Berkshire Hills Reports Higher Second Quarter Earnings

BOSTON, July 21, 2021 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today announced that second quarter 2021 delivered earnings per share of $0.43, compared to a loss in same quarter last year and an increase of 65% from $0.26 in the first quarter of 2021. Adjusted earnings per share, a non-GAAP measure, increased by 38% to $0.44 from $0.32 in the first quarter. Second quarter results featured year-over-year fee income growth due to higher consumer activity, disciplined expense control, credit improvement and resumption of share repurchases that were paused in 2020.

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

• 27% increase in non-interest income
• 89% decrease in non-interest expense; 2% decrease in adjusted non-interest expense (non-GAAP measure)
• Stable net interest margin and net interest income over last four quarters
• No provision for credit losses on loans, compared to $30 million in 2Q'20
• 53% reduction in net loan charge-offs from prior quarter, while relatively flat over 2Q'20
• 65% reduction in wholesale funding to 5% of assets
• Deposit costs down to 25bps compared to 79bps in 2Q'20 and 36bps in the first quarter of 2021
• Stock repurchases of 745,000 shares (1.5% of outstanding stock)
• Returned $26.8 million of capital to shareholders in 2Q'21 through buybacks and dividends amounting to 124% of 2Q'21 GAAP net income

CEO Nitin Mhatre stated, "We posted a solid quarter of improved earnings, with increased business activity and a stable margin. Efficiency improved and our return on tangible common equity advanced to 7.9%. Credit performance improved across the board as our customers return to more normalized operations."

Mr. Mhatre continued, "In May, we announced our new strategic plan which we call Berkshire's Exciting Strategic Transformation, or 'BEST'. Under this plan, we get better before we get bigger, as we target to earn in excess of our cost of capital on completion of the three-year plan. We're taking advantage of multiple merger-related market disruptions to add customers and to supplement our strong team with additional talent. Our BEST plan includes capital optimization and returning capital to shareholders, and in the second quarter we announced a stock repurchase program and initiated share buybacks."

RESULTS OF OPERATIONS

Earnings:  Earnings per share (EPS) of $0.43 compared to a loss in the second quarter last year and represented a 65% increase over the previous quarter. Adjusted EPS, a non-GAAP measure, were $0.44, also compared to a year ago loss, and represented a 38% increase over the previous quarter. Stable net interest income, higher fee revenue, lower expenses and a decrease in the provision for credit losses on loans drove the positive results. 

Adjusted earnings exclude items not viewed as related to ongoing operations. In 2020, these items were primarily a goodwill impairment change. In 2021, these items were primarily restructuring expenses recorded in the first quarter for the consolidation of branch offices.

GAAP pre-tax pre-provision net revenue ("PPNR") of $29 million compared to a loss in the second quarter last year and represented a 23% increase over the previous quarter. Adjusted PPNR increased by 23% over last year and by 9% over the prior quarter.

The efficiency ratio improved quarter over quarter to 67.8% from 71.3%, as non-interest expense decreased by 12% due to broad-based reductions in most categories.

The second quarter return on assets improved quarter over  quarter to 0.70% from 0.42%, while adjusted return on assets improved to 0.71% from 0.51%. The second quarter return on tangible common equity was 7.9%, while the adjusted return on tangible common equity was 8.1%.

Revenue:   Total net revenue increased by 3% year over year to $97 million from $95 million due to higher non-interest income resulting from increased customer activity.

Net interest income declined 3% year over year and rose modestly on a linked quarter basis. Due to the steady repricing of deposits and the reduction in higher cost wholesale funds, the net interest margin has been stable at approximately 2.62% over the last five quarters. The cost of deposits decreased year over year by 54 basis points to 0.25% and the total cost of funds decreased by 56 basis points to 0.36%.

Second quarter non-interest income increased year over year by $5 million, or 27%. This included a $2 million increase in deposit related fees reflecting increased customer activity. Additionally, SBA loan originations revenue increased by $3 million to a record $5.3 million, reflecting strong market conditions and expansion of the SBA team. Wealth management related revenue increased by 22%, reflecting account growth and improved market conditions.

Credit Loss Provision:  There was no provision required for expected credit losses on loans in the second quarter. The provision expense is down from $30 million in the second quarter of 2020 and from $6.5 million linked quarter, reflecting much improved economic and credit conditions.

Expense:  Non-interest expense decreased 89% year over year due to the goodwill write-off in the second quarter of 2020. Excluding this write-off, adjusted expense was down by $2 million, or 2%, due primarily to processing expenses in 2020 related to Paycheck Protection Program ("PPP") loans. Expenses improved quarter over quarter with broad based reductions in all categories. Total branches have been reduced to 115 offices from 130 at the start of the year. Full time equivalent staff totaled 1,417 positions at midyear, compared to 1,505 positions at the start of the year. The second quarter 2021 effective income tax rate was 24%. New tax credit investments recorded in July are targeted to benefit the effective rate in the second half of the year.

BALANCE SHEET

Loans:  Total period end loans decreased in the second quarter by $426 million, or 6%, to $7.23 billion primarily due to $271 million in PPP loan forgiveness, bringing the remaining PPP loan balance down to $173 million. All other total commercial loans were stable, as growth in originations offset further paydowns in targeted COVID-19 sensitive portfolios. Residential mortgages decreased by $109 million due to ongoing rate-related refinancings. Included in assets held for sale are $253 million in Mid-Atlantic loan balances which are targeted to be sold as part of the previously announced planned branch sale.

Asset Quality. Asset quality metrics continued to improve toward pre-pandemic levels during the second quarter. Accruing delinquent loans decreased year over year by 61% to $19 million, or 0.26% of loans.  Total COVID-19 related loan modifications decreased year over year by 94% to $98 million, and measured 1.4% of total loans at midyear. The allowance for credit losses on loans decreased by $5 million to $119 million primarily due to the decrease in loan balances. At period-end, the allowance measured 1.65% of total loans and 1.69% of total loans excluding PPP loans.

Deposit and Borrowings:  Total deposits decreased from the prior quarter by $330 million primarily due to an $80 million paydown of maturing brokered deposits and a $190 million decrease in daily fluctuating payroll deposit balances. Average deposits increased, driven by a $250 million, or 10%, increase in average non-interest bearing demand deposits.  The ratio of loans/deposits decreased to 73% from 75%. Higher cost wholesale funds, consisting of brokered deposits and borrowings, decreased by $213 million, or 24%, to $668 million and measured 5% of period-end total assets. Most of these balances are targeted to be repaid as they mature in the second half of the year. At period-end, liabilities held for sale included $633 million in Mid-Atlantic branch deposit balances which are targeted for sale in the third quarter.

Equity:  During the second quarter, Berkshire announced a board authorization for the repurchase of 2.5 million shares. As of quarter end, the Company had repurchased 745 thousand shares, or 1.5% of outstanding shares, at an average price of $27.85, totaling $20.8 million.  The Tier 1 common equity ratio increased to an estimated 14.3% from 14.2% in the prior quarter. Berkshire declared a regular quarterly dividend of $0.12 per share with a June 29 record date and July 8 payment date.

CORPORATE RESPONSIBILITY & ESG UPDATE

Berkshire is committed to purpose-driven, community-dedicated banking that enhances value for all its stakeholders in pursuit of its vision to be the leading socially responsible community bank in the markets it serves. 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:

• Launch of new socially responsible financial solutions: In support of Berkshire's Exciting Strategic Transformation (BEST), the Bank launched two new financial solutions which are now part of its socially responsible banking ecosystem.
• MyCheck, Berkshire's new check cashing service helps individuals cash checks at any one of its branches or MyTeller ITM locations for a fraction of the cost of traditional services. The offering provides an on-ramp for underbanked consumers to access a full banking relationship with Berkshire.
• MyFreedom, provides a safe, transparent, affordable, and accessible checking account as part of its socially responsible banking ecosystem. The account has no charges for overdrafts or monthly maintenance fees and offers free Mobile Banking with Mobile Deposit as well as access to Berkshire Bank's Greenpath Financial Wellness programs. MyFreedom recently received national certification from the Cities for Financial Empowerment Fund through their BankOn program.
• Continued Commitment to Equity, Inclusion & Culture: Berkshire's Be FIRST culture continues to play an important role in the Company's transformation. Its PRIDE LGBTQIA+ Employee Resource Group celebrated Pride Month and Berkshire joined the Human Rights Campaign's Business Coalition for the Equality Act. Its Health & Wellness and Multicultural Employee Resource Groups hosted programming for Mental Health awareness month and Berkshire came together again to celebrate the impactful significance of Black history in America on Juneteenth National Independence Day. Employees received a paid floating holiday to commemorate the day for the second consecutive year. The Company also recognized six of its employees for their commitment to volunteerism with its Volunteer Service X-ellence Awards while naming an additional 18 employees to its volunteering honor roll.
• Awards & Recognition:  Berkshire was honored for the fourth consecutive year with the Communitas Award for Leadership in Corporate Social Responsibility. In addition, the Company was named a finalist for the North American Inspiring Workplaces Award for culture and social responsibility and was named a leader in Diversity, Equity and Inclusion by the Albany Business Review.
• Current ESG Performance: The Company continued to improve its Environmental, Social and Governance (ESG) ratings, generally outperforming peers. As of June 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 Wednesday, July 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://dpregister.com/sreg/10157983/ea164d8160.  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 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 for one week by dialing 877-344-7529 and entering access number 10157983. 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. Headquartered in Boston, Berkshire has $12.3 billion in assets and operates 115 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 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, 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, restructuring and other 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-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