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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): April 29, 2019

 

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   02109
(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 April 29, 2019, Berkshire Hills Bancorp, Inc. (the “Company”), the holding company for Berkshire Bank (the “Bank”), announced its financial results for the quarter ended March 31, 2019. 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 April 30, 2019, 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 May 7, 2019. The webcast will be available on the Company’s website for an extended period of time.

 

Item 7.01Regulation FD Disclosure

 

On April 30, 2019, the Company made available its slides for the 2019 Strategic Review Presentation that the Company will utilize in connection with the conference call/webcast. A copy of the presentation can be found on the Company’s website at www.berkshirebank.com under the “Investor Relations” tab.

 

Item 8.01Other Events

 

On April 29, 2019, the Company’s Board of Directors announced the declaration of a cash dividend of $0.23 per share of Company common stock and $0.46 per share of Company Series B preferred stock to shareholders of record at the close of business on May 9, 2019 and payable on May 23, 2019.

 

On April 29, 2019, the Company announced that its Board of Directors authorized a stock repurchase program (the “Program”) to repurchase up to 2.4 million shares of Company common stock over a period expiring on March 31, 2020, pending regulatory approval. The Program replaces the Company’s existing 500,000 stock repurchase authorization. The Company is seeking the Board of Governors of the Federal Reserve System’s (“Federal Reserve”) approval or non-objection of the Program and, accordingly, the terms of the Program may be modified following the completion of the Federal Reserve’s review. Following the receipt of regulatory approval, the timing of the purchases made through the Program will depend on certain factors, including but not limited to, market conditions and prices, available funds and alternative uses of capital. The Program may be carried out through open-market purchases, block trades, negotiated private transactions or pursuant to a trading plan that will be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

 

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 April 29, 2019

 

 

 

 

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: April 30, 2019 By: /s/ Richard M. Marotta
    Richard M. Marotta
    President and Chief Executive Officer

 

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

 

Berkshire Hills Reports First Quarter Results; Dividends Declared;
Board Authorizes 2.4 Million Share Repurchase Program

 

BOSTON, April 29, 2019 - Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported GAAP net income of $24 million, or $0.51 per share, in the first quarter of 2019. The non-GAAP measure of core earnings totaled $28 million, or $0.60 per share. Non-core expenses were primarily composed of merger and restructuring charges.

 

FIRST QUARTER FINANCIAL HIGHLIGHTS (balance sheet metrics are compared to prior quarter-end):

 

·$0.51 GAAP EPS; $0.60 Core EPS
·59.5% efficiency ratio
·98% loans/deposits, improved from 101%
·13.0% equity/assets, improved from 12.7%
·0.15% net loan charge-offs/average loans
·0.26% non-performing assets/assets

 

CEO Richard Marotta stated, “We brought in the first quarter of 2019 on plan and initiated a process of refocusing our operations on profitable customer relationship business. Our focus is also on driving efficiencies while supporting key market objectives. The results of this work will unfold over the year as we target to support our profitability in light of lower purchased loan accretion from past bank acquisitions. Our goal in accomplishing this is to create a platform for growth in per share earnings and profitability following this year of transition. Part of this shift was our decision during the quarter to pursue the sale of the national mortgage banking operations of our First Choice Loan Services, Inc. subsidiary. This team has a long track record and national recognition that we believe will be attractive to a partner with complementary scale and presence in the evolving mortgage business. We will continue to offer competitive residential mortgage lending within our regional footprint through our Berkshire Bank Home Lending team.”

 

Mr. Marotta continued, “We’re moving along well with our planned acquisition of SI Financial Group, which was approved by their shareholders earlier this month. This acquisition is on track to be completed during the second quarter. We’re pleased to be working well with the Savings Institute team on our integration plans, including a systems conversion targeted in October. During the quarter, we completed the consolidation of six existing Berkshire branches with minimal customer relationship impact expected as a result of our other strong delivery channels including other nearby branches, our MyBankerTM platform, and our digital channels. I’m also pleased to announce that our Board recently formed a Corporate Responsibility and Culture Committee, which will oversee our important initiatives including diversity and inclusion in our workforce. I’m proud of the work of our teams which is summarized in our first annual Corporate Social Responsibility Report, which is available on our web site at ir.berkshirebank.com

 

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DIVIDEND INCREASED

 

The Board of Directors approved a quarterly cash dividend of $0.23 per common share to shareholders of record at the close of business on May 9, 2019, payable on May 23, 2019. The dividend equates to a 3.4% annualized yield based on the $27.24 closing price of Berkshire Hills Bancorp stock at the end of the quarter. Effective on the same dates, the Board also approved a quarterly cash dividend on preferred stock totaling $0.46 per share. The Board had approved a 5% increase in the common and preferred dividend following the start of the year.

 

STOCK REPURCHASE AUTHORIZATION

 

The Board authorized the repurchase of 2.4 million common shares for the period expiring on March 31, 2020. This replaces the Company’s existing unused 500,000 share repurchase authorization. Berkshire CFO Jamie Moses stated “We’re focused on the profitability metrics that drive shareholder value and plan to adjust our balance sheet and capital allocation opportunistically based on our strategic plan and to support shareholder value.” The authorization does not constitute a commitment to repurchase shares and share repurchases are subject to regulatory approval, as well as market and other conditions. This authorization is equivalent to approximately 4.7% of Berkshire’s outstanding shares including 5.7 million shares expected to be issued as merger consideration for the SI Financial Group acquisition. Under the authorization, stock repurchases may be made through open market purchases, block trades, privately negotiated transactions, or pursuant to a trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission.

 

DISCONTINUED OPERATIONS

 

For financial reporting purposes, the national mortgage banking operations of First Choice Loan Services, Inc. (“FCLS”) have been classified as discontinued while the Company pursues the sale of these operations in 2019. FCLS continues to serve its markets while this sale is being pursued. Amounts and balances related to these operations have been separately classified in the accompanying unaudited statements of income and financial condition. The operations of FCLS have been reported as discontinued operations retrospectively for all periods presented. Revenue and expense shown in the unaudited statement of income exclude amounts related to FCLS. Discontinued operations are not viewed as part of the Company’s normalized operations and have been classified as non-core. FCLS mortgage loans held for sale and related borrowings have also been classified as discontinued operations.

 

 2 

 

 

FINANCIAL CONDITION

 

Total assets were unchanged at $12.2 billion in the first quarter. Total loans decreased by 1% as lending operations were targeted toward higher profitability customer relationship strategies. The Company has ceased originating indirect auto loans and as a result is targeted to have less future reliance on higher cost wholesale funds as the existing portfolio seasons and is paid down. Total deposits increased by 2%, half of which was due to daily fluctuations of payroll deposits which ended the period at $562 million, compared to $467 million at the start of the period. Excluding payroll impacts, most of the growth was in time deposits. Liquidity, capital, and asset quality metrics improved compared to the prior quarter. Book value per common share increased by 1.4% to $33.75 and the non-GAAP measure of tangible book value per common share improved by 2.4% to $21.66. Pursuant to the adoption of new accounting requirements, approximately $80 million has been recorded to other assets and other liabilities related to assets in use through lease arrangements.

 

RESULTS OF OPERATIONS

 

GAAP earnings were $0.51 per share in the most recent quarter, compared to $0.31 in the prior quarter and to $0.55 in the first quarter of 2018. Results in all periods were affected by significant non-core charges. Core results in prior periods have been retrospectively adjusted to exclude national mortgage banking operations. The $0.09 per share in after-tax net non-core items in the most recent quarter included approximately $0.04 in unrealized securities gains, $0.01 in loss from discontinued operations, $0.03 in merger charges, and $0.09 in restructuring and other charges.

 

Core earnings per share were $0.60 in the most recent quarter, decreasing quarter-over-quarter and year-over-year primarily due to the impact of lower purchased loan accretion. The per share after-tax contribution from accretion decreased by $0.11 quarter-over-quarter and by $0.03 year-over-year. Due to the seasoning of the acquired loan portfolio, the benefit of this accretion is expected to be lower in 2019 compared to 2018. The Company’s current strategic review is intended to offset this impact through balance sheet adjustments, line of business review, expense reductions, and capital management. The return on equity measured 6.0% in the most recent quarter. The non-GAAP measure of core return on tangible common equity was 11.4% in the most recent quarter.

 

The net interest margin was 3.17% in the most recent quarter, including a contribution of 0.05% from purchased loan accretion. Measured before accretion, the margin was 3.12%, which was up 0.01% over the prior quarter. Most yields and costs rose quarter-over quarter due to the 0.25% increase in the target Fed Funds rate in the fourth quarter of 2018, including a 0.12% increase in deposit costs.

 

Fee income increased by $1 million quarter-over-quarter due to higher SBA loan sale gains, including gains on fourth quarter loans which could not be sold during the federal government shutdown. National mortgage banking revenue had been the largest source of fee income in recent years. Fee income has been retrospectively adjusted to exclude these revenues, which has reduced the revenue contribution from non-interest income. The fourth quarter loan loss provision exceeded net charge-offs and the ratio of the loan loss allowance to loans increased to 0.69% from 0.68%.

 

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GAAP non-interest expense decreased quarter-over-quarter, due to lower non-core expenses. The efficiency ratio measured 59.5% in the most recent quarter. Branch consolidations completed in the first quarter are expected to contribute to improved efficiency in future periods. Excluding FCLS, full time equivalent staff totaled 1,457 positions at first quarter-end, compared to 1,485 at the start of the quarter. This 2% reduction was due to various efficiency initiatives undertaken during the quarter. FCLS full time equivalent staff totaled 431 positions at quarter-end. The effective income tax rate measured 22% in the first quarter of 2019.

 

STRATEGIC REVIEW

 

Before the conference call, the Company will post a slide presentation summarizing its strategic review on its web site at ir.berkshirebank.com.

 

INVESTOR CONFERENCE CALL

 

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Tuesday, April 30, 2019 to discuss the results for the quarter, the results of its strategic review, and guidance about expected future results. Participants are encouraged to pre-register for the conference call using the following link:  dpregister.com/10130208. 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 the Company’s website at 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 Tuesday, May 07, 2019 by dialing 877-344-7529 and entering access number 10130208.  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, a premier regional bank distinguished by its local responsiveness and engagement. With corporate headquarters in Boston, the Company operates in six Northeastern states, with $12.2 billion in assets and 109 banking offices. 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.

 

 4 

 

 

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 page F-9 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, restructuring costs, and discontinued operations. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees. Merger costs in 2018 and 2019 are primarily related to the acquisitions of Commerce Bancshares Corp. and SI Financial Group (pending). 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. Restructuring costs also include severance and consulting expenses related to the Company’s strategic review. Discontinued operations are the Company’s national mortgage banking operations for which the Company is pursuing sale opportunities.

 

In 2018, the Company recorded $8 million in charges related to the restructuring of banking systems vendor relationships. 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.

 

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.

 

###

 

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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)

 

 6 

 

 

 

SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED - (F-1)

 

   At or for the Quarters Ended (2) 
   March 31,   Dec. 31,   Sept. 30,   June 30,   March 31, 
   2019   2018   2018   2018   2018 
                     
PER SHARE DATA                         
Net earnings per common share, diluted  $0.51   $0.31   $0.70   $0.74   $0.55 
Core earnings per common share, diluted (1)   0.60    0.69    0.72    0.73    0.65 
Total book value per common share   33.75    33.30    32.84    32.49    32.12 
Tangible book value per common share (1)   21.66    21.15    20.68    20.28    19.86 
Market price at period end   27.24    26.97    40.70    40.60    37.95 
Dividends per common share   0.23    0.22    0.22    0.22    0.22 
Dividends per preferred share   0.46    0.44    0.44    0.44    0.44 
                          
PERFORMANCE RATIOS (3)                         
Return on assets   0.78%   0.47%   1.08%   1.17%   0.88%
Core return on assets (1)   0.92    1.07    1.12    1.18    1.06 
Return on equity   5.97    3.61    8.27    8.88    6.69 
Core return on equity (1)   7.00    8.09    8.49    8.81    7.95 
Core return on tangible common equity (1)   11.44    13.21    14.02    14.68    13.48 
Net interest margin, fully taxable equivalent (FTE) (4)(5)   3.17    3.41    3.32    3.50    3.36 
Fee income/Net interest and fee income from continuing operations   17.56    15.59    18.06    17.21    18.03 
Efficiency ratio (1)   59.54    54.88    52.20    52.42    55.10 
                          
GROWTH (Year-to-date)                         
Total commercial loans (annualized)   (3)%   6%   5%   5%   1%
Total loans (annualized)   (4)   9    10    10    4 
Total deposits (annualized)   8    3    0    2    (3)
Total net revenues from continuing operations (compared to prior year)   3    17    22    21    16 
Earnings per common share (compared to prior year)   (7)   65    28    33    25 
Core earnings per common share (compared to prior year)(1)   (8)   32    37    36    28 
                          
FINANCIAL DATA (in millions)                         
Total assets  $12,173   $12,212   $12,030   $11,902   $11,519 
Total earning assets   11,039    11,140    10,957    10,827    10,442 
Total securities   1,881    1,919    1,918    1,920    1,932 
Total loans   8,947    9,043    8,905    8,710    8,376 
Allowance for loan losses   62    61    58    56    54 
Total intangible assets   551    552    553    555    556 
Total deposits   9,166    8,982    8,766    8,839    8,683 
Total shareholders' equity   1,577    1,553    1,532    1,516    1,498 
Net income   23.6    14.3    32.2    34.0    25.2 
Core income (1)   27.7    32.0    33.1    33.8    30.0 
Purchased loan accretion   1.3    8.2    4.5    6.9    3.4 
                          
ASSET QUALITY AND CONDITION RATIOS                         
Net charge-offs (current quarter annualized)/average loans   0.15%   0.17%   0.19%   0.21%   0.17%
Total non-performing assets/total assets   0.26    0.28    0.30    0.20    0.27 
Allowance for loan losses/total loans   0.69    0.68    0.66    0.64    0.64 
Loans/deposits   98    101    102    99    96 
Shareholders' equity to total assets   12.95    12.72    12.74    12.74    13.00 
Tangible shareholders' equity to tangible assets (1)   8.83    8.59    8.53    8.47    8.59 

 

(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 page F-9 for reconciliations of non-GAAP financial measures.
(2) Reconciliations of non-GAAP financial measures, including all references to core and tangible amounts, appear on page F-9.
(3) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
(4) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.
(5) 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: 0.05%, 0.30%, 0.17%, 0.25%, 0.13%.

 

 F-1 

 

 

 

CONSOLIDATED BALANCE SHEETS - UNAUDITED - (F-2)

 

   March 31,   December 31, 
(in thousands)  2019   2018 
Assets          
Cash and due from banks  $98,689   $100,972 
Short-term investments   68,930    82,217 
Total cash and short-term investments   167,619    183,189 
           
Trading security   11,164    11,212 
Marketable equity securities, at fair value   59,121    56,638 
Securities available for sale, at fair value   1,386,768    1,399,647 
Securities held to maturity, at amortized cost   369,331    373,763 
Federal Home Loan Bank stock and other restricted securities   54,624    77,344 
Total securities   1,881,008    1,918,604 
           
Loans held for sale, at fair value   4,773    2,183 
           
Commercial real estate loans   3,388,139    3,400,221 
Commercial and industrial loans   1,957,339    1,980,046 
Residential mortgages   2,544,824    2,566,424 
Consumer loans   1,057,193    1,096,562 
Total loans   8,947,495    9,043,253 
Less: Allowance for loan losses   (62,038)   (61,469)
Net loans   8,885,457    8,981,784 
           
Premises and equipment, net   105,651    106,500 
Other real estate owned   —      —   
Goodwill   518,325    518,325 
Other intangible assets   32,219    33,418 
Cash surrender value of bank-owned life insurance   191,768    190,609 
Deferred tax asset, net   38,783    42,434 
Other assets   182,720    120,926 
Assets from discontinued operations   165,078    114,259 
Total assets  $12,173,401   $12,212,231 
           
Liabilities and shareholders' equity          
Demand deposits  $1,526,584   $1,603,019 
NOW and other deposits   820,177    1,122,321 
Money market deposits   2,743,448    2,245,195 
Savings deposits   731,711    724,129 
Time deposits   3,344,495    3,287,717 
Total deposits   9,166,415    8,982,381 
           
Senior borrowings   995,271    1,345,467 
Subordinated borrowings   89,562    89,518 
Total borrowings   1,084,833    1,434,985 
           
Other liabilities   204,725    149,519 
Liabilities from discontinued operations   140,423    92,428 
Total liabilities   10,596,396    10,659,313 
           
Preferred shareholders' equity   40,633    40,633 
Common shareholders' equity   1,536,372    1,512,285 
Total shareholders' equity   1,577,005    1,552,918 
Total liabilities and shareholders' equity  $12,173,401   $12,212,231 
           
Net common shares outstanding   45,522    45,417 

 

 F-2 

 

 

 

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

 

LOAN ANALYSIS

 

           Annualized Growth % 
(in millions)  March 31, 2019
Balance
   December 31, 2018
Balance
   Quarter ended
March 31, 2019
 
             
Total commercial real estate  $3,388   $3,400    (1)%
Commercial and industrial loans   1,957    1,980    (5)
Total commercial loans   5,345    5,380    (3)
                
Total residential mortgages   2,545    2,566    (3)
                
Home equity   365    377    (13)
Auto and other   692    720    (16)
Total consumer loans   1,057    1,097    (15)
Total loans  $8,947   $9,043    (4)%

 

DEPOSIT ANALYSIS

 

           Annualized Growth % 
(in millions)  March 31, 2019
Balance
   December 31, 2018
Balance
   Quarter ended
March 31, 2019
 
Demand  $1,527   $1,603    (19)%
NOW and other   820    1,122    (108)
Money market   2,743    2,245    89 
Savings   732    724    4 
Time deposits   3,344    3,288    7 
Total deposits  $9,166   $8,982    8%

 

 F-3 

 

 

 

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

 

   Three Months Ended 
   March 31, 
(in thousands, except per share data)  2019   2018 
Interest and dividend income from continuing operations          
Loans  $105,651   $91,741 
Securities and other   15,458    14,405 
Total interest and dividend income   121,109    106,146 
Interest expense from continuing operations          
Deposits   26,622    15,325 
Borrowings   9,028    6,064 
Total interest expense   35,650    21,389 
Net interest income from continuing operations   85,459    84,757 
Non-interest income from continuing operations          
Mortgage banking originations   46    138 
Loan related income   6,003    4,819 
Deposit related fees   6,858    8,066 
Insurance commissions and fees   2,853    3,025 
Wealth management fees   2,441    2,597 
Total fee income   18,201    18,645 
Other   970    1,268 
Securities gains/(losses), net   2,551    (1,502)
Gain on sale of business operations and assets, net   —      481 
Total non-interest income   21,722    18,892 
Total net revenue from continuing operations   107,181    103,649 
Provision for loan losses   4,001    5,575 
Non-interest expense from continuing operations          
Compensation and benefits   33,500    33,847 
Occupancy and equipment   9,446    9,192 
Technology and communications   6,257    6,484 
Marketing and promotion   1,267    1,222 
Professional services   2,275    1,696 
FDIC premiums and assessments   1,639    1,195 
Other real estate owned and foreclosures   2    67 
Amortization of intangible assets   1,200    1,268 
Merger, restructuring and other expense   7,015    5,093 
Other   9,390    5,302 
Total non-interest expense   71,991    65,366 
           
Income from continuing operations before income taxes  $31,189   $32,708 
Income tax expense   6,917    7,337 
Net income from continuing operations  $24,272   $25,371 
           
(Loss) from discontinued operations before income taxes  $(854)  $(162)
Income tax (benefit)   (217)   (39)
Net (loss) from discontinued operations  $(637)  $(123)
           
Net income  $23,635   $25,248 
Preferred stock dividend   240    230 
Income available to common shareholders  $23,395   $25,018 
           
Basic earnings per common share:          
Continuing Operations  $0.52   $0.55 
Discontinued Operations   (0.01)   —   
Total  $0.51   $0.55 
           
Diluted earnings per common share:          
Continuing Operations  $0.52   $0.55 
Discontinued Operations   (0.01)   —   
Total  $0.51   $0.55 
           
Weighted average shares outstanding:          
Basic   46,113    45,966 
Diluted   46,261    46,200 

 

 F-4 

 

 

 

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

 

   March 31,   Dec. 31,   Sept. 30,   June 30,   March 31, 
(in thousands, except per share data)  2019   2018   2018   2018   2018 
Interest and dividend income from continuing operations                         
Loans  $105,651   $111,576   $102,651   $100,254   $91,741 
Securities and other   15,458    15,119    14,918    15,230    14,405 
Total interest and dividend income   121,109    126,695    117,569    115,484    106,146 
Interest expense from continuing operations                         
Deposits   26,622    23,811    21,460    17,768    15,325 
Borrowings   9,028    10,118    7,724    7,424    6,064 
Total interest expense   35,650    33,929    29,184    25,192    21,389 
Net interest income from continuing operations   85,459    92,766    88,385    90,292    84,757 
Non-interest income from continuing operations                         
Mortgage banking originations   46    148    15    334    138 
Loan related income   6,003    5,087    7,246    6,003    4,819 
Deposit related fees   6,858    7,131    7,004    7,605    8,066 
Insurance commissions and fees   2,853    2,479    2,930    2,549    3,025 
Wealth management fees   2,441    2,287    2,283    2,280    2,597 
Total fee income   18,201    17,132    19,478    18,771    18,645 
Other   970    1,666    468    155    1,268 
Securities gains/(losses), net   2,551    (3,023)   88    718    (1,502)
(Loss)/gain on sale of business operations and assets, net   —      —      —      (21)   481 
Total non-interest income   21,722    15,775    20,034    19,623    18,892 
Total net revenue from continuing operations   107,181    108,541    108,419    109,915    103,649 
Provision for loan losses   4,001    6,716    6,628    6,532    5,575 
Non-interest expense from continuing operations                         
Compensation and benefits   33,500    34,927    31,746    33,499    33,847 
Occupancy and equipment   9,446    9,366    9,145    9,224    9,192 
Technology and communications   6,257    6,103    7,507    7,053    6,484 
Marketing and promotion   1,267    1,224    1,167    1,084    1,222 
Professional services   2,275    3,302    1,481    864    1,696 
FDIC premiums and assessments   1,639    1,488    1,640    1,411    1,195 
Other real estate owned and foreclosures   2    1    (1)   1    67 
Amortization of intangible assets   1,200    1,202    1,218    1,246    1,268 
Merger, restructuring and other expense   7,015    16,006    198    847    5,093 
Other   9,390    6,754    5,526    6,298    5,302 
Total non-interest expense   71,991    80,373    59,627    61,527    65,366 
                          
Income from continuing operations before income taxes  $31,189   $21,452   $42,164   $41,856   $32,708 
Income tax expense   6,917    4,384    9,095    8,145    7,337 
Net income from continuing operations  $24,272   $17,068   $33,069   $33,711   $25,371 
                          
(Loss)/Income from discontinued operations before income taxes  $(854)  $(3,884)  $(1,147)  $426   $(162)
Income tax (benefit)/expense   (217)   (1,075)   (305)   106    (39)
Net (loss)/income from discontinued operations  $(637)  $(2,809)  $(842)  $320   $(123)
                          
Net income  $23,635   $14,259   $32,227   $34,031   $25,248 
Preferred stock dividend   240    229    230    229    230 
Income available to common shareholders  $23,395   $14,030   $31,997   $33,802   $25,018 
                          
Basic earnings per common share:                         
Continuing Operations  $0.52   $0.37   $0.72   $0.73   $0.55 
Discontinued Operations   (0.01)   (0.06)   (0.02)   0.01    —   
Total  $0.51   $0.31   $0.70   $0.74   $0.55 
                          
Diluted earnings per common share:                         
Continuing Operations  $0.52   $0.37   $0.72   $0.73   $0.55 
Discontinued Operations   (0.01)   (0.06)   (0.02)   0.01    —   
Total  $0.51   $0.31   $0.70   $0.74   $0.55 
                          
Weighted average shares outstanding:                         
Basic   46,113    46,061    46,030    46,032    45,966 
Diluted   46,261    46,240    46,263    46,215    46,200 

 

 F-5 

 

 

 

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

 

   Quarters Ended 
   March 31,   Dec. 31,   Sept. 30,   June 30,   March 31, 
   2019   2018   2018   2018   2018 
                     
Earning assets                         
Loans:                         
Commercial real estate   4.91%   5.40%   4.67%   5.08%   4.76%
Commercial and industrial loans   5.83    5.97    6.22    5.73    5.19 
Residential mortgages   3.74    3.72    3.66    3.72    3.56 
Consumer loans   4.45    4.52    4.27    4.13    4.01 
Total loans   4.73    4.94    4.66    4.73    4.45 
Securities   3.52    3.38    3.36    3.47    3.26 
Short-term investments and loans held for sale   3.59    3.74    3.82    3.86    3.43 
Total earning assets   4.49    4.64    4.41    4.48    4.21 
                          
Funding liabilities                         
Deposits:                         
NOW and other   0.65    0.59    0.58    0.44    0.28 
Money market   1.23    1.10    0.92    0.88    0.73 
Savings   0.18    0.16    0.15    0.14    0.14 
Time   2.07    1.93    1.76    1.54    1.40 
Total interest-bearing deposits   1.44    1.31    1.18    1.02    0.90 
Borrowings   3.02    2.67    2.42    2.29    2.02 
Total interest-bearing liabilities   1.67    1.55    1.38    1.23    1.08 
                          
Net interest spread   2.82    3.09    3.03    3.25    3.13 
Net interest margin   3.17    3.41    3.32    3.50    3.36 
                          
Cost of funds (1)   1.42    1.31    1.16    1.03    0.90 
Cost of deposits   1.19    1.07    0.96    0.83    0.73 

 

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

 

 F-6 

 

 

 

AVERAGE BALANCES - UNAUDITED - (F-7)

 

   Quarters Ended 
   March 31,   Dec. 31,   Sept. 30,   June 30,   March 31, 
(in thousands)  2019   2018   2018   2018   2018 
Assets                         
Loans                         
Commercial real estate  $3,377,902   $3,373,936   $3,331,097   $3,316,482   $3,250,861 
Commercial and industrial loans   1,986,792    1,921,361    1,824,369    1,773,722    1,811,433 
Residential mortgages   2,556,299    2,539,592    2,459,943    2,268,886    2,138,544 
Consumer loans   1,079,583    1,112,433    1,120,942    1,113,089    1,114,586 
Total loans (1)   9,000,576    8,947,322    8,736,351    8,472,179    8,315,424 
Securities (2)   1,895,768    1,933,891    1,928,851    1,931,104    1,933,002 
Short-term investments and loans held for sale   67,367    51,827    47,752    36,136    45,600 
Total earning assets (4)   10,963,711    10,933,040    10,712,954    10,439,419    10,294,026 
Goodwill and other intangible assets   550,966    552,206    554,359    554,591    557,321 
Other assets   557,442    494,377    501,739    486,616    505,046 
Assets from discontinued operations   115,721    101,464    141,443    130,392    110,260 
Total assets  $12,187,840   $12,081,087   $11,910,495   $11,611,018   $11,466,653 
                          
Liabilities and shareholders' equity                         
Deposits                         
NOW and other  $963,043   $920,225   $844,888   $819,166   $712,181 
Money market   2,378,496    2,339,699    2,348,516    2,524,713    2,518,920 
Savings   736,707    728,853    740,765    749,995    743,944 
Time   3,429,375    3,229,521    3,274,518    2,878,846    2,913,512 
Total interest-bearing deposits   7,507,621    7,218,298    7,208,687    6,972,720    6,888,557 
Borrowings   1,273,167    1,495,673    1,255,182    1,281,398    1,191,838 
Total interest-bearing liabilities   8,780,788    8,713,971    8,463,869    8,254,118    8,080,395 
Non-interest-bearing demand deposits   1,538,767    1,579,013    1,635,564    1,619,470    1,656,260 
Other liabilities   192,119    127,370    132,521    89,933    126,949 
Liabilities from discontinued operations   92,629    79,659    120,612    114,046    94,362 
Total liabilities   10,604,303    10,500,013    10,352,566    10,077,567    9,957,966 
                          
Preferred shareholders' equity   40,633    40,633    40,633    40,633    40,633 
Common shareholders' equity   1,542,904    1,540,441    1,517,296    1,492,818    1,468,054 
Total shareholders' equity   1,583,537    1,581,074    1,557,929    1,533,451    1,508,687 
Total liabilities and shareholders' equity  $12,187,840   $12,081,087   $11,910,495   $11,611,018   $11,466,653 
                          
Supplementary data                         
Total average non-maturity deposits  $5,617,013   $5,567,790   $5,569,733   $5,713,344   $5,631,305 
Total average deposits   9,046,388    8,797,311    8,844,251    8,592,190    8,544,817 
Fully taxable equivalent income adjustment   1,809    1,763    1,807    2,033    1,820 
Purchased loan accretion   1,320    8,247    4,548    6,881    3,433 
Total average tangible equity (3)   1,032,571    1,028,868    1,003,570    978,860    951,366 

 

(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.
(4)Excludes discontinued operations for presentation purposes. Performance ratios are calculated including the impact of discontinued operations.

 

 F-7 

 

 

 

ASSET QUALITY ANALYSIS - UNAUDITED - (F-8)

 

   At or for the Quarters Ended 
   March 31,   Dec. 31,   Sept. 30,   June 30,   March 31, 
(in thousands)  2019   2018   2018   2018   2018 
NON-PERFORMING ASSETS                         
Non-accruing loans:                         
Commercial real estate  $18,513   $20,372   $22,639   $10,338   $10,084 
Commercial and industrial loans   5,614    6,003    4,914    4,029    7,430 
Residential mortgages   2,341    2,217    2,683    3,196    5,777 
Consumer loans   4,038    3,834    4,401    5,466    5,996 
Total non-accruing loans   30,506    32,426    34,637    23,029    29,287 
Other real estate owned   —      —      —      —      —   
Repossessed assets   742    1,209    1,069    1,241    1,241 
Total non-performing assets  $31,248   $33,635   $35,706   $24,270   $30,528 
                          
Total non-accruing loans/total loans   0.34%   0.36%   0.39%   0.26%   0.35%
Total non-performing assets/total assets   0.26%   0.28%   0.30%   0.20%   0.27%
                          
PROVISION AND ALLOWANCE FOR LOAN LOSSES                         
Balance at beginning of period  $61,469   $58,457   $55,925   $53,859   $51,834 
Charged-off loans   (4,579)   (4,029)   (4,471)   (5,714)   (3,791)
Recoveries on charged-off loans   1,147    325    375    1,248    241 
Net loans charged-off   (3,432)   (3,704)   (4,096)   (4,466)   (3,550)
Provision for loan losses   4,001    6,716    6,628    6,532    5,575 
Balance at end of period  $62,038   $61,469   $58,457   $55,925   $53,859 
                          
Allowance for loan losses/total loans   0.69%   0.68%   0.66%   0.64%   0.64%
Allowance for loan losses/non-accruing loans   203%   190%   169%   243%   184%
                          
NET LOAN CHARGE-OFFS                         
Commercial real estate  $(752)  $(1,357)  $(3,074)  $(2,079)  $(817)
Commercial and industrial loans   (1,580)   (1,538)   (189)   (1,193)   (972)
Residential mortgages   (95)   (108)   61    (632)   (406)
Home equity   (257)   (116)   (242)   108    (588)
Auto and other consumer   (748)   (585)   (652)   (670)   (767)
Total, net  $(3,432)  $(3,704)  $(4,096)  $(4,466)  $(3,550)
                          
Net charge-offs (QTD annualized)/average loans   0.15%   0.17%   0.19%   0.21%   0.17%
Net charge-offs (YTD annualized)/average loans   0.15%   0.18%   0.19%   0.19%   0.17%
                          
DELINQUENT AND NON-ACCRUING LOANS/TOTAL LOANS                         
30-89 Days delinquent   0.22%   0.27%   0.38%   0.22%   0.39%
90+ Days delinquent and still accruing   0.23%   0.22%   0.22%   0.40%   0.23%
Total accruing delinquent loans   0.45%   0.49%   0.60%   0.62%   0.62%
Non-accruing loans   0.34%   0.36%   0.39%   0.26%   0.35%
Total delinquent and non-accruing loans   0.79%   0.85%   0.99%   0.88%   0.97%

 

 F-8 

 

 

 

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

 

      At or for the Quarters Ended 
      March 31,   Dec. 31,   Sept. 30,   June 30,   March 31, 
(in thousands)     2019   2018   2018   2018   2018 
Net income     $23,635   $14,259   $32,227   $34,031   $25,248 
Adj: Net securities (gains)/losses (1)      (2,551)   3,023    (88)   (718)   1,502 
Adj: Net losses/(gains) on sale of business operations and assets      —      —      —      21    (481)
Adj: Merger and acquisition expense      1,609    2,792    198    847    5,093 
Adj: Restructuring expense and other expense      5,406    1,822    —      —      —   
Adj: Legal settlements      —      3,000    —      —      —   
Adj: Systems vendor restructuring costs      —      8,379    —      —      —   
Adj: Loss/(income) from discontinued operations before income taxes      854    3,884    1,147    (426)   162 
Adj: Income taxes      (1,223)   (5,185)   (397)   —      (1,520)
Total core income (2)  (A)  $27,730   $31,974   $33,087   $33,755   $30,004 
                             
Total revenue from continuing operations     $107,181   $108,541   $108,419   $109,915   $103,649 
Adj: Net securities (gains)/losses (1)      (2,551)   3,023    (88)   (718)   1,502 
Adj: Net losses/(gains) on sale of business operations and assets      —      —      —      21    (481)
Total core revenue (2)  (B)  $104,630   $111,564   $108,331   $109,218   $104,670 
                             
Total non-interest expense from continuing operations     $71,991   $80,373   $59,627   $61,527   $65,366 
Less: Merger, restructuring and other expense (see above)      (7,015)   (4,614)   (198)   (847)   (5,093)
Less: Legal settlements      —      (3,000)   —      —      —   
Less: Systems vendor restructuring costs      —      (8,379)   —      —      —   
Core non-interest expense (2)  (C)  $64,976   $64,380   $59,429   $60,680   $60,273 
                             
(in millions, except per share data)                            
Total average assets  (D)  $12,188   $12,081   $11,910   $11,611   $11,467 
Total average shareholders' equity  (E)   1,584    1,581    1,558    1,533    1,509 
Total average tangible shareholders' equity (2)  (F)   1,033    1,029    1,004    979    951 
Total average tangible common shareholders' equity (2)  (G)   992    988    963    938    911 
Total tangible shareholders' equity, period-end (2)(3)  (H)   1,026    1,001    979    961    941 
Total tangible common shareholders' equity, period-end (2)(3)  (I)   986    961    939    921    901 
Total tangible assets, period-end (2)(3)  (J)   11,623    11,660    11,477    11,347    10,963 
                             
Total common shares outstanding, period-end (thousands)  (K)   45,522    45,417    45,420    45,420    45,360 
Average diluted shares outstanding (thousands)  (L)   46,261    46,240    46,263    46,215    46,200 
                             
Core earnings per common share, diluted (2)  (A/L)  $0.60   $0.69   $0.72   $0.73   $0.65 
Tangible book value per common share, period-end (2)  (I/K)   21.66    21.15    20.68    20.28    19.86 
Total tangible shareholders' equity/total tangible assets (2)  (H)/(J)   8.83    8.59    8.53    8.47    8.59 
                             
Performance ratios (4)                            
GAAP return on assets      0.78%   0.47%   1.08%   1.17%   0.88%
Core return on assets (2)      0.92    1.07    1.12    1.18    1.06 
GAAP return on equity      5.97    3.61    8.27    8.88    6.69 
Core return on equity (2)  (A/E)   7.00    8.09    8.49    8.81    7.95 
Core return on tangible common equity (2)(5)  (A+O)/(G)   11.44    13.21    14.02    14.68    13.48 
Efficiency ratio (2)(6)  (C-O)/(B+M+P)   59.54    54.88    52.20    52.42    55.10 
Net interest margin      3.17    3.41    3.32    3.50    3.36 
                             
Supplementary data (in thousands)                            
Tax benefit on tax-credit investments (7)  (M)  $684   $1,787   $1,374   $2,119   $596 
Non-interest income charge on tax-credit investments (8)  (N)   (579)   (1,610)   (1,112)   (1,594)   (506)
Net income on tax-credit investments  (M+N)   105    177    262    525    90 
                             
Intangible amortization  (O)  $1,200   $1,202   $1,218   $1,246   $1,268 
Fully taxable equivalent income adjustment  (P)   1,809    1,763    1,807    2,033    1,820 

 

(1)Net securities losses/(gains) 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, 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 

 

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