Berkshire Hills shedding one-fifth of its branches

Berkshire Hills Bancorp in Boston is reducing the size of its branch network by about 20%.

The $12.6 billion-asset company said in a press release Wednesday that it will sell eight branches in New Jersey and Pennsylvania to Investors Bancorp in Short Hills, N.J., marking its exit from those states. Berkshire will close another 16 locations in New York and New England.

Berkshire said it expects to complete the closings and sales by mid-2021, leaving it with 106 branches in Massachusetts, Connecticut, Vermont, Rhode Island and New York.

“These announcements are in alignment with Berkshire's strategic shift toward improving profitability by refocusing on our core operations and operating efficiency,” Sean Gray, Berkshire's acting CEO, said in the release. “Over the last decade, we have executed the consolidation or sale of 40 branches with a high rate of customer retention.”

In addition to the branches, Investors will gain $639 million in deposits and $308 million in loans. The $26.6 billion-asset company said in a separate release that it will use the liquidity from the acquired deposits to retire $250 million in higher-cost Federal Home Loan Bank advances in a move that will improve its net interest margin.

Investors said it will pay Berkshire a 3% premium for the deposits it gets when the deal closes. Investor said it expects the acquisition and the retirement of the Federal Home Loan Bank advances to be 5% accretive to its earnings per share. It should take about three years for Investors to earn back the expected 1.6% dilution to its tangible book value.

Investors estimated that the transaction will cost it $9.7 million, including $4.2 million in Home Loan bank prepayment penalties.

"This is a good opportunity to strengthen our central New Jersey deposit franchise and reduce higher cost wholesale funding," Investors Chairman and CEO Kevin Cummings said in the company's release. "We are also pleased to expand our branch footprint and add two branches in affluent Pennsylvania markets."

Under the leadership of former CEO Michael Daly, Berkshire grew quickly outside of Massachusetts through a series of acquisitions. Its growth in New York included the 2011 purchase of Rome Bancorp and the 2014 purchase of 20 branches from Bank of America. It gained many of its branches in New Jersey and Pennsylvania from its 2016 acquisition of First Choice Bancorp.

Daly abruptly resigned in late 2018 and was succeeded by Richard Marotta.

Those deals caused heartburn in the second quarter of this year when Berkshire reported a $549 million loss that reflected a large goodwill impairment charge tied to the deteriorated market value of past acquisitions. It also set aside more funds to cover potential loan losses tied to the coronavirus pandemic.

Berkshire also disclosed in August that Marotta had resigned, just 21 months after taking the helm, and that it would search for a new leader. At that time, the company tapped Gray to serve as acting CEO.