Berkshire Hills Bancorp Q1 2025 Earnings Report

Berkshire Hills Bancorp EPS Results

• Actual EPS: $0.60
• Consensus EPS: $0.54
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.49

Berkshire Hills Bancorp Revenue Results

• Actual Revenue: $110.44 million
• Expected Revenue: $109.71 million
• Beat/Miss: Beat by +$732.00 thousand
• YoY Revenue Growth: +4.70%

Berkshire Hills Bancorp Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 9:00AM ET

Berkshire Hills Bancorp (NYSE:BHLB) is the bank holding company for Berkshire Bank, a community-focused financial institution serving customers across the northeastern United States. The company traces its roots to the First National Bank of North Adams in Massachusetts, dating back to the mid-19th century. Over time, a series of mergers and acquisitions led to the formation of Berkshire Hills Bancorp in the early 2000s, enabling the franchise to expand its footprint throughout Massachusetts, New York, Connecticut, Vermont and eastern Pennsylvania.

The company’s core operations center on commercial and retail banking services, including deposit accounts, business and consumer lending, mortgage origination and construction financing. In addition to traditional interest-earning products, Berkshire Hills Bancorp offers treasury and cash‐management solutions for small and middle-market enterprises, alongside digital banking platforms designed to support both individual and corporate customers. The institution also delivers wealth management, trust services and insurance products through its dedicated subsidiary businesses.

Berkshire Hills Bancorp is led by President and Chief Executive Officer Richard S. Marotta, supported by a senior management team with extensive experience in regional banking and financial services. Headquartered in Boston, Massachusetts, the company emphasizes community engagement and local decision-making, aiming to balance personalized service with the operational scale needed to compete in an expanding multi-state market.

Berkshire Hills Bancorp Q1 2025 Earnings Call Transcript

Key Takeaways

• Operating net income of $27.6 million rose 32% year-over-year (6% linked quarter), with EPS of $0.60 up 22% YoY, driven by improved net interest income and 5% linked-quarter operating leverage.
• Expenses fell 4% quarter-over-quarter and 6% YoY to $68 million, yielding a 59.5% efficiency ratio and reflecting broad-based discipline in expense optimization.
• Asset quality remained strong, with net charge-offs at 15 bps of loans, total delinquencies and nonperforming loans at 42 bps (a 20-year low), and reserves covering roughly 500% of nonperforming loans.
• Strategic progress included $75 million of new digital deposits, non-strategic runoff portfolios down 76% YoY to $34 million, and on-track integration planning for the Brookline Bancorp merger, which is expected to drive ~40% GAAP and ~23% cash EPS accretion by 2026.
• Balance sheet trends saw net interest margin up 10 bps to 3.24% (3.31% in March), average loan growth of about 5% annualized, and a loan-to-deposit ratio of 95% supporting liquidity.

Presentation

[Operator]

This call is being recorded on April 24th, 2025. I would now like to turn the conference over to Kevin Conn, Investor Relations Officer. Please go ahead.

[Kevin Conn, Investor Relations and Corporate Development Officer at Berkshire Hills Bancorp]

Good morning, and thank you for joining Berkshire Bank's first quarter earnings call. My name is Kevin Conn, Investor Relations and Corporate Development Officer. Here with me today are Nitin Mhatre, Chief Executive Officer; Sean Gray, Chief Operating Officer; Brett Brebovic, Chief Financial Officer; and Greg Lindenmuth, Chief Risk Officer. Our remarks will include forward-looking statements and refer to non-GAAP financial measures. Actual results could differ materially from those statements. Please see our legal disclosures on page two and three of the earnings presentation referencing forward-looking statements and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our news release. At this time, I'll turn the call over to Nitin. Nitin?

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Thank you, Kevin. Good morning, everyone, and thank you all for joining us today. I'll begin my comments on slide four, where you can see the highlights for the first quarter. We had a very strong quarter with operating net income of $27.6 million, up 6% linked quarter and up 32% year-over-year. Earnings per share of $0.60 was flat to the fourth quarter, including the full quarter impact of higher share count from our December equity raise and up 22% year-over-year. Our rigorous expense optimization initiatives continued to drive expenses lower, with quarterly operating expense of about $68 million, down 4% linked quarter and down 6% year-over-year. Ongoing momentum of improving revenues and declining expenses led to a positive operating leverage of 5% linked quarter and 11% year-over-year. Operating ROTCE of 9.66% was down 27 basis points linked quarter and up 93 basis points year-over-year.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Overall, strong financial performance was primarily driven by improved net interest income, lower expenses, and disciplined credit management. Brett will provide more details in a few moments. Asset quality and balance sheet metrics remained strong. Net charge-offs were 15 basis points of loans, and our reserve to loans was up 2 basis points to 1.24%. Total loss reserves of 1.24% are now at about 500% of our total non-performing loans. Total delinquencies and non-performing loans were 42 basis points of loans, the lowest level in about 20 years, a solid testament to the strength of our collaborative risk culture across frontline bankers and risk teams. Liquidity remained solid with our loan-to-deposit ratio at 95% that was down 1% linked quarter. On the strategy front, we made steady progress on our strategic initiatives in the first quarter.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Our focus on the deposit relationships across business lines continued, and our relatively new digital deposit initiative has gained momentum and delivered approximately $75 million of new deposits. We sold the remaining $7 million Upstart book and further de-risked our balance sheet with total non-strategic runoff portfolios down by 76% year-over-year to just $34 million. Brett will share more details on the portfolio sale in a moment. As you know, in December, we announced a merger of equals with Brookline Bancorp to create a preeminent Northeast franchise. This transaction improves scale and meaningfully improves profitability as reflected in the estimated 40% and 23% accretion to Berkshire's 2026 consensus estimate on GAAP and cash basis, respectively. Our team continues to work proactively on requisite integration planning for a seamless transition. With that, I'll turn over the call to Brett to cover our financials in more detail. Brett.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

Thank you, Nitin. I'll begin on slide five, which shows an overview of the first quarter metrics. As Nitin mentioned, our operating earnings were $27.6 million, or $0.60 per share. Our net interest margin was 3.24%, up 10 basis points linked quarter, and our net interest income was up $2.9 million, or 3% linked quarter. Operating expenses were down $3.1 million, or 4% linked quarter, and our efficiency ratio was 59.5%. Slide six shows our average loan balances. Average loans were up $118 million, or 1% linked quarter, and up $348 million, or 4% year-over-year. We've updated a page in the appendix which shows data on the Upstart and Firestone runoff portfolios. The combined runoff portfolios, including the Upstart loan sales, are down $110 million, or 76% year-over-year, to $34 million, or just 40 basis points of loans. Slide seven shows average deposit balances.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

Average deposits increased $188 million, or 2% linked quarter, and were flat year-over-year. Excluding payroll deposits and brokered CD balances, average deposits were flat linked quarter and flat year-over-year. If you recall, our year-over-year deposits were impacted by the sale of 10 branches in upstate New York in the third quarter of 2024. Average non-interest-bearing deposits as a percentage of total deposits was 23%, down 1% linked quarter. Turning to slide eight, net interest income was up 3% linked quarter and up 2% year-over-year. Net interest margin was up 10 basis points linked quarter to 3.24, and our March spot NIM was 3.31. Slide nine shows operating non-interest income, which was down $2.5 million, or 11% linked quarter, and up $3.4 million, or 19% year-over-year. Other non-interest income was down compared to the prior quarter. During the fourth quarter, we had strong SBA gains and unusually high BOLI income.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

In the near term, we expect SBA gains to be in line with our prior eight-quarter average of $2.9 million due to uncertainty from the impact of tariffs. Slide 10 shows expenses. Operating expenses were down $3.1 million, or 4% linked quarter, to $68 million and down $4.5 million, or 6% year-over-year. Year-over-year expense reductions were broad-based, including our other expenses, which are an assortment of smaller items. Non-operating expenses of $2.5 million were primarily related to the merger announced in December. Slide 11 shows our expense outperformance versus proxy peers over the last four years. This slide highlights the disciplined approach to expense management we've undertaken over that time. Slide 12 shows a summary of asset quality metrics. Non-performing loans as a percentage of total loans was 25 basis points. Total delinquencies and non-performing loans were 42 basis points of total loans.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

Net charge-offs of $3.5 million were up $200,000 linked quarter and down $500,000 year-over-year. We added $2 million to our loss reserve, increasing our coverage ratio to 124 basis points. Our loss reserves to non-performing loans are now about 500%. Our $5.5 million provision reflects the most recent Moody's baseline economic outlook in our ACL assumptions. During the quarter, we sold the remaining $7 million of Upstart loans for net proceeds of $5.3 million, or $0.76 on the dollar. With the sale of the Upstart book, we have significantly de-risked our balance sheet. Our other loan books are below normal net charge-off levels, and we do expect those to normalize over time based on the macroeconomic environment and outlook. Slide 13 shows that our CRE book remains well diversified in terms of geography and collateral.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

Our CRE concentration ratio was approximately 290% of risk-based capital, and credit quality of the CRE portfolio remains solid with non-accrual loans at 19 basis points of period end loans. Slide 14 shows details on our office portfolio. As noted last quarter, the weighted average loan-to-value ratios are about 60%, and a large majority of the portfolio is in suburban and Class A space. We have very limited exposure to Boston's Financial District and no exposure to high-rise office buildings. Turning to capital, we have strong capital levels. Tangible book value per share was $25.50. Our CET1 ratio was 13.3%, and our TCE ratio was 9.9%. Our AOCI bond mark improved modestly from a negative $106 million to a negative $95 million. Given the pending MOE transaction in the second half of 2025, we did not provide line item income statement and balance sheet guidance for the upcoming year.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

That said, we are encouraged by the momentum in our financial metrics and confirm comfort with consensus net income cited in the December 16th merger presentation for 2025. With that, I'll turn it back over to Nitin for further comments. Nitin.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Thank you, Brett. Overall, we had a very strong first quarter, driving a solid start to the year. Many of our multi-year initiatives are clearly bearing fruit. While the economic environment is uncertain given the volatility driven by tariffs and other policy initiatives, we continue to monitor the situation and communicate with clients to better understand potential impacts to their businesses. It is still very early, and the fluidity of the news from Washington makes it difficult to predict the potential outcomes at this point, but our teams remain prepared to pivot as needed to maintain our momentum. We are excited about the potential for the combined Berkshire and Brookline franchises. The combined entity will provide growth opportunities for our employees, continued commitment to our communities, enhanced products for our customers, and significantly higher profitability and returns for our shareholders.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

I want to thank all of my Berkshire Bank colleagues for their continued hard work and commitment to the bank and our clients, and look forward to their continued support and commitment through this transition. On slide 15, we summarize our progress on the merger, integration, and next steps. In short, everything is on or slightly ahead of plan. We filed regulatory applications in March and our shareholder proxy with the SEC in early April. We anticipate stockholder approvals at our annual meeting on May 21st and our regulatory approvals sometime in the third quarter. A lot of progress so far, while there's more work to do. In closing, I'm proud of what Berkshire team has accomplished over the last four years in terms of financial performance improvement while delivering exceptional client experience and positive impact on the communities that we operate in.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

It is their hard work that continues to be recognized across various forums, including the most recent recognition by Newsweek magazine that listed Berkshire Bank amongst the most trustworthy banks in America for the fourth consecutive year. Thank you, Team Berkshire, for everything you do to serve our clients and earn their trust. With that, I'll turn it over to the operator for questions. Operator.

[Operator]

Thank you. We are now opening the floor for a question-and-answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Your first question comes from the line of Christopher O'Connell of KBW. Your line is now open.

[Christopher O'Connell, Director at KBW]

Hey, good morning. Morning, Chris. Nitin. Just wanted to start it off with the balance sheet side. I appreciate no guidance from here, and it's become a little bit more shaky economic environment. I was hoping to get an update on loan demand. Has that changed as you guys have come into the year and over the past couple of months, and how you guys are thinking about standalone growth going forward?

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Yeah, Chris, that's a good question. Like you said, there's a lot of uncertainty out there. Broadly speaking, what we're hearing from the clients, there's three different themes that are emerging. One is where there's some clients, especially commercial clients, that are loading up on the inventories in kind of anticipation of the prices going up. There's the other group that's kind of wait-and-watch approach and just kind of staying put where they are. There is a third group that is actually looking at rationalizing and reducing expenses and so on and so forth. It's a mixed bag, but what we see in the pipeline is our pipeline has slowed down compared to the previous quarter, just like the origination slowed down. I think there's a net indication of slowing demand. I think we still, I think this quarter was about 5% annualized loan growth.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

I think we still probably expect to be in that range, but time will tell how the economy turns out.

[Christopher O'Connell, Director at KBW]

Great. That's helpful. Then on the expense side, I know that you said there's kind of a number of small items here. Just hoping to get your guys' thoughts about how the expense base grows throughout the rest of the year on a standalone basis or if it is able to remain pretty steady.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Yeah, I think we're very pleased with our expense momentum that we're seeing currently and that we've seen over the last few quarters. I am expecting it to remain relatively stable, generally consistent with this quarter, I would say. We do hope to continue that momentum as we move forward and progress towards the merger.

[Christopher O'Connell, Director at KBW]

Okay. Got it. Then with the final Upstart sale between this quarter and last quarter and just the overall progress on the runoff portfolios in general, you're talking about kind of normalizing that charge-off.

[Christopher O'Connell, Director at KBW]

I mean, where do you think that range is now? Now that you guys have kind of changed the balance sheet, do you think that that's a different level than it's been historically?

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Yep. Chris, in a normalized environment, that would have been the case. If you look at our last five quarters, our charge-off rate has ranged between 7 basis points and 24 basis points. This quarter was about 15. I think on the last earnings call, we did say that we expected to normalize to around 20 basis points level. I think that's where we're staying at the moment because there's so much uncertainty out there. It's tough to say. I think Brett mentioned in his remarks that we expected to normalize, and we believe that's the normalized level.

[Christopher O'Connell, Director at KBW]

Great. Appreciate the time. Thank you.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Thank you, Chris.

[Operator]

Your next question comes from the line of Gregory Zingone of Piper Sandler. Your line is now open.

[Gregory Zingone, Equity Research Analyst at Piper Sandler]

Hey, guys. It's Greg stepping in for Mark. How are you?

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Hey, Greg. Good. How are you?

[Gregory Zingone, Equity Research Analyst at Piper Sandler]

Good. A quick clarifying question. Did you say the spot NIM in March was 3.31%?

[Kevin Conn, Investor Relations and Corporate Development Officer at Berkshire Hills Bancorp]

That's correct. Yes.

[Gregory Zingone, Equity Research Analyst at Piper Sandler]

Okay. Awesome. Is there any update you could give us on how you're managing employee retention ahead of the MOE closing, especially for some of your key producers?

[Sean Gray, Chief Operating Officer at Berkshire Hills Bancorp]

Sure. Sean here. We have identified all of those key producers. We have had those conversations, and both organizations have discussed meaningful retention and retention grants as they move towards the pro forma company. We feel we have got a good handle, but a lot of work left to do.

[Gregory Zingone, Equity Research Analyst at Piper Sandler]

Okay. Thank you. Is there any plans to align your product offerings and your deposit-related strategies ahead of the legal close?

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

I think in my remarks, I talked about the digital deposit initiative that we launched that's programmed to date about $75 million in deposits. I think even more exciting outside of the absolute numbers is roughly one out of five new client relationships are coming through digital channels now, which was our original goal. I think we're pleased with that. I don't think we're going to launch new products per se, but I think the team continues to fine-tune the functionalities. Just as an example, last quarter, we have launched what we call as the direct deposit API, whereby if you open a deposit relationship with Berkshire Bank and want to move your direct deposit from another bank, it's really a couple of clicks of buttons on your phone.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

I think those kind of functionalities will continue to be added to create that digital-first type of experience.

[Gregory Zingone, Equity Research Analyst at Piper Sandler]

Awesome. Thank you. Last question for me, is there a TCE ratio or a CRE concentration level you guys are keeping in mind as you approach the MOE?

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

For CRE, we've continued to stay below the 300% mark, and I think this quarter we ended at about 290%. TCE, Brett, I don't know if you have a comment on that.

[Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO]

Yeah. No, I would expect TCE to remain relatively stable from now basically to the merger, just trying to make sure that we put ourselves in the best position possible for once the merger occurs to continue going forward and grow.

[Gregory Zingone, Equity Research Analyst at Piper Sandler]

Awesome. Thanks so much, guys.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Thank you.

[Kevin Conn, Investor Relations and Corporate Development Officer at Berkshire Hills Bancorp]

Thank you.

[Operator]

I'd now like to hand the call back to Nitin Mhatre for final remarks.

[Nitin Mhatre, CEO at Berkshire Hills Bancorp]

Thank you, Ali, and thank you all for joining us today on our call and for your continued interest in Berkshire. Have a great day and be well. Ali, you can close the call now.

[Operator]

Thank you for attending today's call. You may now disconnect. Goodbye.

Participants

Executives

• Kevin Conn, Investor Relations and Corporate Development Officer
• Nitin Mhatre, CEO
• Sean Gray, Chief Operating Officer

Analysts

• Christopher O'Connell, Director at KBW
• Gregory Zingone, Equity Research Analyst at Piper Sandler
• Brett Brbovic, Senior Vice President and Chief Accounting Officer (CAO) at CAO