Berkshire to close more branches, centralize ops under three-year plan

Berkshire Hills Bancorp in Boston has created a three-year plan to improve investor returns.

The $12.8 billion-asset company, in a presentation shared on Tuesday, said it will continue to close branches, centralize more operations and take other steps to become more efficient. 

The moves should increase return on tangible common equity by 680 to 880 basis points, to 10% to 12%, while boosting return on assets by 76 to 81 basis points, to 1% to 1.05%. The initiative is expected to add $71 million to $91 million in pre-provision net revenue and lower the efficiency ratio to 60% at the end of three years.

“Berkshire has a strong core … and many talented bankers who know their markets well,” Nitin Mhatre, Berkshire’s CEO, said during a conference call to discuss the plan. “We share a sense of urgency to enhance shareholder value.”

The company wants to increase the amount of commercial loans on its books from 47% of earning assets to 55%, with plans to boost consumer loans from 5% to 10%. The goal is to reduce investments and HFS from 33% to 20%.

Berkshire wants to increase noninterest-bearing deposits from 23% to 28% of its funding mix.

Mhatre said Berkshire sees opportunities in areas such as Small Business Administration lending, asset-based lending, mortgages and wealth management. The company plans to run off high-cost CDs and offer programs to bring in more low-cost deposits. 

Berkshire also plans to pursue partnerships with fintechs.

“We will get better before we get bigger,” Mhatre said during the call.

Berkshire is looking to take advantage of recently announced bank mergers by hiring more commercial lenders. The company recently added some business bankers in Boston.

Berkshire said in December that it would close or sell about a fifth of its branches. It has an agreement to sell eight locations in New Jersey and Pennsylvania to Investors Bancorp in Short Hills, N.J. The company plans to close another 16 locations across New England and New York.

Berkshire, which has retained more than 95% of the deposits at the branches it has closed in recent years, will keep looking at opportunities to shutter locations.

Berkshire could close another 5% to 10% of its 106 remaining branches, depending on consumer preferences. "We believe there will be fewer and smaller branches … in better locations," Mhatre said.

Analysts were divided over the scope of the plan.

"The plan was logical, detailed and reasonable," Mark Fitzgibbon, an analyst at Piper Sandler, wrote in a note to clients.

"It does not rely on the company making any radical departures in strategy or swinging for the fences in any new lines of business," Fitzgibbon added. "The financial projections represent a meaningful increase from [Berkshire's] current profitability levels. These projections represent about a doubling of core profitability over the next three years."

Jake Civiello, an analyst at Janney Montgomery Scott, said he wished Berkshire had provided more details.

"We believe the outlined three-year process improvements are common sense efforts that not only have been in various stages of implementation for years, but also do not go far enough into detail for investors to understand shorter-term targets/plans for accomplishing stated longer-term goals," Civiello said in a client note.

Berkshire, under former CEO Michael Daly, grew quickly after the 2008 financial crisis, largely through bank acquisitions. Those deals included Rome Bancorp in 2011, 20 branches from Bank of America in 2014 and First Choice Bancorp in 2016. Daly abruptly stepped down in late 2018; he was succeeded by Richard Marotta.

Berkshire lost $549 million in the second quarter of 2020 after recording a large goodwill impairment charge tied to the deteriorated market value of its acquisitions. Marotta resigned last August.

Mhatre joined Berkshire from Webster Financial earlier this year.

Berkshire's annual meeting is scheduled for May 20.