Facing activism, Berkshire Hills plans a strategic transformation

After dealing with executive turnover in recent years and investor activists pushing for a sale, Berkshire Hills Bancorp Inc. is charting a new path forward.

With new executives in charge, Boston-based Berkshire Hills announced plans for a three-year strategic transformation that the bank is calling Berkshire's Exciting Strategic Transformation, or BEST, with goals to grow revenue, improve efficiency and adapt to changes in the banking sector. The plan comes on the heels of a string of recent executive turnover, which prompted sale speculation and investor activism demanding a sale of the bank.

Berkshire Hills expects the transformation, which will look to reposition the bank's balance sheet and accelerate branch closures, to boost pre-provision net revenue by $71 million to $91 million over the three years. The company is targeting an adjusted efficiency ratio of about 60% in the three years. The company reported an efficiency ratio of 71.15% at March 31.

"With the new leadership team and promotions in key roles, there is a new sense of energy and focus across the organization," President and CEO Nitin Mhatre said on a conference call to discuss the transformation. "We share a sense of urgency to enhance shareholder value."

Mhatre was named president and CEO on Jan. 25 following two abrupt CEO exits in two years. About two months after Mhatre joined the company, former CFO Jamie Moses resigned from his post. Analysts labeled that move as a "big loss." Subhadeep Basu was named as Moses' successor, marking the company's third CFO within five years.

Berkshire Hills recently faced criticism about shareholder value from activist investor HoldCo Asset Management L.P. The investment firm argued the bank was not maximizing shareholder value, demanded information about the CEO search process and pressured the bank to sell. Berkshire Hills and HoldCo entered into a cooperation agreement in March. The company plans to address shareholder value concerns through its BEST strategy, Mhatre said.

Over the next three years, Berkshire Hills will look to optimize its balance sheet by improving its asset mix and growing overall loan and deposit balances. The company plans to grow its loan balances in business banking, Small Business Administration lending and asset-based lending. In consumer, the bank is looking to grow personal loans and mortgage banking. The bank also plans to allow "inherently high-risk" balances and non-relationship lending to run off.

The bank will focus on optimizing its balance sheet for the first year, then work on growing it the other two years of the plan. "We will get better before we get bigger," Mhatre said.

Berkshire Hills also plans to grow revenue by leveraging data to deepen its relationships with its treasury and wealth management services clients, according to Kate Hersey, director of wealth management, president of Boston region and chief investment officer of Berkshire Bank.

To adapt to the increasingly digital environment, the bank will leverage more financial technology partnerships and continue to close branches. The company in December 2020 announced plans to reduce its branch footprint by 18% and could consolidate an additional 5% to 10% of its remaining 106 branches, Mhatre said. In alignment with the company's goal to grow its business lending portfolio, it is looking into partnerships with fintechs focused on small-business applications, according to Chief Information Officer Jason White.

Berkshire Hills also plans to capitalize on the recent disruption from M&A in the Northeast. "Because of the mergers we are seeing in our markets, both in New England and the mid-Atlantic, there are uncertainties in our markets and opportunities to hire well-qualified bankers to enhance our businesses," said George Bacigalupo, senior executive vice president and head of commercial banking at Berkshire Bank.