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BOSTON, Jan. 20, 2022 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today reported that fourth quarter earnings per share (EPS) increased year-over-year by 40% to $0.42 in 2021, and by 50% to $0.42 on an adjusted non-GAAP basis. For the year 2021, Berkshire reported EPS of $2.39, or $1.69 on an adjusted basis, compared to a 2020 loss of ($10.60), or a $0.60 profit, on an adjusted basis.
Results for the quarter and full year 2021 demonstrate strong improvement over the prior year and a solid start to Berkshire's Exciting Strategic Transformation (BEST) plan that is targeted to significantly improve stakeholder value while making Berkshire the leading socially responsible Community Bank in New England and beyond.
FOURTH QUARTER FINANCIAL HIGHLIGHTS (Comparisons are to the prior year unless otherwise stated; non-GAAP measures are reconciled on pages F-9 and F-10).
4% increase in non-interest income excluding gains/losses
1% increase in commercial loans quarter-over-quarter
Total loans stable quarter-over-quarter; up 0.5% before non-strategic run-off
45% decrease in non-performing assets, measuring 0.32% of total year-end assets
$3 million benefit to the credit loss provision due to a release of the credit loss allowance
71% reduction in wholesale funding to 3% of assets (period-end balance)
Cost of deposits down year-over-year to 0.19% from 0.47%
CEO Nitin Mhatre stated, "We posted commercial portfolio loan growth during the quarter and our fee income demonstrated strong year-over-year momentum across most business lines. We announced and executed several initiatives in the most recent quarter which are targeted to strengthen our franchise and further improve our future operating results as part of our BEST plan. Berkshire continued to hire strong new talent in our SBA lending, wealth management and private banking divisions, and enhanced our business banking and MyBanker teams as well. Our Board of Directors was joined by former banking executive and digital, financial and risk expert Nina Charnley. Berkshire expanded its consumer lending solutions, providing more convenient and affordable access to consumers in its markets. The Bank also expanded its wealth management offerings with a suite of mission-aligned socially responsible investing portfolios and is already seeing some early success."
Mr. Mhatre concluded, "We're pleased with the strong year-over-year improvement in net profit and are tracking ahead of our BEST plan financial targets. Berkshire Bank's strong liquidity and capital positions it well for higher expected interest rates and planned business growth in 2022. I thank our Berkshire team for its commitment to exceptional service to our customers and markets, its dedication to community comeback, and for making our Company an award-winning workplace and outstanding corporate citizen. We're pleased that our shareholders have benefited from our endeavors as our share price has reached a nearly two year high and appreciated at about twice the growth rate of peers in 2021. Also, we announced yesterday that our Board has authorized a share repurchase up to $140 million in total cost and we're targeting further benefit to our shareholders from this plan in 2022."
The Board of Directors determined that the Annual Meeting of Shareholders will be held at 10:00 a.m. on Wednesday, May 18, 2022 and may be convened as a virtual meeting. The date of Friday, March 25, 2022 was established as the record date for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting. Further information about the annual meeting will be available in early April at the Company's website at ir.berkshirebank.com.
RESULTS OF OPERATIONS
Earnings: Fourth quarter GAAP earnings per share increased to $0.42 in 2021 from $0.30 in 2020, and decreased from $1.31 in the third quarter of 2021. Berkshire's non-GAAP measure of fourth quarter adjusted EPS was also $0.42 in 2021, which was a 504% increase year-over-year primarily due to a benefit to the loan loss provision reflecting improved credit performance in 2021. Adjusted EPS decreased 21% quarter-over-quarter reflecting changes in revenue mix as the Company is investing in new revenue generating sources targeted to benefit future periods. Fourth quarter return on equity increased year-over-year to 6.9% in 2021, and adjusted return on tangible common equity improved to 7.3%. These results included the benefit of the repurchase of 5% of outstanding shares during 2021.
Revenue: Fourth quarter revenue decreased year-over-year and quarter-over-quarter reflecting low interest rates and constrained customer demand during the ongoing pandemic. By accumulating lower yielding short term investments, the Company accepted lower 2021 revenues and is positioned to benefit from projected stronger loan demand and higher interest rates in 2022. Fourth quarter net interest income decreased 8% year-over-year and 3% quarter-over-quarter, reflecting both volume and margin changes, as well as the sale of the Company's Mid-Atlantic branch operations. The fourth quarter 2021 net interest margin was 2.60%, compared to 2.56% in the linked quarter, and reflected the benefit of the reduction in higher cost wholesale funding and the roll-down in the cost of maturing retail time deposits.
Non-interest income excluding gains/losses increased by 4% year-over-year, and by 18% excluding insurance operations sold in 2021, including 1% growth of this measure quarter-over-quarter. Most ongoing categories of quarterly fee income increased year-over-year, despite the sale of the Mid-Atlantic branch operations. SBA lending revenue climbed again to $5.8 million, marking the third straight quarter of record revenues for this business line. Full year SBA lending non-interest revenue was a record $21 million. Wealth management revenue increased 10% year-over-year, totaling $2.6 million for the quarter. In recent months, the Company has recruited seasoned bankers to support ongoing growth in both of these business lines.
Provision for Credit Losses on Loans: Berkshire recorded a $3 million benefit to the fourth quarter provision, compared to a charge of $10 million in the fourth quarter of 2020 and a benefit of $4 million in the linked quarter. This resulted from a $7 million release of the credit loss allowance net of $4 million in net loan charge-offs. The Company also utilizes the non-GAAP financial measure of Pre-tax Pre-Provision Net Revenue ("PPNR") to evaluate the results of operations before the impact of the provision and tax expense. PPNR measured $21 million in the most recent quarter.
Expense: Fourth quarter 2021 non-interest expense totaled $69 million, decreasing by 3% year-over-year and measuring flat quarter-over-quarter. Procurement initiatives have been deployed across the company, contributing to lower expenses for occupancy and professional services. Growth in compensation and technology costs include the impacts of frontline banker hires and digital initiatives. Full time equivalent staff totaled 1,319 positions at period-end, compared to 1,505 positions at the start of the year. The effective tax rate was 17% in the final quarter of 2021, and the tax rate was 20% for the full year 2021 including the impact of higher taxable income from third quarter sale gains. Tax credit investments provided $0.01 in EPS benefit in the most recent quarter, net of the related amortization recorded to non-interest income. This was unchanged from the prior quarter.
BALANCE SHEET (references are to period-end balances unless otherwise stated)
Summary: Assets totaled $11.6 billion at year-end 2021. Total assets decreased by 10% year-over-year due primarily to the sale of the Mid-Atlantic branch operations and expected repayments of SBA guaranteed commercial Paycheck Protection Program ("PPP") loans. In the fourth quarter, liquidity was used to increase the investment securities portfolio and further reduce higher cost wholesale funds sources. Short-term investments remained elevated at 13% of total assets at year-end, positioning the bank to benefit from expected increases in interest rates. Capital metrics also remained elevated, with tangible equity measuring 10.0% of total year-end tangible assets. The Company's strong capital and liquidity position it for future targeted loan growth and capital distributions which are integral elements of its BEST strategic plan.
Loans: Period-end loans were stable in the fourth quarter of 2021, as 1% growth in commercial balances offset 4% decreases in residential mortgage and consumer loan balances. Commercial and industrial loan balances grew 4%, including strong growth in asset-based lending. Quarterly results were net of runoff in targeted portfolios. For the year, loans decreased by 16%, including run-off in targeted portfolios consisting of a $603 million decrease in PPP loans, a $112 million decrease in indirect auto loans, and a $158 million decrease in commercial loans in COVID-sensitive industries. This accounted for approximately half of the full year decline in loan balances. Much of the remaining decline was due to runoff of residential mortgages which were not replaced in the low yield environment during the year. The Company has expanded its commercial and business banking teams and is developing new sourcing channels for residential mortgages and consumer loans in its markets to support planned loan growth in 2022.
Asset Quality: Asset quality metrics remained favorable and improving in the most recent quarter. Non-accruing loans decreased year-over-year by 46% to $35 million, measuring 0.52% of total loans at year-end 2021. Annualized fourth quarter net loan charge-offs measured 0.23%, compared to 0.80% in 2020. Total delinquent and non-accruing loans decreased 15% year-over-year, measuring 1.15% of total year-end 2021 loans. The allowance for credit losses on loans decreased quarter-over-quarter by $7 million, measuring 1.55% of total loans, which was a decrease from 1.65% in the linked quarter.
Deposits and Borrowings: Period-end total deposits decreased by 1% year-over-year and 3% quarter-over-quarter. Excluding brokered deposits, total deposits increased by 2% year-over-year and decreased 2% quarter-over-quarter as businesses used liquidity near year-end. The Bank has been running off brokered deposits, which decreased by $383 million and $89 million year-over-year and quarter-over-quarter, respectively. Full year-deposit activity resulted in a shift in mix towards non-interest-bearing deposits, which increased 21% year-over-year and represented 30% of total year-end balances. The fourth quarter deposit mix shifted from NOW accounts to money market accounts due to year-end calendar timing related to payroll deposits. Higher cost wholesale funds, consisting of brokered deposits and borrowings, decreased by 71% year-over-year and 21% quarter-over-quarter. Wholesale funds totaled $339 million at year-end 2021 and all other time deposits totaled $1.45 billion. The Company targets to further lower funding costs as most of these higher cost balances mature in 2022.
Equity: Capital metrics improved in 2021, with tangible common shareholders' equity/tangible assets increasing to 10.0% at year-end. During the second and third quarters of 2021, Berkshire repurchased approximately 5% of outstanding shares, which decreased to 48.7 million at year-end 2021 from 50.8 million at the prior year-end. For the year 2021, book value per share increased by 4% to $24.30, and the non-GAAP measure of tangible book value per share also increased by 4% to $23.69.
ESG & CORPORATE RESPONSIBILITY UPDATE
Berkshire Bank is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being the top-performing, leading socially responsible community bank in New England and beyond. Learn more about the steps Berkshire is taking at berkshirebank.com/csr and in its most recent Corporate Responsibility Report.
Key developments in the quarter include:
Progress on the BEST Community Comeback: Berkshire previously announced its "BEST Community Comeback", an aggressive ESG and community commitment to fuel resilience and strengthen local economies. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability. As a result of the collective efforts of its employees, Berkshire is showing early progress and momentum towards achievement of its goals. The Company helped more than 180,000 individuals through its financial wellness programming and increased its use of renewable electricity to 83%. Additional information can be found at berkshirebank.com/comeback.
Enhancing ESG Oversight: Berkshire continued to enhance its oversight of Environmental, Social and Governance matters by adding an ESG Committee, chaired by its SVP, Corporate Responsibility & Communications and including members of its executive management team. The committee complements its existing comprehensive management committee structure and provides an additional layer of oversight to its enterprise-wide ESG and Corporate Responsibility program.
Current ESG Performance: The Company continued to improve its Environmental, Social and Governance (ESG) ratings, generally outperforming peers and moving into the top-quartile for ESG performance, one of its five major BEST targets. As of December 31, 2021 the Company received ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 3, Social: 1, Governance: 2; and Bloomberg ESG Disclosure- 47.81. The Company also received an improved rating from Sustainalytics.
INVESTOR CONFERENCE CALL AND INVESTOR PRESENTATION
Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Thursday, January 20, 2022 to discuss results for the quarter and provide guidance about expected future results. The Company will also post an investor presentation at its website at ir.berkshirebank.com with additional financial information and other information about the quarter.
Participants are encouraged to pre-register for the conference call using the following link:
Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call. Participants may pre-register at any time prior to the call and will immediately receive simple instructions via email.
Additionally, participants may reach the registration link and access the webcast by logging in through the investor relations section of Berkshire's website at ir.berkshirebank.com. Those parties who do not have Internet access or are otherwise unable to pre-register for this event, may still participate at the above time by dialing 844-200-6205 and using participant access code: 738511. Participants are requested to dial-in a few minutes before the scheduled start of the call.
A telephone replay of the call will be available for one week by dialing 866-813-9403 and using access code: 198914. The webcast will be available on Berkshire's website for an extended period of time
ABOUT BERKSHIRE HILLS BANCORP
Berkshire Hills Bancorp is the parent of Berkshire Bank, which is transforming what it means to bank its neighbors socially, humanly, and digitally to empower the financial potential of people, families, and businesses in its communities as it pursues its vision of being the leading socially responsible omni-channel community bank in the markets it serves. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately $11.6 billion in assets and operates 106 branch offices in New England and New York, and is a member of the Bloomberg Gender-Equality Index. To learn more, call 800-773-5601 or follow us on Facebook, Twitter, Instagram, and LinkedIn.
This document contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements from the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. There are many factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see Berkshire's most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission and available on the SEC's website at www.sec.gov. You should not place undue reliance on forward-looking statements, which reflect our expectations only as of the date of this document. Berkshire does not undertake any obligation to update forward-looking statements.
NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles ("GAAP"). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included on pages F-9 and F-10 in the accompanying financial tables. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.
The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for adjusted revenue and expense. These measures exclude items which the Company does not view as related to its normalized operations. These items primarily include securities gains/losses, other gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations. In 2020, the Company recorded a full impairment of its goodwill and exited its discontinued national mortgage banking operations. Other adjusted expense in 2020 was primarily related to costs of the separation with the former CEO, as well as consulting for the CEO succession process. A 2020 adjusted gain was recognized on the sale of a specialty commercial insurance business line. In 2021, the Company recorded a third quarter net gain of $52 million on the sale of the Company's insurance subsidiary and the Mid-Atlantic branch operations. Expense adjustments in the first quarter 2021 were primarily related to branch consolidations. Third quarter 2021 adjustments included Federal Home Loan Bank borrowings prepayment costs. They also included other restructuring charges for efficiency initiatives in operations areas including writedowns on real estate moved to held for sale and severance related to staff reductions. The fourth quarter 2021 revenue adjustment was primarily related to trailing revenue on a previously reported sale, and the expense adjustment was due primarily to branch restructuring costs.
The Company utilizes Adjusted Pre-Provision Net Revenue ("Adjusted PPNR") which measures adjusted income before credit loss provision and tax expense. PPNR is used by the investment community due to the volatility and variability across banks related to credit loss provision expense under the Current Expected Credit Loss accounting standard. The Company also calculates Adjusted PPNR/assets in order to utilize the PPNR measure in assessing its comparative operating profitability.
Non-GAAP adjustments are presented net of an adjustment for income tax expense. This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to adjusted income. The efficiency ratio is adjusted for adjusted revenue and expense items and for tax preference items. The Company also calculates measures related to tangible equity, which adjust equity (and assets where applicable) to exclude intangible assets due to the importance of these measures to the investment community.
Investor Relations Contacts
Kevin Conn, SVP, Investor Relations & Corporate Development
Tel: (617) 641-9206
David Gonci, Capital Markets Director
Tel: (413) 281-1973
Gary Levante, SVP, Corporate Responsibility & Culture
Tel: (413) 447-1737
CONSOLIDATED UNAUDITED FINANCIAL SCHEDULES
Selected Financial Highlights
Loan and Deposit Analysis
Statements of Operations
Statements of Operations (Five Quarter Trend)
Average Balances and Average Yields and Costs
Asset Quality Analysis
Asset Quality Analysis (continued)
Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures
BERKSHIRE HILLS BANCORP, INC.
SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED - (F-1)
NOMINAL AND PER SHARE DATA
Net earnings per common share, diluted
Adjusted earnings per common share, diluted (2)
Net income, (thousands)
Adjusted net income,(thousands)(2)
Total common shares outstanding, period-end (thousands)
Average diluted shares, (thousands)
Total book value per common share, (end of period)
Tangible book value per common share, (end of period) (2)
Dividends per common share
Full-time equivalent staff, continuing operations
PERFORMANCE RATIOS (3)
Return on equity
Adjusted return on equity (2)
Return on tangible common equity (2)
Adjusted return on tangible common equity (2)
Return on assets
Adjusted return on assets (2)
Net interest margin, fully taxable equivalent (FTE) (4)(5)
Efficiency ratio (2)
FINANCIAL DATA (in millions, end of period)
Total earning assets
Total shareholders' equity
Allowance for credit losses, (millions)
Net charge-offs, (millions)
Net charge-offs (QTD annualized)/average loans
Provision expense/(income), (millions)
Non-performing assets, (millions)
Non-performing loans/total loans
Allowance for credit losses/non-performing loans
Allowance for credit losses/total loans
Common equity tier 1 capital to risk weighted assets(6)
Tier 1 capital leverage ratio(6)
Tangible common shareholders' equity/tangible assets(2)
Reconciliations of non-GAAP financial measures, including all references to adjusted and tangible amounts, appear on pages F-9 and F-10.
Non-GAAP financial measure. adjusted measurements are non-GAAP financial measures that are adjusted to exclude net non-adjusted charges primarily related to acquisitions and restructuring activities. See pages F-9 and F-10 for reconciliations of non-GAAP financial measures.
All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.
The effect of purchase accounting accretion for loans, time deposits, and borrowings on the quarterly net interest margin was an increase in all quarters, which is shown sequentially as follows beginning with the earliest quarter and ending with the most recent quarter: 0.07%, 0.05%, 0.08%, 0.06%, 0.05%.
Presented as projected for December 31, 2021 and actual for the remaining periods.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED - (F-2)
Cash and due from banks
Total cash and short-term investments
Marketable equity securities, at fair value
Securities available for sale, at fair value
Securities held to maturity, at amortized cost
Federal Home Loan Bank stock and other restricted securities
Less: Allowance for credit losses on investment securities
Loans held for sale
Less: Allowance for credit losses on loans
Premises and equipment, net
Other real estate owned
Goodwill and other intangible assets
Assets held for sale (1)
Liabilities and shareholders' equity
NOW and other deposits
Money market deposits
Liabilities held for sale (1)
Preferred shareholders' equity
Common shareholders' equity
Total shareholders' equity
Total liabilities and shareholders' equity
(1) For December 31, 2020, balance includes loans and deposits from branch sales in the Mid-Atlantic region.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED - (F-3)
December 31, 2020
September 30, 2021
December 31, 2021
Year to Date
Total commercial real estate
Commercial and industrial loans
Paycheck Protection Program (PPP) Loans
Total commercial loans
Total residential mortgages
Auto and other
Total consumer loans
December 31, 2020
September 30, 2021
December 31, 2021
Year to Date
NOW and other
Total deposits (1)
(1) Included in total deposits are brokered deposits of $228.1 million, $317.1 million and $610.6 million at December 31, 2021, September 30, 2021, and December 31, 2020, respectively.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED - (F-4)
Three Months Ended
(in thousands, except per share data)
Net interest income from continuing operations, not FTE
Non-interest income from continuing operations