Berkshire Bank may be growing across its four-state footprint, but don’t expect to see the $6.4 billion bank making any major purchases in the near future – at least according to remarks made by the bank’s top brass during its recent quarterly earnings call.
"We’re concentrating right now on our organic growth and our market penetration," CEO Michael Daly said Tuesday in response to an investor’s question about M&A activity. "[In] the Eastern Massachusetts and the New York market and the Connecticut market, I think my guys would all say we’re seeing good deliverables from all of those regions, and frankly that’s one of the benefits that we’ve been talking about by having a diversified footprint."
Berkshire Hills Bancorp posted third-quarter core earnings of $11.4 million, or 46 cents per share, representing a 7 percent increase over 43 cents per share in the third quarter last year. The company will pay its shareholders a cash dividend of 18 cents per share on Nov. 26.
Net interest income increased to $44.9 million, driven largely by a 2 percent increase in average earning assets resulting from loan growth. Net interest income in this quarter also included $1.2 million in purchased loan accretion largely comprised of recoveries on the resolution of impaired loans in previous bank acquisitions. In the prior quarter, this figure totaled $1 million, and it contributed 0.08 percent to the margin in this quarter.
The bank’s net interest margin declined to 3.2 percent from 3.26 percent in the second quarter, primarily due to lower interest rates on newly originated mortgages.
During the conference call, Daly remarked that the bank would be pushing out lower margin credits and adding better yielding ones to its books, responding to an investor’s question with, "We haven’t always been able to do this because loan growth hasn’t always been this strong, but right now I think our originations both on the commercial side and on the retail side have been strong enough for us to be pretty selective. We run into, at times, loans that either renew or HUD loans that come up. It’s to the benefit of us at this point that we can go forward and not renew those situations because the rates are just incredibly low and replace those with new origination opportunities."
CFO Josephine Iannelli added, "As we look to Q4, we would expect to bring on more of the commercial fixed rate paper and possibly less of some of the consumer paper, and I think some of that change in the mix will overall keep the yield compression low."
Berkshire decreased its loan loss provision to $3.7 million in the third quarter from $4 million in the second because of higher second quarter loan growth. Third quarter net loan charge-offs totaled $3.1 million and the loan loss allowance increased by $600,000.
Total loans increased to $4.6 billion in the third quarter, from $4.5 billion in the second, and bank executives expressed particular optimism about recent residential mortgage loan business.
"We’re seeing about 70 percent purchase," said Sean Gray, executive vice president of retail banking. "Majority are new customers. We do most of this business in Eastern [Massachusetts] where we don’t have a huge footprint, largely because we had such a penetration in Western [Massachusetts]. So most of these customers we are seeing in Eastern Mass., they offer us up also insurance opportunities and other bank products as we introduce them to Berkshire Bank via the mortgage."
