Berkshire Hills Bancorp: Earnings Likely To Bounce Back, But Risks Are High

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Berkshire Hills Bancorp reported a loss in 1Q due to the implementation of the first part of its strategic plan. The implementation of the second part will nullify the 1Q’s loss.The strength of ...

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The implementation of the second part will nullify the 1Q’s loss.The strength of ...</p>\n\n<a href=\"https://seekingalpha.com/article/4687893-berkshire-hills-bancorp-earnings-likely-to-bounce-back-but-risks-high\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Berkshire Hills Bancorp: Earnings Likely To Bounce Back, But Risks Are High</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBerkshire Hills Bancorp: Earnings Likely To Bounce Back, But Risks Are High\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-01 18:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4687893-berkshire-hills-bancorp-earnings-likely-to-bounce-back-but-risks-high><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Berkshire Hills Bancorp reported a loss in 1Q due to the implementation of the first part of its strategic plan. The implementation of the second part will nullify the 1Q’s loss.The strength of ...</p>\n\n<a href=\"https://seekingalpha.com/article/4687893-berkshire-hills-bancorp-earnings-likely-to-bounce-back-but-risks-high\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BRK.B","symbol_name":"伯克希尔B","start_time":0,"source_url":"https://seekingalpha.com/article/4687893-berkshire-hills-bancorp-earnings-likely-to-bounce-back-but-risks-high","article_id":"2432528495","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1392287524/image_1392287524.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2432528495","pubTimestamp":1714557613,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Berkshire Hills Bancorp reported a loss in 1Q due to the implementation of the first part of its strategic plan. The implementation of the second part will nullify the 1Q’s loss.The strength of busine","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"BRK.B":"伯克希尔B","BHLB":"Berkshire Hills Bancorp","BRK.A":"伯克希尔"},"translate_title":"伯克希尔山银行：收益可能反弹，但风险很高","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BHLB":1,"BRK.A":1,"BRK.B":1},"content_text":"Berkshire Hills Bancorp reported a loss in 1Q due to the implementation of the first part of its strategic plan. The implementation of the second part will nullify the 1Q’s loss.The strength of business activity in the New England region and New York will lift the loan portfolio and consequently earnings.The December 2024 target price suggests a high upside from the current market price. Further, BHLB is offering a decent dividend yield.Risks are high because of large unrealized losses on the securities portfolio. The management’s 1Q steps create fears that it could sell more securities at a loss.gguy44 Following the first quarter's loss, earnings of Berkshire Hills Bancorp, Inc. (NYSE:BHLB) will most probably bounce back in the year ahead. This is because the management intends to implement the second, profit-making half of its strategic plan later this year. Moreover, a conducive regional operating environment will support earnings. Overall, I'm expecting Berkshire Hills Bancorp to report earnings of $2.02 per share for 2024, up 26% year-over-year. The year-end target price suggests a high upside from the current market price. Based on the total expected return, I'm maintaining a buy rating on Berkshire Hills Bancorp. Strategic Plan is Currently Neutral But Raises Questions Berkshire Hills reported a loss in both the last quarter of 2023 and the first quarter of 2024 due to sales of securities. As interest rates had increased from March 2022 to July 2023, the market value of the fixed-rate Available-For-Sale securities had fallen, thereby resulting in large unrealized mark-to-market losses. By selling these securities, BHLB turned unrealized losses into realized losses which hurt the non-interest income, and consequently the net income. As mentioned in the first quarter's earnings release, the company sold $362 million in securities, resulting in a $49.9 million non-operating charge ($38.3 million after-tax, or $0.89 per share). This sale was part of a larger strategic plan, whereby BHLB also plans to sell some New York branches by the third quarter. The branch sale includes ~$485M in deposits and ~$58M of related residential mortgage and consumer loans plus all branch premises and equipment. The management mentioned in the earnings presentation that the combined branch and securities sale is neutral to the full-year 2024 earnings outlook. The gain and cost savings from the branch sale will nullify the first quarter's loss. Nevertheless, this strategic initiative (i.e. securities and branch sales) has made me wary. BHLB still has a large balance of securities with unrealized losses. As the first quarter's 10-Q Filing hasn't been released yet, I will have to estimate the current unrealized losses. The company had unrealized losses of ~ $190 million at the end of 2023, and it realized $49.9 million of losses through the sale; therefore, it probably has around $140 million of unrealized losses at present. To put this number in perspective, $140 million is greater than the average annual earnings of the last three years and it is around 14% of the total equity balance at the end of March 2024. Now that the management has proven that it is not shy about realizing losses, I think there's a chance that BHLB could sell further securities and thereby hurt the earnings. As the management has not indicated that it plans further transactions, I've decided to keep this factor out of the earnings estimate, but the possibility of a sale creates a significant risk to my thesis. Consolidations to Restrict Loan Growth Loan growth continued to decelerate in the first quarter of 2024. The loan portfolio grew by 0.5% during the quarter, down from 0.6% in the fourth quarter of 2023 and 4.2% in the first quarter of 2023. I'm not expecting much improvement in the upcoming quarters because the company has apparently entered a consolidation phase. Apart from the New York branch sales discussed above, BHLB is also planning to close three Connecticut branches in the second quarter of the year, as mentioned in the conference call. However, the operating environment is currently more conducive to loan growth compared to the first quarter. The company operates branches in New York, Vermont, Connecticut, Rhode Island, and Massachusetts. The unemployment rates of these states have dipped in recent months; however, they are still mostly above the pre-pandemic level. The trendlines show that the business activity is mostly better this quarter compared to the last quarter. Data by YCharts Considering these factors, I'm expecting the loan portfolio to grow by 0.5% in each of the last three quarters of 2024. Further, I'm expecting deposits to grow in line with loans. The following table shows my balance sheet estimates.   Financial Position FY19 FY20 FY21 FY22 FY23 FY24E          Net Loans 9,439 7,954 6,720 8,239 8,934 9,114   Growth of Net Loans 5.1% (15.7)% (15.5)% 22.6% 8.4% 2.0%   Other Earning Assets 2,281 3,708 4,073 2,578 2,665 2,302   Deposits 10,336 10,216 10,069 10,327 10,633 10,032   Borrowings and Sub-Debt 828 572 111 126 507 462   Common equity 1,718 1,188 1,182 954 1,012 1,094   Book Value Per Share ($) 34.8 23.6 23.9 20.8 23.5 25.4   Tangible BVPS ($) 22.6 22.9 23.3 20.2 23.0 25.0   Source: SEC Filings, Author's Estimates (In USD million unless otherwise specified)     Click to enlarge Expecting Earnings of $2.02 Per Share for 2024 The anticipated loan growth discussed above will likely drive Berkshire Hills Bancorp's net income this year. Moreover, the bottom line will receive some support from the net interest margin, NIM. The management mentioned in the conference call, \"We believe that the worst of the NIM compression is behind us . . . given the sale of lower yielding securities, we expect our NIM to increase by 5 basis points in the second quarter and to remain relatively flat for the rest of the year.\" The downtrend of the NIM was much steeper last year compared to the management's anticipated recovery for this year. Therefore, this guidance means that the average net interest margin for 2024 will be around 11 basis points below the average margin for 2023, according to my calculations. Based on my balance sheet estimates and the management's guidance for the net interest margin, I'm expecting the net interest income to decline by 2.6% year-over-year in 2024 to $359 million. Additionally, I'm assuming the following to forecast the earnings for this year:  I'm expecting the provision expenses for the remainder of 2024 to remain near the first quarter's level. I'm expecting the non-interest income to surge in the third quarter of 2024 due to the branch sale, as discussed above. I'm expecting non-interest expenses to grow proportionally to revenue so that the efficiency ratio (calculated as non-interest expenses divided by total revenue) remains stable.  Considering the assumptions above, I'm projecting 2024 earnings of $2.02 per share, up 26% year-over-year. The following table shows my income statement estimates.   Income Statement FY19 FY20 FY21 FY22 FY23 FY24E          Net interest income 365 317 291 345 369 359   Provision for loan losses 35 76 (1) 11 32 26   Non-interest income 84 66 143 69 43 67   Non-interest expense 290 840 286 289 302 297   Net income - Common Sh. 96 (533) 119 93 70 87   EPS - Diluted ($) 1.97 -10.60 2.39 2.02 1.60 2.02   Source: SEC Filings, Author's Estimates(In USD million unless otherwise specified)     Click to enlarge Risks Unrelated to Securities are Low As discussed above, the possibility of more securities sales at a loss creates risks to my thesis. Apart from the sale of securities, the riskiness is low. The loan portfolio does not seem to carry much credit risk. Office CRE portfolio totals $501M or 5.5% of total loans, which seems like a manageable level. Moreover, the deposit book doesn't seem to be worrisome because the available liquidity is 134% of the uninsured deposits, as mentioned in the earnings presentation. Maintaining a Buy Rating Berkshire Hills Bancorp is offering a dividend yield of 3.4% at the current quarterly dividend rate of $0.18 per share. The earnings and dividend estimates suggest a payout ratio of 35.6% for 2024, which is in line with the five-year average of 34.6% (excluding 2020). Therefore, I'm not expecting any change in the dividend level. I'm using the peer average price-to-tangible book (\"P/TB\") and price-to-earnings (\"P/E\") multiples to value Berkshire Hills Bancorp. Peers are trading at an average P/TB ratio of 1.26 and an average P/E ratio of 9.8, as shown below.     BHLB OBK QCRH SASR GABC BY Peer Average       P/E (\"ttm\") 43.89 11.37 8.27 10.26 11.02 7.96 9.78   P/E (\"fwd\") 16.92 11.38 9.47 11.00 12.41 8.33 10.52   P/B (\"ttm\") 0.93 0.87 1.03 0.59 1.43 0.95 0.97   P/TB (\"ttm\") 0.94 1.03 1.24 0.79 2.03 1.19 1.26   Source: Seeking Alpha             Click to enlarge Multiplying the average P/TB multiple with the forecast tangible book value per share of $25.0 gives a target price of $31.4 for the end of 2024. This price target implies a 47.2% upside from the April 30 closing price. The following table shows the sensitivity of the target price to the P/TB ratio.   P/TB Multiple 1.16x 1.21x 1.26x 1.31x 1.36x         TBVPS - Dec 2024 ($) 25.0 25.0 25.0 25.0 25.0   Target Price ($) 28.9 30.1 31.4 32.6 33.9   Market Price ($) 21.3 21.3 21.3 21.3 21.3   Upside/(Downside) 35.5% 41.4% 47.2% 53.1% 59.0%   Source: Author's Estimates             Click to enlarge Multiplying the average P/E multiple with the forecast earnings per share of $2.02 gives a target price of $19.8 for the end of 2024. This price target implies a 7.3% downside from the April 30 closing price. The following table shows the sensitivity of the target price to the P/E ratio.   P/E Multiple 7.8x 8.8x 9.8x 10.8x 11.8x       EPS 2024 ($) 2.02 2.02 2.02 2.02 2.02   Target Price ($) 15.7 17.7 19.8 21.8 23.8   Market Price ($) 21.3 21.3 21.3 21.3 21.3   Upside/(Downside) (26.3)% (16.8)% (7.3)% 2.2% 11.6%   Source: Author's Estimates             Click to enlarge Equally weighting the target prices from the two valuation methods gives a combined target price of $25.6, which implies a 20.0% upside from the current market price. Adding the forward dividend yield gives a total expected return of 23.3%.  In my last report on Berkshire Hills Bancorp, which was released back in June 2023, I adopted a buy rating with a December 2023 target price of $27.2. My new target price is a bit lower because the peer multiples have declined, and I'm expecting lower income for 2024 compared to my previous expectation for 2023. Based on my new total expected return, I'm maintaining a buy rating on Berkshire Hills Bancorp.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2432528495"}