest income excluding gains/(losses)
• 66% decrease in net loan charge-offs to $2 million
• $4 million benefit to credit loss provision expense due to a release of credit loss allowance
• 72% reduction in wholesale funding to 4% of assets, including prepayment of most Federal Home Loan Bank borrowings (period-end balance)
• Deposit costs down year-over-year to 0.22% from 0.61%
• Stock repurchases of 1,755,058 shares (3.5% of outstanding stock)
• Returned $54 million of capital to shareholders through buybacks and dividends amounting to 211% of adjusted net income

CEO Nitin Mhatre stated, "These solid results reflect the growing momentum associated with the second-quarter rollout of Berkshire's Exciting Strategic Transformation (BEST). This comprehensive transformation plan, designed to enhance value for all our stakeholders, has already led to improved focus on our long-term efficiency, our customers, and our communities."

"Exiting our Mid-Atlantic and insurance operations was a step in optimizing our operations and produced $52 million in net sale gains which bolstered third-quarter income. We completed our 2.5 million share repurchase program far ahead of the authorized time, returning a total of nearly $75 million in excess capital to shareholders through the repurchase of approximately 5% of our shares.  We're well positioned to support other BEST initiatives in development including our recently announced consumer lending partnership with the fin-tech Upstart.  We also announced our BEST Community Comeback initiative that will lend and invest to strengthen the economic health of our communities, an industry-leading commitment given the relative size of the program and our organization. We continued to record strong deposit growth during the quarter and our expanded banking teams are focused on building loan origination volumes."

Mr. Mhatre concluded: "Key measures of asset quality improved as our markets continue to recover from pandemic conditions and we are prepared to profitably serve that recovery. We announced further refreshment of our board of directors, welcoming David Brunelle into the position of Board Chair and Jeffrey Kip as a new director. And we're experiencing continued strong interest from customers and added several experienced, market-facing professionals to our team, demonstrating the value of our focus on social responsibility and strategy as other institutions focus on mergers."

RESULTS OF OPERATIONS

Earnings:  Third quarter GAAP earnings per share (EPS) increased in 2021 to $1.31 from $0.42 in 2020, and from $0.43 in the second quarter of 2021. The increase in EPS was primarily due to the gains recorded on the sale in the most recent quarter of insurance operations and the Mid-Atlantic branches. Adjusted EPS, a non-GAAP measure which excludes these gains, totaled $0.53 in the third quarter of 2021, which was stable year-over-year and a 20% increase quarter-over-quarter from $0.44. This included a $4 million benefit ($0.06 per share after-tax) to the provision for credit losses on loans in the most recent quarter. For the most recent quarter, GAAP return on equity measured 22.2% and the GAAP return on assets was 2.14%. The non-GAAP measure of adjusted return on equity measured 8.9% and the adjusted return on assets measured 0.86%.

Revenue:   Third quarter net interest income decreased year-over-year by $6 million, or 7%, and by $4 million, or 5%, compared to the linked quarter. The year-over-year change reflected lower loan balances. The quarter-over-quarter change was primarily due to a $3 million decrease in deferred fee income recognized on Paycheck Protection Program ("PPP") loans due to the completion of most loan forgiveness under the SBA guarantee program. It also reflected the 4% quarter-over-quarter decrease in average earning assets, including the impact of the branch sale.

The net interest margin decreased to 2.56% from 2.61% in the third quarter of 2020 and from 2.62% in the linked quarter. The Company further reduced deposits costs, which declined to 0.22% from 0.61% and 0.25% for the above respective periods. For these periods, the cost of funds decreased to 0.31% from 0.73% and 0.36%.

Total third quarter non-interest income excluding gains/(losses) on sales of securities and business operations increased year-over-year by $936 thousand, or 4%, and decreased quarter-over-quarter by $579 thousand, or 3%. In the most recent quarter, Berkshire's SBA lending revenue of $5 million exceeded the record result in the prior quarter due to continued strong volume and margins, and increased from $3 million in the third quarter of 2020.  Wealth management fees increased by 15% year-over-year, and 5% quarter-over-quarter. The Company has recently announced the recruitment of seasoned bankers to support ongoing growth in both of these business lines.  Insurance revenue decreased by $711 thousand quarter-over-quarter following the sale of insurance operations.

Other non-interest revenue declined due to $1.6 million in higher amortization expense related to new tax credit investment projects initiated during the most recent quarter. This was more than offset by the $2.2 million increase in investment tax credit benefits included as a component of income tax expense.

Credit Loss Provision:  Berkshire recorded a $4 million benefit to the third quarter provision, compared to a charge of $1 million in the third quarter of 2020 and no provision in the linked quarter. This resulted from a $4 million release of the credit loss allowance due to stronger expected economic conditions and a reduction in loans and net charge-offs.

Expense: Third quarter non-interest expense decreased by $3.4 million, or 5%, year-over-year and increased quarter-over-quarter by $588 thousand, or 1%, to $69.5 million. These changes were primarily due to changes in merger, restructuring and other non-operating expenses which totaled $1.4 million in the most recent quarter. These charges are excluded from the Company's non-GAAP measure of adjusted non-interest expense. In the third quarter, these charges included $0.9 million related to the prepayment of Federal Home Loan Bank borrowings and $0.5 million of restructuring charges including reclassifying certain real estate premises to held for sale as part of the Company's consolidation of its operations. These initiatives are components of Berkshire's BEST strategic plan for optimizing profitability.

The non-GAAP measure of adjusted non-interest expense increased by 1% year-over-year and decreased by 1% quarter-over-quarter, measuring $68 million in the most recent quarter. These changes were primarily due to changes in professional services during these periods. Total branches have been reduced to 107 offices from 130 at the start of the year. Full time equivalent staff totaled 1,333 positions at period-end, compared to 1,507 positions at the start of the year. The effective income tax rate decreased quarter-over-quarter to 20% from 24% due to the increase in tax credit investments during the quarter. Tax credit investments provided $0.01 in EPS benefit in the most recent quarter, net of the related amortization recorded to non-interest income.

BALANCE SHEET (references are to period-end balances unless otherwise stated)

Assets:  Total assets decreased during the third quarter by $0.4 billion, or 3%, to $11.8 billion due primarily to the sale of the Mid-Atlantic branch operations. The balances for these operations which were reported as held for sale at midyear 2021 included $253 million in loan balances and $633 million in deposit balances. At the third quarter-end, higher period-end payroll deposit balances were invested in short-term investments. Proceeds from third quarter loan runoff helped fund payoffs of borrowings, including prepayments of Federal Home Loan Bank borrowings. The ratio of loans/deposits decreased to 66% from 73% at the start of the quarter. Reflecting the sale gains recorded in the quarter, the ratio of equity/assets increased to 9.9% from 9.6% at the start of the quarter. Common stock  repurchases distributed excess capital released by the reduction in assets. Per share measures of book value and the non-GAAP measure of tangible book value both increased by 4% compared to the start of the quarter.

Loans:  Total period-end loans decreased in the third quarter by $396 million, or 5%, to $6.84 billion.  The $246 million decrease in commercial loans was primarily due to a $127 million reduction in PPP loans and an $88 million reduction in loans outstanding to COVID sensitive commercial borrowers. The PPP loan balance decreased to $46 million from $173 million at the start of the quarter due to payoffs through forgiveness under the SBA guarantee program. Berkshire announced the recruitment of experienced bankers during the quarter as it positions to gain share based on its strong positioning to attract customers as current markets are impacted by merger activities of competitors. Consumer loans decreased by $35 million due primarily to ongoing targeted runoff of indirect auto loans. Residential mortgages decreased by $116 million. The Company is expanding its mortgage lending team and developing correspondent bank sources. 

Asset Quality: Asset quality metrics continued to improve toward pre-pandemic levels during the third quarter. Total delinquent and non-accruing loans decreased year-over-year by 33% to $59 million, measuring 0.87% of total loans. Non-accruing loans decreased year-over-year by 22% to $37 million, measuring 0.54% of total loans, due primarily to $10 million in resolutions in the most recent quarter. Total COVID-19 related loan modifications decreased by 34% during the quarter to $65 million, measuring under 1% of period-end loans. The allowance for credit losses on loans decreased by $6 million during the quarter to $113 million, measuring 1.65% of total loans, which was unchanged from midyear.

Deposits and Borrowings:  Total deposits increased in the third quarter by $452 million, or 5%, to $10.4 billion due primarily to a $369 million increase in period-end payroll deposit balances.  Non-interest bearing demand deposit account balances increased by 7%, while higher cost time deposit balances decreased by 6%.  Higher cost senior borrowings decreased by $204 million to $13 million, as most Federal Home Loan Bank borrowings were prepaid near the end of the quarter. Total higher cost wholesale funds decreased year-over-year to 4% of total assets from 12%. Quarter-over-quarter, the cost of deposits decreased to 0.22% from 0.25%, and the cost of funds decreased to 0.31% from 0.36%.

Equity:  During the third quarter, Berkshire repurchased 1.755 million shares, completing the 2.5 million repurchase authorization approved by the Board in April, which totaled approximately 5% of outstanding shares for the full authorization. The third quarter repurchases were made at an average price of $27.33, totaling $48 million. The common equity tier 1 capital ratio increased to an estimated 15.3% from 14.3% in the prior quarter. During the most recent quarter, book value per share increased by 4% to $24.21 and the non-GAAP measure of tangible book value per share increased by 4% to $23.58.

ESG & CORPORATE RESPONSIBILITY UPDATE

Berkshire Bank is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being the leading socially responsible community bank. Learn more about the steps Berkshire is taking at berkshirebank.com/csr and in its most recent Corporate Responsibility Report.

Key developments in the quarter include:

• Launch of the BEST Community Comeback: Berkshire announced its "BEST Community Comeback" a $5 billion multi-year ESG and community commitment to fuel resilience and strengthen local communities. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability. Additional information can be found at berkshirebank.com/comeback.

• Xtraordinary Day: As a kickoff to the Bank's "BEST Community Comeback," Berkshire Bank hosted its 5^th annual "Xtraordinary Day of Service." Berkshire Bank employees were deployed in a virtual setting, volunteering for causes that support the small business ecosystem, equity and inclusion and basic community needs. More than 75% of Berkshire's workforce participated in the day.

• Current ESG Performance: The Company continued to improve its Environmental, Social and Governance (ESG) ratings, generally outperforming peers. As of September 30, 2021 the Company received ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 2, Social: 1, Governance: 2; and Bloomberg ESG Disclosure- 47.81. The Company is also rated by Sustainalytics.

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 conduct a conference call/webcast at 10:00 a.m. Eastern Time on Thursday, October 21, 2021 to discuss 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://www.incommglobalevents.com/registration/q4inc/8879/berkshire-hills-bancorp-q3-earnings-release-conference-call/

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 relations section of Berkshire's website at 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 844-200-6205 and using participant access code: 066744. 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 for one week by dialing 866-813-9403 and using access code:  331614. 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 transforming what it means to bank its neighbors socially, humanly, and digitally to empower the financial potential of people, families, and businesses in its communities as it pursues its vision of being the leading socially responsible omni-channel community bank in the markets it serves. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately $11.8 billion in assets and operates 107 branch offices in New England and New York, and is a member of the Bloomberg Gender-Equality Index. To learn more, call 800-773-5601 or follow us on Facebook, Twitter, Instagram, and LinkedIn.

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.

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 pages F-9 and F-10 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,  other 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 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 adjusted gain was recognized on the sale of a specialty commercial insurance business line. In 2021, the Company recorded a net gain of $52 million on the sale of the insurance subsidiary and the Mid-Atlantic branch operations. Expense adjustments in the first quarter were primarily related to branch consolidations. Adjustments of $1.4 million in the third quarter Federal Home Loan Bank borrowings prepayment costs.  They also included other restructuring charges for efficiency initiatives in operations areas including writedowns on real estate moved to held for sale and severance related to staff reductions.

The Company utilizes 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-GAAP 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 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 Contact:

Gary Levante, SVP, Corporate Responsibility & Culture
Email: [email protected]
Tel: (413) 447-1737