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One-Time Items Mask Stronger Core At Berkshire Hills Bancorp

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Profit Fan


  • 2018 could be a breakout year for reported earnings as core growth battles its way through significant one-time items.
  • High-end EPS estimates require asset growth rates that I don't think will be hit, but that's not to say that only modest growth wouldn't support an improved valuation.
  • Cost of funds are rising and could be a headwind.

After looking into some smaller banks in Massachusetts, I thought I’d check-in on a larger peer that was growing through expansion. For this, we turn to Berkshire Hills Bancorp (NYSE:BHLB), an $11.5 billion asset bank that passed the $10 billion (higher regulatory threshold) mark after its purchase of Commerce Bancshares closed in October (2017).

Sourced from 10-K

As you can see from above, YOY earnings fell 26% due to several one-time items (net security gains, merger and acquisition charges, and one-time tax adjustments), which compares to adjusted earnings growth of 22.3%. This is an acquisitive bank and I like that the new purchase helped add some much-needed deposits (loan to deposit ratio from 108% in 2013 to 94% in 2017) that can be used to either grow loans or lower the balance of more expensive other borrowings (total borrowings fell 13.6% YOY).

However, it’s important to note that the current valuation doesn’t afford many more accretive deals (based on P/TBV of 1.89X). At this point in the cycle, most financials in this area trade at or around the same level. This is a casual observation but based on my take of earning projections it’s one that could end-up being a major headwind.


As a little warning, the financials are extremely hard to get a read on because of several one-time items. Because of this, I chose to walk through the performance targets that management outlined on the earnings call and rely on management’s core earnings calculations to try to find the most important items and/or constraints. This involves some basic math. For those uninterested in reading this section, my takeaway is that to hit the high-end of the targets (core EPS growth of 20%) the team needs to cut significant operating costs and/or grow YOY assets by more than 20% (4-year CAGR is 19.51%).

This article was written by

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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