Berkshire Hills Bancorp, Inc. — Q1 2023 Form 10-Q
Filing identity: The supplied filing is for Berkshire Hills Bancorp, Inc. (NYSE: BHLB), not Beacon Financial Corp. It covers the quarter ended March 31, 2023; financial statements are unaudited.
Business context and reporting period
Berkshire is the holding company for Berkshire Bank, a New England and New York community bank offering commercial and consumer banking, mortgage, wealth management, and investment services. It reported approximately $12.3 billion in assets and 100 branches.
Financial performance and condition
- Earnings and revenue: Q1 net income was $27.6 million, or $0.63 per diluted share, versus $20.2 million, or $0.42, a year earlier. Total net revenue was $114.1 million, compared with $89.7 million; income before taxes was $33.2 million.
- Interest income and margins: Net interest income rose to $97.5 million from $69.1 million. Fully taxable-equivalent net interest income was $99.4 million versus $70.6 million, and net interest margin increased to 3.58% from 2.61%. The effective tax rate was 16.7% in the quarter.
- Fees and expenses: Non-interest income declined to $16.6 million from $20.7 million, while non-interest expense rose to $72.0 million from $68.6 million. The efficiency ratio improved to 59.5% from 72.6%.
- Credit quality: The company recorded a $9.0 million provision for credit losses, versus a $4.0 million benefit in Q1 2022. Net loan charge-offs were $6.9 million, or 0.32% of average loans on an annualized basis, compared with $2.6 million and 0.15%. The loan allowance was $98.0 million, 1.13% of loans. Non-performing assets were $29.5 million, down $3.9 million from year-end.
- Balance sheet: Total assets were $12.32 billion at quarter-end, up $657 million from December 31, 2022. Loans were $8.68 billion, up $347 million; deposits were $10.07 billion, down $260 million. Shareholders’ equity was $995 million, up $41 million.
- Funding and liquidity: Short-term debt was $900 million, consisting of FHLB advances; total borrowings were $1.03 billion, versus $125.5 million at year-end. Cash and cash equivalents were $1.01 billion. Management reported $3.1 billion of unused FHLB and Federal Reserve borrowing capacity and $519 million of unused unsecured correspondent-bank facilities, and characterized liquidity as satisfactory.
- Cash flow: Operating activities provided $37.3 million; investing activities used $340.0 million; financing activities provided $623.9 million. Cash and equivalents increased by $321.2 million during the quarter.
- Capital and securities: Consolidated CET1 was 12.1% and total risk-based capital was 14.4%; the Bank’s CET1 was 12.2% and it met the “well capitalized” standard. Accumulated other comprehensive loss was $159.1 million, improving from $181.1 million at year-end. AFS securities had $214.6 million of gross unrealized losses at quarter-end; management said it did not intend, nor expect to be required, to sell securities in unrealized-loss positions before recovery.
Material changes versus comparable periods
- Year-over-year earnings and net interest income improved substantially, reflecting loan growth, higher market rates, and share repurchases. Average loans increased about $1.5 billion, while average deposits declined about $360 million.
- Rising rates also increased funding costs: the average rate paid on deposits increased 92 basis points year over year. Average borrowings rose $566 million year over year.
- Quarter-over-quarter deposits declined while time deposits increased $479 million; the company attributed deposit movements to customers using excess liquidity and shifting funds to higher-yielding alternatives. Borrowings increased $900 million from year-end to bolster liquidity.
- Net charge-offs and the credit-loss provision increased versus Q1 2022. Total criticized loans were $182.3 million, down from $187.9 million at year-end; nonaccrual loans were $27.0 million, down from $31.1 million.
Outlook, risks, contingencies, and unusual items
- The filing gives no specific quantified earnings or financial guidance. Management described the bank as modestly asset-sensitive in its 12-month interest-rate simulation: estimated net interest income changed +1.6% under a +200-basis-point shock and -3.8% under a -200-basis-point shock. These are model estimates, not guidance.
- Management cited uncertainty from interest rates, inflation, economic conditions, competition, regulation, and financial-market changes. It also highlighted industry concerns following bank failures in 2023, including depositor confidence, liquidity, funding, accumulated securities losses, and potential higher regulatory costs or capital requirements.
- Interest-rate risk remains material: a +200-basis-point parallel shock was estimated to reduce economic value of equity by 1.9%. Actual results may differ from simulations because of assumptions about deposit pricing, loan and securities prepayments, balance-sheet mix, and market conditions.
- Two disclosed legal matters include the Bank’s lawsuit against Pioneer Bank over an approximately $16 million claimed loss (with a counterclaim by Pioneer) and an employment-related matter proceeding toward arbitration, expected in the second half of 2023. Management said it had not accrued for additional recovery in the Pioneer matter and did not identify pending litigation it considered material to financial condition or results.
- The company paid a $0.18-per-share dividend and repurchased 47,275 shares for approximately $1.2 million in Q1. Its board authorized up to $50 million in repurchases through December 31, 2023.
- Adoption of ASU 2022-02 had no material financial-statement impact. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: the filing is Berkshire Hills Bancorp, Inc., despite the request metadata naming Beacon Financial Corp.
- Review deposit composition and retention, deposit pricing, and reliance on FHLB borrowings, particularly given the quarter-end $900 million short-term advance balance.
- Assess the magnitude and duration of unrealized securities losses and the company’s capacity to avoid selling securities before recovery.
- Track commercial real estate and commercial-and-industrial credit performance, charge-offs, criticized loans, and allowance adequacy.
- Check subsequent developments in the Pioneer litigation, the employment arbitration, repurchases, and the announced dividend program.