Berkshire Hills Bancorp
Annual Report 2022

Plain-text annual report

A P U R P O S E P R O G R E S S P E R F O R M A N C E B H L B 2 0 2 2 U A N N L R E P O R nyse: bhlb T V T maNcHeSter NH SyracuSe NY alBaNy pittSfield MA BurliNgtoN Boston SpriNgfield worceSter RI C T Hartford willimaNtic provideNce New HaveN BERKSHIRE BANK AT A GLANCE Berkshire Bank (BERKSHIRE HILLS BANCORP | NYSE: BHLB) » Assets: $11.7B Founded in 1846, the Bank sets itself apart as a leader in environmental, social and Berkshire Hills Bancorp, Inc. (nyse: BHLB) is the parent company of Berkshire Bank. governance (esG) performance, demonstrating that corporations can deliver both financial returns and meaningful change to benefit future generations. It also differentiates through its DigiTouchSM strategy that combines extraordinary community bank service with convenient, user-friendly technology enabled through leading fintech partnerships. OUR VISION To be a high-performing, leading socially responsible community bank in New England and beyond. OUR MISSION To empower the financial potential of individuals, families, businesses and organizations by making banking available where, when and how it’s needed. OUR BRAND PROMISE Where you bank matters. » Lines of business: Retail Banking, Consumer Lending & Payments, Commercial Banking, Wealth Management and Private Banking, as well as 44 Business Capital, Berkshire’s national, direct small business lending division providing sBA loans » Community banking footprint: 100 financial centers, 150 ATMs and MyTellerSM ITMs in Massachusetts, New York, Vermont, Connecticut and Rhode Island » Workforce: More than 1,300 Berkshire Bankers » Headquarters: Boston » Founded: 1846 in the Berkshires in western Massachusetts 3 Berkshire Hills Bancorp, Inc. — BHLB | berkshirebank.com Where You Bank — and Invest — Matters DEAR STAKEHOLDERS, At Berkshire Bank, we firmly believe that when we stop getting better, we stop being good. That’s why we spent 2022 working tirelessly to build a better tomorrow — for our customers, employees, shareholders, communities and, by extension, for Berkshire Bank itself. It was the continuation of a unique purpose-driven, values-guided comeback story centered around Berkshire’s Exciting Strategic Transformation (BesT) program. At its heart is the belief that where you bank matters, and the success of our franchise is intricately linked to the success of our communities and all stakeholders. For more than 175 years, this has been part of our DnA. Today, this commitment to empower our stakeholders’ potential is the driving force behind all that we do and our efforts to fulfill our brand promise that where you bank matters. We delivered robust improvement across target financial metrics in 2022 including return on tangible common equity (ROTCe) and return on assets (ROA), which are already at the low end of our BesT program 2024 targets. This in turn contributed to strong outperformance by our stock compared to the broad market and our industry. We returned more capital to our shareholders and, thanks to our strong capital position, remain well poised to support our strategically important initiatives for profitable growth in coming years. We detail the meaningful progress we made last year in this report. Other noteworthy highlights from the year include: • Recognition as one of the top 10 most trustworthy banks in the United States in 2022 by Newsweek’s “America’s Most Trustworthy Companies.” • Recording our highest level of employee engagement, ensuring Berkshire remains a great place to work as evidenced by our being named one of “America’s Best Midsize Employers” in 2023 by Forbes. Nitin J. Mhatre Chief Executive Officer • Solidifying the organization as a leader among socially responsible, sustainable and ethical businesses by earning a spot in the top 17% of U.s. banks and delivering the first U.s. public community bank holding company sustainability bond, important strategic distinctions that also drive our commercial performance. letter continues » 2022 HIGHLIGHTS » 7% total shareholder return; 14% outperformance versus industry stock index (KRX) » 50% increase in quarterly dividend » Newsweek’s “America’s Most Trustworthy Companies” 4 2022 Summary Annual Report» letter continued As I write this letter, the American and global economies are experiencing inflation, W H E R E Y O U I N V E S T M A T T E R S slowing growth and disruption in the banking sector. Community banks play an essential role in the economic fabric of every community. No other bank in our markets can serve our customers and communities as well as Berkshire Bank and without community banks, many small businesses and neighborhoods would be left behind. Against this backdrop, we remain resolved to maintain our position of strength and progress toward our vision. Leading the way forward is a blend of seasoned and new members of our executive team and board of directors who are energized and ready to move forward with differentiated, responsible growth, all while keeping our customers squarely in the center of our plans. We will constantly innovate to serve our customers better and more efficiently, so that we can continue to reinvest in our customer experience, our employee experience and our communities. In the coming months, we expect to roll out our new mobile app and online banking platform for consumers and small businesses that will help us to deliver a best-in-class digital experience, combined with the exceptional personal service and invaluable human connection that our Berkshire Bankers provide. Despite the uncertainty in the broader economic environment, the steadfast commitment of our bankers to provide exceptional service to our customers continues to inspire me every day. We believe our differentiated approach and purpose-driven orientation provides us with a distinct advantage over our competitors. Working together with our stakeholders, we are committed to our vision to become a high- performing, leading socially responsible community bank in New England and beyond. Best regards, Nitin J. Mhatre Chief Executive Officer WHY BERKSHIRE HILLS BANCORP? » Demonstrated profitability enhancement » Conservative credit » Robust capital position to support responsible growth » DigiTouchSM strategy culture and above-industry combining extraordinary credit quality » Team bolstered with strong blend of new and seasoned executives and board directors » Disciplined expense management with revenue-focused investments customer service with leading technology » Leader in environmental, social and governance (esG) performance » Diverse and resilient customer and deposit franchise Berkshire Hills Bancorp, Inc. (BHLB) rang the opening bell at the New York Stock Exchange (nyse) on Nov. 9, 2022, in celebration of the 10th anniversary of its nyse listing and its accelerating momentum toward becoming a high-performing, leading socially responsible community bank in New England and beyond. 3 Berkshire Hills Bancorp, Inc. — BHLB | berkshirebank.com B E R K S H L I N E S S B U S I N E S S O F E ’ I R COMMERCIAL BANKING RETAIL BANKING Provides a full suite of commercial banking solutions with personalized and responsive service from experienced Robust network of community-based financial centers supported by our DigiTouchSM commitment to combining bankers across verticals such as Commercial Real Estate, extraordinary community bank service with user-friendly Commercial Middle Market and Business Banking. technology to provide a comprehensive offering of financial • Differentiating strategic loan verticals, including solutions for consumers and small businesses. 44 Business Capital (sBA) and Asset-Based Lending • MyBanker: Free financial planning and single point of contact • Specialties with high growth potential including for all your banking needs family enterprise finance and nonprofit • Growing specialty sectors, including small business, • High average tenure of commercial bankers • Growth in originations and balances primarily driven by existing customers nonprofit and Bank@Work • Digital roadmap includes new best-in-class online and mobile solutions, MyTeller ITM network • Driving improvements in the customer experience through J.D. Power partnership » 13% loan growth Year over Year (YOY) » 3% increase in average non-interest-bearing deposits CONSUMER LENDING & PAYMENTS WEALTH MANAGEMENT & PRIVATE BANKING Delivers a full suite of residential mortgage and consumer Serves a diverse private banking and wealth management loan products across Berkshire’s New England and clientele, including individuals and families, nonprofits, New York footprint. • Reengineered mortgage operations to drive efficiency; loans close in less than 30 days • Superior service, expertise and speed from foundations and endowments, and businesses with comprehensive investment, financial planning, and fiduciary services to meet their unique needs and objectives. • Launched Center for Women, Wellness and Wealth in 2022 highly productive mortgage bankers • Continued growth of socially responsible investing (sRI) • Enhancing customer experience with revamped website, products launched in 2021 online and video chat functions • Seasoned teams, tailored solutions, strong customer • Deepening customer relationships, relationships, expanding addressable market and ~80% of mortgage customers new to bank • Extensive capabilities in trust and estates, custody services, nonprofits and more » ~$600M in mortgage lending by Berkshire originators » $1.7B wealth assets under management 4 2022 Summary Annual ReportB E S T B E R K S H I R E ’ S E X C I T I N G T R A N S F O R M A T I O N S T R A T E G I C Berkshire’s Exciting Strategic Transformation (BesT) is our self-funded plan to evolve into a better and stronger Bank by enhancing the customer experience and stakeholder value while delivering profitable growth and strengthening our community impact. PILLARS Optimize Digitize enhance Footprint, processes, Account openings, Profitable account procurement, products, pricing customer journey and growth, customer and insights, marketing employee engagement, tech integration capital management ADVANCING ALONG THE BEST PATH TO HIGH PERFORMANCE Berkshire is advancing along the path to high performance under BesT, growing responsibly as we progressed across our BesT objectives to optimize, digitize and enhance in 2022. StroNg improvemeNt iN key fiNaNcial meaSureS • 18% growth in net interest income • Record fourth quarter earnings per share (ePs) of $0.69 returNed ~$150m iN capital (dividends plus repurchases) in Fy22 (~60% higher than Fy21) acHieved BeSt goal Top quartile score in environmental, social and • Efficiency ratio, or expenses as a percentage governance (esG) performance, demonstrating our of revenue, of 64% (-565 basis points (BPs) yOy) commitment to delivering both financial returns and meaningful change to benefit future generations 5 Berkshire Hills Bancorp, Inc. — BHLB | berkshirebank.com PROGRESS optimize digitize eNHaNce • Ongoing real estate rationalization • Mobile app rating is up from 1.6 stars • Enhancing customer experience and procurement activities in 2020 to 4.7 stars in 2022 through J.D. Power partnership • Completed financial center • Developing best-in-class online and • Highest recorded level of employee optimizations (overall network mobile solutions for consumer and engagement through Mercer survey reduced by ~25% from 2019) small business customers • Launched transformational • Strong balance sheet bolstered by • Completed foundational components marketing brand campaign, continued balance sheet de-risking of digital transformation roadmap Where You Bank Matters • Enhancing data warehouse and • Rolled out rewards and recognition building infrastructure for easier program and enhanced incentive application integrations plans for employees TARGETS & PERFORMANCE best 3-year target fOr june 2024 10 – 12% 100 – 105 BPS $180M – 200M TOP 25% TOP 25% ROTCE Increase ROTCE by 700 – 900 BPS ROA Increase ROA by 75 – 80 BPS PPNR Increase PPNR by $80M – 100M ESG Become top quartile bank by leading ESG Indexes in U.S. NPS Become top quartile Net Promoter Score bank in New England 4Q22 FY22 FY21 FY20 9.8 8.9 7.7 3.2 % 100 89 70 24 BPS 180 136 102 109 $M 17 17 24 39 N/A Percentile Percentile Financial information is non-GAAP data; please see back cover for more information. 6 2022 Summary Annual ReportF I N A N C I A L H I G H L I G H T S financial cOnDitiOn ($ MILLIOns — PeRIOD enD) well pOsitiOneD vs peers fy22 fy21 fy20 Total Assets $11,663 $11,555 $12,838 Total Cash and Equivalents 685 1,628 1,558 Total Securities 2,033 2,549 2,223 Total Loans Intangibles Deposits Borrowings Shareholders’ Equity 8,335 6,826 8,082 24 30 35 10,327 10,069 10,216 126 954 111 572 1,182 1,188 Operating results ($ MILLIOns) Net Interest Income Non-Interest Income Total Net Revenue Provision for Loan Losses Non-Interest Expense Net Income/(Loss) fy22 $345 69 414 11 289 93 fy21 $291 143 434 (1) 286 119 fy20 $317 66 383 76 840 (533) 100 Well Distributed Deposits (average account size, excluding retirement) Above Average Liquidity (on-hand liquidity/liabilities) Strong Capital — CeT1 Ratio (common equity tier 1 capital/ risk weighted assets) BHlB peerS $29,100 $37,600 20.0% 13.0% 12.4% 11.7% Higher Net Interest Margin (4Q22) 3.84% 3.67% Note: Source is S&P Global Market Intelligence. Peer data is U.S. exchange traded banks with assets $7 – 25 billion. All data is peer median as of 4Q22. tOtal cumulative stOck return 2021 anD 2022 200 150 BHLB KRX** ROTCE* 8.26% 10.80% (48.60%) ROTCE Adjusted* 8.94% 7.74% 3.18% 50 0 2020 2021 2022 **KBW NASDAQ Regional Banking Index. Source: S&P Global Market Intelligence per cOmmOn share Data ($) fy22 fy21 fy20 Earnings/(Loss) $2.02 $2.39 $(10.60) Earnings Adjusted* Dividends Book Value 2.19 0.54 1.69 0.48 0.60 0.72 21.51 24.30 23.37 Tangible Book Value* 20.95 23.69 22.68 * Note: ROTCE Adjusted, Earnings Adjusted and Tangible Book Value are non-GAAP financial measures; see Form 10-K for discussion and further detail. 2020 loss due to $554 million goodwill write-off expense. ROTCE stands for return on tangible common equity. 7 Berkshire Hills Bancorp, Inc. — BHLB | berkshirebank.com P E R F O R M A N C E P U R P O S E & T H A T M A T T E R S ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG) Since our founding in 1846, Berkshire capacity to invest more in our business, has been committed to empowering customers, employees, communities and the financial potential of our customers shareholders. and communities. Today, we are at the forefront of environmental, social We’re proud to be consistently and governance (esG) performance, demonstrating that corporations can deliver both financial returns ranked as one of the top u.s. banks for esg performance, a leader among community banks in integrating esG and meaningful change to benefit standards into business strategy and future generations. operations, and one of the first banks in the country to establish a dedicated Our purpose and our esG activities drive committee of its board of directors to our commercial performance, creating oversee esg matters. For more information on our ESG program and BEST Community Comeback, see our 2022 ESG Report: berkshirebank.com/esg2022 BeSt commuNity comeBack SuStaiNaBility BoNd wHere you BaNk matterS — traNSformatioNal BraNd campaigN Berkshire’s $5 billion BesT Community Berkshire became the first u.s. community Comeback outlines how BesT will help bank holding company with under $150 How your bank puts your money and its our communities by empowering our stakeholders’ financial potential in four areas critical to their long-term vibrancy billion in assets to issue a sustainability bond with a $100 million issuance in 2022. The company intends to use an own resources to work in your community through investments and lending has a direct impact on ensuring a better and success: amount equal to the net proceeds to tomorrow for everyone. • Fueling Small Businesses finance or refinance new or existing social and environmental projects such We bring this message to life in unique • Community Financing and Philanthropy as renewable energy and affordable and compelling ways with our new • Financial Access and Empowerment • Environment BE S T C o mmunity C o m housing. Through the bond, Berkshire “Where You Bank Matters” marketing has already supported affordable campaign as part of our ongoing efforts housing projects in Berkshire County, to revitalize and sharpen the focus of e b a c k Massachusetts, and our brand. Some examples of $5B for local communities Hartford, Connecticut, how it has helped so far: • $1+ billion in lending to low- to moderate-income neighborhoods as well as a green building project in greater Boston. Berkshire Sustainable Financing Framework June 2022 berkshirebank.com watcH tHe tv Spot • $300+ million to support low-carbon projects • $5.5 million in community contributions recogNitioN 8 2022 Summary Annual ReportL E A D E R S H I P T E A M NITIN MHATRE preSideNt, cHief executive officer SEAN GRAY cHief operatiNg officer LUCIA BELLOMIA Head of retail BaNkiNg JIM BROWN Head of commercial BaNkiNg JENNIFER CARMICHAEL cHief iNterNal audit officer JACQUELINE COURTWRIGHT cHief HumaN reSourceS aNd culture officer ASHLEE FLORES cHief compliaNce officer DAVID ROSATO cHief fiNaNcial officer PHILIP JURGELEIT cHief credit officer GREGORY LINDENMUTH cHief riSk officer WM. GORDON PRESCOTT geNeral couNSel aNd corporate Secretary SUMANT PUSTAKE cHief Strategy aNd traNSformatioN officer ELLEN STEINFELD Head of coNSumer leNdiNg aNd paymeNtS JASON WHITE cHief iNformatioN officer 9 Berkshire Hills Bancorp, Inc. — BHLB | berkshirebank.com B O A R D O F D I R E C T O R S DR. SYLVIA MAXFIELD deaN of tHe provideNce college ScHool of BuSiNeSS DAVID M. BRUNELLE cHairperSoN of tHe Board, maNagiNg director of NortH poiNt wealtH maNagemeNt BAYE ADOFO-WILSON, ESQ. ceo of Baw developmeNt, llc NITIN MHATRE ceo of BerkSHire HillS BaNcorp, iNc. NINA A. CHARNLEY former SeNior maNagiNg director, eNterpriSe cuStomer experieNce executive at tiaa LAURIE NORTON MOFFATT director aNd ceo of tHe NormaN rockwell muSeum JOHN B. DAVIES former evp of maSSacHuSettS mutual life iNSuraNce compaNy MIHIR A. DESAI profeSSor of fiNaNce at Harvard BuSiNeSS ScHool aNd profeSSor of law at Harvard law ScHool WILLIAM H. HUGHES III preSideNt aNd ceo of educatioN deSigN laB JEFFREY W. KIP ceo of aNgi iNterNatioNal KARYN POLITO priNcipal, polito developmeNt corporatioN aNd former maSSacHuSettS lieuteNaNt goverNor ERIC S. ROSENGREN former preSideNt aNd ceo of federal reServe BaNk of BoStoN JONATHAN I. SHULMAN former evp aNd treaSurer of keycorp MICHAEL A. ZAITZEFF co-fouNder aNd maNagiNg memBer of vm gp ii llc 10 2022 Summary Annual Reportcorporate officeS Berkshire Hills Bancorp, Inc. 60 State Street Boston, MA 02109 833-BeRKBnK iNveStor iNformatioN Investor Relations Attn: Kevin Conn traNSfer ageNt aNd regiStrar Shareholders who wish to change the name, address or ownership of Berkshire Hills Bancorp, Inc. stock, report lost stock certificates, 617-641-9206 inquire about the Dividend Reinvestment berkshirebank.com » investorrelations@berkshirebank.com » Plan or consolidate stock accounts ir.berkshirebank.com » should contact: Stock liStiNg Berkshire Hills Bancorp, Inc., is listed on the New York Stock Exchange under the symbol “BHLB.” Broadridge Corporate Issuer Solutions, Inc. P.O. Box 1342 Brentwood, ny 11717 844.458.9357 shareholder@broadridge.com » shareholder.broadridge.com/bhlb » For more information on our ESG program and BEST Community Comeback, see our 2022 ESG Report: berkshirebank.com/esg2022 This document contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995). There are several factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see Berkshire’s most recently filed reports on Forms 10-K and 10-Q, which are available on the SEC’s website at www.sec.gov. Berkshire does not undertake any obligation to update forward-looking statements. Banking products are provided by Berkshire Bank: Member FDIC. Equal Housing Lender. Berkshire Bank is a Massachusetts chartered bank. Investment products are NOT FDIC-INSURED, are NOT A BANK DEPOSIT, NOT GUARANTEED BY THE BANK, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY and MAY LOSE VALUE.  Improvement over FY20 baseline, driven by BEST program over 3 years starting 3Q21.  ESG Index ratings are on an end of period basis: MSCI, ISS-ESG, Sustainalytics, Bloomberg.  All numbers on an adjusted basis.  4Q22 adjusted PPNR annualized ($ million).  J.D. Power is building a sample size to rank our NPS vs. peers, which is targeted to be available in 2023. See Form 10-K and 4Q22 earnings release for comparison of GAAP and adjusted data. 

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