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NYSE: BHLB

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Press Release

Berkshire Hills Reports Fourth Quarter Results; Increases Dividend 5%

Company Release - 1/23/2019 4:15 PM ET

BOSTON, Jan. 23, 2019 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported GAAP net income of $14 million, or $0.31 per common share in the fourth quarter of 2018.   The non-GAAP measure of core earnings totaled $29 million, or $0.63 per share, during this period.   Both GAAP and core EPS totaled $0.70 in the prior quarter.  The benefit of higher net interest income in the fourth quarter was offset by lower fee income and higher expense.  Core EPS is net of non-core charges which totaled $0.32 per share after tax in the fourth quarter and included merger related expenses and other items, including costs related to the restructuring of the Company's banking systems provider relationships. 

(PRNewsfoto/Berkshire Hills Bancorp, Inc.)

FOURTH QUARTER FINANCIAL HIGHLIGHTS (balance sheet growth is compared to prior quarter-end):

  • 2% loan and deposit growth
  • 3.41% net interest margin
  • 60.3% efficiency ratio
  • 0.17% net loan charge-offs/average loans
  • 0.28% non-performing assets/assets

CEO Richard Marotta stated, "Core earnings for the year were in line with our original plan, and fourth quarter core earnings also met our expectations before the impact of the government shutdown on SBA related fee revenue.  During 2018, our teams made great strides integrating our Eastern-Massachusetts acquisition and developing organic business across our footprint.  Loan growth was consistent throughout the year, and deposit balances increased with the benefit of higher activity in the fourth quarter.  Our internal capital generation supported our balance sheet growth, and our credit performance and asset quality remain strong."

Mr. Marotta added, "In December, we announced an agreement to acquire SI Financial, which adds a solid deposit franchise in southeastern New England, and complements our operations in Springfield, Worcester, and Hartford.  We're working expeditiously to complete this merger by mid-year 2019 with a goal of completing the integration later in the year to achieve future targeted accretive benefits of increased scale and a combined pro forma asset base of nearly $14 billion.   We completed a technology project in the fourth quarter, and restructured our banking systems provider relationships which will benefit our long term competitive profile.  In recognition of the year's progress, our Board approved a 5% dividend increase effective with our next dividend."

Mr. Marotta concluded "Our Berkshire teams are moving forward together, supported by a strong culture.  Our corporate responsibility initiatives in 2018 included increasing our minimum wage to $15 per hour, formalization of equal pay standards, naming a Corporate Social Responsibility Officer, and initiating a diversity and inclusion program which is augmented by our Boston headquarters location.   We're committed to a long-term focus and judicious business management to deliver on our franchise investment and the expectations of our constituents."

DIVIDEND INCREASED

The Board of Directors voted to increase the quarterly cash dividend by $0.01, or 5%, to $0.23 per common share to shareholders of record at the close of business on February 14, 2019, payable on February 28, 2019.  The dividend equates to a 3.4% annualized yield based on the $26.97 closing price of Berkshire Hills Bancorp at year-end 2018.  Effective on the same dates, the Board also increased the quarterly cash dividend on preferred stock by 5% to $0.46 per share. 

FINANCIAL CONDITION

Total assets increased to $12.2 billion in the fourth quarter, resulting from 2% growth in commercial loans and residential mortgages.  Commercial loan growth was concentrated in Central and Eastern Massachusetts, together with higher specialty lending and asset based lending balances.  Mortgage growth was based on originations in Eastern Massachusetts in support of the Bank's expansion.  Deposits increased by 2% including seasonally higher year-end activity.  Payroll service related balances increased by $108 million, and accounted for most of the shift between NOW and money market accounts.     The average cost of deposits was 1.07% in the fourth quarter, increasing by 0.11% quarter-over-quarter, in line with the Company's expectations.  Liquidity and capital metrics were little changed in the fourth quarter.   The year-end ratio of loans/deposits was 101%.  The year-end 2018 equity/assets ratio measured 12.7% and tangible equity/tangible assets measured 8.6%.  Book value per common share increased in 2018 by 4% to $33.30, while the non-GAAP measure of tangible book value per common share improved by 7% to $21.15.

RESULTS OF OPERATIONS

GAAP earnings per share decreased to $0.31 in the fourth quarter, compared to $0.70 in the prior quarter.  Net non-core charges totaled $19 million, or $0.32 per share after-tax, in the fourth quarter.  This included $8 million in expense related to the restructuring of the Company's banking systems vendor relationships to improve the breadth, flexibility, and scalability of these systems.  This charge is expected to be earned back in less than three years, including benefits related to merger integration costs.  Non-core charges in the fourth quarter included $3 million in merger related expenses, a $3 million accrued expense related to a legal settlement, and a $3 million charge to non-interest income due to a reduction in the carrying value of equity securities which are marked-to-market quarterly.  Other non-core charges included a $1.5 million expense related to the CEO transition, consisting of a payout pursuant to a resignation and separation agreement, net of the reversal of accrued conditional benefits which were forfeited as part of this agreement.

Core earnings per share decreased to $0.63 in the fourth quarter from $0.70 in the prior quarter, reflecting a $1 million decrease in revenue and a $3 million increase in core expense.  Net interest income increased by $4 million quarter-over-quarter, including the benefit of a 2% increase in average earning assets and an increase in the net interest margin to 3.41% from 3.32%.  The net interest margin includes purchased loan accretion, which varies each quarter primarily due to the impact of recoveries of purchased credit impaired loans.  This accretion contributed 0.30% to the fourth quarter 2018 margin, compared to 0.17% in the prior quarter.  Rising funding costs resulted in a 0.04% reduction in the margin before the impact of purchased loan accretion.  The cost of funds increased by 0.15% due to Federal Reserve Bank interest rate hikes and increased average utilization of higher cost borrowings.

Fourth quarter fee income decreased by $6 million quarter-over-quarter, with the decrease split between mortgage banking revenue and SBA loan sale gains included in loan related income.  These reductions reflected market conditions, including lower volumes and tighter margins, as well as seasonal factors.   The SBA decrease included $1 million in gains related to loans that could not be processed for sale due to the partial federal government shutdown. 

The fourth quarter loan loss provision increased quarter-over-quarter, adding to the loan loss allowance concurrent with loan growth during the quarter.  The provision exceeded net loan charge-offs, which measured 0.17% of average loans, and the allowance increased to 0.68% of total loans.  Charge-offs, delinquencies, and non-accruals all decreased compared to the prior quarter, and remain at favorable levels.

GAAP non-interest expense increased by $19 million quarter-over-quarter, including the above mentioned non-core expenses.  Core non-interest expense increased by $3 million quarter-over-quarter, including higher compensation expense and professional fees in support of current initiatives.  Total full-time equivalent staff decreased to 1,916 positions at year-end, from 1,992 positions at the start of the year, primarily due to volume related reductions in mortgage banking staff.    The GAAP effective income tax rate was 19% for the fourth quarter and 21% for the year 2018.  The core effective tax rate for the year was also 21%. 

INVESTOR CONFERENCE CALL

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Thursday, January 24, 2019 to discuss the results for the quarter and provide guidance about expected future results.  Participants are encouraged to pre-register for the conference call using the following link:  http://dpregister.com/10127662.  Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call.  Participants may pre-register at any time prior to the call, and will immediately receive simple instructions via email. Additionally, participants may reach the registration link and access the webcast by logging in through the investor section of Berkshire's website at http://ir.berkshirebank.com.  Those parties who do not have internet access or are otherwise unable to pre-register for this event may still participate at the above time by dialing 1-844-792-3726 and asking the Operator to join the Berkshire Hills Bancorp (BHLB) earnings call.  A telephone replay of the call will be available through Thursday, January 31, 2019 by dialing 877-344-7529 and entering access number 10127662.  The webcast will be available on Berkshire's website for an extended period of time.

BACKGROUND

Berkshire Hills Bancorp is the parent of Berkshire Bank, which is recognized for its entrepreneurial approach, relationship customer experience and distinctive culture.  The Company has approximately $12.2 billion in assets and 115 full service branches in Massachusetts, New York, Connecticut, Vermont, New Jersey, and Pennsylvania providing personal and business banking, insurance, and wealth management services. The Company also offers mortgages and specialized commercial lending services in targeted national markets.  Berkshire has a pending agreement to acquire SI Financial Group, Inc., the parent of Savings Institute Bank & Trust Company, a $1.6 billion bank with 23 branches in eastern Connecticut and southern Rhode Island.

FORWARD LOOKING STATEMENTS

This document contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. There are several factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see Berkshire's most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission and available on the SEC's website at www.sec.gov. Berkshire does not undertake any obligation to update forward-looking statements.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed merger, Berkshire will file with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that will include a Proxy Statement of SI Financial Group ("SIFI") and a Prospectus of Berkshire, as well as other relevant documents concerning the proposed merger. Before making any voting or investment decision, investors and security holders of SIFI and Berkshire are urged to carefully read the entire registration statement and Proxy Statement/Prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A free copy of the Registration Statement and Proxy Statement/Prospectus, as well as other filings containing information about Berkshire and SIFI, when they become available, may be obtained at the SEC's Internet site (www.sec.gov). Copies of documents filed by Berkshire with the SEC may also be obtained, free of charge, from Berkshire's website at ir.berkshirebank.com or by contacting Erin Duggan at 413-236-3773.  Copies of the documents filed by SIFI with the SEC may also be obtained, free of charge, from SIFI's website at www.mysifi.com or by contacting Rheo Brouillard at 860-456-6540.

PARTICIPANTS IN SOLICITATION

Berkshire and SIFI and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of SIFI in connection with the proposed merger. Information about the directors and executive officers of Berkshire is set forth in the proxy statement for Berkshire's 2018 annual meeting of stockholders, as filed with the SEC on a Schedule 14A on April 6, 2018. Information about the directors and executive officers of SIFI is set forth in the proxy statement for SIFI's 2018 annual meeting of stockholders, as filed with the SEC on a Schedule 14A on March 29, 2018.   Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction and a description of their direct and indirect interests, by security holdings or otherwise, may be obtained by reading the Proxy Statement/Prospectus and other relevant documents regarding the proposed merger to be filed with the SEC (when they become available). Free copies of these documents may be obtained as described in the preceding paragraph.

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 on pages F-9 and F-10 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 items which the Company does not view as related to its normalized operations.  These items primarily include securities gains/losses, merger costs, and restructuring costs.  Securities gains/losses include unrealized gains/losses on equity securities beginning in the first quarter of 2018. Charges related to merger and acquisition activity consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees.  The merger related charges in 2017 and 2018 are primarily related to the business combinations with First Choice Bank and Commerce Bancshares Corp., and the pending combination with SI Financial.  Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales.  Additionally, the Company recorded charges for hedge terminations in the first quarter of 2017 and legal settlement costs during the year.  In 2018, the Company recorded $8 million in charges related to the restructuring of banking systems vendor relationships in conjunction with contractual arrangements extending to 2026.  The Company recorded a $3 million cost for the pending settlement of an existing legal proceeding with a plaintiff claiming to be representing a class of depositors.  Non-core charges in 2018 also included a $1.5 million net charge related to the CEO transition, consisting of a $7.5 million payout pursuant to a resignation and separation agreement, net of the reversal of accrued conditional benefits which were forfeited in this agreement.

Non-core adjustments are presented net of an adjustment for income tax expense.  This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to core income.  The efficiency ratio is adjusted for non-core revenue and expense items and for tax preference items.  The Company also calculates measures related to tangible equity, which adjust equity (and assets where applicable) to exclude intangible assets due to the importance of these measures to the investment community. 

CONTACTS
Investor Relations Contact
Erin E. Duggan; Investor Relations Manager; 413-236-3773

Media Contact
Elizabeth Mach; Senior Vice President, Marketing Officer; 413-445-8390

TABLE

INDEX

 

CONSOLIDATED UNAUDITED FINANCIAL SCHEDULES

F-1

Selected Financial Highlights

F-2

Balance Sheets

F-3

Loan and Deposit Analysis

F-4

Statements of Income

F-5

Statements of Operations (Five Quarter Trend)

F-6

Average Yields and Costs

F-7

Average Balances

F-8

Asset Quality Analysis

F-9  

Reconciliation of Non-GAAP Financial Measures
and Supplementary Data (Five Quarter Trend)

F-10  

Reconciliation of Non-GAAP Financial Measures
and Supplementary Data (Year-to-Date)

         

       

BERKSHIRE HILLS BANCORP, INC.

SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED - (F-1)





At or for the Quarters Ended (2)





Dec. 31,


Sept. 30,


June 30,


March 31,


Dec. 31,






2018


2018


2018


2018


2017 (3)

















PER SHARE DATA













Net earnings/(loss) per common share, diluted

$          0.31


$          0.70


$          0.74


$          0.55


$        (0.06)




Core earnings per common share, diluted (1)

0.63


0.70


0.74


0.65


0.58




Total book value per common share

33.30


32.84


32.49


32.12


32.14




Tangible book value per common share (1)

21.15


20.68


20.28


19.86


19.83




Market price at period end

26.97


40.70


40.60


37.95


36.60




Dividends per common share

0.22


0.22


0.22


0.22


0.21




Dividends per preferred share

0.44


0.44


0.44


0.44


0.42

















PERFORMANCE RATIOS (4)













Return on assets

0.47

%

1.08

%

1.17

%

0.88

%

(0.10)

%



Core return on assets (1)

0.97


1.08


1.17


1.04


0.94




Return on equity

3.61


8.27


8.88


6.69


(0.77)




Core return on equity (1)

7.38


8.28


8.89


7.92


7.16




Core return on tangible common equity (1)

12.07


13.67


14.82


13.43


11.90




Net interest margin, fully taxable equivalent (FTE) (5)

3.41


3.32


3.50


3.36


3.50




Fee income/Net interest and fee income

19.36


24.33


24.25


25.51


25.91




Efficiency ratio (1)

60.30


57.15


56.37


59.54


57.43

















GROWTH (Year-to-date)













Total commercial loans (annualized)

6

%

5

%

5

%

1

%

38

%



Total loans (annualized)

9


10


10


4


27




Total deposits (annualized)

3


0


2


(3)


32




Total net revenues (compared to prior year)

12


16


16


13


41




Earnings per common share (compared to prior year) 

65


28


33


25


(25)




Core earnings per common share (compared to prior year)(1)

18


22


24


18


4

















FINANCIAL DATA (in millions)













Total assets


$      12,212


$      12,030


$      11,902


$      11,519


$      11,571




Total earning assets

11,140


10,957


10,827


10,442


10,509




Total securities

1,919


1,918


1,920


1,932


1,899




Total loans


9,043


8,905


8,710


8,376


8,299




Allowance for loan losses

61


58


56


54


52




Total intangible assets

552


553


555


556


558




Total deposits


8,982


8,766


8,839


8,683


8,750




Total shareholders' equity

1,553


1,532


1,516


1,498


1,496




Net income/(loss)

14.3


32.2


34.0


25.2


(2.8)




Core income (1)

29.2


32.2


34.1


29.9


26.3

















ASSET QUALITY AND CONDITION RATIOS 













Net charge-offs (current quarter annualized)/average loans

0.17

%

0.19

%

0.21

%

0.17

%

0.17

%



Total non-performing assets/total assets

0.28


0.30


0.20


0.27


0.21




Allowance for loan losses/total loans

0.68


0.66


0.64


0.64


0.62




Loans/deposits

101


102


99


96


95




Shareholders' equity to total assets

12.72


12.74


12.74


13.00


12.93




Tangible shareholders' equity to tangible assets (1)

8.59


8.53


8.47


8.59


8.52

















(1)

Non-GAAP financial measure. Core measurements are non-GAAP financial measures that are adjusted to exclude net non-core charges primarily  




 related to acquisitions and restructuring activities. See pages F-9 and F-10 for reconciliations of non-GAAP financial measures.



(2)

Reconciliations of non-GAAP financial measures, including all references to core and tangible amounts, appear on pages F-9 and F-10.



(3)

The Company acquired Commerce Bancshares Corp., the parent of Commerce Bank & Trust Company, on October 13, 2017. 



(4)

All performance ratios are annualized and are based on average balance sheet amounts, where applicable.



(5)

Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.


              

 

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED - (F-2)


December 31,


September 30,


December 31,

(in thousands)

2018


2018


2017

Assets






Cash and due from banks

$            100,972


$          93,038


$          91,122

Short-term investments

82,217


42,696


157,641

Total cash and short-term investments

183,189


135,734


248,763







Trading security

11,212


11,179


12,277

Marketable equity securities, at fair value

56,638


59,734


45,185

Securities available for sale, at fair value

1,399,647


1,391,373


1,380,914

Securities held to maturity, at amortized cost

373,763


379,404


397,103

Federal Home Loan Bank stock and other restricted securities

77,344


76,184


63,085

Total securities

1,918,604


1,917,874


1,898,564







Loans held for sale, at fair value

96,233


91,639


153,620







Commercial real estate loans

3,400,221


3,371,773


3,264,742

Commercial and industrial loans

1,980,046


1,902,228


1,803,939

Residential mortgages

2,566,424


2,509,324


2,102,807

Consumer loans

1,096,562


1,121,188


1,127,850

Total loans

9,043,253


8,904,513


8,299,338

Less: Allowance for loan losses

(61,469)


(58,457)


(51,834)

Net loans

8,981,784


8,846,056


8,247,504







Premises and equipment, net

108,367


111,130


109,352

Other real estate owned

-


-


-

Goodwill 

518,325


518,325


519,287

Other intangible assets

33,418


34,620


38,296

Cash surrender value of bank-owned life insurance

190,609


194,369


191,221

Deferred tax asset, net

39,164


56,708


47,061

Other assets

142,538


123,604


117,083

Total assets 

$       12,212,231


$   12,030,059


$   11,570,751







Liabilities and shareholders' equity






Demand deposits

$         1,603,019


$     1,563,845


$     1,606,656

NOW and other deposits

1,122,321


844,210


734,558

Money market deposits

2,245,195


2,447,184


2,776,157

Savings deposits

724,129


737,682


741,954

Time deposits

3,287,717


3,173,180


2,890,205

Total deposits

8,982,381


8,766,101


8,749,530







Senior borrowings

1,428,298


1,450,653


1,047,736

Subordinated borrowings

89,518


89,473


89,339

Total borrowings

1,517,816


1,540,126


1,137,075







Other liabilities 

159,116


191,517


187,882

Total liabilities

10,659,313


10,497,744


10,074,487







Preferred shareholders' equity

40,633


40,633


40,633

Common shareholders' equity

1,512,285


1,491,682


1,455,631

Total shareholders' equity

1,552,918


1,532,315


1,496,264

Total liabilities and shareholders' equity

$       12,212,231


$   12,030,059


$   11,570,751







Net common shares outstanding 

45,417


45,420


45,290







 

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED - (F-3)

LOAN ANALYSIS

































Annualized Growth % 

(in millions)


December 31, 2018
Balance


September 30, 2018
Balance


December 31, 2017
Balance


Quarter ended
December 31, 2018


Year to Date  














Total commercial real estate


$                      3,400


$                      3,372


$                       3,264


3

%

4

%

Commercial and industrial loans 


1,980


1,902


1,804


16


10


Total commercial loans 


5,380


5,274


5,068


8


6














Total residential mortgages


2,566


2,510


2,103


9


22














Home equity 


377


389


410


(12)


(8)


Auto and other


720


732


718


(7)


0


Total consumer loans


1,097


1,121


1,128


(9)


(3)


Total loans


$                      9,043


$                      8,905


$                       8,299


6

%

9

%





































DEPOSIT ANALYSIS




















Annualized Growth % 

(in millions)


December 31, 2018
Balance


September 30, 2018
Balance


December 31, 2017
Balance


Quarter ended
December 31, 2018


Year to Date


Demand


$                      1,603


$                      1,564


$                       1,606


10

%

0

%

NOW and other


1,122


844


735


132


53


Money market


2,245


2,447


2,776


(33)


(19)


Savings


724


738


742


(8)


(2)


Time deposits


3,288


3,173


2,890


14


14


Total deposits 


$                      8,982


$                      8,766


$                       8,749


10

%

3

%













 

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED - (F-4)


Three Months Ended


Years Ended


December 31,


December 31,

(in thousands, except per share data)

2018


2017


2018


2017

Interest and dividend income    








Loans

$         112,732


$           91,149


$           411,489


$            308,099

Securities and other    

15,119


14,674


59,672


52,159

Total interest and dividend income    

127,851


105,823


471,161


360,258

Interest expense








Deposits

23,811


13,802


78,364


43,855

Borrowings

10,636


5,655


33,461


21,608

Total interest expense    

34,447


19,457


111,825


65,463

Net interest income

93,404


86,366


359,336


294,795

Non-interest income








Mortgage banking originations

5,884


11,918


35,197


54,251

Loan related income

4,644


5,866


24,168


21,401

Deposit related fees

7,131


7,871


29,806


27,165

Insurance commissions and fees    

2,479


2,284


10,983


10,589

Wealth management fees    

2,287


2,268


9,447


9,395

Total fee income    

22,425


30,207


109,601


122,801

Other

1,666


(939)


3,557


(3,377)

Securities (losses)/gains, net     

(3,023)


30


(3,719)


12,598

Gain on sale of business operations and assets, net

-


-


460


296

(Loss) on termination of hedges

-


-


-


(6,629)

Total non-interest income      

21,068


29,298


109,899


125,689

Total net revenue

114,472


115,664


469,235


420,484

Provision for loan losses   

6,716


6,141


25,451


21,025

Non-interest expense








Compensation and benefits

41,944


42,220


165,185


152,979

Occupancy and equipment     

10,385


9,451


40,841


35,422

Technology and communications

6,462


6,286


28,600


25,900

Marketing and promotion     

1,515


4,573


7,980


11,877

Professional services

3,634


2,277


8,693


9,165

FDIC premiums and assessments

1,488


1,920


5,734


6,457

Other real estate owned and foreclosures

1


9


68


44

Amortization of intangible assets     

1,202


1,183


4,934


3,493

Merger, restructuring and other expense 

16,006


15,553


22,144


31,558

Other

7,551


6,569


26,192


22,815

Total non-interest expense     

90,188


90,041


310,371


299,710









Income before income taxes       

17,568


19,482


133,413


99,749

Income tax expense

3,309


22,292


27,648


44,502

Net income 

$           14,259


$           (2,810)


$           105,765


$              55,247

Preferred stock dividend

229


219


918


219

Income available to common shareholders

$           14,030


$           (3,029)


$           104,847


$              55,028









Earnings/(loss) per common share:








Basic

$               0.31


$             (0.06)


$                 2.30


$                  1.40

Diluted

$               0.31


$             (0.06)


$                 2.29


$                  1.39









Weighted average shares outstanding:      








Basic

46,061


45,122


46,024


39,456

Diluted

46,240


45,122


46,231


39,695

















 

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (5 Quarter Trend) - UNAUDITED - (F-5)




Dec. 31,


Sept. 30,


June 30,


March 31,


Dec. 31,

(in thousands, except per share data)

2018


2018


2018


2018


2017

Interest and dividend income    










Loans

$      112,732


$      104,273


$      101,649


$        92,835


$        91,149

Securities and other    

15,119


14,918


15,230


14,405


14,674

Total interest and dividend income    

127,851


119,191


116,879


107,240


105,823

Interest expense










Deposits

23,811


21,460


17,768


15,325


13,802

Borrowings

10,636


8,390


7,990


6,445


5,655

Total interest expense    

34,447


29,850


25,758


21,770


19,457

Net interest income

93,404


89,341


91,121


85,470


86,366

Non-interest income










Mortgage banking originations

5,884


8,971


10,195


10,147


11,918

Loan related income

4,644


7,537


6,549


5,438


5,866

Deposit related fees

7,131


7,004


7,605


8,066


7,871

Insurance commissions and fees    

2,479


2,930


2,549


3,025


2,284

Wealth management fees    

2,287


2,283


2,280


2,597


2,268

Total fee income    

22,425


28,725


29,178


29,273


30,207

Other

1,666


468


155


1,268


(939)

Securities (losses)/gains, net     

(3,023)


88


718


(1,502)


30

(Loss)/gain on sale of business operations and assets, net

-


-


(21)


481


-

(Loss) on termination of hedges

-


-


-


-


-

Total non-interest income      

21,068


29,281


30,030


29,520


29,298

Total net revenue

114,472


118,622


121,151


114,990


115,664

Provision for loan losses   

6,716


6,628


6,532


5,575


6,141

Non-interest expense










Compensation and benefits

41,944


39,923


41,134


42,184


42,220

Occupancy and equipment     

10,385


10,144


10,230


10,082


9,451

Technology and communications

6,462


7,949


7,359


6,830


6,286

Marketing and promotion  

1,515


1,484


2,369


2,612


4,573

Professional services

3,634


1,867


1,139


2,053


2,277

FDIC premiums and assessments

1,488


1,640


1,411


1,195


1,920

Other real estate owned and foreclosures

1


(1)


1


67


9

Amortization of intangible assets     

1,202


1,218


1,246


1,268


1,183

Merger, restructuring and other expense 

16,006


198


847


5,093


15,553

Other

7,551


6,555


6,601


5,485


6,569

Total non-interest expense     

90,188


70,977


72,337


76,869


90,041











Income before income taxes

17,568


41,017


42,282


32,546


19,482

Income tax expense 

3,309


8,790


8,251


7,298


22,292

Net income/(loss)

$        14,259


$        32,227


$        34,031


$        25,248


$         (2,810)

Preferred stock dividend

229


230


229


230


219

Income/(loss) available to common shareholders

$        14,030


$        31,997


$        33,802


$        25,018


$         (3,029)





















Earnings/(loss) per common share:










Basic 

$            0.31


$            0.70


$            0.74


$            0.55


$           (0.06)

Diluted 

$            0.31


$            0.70


$            0.74


$            0.55


$           (0.06)











Weighted average shares outstanding:      










Basic

46,061


46,030


46,032


45,966


45,122

Diluted

46,240


46,263


46,215


46,200


45,122































 

BERKSHIRE HILLS BANCORP, INC.

AVERAGE YIELDS AND COSTS (Fully Taxable Equivalent - Annualized) - UNAUDITED - (F-6)



Quarters Ended



Dec. 31,


Sept. 30,


June 30,


March 31,


Dec. 31,




2018


2018


2018


2018


2017














Earning assets 












Loans:












Commercial real estate


5.40

%

4.67

%

5.08

%

4.76

%

4.73

%

Commercial and industrial loans


5.97


6.22


5.73


5.19


5.25


Residential mortgages


3.72


3.66


3.72


3.56


3.76


Consumer loans


4.52


4.27


4.13


4.01


3.94


Total loans


4.94


4.66


4.73


4.45


4.47


Securities


3.38


3.36


3.47


3.26


3.55


Short-term investments and loans held for sale


3.74


3.82


3.86


3.43


2.90


Total earning assets


4.64


4.41


4.48


4.21


4.27














Funding liabilities












Deposits:












NOW and other


0.59


0.58


0.44


0.28


0.25


Money market


1.10


0.92


0.88


0.73


0.66


Savings


0.16


0.15


0.14


0.14


0.14


Time


1.93


1.76


1.54


1.40


1.25


Total interest-bearing deposits


1.31


1.18


1.02


0.90


0.82


Borrowings


2.67


2.42


2.29


2.02


1.81


Total interest-bearing liabilities


1.55


1.38


1.23


1.08


0.97














Net interest spread


3.09


3.03


3.25


3.13


3.30


Net interest margin (1)


3.41


3.32


3.50


3.36


3.50














Cost of funds (2)


1.31


1.16


1.03


0.90


0.81


Cost of deposits 


1.07


0.96


0.83


0.73


0.66














(1) The effect of purchased loan accretion on the quarterly net interest margin was an increase in all quarters, which is shown sequentially as follows beginning with the most recent quarter and ending with the earliest quarter: 0.30%, 0.17%, 0.25%, 0.13%, 0.21%. See page F-7 for purchased loan accretion.




(2) Cost of funds includes all deposits and borrowings.














 

BERKSHIRE HILLS BANCORP, INC.

AVERAGE BALANCES - UNAUDITED - (F-7)


Quarters Ended


Dec. 31, 


Sept. 30, 


June 30, 


March 31, 


Dec. 31, 


(in thousands)

2018


2018


2018


2018


2017


Assets











Loans











Commercial real estate

$            3,373,936


$            3,331,097


$            3,316,482


$            3,250,861


$            3,161,902


Commercial and industrial loans

1,921,361


1,824,369


1,773,722


1,811,433


1,645,719


Residential mortgages

2,539,592


2,459,943


2,268,886


2,138,544


2,081,548


Consumer loans

1,112,433


1,120,942


1,113,089


1,114,586


1,123,683


Total loans (1) 

8,947,322


8,736,351


8,472,179


8,315,424


8,012,852


Securities (2)

1,933,891


1,928,851


1,931,104


1,933,002


1,921,724


Short-term investments and loans held for sale

132,348


167,187


146,190


139,161


146,101


Total earning assets

11,013,561


10,832,389


10,549,473


10,387,587


10,080,677


Goodwill and other intangible assets

552,206


554,359


554,591


557,321


533,157


Other assets

515,320


523,747


506,954


521,745


516,802


Total assets

$          12,081,087


$          11,910,495


$          11,611,018


$          11,466,653


$          11,130,636













Liabilities and shareholders' equity











Deposits 











NOW and other

$               920,225


$               844,888


$               819,166


$               712,181


$               702,353


Money market

2,339,699


2,348,516


2,524,713


2,518,920


2,371,203


Savings

728,853


740,765


749,995


743,944


733,157


Time

3,229,521


3,274,518


2,878,846


2,913,512


2,906,423


Total interest-bearing deposits

7,218,298


7,208,687


6,972,720


6,888,557


6,713,136


Borrowings

1,566,478


1,363,914


1,382,794


1,275,173


1,229,781


Total interest-bearing liabilities

8,784,776


8,572,601


8,355,514


8,163,730


7,942,917


Non-interest-bearing demand deposits

1,579,013


1,635,564


1,619,470


1,656,260


1,591,431


Other liabilities 

136,224


144,401


102,583


137,976


127,562


Total liabilities

10,500,013


10,352,566


10,077,567


9,957,966


9,661,910













Preferred shareholders' equity

40,633


40,633


40,633


40,633


34,892


Common shareholders' equity

1,540,441


1,517,296


1,492,818


1,468,054


1,433,834


Total shareholders' equity

1,581,074


1,557,929


1,533,451


1,508,687


1,468,726


Total liabilities and shareholders' equity

$          12,081,087


$          11,910,495


$          11,611,018


$          11,466,653


$          11,130,636
























Supplementary data











Total average non-maturity deposits

$            5,567,790


$            5,569,733


$            5,713,344


$            5,631,305


$            5,398,144


Total average deposits 

8,797,311


8,844,251


8,592,190


8,544,817


8,304,567


Fully taxable equivalent income adjustment

1,763


1,807


2,033


1,820


3,122


Purchased loan accretion

8,247


4,548


6,881


3,433


5,507


Total average tangible equity (3)

1,028,868


1,003,570


978,860


951,366


935,569













(1) Total loans include non-accruing loans.


(2) Average balances for securities available-for-sale are based on amortized cost.


(3) See page F-9 for details on the calculation of total average tangible equity.













 

BERKSHIRE HILLS BANCORP, INC.

ASSET QUALITY ANALYSIS - UNAUDITED - (F-8)



At or for the Quarters Ended



Dec. 31,


Sept. 30,


June 30,


March 31,


Dec. 31,


(in thousands)


2018


2018


2018


2018


2017


NON-PERFORMING ASSETS












Non-accruing loans:












Commercial real estate


$          20,372


$          22,639


$          10,338


$          10,084


$            7,266


Commercial and industrial loans


6,003


4,914


4,029


7,430


7,311


Residential mortgages


2,217


2,683


3,196


5,777


2,883


Consumer loans


3,834


4,401


5,466


5,996


5,438


Total non-accruing loans


32,426


34,637


23,029


29,287


22,898


Other real estate owned


-


-


-


-


-


Repossessed assets


1,209


1,069


1,241


1,241


1,147


Total non-performing assets


$          33,635


$          35,706


$          24,270


$          30,528


$          24,045














Total non-accruing loans/total loans


0.36%


0.39%


0.26%


0.35%


0.28%


Total non-performing assets/total assets


0.28%


0.30%


0.20%


0.27%


0.21%














PROVISION AND ALLOWANCE FOR LOAN LOSSES











Balance at beginning of period


$          58,457


$          55,925


$          53,859


$          51,834


$          49,004


Charged-off loans


(4,029)


(4,471)


(5,714)


(3,791)


(3,734)


Recoveries on charged-off loans


325


375


1,248


241


423


Net loans charged-off


(3,704)


(4,096)


(4,466)


(3,550)


(3,311)


Provision for loan losses


6,716


6,628


6,532


5,575


6,141


Balance at end of period


$          61,469


$          58,457


$          55,925


$          53,859


$            51,834














Allowance for loan losses/total loans


0.68%


0.66%


0.64%


0.64%


0.62%


Allowance for loan losses/non-accruing loans


190%


169%


243%


184%


226%














NET LOAN CHARGE-OFFS












Commercial real estate


$          (1,357)


$          (3,074)


$          (2,079)


$             (817)


$             (881)


Commercial and industrial loans


(1,538)


(189)


(1,193)


(972)


(960)


Residential mortgages


(108)


61


(632)


(406)


(759)


Home equity 


(116)


(242)


108


(588)


(123)


Auto and other consumer


(585)


(652)


(670)


(767)


(588)


Total, net


$          (3,704)


$          (4,096)


$          (4,466)


$          (3,550)


$          (3,311)














Net charge-offs (QTD annualized)/average loans 

0.17%


0.19%


0.21%


0.17%


0.17%


Net charge-offs (YTD annualized)/average loans 

0.18%


0.19%


0.19%


0.17%


0.19%














DELINQUENT AND NON-ACCRUING LOANS/TOTAL LOANS










30-89 Days delinquent


0.27%


0.38%


0.22%


0.39%


0.35%


90+ Days delinquent and still accruing


0.22%


0.22%


0.40%


0.23%


0.20%


Total accruing delinquent loans


0.49%


0.60%


0.62%


0.62%


0.55%


Non-accruing loans


0.36%


0.39%


0.26%


0.35%


0.28%


Total delinquent and non-accruing loans


0.85%


0.99%


0.88%


0.97%


0.83%














 

BERKSHIRE HILLS BANCORP, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA- UNAUDITED - (F-9)



At or for the Quarters Ended



Dec. 31,


Sept. 30,


June 30,


March 31,


Dec. 31,


(in thousands)


2018


2018


2018


2018


2017


Net income/(loss)


$       14,259


$       32,227


$       34,031


$       25,248


$       (2,810)


Adj: Net securities losses/(gains) (1)


3,023


(88)


(718)


1,502


(30)


Adj: Loss on termination of hedges


-


-


-


-


-


Adj: Net losses/(gains) on sale of business operations and assets

-


-


21


(481)


-


Adj: Merger and acquisition expense


2,792


198


847


5,093


15,553


Adj: Restructuring expense and other expense


1,822


-


-


-


-


Adj: Employee and community investment


-


-


-


-


3,400


Adj: Legal settlements


3,000


-


-


-


-


Adj: Systems vendor restructuring costs


8,379


-


-


-


-


Adj: Deferred tax asset impairment


-


-


-


-


18,145


Adj: Income taxes


(4,110)


(92)


(105)


(1,481)


(7,963)


Total core income (2)

(A)

$       29,165


$       32,245


$       34,076


$       29,881


$       26,295














Total revenue 


$     114,472


$     118,622


$     121,151


$     114,990


$     115,664


Adj: Net securities losses/(gains) (1)


3,023


(88)


(718)


1,502


(30)


Adj: Net losses/(gains) on sale of business operations and assets

-


-


21


(481)


-


Total core revenue (2)

(B)

$     117,495


$     118,534


$     120,454


$     116,011


$     115,634














Total non-interest expense


$       90,188


$       70,977


$       72,337


$       76,869


$       90,041


Less: Merger, restructuring and other expense (see above)


(4,614)


(198)


(847)


(5,093)


(15,553)


Less: Employee and community investment


-


-


-


-


(3,400)


Less: Legal settlements


(3,000)


-


-


-


-


Less: Systems vendor restructuring costs


(8,379)


-


-


-


-


Core non-interest expense (2)                                    

(C)

$       74,195


$       70,779


$       71,490


$       71,776


$       71,088














(in millions, except per share data)












Total average assets                                                

(D)

$       12,081


$       11,910


$       11,611


$       11,467


$       11,131


Total average shareholders' equity                         

(E)

1,581


1,558


1,533


1,509


1,469


Total average tangible shareholders' equity (2)                        

(F)

1,029


1,004


979


951


936


Total average tangible common shareholders' equity (2)                        

(G)

988


963


938


911


901


Total tangible shareholders' equity, period-end (2)(3)

(H)

1,001


979


961


941


939


Total tangible common shareholders' equity, period-end (2)(3)

(I)

961


939


921


901


898


Total tangible assets, period-end (2)(3)

(J)

11,660


11,477


11,347


10,963


11,013














Total common shares outstanding, period-end (thousands)               

(K)

45,417


45,420


45,420


45,360


45,290


Average diluted shares outstanding (thousands)

(L)

46,240


46,263


46,215


46,200


45,383














Core earnings per common share, diluted(2)

(A/L)

$           0.63


$           0.70


$           0.74


$           0.65


$           0.58


Tangible book value per common share, period-end (2)

(I/K)

21.15


20.68


20.28


19.86


19.83


Total tangible shareholders' equity/total tangible assets (2)

(H)/(J)

8.59


8.53


8.47


8.59


8.53














Performance ratios (4)












GAAP return on assets


0.47

%

1.08

%

1.17

%

0.88

%

(0.10)

%

Core return on assets (2)

(A/D)

0.97


1.08


1.17


1.04


0.94


GAAP return on equity 


3.61


8.27


8.88


6.69


(0.77)


Core return on equity (2)

(A/E)

7.38


8.28


8.89


7.92


7.16


Core return on tangible common equity (2)(5)

(A+O)/(G)

12.07


13.67


14.82


13.43


11.90


Efficiency ratio (2)(6)                                                                                

(C-O)/(B+M+P)

60.30


57.15


56.37


59.54


57.43


Net interest margin


3.41


3.32


3.50


3.36


3.50














Supplementary data (in thousands)












Tax benefit on tax-credit investments (7)

(M)

$         1,787


$         1,374


$         2,119


$            596


$         2,957


Non-interest income charge on tax-credit investments (8)

(N)

(1,610)


(1,112)


(1,594)


(506)


(2,564)


Net income on tax-credit investments

(M+N)

177


262


525


90


393














Intangible amortization

(O)

$         1,202


$         1,218


$         1,246


$         1,268


$         1,183


Fully taxable equivalent income adjustment 

(P)

1,763


1,807


2,033


1,820


3,122






































(1) Net securities losses/(gains) for the periods ending in 2018 include the change in fair value of the Company's equity securities in compliance with the Company's adoption of ASU 2016-01.





(2) Non-GAAP financial measure.




(3) Total tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end.  Total tangible assets is computed by taking total assets less the intangible assets at period-end.







(4) Ratios are annualized and based on average balance sheet amounts, where applicable. Quarterly data may not sum to year-to-date data due to rounding.







(5) Core return on tangible equity is computed by dividing the total core income adjusted for the tax-effected amortization of intangible assets, assuming a 27% marginal rate for 2018 and a 40% marginal rate for 2017, by tangible equity.







(6) Efficiency ratio is computed by dividing total core tangible non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income adjusted to include tax credit benefit of tax shelter investments.  The Company uses this non-GAAP measure to provide important information regarding its operational efficiency.










(7) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation and low-income housing.







(8) The non-interest income charge is the reduction to the tax-advantaged investments, which are incurred as the tax credits are generated. 




 


BERKSHIRE HILLS BANCORP, INC.


RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA - UNAUDITED - (F-10)




At or for the Years Ended




December 31,


December 31,



(Dollars in thousands)


2018


2017



Net (loss)/income 


$                 105,765


$                   55,247



Adj: Net securities losses/(gains) (1)


3,719


(12,598)



Adj: Loss on termination of hedges


-


6,629



Adj: Net (gains) on sale of business operations


(460)


(296)



Adj: Merger and acquisition expenses


8,930


24,876



Adj: Restructuring expense and other


1,822


6,682



Adj: Employee and community investment


-


3,400



Adj: Legal settlements


3,000


-



Adj: Systems vendor restructuring costs


8,379


-



Adj: Deferred tax asset impairment


-


18,145



Adj: Income taxes


(5,788)


(11,277)



Total core income (2)

(A)

$                 125,367


$                   90,808










Total revenue 


$                 469,235


$                 420,484



Adj: Net securities losses/(gains) (1)


3,719


(12,598)



Adj: Net (gains) on sale of business operations


(460)


(296)



Adj: Loss on termination of hedges


-


6,629



Total core revenue(2)

(B)

$                 472,494


$                 414,219



Total non-interest expense


$                 310,371


$                 299,710



Less: Merger, restructuring and other expense (see above)


(10,752)


(31,558)



Less: Employee and community investment


-


(3,400)



Less: Legal settlements


(3,000)


-



Less: Systems vendor restructuring costs


(8,379)


-



Core non-interest expense (2)                                    

(C)

$                 288,240


$                 264,752










(in millions, except per share data)







Total average assets                                                

(D)

$                   11,769


$                     9,809



Total average shareholders' equity                         

(E)

1,546


1,243



Total average tangible shareholders' equity (2)                        

(F)

991


793



Total average tangible common shareholders' equity (2)                        

(G)

950


784



Total tangible shareholders' equity, period-end (2)(3)

(H)

1,001


939



Total tangible common shareholders' equity, period-end (2)(3)

(I)

961


898



Total tangible assets, period-end (2)(3)

(J)

11,660


11,013



Total common shares outstanding, period-end (thousands)               

(K)

45,417


45,290



Average diluted shares outstanding (thousands)

(L)

46,231


39,695



Core earnings per common share, diluted(2)

(A/L)

$                       2.71


$                       2.29



Tangible book value per common share, period-end (2)

(I/K)

21.15


19.83



Total tangible shareholders' equity/total tangible assets (2)

(H)/(J)

8.59


8.53










Performance ratios (4)







GAAP return on assets


0.90

%

0.56

%


Core return on assets (2)

(A/D)

1.07


0.93



GAAP return on equity 


6.84


4.45



Core return on equity (2)

(A/E)

8.11


7.31



Core return on tangible common equity (2)(5)

(A+O)/(G)

13.48


11.82



Efficiency ratio (2)(6)                                                                               

(C-O)/(B+M+P)

58.32


59.97



Net interest margin


3.40


3.40










Supplementary data







Tax benefit on tax-credit investments (7)

(M)

$                     5,876


$                   10,182



Non-interest income charge on tax-credit investments (8)

(N)

(4,822)


(8,693)



Net income on tax-credit investments

(M+N)

1,054


1,489










Intangible amortization

(O)

4,934


3,493



Fully taxable equivalent income adjustment

(P)

7,423


11,227























(1) Net securities losses/(gains) for the period ending December 31, 2018 includes the change in fair value of the Company's equity securities in compliance with the Company's adoption of ASU 2016-01. 


(2) Non-GAAP financial measure.


(3) Total tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Total tangible assets is computed by taking total assets less the intangible assets at period-end. 


(4) Ratios are annualized and based on average balance sheet amounts, where applicable. Quarterly data may not sum to year-to-date data due to rounding.


(5) Core return on tangible equity is computed by dividing the total core income adjusted for the tax-effected amortization of intangible assets, assuming a 27% marginal rate for 2018 and 40% marginal rate for 2017, by tangible equity.


(6) Efficiency ratio is computed by dividing total core tangible non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income adjusted to include tax credit benefit of tax shelter investments.  The Company uses this non-GAAP measure to provide important information regarding its operational efficiency.


(7) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation and low-income housing.


(8) The non-interest income charge is the reduction to the tax-advantaged investments, which are incurred as the tax credits are generated. 

 

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SOURCE Berkshire Hills Bancorp, Inc.

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