BHLB Berkshire Hills Bancorp Inc

BOSTON, April 29, 2019 /PRNewswire/ -- 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 MyBanker™ 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."

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.

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%.

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.

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. 

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