Berkshire Hills Reports Second Quarter Earnings; Dividend Declared

PITTSFIELD, Mass., July 19, 2017 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported second quarter 2017 net income of $19.7 million, or $0.53 per share.   Core earnings totaled $21.6 million, or $0.58 per share.   Net income was up 23% year-over-year, while core earnings grew 31% due to the benefit of business expansion.  Net income per share increased by 2%, while core EPS increased by 7%.  Net income was impacted by net non-core charges related primarily to acquisitions. 

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

• 4% increase in net interest income
• 15% increase in fee income
• 10% annualized commercial loan growth
• 3.36%  net interest margin
• 0.25% non-performing assets/assets
• 0.20% net loan charge-offs/average loans

CEO Michael Daly stated, "We had a strong second quarter, extending the operating momentum from the first quarter.  We also conducted a successful stock offering and completed an agreement to acquire Worcester based Commerce Bancshares.  These actions support our plan to cross the $10 billion asset threshold and provide the capital resources to accelerate our growth.   Total assets increased at a 10% annualized rate in the first half, reaching $9.6 billion at midyear.  We announced a planned move of our headquarters to Boston and are accelerating our business development in New England's largest and fastest growing markets."

Mr. Daly continued, "Our net interest income advanced and fee income grew by 15% to 32% of total revenue.  Our strong and diversified revenue sources produced a 42% year-over-year increase in total revenue which now exceeds $400 million on an annualized basis.  The resulting positive operating leverage led to the achievement of a profitability milestone, with core return on assets advancing to 92 basis points.  GAAP return on assets was 84 basis points after non-core charges primarily related to merger activity."

Mr. Daly concluded, "Berkshire is seeing early success in our new Boston branch, bringing our brand of revolutionary banking to this market.  Our Mid-Atlantic team announced a strategic alliance with the Princeton Advisory Group, which manages over $700 million in client investments.   Our Wealth Management group recruited additional talent in Albany, NY.  Berkshire's annual Xtraordinary Day of community service events engaged 92% of our team in completing 65 community projects.  Across our footprint, we are reaching out for new market share and new opportunities to deliver on our franchise promise to all of our constituencies."

DIVIDEND DECLARED

The Board of Directors voted to declare a cash dividend of $0.21 per share to shareholders of record at the close of business on August 10, 2017, payable on August 24, 2017.  The dividend equates to a 2.3% annualized yield based on the $35.98 average closing price of Berkshire Hills Bancorp common stock during the quarter.

FINANCIAL CONDITION

Total assets measured $9.6 billion at June 30, 2017, increasing at a 10% annualized rate in the first half of the year.   The 10% annualized first half loan growth included solid growth in all major loan categories, led by a 13% annualized increase in commercial loans.  Average loan yields improved and included the benefit of recent short term interest rate increases.  Deposit growth was 4% annualized in the most recent quarter.   Additionally, Berkshire issued 4.6 million shares and received $153 million in net cash proceeds from its May common stock offering.  Together with additional borrowings, these sources funded the loan growth as well as a 3% increase in investment securities during the quarter.       

At midyear, the ratio of equity/assets increased to 13.2%, from 11.8% at the start of the year.  The ratio of tangible equity/assets increased to 9.2% from 7.6%.  Book value per share increased to $31.37, while tangible book value improved to $20.96 per share.  The ratio of loans/deposits increased to 102%.  The Commerce acquisition is expected to further leverage the recently acquired capital and to also provide new deposit funding sources to improve liquidity and support loan portfolio growth.   Delinquent and non-accruing loans decreased to 0.70% of total loans, and annualized net loan charge-offs remained at 0.20% of average loans during the quarter. 

RESULTS OF OPERATIONS

The growth in earnings and earnings per share included first year results for the First Choice operations acquired at the end of 2016, along with the full period benefit of other 2016 acquisitions.   Most measures of revenue and expense increased year-over-year due to these business combinations.  Per share earnings included the impact of shares issued as merger consideration and in the stock offering.  Second quarter non-core charges were mostly merger related, including First Choice and Commerce.

Compared to the prior quarter, net interest income increased by $2.7 million, or 4%, supported by higher volume and margin expansion.   The net interest margin increased to 3.36% from 3.33%.  Measured before purchased loan accretion, the margin improved to 3.24% from 3.15%.  The margin benefited from increased short term interest rates, higher prepayment penalties, and the first quarter balance sheet restructuring.  The contribution from purchased loan accretion decreased to $2.6 million from $3.7 million.

Second quarter fee income increased by $4.4 million, or 15%, including a $3.6 million increase in mortgage banking fees, along with growth in other loan and deposit income.  Mortgage banking revenues increased by 28% over the prior quarter due primarily to seasonally higher volume.  Wealth and insurance revenues declined from seasonally high first quarter levels.

Second quarter non-interest expense decreased by $4.8 million, or 6%, compared to the prior quarter due to the restructuring charges and First Choice integration costs recorded in the first quarter.  Core non-interest expense increased by $4.0 million, or 6%, primarily due to seasonal mortgage volume growth.  The efficiency ratio remained unchanged at 62%.  Full time equivalent staff totaled 1,756 positions at midyear, compared to 1,731 at the start of the year.   The effective GAAP income tax rate was 29% and the core income tax rate was 30% in the most recent quarter. 

INVESTOR CONFERENCE CALL

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Thursday, July 20, 2017 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/10109526.  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, investors may reach the registration link and access the webcast by logging in through the investor section of Berkshire's website at http://ir.berkshirebank.com.   Investors may also participate at the above time by dialing 1-844-792-3726 and asking the Operator to join the Berkshire Hills Bancorp (BHLB) earnings call.   A telephone replay of the call will be available through Thursday, July 27, 2017 by dialing 877-344-7529 and entering access number 10109526. The webcast will be available on Berkshire's website for an extended period of time.

BACKGROUND

Berkshire Hills Bancorp is the parent of Berkshire Bank - America's Most Exciting Bank^®. The Company has approximately $9.6 billion in assets and 97 full service branches in Massachusetts, New York, Connecticut, Vermont, New Jersey, and Pennsylvania providing personal and business banking, insurance, and wealth management services. The Company also offers mortgages and specialized commercial lending services in targeted national markets. The Company has a pending agreement to acquire Commerce Bancshares Corp., the parent company of Commerce Bank and Trust Company, a $2.2 billion bank with 16 branches in the Worcester, MA and Boston, MA markets.

FORWARD LOOKING STATEMENTS

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

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed merger, Berkshire will file with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that will include a Proxy Statement of Commerce 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 when it becomes available 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 Commerce, when they become available, may be obtained at the SEC's Internet site (www.sec.gov). Copies of the Registration Statement and Proxy Statement/Prospectus (when they become available) 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 William Burke at Commerce at 508-797-6996.

PARTICIPANTS IN SOLICITATION

Berkshire and Commerce and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Commerce 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 2017 annual meeting of stockholders, as filed with the SEC on a Schedule 14A on April 7, 2017. Information about the directors and executive officers of Commerce 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 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, and restructuring costs.  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 Bank, 44 Business Capital, financial planning assets, and Commerce.  Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales.  Additionally, the Company recorded charges for hedge terminations in the first quarter of 2017 and legal settlement costs in the second quarter of 2017. 

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.  Of note, following systems upgrades, non-material revisions were made in the first quarter of 2017 to the calculations of the net interest margin and efficiency ratio and prior period measures were revised to include these changes.  

CONTACTS
Investor Relations Contact
Allison O'Rourke; Executive Vice President, Investor Relations Officer; 413-236-3149

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