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Section 1: 8-K (FORM 8-K)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): July 18, 2018

 

BERKSHIRE HILLS BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   001-15781   04-3510455

(State or Other Jurisdiction)

of Incorporation)

  (Commission File No.)  

(I.R.S. Employer

Identification No.)

 
60 State Street, Boston, Massachusetts   01209
(Address of Principal Executive Offices)   (Zip Code)
     
Registrant’s telephone number, including area code:    (800) 773-5601, ext. 133773    
         
    Not Applicable    

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

 

Item 2.02Results of Operations and Financial Condition

 

On July 18, 2018, Berkshire Hills Bancorp, Inc. (the “Company”), the holding company for Berkshire Bank (the “Bank”), announced its financial results for the quarter ended June 30, 2018. The news release containing the financial results is included as Exhibit 99.1 and shall not be deemed “filed” for any purpose.

 

The Company will conduct a conference call/webcast on July 19, 2018 to discuss the financial results for the quarter and provide guidance about expected future results. A telephone replay of the call will be available through July 26, 2018. The webcast will be available on the Company’s website for an extended period of time.

 

Item 8.01Other Events

 

On July 18, 2018, the Company’s Board of Directors announced the declaration of a cash dividend of $0.22 per share of Company common stock and $0.44 per share of Company Series B preferred stock to shareholders of record at the close of business on August 9, 2018 and payable on August 23, 2018.

 

Item 9.01Financial Statements and Exhibits

 

(a)Financial Statements of Businesses Acquired. Not applicable.

 

(b)Pro Forma Financial Information. Not applicable.

 

(c)Shell Company Transactions. Not applicable.

 

(d)Exhibits.

 

  Exhibit No.   Description  
       
  99.1   News Release dated July 18, 2018

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

    Berkshire Hills Bancorp, Inc.
     
DATE: July 19, 2018 By: /s/ Michael P. Daly
    Michael P. Daly
    President and Chief Executive Officer

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

Berkshire Hills Reports 73% Increase in Second Quarter Earnings;

 

Dividends Declared

 

BOSTON, July 18, 2018. Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported second quarter 2018 net income of $34 million, which was a 73% increase over 2017 second quarter net income of $20 million. This primarily reflected the benefit of Berkshire’s Greater Boston expansion through acquisition and business development, resulting in higher market share, increased efficiency, and record profitability.

 

SECOND QUARTER FINANCIAL HIGHLIGHTS (income statement comparisons are year over year and balance sheet growth is compared to prior quarter-end):

 

·$0.74 EPS
·9% annualized commercial loan growth
·7% annualized deposit growth
·18% increase in net revenue
·19% increase in loan and deposit fee income
·3.50% net interest margin
·56.4% efficiency ratio
·1.17% ROA
·0.21% net loan charge-offs/average loans
·0.20% non-performing assets/assets

 

CEO Michael Daly stated, “We achieved record quarterly return on assets, with income increasing by 35% over the prior quarter. Commercial loans grew strongly and our new Boston corporate headquarters teams are receiving good response to our expanded presence in Greater Boston. Our revenue growth and disciplined expense management produced record quarterly earnings per share, positive operating leverage, and improved returns on equity.”

 

Mr. Daly continued, “The integration of acquired operations was completed within plan in the second quarter and several company-wide initiatives have been accelerated to support the expansion of our deposit product set and delivery channels. Our annual Xtraordinary Day of Service in June tackled 74 community projects across our markets, totaling nearly 7,000 volunteer hours and 92% of our workforce. Our Foundation announced the appointment of a Corporate Social Responsibility (CSR) Officer to expand our multiple community engagement activities and implement an all-encompassing CSR strategy. Our strengthened financial condition was recognized with an A- bank deposit rating assigned by the KBRA Bond Rating Agency. Berkshire’s stock was added to the S&P 600 SmallCapR index during the quarter; this index tracks U.S. small cap companies and is included in the S&P Composite 1500R index, facilitating an expanded market for our stock.”

 

 1 

 

 

DIVIDENDS DECLARED

 

The Board of Directors declared a quarterly cash dividend of $0.22 per common share to shareholders of record at the close of business on August 9, 2018, payable on August 23, 2018. The dividend equates to a 2.2% annualized yield based on the $39.47 average closing price of Berkshire Hills Bancorp common stock during the second quarter. The Board also declared a quarterly cash dividend of $0.44 per share of preferred stock, with the same record and payment dates as above. The quarterly common and preferred dividends were increased by 5% in the first quarter of the year.

 

FINANCIAL CONDITION

 

Total assets measured $11.9 billion at midyear 2018. Second quarter loan growth included a 9% annualized increase in commercial loans, with increased originations in Greater Boston, as well as asset based lending growth across the franchise. Residential mortgage growth included the impact of seasonally higher mortgage originations. The 7% annualized increase in total deposits included higher growth of transaction accounts. Asset quality, liquidity, and capital metrics remained strong at midyear. Non-performing assets decreased compared to the prior quarter and to the second quarter of 2017. During the quarter, book value per share increased to $32.49 and tangible book value per common share increased to $20.27.

 

RESULTS OF OPERATIONS

 

Revenue and expense in 2018 include Commerce Bancshares Corp. operations acquired in the fourth quarter of 2017. Most categories of revenue and expense increased due to this acquisition. Berkshire has completed the integration of these operations and by midyear 2018 had accomplished its objectives for merger-related efficiencies, which included cost saves originally targeted at 20%, or approximately $8 million per year.

 

Second quarter EPS increased by 40% year-over-year and by 35% quarter-over-quarter, including the impact of shares issued for the Commerce acquisition. There were negligible net non-core items during the most recent quarter, and both GAAP EPS and the non-GAAP core EPS measure totaled $0.74. Both of these measures were record quarterly results. Core EPS increased by 28% year-over-year and by 14% quarter-over-quarter. This improvement included the EPS accretion from the Company’s investment in expanded operations, including the Commerce acquisition.

 

Second quarter revenue increased by 18% year-over-year and by 5% compared to the prior quarter. This revenue growth contributed to an improvement in the efficiency ratio to 56.4%. The return on assets increased to a record 1.17%. The return on equity improved to 8.9% and the non-GAAP measure of core return on tangible common equity improved to 14.8%. This is a measure of the Company’s internal generation of capital to support growth and dividends.

 

 2 

 

 

The net interest margin improved to 3.50% in the most recent quarter, from 3.36% in the prior quarter. The contribution from purchased loan accretion improved to 0.25% from 0.13% due to a higher level of recoveries related to purchased credit impaired loans. Asset yields and funding costs both increased including the impact of higher short term interest rates. Loan and deposit fees increased by 5% over the prior quarter. Mortgage banking revenue was unchanged, as a seasonal volume increase was offset by narrower margins due to industry conditions. The loan loss provision increased, exceeding net loan charge-offs, and adding to the loan loss allowance in line with loan growth.

 

Second quarter non-interest expense decreased from the prior quarter due to lower merger related charges. Excluding non-core items, non-interest expense was flat, contributing to positive operating leverage and benefiting from merger cost saves and operating expense disciplines. Total full-time equivalent staff measured 2,004 positions at midyear, compared to 1,992 positions at the start of the year. The second quarter effective income tax rate was 20% in 2018 compared to 29% in 2017, reflecting the benefit of federal income tax reform which became effective in 2018.

 

INVESTOR CONFERENCE CALL

 

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Thursday, July 19, 2018 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/10121614. 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. The BHLB earnings call will also be automatically scheduled as an event in the participant’s Outlook calendar. Participants may also 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 be joined to the Berkshire Hills Bancorp (BHLB) earnings call. A telephone replay of the call will be available through Thursday, July 26, 2018 by dialing 877-344-7529 and entering access number 10121614. 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 - America's Most Exciting Bank®. The Company has approximately $11.9 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.

 

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.

 

 3 

 

 

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. These charges in 2017 and 2018 are primarily related to the business combinations with First Choice Bank and Commerce Bancshares Corp. 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.

 

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

 

James M. Moses, Senior Executive Vice President & CFO; 413-236-3379

 

Media Contact

 

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

 

 4 

 

 

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)

 

 5 

 

 

BERKSHIRE HILLS BANCORP, INC.

SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED - (F-1)

 

   At or for the Quarters Ended (2) 
   June 30,   March 31,   Dec. 31,   Sept. 30,   June 30, 
   2018   2018   2017 (3)   2017   2017 
                     
PER SHARE DATA                         
Net earnings/(loss), diluted  $0.74   $0.55   $(0.06)  $0.57   $0.53 
Core earnings, diluted (1)   0.74    0.65    0.58    0.59    0.58 
Total book value per common share   32.49    32.12    32.14    31.78    31.37 
Tangible book value per common share (1)   20.28    19.86    19.83    21.38    20.96 
Market price at period end   40.60    37.95    36.60    38.75    35.15 
Dividends per common share   0.22    0.22    0.21    0.21    0.21 
Dividends per preferred share   0.44    0.44    0.42    -    - 
                          
PERFORMANCE RATIOS (4)                         
Return on assets   1.17%   0.88%   (0.10)%   0.95%   0.84%
Core return on assets (1)   1.17    1.04    0.94    0.98    0.92 
Return on equity   8.88    6.69    (0.77)   7.26    6.80 
Core return on equity (1)   8.89    7.92    7.16    7.47    7.45 
Core return on tangible common equity (1)   14.82    13.43    11.90    11.42    11.96 
Net interest margin, fully taxable equivalent (FTE) (5)   3.50    3.36    3.50    3.36    3.36 
Fee income/Net interest and fee income   24.25    25.51    25.91    29.96    32.23 
Efficiency ratio (1)   56.37    59.54    57.43    59.28    61.72 
                          
GROWTH (Year-to-date)                         
Total commercial loans (annualized)   5%   1%   38%   9%   13%
Total loans (annualized)   10    4    27    8    10 
Total deposits (annualized)   2    (3)   32    3    3 
Total net revenues (compared to prior year)   16    13    41    37    40 
Earnings per share (compared to prior year)   33    25    (25)   (2)   (8)
Core earnings per share (compared to prior year)(1)   24    18    4    4    5 
                          
FINANCIAL DATA (in millions)                         
Total assets  $11,902   $11,519   $11,571   $9,767   $9,627 
Total earning assets   10,827    10,442    10,509    8,944    8,807 
Total securities   1,920    1,932    1,899    1,824    1,773 
Total loans   8,710    8,376    8,299    6,947    6,864 
Allowance for loan losses   56    54    52    49    47 
Total intangible assets   555    556    558    420    421 
Total deposits   8,839    8,683    8,750    6,790    6,715 
Total shareholders' equity   1,516    1,498    1,496    1,285    1,268 
Net income/(loss)   34.0    25.2    (2.8)   22.9    19.7 
Core income (1)   34.1    29.9    26.3    23.6    21.6 
                          
ASSET QUALITY AND CONDITION RATIOS                         
Net charge-offs (current quarter annualized)/average loans   0.21%   0.17%   0.17%   0.19%   0.20%
Total non-performing assets/total assets   0.20    0.27    0.21    0.23    0.25 
Allowance for loan losses/total loans   0.64    0.64    0.62    0.71    0.69 
Loans/deposits   99    96    95    102    102 
Shareholders' equity to total assets   12.74    13.00    12.93    13.15    13.17 
Tangible shareholders' equity to tangible assets (1)   8.47    8.59    8.52    9.25    9.20 

 

 

(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.

 

 F-1 

 

 

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED - (F-2)

 

   June 30,   March 31,   December 31, 
(in thousands)  2018   2018   2017 
Assets               
Cash and due from banks  $90,964   $88,193   $91,122 
Short-term investments   48,093    35,694    157,641 
Total cash and short-term investments   139,057    123,887    248,763 
                
Trading security   11,483    11,795    12,277 
Marketable equity securities, at fair value   59,726    59,261    45,185 
Securities available for sale, at fair value   1,393,250    1,401,399    1,380,914 
Securities held to maturity, at amortized cost   379,905    395,337    397,103 
Federal Home Loan Bank stock and other restricted securities   75,530    64,038    63,085 
Total securities   1,919,894    1,931,830    1,898,564 
                
Loans held for sale, at fair value   149,182    98,440    153,620 
                
Commercial real estate   3,220,702    3,266,737    3,264,742 
Commercial and industrial loans   1,973,739    1,818,974    1,803,939 
Residential mortgages   2,397,192    2,181,807    2,102,807 
Consumer loans   1,118,333    1,108,899    1,127,850 
Total loans   8,709,966    8,376,417    8,299,338 
Less: Allowance for loan losses   (55,925)   (53,859)   (51,834)
Net loans   8,654,041    8,322,558    8,247,504 
                
Premises and equipment, net   112,217    111,237    109,352 
Other real estate owned   -    -    - 
Goodwill   519,128    519,128    519,287 
Other intangible assets   35,838    37,085    38,296 
Cash surrender value of bank-owned life insurance   193,121    192,379    191,221 
Deferred tax asset, net   53,679    51,679    47,061 
Other assets   125,806    131,024    117,083 
Total assets  $11,901,963   $11,519,247   $11,570,751 
                
Liabilities and shareholders' equity               
Demand deposits  $1,553,039   $1,575,243   $1,606,656 
NOW and other deposits   858,014    715,581    734,558 
Money market deposits   2,619,943    2,749,763    2,776,157 
Savings deposits   747,722    756,711    741,954 
Time deposits   3,060,034    2,885,969    2,890,205 
Total deposits   8,838,752    8,683,267    8,749,530 
                
Senior borrowings   1,274,342    1,125,860    1,047,736 
Subordinated borrowings   89,429    89,384    89,339 
Total borrowings   1,363,771    1,215,244    1,137,075 
                
Other liabilities   183,199    123,079    187,882 
Total liabilities   10,385,722    10,021,590    10,074,487 
                
Total preferred shareholders' equity   40,633    40,633    40,633 
Total common shareholders' equity   1,475,608    1,457,024    1,455,631 
Total shareholders' equity   1,516,241    1,497,657    1,496,264 
Total liabilities and shareholders' equity  $11,901,963   $11,519,247   $11,570,751 
                
Net common shares outstanding   45,420    45,360    45,290 

 

 F-2 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

LOAN ANALYSIS

 

               Annualized Growth % 
(in millions)  June 30, 2018
Balance
   March 31, 2018
Balance
   December 31, 2017
Balance
   Quarter ended
June 30, 2018
   Year to Date 
                     
Commercial real estate - construction  $295   $347   $354    (60)%   (33)%
Commercial real estate - other   2,926    2,920    2,910    1    1 
Total commercial real estate   3,221    3,267    3,264    (6)   (3)
Commercial and industrial loans   1,974    1,819    1,804    34    19 
Total commercial loans   5,195    5,086    5,068    9    5 
                          
Total residential mortgages   2,397    2,181    2,103    40    28 
                          
Home equity   393    400    410    (7)   (8)
Auto and other   725    709    718    9    2 
Total consumer loans   1,118    1,109    1,128    3    (2)
Total loans  $8,710   $8,376   $8,299    16%   10%

 

DEPOSIT ANALYSIS

 

               Annualized Growth % 
(in millions)  June 30, 2018
Balance
   March 31, 2018
Balance
   December 31, 2017
Balance
   Quarter ended
June 30, 2018
   Year to Date 
Demand  $1,553   $1,575   $1,606    (6)%   (7)%
NOW and other   858    715    735    80    33 
Money market   2,620    2,750    2,776    (19)   (11)
Savings   748    757    742    (5)   2 
Time deposits   3,060    2,886    2,890    24    12 
Total deposits  $8,839   $8,683   $8,749    7%   2%

 

 F-3 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
(in thousands, except per share data)  2018   2017   2018   2017 
Interest and dividend income                    
Loans  $101,649   $71,983   $194,484   $140,926 
Securities and other   15,230    12,683    29,635    24,449 
Total interest and dividend income   116,879    84,666    224,119    165,375 
Interest expense                    
Deposits   17,768    9,971    33,093    19,069 
Borrowings   7,990    5,150    14,435    9,875 
Total interest expense   25,758    15,121    47,528    28,944 
Net interest income   91,121    69,545    176,591    136,431 
Non-interest income                    
Mortgage banking originations   10,195    16,281    20,342    28,959 
Loan related income   6,549    5,275    11,987    9,454 
Deposit related fees   7,605    6,645    15,671    12,849 
Insurance commissions and fees   2,549    2,588    5,574    5,724 
Wealth management fees   2,280    2,286    4,877    4,812 
Total fee income   29,178    33,075    58,451    61,798 
Other   155    (276)   1,423    (183)
Securities gains/(losses), net   718    (1)   (784)   12,569 
(Loss)/gain on sale of business operations and assets, net   (21)   -    460    - 
(Loss) on termination of hedges   -    -    -    (6,629)
Total non-interest income   30,030    32,798    59,550    67,555 
Total net revenue   121,151    102,343    236,141    203,986 
Provision for loan losses   6,532    4,889    12,107    9,984 
Non-interest expense                    
Compensation and benefits   41,134    36,997    83,318    73,116 
Occupancy and equipment   10,230    8,678    20,312    17,704 
Technology and communications   7,359    6,883    14,189    12,970 
Marketing and promotion   2,369    3,177    4,981    5,176 
Professional services   1,139    2,190    3,192    4,641 
FDIC premiums and assessments   1,411    1,588    2,606    2,886 
Other real estate owned and foreclosures   1    30    68    58 
Amortization of intangible assets   1,246    770    2,514    1,571 
Merger, restructuring and other expense   847    2,903    5,940    14,585 
Other   6,601    6,307    12,086    11,142 
Total non-interest expense   72,337    69,523    149,206    143,849 
                     
Income before income taxes   42,282    27,931    74,828    50,153 
Income tax expense   8,251    8,237    15,549    14,999 
Net income  $34,031   $19,694   $59,279   $35,154 
Preferred stock dividend   229    -    459    - 
Income available to common shareholders  $33,802   $19,694   $58,820   $35,154 
                     
Earnings per common share:                    
Basic  $0.74   $0.53   $1.29   $0.97 
Diluted  $0.74   $0.53   $1.28   $0.96 
                     
Weighted average shares outstanding:                    
Basic   46,032    37,324    45,999    36,305 
Diluted   46,215    37,474    46,206    36,466 

 

 F-4 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

   June 30,   March 31,   Dec. 31,   Sept. 30,   June 30, 
(in thousands, except per share data)  2018   2018   2017   2017   2017 
Interest and dividend income                         
Loans  $101,649   $92,835   $91,149   $76,024   $71,983 
Securities and other   15,230    14,405    14,674    13,036    12,683 
Total interest and dividend income   116,879    107,240    105,823    89,060    84,666 
Interest expense                         
Deposits   17,768    15,325    13,802    10,984    9,971 
Borrowings   7,990    6,445    5,655    6,078    5,150 
Total interest expense   25,758    21,770    19,457    17,062    15,121 
Net interest income   91,121    85,470    86,366    71,998    69,545 
Non-interest income                         
Mortgage banking originations   10,195    10,147    11,918    13,374    16,281 
Loan related income   6,549    5,438    5,866    6,081    5,275 
Deposit related fees   7,605    8,066    7,871    6,445    6,645 
Insurance commissions and fees   2,549    3,025    2,284    2,581    2,588 
Wealth management fees   2,280    2,597    2,268    2,315    2,286 
Total fee income   29,178    29,273    30,207    30,796    33,075 
Other   155    1,268    (939)   (2,255)   (276)
Securities gains/(losses), net   718    (1,502)   30    (1)   (1)
(Loss)/gain on sale of business operations and assets, net   (21)   481    -    296    - 
(Loss) on termination of hedges   -    -    -    -    - 
Total non-interest income   30,030    29,520    29,298    28,836    32,798 
Total net revenue   121,151    114,990    115,664    100,834    102,343 
Provision for loan losses   6,532    5,575    6,141    4,900    4,889 
Non-interest expense                         
Compensation and benefits   41,134    42,184    42,220    37,643    36,997 
Occupancy and equipment   10,230    10,082    9,451    8,267    8,678 
Technology and communications   7,359    6,830    6,286    6,644    6,883 
Marketing and promotion   2,369    2,612    4,573    2,128    3,177 
Professional services   1,139    2,053    2,277    2,247    2,190 
FDIC premiums and assessments   1,411    1,195    1,920    1,651    1,588 
Other real estate owned and foreclosures   1    67    9    (23)   30 
Amortization of intangible assets   1,246    1,268    1,183    739    770 
Merger, restructuring and other expense   847    5,093    15,553    1,420    2,903 
Other   6,601    5,485    6,569    5,104    6,307 
Total non-interest expense   72,337    76,869    90,041    65,820    69,523 
                          
Income before income taxes   42,282    32,546    19,482    30,114    27,931 
Income tax expense   8,251    7,298    22,292    7,211    8,237 
Net income/(loss)  $34,031   $25,248   $(2,810)  $22,903   $19,694 
Preferred stock dividend   229    230    219    -    - 
Income/(loss) available to common shareholders  $33,802   $25,018   $(3,029)  $22,903   $19,694 
                          
Earnings/(loss) per common share:                         
Basic  $0.74   $0.55   $(0.06)  $0.57   $0.53 
Diluted  $0.74   $0.55   $(0.06)  $0.57   $0.53 
                          
Weighted average shares outstanding:                         
Basic   46,032    45,966    45,122    39,984    37,324 
Diluted   46,215    46,200    45,122    40,145    37,474 

 

 F-5 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

   Quarters Ended 
   June 30,   March 31,   Dec. 31,   Sept. 30,   June 30, 
   2018   2018   2017   2017   2017 
                     
Earning assets                         
Loans:                         
Commercial real estate   5.24%   4.76%   4.73%   4.64%   4.41%
Commercial and industrial loans   5.43    5.19    5.25    5.09    5.30 
Residential mortgages   3.72    3.56    3.76    3.68    3.62 
Consumer loans   4.13    4.01    3.94    3.88    3.81 
Total loans   4.73    4.45    4.47    4.33    4.25 
Securities   3.47    3.26    3.55    3.43    3.45 
Short-term investments and loans held for sale   3.86    3.43    2.90    3.40    3.07 
Total earning assets   4.48    4.21    4.27    4.13    4.07 
                          
Funding liabilities                         
Deposits:                         
NOW and other   0.44    0.28    0.25    0.26    0.23 
Money market   0.88    0.73    0.66    0.57    0.54 
Savings   0.14    0.14    0.14    0.14    0.14 
Time   1.54    1.40    1.25    1.20    1.13 
Total interest-bearing deposits   1.02    0.90    0.82    0.78    0.73 
Borrowings   2.29    2.02    1.81    1.65    1.46 
Total interest-bearing liabilities   1.23    1.08    0.97    0.96    0.88 
                          
Net interest spread   3.25    3.13    3.30    3.17    3.19 
Net interest margin (1)   3.50    3.36    3.50    3.36    3.36 
                          
Cost of funds (2)   1.03    0.90    0.81    0.82    0.75 
Cost of deposits   0.83    0.73    0.66    0.64    0.60 

 

 

(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:  0.25%, 0.13%, 0.21%, 0.14%, 0.12%. See page F-7 for purchased loan accretion.
(2)Cost of funds includes all deposits and borrowings.

 

 F-6 

 

 

BERKSHIRE HILLS BANCORP, INC.

AVERAGE BALANCES - UNAUDITED - (F-7)

 

   Quarters Ended 
   June 30,   March 31,   Dec. 31,   Sept. 30,   June 30, 
(in thousands)  2018   2018   2017   2017   2017 
Assets                         
Loans                         
Commercial real estate  $3,217,862   $3,250,861   $3,161,902   $2,669,558   $2,691,804 
Commercial and industrial loans   1,872,342    1,811,433    1,645,719    1,183,980    1,130,384 
Residential mortgages   2,268,886    2,138,544    2,081,548    1,977,538    1,871,329 
Consumer loans   1,113,089    1,114,586    1,123,683    1,030,032    996,488 
Total loans (1)   8,472,179    8,315,424    8,012,852    6,861,108    6,690,005 
Securities (2)   1,931,104    1,933,002    1,921,724    1,779,379    1,701,443 
Short-term investments and loans held for sale   146,190    139,161    146,101    167,724    148,276 
Total earning assets   10,549,473    10,387,587    10,080,677    8,808,211    8,539,724 
Goodwill and other intangible assets   554,591    557,321    533,157    420,853    421,601 
Other assets   506,954    521,745    516,802    402,188    369,317 
Total assets  $11,611,018   $11,466,653   $11,130,636   $9,631,252   $9,330,642 
                          
Liabilities and shareholders' equity                         
Deposits                         
NOW and other  $819,166   $712,181   $702,353   $570,864   $572,688 
Money market   2,524,713    2,518,920    2,371,203    1,768,108    1,794,693 
Savings   749,995    743,944    733,157    669,690    667,863 
Time   2,878,846    2,913,512    2,906,423    2,587,702    2,472,990 
Total interest-bearing deposits   6,972,720    6,888,557    6,713,136    5,596,364    5,508,234 
Borrowings   1,382,794    1,275,173    1,229,781    1,445,700    1,398,653 
Total interest-bearing liabilities   8,355,514    8,163,730    7,942,917    7,042,064    6,906,887 
Non-interest-bearing demand deposits   1,619,470    1,656,260    1,591,431    1,196,451    1,155,533 
Other liabilities   102,583    137,976    127,562    131,003    110,367 
Total liabilities   10,077,567    9,957,966    9,661,910    8,369,518    8,172,787 
                          
Total preferred shareholders' equity   40,633    40,633    34,892    -    - 
Total common shareholders' equity   1,492,818   1,468,054    1,433,834    1,261,734    1,157,855 
Total shareholders' equity   1,533,451    1,508,687    1,468,726    1,261,734    1,157,855 
Total liabilities and shareholders' equity  $11,611,018   $11,466,653   $11,130,636   $9,631,252   $9,330,642 
                          
Supplementary data                         
Total average non-maturity deposits  $5,713,344   $5,631,305   $5,398,144   $4,205,113   $4,190,777 
Total average deposits   8,592,190    8,544,817    8,304,567    6,792,815    6,663,767 
Fully taxable equivalent income adjustment   2,033    1,820    3,122    2,950    2,644 
Purchased loan accretion   6,881    3,433    5,507    3,066    2,550 
Total average tangible equity (3)   978,860    951,366    935,569    840,881    736,254 

 

 

(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.

 

 F-7 

 

 

BERKSHIRE HILLS BANCORP, INC.

ASSET QUALITY ANALYSIS - UNAUDITED - (F-8)

 

   At or for the Quarters Ended 
   June 30,   March 31,   Dec. 31,   Sept. 30,   June 30, 
(in thousands)  2018   2018   2017   2017   2017 
NON-PERFORMING ASSETS                         
Non-accruing loans:                         
Commercial real estate  $10,338   $10,084   $7,266   $5,228   $7,587 
Commercial and industrial loans   4,029    7,430    7,311    9,681    8,387 
Residential mortgages   3,196    5,777    2,883    3,092    3,245 
Consumer loans   5,466    5,996    5,438    4,350    4,977 
Total non-accruing loans   23,029    29,287    22,898    22,351    24,196 
Other real estate owned   -    -    -    288    279 
Repossessed assets   1,241    1,241    1,147    -    - 
Total non-performing assets  $24,270   $30,528   $24,045   $22,639   $24,475 
                          
Total non-accruing loans/total loans   0.26%   0.35%   0.28%   0.32%   0.35%
Total non-performing assets/total assets   0.20%   0.27%   0.21%   0.23%   0.25%
                          
PROVISION AND ALLOWANCE FOR LOAN LOSSES                         
Balance at beginning of period  $53,859   $51,834   $49,004   $47,359   $45,804 
Charged-off loans   (5,714)   (3,791)   (3,734)   (3,796)   (3,431)
Recoveries on charged-off loans   1,248    241    423    541    97 
Net loans charged-off   (4,466)   (3,550)   (3,311)   (3,255)   (3,334)
Provision for loan losses   6,532    5,575    6,141    4,900    4,889 
Balance at end of period  $55,925   $53,859   $51,834   $49,004   $47,359 
                          
Allowance for loan losses/total loans   0.64%   0.64%   0.62%   0.71%   0.69%
Allowance for loan losses/non-accruing loans   243%   184%   226%   219%   196%
                          
NET LOAN CHARGE-OFFS                         
Commercial real estate  $(2,079)  $(817)  $(881)  $(1,425)  $(1,474)
Commercial and industrial loans   (1,193)   (972)   (960)   (573)   (625)
Residential mortgages   (632)   (406)   (759)   130    (337)
Home equity   108    (588)   (123)   (634)   (268)
Auto and other consumer   (670)   (767)   (588)   (753)   (630)
Total, net  $(4,466)  $(3,550)  $(3,311)  $(3,255)  $(3,334)
                          
Net charge-offs (QTD annualized)/average loans   0.21%   0.17%   0.17%   0.19%   0.20%
Net charge-offs (YTD annualized)/average loans   0.19%   0.17%   0.19%   0.20%   0.20%
                          
DELINQUENT AND NON-ACCRUING LOANS/TOTAL LOANS                         
30-89 Days delinquent   0.22%   0.39%   0.35%   0.25%   0.23%
90+ Days delinquent and still accruing   0.40%   0.23%   0.20%   0.17%   0.12%
Total accruing delinquent loans   0.62%   0.62%   0.55%   0.42%   0.35%
Non-accruing loans   0.26%   0.35%   0.28%   0.32%   0.35%
Total delinquent and non-accruing loans   0.88%   0.97%   0.83%   0.74%   0.70%

 

 F-8 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

      At or for the Quarters Ended 
      June 30,   March 31,   Dec. 31,   Sept. 30,   June 30, 
(in thousands)     2018   2018   2017   2017   2017 
Net income/(loss)     $34,031   $25,248   $(2,810)  $22,903   $19,694 
Adj: Net securities (gains)/losses (1)      (718)   1,502    (30)   1    1 
Adj: Net losses/(gains) on sale of business operations and assets      21    (481)   -    (296)   - 
Adj: Merger and acquisition expense      847    5,093    15,553    1,110    2,266 
Adj: Restructuring expense and other expense      -    -    -    310    637 
Adj: Employee and community investment      -    -    3,400    -    - 
Adj: Deferred tax asset impairment      -    -    18,145    -    - 
Adj: Income taxes      (105)   (1,481)   (7,963)   (474)   (1,039)
Total core income (2)  (A)  $34,076   $29,881   $26,295   $23,554   $21,559 
                             
Total revenue     $121,151   $114,990   $115,664   $100,834   $102,343 
Adj: Net securities (gains)/losses (1)      (718)   1,502    (30)   1    1 
Adj: Net losses/(gains) on sale of business operations and assets      21    (481)   -    (296)   - 
Total core revenue (2)  (B)  $120,454   $116,011   $115,634   $100,539   $102,344 
                             
Total non-interest expense     $72,337   $76,869   $90,041   $65,820   $69,523 
Less: Merger, restructuring and other expense (see above)      (847)   (5,093)   (15,553)   (1,420)   (2,903)
Less: Employee and community investment      -    -    (3,400)   -    - 
Core non-interest expense (2)  (C)  $71,490   $71,776   $71,088   $64,400   $66,620 
                             
(in millions, except per share data)                            
Total average assets  (D)  $11,611   $11,467   $11,131   $9,631   $9,331 
Total average shareholders' equity  (E)   1,533    1,509    1,469    1,262    1,158 
Total average tangible shareholders' equity (2)  (F)   979    951    936    841    736 
Total average tangible common shareholders' equity (2)  (G)   938    911    901    841    736 
Total tangible shareholders' equity, period-end (2)(3)  (H)   961    941    939    864    847 
Total tangible common shareholders' equity, period-end (2)(3)  (I)   921    901    898    864    847 
Total tangible assets, period-end (2)(3)  (J)   11,347    10,963    11,013    9,346    9,206 
                             
Total common shares outstanding, period-end (thousands)  (K)   45,420    45,360    45,290    40,424    40,428 
Average diluted shares outstanding (thousands)  (L)   46,215    46,200    45,383    40,145    37,474 
                             
Core earnings per share, diluted (2)  (A/L)  $0.74   $0.65   $0.58   $0.59   $0.58 
Tangible book value per common share, period-end (2)  (I/K)   20.28    19.86    19.83    21.38    20.96 
Total tangible shareholders' equity/total tangible assets (2)  (H)/(J)   8.47    8.59    8.53    9.25    9.20 
                             
Performance ratios (4)                            
GAAP return on assets      1.17%   0.88    (0.10)%   0.95%   0.84%
Core return on assets (2)  (A/D)   1.17    1.04    0.94    0.98    0.92 
GAAP return on equity      8.88    6.69    (0.77)   7.26    6.80 
Core return on equity (2)  (A/E)   8.89    7.92    7.16    7.47    7.45 
Core return on tangible common equity (2)(5)  (A+O)/(G)   14.82    13.43    11.90    11.42    11.96 
Efficiency ratio (2)(6)  (C-O)/(B+M+P)   56.37    59.54    57.43    59.28    61.72 
Net interest margin      3.50    3.36    3.50    3.36    3.36 
                             
Supplementary data (in thousands)                            
Tax benefit on tax-credit investments (7)  (M)  $2,119   $596   $2,957   $3,905   $1,696 
Non-interest income charge on tax-credit investments (8)  (N)   (1,594)   (506)   (2,564)   (3,347)   (1,453)
Net income on tax-credit investments  (M+N)   525    90    393    558    243 
                             
Intangible amortization  (O)  $1,246   $1,268   $1,183   $739   $770 
Fully taxable equivalent income adjustment  (P)   2,033    1,820    3,122    2,950    2,644 

 

 

(1)Net securities (gains)/losses for the periods ending March 31, 2018 and June 30, 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 27.32% 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.

 

 F-9 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

      At or for the Six Months Ended 
      June 30,   June 30, 
(Dollars in thousands)     2018   2017 
Net income     $59,279   $35,154 
Adj: Net securities losses/(gains) (1)      784    (12,569)
Adj: Loss on termination of hedges      -    6,629 
Adj: Net (gains) on sale of business operations      (460)   - 
Adj: Merger and acquisition expenses      5,940    8,213 
Adj: Restructuring expense and other      -    6,372 
Adj: Income taxes      (1,586)   (2,840)
Total core income (2)  (A)  $63,957   $40,959 
              
Total revenue     $236,141   $203,986 
Adj: Net securities losses/(gains) (1)      784    (12,569)
Adj: Net (gains) on sale of business operations      (460)   - 
Adj: Loss on termination of hedges      -    6,629 
Total core revenue (2)  (B)  $236,465   $198,046 
Total non-interest expense     $149,206   $143,849 
Less: Merger, restructuring and other expense (see above)      (5,940)   (14,585)
Core non-interest expense (2)  (C)  $143,266   $129,264 
              
(in millions, except per share data)             
Total average assets  (D)  $11,567   $9,238 
Total average shareholders' equity  (E)   1,521    1,120 
Total average tangible shareholders' equity (2)  (F)   965    698 
Total average tangible common shareholders' equity (2)  (G)   925    698 
Total tangible shareholders' equity, period-end (2)(3)  (H)   961    847 
Total tangible common shareholders' equity, period-end (2)(3)  (I)   921    847 
Total tangible assets, period-end (2)(3)  (J)   11,347    9,206 
Total common shares outstanding, period-end (thousands)  (K)   45,420    40,428 
Average diluted shares outstanding (thousands)  (L)   46,206    36,466 
Core earnings per common share, diluted (2)  (A/L)  $1.38   $1.12 
Tangible book value per common share, period-end (2)  (I/K)   20.28    20.96 
Total tangible shareholders' equity/total tangible assets (2)  (H)/(J)   8.47    9.20 
              
Performance ratios (4)             
GAAP return on assets      1.03%   0.76%
Core return on assets (2)  (A/D)   1.11    0.89 
GAAP return on equity      7.79    6.28 
Core return on equity (2)  (A/E)   8.41    7.31 
Core return on tangible common equity (2)(5)  (A+O)/(G)   14.13    12.01 
Efficiency ratio (2)(6)  (C-O)/(B+M+P)   57.91    61.83 
Net interest margin      3.43    3.35 
              
Supplementary data             
Tax benefit on tax-credit investments (7)  (M)  $2,715   $3,320 
Non-interest income charge on tax-credit investments (8)  (N)   (2,100)   (2,782)
Net income on tax-credit investments  (M+N)   615    538 
              
Intangible amortization  (O)   2,514    1,571 
Fully taxable equivalent income adjustment  (P)   3,853    5,154 

 

 

(1)Net securities losses/(gains) for the period ending June 30, 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 27.32% 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.

 

 F-10 

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