1
BERKSHIRE HILLS BANCORP, INC., REPORTS FOURTH QUARTER AND YEAR END 2002
EARNINGS, DECLARATION OF DIVIDEND AND ANNUAL MEETING
PITTSFIELD, MA - January 22, 2003 - Berkshire Hills Bancorp, Inc. (the
"Company"), (AMEX: BHL), the holding company for Berkshire Bank (the "Bank"),
reported a net loss of $4.3 million for the fourth quarter of 2002 compared to
net income of $1.7 million for the same quarter of 2001. For the year ended
December 31, 2002, net income totaled $1.8 million as compared to $8.9 million
for the year ended December 31, 2001. Year end and fourth quarter earnings were
lower primarily due to charges from the restructuring of the Company's senior
management and the reorganizing of its long-term business strategies.
Earnings(loss) per share for the quarter ended December 31, 2002 was ($0.80),
compared to basic and diluted earnings per share of $0.30 and $0.28,
respectively, for the fourth quarter of 2001. For the year ended December 31,
2002, basic and diluted earnings per share equaled $0.33 and $0.30 respectively,
compared to $1.42 and $1.35 for the year ended December 31, 2001. The Company's
book value per share at December 31, 2002, September 30, 2002, and December 31,
2001 was $19.66, $21.75, and $21.68, respectively.
Dividend Declared
Berkshire Hills also reported that the Board of Directors declared a quarterly
cash dividend of $0.12 per share payable on February 21, 2003 to stockholders of
record at the close of business on February 6, 2003.
Annual Meeting
Berkshire Hills Bancorp, Inc., announced today that its 2003 Annual Meeting of
Stockholders will be held on May 1, 2003 at the Crowne Plaza Hotel, One West
Street, Pittsfield, MA at 10:00 a.m. The voting record date has been set as
March 13, 2003. The Company intends to distribute proxy solicitation materials
on or about March 27, 2003.
Fourth Quarter Events
In the fourth quarter of 2002, the Company restructured its management team
which resulted in approximately $6.6 million of charges, consisting of the
payment to or accrual of severance payments for three executive officers and one
senior vice president under existing contractual obligations. Additionally,
seven directors retired from the Boards of the Company and the Bank and, as a
result, the Company incurred a $300,000 charge in the fourth quarter to fund
retirement plan benefits.
In December, the Company accelerated its efforts to exit the sub-prime indirect
automobile loan business by selling $69.7 million of such loans which resulted
in charges of $11.2 million. The Company intends to remain active in the
indirect automobile business, but not the sub-prime segment of the market.
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As part of the revised long-term business strategy, the Company restructured its
investment portfolio placing less emphasis on equity securities. Equities
totaling $18.8 million were sold in December resulting in a gain of $14.8
million. Excluding Federal Home Loan Bank (FHLB) and Savings Bank Life Insurance
(SBLI) stock, equities comprised 9% of the investment portfolio at December 31,
2002.
As part of its revised policy and procedures for reviewing and estimating
writedowns of repossessed assets, the Company recognized a charge of $1.8
million of which $1.3 million was the result of writing down the values of
repossessed automobiles and $500,000 was related to the writedown of one
foreclosed property. The Company also increased its allowance for loan losses by
$1.5 million to reflect a lower estimate for recoverability of the Bank's
remaining sub-prime indirect automobile loans.
Management also decided to prepay several higher-rate FHLB borrowings and
replace them with lower rate, shorter-term FHLB borrowings in December. FHLB
borrowings totaling $21.2 million with a weighted average maturity of
approximately 26 months and a weighted average interest rate of approximately
5.56% were replaced by $20.0 million of new FHLB borrowings with a weighted
average maturity of nine months at a weighted average cost of 1.53%. The Company
incurred a prepayment penalty of $1.1 million in the fourth quarter of 2002 to
do so.
In total, net charges taken in the fourth quarter of 2002 relating to the
restructuring of the Company's senior management team and the reorganizing of
the Company's long-term business strategy amounted to $8.3 million.
Financial Condition
Total assets at December 31, 2002 were $1.05 billion compared to $1.03 billion
at December 31, 2001, an increase of $14.9 million. Total loans decreased $79.9
million to $723.0 million at December 31, 2002 from $803.0 million at December
31, 2001. Consumer loans declined $112.0 million during 2002 as the Company
accelerated its efforts to exit the sub-prime indirect automobile loan business
and discontinued the origination of sub-prime automobile loans. The total amount
of sub-prime indirect automobile loans remaining on the Company's books at
December 31, 2002 was $13.4 million. In addition, commercial land development
and construction loans declined $8.3 million as completed projects converted to
permanent financing. Partially offsetting these decreases were commercial real
estate loans which increased $34.7 million and residential one-to four-family
loans which increased $5.6 million reflecting a strong local real estate loan
market and the low interest rate environment. Securities, including FHLB and
SBLI stock, rose $80.1 million to $226.9 million at December 31, 2002 from
$146.8 at December 31, 2001, as loan and equity sales proceeds were invested in
bonds, primarily CMO's and callable agency notes. In addition, short-term
investment securities rose $23.9 million to $43.4 million at December 31, 2002,
from $19.5 million at December 31, 2001.
Foreclosed real estate totaled $1.5 million at December 31, 2002 versus
zero at December 31, 2001, as the Company took possession of one
commercial property in the first quarter of 2002 and wrote down
the property by $500,000 in the fourth quarter. On December 31, 2002, the
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Company signed a contract to sell this property at its estimated realizable
value in the first quarter of 2003. The allowance for loan losses totaled $10.3
million, or 1.43% of total loans at December 31, 2002 versus $11.0 million, or
1.37% of total loans at December 31, 2001.
Deposits increased $39.6 million to $782.4 million at December 31, 2002 from
$742.7 at December 31, 2001. Deposit growth has been strong in all deposit
categories since December 31, 2001. Certificates of deposit and savings accounts
increased $19.9 million from December 31, 2001 and demand deposit accounts
increased $4.4 million. Money market and NOW accounts increased $15.4 million.
FHLB borrowings decreased $1.0 million to $133.0 million at December 31, 2002
from $134.0 million at December 31, 2001.
During the fourth quarter of 2002, the Company continued its fifth 5% stock
repurchase program purchasing 3,300 shares at a cost of $77,000. The Company
repurchased 314,913 shares at a cost of $7.0 million in 2002. Stockholders'
equity declined to $120.2 million at December 31, 2002 from $139.3 at December
31, 2001 due primarily to the stock repurchases, a $13.3 million decrease in
accumulated other comprehensive income resulting from this year's restructuring
of the investment portfolio, and $2.8 million of dividends paid to shareholders.
Results of Operations
The Company recorded a net loss of $4.3 million in the fourth quarter of 2002
compared to net income of $1.7 million for the same quarter last year primarily
due to $8.3 million of charges related to the restructuring of senior management
and the reorganizing of the Company's long-term business strategies.
Interest and dividend income totaled $14.5 million for the three months ended
December 31, 2002 versus $18.3 million for the three months ended December 31,
2001. This decrease is primarily due to lower loan interest which declined by
$3.8 million to $12.6 million for the fourth quarter of 2002 from $16.5 million
for the same quarter last year as a result of lower balances and yields on the
Company's loan portfolio. The decrease also reflects the forfeiture of accrued
interest of $492,000 related to the sale of sub-prime automobile loans. Interest
expense was $5.5 million for the fourth quarter of 2002, a decrease of $1.7
million from $7.2 million for the fourth quarter last year. Higher balances in
the Company's deposit accounts were more than offset by lower rates paid on all
interest-bearing liabilities.
The provision for loan losses for the fourth quarter of 2002 totaled $2.3
million compared to $4.6 million for the same period in 2001, a decrease of $2.2
million. The provision for 2002 includes $1.5 million attributable to
management's assessment of its remaining sub-prime indirect automobile loans.
The decrease in the provision in 2002 primarily resulted from management's
assessment of the decline in consumer loan charge-offs which, net of recoveries,
totaled $2.7 million in the quarter as compared to $4.4 million in the same
quarter last year. The higher provision for the fourth quarter of 2001 reflects
the adoption of a more aggressive policy regarding the charge-off of automobile
loans whereby all automobile loans that were 120 days or more past due, except
for customers who are in bankruptcy proceedings, were charged off. Net interest
income after the provision for loan losses equaled $6.7 million for the last
quarter of 2002 compared to $6.5 million for the last quarter of 2001.
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Noninterest income dropped $871,000 to $4.3 million for the fourth quarter of
2002 from $5.2 million for the fourth quarter of 2001. The fourth quarter of
2002 reflects a $14.8 million gain on the sale of equity securities which was
offset, in part, by $13.4 million of charges related to the sale of sub-prime
indirect automobile loans, the writedown of one security, the writedown of
repossessed automobiles and the prepayment penalty on the FHLB advances. Higher
noninterest income in the fourth quarter of 2001 reflects a $2.2 million gain on
the curtailment of the Company's defined benefit pension plan.
Operating expenses totaled $17.9 million for the three months ended December 31,
2002 compared to $9.2 million for the three months ended December 31, 2001.
Salaries and benefits expense equaled $12.2 million for the fourth quarter of
2002 versus $4.9 million for the fourth quarter of 2001. Included in the 2002
fourth quarter figure is $6.9 million of severance and retirement expenses.
Foreclosed real estate and other loan expenses increased $1.0 million to $1.4
million this year as the Company wrote down one manufacturing property.
For the year ended December 31, 2002, net income totaled $1.8 million, a
decrease of $7.1 million from $8.9 million for the year ended December 31, 2001.
Similar to the fourth quarter of 2002, year end earnings were adversely impacted
by the same restructuring events.
Net interest income totaled $40.7 million for 2002, a decline of $1.5 million
from 2001. Interest and dividend income declined $11.7 million to $64.1 million
for 2002 from last year as a significant number of customers refinanced higher
rate loans and excess cash flows from prepaid or maturing loans were reinvested
in lower yielding securities. The results for 2002 also reflect the forfeiture
of accrued interest receivable of $492,000 related to the sub-prime automobile
loan sale. Interest expense dropped $10.1 million to $23.4 million for 2002 from
$33.6 million for 2001 as the Company paid lower rates on all deposit accounts
and borrowings from the FHLB.
The provision for loan losses totaled $6.2 million for the year ended December
31, 2002, as compared to $7.2 million for last year. The decrease of $1.0
million in the provision from last year primarily reflects management's
assessment of the lower balances of sub-prime automobile loans which typically
bear higher risk compared to other loans. Net interest income, after the
provision for loan losses, totaled $34.5 million for the twelve months ended
December 31, 2002, a decrease of $541,000 from 2001.
Noninterest income increased $2.1 million to $13.4 million for the year ended
December 31, 2002 from $11.4 million for the year ended December 31, 2001 as the
net effects of the fourth quarter events in 2002 increased noninterest income by
$1.4 million. The figure for 2001 was aided by a one-time gain of $2.2 million
on the curtailment of the Company's defined benefit pension plan. The increase
in 2002 was aided by the recording of a full year's worth of fees earned from
the operations of EastPoint Technologies, LLC versus only six months last year.
For the year ended December 31, 2002 operating expenses equaled $45.8 million,
an increase of $12.6 million over last year's $33.2 million. Significant
portions of this increase were due to the $6.9 million of charges related
to management severance and board retirement expenses and the $500,000
writedown of a foreclosed commercial property. In addition, operating expenses
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increased due to the recognition of a full year's worth of expenses of EastPoint
versus only six months last year.
Berkshire Hills Bancorp, Inc. is the holding company for Berkshire Bank.
Established in 1846, Berkshire Bank is one of Massachusetts' oldest and largest
independent banks and is the largest banking institution based in Western
Massachusetts. The Bank is headquartered in Pittsfield, Massachusetts with 11
branch offices serving communities throughout Berkshire County. The Bank is
committed to continuing to operate as an independent bank, delivering
exceptional customer service and a broad array of competitively priced retail
and commercial products to customers.
This press release may contain certain forward-looking statements with regard to
the Company's prospective performance and strategies within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of said safe harbor
provisions.
Forward-looking statements, which are based on certain assumptions, and describe
future plans, strategies, and expectations of the Company, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or other similar expressions. The Company's ability to
predict results or the actual effects of its plans and strategies are inherently
uncertain. Accordingly, actual results may differ materially from anticipated
results. Factors that could have a material adverse effect on the operations of
the Company and its subsidiaries include, but are not limited to, the price of
loans or other assets sold by the Bank in the future, changes in market interest
rates, general economic conditions, legislation, and regulation; changes in the
monetary and fiscal policies of the U.S. Government; changes in the quality or
composition of the loan and investment portfolios; changes in deposit flows,
competition, and demand for financial services and loan, deposit, and investment
products in the Company's local markets; changes in local real estate values;
changes in accounting principles and guidelines; war or terrorist activities;
and other economic, competitive, governmental, regulatory, geopolitical, and
technological factors affecting the Company's operations, pricing, and services.
Specific factors that could cause future results to vary from current management
expectations are detailed from time to time in the Company's SEC filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this release. Except as required
by applicable law or regulation, the Company undertakes no obligation to update
these forward-looking statements, to reflect events or circumstances that occur
after the date on which such statements were made.
MEDIA AND INVESTOR CONTACT:
MICHAEL P. DALY
413-236-3194
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BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
DECEMBER 31, DECEMBER 31,
2002 2001
---- ----
IN THOUSANDS
ASSETS
- ------
Cash and due from banks $ 17,258 $ 22,652
Short term investments 43,397 19,471
------- ------
Total cash and cash equivalents 60,655 42,123
Securities available for sale, at fair value 173,169 104,446
Securities held to maturity, at amortized cost 44,267 33,263
Federal Home Loan Bank stock, at cost 7,440 7,027
Savings Bank Life Insurance stock, at cost 2,043 2,043
Loans 723,022 800,414
Loans held for sale, at lower of cost or fair value - 2,540
Allowance for loan losses (10,308) (11,034)
-------- --------
Net loans 712,714 791,920
Premises and equipment, net 13,267 14,213
Foreclosed real estate 1,500 -
Accrued interest receivable 5,125 5,873
Goodwill and other intangibles 9,938 10,592
Net deferred tax asset 2,185 -
Other assets 13,315 19,201
------ ------
TOTAL ASSETS $ 1,045,618 $ 1,030,701
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $ 782,360 $ 742,729
Federal Home Loan Bank advances 133,002 133,964
Securities sold under agreements to repurchase 700 1,890
Net deferred tax liability - 4,573
Loan sold with recourse 1,201 -
Accrued expenses and other liabilities 5,677 5,099
----- -----
Total Liabilities 922,940 888,255
------- -------
Minority Interests 2,438 3,123
Stockholders' Equity:
Preferred stock ($.01 par value; 1,000,000 shares
authorized; none issued or outstanding) - -
Common stock ( $.01 par value: 26,000,000 shares
authorized; shares issued: 7,673,761 at December 31, 2002
and December 31, 2001; shares outstanding: 6,117,134
at December 31, 2002 and 6,425,140 at December 31, 2001) 77 77
Additional paid-in capital 74,632 74,146
Unearned compensation (9,535) (11,101)
Retained earnings 79,682 80,657
Accumulated other comprehensive income 5,542 18,836
Treasury stock, at cost (1,556,627 shares at December 31, 2002
and 1,248,621 shares at December 31, 2001) (30,158) (23,292)
-------- --------
Total stockholders' equity 120,240 139,323
------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,045,618 $ 1,030,701
=========== ===========
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BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
UNAUDITED
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Percent Percent
Balance of Total Balance of Total
Dollars in Thousands
LOAN ANALYSIS
- -------------
Real estate loans
Residential 1-4 family $235,020 32.50% $229,432 28.57%
Residential land development and construction 6,576 0.91% 3,585 0.45%
Commercial one-to four-family 11,932 1.65% 11,517 1.43%
Commercial real estate 119,198 16.49% 84,538 10.53%
Commercial land development and construction 11,051 1.53% 19,351 2.41%
Multi-family 14,920 2.06% 13,183 1.64%
-------- --------
Total real estate loans 398,697 55.14% 361,606 45.03%
Commercial loans 165,274 22.86% 170,305 21.21%
Consumer loans
Automobile 105,047 14.53% 216,026 26.90%
Home Equity Loans 40,713 5.63% 34,439 4.30%
Other 13,291 1.84% 20,578 2.56%
-------- --------
Total consumer loans 159,051 22.00% 271,043 33.76%
-------- --------
Total loans 723,022 802,954
Less: Allowance for loan losses (10,308) 1.43% (11,034) 1.37%
-------- --------
Loans, net $712,714 $791,920
======== ========
Percent Percent
Balance of Total Balance of Total
Dollars in Thousands
DEPOSIT ANALYSIS
- ----------------
Demand Deposits $ 87,149 11.14% $82,758 11.14%
NOW Accounts 92,245 11.79% 80,970 10.90%
4Savings Accounts 158,468 20.26% 151,565 20.41%
Money Market Accounts 114,309 14.61% 110,199 14.84%
Certificates of Deposits 330,189 42.20% 317,237 42.71%
-------- --------
Total Deposits $782,360 $742,729
======== ========
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BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Unaudited Unaudited
Three Months Ended Twelve Months Ended
December 30, December 30,
------------------------------ ---------------------------------
2002 2001 2002 2001
(In thousands, except per share amounts)
INTEREST AND DIVIDEND INCOME
Bond interest $ 1,467 1,358 $ 5,407 $ 5,608
Stock dividends 324 341 1,355 1,484
Short term investment interest 130 141 456 413
Loan interest 12,628 16,460 56,910 68,291
-------- --------- --------- ---------
TOTAL INTEREST AND DIVIDEND INCOME 14,549 18,300 64,128 75,796
-------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 4,221 5,686 17,777 26,685
Interest on FHLB advances and securities sold
under agreements to repurchase 1,326 1,547 5,651 6,875
-------- --------- -------- ---------
TOTAL INTEREST EXPENSE 5,547 7,233 23,428 33,560
-------- --------- -------- ---------
NET INTEREST INCOME 9,002 11,067 40,700 42,236
PROVISION FOR LOAN LOSSES 2,305 4,550 6,180 7,175
-------- --------- -------- ---------
NET INTEREST INCOME, AFTER PROVISION 6,697 6,517 34,520 35,061
FOR LOAN LOSSES
NONINTEREST INCOME
Customer service fees 567 453 2,233 1,810
Trust department fees 431 479 1,796 1,782
Loan fees 46 109 440 595
Gain on sale of securities, net 14,833 2 15,143 268
Loss on impairment of securities (326) - (673) -
Loss on sale of loans, net (10,702) - (10,702) -
Loss on impairment of other assets (1,262) - (1,262) -
Penalty on prepayment of FHLB borrowings (1,067) - (1,067) -
License maintenance & processing fees 1,111 1,094 4,379 2,100
License sales & other fees 628 754 2,612 2,144
Gain on curtailment of defined benefit pension plan - 2,173 - 2,173
Other income 69 135 519 490
-------- --------- -------- ---------
TOTAL NONINTEREST INCOME 4,328 5,199 13,418 11,362
-------- --------- -------- ---------
OPERATING EXPENSES
Salaries & benefits 12,227 4,925 28,488 17,590
Occupancy & equipment 1,356 1,357 5,288 4,689
Marketing & advertising 259 220 648 629
Data processing 264 201 758 1,065
Professional services 442 455 1,384 1,314
Office supplies 238 217 769 899
Foreclosed real estate and other loans, net 1,429 398 3,250 2,238
Amortization of other intangibles 175 382 700 827
Minority interests (385) (148) (685) (119)
Other expenses 1,864 1,152 5,207 4,031
-------- --------- -------- ---------
TOTAL OPERATING EXPENSES 17,869 9,159 45,807 33,163
-------- --------- -------- ---------
INCOME (LOSS) BEFORE TAXES (6,844) 2,557 2,131 13,260
Provision (Benefit) for income taxes (2,555) 838 362 4,349
--------- --------- -------- ---------
NET INCOME (LOSS) $ (4,289) $ 1,719 $ 1,769 $ 8,911
========= ========= ======== =========
Earnings (Loss) per share:
Basic $ (0.80) $ 0.30 $ 0.33 $ 1.42
Diluted $ (0.80) $ 0.28 $ 0.30 $ 1.35
Weighted average shares outstanding:
Basic 5,370 5,763 5,435 6,264
Diluted 5,370 6,157 5,881 6,604
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BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL RATIOS
Unaudited Unaudited
At or for the At or for the
Three Months Ended Twelve Months Ended
December 31 December 31
2002 2001 2002 2001
---- ---- ---- ----
DOLLARS IN THOUSANDS DOLLARS IN THOUSANDS
Performance Ratios (1):
Return (Loss) on average assets -1.60% 0.67% 0.17% 0.86%
Return (Loss) on average equity -13.13% 4.87% 1.30% 5.74%
Net interest margin as % of average earning assets 3.11% 4.57% 4.12% 4.35%
Non-interest income to average earning assets 2.12% 2.15% 1.36% 1.17%
Non-interest expense to average earning assets 7.01% 3.78% 4.64% 3.41%
Asset Quality Ratios (2):
Average earning assets to average assets 94.88% 93.78% 93.92% 93.80%
Net charged-off loans to total loans 0.55% 0.54% 0.96% 0.79%
Non-performing loans to total loans 0.52% 0.34% 0.52% 0.34%
Non-performing assets to total assets 39.36% 0.26% 39.36% 0.26%
Allowance for loan losses to non-performing loans 275.54% 408.36% 275.54% 408.36%
Allowance for loan losses to total loans 1.43% 1.37% 1.43% 1.37%
Capital ratios (2):
Stockholders' equity to total assets -25.08% 13.50% -25.08% 13.50%
Tier I capital to average assets 10.05% 11.00% 10.05% 11.00%
Tier I capital to risk weighted assets 13.47% 12.97% 13.47% 12.97%
Total capital to risk weighted assets 15.21% 15.73% 15.21% 15.73%
Other data (2):
Non-performing loans $ 3,741 $ 2,702 $ 3,741 $ 2,702
Foreclosed real estate $ 1,500 $ - $ 1,500 $ -
Non-performing assets $ 5,241 $ 2,702 $ 5,241 $ 2,702
Efficiency ratio (3) 115.16% 56.31% 72.23% 62.18%
Book value per share $ 19.66 $ 21.68 $ 19.66 $ 21.68
(1) Ratios are annualized for the three and twelve months ended December
31, 2002 and 2001
(2) End of period ratios and balances
(3) Efficiency ratio for 2002 equals operating expenses less severance
payments divided by net interest income plus noninterest income less
gain on sale of securities plus loss on sale of loans.