Berkshire Hills Announces Third Quarter Results

BOSTON, Oct. 26, 2020 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today announced third quarter net income of $21 million, or $0.42 per share, in 2020 compared to $23 million, or $0.44 per share, in 2019.  The non-GAAP measure of core earnings totaled $26 million, or $0.53 per share, in the third quarter of 2020 compared to $24 million, or $0.46, per share in the third quarter of 2019.  Compared to the linked quarter, results benefited from higher revenue and lower expense as the Company continues to adjust operations to improve operating profitability.

THIRD QUARTER FINANCIAL HIGHLIGHTS (Changes are compared to the prior quarter.  Measures identified as non-GAAP are reconciled on pages F-9 and F-10)

• Revenue increased by 2%
• Fee income increased by 9%
• Non-interest expense decreased by 88%, while core non-interest expense decreased by 4% (non-GAAP measure which excludes second quarter goodwill impairment charge)
• Efficiency ratio improved to 65% from 71% (non-GAAP measure)
• Equity/assets ratio improved to 9.3% from 8.9%
• Tangible equity/tangible assets ratio improved to 9.1% from 8.6% (non-GAAP measure)
• 0.27% annualized net charge-offs/loans
• 0.39% non-performing assets/assets

Acting CEO and President Sean Gray stated, "In the first half of the year, our priority was to quickly address the needs of our team members, customers, and communities being impacted by COVID-19.  Starting in the third quarter, we began normalizing our operations and nearly returning to regular retail hours, while continuing to support higher digital transaction volumes. During the quarter, we continued our focus on managing our expenses and further strengthening our capital and liquidity metrics.   We're working closely with our borrowers as they progress in normalizing their operations and meeting their credit obligations. This is reflected in our stable loan performance and resumption of regular payment schedules for most of the borrowers who initially requested deferrals at the outset of the pandemic."

Mr. Gray concluded, "Berkshire is evolving and adapting to the current environment, by having made investments that will support our customers and our Company today and into the future. We recently launched a best-in-class digital account opening experience that will extend our market outreach, improve customer experience, reduce fraud and allow us to operate more cost effectively.  This is another step in building a 21^st-century community bank that provides everyone equal access to the products and services they need to bank with dignity, achieve upward economic mobility and live healthier financial lives."

In addition to introducing its new digital account opening experience, the Company promoted Jason White, a recent Boston area CIO of the Year winner, to EVP- Chief Information Officer.  The Company also announced the promotions of two leaders to the role of Regional President.  Wealth Management Director Kate Hersey now leads the Boston region and Foundation Director Lori Gazzillo Kiely now leads the Berkshire County region.  Now half of those holding the title of Regional President are women, furthering Berkshire's work in support of its Be FIRST Commitment. Berkshire Bank has also been recognized with the North American Inspiring Workplaces Award. 

FINANCIAL CONDITION

Berkshire's balance sheet continued to strengthen during the most recent quarter.  Total assets decreased by approximately $450 million, or 3%, to $12.6 billion in the third quarter of 2020.  This was primarily due to a $388 million, or 4%, decrease in total loans reflecting continued runoff in all major loan categories.  The biggest change was a $198 million, or 9%, decrease in residential mortgage balances due to accelerated prepayments in the low interest rate environment.  Commercial loans outstanding included $708 million in Paycheck Protection Program ("PPP") loans, which were stable from the prior quarter-end.  Total deposits decreased by $309 million, or 3%, to $10.5 billion primarily due to a $270 million decrease in brokered balances to $814 million.  Other deposit balances shifted from higher rate maturing time deposits into non-maturity products due to current low interest rates.  This contributed to a decrease in the cost of deposits to 0.61% from 0.79%.  Wholesale funds decreased to $1.5 billion from $1.9 billion during the quarter.  Retained earnings increased book value to $23.03 per common share and the non-GAAP measure of tangible book value to $22.22 per common share.  Capital metrics also improved due to the earnings benefit and reduction in total assets. The Company has received notice for the conversion of its remaining outstanding preferred stock to common stock, which is not expected to have a material impact on the Company's financial condition and per share metrics.

Total delinquent accruing loans decreased to 0.45% of loans from 0.51% of loans during the most recent quarter, while non-accruing loans increased to 0.53% from 0.48%.  Year-to-date net loan charge-offs measuring 0.29% of total loans remained below the levels recorded for the same period in 2019.   Middle market commercial loan modifications have included an underwriting review and assessment of accrual status.  Loans with payment modifications are expected to decrease further in the fourth quarter from levels previously reported.  The allowance for credit losses on loans was little changed, measuring 1.50% of total loans at quarter-end, and 1.62% of loans excluding government-guaranteed PPP loans. 

RESULTS OF OPERATIONS

Berkshire's operating profitability strengthened during the most recent quarter.  Berkshire reported third quarter 2020 GAAP EPS of $0.42 per share.  The Company's non-GAAP measure of core EPS totaled $0.53 per share.  Measures of pre-tax pre-provision net revenue ("PPNR") also improved.   Non-core charges primarily consisted of costs related to executive separation expense, together with losses on discontinued operations and securities. 

Operating results were improved from the prior quarter due to higher revenues and lower expenses.  Fee income growth of 9% primarily reflected higher deposit fees as transaction volumes increased.  Non-interest income also benefited from recovery in financial instrument fair value adjustments following negative pandemic impacts in the first half of the year.  Net interest income decreased by 1% in the third quarter due primarily to loan runoff.  The net interest margin was little changed at 2.61%, as loan yields and deposit costs both declined due to the ongoing low interest rate environment. 

Third quarter results benefited from lower operating expenses in part because second quarter expenses were elevated by $2.6 million in one-time awards accrued to compensate staff for expediting PPP loan processing to support businesses and paychecks during the economic lockdowns.  Other compensation costs were also reduced during the quarter.  The efficiency ratio, a non-GAAP financial measure, improved to 65% from 71% as a result of these improvements in revenue and expenses.  Full time equivalent staff in continuing operations totaled 1,507 positions at period-end, compared to 1,550 positions at the start of the year.  The credit loss provision decreased to $1 million, reflecting an improved economic outlook after the original pandemic downturn was recognized with high credit loss provisions in the first half of the year.   The effective tax rate was a benefit of 4% due primarily to the impact of first half of the year expenses lowering the taxable income for the year.

BE FIRST CORPORATE RESPONSIBILITY UPDATE

Berkshire is committed to purpose-driven performance. Learn more about the steps Berkshire is taking to be a values-based brand for all its stakeholders at www.berkshirebank.com/csr and in its most recent Corporate Responsibility Report.

Key developments in the quarter include:

• Investing in Community Recovery & Resiliency: As people and small businesses in neighborhoods across the Company's footprint struggle through the impacts of the COVID-19 pandemic, Berkshire's Foundation is responding and has provided nearly $3 million in grant funding to more than 400 organizations through the end of the third quarter. These critical investments are ensuring access to resources for underserved populations to become college and career ready, ensuring quality affordable housing and supporting small business growth and entrepreneurship. In addition, 75% of Berkshire's employees, through its award-winning XTEAM volunteer program contributed more than 6,000 hours of service.
   
• Transitioning to a Low-Carbon Future: Berkshire is working towards transitioning its electricity to 100% renewable sources. The Company announced an agreement with Nexamp to subscribe to a community solar project in Massachusetts, lowering its carbon footprint and increasing the percentage of its energy supply procured from renewables while also reducing costs.
   
• Enhancing Environmental & Social Governance Practices: The Company completed updates to its Responsible & Sustainable Business Policy to improve the quality and clarity of its policy and disclosure. The update included new language to address Fraud Reporting & Suspicious Activity as well as Conflict of Interest. In addition, the Company enhanced its Social and Environmental Credit Risk Framework by incorporating new policy and procedure into the existing Commercial Loan Policy to more effectively mitigate the social and environmental risks associated with highly sensitive industries.
   
• Enhancing Protected Leave For Gender-Based Violence: Under the leadership of EVP, Chief Human Resources & Culture Officer Jackie Courtwright and through a unique collaboration with the non-profit FreeFrom, Berkshire enhanced protections for its employees experiencing gender-based violence by providing 15 days of paid leave a year to deal with the consequences of intimate partner violence, sexual assault, and human trafficking. This policy allows employees the ability to seek medical care, attend court proceedings, and relocate – all without missing a paycheck or depleting their accrued sick or vacation days.
   
• Recognizing Impact & Results: Berkshire was named the winner of the North American Inspiring Workplaces Award for its diversity and culture programming recognizing the efforts of its Be FIRST Commitment and internal diversity work. The Company was also named one of Massachusetts Most Charitable Companies by the Boston Business Journal for the eighth consecutive year.

INVESTOR CONFERENCE CALL AND INVESTOR PRESENTATION

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Tuesday, October 27, 2020 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/10148654/da6d986a50.  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, November 3, 2020 by dialing 877-344-7529 and entering access number 10148654.  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 into a 21^st century community bank pursuing purpose driven performance based on its Be FIRST corporate responsibility culture.  Headquartered in Boston, Berkshire operates 130 banking offices in seven Northeastern states, with approximately $12.6 billion in assets. Berkshire Bank serves the underbanked through the Reevx Labs^TM platform.

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.

Further, given its ongoing and dynamic nature, it is difficult to predict what continued effects the COVID-19 pandemic will have on our business and results of operations. The pandemic and the related local and national economic disruption may result in a continued decline in demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; an increase in our allowance for loan losses; a decline in the value of loan collateral, including real estate; a greater decline in the yield on our interest-earning assets than the decline in the cost of our interest-bearing liabilities; and increased cybersecurity risks, as employees increasingly work remotely.

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 core earnings in evaluating operating trends, including components for core 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.  Discontinued operations are the Company's national mortgage banking operations which the Company is exiting pursuant to a sales agreement.  Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees.  Merger costs in 2019 were primarily related to the acquisition of SI Financial Group.  Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales.  Restructuring costs also include severance and consulting expenses related to the Company's strategic review.  They also include costs related to the consolidation of branches, including eight branches for the full year of 2019.  The Company recorded a full impairment its goodwill in the second quarter of 2020, which was classified as noncore.  Noncore charges in the third quarter of 2020 were primarily related to executive separation expense, which was principally the result of the separation with the CEO. 

The Company has introduced the measure of Core Pre-Provision Net Revenue ("Core PPNR") which measures core income before credit loss provision and tax expense.  Due to the non-cash projections introduced into the calculation of income by the new CECL accounting standard, the investment community is placing more emphasis on PPNR in order to measure the results of operations and to compare them across banks which may have widely varying estimates of future economic conditions that affect their provision expense and reported earnings.  The Company also calculates core PPNR/assets in order to utilize the PPNR measure in assessing its comparative operating profitability.

Non-core 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 core income.  The efficiency ratio is adjusted for non-core 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. References to organic growth and organic change exclude balances acquired in bank mergers. 

CONTACTS
Investor Relations Contact 
David Gonci; Capital Markets Director; 413-281-1973

Media Contacts:
John Lovallo
Email: jlovallo@levick.com 
Tel: (917) 612-8419

Cate Cronin
Email: ccronin@levick.com 
Tel: (202) 738-7302