BERKSHIRE HILLS REPORTS RECORD FOURTH QUARTER RESULTS

BOSTON, Jan. 26, 2023 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) today reported that fourth quarter 2022 earnings per share ("EPS") increased year-over-year by 64% to a fourth quarter record $0.69.  For these periods, the non-GAAP measure of adjusted EPS increased by 52% to $0.64. 

For the full year 2022, EPS decreased year-over-year by 15% to $2.02, and adjusted EPS increased by 30% to $2.19.  GAAP results included gains in 2021 on the sale of business operations and charges in both years for branch consolidations.  These are the primary items excluded from the measure of adjusted results.

Improvements in adjusted results for the fourth quarter and full year 2022 demonstrate positive operating leverage and progress from Berkshire's BEST strategic initiatives.  Compared to the prior quarter, results included an 11% increase in net interest income, in conjunction with an increase in the net interest margin to 3.84%.

FOURTH QUARTER FINANCIAL HIGHLIGHTS (Changes are quarter-over-quarter unless otherwise stated.  Non-GAAP measures are reconciled on pages F-9 and F-10).

• 10.1% return on equity; 10.6% return on tangible common equity (non-GAAP)
• 1.08% return on assets; 1.00% adjusted return on assets (non-GAAP)
• 9% increase quarter-over-quarter in total net revenue
• 3.84% net interest margin, increased from 3.48% in 3Q22 and 2.60% in 4Q21
• 58% efficiency ratio, improved from 62% in 3Q22 and 72% in 4Q21
• 1% increase in full year non-interest expense; flat adjusted non-interest expense (non-GAAP)
• 5% broad-based loan growth (end of period)
• 1% increase in average deposits
• 0.60% delinquent and non-accruing loans/total loans – lowest in more than a decade
• 9% reduction in period-end shares outstanding year-over-year reflecting stock buybacks
• 50% increase in quarterly shareholder dividend in the fourth quarter of 2022

CEO Nitin Mhatre stated "Berkshire finished the year with strong loan growth momentum, resulting in record fourth quarter revenue and earnings per share.   The balance sheet remains strong and positively positioned to benefit from potential future interest rate increases.  With these solid underpinnings, Berkshire increased its quarterly shareholder dividend by 50% in the fourth quarter, as well as repurchasing 2% of shares.  We're pleased that our results have contributed to strong outperformance by our stock compared to the broad market and our industry.  BHLB provided a 2022 calendar year total shareholder return exceeding 7% against a backdrop of market declines, with the S&P 500 index posting a negative 18% total return for the year."

"We have separately announced our CFO hire, and this follows recently announced executive hires for Commercial Banking and Credit.  I'm pleased with the exceptional caliber of executives who are attracted by our strong team, promising business prospects, and purpose-focused vision.  We also announced a $50 million share repurchase program for 2023, continuing our focus on balanced capital management and shareholder distributions."

"Berkshire's return on assets and return on tangible common equity improved to within its target range at the halfway point of its three year strategic plan.  Berkshire also achieved the highest ESG ranking in our history, with a top 17% composite performance ranking in leading ESG indexes in the U.S. for its Environmental, Social and Governance ratings. We also recorded our highest employee engagement through our survey platform with Mercer. We rolled-out promotion of our new brand campaign theme of "Where You Bank Matters", which captures the spirit of our vision to serve as a high-performing leading socially responsible community bank for all of our stakeholders.  I thank the entire Berkshire team for our success in 2022 and all they do to maintain our forward momentum in delivering on our vision."

RESULTS OF OPERATIONS

Earnings:  Fourth quarter 2022 EPS of $0.69 increased from $0.42 in the prior quarter, while adjusted EPS increased by 2% from $0.62 to $0.64.  Adjusted results benefited from higher net interest income and lending related fee revenue. The increase in GAAP EPS also reflected a reduction in accrued branch consolidation expenses based on a reduction in total estimated costs.

On a year-over-year basis, fourth quarter results also increased from $0.42 reported for both GAAP EPS and adjusted EPS in 2021.  This improvement was primarily due to higher net interest income, which has reflected growth in loans and in the interest margin in each of the last several quarters. Fourth quarter revenue increased by 30% year-over-year, while expense growth was held to 1%. The resulting positive operating leverage led to an improvement in the efficiency ratio to 58% in the most recent quarter, compared to 62% in the linked quarter and to 72% in the fourth quarter of 2021. 

The fourth quarter 2022 return on equity measured 10.1% and the non-GAAP measure of adjusted return on tangible common equity measured 9.8%. The return on assets measured 1.08% and the non-GAAP measure of adjusted return on assets measured 1.00%.

Pre-tax Pre-Provision Net Revenue ("PPNR") increased quarter-over-quarter by 79% to $48 million and the non-GAAP measure of adjusted PPNR increased by 16% to $45 million. Adjusted PPNR more than doubled from $21 million on a year-over-year basis and moved within the Company's target range at the halfway point of its three year strategic plan.

Revenue:  Revenue increased by 9% quarter-over-quarter and 30% year-over-year.  Net interest income has been the primary driver of revenue growth in recent periods.   Fourth quarter net interest income increased by $10 million, or 11%, compared to the linked quarter and by $33 million, or 47%, compared to the fourth quarter of 2021.  The net interest margin has increased in successive quarters over the last year, reaching 3.84% in the fourth quarter of 2022, compared to 3.48% in the prior quarter and 2.60% in the fourth quarter of 2021.

This improvement was primarily due to the benefit of loan growth and positive sensitivity to increased market interest rates. The yield on average earning assets improved quarter-over-quarter to 4.56% from 3.91%.  The cost of funds increased to 0.77% from 0.46%, while the cost of deposits increased to 0.69% from 0.33%.  The Company's interest rate sensitivity remained positive at period-end and was positioned to benefit from further interest rate increases anticipated by the market. 

Fee income benefited quarter-over-quarter from a $1 million increase in loan related fees, which partially offset the impact of higher charges for tax credit investment amortization.  Fourth quarter fee income decreased year-over-year primarily due to the impact of lower SBA related fees in 2022 resulting from changes in the SBA program and in market demand.

Provision for Credit Losses on Loans:  Berkshire recorded a $12 million provision for credit losses in the fourth quarter of 2022, bringing the full year provision to $11 million.  The full year 2021 provision was a benefit of $0.5 million.  Both years benefited from releases of pandemic related reserves, and the increase in 2022 also reflected a resumption of loan growth and changes in the loan mix.  The fourth-quarter provision primarily reflected the impact of one commercial and industrial credit which filed for bankruptcy in the fourth quarter. 

Non-Interest Expense and Tax Expense:  Full year non-interest expense increased by 1% in 2022, while adjusted non-interest expense was flat.

Fourth quarter non-interest expense totaled $70 million in 2022, decreasing by 14% quarter-over-quarter and increasing by 1% on a year-over-year basis due primarily to branch consolidation expense.  Fourth quarter adjusted  non-interest expense totaled $73 million which was a 3% increase quarter-over-quarter and a 6% increase year-over-year.  Technology costs reflect continued investment in digitization and the category of all other expenses increased primarily due to loan related costs. Full time equivalent staff totaled 1,310 positions at period-end, compared to 1,319 positions at the start of the year. 

The effective GAAP tax rate was 15% in the final quarter and 19% for the year 2022, compared to 20% for the year 2021.   Due to the timing of tax credit investments, both tax expense and non-interest income were reduced in the fourth quarter.  These investments contributed $0.03 to EPS in the year 2022, compared to $0.02 in the year 2021.

BALANCE SHEET (references are to period-end balances unless otherwise stated)

Summary:  Total loans grew by 5% quarter-over-quarter and by 22% year-over-year. Total deposits increased by 3% quarter-over-quarter and year-over-year.  Period-end liquidity and capital remained strong, with the ratio of loans/deposits measuring 81% and the non-GAAP measure of tangible common equity/tangible assets measuring 8.0%.

Loans:  Fourth quarter loan growth was concentrated in a $231 million increase in commercial loans and a $183 million increase in residential mortgages.  For the full year, commercial loans increased by $640 million and residential mortgages increased by $824 million.  Berkshire has expanded its lending  teams over the last year, and business volumes and credit usage have benefited in some segments from improved market demand.   Loan growth has also benefited from a decline in prepayments in the prevailing rising rate environment.  All major loan categories increased by double digits in 2022 except for home equity loans.  Reflecting higher interest rates, the fourth quarter loan yield increased year-over-year to 5.28% from 3.76%.

Asset Quality:   Total delinquent and non-accruing loans measured 0.60% of total loans at year-end, the lowest in more than a decade.  Reflecting the improved quality of the loan portfolio, the allowance for expected credit losses on loans declined to 1.15% of total loans from 1.21% at the start of the quarter.  Net loan charge-offs totaled $12 million in the fourth quarter and $21 million for the year, or 0.27% of full year average loans.  Charge-offs were concentrated in the second half of the year in one commercial and industrial credit which filed for bankruptcy in the fourth quarter.

Deposits:  Total deposits increased by 3% year-over-year and quarter-over-quarter including higher period-end payroll deposit balances.  Average deposits increased by 1% quarter-over-quarter and decreased by 2% year-over-year, including the impact of lower brokered time deposits. The fourth quarter cost of deposits increased year-over-year to 0.69% from 0.19%, including a 0.36% increase over the third quarter of 2022.

Equity:  Total fourth quarter shareholders' equity increased quarter-over-quarter by 1% to $954 million.  Stock buybacks in the most recent quarter totaled approximately $20 million consisting of approximately 661,000 shares.  For the year 2022, stock repurchases totaled $125 million, consisting of 4.5 million shares.  At period-end, book value per share totaled $21.51 and the non-GAAP measure of tangible book value per share totaled $20.95; both measures increased by 3% quarter-over-quarter.

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 a high-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:

• BEST Community Comeback: Berkshire continues to accelerate progress towards the achievement of its "BEST Community Comeback" goals as it tracks inline or slightly ahead of program targets at year-end. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability. Additional information and recent results can be found at berkshirebank.com/comeback.
  
  
• Current ESG Performance: The Company improved on its BEST ESG goal with a top 17% composite performance in leading ESG indexes in the U.S. for its Environmental, Social and Governance (ESG) ratings. This included an upgraded rating from MSCI to "A".  As of December 31, 2022 the Company has ratings of: MSCI ESG- A; ISS ESG Quality Score - Environment: 3, Social: 1, Governance: 2; and Bloomberg ESG Disclosure- 62.81. The Company is also rated by Sustainalytics.  Berkshire continues to rank among the top 1% of all U.S. Banks for ESG in Bloomberg.
  
  
• Sustainable Business Award: The Sustainable Business Network named the Company Massachusetts Sustainable Business of the Year in the bank category in recognition of its collective efforts to build a more equitable economy and sustainable communities. This includes Berkshire's initial impact from the BEST Community Comeback, its sustainable financing activities along with work to create a more diverse, equitable and inclusive workplace.
  
  
• Sustainability Bond: Berkshire has begun to allocate proceeds from its June 2022 Sustainability Bond issuance to eligible activities. The Company became the first public community bank with assets under $150 billion to issue a bond whose proceeds would be dedicated to social and environmental projects. Projects supported to date have created affordable housing, reduced greenhouse gas emissions and constructed green buildings.

INVESTOR CONFERENCE CALL AND INVESTOR PRESENTATION

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Thursday, January 26, 2023 to discuss results for the quarter and provide guidance about expected future results. The Company will also place an investor presentation at its website at ir.berkshirebank.com.

Participants are encouraged to pre-register for the conference call using the following link:

https://www.netroadshow.com/events/login?show=5437e05c&confId=45736

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: 522984. 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: 971852. The webcast will be available on Berkshire's website for an extended period of time.

ABOUT BERKSHIRE HILLS BANCORP

Headquartered in Boston, Berkshire Hills Bancorp (NYSE:BHLB) is the parent of Berkshire Bank. Founded in 1846, the Bank's vision is to serve as a high-performing leading socially responsible community bank. It empowers the financial potential of its stakeholders by making banking available where, when and how it's needed through an uncompromising focus on exceptional customer service, digital banking, and positive community impact. Providing a wide range of financial solutions through its consumer banking, commercial banking and wealth management divisions, the Bank has approximately $11.7 billion in assets and a community-based footprint of 100 financial centers in Massachusetts, New York, Vermont, Connecticut and Rhode Island. Named one of America's Most Trusted Companies 2022 by Newsweek, Berkshire is also listed in the Bloomberg Gender-Equality Index and a Best Place to Work for LGBTQ+ Equality. To learn more, follow us on Facebook, Twitter, Instagram, and LinkedIn. 

FORWARD-LOOKING STATEMENTS

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," "remain," "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 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 write-downs 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 revenue adjustments in 2022 were related to fair market value changes in equity and trading investments. The restructuring expense adjustment in third and fourth quarters of 2022 primarily related to the termination of leasehold interests and the write-down of related right of use assets and leasehold improvements in conjunction with branch consolidations and real estate reductions.

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.

CONTACTS

Investor Relations Contacts

Kevin Conn, SVP, Investor Relations & Corporate Development
Email: [email protected] 
Tel: (617) 641-9206

David Gonci, Capital Markets Director
Email: [email protected] 
Tel: (413) 281-1973

Media Contact:

Gary Levante, SVP, Corporate Responsibility & Communications
Email: [email protected] 
Tel: (413) 447-1737

SOURCE Berkshire Hills Bancorp, Inc.