BHLB Q2 Deep Dive: Merger Integration and Expense Control Drive Earnings Momentum

Regional bank holding company Berkshire Hills Bancorp (NYSE:BHLB) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.6% year on year to $113.7 million. Its GAAP profit of $0.66 per share was 17.9% above analysts’ consensus estimates.

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StockStory’s Take

Berkshire Hills Bancorp delivered results in line with Wall Street’s revenue expectations for the second quarter, while reporting notable improvement in profitability. Management pointed to successful execution of its cost reduction initiatives and steady loan growth as key factors supporting the quarter’s performance. CEO Nitin Mhatre highlighted that Berkshire’s digital deposit program has gained traction, bringing in over $100 million in new deposits. The ongoing focus on expense management enabled improved operating leverage, with operating expenses declining 7% year-over-year. Management also noted that asset quality metrics remained stable with low net charge-offs and nonperforming loans.

Looking forward, management’s guidance is shaped by continued progress on its merger integration with Brookline Bancorp and further digital banking expansion. CEO Nitin Mhatre emphasized that integration planning is underway and that tech stack cost savings are tracking favorably toward a 12.6% target. The company expects its balance sheet to remain strong, supported by a stable deposit base and targeted loan growth. CFO Brett Brbovic indicated that the current tax rate is temporarily elevated and should normalize as merger-related impacts subside, while asset quality and credit trends are expected to remain steady barring unforeseen macroeconomic changes.

Key Insights from Management’s Remarks

Management attributed Q2’s profitability gains to ongoing cost control, digital deposit growth, and steady loan portfolio expansion, while highlighting merger integration progress as a key strategic focus.

• Expense reduction progress: Operating expenses were down both quarter-over-quarter and year-over-year, reflecting broad-based cost discipline. Management highlighted that efficiencies were achieved across most business areas, supporting improved operating leverage in the quarter.
• Digital deposit momentum: The launch of a digital deposit program earlier this year generated over $100 million in new deposits, helping to reduce reliance on wholesale funding and improve the mix of core deposits.
• Steady loan growth: Average loans increased, led by growth in commercial and industrial (C&I) lending. The company noted broad-based loan demand, with no significant concentrations or credit deterioration observed in the portfolio.
• Merger integration with Brookline: Integration planning for the Brookline Bancorp merger is progressing, with leadership confident in achieving the targeted 12.6% cost savings. Technology expense synergies are tracking ahead of plan, supporting the company’s profitability targets for the combined entity.
• Stable asset quality: Nonperforming loans and net charge-offs remained low, and the company reported no material credit issues in its multifamily or C&I portfolios. Management emphasized that risk levels continue to be well managed, despite industry headwinds.

Drivers of Future Performance

Berkshire Hills Bancorp’s forward outlook centers on successful merger integration, digital banking initiatives, and maintaining disciplined expense control.

• Merger execution and synergies: Management believes that achieving targeted cost savings from the Brookline merger will be a primary driver of future profitability. Leadership expects integration to proceed smoothly, with tech stack consolidation already on track to meet synergy goals.
• Digital banking expansion: The company aims to further grow its digital deposit base, which management sees as critical for funding stability and reducing borrowing costs. Continued traction in digital onboarding and relationship banking are expected to support balance sheet growth.
• Prudent risk management: Asset quality is expected to remain stable, with low exposure to higher-risk segments such as rent-controlled multifamily loans. Management will monitor for broader credit trends but does not anticipate material deterioration in the near term.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will focus on (1) the pace and execution of Brookline Bancorp merger integration, (2) sustained digital deposit growth and its impact on funding costs, and (3) ongoing expense control and realization of targeted cost synergies. Additionally, we will monitor credit quality trends and any regulatory developments affecting the merger timeline.

Berkshire Hills Bancorp currently trades at $25.75, down from $26.20 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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