Business context and reporting period
This is Berkshire Hills Bancorp, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020. The filing identifies the NYSE ticker as BHLB. This differs from the requested company name, Beacon Financial Corp; verify that this is the intended filing. Results include SI Financial, acquired in May 2019. First Choice Loan Services (FCLS) is reported as discontinued operations.
Financial results and condition
| Metric | Q1 2020 | Q1 2019 or prior period |
|---|---|---|
| Net interest income, continuing operations | $86.4 million | $85.5 million |
| Total revenue, continuing operations | $92.1 million | $107.2 million |
| Provision for credit losses | $34.8 million | $4.0 million |
| Net income (loss), continuing operations | $(12.1) million | $24.3 million |
| Net income (loss), including discontinued operations | $(19.9) million; diluted EPS $(0.40) | $23.6 million; diluted EPS $0.51 |
| Net interest margin, FTE | 3.04% | 3.17% |
| Non-interest expense, continuing operations | $71.3 million | $72.0 million |
At March 31, 2020, total assets were $13.12 billion, loans $9.30 billion, deposits $10.07 billion, and shareholders’ equity $1.72 billion. Versus December 31, 2019, loans fell $199 million, deposits fell $264 million, and total borrowings rose $214 million to $1.04 billion. Cash and cash equivalents increased to $605 million from $580 million. The allowance for loan credit losses was $113.5 million, or 1.22% of loans, versus $63.6 million, or 0.67%, at year-end; the change reflects CECL adoption and the quarter’s provision.
Cash provided by operating activities was $35.1 million, including $28.5 million from continuing operations, compared with total operating cash used of $20.2 million in Q1 2019. Investing activities provided $160.3 million and financing activities used $169.8 million. Cash ended the quarter at $605.4 million. The Bank’s total risk-based capital ratio was 12.5% (10.0% regulatory well-capitalized minimum); the Company’s consolidated ratio was 13.8%. The Bank reported available borrowing capacity of $1.4 billion at the FHLB and $557.8 million at the Federal Reserve.
Material changes versus the prior comparable period
- Revenue from continuing operations declined 14% year over year, while net interest income increased 1%; lower interest rates compressed margin.
- The $34.8 million credit-loss provision, compared with $4.0 million a year earlier, was the principal driver of the continuing-operations loss. Management characterized the provision as noncash and tied to projected lifetime losses under CECL.
- Non-interest income fell to $5.6 million from $21.7 million, including $9.7 million in net securities losses versus a $2.6 million gain in 2019. Marketable equity securities declined in value.
- FCLS reported a $7.8 million after-tax loss, versus a $0.6 million loss in Q1 2019. On May 7, 2020, the company sold certain FCLS assets and liabilities; it planned further wind-down and a second transaction.
- Adoption of CECL on January 1 reduced retained earnings by $24.4 million, net of tax, and established an $8.0 million allowance for unfunded commitments. The company elected a five-year regulatory-capital transition relief period.
Outlook, commentary, risks and unusual items
Management said COVID-19’s effects were expected to be more pronounced in Q2 and that the outlook for the recession worsened after quarter-end. It stated that further provision expense could be recorded if economic forecasts did not improve. The filing provides no formal earnings guidance. Management expected PPP lending to increase loans in Q2; approximately 3,800 loans totaling about $650 million were being processed shortly after quarter-end. The 1% PPP loans were expected to weigh on Q2 margin, with SBA fee income recognized as loans were repaid, mostly anticipated in Q3. Management estimated at least $20 million of related net interest income from fee recognition.
By April 21, the company had granted or processed modifications on approximately 4,056 loans totaling $1.30 billion, about 13.9% of total loan balances; most were 90-day payment deferrals. Its commercial portfolio included $2.68 billion, or 28.9% of loans, in identified shutdown-sensitive categories. Management warned that prolonged closures, unemployment, borrower defaults, collateral declines, market volatility, and low rates could materially adversely affect results, liquidity, asset values, and capital.
Other notable items: the company reported a $10 million net charge-off, largely from resolution of one commercial real-estate workout; taxi-medallion loans were marked to fair value and valued at $4.9 million against $71.7 million contractual principal; and derivative collateral postings and settlements affected cash flows. The company said it delayed this 10-Q under SEC COVID-19 relief provisions, citing pandemic response demands and additional CECL assessment work. It reported disclosure controls were effective and no material change in internal control. A previously disclosed $3 million class settlement was substantially distributed; the company also pursued a claim seeking approximately $16 million from Pioneer Bank and reported no recovery accrual beyond a $1.7 million partial recovery recognized in Q2.
Investor verification priorities
- Confirm the registrant: the supplied filing is Berkshire Hills Bancorp, Inc., not Beacon Financial Corp.
- Track subsequent CECL provisions, criticized/nonperforming loans, charge-offs, and performance of modified borrowers as deferrals expire.
- Verify actual PPP balances, SBA repayments and fee recognition, and resulting margin effects against management’s expectations.
- Monitor liquidity, deposit trends and mix, borrowing levels and costs, collateral requirements, and capital ratios under worsening scenarios.
- Follow completion costs and proceeds from the FCLS wind-down and subsequent asset/IP transactions.
- Review the outcomes of the Pioneer Bank claim and remaining legal matters; the filing does not establish any additional recovery from the claim.