Berkshire Hills Reports 46% Growth in Second Quarter Net Income
and Continued Favorable Asset Quality Improvement;
Earnings Growth Outlook Improves;
Two New Branch Openings Planned for Albany Region;
Dividend Declared
Pittsfield, MA – July 21, 2010 – Berkshire Hills Bancorp (BHLB) reported net income of $3.4 million, or $0.25 per share, in the second quarter of 2010. This was a 46% increase over second quarter net income of $2.3 million in 2009 due to positive operating leverage resulting primarily from strong revenue growth. For the first half of the year, Berkshire reported net income of $6.7 million, or $0.49 per share, in 2010. This was a 9% increase over first half net income of $6.2 million in 2009.
The Company’s earnings per share in 2009 were reduced by a one-time preferred stock deemed dividend which had no impact on cash or stockholders’ equity. As a result, the Company reported a 2009 second quarter loss of $0.08 per share and first half earnings of $0.18 per share. Adjusted for the deemed dividend and other non-core items in 2009, Berkshire reported a 67% increase in second quarter core earnings per share and a 17% increase in first half core earnings per share in 2010, compared to 2009.
SECOND QUARTER FINANCIAL HIGHLIGHTS (revenue and expense comparisons are to prior year second quarter, unless otherwise noted)
| · | 12% growth in core revenue (7% growth including non-core items) |
| · | 13% growth in net interest income, and 13% annualized growth compared to the prior quarter |
| · | 18% growth in fee income |
| · | 16% annualized growth in commercial loans |
| · | 3.25% net interest margin, compared to 2.91% in the prior year second quarter |
| · �� | $5 million decrease (22%) in nonperforming assets to 0.71% of total assets |
| · | 0.44% annualized net loan charge-offs/average loans |
| · | 0.21% ratio of accruing delinquent loans/total loans – lowest since 2005 |
| · | 193% ratio of the loan loss allowance to non-accruing loans |
| BHLB – Berkshire Hills Bancorp | Page 1 | www.berkshirebank.com |
Michael P. Daly, President and Chief Executive Officer, stated, “We continue to generate positive earnings momentum as a result of double digit growth in both net interest income and fee income. Commercial loans grew strongly, including market share gains and the contribution of our new asset based lending group. Our problem assets, delinquent loans, and net charge-offs have declined and are all at favorable levels compared to industry averages. Our total New York region deposits increased at a 28% annualized rate during the second quarter, reaching $311 million at mid-year. We are opening two new branches in that region in the second half of this year and we expect that deposit growth in New York and from our new Springfield private banking group will continue to provide strong funding support for our loan growth.”
Mr. Daly concluded, “All major components of our operating strategy accelerated to produce positive operating leverage. The resulting strong growth in earnings per share continues to be a key focus as we provide more services in our role as the largest locally headquartered regional bank. This summer, we are also rolling out enhanced course offerings at America’s Most Exciting Bank University, which is an initiative to further empower our team members to live the brand promise which is a cornerstone of our business success. Our team’s response has been overwhelming. The building and shaping of a brand and culture takes place over a period of years, and I believe that there will be significant long run benefit to our franchise from these current initiatives.”
DIVIDEND DECLARED
The Board of Directors maintained the cash dividend on Berkshire’s common stock, declaring a dividend of $0.16 per share to stockholders of record at the close of business on August 5, 2010 and payable on August 19, 2010.
OUTLOOK
Berkshire exceeded its earnings guidance for the first two quarters of the year. Based on its current outlook, the Company projects full year 2010 core earnings per share in the range of $0.95 - $1.00, which is increased from the range of $0.85 - $0.95 that the Company provided at the beginning of the year. Of note, earnings of $0.49 per share in the first half of the year included seasonal insurance contingency fee income of approximately $0.10 per share after-tax. Results in 2010 include start-up net operating costs of new business lines in asset based lending and private banking, along with start-up costs of the two new branches planned in the second half of the year.
Berkshire is targeting to increase the annual run rate of earnings per share to $2.00 by the end of 2012. The Company endeavors to make appropriate progress towards that goal through the rest of 2010 and 2011. Berkshire expects to continue to benefit from positive operating leverage as a result of revenue growth and expense control. Revenue growth is targeted to include organic growth, as well as contributions from the new asset based lending and private banking business lines, along with growth in the New York region. Berkshire also expects to benefit from improved pricing and market conditions in its integrated services of wealth management and insurance.
| BHLB – Berkshire Hills Bancorp | Page 2 | www.berkshirebank.com |
NEW BRANCHES
Berkshire will be adding two branches to its existing ten branch network in its New York region. A new branch at 979 Central Avenue in Albany is expected to open in August, and a new branch at 628 New Loudon Road in Latham is targeted to open in November. The Central Avenue location is adjacent to Home Depot and will be the Bank’s second branch in the city of Albany. The Latham branch is currently under construction; it is located north of Hoffman’s Playland and is well situated to serve this large northern suburb of Albany.
Both branches will utilize automated cash handling equipment to free Berkshire team members to have more interaction with customers at service kiosks. The branches will also have cafes and will sell netbooks to promote online banking. Both branches will have community rooms packed with technology and visual elements which are available free of charge for community functions and teleconferences. Berkshire Bank’s community rooms reflect its emphasis on customer and community engagement; they have been well received and are an important element in building strong branch traffic.
Berkshire plans to double its branch locations in the New York Capital Region over the next several years. Berkshire’s Executive Vice President of Retail Banking, Sean Gray, stated, “Our distinctive brand and branch design provide an exciting environment for our customers and communities. These two new branches will expand our franchise and are well located to serve their immediate areas and our growing customer base in the region. We are moving forward with our expansion as an important financial provider for this important and dynamic northeastern market.”
FINANCIAL CONDITION
Total assets remained steady at $2.7 billion in the most recent quarter. Total loans increased by $39 million at an 8% annualized rate due primarily to a $42 million increase in commercial loans, which grew at a 16% annualized rate. Commercial loan growth was primarily related to new borrowers operating nursing homes and social services agencies, along with new asset based lending relationships. Total mortgage and consumer loans declined slightly as a result of continuing planned runoff of indirect auto loans. For the first six months of the year, total loans grew by $58 million (6% annualized) including the $42 million in second quarter commercial loan growth and $32 million in residential mortgages purchased in the first quarter.
All major asset performance indicators improved in the second quarter and were at comparatively favorable levels in accordance with the Company’s plan at the start of the year. Nonperforming assets decreased by $5 million to $19 million (0.71% of total assets) primarily due to $3 million of collections on targeted commercial loans. Total mortgage and consumer nonperforming loans decreased to the lowest level in several quarters. Net loan charge-offs annualized declined to 0.44% of total loans. Total accruing delinquent loans were a low 0.21% of total loans, the lowest quarter-end result since 2005.
| BHLB – Berkshire Hills Bancorp | Page 3 | www.berkshirebank.com |
Total deposits increased by $53 million (5% annualized) in the first half of the year, with most of this growth coming in the first quarter. This growth included $24 million in the New York region (17% annualized growth) and $22 million from the new private banking team in the Springfield market. Growth has been focused on money market deposit accounts, which are more relationship based and which increased by $73 million, at a 27% annualized rate. The cost of deposits continued to decrease, falling to 1.33% in the most recent quarter, compared to 1.39% in the prior quarter. The loan/deposit ratio increased slightly to 99% from 97% during the quarter and continued to demonstrate the Bank’s strong liquidity.
Stockholders’ equity has remained at $385 million through the first half of the year. Capital ratios declined slightly but remain strong, with mid-year tangible equity/assets measuring 8.2% and total equity/assets measuring 14.0%.
RESULTS OF OPERATIONS
Second quarter net income of $3.4 million in 2010 was 46% higher than the $2.3 million reported in 2009. This reflected the positive operating leverage from higher revenues and limited expense growth. Net income per share was $0.25 in 2010 compared to a loss of $0.08 in 2009. Results in 2009 reflected a one-time non-cash deemed dividend on the repayment of preferred stock, as well as other charges for preferred dividends and accretion. Core earnings per share of $0.15 in 2009 were adjusted for this deemed dividend and other second quarter events, including the termination of a merger agreement. Berkshire’s second quarter core earnings per share of $0.25 in 2010 represents a 67% increase over 2009 core results, despite the dilutive impact of a 7% increase in average diluted shares outstanding from a stock offering last year. Adjusting for a $0.02 per share after-tax seasonal decline in insurance contingency fee income, second quarter 2010 EPS of $0.25 also represented a strong 55% annualized growth rate compared to linked quarter results.
Second quarter total core revenue increased by 12% in 2010 compared to 2009. Since 2009 results included non-core items primarily related to the merger termination, total net revenue increased by 7% on a GAAP basis. The $2.9 million increase in core revenue included a $2.1 million increase in net-interest income and a $1.3 million increase in banking fees for deposits, loans, and interest rate swaps.
Second quarter net interest income increased by 13% in 2010 compared to 2009, and it increased at a 13% annualized rate compared to the linked quarter. Growth compared to last year was primarily due to the improvement in the net interest margin to 3.25% from 2.91%. The Company has continued to manage down its funding costs to support the net interest margin in the present low interest rate environment. The improvement over the linked quarter included the benefit of a 7% annualized increase in average earning assets as a result of loan growth. For the first half of the year, net interest income increased by 8% in 2010 compared to 2009.
| BHLB – Berkshire Hills Bancorp | Page 4 | www.berkshirebank.com |
Second quarter fee income increased by 18% from year-to-year due to improved banking fee revenue for deposits, loans, and interest rate swaps. These banking fees grew at a 19% annualized rate compared to the linked quarter. Other non-interest income declined in the most recent quarter due to changes in the fair value of interest rate swaps as a result of low interest rates. Fee income in the first half of the year includes seasonal insurance contingency revenues, which declined in the first quarter due to lower payouts by major carriers. Reflecting this, fee income growth for the first half of the year measured 6%. First half non-interest income provided 31% of total net revenues, reflecting the Company’s ongoing emphasis on building non-interest revenue sources.
The second quarter loan loss provision was flat at $2.2 million in both years, and net loan charge-offs were also $2.2 million in both years. The mid-year loan loss allowance measured 1.58% of total loans and improved to 193% of non-accruing loans as a result of the improvement in non-accruing loans. For the first half of the year, the provision decreased slightly by $0.2 million.
Second quarter non-interest expense was flat from year-to-year. Results in 2009 included non-core items and a $1.3 million special FDIC insurance assessment. In addition to business growth, compensation related expense increases included the restoration of incentive compensation and a decrease in compensation costs charged against fee income related to loan sales. For the first half of the year, non-interest expense was up 5% from year-to-year. The second quarter effective income tax rate was 26% in 2010, compared to 21% in 2009. The first half effective tax rate was 24% in 2010 and 26% in 2009.
CONFERENCE CALL
Berkshire will conduct a conference call/webcast at 10:00 A.M. eastern time on Thursday, July 22, 2010 to discuss the results for the quarter and guidance about expected future results. Information about the conference call follows:
Dial-in: 800-860-2442
Webcast: www.berkshirebank.com (Investor Relations link)
A telephone replay of the call will be available through August 5, 2010 by calling 877-344-7529 and entering conference number: 441781. The webcast and a podcast will be available at Berkshire’s website above for an extended period of time.
BACKGROUND
Berkshire Hills Bancorp is the parent of Berkshire Bank — America’s Most Exciting BankSM– the largest locally headquartered regional bank. The Company has $2.7 billion in assets and provides services through 45 offices in Massachusetts, New York, and Vermont. For more information, visit www.berkshirebank.com or call 800-773-5601.
| BHLB – Berkshire Hills Bancorp | Page 5 | www.berkshirebank.com |
FORWARD LOOKING STATEMENTS
Statements in this news release regarding Berkshire Hills Bancorp that are not historical facts are “forward-looking statements”. These statements reflect management’s views of future events, and involve risks and uncertainties. For a discussion of factors that could cause actual results to differ materially from expectations, see “Forward Looking Statements” in the Company’s 2009 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are available at the Securities and Exchange Commission’s Internet website (www.sec.gov) and to which reference is hereby made. Actual future results may differ significantly from results discussed in these forward-looking statements, and undue reliance should not be placed on such statements. Except as required by law, the Company assumes no obligation to update any forward-looking statements.
NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included in the accompanying financial tables. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders. The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations, including merger costs and restructuring costs. Similarly, the efficiency ratio is also adjusted for these non-core items. Additionally, the Company adjusts core income to exclude amortization of intangibles to arrive at a measure of the underlying operating cash return for the benefit of shareholders. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community. In the first quarter of 2009, the Company adjusted core earnings per share and core return on tangible common equity to be net of preferred stock dividends. These measures were not adjusted in this manner in the second quarter of 2009. The second quarter deemed dividend was a nonrecurring non-cash charge with no impact on stockholders’ equity and did not reflect a core economic event in the Company’s view. Additionally, the Company held cash at near-zero interest rates in the second quarter while it awaited the approval of the U.S. Treasury to repay the preferred stock. Accordingly, the preferred stock cash dividend and accretion charges were viewed by the Company as non-core one-time charges against income available to common stockholders related to the process of repaying the preferred stock. Other significant non-GAAP adjustments in 2009 related to a terminated merger agreement, borrowings prepayments, and the termination of an interest rate swap.
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| BHLB – Berkshire Hills Bancorp | Page 6 | www.berkshirebank.com |
CONTACTS
Investor Relations Contact
David H. Gonci
Investor Relations Officer
413-281-1973
Media Contact
Fedelina Madrid
Vice President, Senior Marketing Officer
413-236-3733
| BHLB – Berkshire Hills Bancorp | Page 7 | www.berkshirebank.com |
| BERKSHIRE HILLS BANCORP, INC. | |
| CONSOLIDATED BALANCE SHEETS - UNAUDITED | |
| | | | | | | | | | |
| | | June 30, | | | March 31, | | | December 31, | |
| (In thousands) | | 2010 | | | 2010 | | | 2009 | |
| Assets | | | | | | | | | |
| Cash and due from banks | | $ | 27,931 | | | $ | 23,880 | | | $ | 25,770 | |
| Short-term investments | | | 14,317 | | | | 2,697 | | | | 6,838 | |
| | | | | | | | | | | | | |
| Trading security | | | 16,914 | | | | 15,816 | | | | 15,880 | |
| Securities available for sale, at fair value | | | 296,206 | | | | 313,968 | | | | 324,345 | |
| Securities held to maturity, at amortized cost | | | 58,618 | | | | 62,811 | | | | 57,621 | |
| Federal Home Loan Bank stock and other restricted securities | | | 23,120 | | | | 23,120 | | | | 23,120 | |
| Total securities | | | 394,858 | | | | 415,715 | | | | 420,966 | |
| | | | | | | | | | | | | |
| Loans held for sale | | | 3,156 | | | | 1,874 | | | | 4,146 | |
| | | | | | | | | | | | | |
| Residential mortgages | | | 638,439 | | | | 635,614 | | | | 609,007 | |
| Commercial mortgages | | | 890,494 | | | | 862,209 | | | | 851,828 | |
| Commercial business loans | | | 191,277 | | | | 177,532 | | | | 186,044 | |
| Consumer loans | | | 299,771 | | | | 305,986 | | | | 314,779 | |
| Total loans | | | 2,019,981 | | | | 1,981,341 | | | | 1,961,658 | |
| Less: Allowance for loan losses | | | (31,848 | ) | | | (31,829 | ) | | | (31,816 | ) |
| Net loans | | | 1,988,133 | | | | 1,949,512 | | | | 1,929,842 | |
| | | | | | | | | | | | | |
| Premises and equipment, net | | | 37,914 | | | | 37,396 | | | | 37,390 | |
| Other real estate owned | | | 2,900 | | | | 3,250 | | | | 30 | |
| Goodwill | | | 161,725 | | | | 161,725 | | | | 161,725 | |
| Other intangible assets | | | 12,840 | | | | 13,608 | | | | 14,375 | |
| Cash surrender value of bank-owned life insurance | | | 35,270 | | | | 34,973 | | | | 36,904 | |
| Other assets | | | 68,484 | | | | 60,829 | | | | 62,438 | |
| Total assets | | $ | 2,747,528 | | | $ | 2,705,459 | | | $ | 2,700,424 | |
| | | | | | | | | | | | | |
| Liabilities and stockholders' equity | | | | | | | | | | | | |
| Demand deposits | | $ | 276,149 | | | $ | 272,409 | | | $ | 276,587 | |
| NOW deposits | | | 187,401 | | | | 195,848 | | | | 197,176 | |
| Money market deposits | | | 605,529 | | | | 582,006 | | | | 532,840 | |
| Savings deposits | | | 217,977 | | | | 237,454 | | | | 208,597 | |
| Total non-maturity deposits | | | 1,287,056 | | | | 1,287,717 | | | | 1,215,200 | |
| Time deposits | | | 753,115 | | | | 749,576 | | | | 771,562 | |
| Total deposits | | | 2,040,171 | | | | 2,037,293 | | | | 1,986,762 | |
| | | | | | | | | | | | | |
| Borrowings | | | 269,817 | | | | 241,577 | | | | 291,204 | |
| Junior subordinated debentures | | | 15,464 | | | | 15,464 | | | | 15,464 | |
| Other liabilities | | | 37,449 | | | | 25,804 | | | | 22,413 | |
| Total liabilities | | | 2,362,901 | | | | 2,320,138 | | | | 2,315,843 | |
| | | | | | | | | | | | | |
| Total stockholders' equity | | | 384,627 | | | | 385,321 | | | | 384,581 | |
| | | | | | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 2,747,528 | | | $ | 2,705,459 | | | $ | 2,700,424 | |
