Berkshire Hills Bancorp (BHLB) Q3 Earnings call transcript Oct 24, 2024

Berkshire Hills Bancorp, a regional bank headquartered in Massachusetts, reported a robust performance in the third quarter of 2024, with significant improvements in operating earnings, asset quality, and strategic initiatives. The company's leadership team, including CEO Nitin Mhatre, CFO Brett Brbovic, and COO Sean Gray, provided insights into the bank's financial health and future prospects during the earnings call.

Operating Earnings and Asset Quality Metrics

Berkshire Hills Bancorp posted strong operating earnings of $0.58 per share, up 5% quarter-over-quarter and 16% year-over-year. Operating net income reached $24.8 million, representing a 7% increase from the previous quarter and a 15% increase from the same period last year. The bank's operating ROTCE also showed a substantial improvement, rising to 9.91% in the third quarter, up from 9.65% in the second quarter.

Asset quality and balance sheet metrics remain a strength for Berkshire Hills Bancorp. Excluding the Upstart loan sales charge-off, net charge-offs were 16 basis points of loans, with a reserve to loans ratio of 122 basis points. The bank's total past due loans percentage stood at 53 basis points, the lowest in the past 15 years, and its reserve for losses was 122 basis points, more than 5 times the total nonperforming loans.

Strategic Initiatives and Digital Transformation

Berkshire Hills Bancorp is focused on strategic initiatives to enhance its efficiency and profitability. The sale of 10 branches in New York was completed in the third quarter, reducing the total number of branches to 83. This transaction resulted in a pretax gain of $16 million, slightly lower than expected due to higher client deposit retention. The sale was part of the bank's strategy to tighten its footprint and improve the efficiency of its branch network.

The bank also announced the sale of its Upstart loan portfolio, which was priced at 96% of book value, resulting in a $1.9 million charge-off related to the sale. The remaining approximately $10 million Upstart loans have a weighted average credit score of 682, and the bank believes its reserves against that book are sufficient.

Berkshire Hills Bancorp is also investing in digitizing the customer experience while investing in its bankers to accelerate growth in deposits and client relationships. The bank's digital deposit products, Berkshire One, have been rolled out to customers, and it plans to continue investing in digital banking offerings to enhance the overall customer experience.

Financial Performance and Outlook

Berkshire Hills Bancorp reported a solid financial performance in the third quarter, with operating income of $21.5 million, up 7% from the previous quarter. Net interest income was slightly down from the second quarter but up from the same period last year. The bank expects funding costs to decline as the Federal Reserve continues to cut interest rates, with the intent to lower deposit rates in response.

The bank's capital ratios also showed improvement, with CET1 at 11.9% and TCE at 9.1%, reflecting higher retained earnings and a lower bond markup on its AFS securities. Berkshire Hills Bancorp is focused on supporting organic loan growth and has repurchased $17.4 million of stock year-to-date.

Macroeconomic Environment and Future Outlook

The operating environment for the banking industry is improving, with the yield curve starting to normalize as the Federal Reserve lowers short-term interest rates. This could potentially lead to increased net interest income for the industry during periods of yield curve steepening. Berkshire Hills Bancorp is optimistic about the future and is focused on accelerating deposit growth, managing expenses, and improving client acquisition and retention through enhanced client experience and digital banking offerings.

Conclusion

Berkshire Hills Bancorp's third-quarter earnings call highlighted a strong financial performance, strategic initiatives to enhance efficiency and profitability, and a positive outlook for the future. The bank's focus on organic growth, digital transformation, and asset quality management positions it well for the challenges and opportunities ahead. With a solid balance sheet and a strategic focus on growth, Berkshire Hills Bancorp is well-positioned to navigate the evolving banking landscape and create value for its shareholders.