BHLB: Operating EPS Exceeds Our High on the Street Estimate by a Penny —Fee Income Driven Beat

PDF ATTACHEDBHLB 4Q16 EPS Brief

Close $35.55 / “Market-Perform”/ $37.00 Price Target / HQ= Pittsfield, MA / $1.27 Bil. Mkt. Cap

  • Operating EPS of $0.56 is a Penny Below Our Estimate In Line with the Street
  • Quarterly Results include “Noise” from First Choice Bank Acquisition that Closed December 2, 2016
  • Loan Growth Above our Estimates and Grew 5% Annualized on Organic Basis

Berkshire Hills Bancorp reported 4Q16 Operating EPS of $0.56 (excludes $0.24 of merger costs and minor securities losses) – a Penny below our estimate and In Line with Consensus.  The acquisition of First Choice Bank added $1.1 Billion in Assets, $426 Million in Loans and $893 Million in Deposits.  Organic annualized Loan growth was 5% and 6% on a year-over-year basis.  C&I loan growth on an annualized legacy basis was 17% followed by strong growth in Commercial Real Estate Construction loans which rose at a 57% annualized pace.  Reported EOP Deposit growth was $42.8 Mil. below our estimate and impacted by run-off in Time Deposits as BHLB management allowed certain higher-costing First Choice Bank Deposits pay-down or leave the bank.  Deposit growth on an organic basis was strongest in NOW Checking (+24% annualized) and Non-Interest Bearing (+27%) and the Loan-to-Deposit ratio did tick down based on Average Balances to 102.1% from 105.2%

Fee Income declined 7.9% sequentially and was $0.02 below our model though the Fee Income offset from tax-credit investments increased to negative $4.43 Mil. from negative $1.52 Mil. and drove the miss relative to our estimate but the Tax Benefit rose to $4.91 Mil. from $1.85 Mil. over the quarter (see reconciliation on page 3).  Spread Income was below our expectations by $2.6 Mil. due to both a lower NIM than modeled (3.19% vs. our 3.22% estimate) and lower than modeled Average Earning Asset growth though we had envisioned (and modeled) the First Choice Bank to close earlier in the quarter so variances are to be expected.  Mortgage Banking Fees were higher than modeled at $3.5 Mil. and appear to bode well for momentum into 1Q17 (assuming one-quarter’s revenue impact is carried forward into the whole quarter).

Core Operating Expenses were calculated to have increased 6.0% linked-quarter and were $440,000 below our modeling though again may reflect the fact that First Choice Bank operations were only in the Income Statement for a third of the quarter.