Filing context
The supplied filing is Berkshire Hills Bancorp, Inc. (NYSE: BHLB), not Beacon Financial Corp. It is an unaudited Form 10-Q for the quarter ended September 30, 2021, filed November 9, 2021. Berkshire is the holding company for Berkshire Bank and reported approximately $11.8 billion in assets.
Financial performance and condition
Amounts below are in U.S. dollars; financial statement amounts are generally in millions.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $71.4 | $77.1 | $221.9 | $241.1 |
| Net revenue from continuing operations | $145.0 | $97.0 | $343.7 | $284.1 |
| Net income/(loss) | $63.7 | $21.2 | $98.4 | ($548.0) |
| Diluted EPS | $1.31 | $0.42 | $1.97 | ($10.90) |
| Adjusted diluted EPS (non-GAAP) | $0.53 | $0.53 | $1.28 | $0.32 |
| FTE net interest margin | 2.56% | 2.61% | 2.60% | 2.75% |
- Q3 GAAP earnings included a $51.9 million pretax gain on sales of the insurance business and Mid-Atlantic branches, equivalent to approximately $38 million after tax. Adjusted earnings exclude the sale gains and other specified items.
- Q3 provision for credit losses was a $4.0 million benefit, versus $1.2 million expense a year earlier. Nine-month provision was $2.5 million, versus $65.9 million in 2020.
- Q3 adjusted revenue fell 5% year over year; lower net interest income was partly offset by higher fee revenue. The reported efficiency ratio was 68.8%, versus 65.4% a year earlier.
- For the nine months, operating cash flow was $82.5 million; investing cash flow was $828.1 million and financing cash flow was negative $344.0 million. Cash and cash equivalents rose $566.7 million to $2.125 billion.
- At September 30, assets were $11.846 billion, loans $6.836 billion, deposits $10.365 billion and shareholders’ equity $1.178 billion. Loans-to-deposits fell to 66% from 79% at year-end 2020.
- Borrowings declined to $110.8 million from $571.6 million at year-end 2020, including repayment of most FHLB advances. Deposits increased $149.6 million from year-end; brokered deposits declined to $317.1 million from $610.6 million.
- Regulatory capital remained strong: consolidated CET1 was 15.3%, and the Bank met the “well capitalized” thresholds. Period-end book value was $24.21 per share and tangible book value was $23.58 per share.
Material changes and management commentary
- Total assets declined about $992 million from year-end, reflecting the Mid-Atlantic branch sale, loan runoff and repayment of borrowings. The branch sale transferred $631 million of deposits and $220 million of loans; the insurance operations sale and branch sale generated the reported gains.
- Total loans fell 15% from year-end, substantially reflecting PPP forgiveness and runoff in residential mortgages, consumer loans and selected commercial portfolios. PPP loans outstanding fell to $45.8 million from $633.3 million.
- Credit indicators improved: nonaccrual loans fell to $37.1 million from $64.9 million at year-end; criticized loans declined to $265.1 million from $359.5 million. The allowance for loan losses was $112.9 million, or 1.65% of loans.
- COVID-modified loans declined to $65 million from $316 million at year-end; hospitality accounted for $51 million of the quarter-end modifications. Management said the allowance ratio could decline in the coming year, depending on economic conditions and portfolio mix.
- Management described liquidity and capital as strong, with excess liquidity intended to support targeted loan growth in 2022 and possible investment-security purchases. It anticipated repaying most of $428 million in wholesale funds over the next 12 months. These are plans, not formal earnings guidance.
- The company completed a 2.5 million-share repurchase program for $68.7 million, averaging $27.48 per share. It reduced branch offices from 130 to 106 and said it was considering another 5–10 consolidations. Management also cited restructuring, real-estate consolidation and outsourcing initiatives.
- The BEST Community Comeback is a multi-year community lending and investment commitment. The filing also describes a newly announced Upstart consumer-lending partnership.
Risks, contingencies and unusual items
- Management warned that COVID-19’s duration and economic effects remain uncertain and could adversely affect borrowers, collateral values, operations and results. COVID-sensitive industry exposures totaled $734 million, including $308 million in hospitality and $178 million in specialty-equipment lending.
- The company had $3.7 billion in derivative notional exposure and reported cash and securities collateral pledged to counterparties. Changes in rates affected derivative valuations and unrealized securities gains.
- Rising medium-term rates reduced accumulated other comprehensive income by $23.6 million after tax during the first nine months. The company reported a $24 million unrealized gain on its investment portfolio at quarter-end, down from $68 million at year-end.
- More than $5 billion of notional instruments referenced LIBOR. Berkshire said it had begun using SOFR in new contracts and was preparing for the transition; it reported no material LIBOR contracts requiring remediation before year-end 2021.
- A Massachusetts mortgage-fee class action had a preliminarily approved settlement: expected damages of approximately $510,000, plus administration costs and plaintiff legal fees up to $85,000. In a separate loan-participation lawsuit, the company had not accrued any additional expected recovery. A former employee matter was dismissed without prejudice in support of arbitration.
- Other notable items included a $554 million goodwill impairment in the first half of 2020, discontinued mortgage operations losses in 2020, and $862,000 of FHLB prepayment penalties in Q3 2021. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for Berkshire Hills Bancorp (BHLB), not the company named in the request metadata.
- Assess recurring earnings separately from the $51.9 million pretax sale gain; adjusted measures are non-GAAP and depend on management’s exclusions.
- Track whether loan growth resumes as planned in 2022 and whether deposit and wholesale-funding costs continue to decline.
- Monitor criticized and nonaccrual loans, hospitality exposure, COVID-related modifications and the allowance for credit losses as economic conditions evolve.
- Review sensitivity to interest rates, securities-related AOCI changes, derivative collateral needs and the transition of LIBOR-linked contracts.