Berkshire Hills Bancorp(US:BHLB)2025-08-11 19:02PART I. FINANCIAL INFORMATION Presents the company's unaudited consolidated financial statements, notes, management's discussion, market risk disclosures, and controls for the periods ended June 30, 2025 Item 1. Consolidated Financial Statements (unaudited) This section presents the unaudited consolidated balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows for the periods ended June 30, 2025, and 2024. It also includes detailed notes to the financial statements covering key accounting policies, segment information, and specifics on financial instruments such as securities, loans, derivatives, and details on the pending merger Consolidated Financial Statements Provides a detailed overview of the company's financial position, performance, and cash flows through balance sheets, income statements, and related notes Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $12,034,748 | $12,273,408 | | Net Loans | $9,381,505 | $9,270,294 | | Total Securities | $1,172,530 | $1,188,859 | | Total Liabilities | $10,812,437 | $11,105,984 | | Total Deposits | $9,979,031 | $10,375,204 | | Total Borrowings | $585,597 | $438,094 | | Total Shareholders' Equity | $1,222,311 | $1,167,424 | Consolidated Income Statement Summary (in thousands) | Account | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $91,921 | $88,532 | $181,692 | $176,672 | | Provision for Credit Losses | $4,000 | $6,499 | $9,500 | $12,499 | | Total Non-interest Income (Loss) | $21,752 | $20,133 | $42,424 | $(12,466) | | Total Non-interest Expense | $68,144 | $70,931 | $138,510 | $146,951 | | Net Income | $30,366 | $24,025 | $56,085 | $3,837 | Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Diluted EPS | $0.66 | $0.57 | $1.22 | $0.09 | - For the six months ended June 30, 2025, net cash used by financing activities was $298.9 million, primarily due to a net decrease in deposits of $396.2 million, partially offset by a net increase in borrowings1820 - Net cash used by investing activities was $88.5 million, driven by a net increase in loans of $118.3 million1820 Note 4. Loans and Allowance for Credit Losses Details the composition of the loan portfolio, changes in the allowance for credit losses, and trends in criticized and non-accrual loans Total Loans by Segment (in thousands) | Loan Segment | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial Real Estate (CRE) | $4,243,451 | $4,101,582 | | Commercial and Industrial | $1,493,719 | $1,439,175 | | Residential Real Estate | $2,796,343 | $2,771,769 | | Construction | $621,413 | $726,344 | | Home Equity & Consumer | $343,923 | $346,124 | | Total Loans | $9,498,849 | $9,384,994 | - The Allowance for Credit Losses on Loans (ACLL) increased to $117.3 million as of June 30, 2025, from $114.7 million at year-end 20245059 - The provision for credit losses for the first six months of 2025 was $9.5 million, with net charge-offs totaling $6.9 million5059 - Total criticized loans (Special Mention and lower) increased to $344.2 million at June 30, 2025, from $245.9 million at December 31, 202474 - Non-accrual loans remained relatively stable at $25.4 million74 - During the six months ended June 30, 2025, the company modified loans with an amortized cost basis of $54.3 million to borrowers experiencing financial difficulty, primarily through term extensions for commercial real estate and commercial & industrial loans81 Note 7. Derivative Financial Instruments and Hedging Activities Outlines the company's use of derivative instruments for managing interest rate risk, including notional amounts and fair values - As of June 30, 2025, the Company held derivatives with a total notional amount of $5.1 billion, up from $4.9 billion at year-end 2024103104 - This includes cash flow hedges, economic hedges, and non-hedging derivatives103104 Derivative Notional Amounts by Type (in thousands) | Derivative Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash flow hedges | $675,000 | $800,000 | | Economic hedges | $4,369,120 | $4,072,615 | | Non-hedging derivatives | $11,615 | $10,512 | | Total | $5,055,735 | $4,883,127 | - The net fair value of all derivative instruments was a liability of $17.2 million as of June 30, 2025, a significant improvement from a net liability of $31.1 million at December 31, 2024108111 Note 9. Capital Ratios and Shareholders' Equity Presents the company's regulatory capital ratios, demonstrating compliance with "well capitalized" requirements and changes in shareholders' equity - At June 30, 2025, both the Company and the Bank exceeded all regulatory capital requirements and were classified as "well capitalized"142144 Company (Consolidated) Capital Ratios | Ratio | June 30, 2025 | December 31, 2024 | Minimum Requirement | | :--- | :--- | :--- | :--- | | Common equity tier 1 capital | 13.4% | 13.0% | 4.5% | | Tier 1 capital | 13.6% | 13.2% | 6.0% | | Total capital | 15.9% | 15.5% | 8.0% | | Tier 1 leverage | 11.1% | 11.0% | 4.0% | Note 15. Pending Merger Describes the key terms and status of the proposed merger of equals between Berkshire and Brookline Bancorp, Inc - On December 16, 2024, Berkshire entered into a merger agreement with Brookline Bancorp, Inc199 - The transaction is structured as a merger of equals199 - Under the agreement, each share of Brookline common stock will be converted into the right to receive 0.42 shares of Berkshire common stock200 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2025, highlighting a 25% year-over-year increase in operating EPS to $0.69 for the quarter, driven by revenue growth and expense reduction. The discussion covers positive operating leverage, an improved net interest margin of 3.27%, stable asset quality, and a strong capital position with a CET1 ratio of 13.4%. The report also details the pending merger of equals with Brookline Bancorp, which is targeted to close in Q3 2025 Overview and Key Performance Metrics Highlights the company's financial performance for Q2 and H1 2025, including diluted EPS, operating EPS, and key financial ratios - Q2 2025 diluted EPS was $0.66, compared to $0.57 in Q2 2024202222 - The non-GAAP operating EPS increased by 25% to $0.69 from $0.55 over the same period, marking the highest quarterly level since 2019202222 Key Performance Ratios (Q2 2025 vs Q2 2024) | Ratio | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Return on assets | 1.03% | 0.82% | | Operating return on assets | 1.07% | 0.79% | | Return on tangible common equity | 10.35% | 9.99% | | Operating return on tangible common equity | 10.76% | 9.65% | | Net interest margin, FTE | 3.27% | 3.20% | | Efficiency ratio | 56.73% | 63.40% | - The company is progressing with its proposed merger of equals with Brookline Bancorp, Inc., which is targeted to close in the third quarter of 2025218 - Stockholders of both companies approved the required resolutions in Q2 2025218 Results of Operations Analyzes the drivers of net interest income, non-interest income, and non-interest expense, along with their impact on the efficiency ratio - Net interest income increased by 4% YoY for Q2 and 3% for H1 2025, driven by reinvestment of proceeds from securities sales into higher-yielding loans228 - The net interest margin improved to 3.27% in Q2 2025 from 3.20% in Q2 2024228 - Operating non-interest income for H1 2025 increased by $5 million (13%) YoY, primarily due to a $4 million increase in loan-related fees229 - Operating non-interest expense decreased by $5 million (7%) in Q2 and $9 million (6%) in H1 2025 YoY, reflecting benefits from branch consolidations and sales231 - The efficiency ratio improved to 56.7% in Q2 2025231 Financial Condition Reviews changes in the company's loan portfolio, asset quality, deposit levels, and shareholders' equity during the first half of 2025 - Total loans increased by $114 million (1%) in H1 2025 to $9.5 billion, led by growth in commercial multifamily and commercial & industrial loans235 - Asset quality remains favorable, with non-performing loans at 0.27% of total loans237238 - The allowance for credit losses to total loans increased to 1.24% from 1.22% at year-end 2024237238 - Total deposits decreased by $396 million to $10.0 billion, primarily due to seasonal runoff of year-end balances240 - Excluding seasonal impacts, core deposits grew240 - Shareholders' equity grew by $55 million (5%) to $1.2 billion in H1 2025, driven by retained earnings and favorable changes in other comprehensive income242 - Book value per share increased 5% to $26.40242 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is Interest Rate Risk (IRR), managed by the Asset Liability Committee (ALCO) using Net Interest Income (NII) and Economic Value of Equity (EVE) simulation models. As of June 30, 2025, the company's NII sensitivity showed increased asset sensitivity to rising rates compared to year-end 2024, while EVE sensitivity became more liability sensitive, primarily due to assumption updates Net Interest Income (NII) Sensitivity | Parallel Interest Rate Shock (bps) | Estimated % Change in NII (June 30, 2025) | Estimated % Change in NII (Dec 31, 2024) | | :--- | :--- | :--- | | +200 | 6.2% | 2.2% | | +100 | 3.2% | 1.2% | | -100 | (3.5)% | (1.4)% | | -200 | (7.1)% | (2.9)% | Economic Value of Equity (EVE) Sensitivity | Parallel Shock Rate Change (bps) | Estimated % Change in EVE (June 30, 2025) | Estimated % Change in EVE (Dec 31, 2024) | | :--- | :--- | :--- | | +200 | (2.8)% | (1.4)% | | +100 | (1.4)% | (0.6)% | | -100 | 0.7% | 0.2% | | -200 | 1.4% | (0.1)% | - The company's NII sensitivity profile has become more asset-sensitive over the first six months of 2025, meaning net interest income is modeled to benefit more from a rise in interest rates259263 - Conversely, the EVE model shows increased liability sensitivity259263 Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025. There were no material changes to the company's internal control over financial reporting during the second quarter - The principal executive and financial officers concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report264 - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal controls265 PART II. OTHER INFORMATION Covers legal proceedings, updated risk factors, and details regarding equity securities transactions and issuer purchases Item 1. Legal Proceedings The company is involved in various legal proceedings incidental to its business, none of which are believed by management to be material to its financial condition. Key ongoing matters include a complaint filed by the Bank against Pioneer Bank seeking damages of approximately $16.0 million for alleged breaches of loan participation agreements, and a wrongful termination claim from a former employee of a subsidiary which is proceeding to arbitration - The Company and its Bank are not involved in any pending legal proceedings that management believes to be material to the Company's financial condition or results of operations267 - An ongoing case involves a complaint filed by the Bank against Pioneer Bank seeking damages of approximately $16.0 million related to alleged breaches of loan participation agreements267 Item 1A. Risk Factors There have been no material changes in risk factors from those identified in the company's most recent Annual Report on Form 10-K. The report reiterates the existence of merger-related risks concerning the pending transaction with Brookline Bancorp. A key condition for the merger, stockholder approval from both companies, was satisfied in May 2025 - There have been no material changes in risk factors from those identified in the Company's most recent Annual Report on Form 10-K269 - Risks include merger-related risks regarding the pending merger with Brookline Bancorp269270 - A condition of the merger was satisfied in May 2025 when stockholders of both companies approved the necessary proposals269270 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company did not engage in any unregistered sales of securities during the three months ended June 30, 2025. Additionally, the company did not repurchase any of its own shares during the second quarter of 2025 under its publicly announced plans or programs - The Company did not transfer any unregistered securities during the three months ended June 30, 2025271 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | April 2025 | — | $ — | | May 2025 | — | $ — | | June 2025 | — | $ — | | Total | — | $ — |