Form 8-K BERKSHIRE HILLS BANCORP For: Oct 24

 

 

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): October 24, 2016

 

 

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.)

 

24 North Street, Pittsfield, Massachusetts		01201
(Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (413) 443-5601

 

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))

 

 

Item 2.02

Results of Operations and Financial Condition

 

On October 24, 2016, Berkshire Hills Bancorp, Inc. (the “Company”), the holding company for Berkshire Bank (the “Bank”), announced its financial results for the quarter ended September 30, 2016. 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 October 25, 2016 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 November 1, 2016. The webcast will be available on the Company’s website for an extended period of time.

 

Item 7.01

Regulation FD Disclosure

 

The Company anticipates that additional 2017 guidance will be provided on the conference call/webcast, which will be conducted on October 25, 2016 at 10:00 a.m. EST. A telephone replay of the call will be available through November 1, 2016 by dialing (877) 344-7529 and entering access number 10093590. The webcast will also be available at www.berkshirebank.com under the Investor Relations tab for an extended period of time.

 

Item 8.01

Other Events

 

The Company’s Board of Directors declared a cash dividend of $0.20 per share to shareholders of record at the close of business on November 10, 2016, payable on November 23, 2016.

 

Item 9.01

Financial 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 October 24, 2016

 

 

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:  October 24, 2016	By:	/s/ Michael P. Daly
		Michael P. Daly President and Chief Executive Officer

 

 

 

Exhibit 99.1

 

 

Berkshire Hills Reports Earnings Per Share Increase in Third Quarter;

Dividend Declared

 

PITTSFIELD, MASS., October 24, 2016 Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported an 8% improvement in third quarter GAAP earnings of $0.53 per share in 2016 compared to $0.49 in 2015. Profits increased due to revenue growth from business expansion, together with the benefit of higher efficiency. Core earnings is a non-GAAP measure excluding non-core items consisting primarily of merger and restructuring costs. Third quarter core earnings per share increased to $0.57 per share from $0.54. Compared to the prior quarter, GAAP earnings per share increased by $0.01 and core EPS was up $0.03.

 

THIRD QUARTER FINANCIAL HIGHLIGHTS (comparisons are to prior quarter unless otherwise stated):

 

•

7% increase in net revenue

•

6% annualized commercial loan growth

•

7% annualized deposit growth

•

17% increase in fee income

•

3.25% net interest margin (fully taxable equivalent)

•

57.9% efficiency ratio (non-GAAP financial measure)

•

0.26% non-performing assets/assets

•

0.20% net loan charge-offs/average loans

 

CEO Michael Daly stated, “Our business strategies are producing solid top and bottom line results. Loans and deposits grew well in the third quarter. Our specialty lending teams are generating more revenue, including our Philadelphia area SBA lending group, which added to fee income. Our SBA volume is expanding across our footprint, achieving the number one spot for SBA 7(a) Loan Program originations in Connecticut for the first time. We made progress with our new Boston Congress Street branch and expect to be open for business there early next year. We are also moving forward towards completing our First Choice Bank acquisition in Princeton, New Jersey. Our strategies are building our business and earnings power, and I’m optimistic about the further progress we expect to see over the next year. ”

 

 

DIVIDEND DECLARED

 

The Board of Directors voted to declare a cash dividend of $0.20 per share to shareholders of record at the close of business on November 10, 2016, payable on November 23, 2016. The dividend equates to a 2.9% annualized yield based on the $27.29 average closing price of Berkshire’s common stock during the third quarter.

 

FINANCIAL CONDITION

 

The 3% annualized growth in total loans was driven by 6% annualized commercial loan growth in the third quarter, with growth concentrated in New York and Connecticut. The 7% annualized deposit increase was led by growth in demand deposits, including growth in commercial balances. The Company completed the sale of two outlying branches in the third quarter and is in the process of consolidating another three branches, which is targeted for completion shortly after year-end. Due to the strong deposit growth, the ratio of loans/deposits improved to 105%. The benefit of retained earnings increased the ratio of equity/assets to 11.8% and the ratio of tangible equity/assets to 7.7%. Book value per share increased at a 4% annualized rate to $29.97, while tangible book value per share grew at a 7% annualized rate to $18.78. Tangible equity/assets and tangible book value are non-GAAP financial measures. Problem assets and net loan charge-offs remained comparatively low.

 

RESULTS OF OPERATIONS

 

Higher earnings reflected positive operating leverage driven by 7% revenue growth quarter over quarter. The third quarter GAAP return on assets remained unchanged at 0.82%, while the core return on assets advanced to 0.88%. GAAP return on equity improved to 7.3% and the core return on tangible equity increased to 13.0%. The efficiency ratio improved to 57.9%. Total net income increased by $0.4 million, or 3%, to $16.4 million quarter over quarter.

 

The $4.9 million revenue growth over the prior quarter was driven by a 17% increase in fee income, together with a 1% increase in net interest income. Loan fee revenues increased by $2.2 million to $5.1 million, including $1.0 million in SBA loan sale gains from the 44 Business Capital team, together with higher revenue from interest rate swaps. Additionally, mortgage banking revenue increased to $1.9 million due to the strong customer demand and market pricing conditions.

 

The $0.5 million increase in net interest income was due to the 3% increase in average loans compared to the linked quarter. The net interest margin decreased to 3.25% from 3.31% for these periods. The yield on earning assets decreased by 0.03% due to ongoing market yield compression. Purchased loan accretion totaled $2.2 million, compared to $2.0 million in the prior quarter. Funding costs increased including the impact of forward interest rate swaps which became active as scheduled and are now completely active.

 

 

Third quarter non-interest expense totaled $48.8 million and increased by $2.6 million, or 6%, compared to the prior quarter. This included a $1.5 million increase in compensation expense and a $1.3 million increase in non-core expense. Compensation increased primarily due to revenue growth, including commissions tied to fee revenues. Full time equivalent staff decreased to 1,208 positions at quarter-end, compared to 1,222 positions at midyear. Non-core expense totaled $2.2 million in the third quarter and included merger and restructuring costs. Non-core expense is a non-GAAP measure that excludes costs not viewed as related to normalized operations. The tax rate measured 30% in the most recent quarter, and earnings per share included a $0.01 net benefit from income tax investment projects, compared to $0.03 in the prior quarter.

 

CONFERENCE CALL

 

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Tuesday, October 25, 2016 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/10093590. 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. 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. Parties who do not have internet access or are otherwise unable to pre-register can still participate at the above time by dialing 1-844-792-3726 and asking the Operator to join them to the Berkshire Hills Bancorp (BHLB) earnings call. A telephone replay of the call will be available through Tuesday, November 1, 2016 by dialing 877-344-7529 and entering access number 10093590. 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, recognized for its entrepreneurial approach and distinctive culture, has approximately $7.9 billion in assets and 91 full service branch offices in Massachusetts, New York, Connecticut, and Vermont providing personal and business banking, insurance, and wealth management services. The Company has a pending agreement to acquire First Choice Bank, a $1.1 billion bank with eight branches in the Princeton, New Jersey area and a national mortgage originations subsidiary. For more information, visit www.berkshirebank.com.

 

FORWARD LOOKING STATEMENTS

 

This document contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. There are several factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see Berkshire’s most recent reports on Forms 10-K and

 

 

10-Q filed with the Securities and Exchange Commission and available on the SEC’s website at www.sec.gov. Berkshire does not undertake any obligation to update forward-looking statements.

 

ADDITIONAL INFORMATION AND WHERE TO FIND IT

 

In connection with the proposed merger, Berkshire has filed with the Securities and Exchange Commission (“SEC”) a Registration Statement on Form S-4 that includes a Proxy Statement of First Choice and a Prospectus of Berkshire, as well as other relevant documents concerning the proposed merger. Investors and stockholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the proposed merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. A free copy of the Registration Statement and Proxy Statement/Prospectus, as well as other filings containing information about Berkshire and First Choice, may be obtained at the SEC’s Internet site (www.sec.gov). Copies of the Registration Statement and Proxy Statement/Prospectus and the filings that will be incorporated by reference therein may also be obtained, free of charge, from Berkshire’s website at ir.berkshirebank.com or by contacting Berkshire Investor Relations at 413-236-3149 or by contacting Lisa Tuccillo at First Choice at 609-503-4828.

 

PARTICIPANTS IN SOLICITATION

 

Berkshire and First Choice and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of First Choice in connection with the proposed merger. Information about the directors and executive officers of Berkshire is set forth in the proxy statement for Berkshire’s 2016 annual meeting of stockholders, as filed with the SEC on a Schedule 14A on March 24, 2016. Information about the directors and executive officers of First Choice will be set forth in the Proxy Statement/Prospectus. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction and a description of their direct and indirect interests, by security holdings or otherwise, may be obtained by reading the Proxy Statement/Prospectus and other relevant documents regarding the proposed merger to be filed with the SEC (when they become available). Free copies of these documents may be obtained as described in the preceding paragraph.

 

NON-GAAP FINANCIAL MEASURES

 

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included on pages F-9 and F-10 in the accompanying financial tables. In all

 

 

cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.

 

The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense. These measures exclude items which the Company does not view as related to its normalized operations. These items include securities gains/losses, merger costs, restructuring costs, and systems conversion costs. 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. 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 are related to the following business combinations: First Choice (pending), 44 Business Capital, Hampden Bancorp, and Firestone Financial. Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales. The Company’s disclosures of organic growth of loans in 2016 are adjusted for the acquisition of the business operations related to 44 Business Capital.

 

CONTACTS

Investor Relations Contact

Allison O’Rourke; Executive Vice President, Investor Relations Officer; 413-236-3149

 

Media Contact

Elizabeth Mach; First 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 Income  (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 (Five Quarter Trend) and Supplementary Data
F-10		Reconciliation of Non-GAAP Financial Measures (Year-to-Date) and Supplementary Data

 

 

 

 

BERKSHIRE HILLS BANCORP, INC.
SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED - (F-1)
		At or for the Quarters Ended (1)(2)
		Sept. 30,				June 30,				March 31,				Dec. 31,				Sept. 30,
		2016				2016 (3)				2016				2015				2015
PER SHARE DATA
Net earnings, diluted		$	0.53			$	0.52			$	0.52			$	0.52			$	0.49
Core earnings, diluted (4)			0.57				0.54				0.54				0.54				0.54
Total book value			29.97				29.64				29.18				28.64				28.48
Tangible book value (4)			18.78				18.44				18.44				17.84				17.61
Market price at period end			27.71				26.92				26.89				29.11				27.54
Dividends			0.20				0.20				0.20				0.19				0.19
PERFORMANCE RATIOS (5)
Return on assets			0.82	%			0.82	%			0.82	%			0.82	%			0.78	%
Core return on assets (4)			0.88				0.85				0.85				0.85				0.86
Return on equity			7.29				7.17				7.19				7.34				6.90
Core return on equity (4)			7.75				7.42				7.40				7.58				7.58
Core return on tangible equity (4)			12.99				12.45				12.20				12.68				12.78
Net interest margin, fully taxable equivalent (FTE) (6)			3.25				3.31				3.33				3.35				3.37
Net interest margin (FTE), excluding purchased loan accretion (4)			3.13				3.20				3.21				3.22				3.22
Fee income/Net interest and fee income			23.81				21.16				21.04				19.62				19.38
Efficiency ratio (4)			57.90				58.71				59.86				60.56				60.35
GROWTH (Year-to-date)
Total commercial loans, (annualized)			9	%			11	%			6	%			29	%			37	%
Total loans, (annualized)			7				10				0				22				28
Total deposits, (annualized)			4				2				0				20				24
Total net revenues, (compared to prior year)			13				14				26				18				19
Earnings per share, (compared to prior year)			31				48				49				27				34
Core earnings per share, (compared to prior year)			6				5				8				16				17
FINANCIAL DATA (In millions)
Total assets		$	7,931			$	8,044			$	7,808			$	7,832			$	7,804
Total earning assets			7,229				7,327				7,142				7,140				7,130
Total investments			1,162				1,304				1,399				1,402				1,439
Total loans			6,047				6,000				5,727				5,725				5,665
Allowance for loan losses			43				41				40				39				38
Total intangible assets			348				349				334				335				337
Total deposits			5,750				5,657				5,584				5,589				5,507
Total shareholders' equity			933				923				906				887				882
Net income			16.4				16.0				16.0				16.0				14.7
Core income (4)			17.4				16.5				16.5				16.5				16.2
ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (current quarter annualized)/average loans			0.20	%			0.22	%			0.23	%			0.25	%			0.26	%
Allowance for loan losses/total loans			0.71				0.69				0.70				0.69				0.67
Loans/deposits			105				106				103				102				103
Shareholders' equity to total assets			11.76				11.48				11.60				11.33				11.30
Tangible shareholders' equity to tangible assets (4)			7.70				7.46				7.66				7.37				7.30

 

	(1)		Core measurements are non-GAAP financial measures that are adjusted to exclude net non-core charges primarily related to acquisitions and restructuring activities.
	(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 certain assets and operations related to 44 Business Capital on April 29, 2016.
	(4)		Non-GAAP financial measure. See F-9 and F-10 for reconciliations of non-GAAP financial measures.
	(5)		All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
	(6)		Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.

 

 

BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS - UNAUDITED - (F-2)
		September 30,				June 30,				December 31,
(In thousands)		2016				2016 (1)				2015
Assets
Cash and due from banks		$	61,107			$	58,332			$	72,918
Short-term investments			8,178				16,247				30,644
Total cash and short-term investments			69,285				74,579				103,562
Trading security			14,149				14,479				14,189
Securities available for sale, at fair value			946,853				1,073,370				1,154,457
Securities held to maturity, at amortized cost			131,467				132,010				131,652
Federal Home Loan Bank stock and other restricted securities			61,277				68,242				71,018
Total securities			1,153,746				1,288,101				1,371,316
Loans held for sale, at fair value			20,471				22,450				13,191
Commercial real estate			2,327,044				2,237,582				2,059,767
Commercial and industrial loans			994,874				1,034,559				1,048,263
Residential mortgages			1,818,111				1,843,600				1,815,035
Consumer loans			906,975				884,560				802,171
Total loans			6,047,004				6,000,301				5,725,236
Less: Allowance for loan losses			(43,105	)			(41,397	)			(39,308	)
Net loans			6,003,899				5,958,904				5,685,928
Premises and equipment, net			85,794				86,274				88,072
Other real estate owned			80				595				1,725
Goodwill			339,975				339,929				323,943
Other intangible assets			8,308				9,057				10,664
Cash surrender value of bank-owned life insurance			127,880				127,000				125,233
Deferred tax asset, net			34,616				32,945				42,526
Other assets			87,107				103,825				64,926
Total assets		$	7,931,161			$	8,043,659			$	7,831,086
Liabilities and shareholders' equity
Demand deposits		$	1,113,733			$	1,050,220			$	1,081,860
NOW deposits			476,189				489,734				510,807
Money market deposits			1,469,075				1,415,041				1,408,107
Savings deposits			607,868				611,627				601,761
Time deposits			2,082,889				2,090,102				1,986,600
Total deposits			5,749,754				5,656,724				5,589,135
Senior borrowings			1,048,914				1,231,164				1,174,335
Subordinated borrowings			89,116				89,072				88,983
Total borrowings			1,138,030				1,320,236				1,263,318
Other liabilities			110,784				143,279				91,444
Total liabilities			6,998,568				7,120,239				6,943,897
Total common shareholders' equity			932,593				923,420				887,189
Total liabilities and shareholders' equity		$	7,931,161			$	8,043,659			$	7,831,086
Net shares outstanding			31,122				31,156				30,974

 

(1)

The Company acquired certain assets and operations related to 44 Business Capital on April 29, 2016.

 

BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED - (F-3)
LOAN ANALYSIS
															Organic Annualized Growth % (1)
(in millions)			September 30, 2016 Balance				June 30, 2016 Balance				December 31, 2015 Balance				Quarter ended September 30, 2016				Year to Date
Commercial real estate - construction		$	242			$	249			$	254				(11	)%			(6	)%
Commercial real estate - other			2,085				1,989				1,806				19				18
Total commercial real estate (2)			2,327				2,238				2,060				16				15
Commercial and industrial loans			995				1,034				1,048				(15	)			(7	)
Total commercial loans			3,322				3,272				3,108				6				8
Total residential mortgages			1,818				1,844				1,815				(6	)			0
Home equity			358				360				361				(2	)			(1	)
Auto and other			549				524				441				19				33
Total consumer loans			907				884				802				10				17
Total loans		$	6,047			$	6,000			$	5,725				3	%			7	%

 

(1) Non-GAAP financial measure.

(2) Total commercial real estate loans include $37 million in loans acquired as part of the acquisition of certain assets and operations related to 44 Business Capital; however, the year to date organic annualized growth excludes these acquired loans.

 

DEPOSIT ANALYSIS

 

 

														Annualized Growth %
(in millions)		September 30, 2016 Balance				June 30, 2016 Balance				December 31, 2015 Balance				Quarter ended September 30, 2016				Year to Date
Demand		$	1,114			$	1,050			$	1,082				24	%			4	%
NOW			476				490				511				(11	)			(9	)
Money market			1,469				1,415				1,408				15				6
Savings			608				612				601				(3	)			2
Total non-maturity deposits			3,667				3,567				3,602				11				2
Total time deposits			2,083				2,090				1,987				(1	)			6
Total deposits		$	5,750			$	5,657			$	5,589				7	%			4	%

 

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In thousands, except per share data)		2016				2015				2016				2015
Interest and dividend income
Loans		$	61,571			$	56,343			$	179,716			$	152,292
Securities and other			8,940				9,109				28,289				26,314
Total interest and dividend income			70,511				65,452				208,005				178,606
Interest expense
Deposits			7,790				6,046				22,327				16,287
Borrowings			4,750				2,435				12,569				7,218
Total interest expense			12,540				8,481				34,896				23,505
Net interest income			57,971				56,971				173,109				155,101
Non-interest income
Loan related income			5,102				1,537				11,046				5,603
Mortgage banking income			1,862				693				4,018				3,492
Deposit related fees			6,278				6,549				18,678				18,668
Insurance commissions and fees			2,601				2,544				8,154				7,997
Wealth management fees			2,269				2,376				7,006				7,376
Total fee income			18,112				13,699				48,902				43,136
Other			188				(1,050	)			(440	)			(3,563	)
Securities gains, net			78				49				101				2,467
Gain on branch sales, net			563				—				563				—
Total non-interest income			18,941				12,698				49,126				42,040
Total net revenue			76,912				69,669				222,235				197,141
Provision for loan losses			4,734				4,240				13,262				12,295
Non-interest expense
Compensation and benefits			26,119				25,237				76,497				71,551
Occupancy and equipment			6,650				6,827				19,900				21,178
Technology and communications			4,902				4,645				14,573				12,328
Marketing and promotion			671				781				2,081				2,294
Professional services			1,744				1,053				4,533				3,700
FDIC premiums and assessments			1,208				1,157				3,644				3,429
Other real estate owned and foreclosures			46				298				702				800
Amortization of intangible assets			749				887				2,355				2,722
Merger, restructuring and conversion expense			2,170				3,361				3,828				16,493
Other			4,585				5,132				14,099				14,056
Total non-interest expense			48,844				49,378				142,212				148,551
Income before income taxes			23,334				16,051				66,761				36,295
Income tax expense			6,953				1,350				18,422				2,791
Net income		$	16,381			$	14,701			$	48,339			$	33,504
Earnings per share:
Basic		$	0.53			$	0.49			$	1.58			$	1.21
Diluted		$	0.53			$	0.49			$	1.57			$	1.20
Weighted average shares outstanding:
Basic			30,621				29,893				30,584				27,685
Diluted			30,811				30,069				30,757				27,847

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

			Sept. 30,				June 30,				March 31,				Dec. 31,				Sept. 30,
(In thousands, except per share data)			2016				2016				2016				2015				2015
Interest and dividend income
Loans		$	61,571			$	59,703			$	58,442			$	59,055			$	56,343
Securities and other			8,940				9,315				10,034				9,369				9,109
Total interest and dividend income			70,511				69,018				68,476				68,424				65,452
Interest expense
Deposits			7,790				7,378				7,159				6,661				6,046
Borrowings			4,750				4,199				3,620				3,015				2,435
Total interest expense			12,540				11,577				10,779				9,676				8,481
Net interest income			57,971				57,441				57,697				58,748				56,971
Non-interest income
Loan related income			5,102				2,898				3,046				2,707				1,537
Mortgage banking income			1,862				1,335				821				641				693
Deposit related fees			6,278				6,291				6,109				6,416				6,549
Insurance commissions and fees			2,601				2,660				2,893				2,254				2,544
Wealth management fees			2,269				2,235				2,502				2,326				2,376
Total fee income			18,112				15,419				15,371				14,344				13,699
Other			188				(851	)			223				(1,739	)			(1,050	)
Securities gains, net			78				(13	)			36				(357	)			49
Gain on branch sales, net			563				—				—				—				—
Total non-interest income			18,941				14,555				15,630				12,248				12,698
Total net revenue			76,912				71,996				73,327				70,996				69,669
Provision for loan losses			4,734				4,522				4,006				4,431				4,240
Non-interest expense
Compensation and benefits			26,119				24,664				25,714				25,819				25,237
Occupancy and equipment			6,650				6,560				6,690				7,308				6,827
Technology and communications			4,902				4,814				4,857				4,553				4,645
Marketing and promotion			671				737				673				1,012				781
Professional services			1,744				1,509				1,280				1,472				1,053
FDIC premiums and assessments			1,208				1,203				1,233				1,220				1,157
Other real estate owned and foreclosures			46				393				263				33				298
Amortization of intangible assets			749				787				819				841				887
Merger, restructuring and conversion expense			2,170				878				780				1,118				3,361
Other			4,585				4,723				4,791				4,903				5,132
Total non-interest expense			48,844				46,268				47,100				48,279				49,378
Income before income taxes			23,334				21,206				22,221				18,286				16,051
Income tax expense			6,953				5,249				6,220				2,273				1,350
Net income		$	16,381			$	15,957			$	16,001			$	16,013			$	14,701
Earnings per share:
Basic		$	0.53			$	0.52			$	0.52			$	0.53			$	0.49
Diluted		$	0.53			$	0.52			$	0.52			$	0.52			$	0.49
Weighted average shares outstanding:
Basic			30,621				30,605				30,511				30,500				29,893
Diluted			30,811				30,765				30,688				30,694				30,069

 

 

BERKSHIRE HILLS BANCORP, INC.

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

 

		Quarters Ended
		Sept. 30,				June 30,				March 31,				Dec. 31,				Sept. 30,
		2016				2016				2016				2015				2015
Earning assets
Loans:
Commercial real estate			4.28	%			4.45	%			4.18	%			4.17	%			4.47	%
Commercial and industrial loans			5.15				4.93				5.04				5.51				4.79
Residential mortgages			3.60				3.63				3.86				3.72				3.74
Consumer loans			3.41				3.40				3.44				3.30				3.29
Total loans			4.10				4.14				4.13				4.15				4.14
Securities			3.26				3.28				3.26				2.96				2.92
Short-term investments and loans held for sale			1.69				1.29				0.91				0.89				1.34
Total earning assets			3.94				3.97				3.93				3.89				3.87
Funding liabilities
Deposits:
NOW			0.12				0.13				0.13				0.14				0.14
Money market			0.46				0.47				0.49				0.45				0.42
Savings			0.12				0.11				0.13				0.14				0.15
Time			1.10				1.06				0.99				0.93				0.90
Total interest-bearing deposits			0.67				0.65				0.63				0.59				0.55
Borrowings			1.53				1.38				1.19				0.96				0.81
Total interest-bearing liabilities			0.85				0.81				0.75				0.67				0.61
Net interest spread			3.09				3.16				3.18				3.22				3.26
Net interest margin			3.25				3.31				3.33				3.35				3.37
Cost of funds (1)			0.72				0.68				0.64				0.56				0.51
Cost of deposits (2)			0.54				0.53				0.51				0.48				0.45
(1) Cost of funds includes all deposits and borrowings.
(2) The average cost of deposits includes the deposits held for sale.

 

 

BERKSHIRE HILLS BANCORP, INC.

AVERAGE BALANCES - UNAUDITED - (F-7)

 

		Quarters Ended
		Sept. 30,				June 30,				March 31,				Dec. 31,				Sept. 30,
(In thousands)		2016				2016				2016				2015				2015
Assets
Loans
Commercial real estate		$	2,260,482			$	2,173,539			$	2,079,001			$	2,034,917			$	1,948,753
Commercial and industrial loans			1,009,581				1,047,866				1,027,257				1,033,081				998,782
Residential mortgages			1,839,364				1,759,193				1,798,034				1,790,334				1,664,505
Consumer loans			900,432				844,759				807,888				807,768				813,986
Total loans (1) (2)			6,009,859				5,825,357				5,712,180				5,666,100				5,426,026
Securities (3)			1,197,760				1,247,357				1,342,590				1,368,505				1,353,818
Short-term investments and loans held for sale			40,259				41,449				56,042				51,241				51,832
Total earning assets			7,247,878				7,114,163				7,110,812				7,085,846				6,831,676
Goodwill and other intangible assets			349,059				344,832				333,948				335,440				330,084
Other assets			360,182				349,816				346,327				342,902				379,319
Total assets		$	7,957,119			$	7,808,811			$	7,791,087			$	7,764,188			$	7,541,079
Liabilities and shareholders' equity
Deposits (4)
NOW		$	474,650			$	492,901			$	484,334			$	491,445			$	475,433
Money market			1,448,108				1,403,629				1,417,068				1,455,267				1,474,389
Savings			608,365				612,261				602,414				604,215				615,410
Time			2,095,269				2,047,020				2,063,712				1,958,394				1,795,156
Total interest-bearing deposits			4,626,392				4,555,811				4,567,528				4,509,321				4,360,388
Borrowings			1,235,065				1,223,629				1,222,288				1,256,287				1,198,455
Total interest-bearing liabilities			5,861,457				5,779,440				5,789,816				5,765,608				5,558,843
Non-interest-bearing demand deposits			1,084,786				1,032,951				1,026,447				1,033,844				1,010,613
Other liabilities			111,743				105,948				84,042				91,877				119,322
Total liabilities			7,057,986				6,918,339				6,900,305				6,891,329				6,688,778
Total shareholders' equity			899,133				890,472				890,782				872,859				852,301
Total liabilities and shareholders' equity		$	7,957,119			$	7,808,811			$	7,791,087			$	7,764,188			$	7,541,079
Supplementary data
Total non-maturity deposits (4)		$	3,615,909			$	3,541,742			$	3,530,263			$	3,584,771			$	3,575,845
Total deposits (4)			5,711,178				5,588,762				5,593,975				5,543,165				5,371,001
Fully taxable equivalent income adjustment			1,200				1,180				1,134				1,108				1,131
Total average tangible equity (5)			550,074				545,640				556,834				537,419				522,217
(1) Total loans include non-accruing loans.
(2) The average balances of loans include the loans associated with the two branches in New York that are for sale and presented under loans held for sale on the consolidated balance sheet.
(3) Average balances for securities available-for-sale are based on amortized cost.
(4) The average balances of deposits include the deposits held for sale presented under other liabilities on the consolidated balance sheet.
(5) See page F-9.

 

 

 

BERKSHIRE HILLS BANCORP, INC.
ASSET QUALITY ANALYSIS - UNAUDITED - (F-8)
		At or for the Quarters Ended
		Sept. 30,				June 30,				March 31,				Dec. 31,				Sept. 30,
(in thousands)		2016				2016				2016				2015				2015
NON-PERFORMING ASSETS
Non-accruing loans:
Commercial real estate		$	6,295			$	4,808			$	5,001			$	4,882			$	5,693
Commercial and industrial loans			6,714				7,590				7,480				8,259				8,092
Residential mortgages			4,374				4,882				4,732				3,966				4,565
Consumer loans			3,281				3,376				3,588				3,768				3,386
Total non-accruing loans			20,664				20,656				20,801				20,875				21,736
Other real estate owned			80				595				1,440				1,725				2,487
Total non-performing assets		$	20,744			$	21,251			$	22,241			$	22,600			$	24,223
Total non-accruing loans/total loans			0.34	%			0.34	%			0.36	%			0.36	%			0.38	%
Total non-performing assets/total assets			0.26	%			0.26	%			0.28	%			0.29	%			0.31	%
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period		$	41,397			$	40,055			$	39,308			$	38,180			$	37,197
Charged-off loans			(3,441	)			(3,393	)			(3,704	)			(3,538	)			(3,542	)
Recoveries on charged-off loans			415				213				445				235				285
Net loans charged-off			(3,026	)			(3,180	)			(3,259	)			(3,303	)			(3,257	)
Provision for loan losses			4,734				4,522				4,006				4,431				4,240
Balance at end of period		$	43,105			$	41,397			$	40,055			$	39,308			$	38,180
Allowance for loan losses/total loans			0.71	%			0.69	%			0.70	%			0.69	%			0.67	%
Allowance for loan losses/non-accruing loans			209	%			200	%			193	%			188	%			176	%
NET LOAN CHARGE-OFFS
Commercial real estate		$	(547	)		$	(534	)		$	(1,043	)		$	(1,152	)		$	(1,343	)
Commercial and industrial loans			(1,610	)			(1,720	)			(847	)			(1,056	)			(1,098	)
Residential mortgages			(452	)			(568	)			(774	)			(633	)			(354	)
Home equity			(65	)			(164	)			(221	)			(118	)			(135	)
Auto and other consumer			(352	)			(194	)			(374	)			(344	)			(327	)
Total, net		$	(3,026	)		$	(3,180	)		$	(3,259	)		$	(3,303	)		$	(3,257	)
Net charge-offs (QTD annualized)/average loans			0.20	%			0.22	%			0.23	%			0.25	%			0.26	%
Net charge-offs (YTD annualized)/average loans			0.22	%			0.22	%			0.23	%			0.25	%			0.26	%
DELINQUENT AND NON-ACCRUING LOANS/TOTAL LOANS
30-89 Days delinquent			0.25	%			0.25	%			0.26	%			0.34	%			0.37	%
90+ Days delinquent and still accruing			0.09	%			0.08	%			0.07	%			0.09	%			0.10	%
Total accruing delinquent loans			0.34	%			0.33	%			0.33	%			0.43	%			0.47	%
Non-accruing loans			0.34	%			0.34	%			0.36	%			0.36	%			0.38	%
Total delinquent and non-accruing loans			0.68	%			0.67	%			0.69	%			0.79	%			0.85	%

 

BERKSHIRE HILLS BANCORP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA- UNAUDITED - (F-9)
						At or for the Quarters Ended
						Sept. 30,				June 30,				March 31,				Dec. 31,				Sept. 30,
(in thousands)						2016				2016				2016				2015				2015
Net income						$	16,381			$	15,957			$	16,001			$	16,013			$	14,701
Adj: Net securities (gains) losses							(78	)			13				(36	)			357				(49	)
Adj: Net gain on sale of branches							(563	)			—				—				—				—
Adj: Merger and acquisition expense							1,453				701				527				1,230				2,987
Adj: Restructuring expense							717				177				253				(112	)			374
Adj:  Income taxes							(492	)			(334	)			(256	)			(959	)			(1,862	)
Total core income			(A)			$	17,418			$	16,514			$	16,489			$	16,529			$	16,151
Total revenue						$	76,912			$	71,996			$	73,327			$	70,996			$	69,669
Adj: Net securities (gains) losses							(78	)			13				(36	)			357				(49	)
Adj: Net gain on branch sales							(563	)			—				—				—				—
Total core revenue			(B)			$	76,271			$	72,009			$	73,291			$	71,353			$	69,620
Total non-interest expense						$	48,844			$	46,268			$	47,100			$	48,279			$	49,378
Less: Total non-core expense (see above)							(2,170	)			(878	)			(780	)			(1,118	)			(3,361	)
Core non-interest expense			(C)			$	46,674			$	45,390			$	46,320			$	47,161			$	46,017
(in millions, except per share data)
Total average assets			(D)			$	7,957			$	7,809			$	7,791			$	7,764			$	7,541
Total average shareholders' equity			(E)				899				890				891				873				852
Total average tangible shareholders' equity			(F)				550				546				557				537				522
Total tangible shareholders' equity, period-end (1)			(G)				584				574				572				553				545
Total tangible assets, period-end (1)			(H)				7,583				7,695				7,474				7,497				7,468
Total common shares outstanding, period-end (thousands)			(I)				31,122				31,156				31,039				30,974				30,949
Average diluted shares outstanding (thousands)			(J)				30,811				30,765				30,688				30,694				30,069
Core earnings per share, diluted			(A/J)			$	0.57			$	0.54			$	0.54			$	0.54			$	0.54
Tangible book value per share, period-end			(G/I)				18.78				18.44				18.44				17.84				17.61
Total tangible shareholders' equity/total tangible assets			(G)/(H)				7.70				7.46				7.66				7.37				7.30
Performance ratios (2)
GAAP return on assets							0.82	%			0.82	%			0.82	%			0.82	%			0.78	%
Core return on assets			(A/D)				0.88				0.85				0.85				0.85				0.86
GAAP return on equity							7.29				7.17				7.19				7.34				6.90
Core return on equity			(A/E)				7.75				7.42				7.40				7.58				7.58
Core return on tangible equity (3)			(A/F)				12.99				12.45				12.20				12.68				12.78
Efficiency ratio (4)(5)			(C-M)/(B+K+N)				57.90				58.71				59.86				60.56				60.35
Net interest margin							3.25				3.31				3.33				3.35				3.37
Supplementary data (in thousands)
Tax benefit on tax-credit investments (6)			(K)			$	1,852			$	2,777			$	1,588			$	4,029			$	4,029
Non-interest income charge on tax-credit investments (7)			(L)				(1,525	)			(1,938	)			(1,101	)			(2,851	)			(2,851	)#
Net income on tax-credit investments			(K+L)				327				839				487				1,178				1,178
Intangible amortization			(M)				749				787				819				841				887
Fully taxable equivalent income adjustment			(N)				1,200				1,180				1,134				1,108				1,131

 

(1) 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.
(2) 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.
(3) Core return on tangible equity is computed by dividing the total core income adjusted for the tax-effected amortization of intangible assets, assuming a 40% marginal rate, by tangible equity.
(4) Non-GAAP financial measure.
(5) 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.
(6) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation, low-income housing, new market projects, and renewable energy projects.
(7) The non-interest income charge is the reduction to the tax-advantaged investments, which are incurred as the tax credits are generated.

 

BERKSHIRE HILLS BANCORP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA - UNAUDITED - (F-10)
						At or for Nine Months Ended
						Sept. 30,				Sept. 30,
(Dollars in thousands)						2016				2015
Net income						$	48,339			$	33,504
Adj: Net securities (gains)							(101	)			(2,467	)
Adj: Net gain on sale of branches							(563	)			—
Adj: Merger and acquisition expenses							2,681				11,927
Adj: Restructuring expense							1,147				4,566
Adj: Income taxes							(1,082	)			(4,449	)
Total core income			(A)			$	50,421			$	43,081
Total revenue							222,235				197,141
Adj: Net securities (gains) losses							(101	)			(2,467	)
Adj: Net gain on branch sales							(563	)			—
Total core revenue			(B)			$	221,571			$	194,674
Total non-interest expense						$	142,212			$	148,551
Less: Total non-core expense (see above)							(3,828	)			(16,493	)
Core non-interest expense			(C)			$	138,384			$	132,058
(Dollars in millions, except per share data)
Total average assets			(D)			$	7,852			$	7,078
Total average shareholders' equity			(E)				893				783
Total average tangible shareholders' equity			(F)				551				480
Total tangible shareholders' equity, period-end (1)			(G)				584				545
Total tangible assets, period-end (1)			(H)				7,583				7,468
Total common shares outstanding, period-end (thousands)			(I)				31,122				30,949
Average diluted shares outstanding (thousands)			(J)				30,757				27,847
Core earnings per common share, diluted			(A/J)			$	1.64			$	1.55
Tangible book value per common share, period-end			(G/I)				18.78				17.61
Total tangible shareholders' equity/total tangible assets			(G/H)				7.70				7.30
Performance ratios (2)
GAAP return on assets							0.82	%			0.63	%
Core return on assets			(A/D)				0.86				0.81
GAAP return on equity							7.21				5.71
Core return on equity			(A/E)				7.53				7.34
Core return on tangible equity (3)			(A/F)				12.55				12.43
Efficiency ratio (4)(5)			(C-M) / (B+K+N)				58.81				61.63
Net interest margin							3.30				3.29
Supplementary data
Tax benefit on tax-credit investments (6)			(K)			$	6,217			$	12,098
Non-interest income charge on tax-credit investments (7)			(L)				(4,564	)			(8,554	)
Net income on tax-credit investments			(K+L)				1,653				3,543
Intangible amortization			(M)				2,355				2,722
Fully taxable equivalent income adjustment			(N)				3,514				3,088

 

(1) 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.

(2) 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.

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

(4) Non-GAAP financial measure.

(5) 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.

(6) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation, low-income housing, new market projects, and renewable energy.

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