BHLB Q1 Deep Dive: Margin Expansion and Merger Integration Dominate Outlook

Regional bank holding company Berkshire Hills Bancorp (NYSE: BHLB) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 4.7% year on year to $110.4 million. Its non-GAAP profit of $0.60 per share was 14.3% above analysts’ consensus estimates.

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StockStory’s Take

Berkshire Hills Bancorp delivered a quarter that met positive market expectations, with management attributing results to a combination of net interest income growth, disciplined credit management, and ongoing cost reductions. CEO Nitin Mhatre emphasized, “Our rigorous expense optimization initiatives continue to drive expenses lower,” pointing to broad-based reductions across operating lines. The bank’s improved asset quality, highlighted by nonperforming loans at their lowest level in two decades, also played a role. Management noted that the digital deposit initiative gained momentum, helping to diversify funding sources while the sale of nonstrategic loan portfolios further reduced risk exposure.

Looking ahead, Berkshire Hills Bancorp’s guidance is shaped by the pending merger with Brookline Bancorp and an uncertain economic environment, particularly around tariffs and policy volatility. Management is focused on maintaining expense discipline, digital deposit growth, and employee retention, while actively monitoring potential impacts from macroeconomic headwinds. CEO Nitin Mhatre cautioned, “It’s still very early, and the fluidity of the news from Washington makes it difficult to predict the potential outcomes at this point,” but reiterated the company’s readiness to adapt strategy as needed. Integration planning for the merger is on track, with regulatory and shareholder approvals targeted in the coming quarters.

Key Insights from Management’s Remarks

Management identified disciplined expense control, deposit growth from digital channels, and balance sheet de-risking as core contributors to the quarter’s performance and future positioning.

• Expense discipline delivers leverage: The ongoing focus on cost optimization led to a 4% decline in operating expenses from the prior quarter and an 11% improvement in positive operating leverage year-over-year. Management cited this as key to margin expansion and earnings resilience.
• Digital deposit initiative gains traction: The bank’s recently launched digital deposit platform delivered $75 million in new deposits, with about 20% of new client relationships now sourced through digital channels. Management views these channels as critical for future growth and competitive positioning.
• Balance sheet de-risking completed: The sale of the remaining Upstart loan book and reduction of nonstrategic runoff portfolios by 76% year-over-year lowered risk exposure and improved asset quality. The company now holds loss reserves at about 500% of total nonperforming loans.
• Asset quality at historic strength: Net charge-offs remained below long-term averages, and nonperforming loans as a percentage of total loans reached their lowest level in nearly twenty years. Management credits a collaborative risk culture for this improvement.
• Merger integration moves forward: Work on the merger of equals with Brookline Bancorp is proceeding on or ahead of schedule. Regulatory applications have been filed, and shareholder approval is targeted for the next quarter, with management expecting meaningful profitability improvements from the combined entity.

Drivers of Future Performance

Berkshire Hills Bancorp’s outlook centers on merger execution, navigating economic uncertainty, and extending digital initiatives to drive efficiency and growth.

• Merger with Brookline Bancorp: The pending combination is expected to improve scale and profitability, with management highlighting estimated 23% accretion to consensus earnings in 2026. Integration efforts are focused on retention of key employees and maintaining operational stability through the transition period.
• Expense management focus: The company plans to sustain expense discipline, aiming to keep operating costs stable despite inflationary pressures and integration costs. CFO Brett Brbovic indicated that the current expense run rate should remain consistent as merger planning continues.
• Economic and policy headwinds: Management remains cautious around the broader economic environment, noting that client behavior is mixed, with some commercial customers increasing inventories and others holding back. Tariffs and policy changes could impact loan demand and deposit flows, prompting close monitoring and readiness to adapt strategy.

Catalysts in Upcoming Quarters

In the upcoming quarters, the StockStory team will be monitoring (1) progress on the Brookline Bancorp merger, especially regulatory and shareholder approvals; (2) continued growth in digital deposit channels and the impact on funding mix; and (3) the company’s ability to preserve asset quality and expense discipline amid economic and policy fluctuations. Successful integration and adaptation to external headwinds will be key signposts.

Berkshire Hills Bancorp currently trades at $24.62, up from $24.29 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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