Boston-based Berkshire Bank plans to stop originating loans through a specialty commercial lender while also pausing lending through a financial technology partnership the bank established last year.
Berkshire CEO Nitin Mhatre said during the bank’s second quarter earnings call yesterday that Berkshire would stop originating loans through Firestone Financial, including for existing customers. Acquired by Berkshire in 2015, the Needham, Massachusetts-based Firestone specialized in commercial lending for amusement, entertainment, fitness, laundry, vending and other industries.
Mhatre said the decision to stop originating Firestone loans was strategic rather than a reflection of the portfolio’s performance.
“Getting better before getting bigger was an important part of our strategic focus in 2021,” Mhatre said during the call. “And now, even as we’ve begun to grow our balance sheet in 2022, we continue to look for opportunities to improve our balance sheet mix and align it better with our core strategies.”
Berkshire had total loans at the end of the second quarter of $7.8 billion, up from $7.2 billion at the end of the first quarter. The Firestone portfolio balance was $165 million, and Mhatre said no Firestone loans were in deferral and non-performing loans represented less than 1 percent of that portfolio. Mhatre said in response to an analyst’s question that he expects the loan portfolio will take 10 to 12 quarters to be depleted.
The bank is also pausing a more recent lending relationship. The bank’s strategic plan for turning around its finances, what the bank calls its BEST plan, included forming new fintech partnerships. Berkshire last summer had partnered with lending platform Upstart to provide personal loans.
Mhatre in October of 2021 said the bank expected to lend $100 million annually through that partnership. Those loans were also expected to make up 3 percent of the bank’s loan portfolio, but Mhatre said the share has been reduced to 2 percent.
“We believe that given the economic uncertainty, taking a pause in new originations from this partnership is a prudent course of action,” Mhatre said. “And it will enable our teams to focus on the core business of the bank that represent about 98 percent of loans that continue to grow and perform well.”
Mhatre said the relationship with Upstart has been “terrific” and added that the portfolio has performed well. The lending will pause effective immediately, Mhatre said, as loans in the pipeline get processed.
Berkshire Bank saw its net income increase year-over-year and compared to the first quarter. The bank had second quarter net income of $23.1 million, or $0.50 per diluted share, compared to net income of $21.6 million, or $.44 per diluted share, in the second quarter of 2021. The bank’s net income in the first quarter of 2022 had been $20.2 million, or $0.42 per diluted share.
The third quarter will see the bank close five more branches, including one in Connecticut, after branch closings last year reduced its footprint by about 18 percent. The bank will close a branch in East Hampton, one in Pittsfield, Massachusetts, and three in New York, according to filings with the Massachusetts Division of Banks.
Mhatre said while the bank could close a few additional locations, Berkshire also plans to look at how to increase productivity from its branch network.