KBRA Releases Surveillance Report for Berkshire Hills Bancorp, Inc.

5 Jun 2023   |   New York


On May 10, 2023, KBRA affirmed the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Berkshire Hills Bancorp, Inc. (NYSE: BHLB)(“the company”). Additionally, KBRA affirmed the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Berkshire Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by BHLB’s improved funding profile which has positioned the company to adequately manage through the current difficult operating environment. Deposit outflows were manageable, with a significant portion of these deposits going into the company’s wealth management business. Moreover, deposit costs, which historically have been a hindrance to NIM, have run at or below peer averages including 1Q23 with a reported total cost of deposits of 1.09%. BHLB’s liquidity position was relatively sound, with total primary and secondary available liquidity coverage of 117% on uninsured deposits at 1Q23 (140% when excluding collateralized deposits).

Capital ratios trended lower throughout 2022 as the company began to grow loans as part of its multi-year balance sheet repositioning strategy. Nonetheless, capital ratios continued to track above rated peer averages, particularly risked-based measures (CET1 ratio above 12%), despite recent loan growth, benefiting from the company’s lower-risk earning asset mix which included a higher concentration in residential mortgage loans. Most credit metrics have trended positively in recent periods, excluding the impact of a single C&I loan that has resulted in increased net charge-offs over the last three periods. The company’s CRE portfolio is relatively well-diversified by industry type with sufficient LTV levels and a sound average DSCR. Earnings remained below peer averages with operating costs remaining slightly elevated ranging from 2.2% - 2.5% of average assets, while fee revenues remain modest. However, BHLB has reported a steady improvement in its core performance in recent years (BHLB reported an operating ROA of 0.9% for 2022 as compared to 0.7% in 2021 – adjusted for one-time expenses and income).

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