Banker & Tradesman photo / file
Boston-based Berkshire Bank saw its second quarter net income come in 14 percent lower than its first-quarter results, the bank said in its quarterly earnings call Thursday.
Second-quarter net income was $23.9 million, versus $27.6 million in the first quarter, but was still slightly higher than the $23.1 million it brought in during the second quarter last year.
The lower quarter-on-quarter performance was due to further net interest income compression, bank executives said, with its net interest margin ending lower at 3.24 percent than the 3.58 percent in the first quarter of 2023. In spite of being higher than the $81.4 million in the second quarter last year, net interest income for the quarter was at $92.8 million, which was lower than the $97.5 million in January to March.
Non-interest income slightly improved at $17.1 million from the $16.6 million in the first quarter and the $16.35 million in the second quarter last year.
“The cumulative impact of Federal Reserve Bank interest rate hikes has resulted in higher funding costs for Berkshire Bank and the industry, compressing net interest margins and operating profitability… Further expansion of average loan yields was more than offset by higher deposit and borrowing costs,” Berkshire CFO David Rosato said in a statement.
Rosato was referring to the bank’s 58-basis-point increase in cost of funds, a 41-basis-point increase in deposit costs and a $600 million increase in average borrowing costs, despite having a 20-basis-point higher yield on its loan portfolio.
During Berkshire’s earnings call, CEO Nitin Mhatre said the bank will continue to be selective with its clients in terms of lending, conservatively focusing on servicing its existing customer base.
Total loans during the quarter reached $8.79 billion, higher than the $8.5 billion in the first quarter and the $7.4 billion in the second quarter last year. Deposits on the other hand was at $9.568 billion, slightly lower than the $9.676 billion in the first quarter and $9.755 billion in the second quarter of 2022.
Berkshire executives noted the bank’s office portfolio totaled to $523 million in the second quarter, equal to 5.9 percent share of total loans. The bank said its exposure to Boston-metro office buildings accounted for under 10 percent of its total loan portfolio.
Berkshire said the vacancy rate in Boston-area office buildings in its loan portfolio is below average, at around 7.4 percent. The 19.7 percent vacancy rate across Greater Boston is now higher than the peak during the Great Recession, according to Colliers data, after having risen for six consecutive quarters.
Total assets improved, ending at $12.2 billion by the end of June compared to the $11.8 billion at the end of March.
The bank updated its outlook for the whole of 2023, with total loans expected to reach between $9.2 billion and $9.4 billion, deposits expected to clock in at $9.9 billion to $10.1 billion. Executives said they forecast net interest income to be within the $175 million to $185 million range, and non-interest income around $33.2 million to $34.3 million.
