Berkshire Hills (NYSE:BHLB) Bancorp reported a 9% decline in operating net income and EPS for the third quarter of 2023, primarily attributed to a decrease in net interest income. Despite the decline, the bank demonstrated stable asset quality, with average loan balances and deposits increasing by 2% and 1% respectively. The bank's balance sheet remained robust, with a common equity Tier 1 ratio of 12.1% and a tangible common equity ratio of 7.67%.
According to InvestingPro data, the bank's market cap stands at 808.64M USD with a P/E ratio of 8.64, which is relatively low compared to its near-term earnings growth. This suggests that the bank is currently undervalued, aligning with the bank's own belief as mentioned in the earnings call.
Key Takeaways:
- Berkshire Hills Bancorp reported a deceleration in net interest margin compression.
- The bank repurchased $3.9 million of stock in Q3 at an average cost of $20.01, indicating a bias towards stock repurchases. This aligns with an InvestingPro Tip that management has been aggressively buying back shares.
- The bank is focusing on deploying capital to support organic loan growth.
- Berkshire Hills Bancorp is considering branch consolidations and balance sheet restructuring to reduce expenses and improve the balance sheet mix.
- The bank expects loan growth to be on the lower end of their guidance range for the second half of the year, with a focus on growing the commercial book.
- The bank's BEST (NYSE:BEST) program, which includes the launch of a new mobile banking app and online banking platform, is expected to bring a low single-digit reduction in unit costs.
During the earnings call, CEO Nitin Mhatre discussed the bank's strategy to support organic loan growth and mentioned a bias towards stock repurchases, as the bank believes its stock is undervalued. The bank repurchased $3.9 million of stock in Q3 at an average cost of $20.01 and plans to continue repurchasing stock opportunistically. This is in line with an InvestingPro Tip that the bank's stock has taken a big hit over the last week, with a 1-week price total return of -8.79%.
Mhatre also highlighted the bank's efforts to control deposit growth, balance sheet de-risking, and expense management. The bank is considering options, including bulk sales, to reduce expenses and improve the balance sheet mix. On the topic of branch consolidation, Mhatre stated that the bank constantly evaluates its branches for opportunities to consolidate, with any further closures expected to occur in 2024 rather than the fourth quarter of 2023.
The bank also discussed its BEST program, which includes the consolidation of branches, the launch of a new mobile banking app and online banking platform, and the hiring of deposit-focused frontline bankers. The revamp of the digital banking platform is expected to result in a low single-digit reduction in unit costs.
The bank expects loan growth to be on the lower end of its guidance range for the second half of the year, with a focus on growing the commercial book. New commercial origination yields are expected to be around 7.75% to 8%.
The bank also discussed its strategy to reposition its pipelines and focus on lending and creating deposits under new leadership in commercial banking. They also plan to hire deposit-focused commercial bankers.
When asked about the plan to derisk the balance sheet, Mhatre stated that they are examining all components of the balance sheet but will provide more clarity in the future. Greg Lindenmuth, another representative, emphasized that the balance sheet doesn't necessarily need derisking, highlighting the bank's strong credit processes and risk management practices. The call concluded with thanks from Mhatre and the operator.
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