Berkshire Hills Bancorp, Inc 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).
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:
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.
CONTACTS
Investor Relations Contacts
Kevin Conn, SVP, Investor Relations & Corporate Development
Email: KAConn@berkshirebank.com
Tel: (617) 641-9206
David Gonci, Capital Markets Director
Email: dgonci@berkshirebank.com
Tel: (413) 281-1973
Media Contact:
Gary Levante, SVP, Corporate Responsibility & Culture
Email: glevante@berkshirebank.com
Tel: (413) 447-1737