Berkshire Hills Reports Record Quarterly and Annual Core Earnings; Dividend Announced; Annual Meeting Set

Jan 28, 2013, 16:26 ET from Berkshire Hills Bancorp, Inc.

PITTSFIELD, Mass., Jan. 28, 2013 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported record core earnings of $13.2 million for the fourth quarter and $44.2 million for the year 2012.  Berkshire produced $0.54 in core earnings per share during the quarter, which was a 23% improvement over the prior year fourth quarter and a 4% increase over the third quarter of 2012.  For the full year 2012, Berkshire reported $1.98 in core earnings per share, which was a 29% increase over 2011 core results of $1.54Berkshire has posted three years of consecutive quarterly core earnings growth due to ongoing business expansion and improved profitability. 

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Operations in the last two years have benefited from acquisitions, including Beacon Federal Bancorp which was acquired on October 19, 2012.  GAAP earnings include the impact of net non-core charges for mergers and systems conversions.  GAAP net income totaled $9.3 million ($0.38 per share) for the fourth quarter and a record $33.2 million ($1.49 per share) for the full year in 2012. 

FOURTH QUARTER FINANCIAL HIGHLIGHTS

  • 14% increase in total assets to $5.3 billion, compared to the prior quarter
  • 23% increase in core earnings per share, compared to fourth quarter of 2011
  • 4% increase in core earnings per share, compared to the prior quarter
  • 20% revenue growth, compared to the prior quarter
  • 3.67% net interest margin
  • 13% annualized organic non-maturity deposit growth
  • 10% organic demand deposit growth
  • 0.52% non-performing assets/total assets
  • 0.28% annualized net loan charge-offs/average loans
  • 1.02% core ROA (0.72% GAAP ROA)
  • 8.2% core ROE (5.8% GAAP ROE)

Berkshire Chairman and CEO Michael P. Daly stated, "The success of our business initiatives produced record core earnings and a double digit total stock return for our shareholders in 2012.  We maintained strong organic growth while successfully integrating our bank acquisitions in Northern Connecticut and Central New York, and expanding our lending in Eastern Massachusetts.  Our fourth quarter net interest margin increased and our core return on equity rose above 8%.  With these achievements, we raised our quarterly dividend to the highest level in our history."

Mr. Daly continued, "We have produced these results through positive core operating leverage based on disciplined growth.  We achieved 49% year over year revenue growth in the fourth quarter.  Our total assets reached $5.3 billion, placing us among the 100 largest exchange traded banks in the U.S.  This scale has enabled ongoing infrastructure investment in products and services which we deliver with a responsive local focus in our regions.  We have a competitive advantage that we expect will result in sustainable market share growth delivered with increased efficiency and profitability."

Mr. Daly concluded, "We augmented our balance sheet strength in 2012 while improving our capital efficiency.  Our performance oriented team is focused on the drivers of customer preference and shareholder returns.  We recently set out ambitious three year goals to maintain our market and financial momentum, including double digit metrics for annual growth in per share core earnings and core return on shareholder equity by the end of the plan period.   We are dedicated to delivering on the potential of this franchise and on the promise of our brand and culture as America's Most Exciting Bank®."

DIVIDEND DECLARED

The Board of Directors voted to declare a cash dividend of $0.18 per share to shareholders of record at the close of business on February 14, 2013, payable on February 28, 2013. The dividend was increased in the prior quarter by 6% from the previous $0.17 per share level. This dividend equates to a 3.1% annualized yield based on the $23.03 average closing price of Berkshire's common stock in the fourth quarter of 2012.

ANNUAL MEETING DATE SET

The Board of Directors has voted that the Annual Meeting of Shareholders shall be held on May 9, 2013 at the Crowne Plaza Hotel, One West Street, Pittsfield, Massachusetts at 10:00 a.m. The date of March 14, 2013 was established as the record date for the determination of the shareholders entitled to notice of, and to vote at, the Annual Meeting.

FINANCIAL CONDITION

Assets totaled $5.3 billion at year-end 2012, including $0.8 billion from the Beacon acquisition in October.   For the year 2012, total assets grew by $1.3 billion (33%) from $4.0 billion including the benefit of organic growth together with acquisitions.  Overall measures of asset quality, capital, and liquidity remained strong throughout the year.  Total shares outstanding increased in 2012 by 4 million (19%) to approximately 25.1 million shares primarily as a result of merger consideration. 

For the year, organic loan growth was $156 million (5%), reflecting growth in commercial business loans and residential mortgages.  Including merger impacts, total loan growth was 35% for the year and 17% for the fourth quarter.  Most fourth quarter residential mortgage originations were sold to the secondary market in the low rate environment, and selected commercial loans outstanding were reduced as the Company rebalanced the portfolio composition while absorbing merger related growth. 

Berkshire continues to employ its capital to support the credit needs of its markets and generate shareholder returns.  Organic commercial business loan growth totaled $101 million (25%) for the year.  Berkshire is building business loan volume in its markets as it targets banking relationships with middle market customers who need a full range of products and services provided by a responsive local banking partner.  Berkshire also expanded its small business lending program to facilitate lending across its footprint.  Commercial business loans increased to $600 million during the year, comprising 30% of all commercial loans and 15% of total loans at year-end.

Organic residential mortgage loan growth totaled $125 million (12%) for the year, including the benefit of Berkshire's expanded Eastern Massachusetts mortgage lending team.  Berkshire's mortgage loan originations exceeded $1.1 billion in 2012, responding to strong demand related to improved housing market conditions and low mortgage interest rates.  With the Beacon acquisition, total consumer loans outstanding grew by $282 million (77%) in the fourth quarter.  Beacon's strong consumer lending operations are expected to be a significant new source of loan production for Berkshire as merger integration is accomplished in 2013.

Asset quality metrics remained favorable throughout the year and at year-end.  Non-performing assets were 0.52% of year-end assets.  Fourth quarter annualized net loan charge-offs were 0.28% of average loans  Year-end accruing delinquent loans were 1.11% of loans, increasing modestly from 0.89% at the start of the year including the impact of acquired banks.  The loan loss allowance increased by 2% during the year, while decreasing in comparison to total loans due to the impact of acquired loans recorded at net fair value, which comprised 34% of total year-end loans. 

For the year, organic deposit growth totaled $166 million (5%) primarily due to an increase in low cost transaction account balances.  This was principally in demand deposit balances which posted 27% organic growth for the year, with the largest increase coming in the fourth quarter.  Demand deposits are the focus of relationship based business development for retail and business accounts.  Total commercial deposits increased to $1.3 billion at year-end, providing nearly a third of total deposit funds.  Reflecting customer liquidity preference in the current low rate environment, ongoing transfers of maturing time deposits combined with strong account growth to produce 8% organic savings deposit growth and 7% organic money market account growth for the year.  During the fourth quarter, Berkshire opened additional New York branches in Slingerlands and Wilton, continuing its de novo branch expansion in the greater Albany market where it now has 17 total branch offices.

Total year-end shareholders' equity increased to $666 million in 2012, including $90 million recorded for bank merger equity consideration.  Year-end tangible book value per share increased to $15.56, as capital generation more than offset the impact of merger intangibles resulting from the accretive earnings streams acquired.  Total book value per share increased to $26.53 due mainly to retained earnings.  Berkshire utilized subordinated debt as a significant source of merger consideration in order to take advantage of attractive fixed rate capital available in the low rate environment.  This resulted in the more efficient utilization of equity capital.  Tangible equity/assets remained strong at 7.8% at year-end, compared to 8.7% at the start of the year. 

RESULTS OF OPERATIONS

Berkshire posted strong core growth in revenue, earnings, and earnings per share for the fourth quarter and the year in 2012.  Core profitability improved as a result of the positive operating leverage attributable to revenue growth and disciplined expense management.  Berkshire is achieving these results while bearing the costs of maintaining its asset sensitive interest rate risk profile and absorbing the charges related to its branch and team expansion, and its investment in technology and other infrastructure.  The fourth quarter was the first quarter to include the combined operations of the year's acquisitions, and year-to-year increases include the impact of 2011 acquisitions. 

The fourth quarter core return on equity was 8.2%.  GAAP net income in most periods also reflected non-core charges which were primarily merger related, together with systems conversion costs.  The reconciliation of net income and core income is shown on table F-9 of the financial tables.  Non-core charges in the most recent quarter were primarily related to the Beacon merger.  For the year, non-core charges were within the range of management expectations.  The Company does not view these non-core items as a component of its ongoing operating costs.  Including the impact of non-core items, the fourth quarter GAAP return on equity was 5.8%. 

Berkshire's total fourth quarter net revenue increased by $10.1 million to $59.6 million compared to the linked quarter.  Higher revenues included the benefit of Beacon operations, which produced $6.6 million in revenue for the comparable period in the prior quarter (based on the number of days that Beacon was owned in the fourth quarter).  Fourth quarter revenues also included $1.4 million in net securities gains primarily on Beacon stock held by Berkshire on the merger date.  Excluding the non-core securities gains, core revenues were $58.2 million or $9.54 per share annualized in the most recent quarter.  This is a 26% increase from $7.59 in the fourth quarter of 2011, demonstrating the top line accretive benefit to shareholders from acquisition activities and organic growth. 

The net interest margin improved to 3.67% in the most recent quarter, compared to 3.50% in the prior quarter and to 3.61% in the fourth quarter of 2011.  The total fourth quarter net benefit from loan purchase accounting accretion was $3.2 million compared to $1.1 million in the prior quarter.  This increase contributed 0.18% to the fourth quarter net interest margin and was primarily due to cash recoveries on a small number of acquired impaired loans.  The quarterly net interest margin has varied throughout the year based on the impact of loan prepayments and recoveries on deferred balances and purchase accounting entries.  The cost of deposits decreased to 0.59% in the fourth quarter compared to 0.66% in the prior quarter.  This included the benefit of demand deposit growth, together with the Beacon deposits.  Berkshire continues to maintain its asset sensitive interest rate risk profile in order to enhance its long-term earnings. 

Fourth quarter fee income totaled $15.8 million, increasing by $1.9 million over the prior quarter.  This was primarily due to the benefit of Beacon operations, which produced $1.2 million in fee income in the comparable period of the prior quarter.  Berkshire's fee income in the second half of 2012 has benefited from higher mortgage origination revenues related to increased refinancing demand in the current low rate environment.  Net mortgage origination revenue totaled $5.9 million in the fourth quarter, compared to $4.3 million in the prior quarter.  Fourth quarter insurance revenues increased compared to the prior year primarily due to a managed change in seasonal contingency income.  Near-record quarterly wealth management revenue was achieved in the fourth quarter due to organic growth and improved market conditions.

The fourth quarter provision for loans losses increased to $2.8 million from $2.5 million in the prior quarter.  Net loan charge-offs totaled $2.7 million and $2.3 million in these periods, respectively.  There were no significant changes in the Bank's favorable charge-off metrics or in the metrics related to the loan loss allowance, which increased by $0.1 million to $33.2 million during the quarter.

Fourth quarter core non-interest expense totaled $36.8 million, increasing by $6.8 million from the prior quarter.  This included the impact of the Beacon operations which generated $4.3 million in non-interest expense in the comparable period of the prior quarter.  As Berkshire completes the integration of Beacon operations in 2013, it expects to achieve annual net Beacon related cost savings of $5.5 million based on a 30% gross cost saving target.  The efficiency ratio measured 59.7% in the most recent quarter, increasing from the prior quarter as the Company absorbed additional variable costs related to expansion and integration in anticipation of further efficiency gains in 2013.  Fourth quarter non-recurring and merger related expense totaled $7.5 million and was primarily a result of Beacon merger related expense.  The core effective income tax rate was 29% in the fourth quarter and 30% for the year 2012.  The GAAP effective income tax rate on continuing operations was 25% and 28% for the same periods, respectively, reflecting the higher proportionate benefit of tax preference items on GAAP earnings net of non-core merger charges.

NOTE ON ACCOUNTING CORRECTION

Based on a review of its lease agreements in the most recent quarter, the Company determined that its net income had been overstated by an immaterial amount in prior periods.  The expense recorded for leases with contractual cost escalators has been corrected to reflect a level cost over the contractual lease period, rather than based on the actual current period cost which was previously recorded.  As a result, non-interest expense has been increased, and income tax expense has been decreased based on the tax rate effective for this correction.  This correction was posted to 2012 income in the most recent quarter and to 2011 annual income; it was immaterial to prior quarterly results. Related adjustments have been made to the balance sheets presented for retained earnings, other liabilities, and the tax asset. 

CONFERENCE CALL

Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Tuesday, January 29, 2013 to discuss the results for the quarter and provide guidance about expected future results.  Participants should dial-in to the call a few minutes before it begins.  Information about the conference call follows:

Dial-in:           

888-317-6003

Elite Entry Number:       

8255026

Webcast:                    

berkshirebank.com (investor relations link)

A telephone replay of the call will be available through Tuesday, February 5, 2013 by calling 877-344-7529 and entering conference number: 10023105.  The webcast and a podcast will be available at Berkshire's website above 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 $5.3 billion in assets and 75 full service branch offices in Massachusetts, New York, Connecticut, and Vermont providing personal and business banking, insurance, and wealth management services.  Berkshire Bank provides 100% deposit insurance protection for all deposit accounts, regardless of amount, based on a combination of FDIC insurance and the Depositors Insurance Fund (DIF). 

FORWARD LOOKING STATEMENTS

This document may contain 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.govBerkshire does not undertake any obligation to update forward-looking statements made in this document.

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 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 amounts which the Company views as unrelated to its normalized operations, including merger costs, restructuring costs, and systems conversion costs.  Similarly, the efficiency ratio is also adjusted for these non-core items and for tax preference items.  The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.  Non-GAAP expense adjustments are primarily related to charges related to merger and acquisition activity.  These charges consist primarily of severance/benefit related expenses, contract termination costs, and professional fees.  There are additionally non-GAAP adjustments related to non-recurring securities gains, discontinued operations, the disposition of excess properties, and core systems conversion costs.  Tax adjustments are based on an analysis of tax accruals for core income and for GAAP income, with the net difference included with non-core items and reflecting the timing impacts of tax expense estimates.

CONTACTS

Investor Relations Contact David Gonci; Investor Relations Officer; 413-281-1973

Media Contact Lori Gazzillo; AVP, Community Relations; 413-822-1695

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS - UNAUDITED - (F-1)

December 31,

September 30,

December 31,

(In thousands)

2012

2012

2011

Assets

Cash and due from banks

$           63,382

$             48,214

$          46,713

Short-term investments

34,862

33,834

28,646

Total cash and short-term investments

98,244

82,048

75,359

Trading security

16,893

17,237

17,395

Securities available for sale, at fair value

466,169

467,444

419,756

Securities held to maturity, at amortized cost

51,024

51,156

58,912

Federal Home Loan Bank stock and other restricted securities

39,785

37,135

37,118

Total securities

573,871

572,972

533,181

Loans held for sale

85,368

114,698

1,455

Residential mortgages

1,324,251

1,226,022

1,020,435

Commercial mortgages

1,413,544

1,255,172

1,156,241

Commercial business loans

600,126

568,781

410,292

Consumer loans

650,733

368,417

369,602

Total loans

3,988,654

3,418,392

2,956,570

Less: Allowance for loan losses

(33,208)

(33,090)

(32,444)

Net loans

3,955,446

3,385,302

2,924,126

Premises and equipment, net

86,461

70,707

60,139

Other real estate owned

1,929

1,399

1,900

Goodwill 

255,199

220,688

202,391

Other intangible assets

19,059

17,991

20,973

Cash surrender value of bank-owned life insurance

88,198

76,904

75,009

Other assets

131,313

92,578

92,362

Assets from discontinued operations

-

-

5,362

Total assets

$      5,295,088

$       4,635,287

$    3,992,257

Liabilities and stockholders' equity

Demand deposits

$         673,921

$          560,452

$        447,414

NOW deposits

379,880

296,219

272,204

Money market deposits

1,388,514

1,183,247

1,055,306

Savings deposits

487,505

381,604

350,517

Total non-maturity deposits

2,929,820

2,421,522

2,125,441

Time deposits

1,170,589

1,028,286

975,734

Total deposits

4,100,409

3,449,808

3,101,175

Senior borrowings

358,471

447,246

221,938

Subordinated notes

89,617

89,602

15,464

Total borrowings

448,088

536,848

237,402

Other liabilities 

81,047

59,267

46,368

Liabilities from discontinued operations

-

-

55,504

Total liabilities

4,629,544

4,045,923

3,440,449

Total stockholders' equity

665,544

589,364

551,808

Total liabilities and stockholders' equity

$      5,295,088

$       4,635,287

$    3,992,257

(1) At year end 2011, four former Legacy New York branches were held for sale as discontinued operations and sold as of January 20, 2012.

(2) The Company acquired The Connecticut Bank and Trust Company ("CBT") on April 20, 2012 with total assets of $0.3 billion.

(3) The Company purchased certain assets and assumed certain limited liabilities of Greenpark Mortgage Corporation ("Greenpark") on April 30, 2012 with total assets of $0.1 billion.

(4) The Company acquired Beacon Federal Bancorp ("Beacon") on October 19, 2012 with total assets of $0.8 billion.

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED - (F-2)

LOAN ANALYSIS

Organic annualized growth %

(Dollars in millions)

Dec. 31,  2012 Balance

Acquired Beacon Balance

Sept. 30,  2012 Balance

Acquired CBT     Balance

Dec. 31, 2011 Balance

Quarter end

Dec. 31, 2012

Year to date

Total residential mortgages

$            1,324

$            169

$            1,226

$             10

$            1,020

(23)

%

12

%

Commercial mortgages:

Construction

168

9

156

12

124

7

18

Single and multi-family

124

50

91

18

106

(76)

(47)

Commercial real estate

1,122

114

1,008

99

926

(0)

(2)

Total commercial mortgages

1,414

173

1,255

129

1,156

(5)

(4)

Total commercial business loans

600

33

569

55

411

(1)

25

.

Total commercial loans

2,014

206

1,824

184

1,567

(4)

4

Consumer loans:

Home equity 

325

33

302

8

298

(13)

(5)

Other

326

258

66

8

72

14

(16)

Total consumer loans

651

291

368

16

370

(9)

(7)

Total loans

$            3,989

$            666

$            3,418

$           210

$            2,957

(11)

%

5

%

DEPOSIT ANALYSIS

Organic annualized growth %

(Dollars in millions)

Dec. 31,  2012 Balance

Acquired Beacon Balance

Sept. 30,  2012 Balance

Acquired CBT     Balance

Dec. 31, 2011 Balance

Quarter end

Dec. 31, 2012

Year to date

Demand

$               674

$              56

$               561

$             51

$               447

41

%

27

%

NOW

380

65

296

26

272

26

6

Money market

1,388

201

1,182

60

1,055

2

7

Savings

488

107

382

2

351

(1)

8

Total non-maturity deposits

2,930

429

2,421

139

2,125

13

11

Total time deposits

1,170

195

1,028

72

976

(20)

(7)

Total deposits

$            4,100

$            624

$            3,449

$           211

$            3,101

3

%

5

%

(1)  Organic annualized growth rates are calculated on organic growth only, which excludes the impact of mergers and divestitures.  

(2)  Quarterly data may not sum to annualized data due to rounding.

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED - (F-3)

Three Months Ended

Years Ended

December 31,

December 31,

(In thousands, except per share data)

2012

2011

2012

2011

Interest and dividend income    

Loans

$     47,601

$     35,466

$   160,936

$   124,398

Securities and other    

3,887

3,562

15,003

13,862

Total interest and dividend income    

51,488

39,028

175,939

138,260

Interest expense

Deposits

5,870

5,792

22,482

23,372

Borrowings and subordinated debentures

3,653

2,101

10,069

8,368

Total interest expense    

9,523

7,893

32,551

31,740

Net interest income

41,965

31,135

143,388

106,520

Non-interest income

Loan related fees

7,012

856

17,555

3,160

Deposit related fees

4,355

3,848

15,593

13,641

Insurance commissions and fees    

2,565

2,145

10,821

11,088

Wealth management fees    

1,865

1,650

7,296

5,838

Total fee income    

15,797

8,499

51,265

33,727

Other

421

318

1,306

(37)

Gain on sale of securities, net    

1,435

8

1,442

14

Non-recurring (loss) gain

-

-

43

2,099

Total non-interest income      

17,653

8,825

54,056

35,803

Total net revenue

59,618

39,960

197,444

142,323

Provision for loan losses   

2,840

2,263

9,590

7,563

Non-interest expense

Compensation and benefits

18,862

13,172

64,081

49,545

Occupancy and equipment     

5,985

4,063

19,469

15,317

Technology and communications

2,949

2,464

9,467

7,457

Marketing and promotion     

483

419

2,031

1,539

Professional services

1,600

1,146

5,785

4,669

FDIC premiums and assessments

919

542

3,377

3,205

Other real estate owned and foreclosures

66

153

281

2,003

Amortization of intangible assets     

1,357

1,314

5,339

4,236

Non-recurring and merger related expenses     

7,497

3,678

18,019

19,928

Other

4,548

2,579

12,957

8,543

Total non-interest expense     

44,266

29,530

140,806

116,442

Income from continuing operations before income taxes       

12,512

8,167

47,048

18,318

Income tax expense

3,183

609

13,223

1,884

Net income from continuing operations

9,329

7,558

33,825

16,434

(Loss) gain from discontinued operations before income taxes 

     (including gain on disposals $4,962 in 2011 and $63 in 2012)

-

4,692

(261)

4,684

Income tax expense

-

3,773

376

3,770

Net (loss) gain from discontinued operations

-

919

(637)

914

Net income 

$       9,329

$       8,477

$     33,188

$     17,348

Basic earnings per share:

Continuing operations

$          0.39

$          0.36

$          1.52

$          0.92

Discontinued operations

-

0.04

(0.03)

0.05

Total basic earnings per share

$          0.39

$          0.40

$          1.49

$          0.97

Diluted earnings per share:

Continuing operations

$          0.38

$          0.36

$          1.52

$          0.92

Discontinued operations

-

0.04

(0.03)

0.05

Total diluted earnings per share

$          0.38

$          0.40

$          1.49

$          0.97

Weighted average shares outstanding:      

Basic

24,165

20,930

22,201

17,885

Diluted

24,396

21,043

22,329

17,952

(1) The Company acquired Rome Bancorp on April 1, 2011.  The income statement includes operations from that date. 

(2) The Company acquired Legacy Bancorp on July 21, 2011.  The income statement includes operations from that date. 

(3) The Company acquired CBT on April 20, 2012. The income statement includes operations from that date.

(4) The Company purchased certain assets and assumed certain limited liabilities of Greenpark on April 30, 2012.  The income statement includes operations from that date.

(5) The Company acquired Beacon Federal Bancorp on October 19, 2012. The income statement includes operations from that date.

BERKSHIRE HILLS BANCORP, INC.

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

Quarters Ended

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

(In thousands, except per share data)

2012

2012

2012

2012

2011

Interest and dividend income    

Loans

$   47,601

$    39,497

$   38,787

$   35,051

$   35,466

Securities and other    

3,887

3,626

3,869

3,621

3,562

Total interest and dividend income    

51,488

43,123

42,656

38,672

39,028

Interest expense

Deposits

5,870

5,628

5,482

5,502

5,792

Borrowings and subordinated debentures

3,653

2,270

2,121

2,025

2,101

Total interest expense    

9,523

7,898

7,603

7,527

7,893

Net interest income

41,965

35,225

35,053

31,145

31,135

Non-interest income

Loan related fees

7,012

5,646

3,524

1,373

856

Deposit related fees

4,355

3,775

3,963

3,500

3,848

Insurance commissions and fees    

2,565

2,742

2,768

2,746

2,145

Wealth management fees    

1,865

1,774

1,757

1,900

1,650

Total fee income    

15,797

13,937

12,012

9,519

8,499

Other

421

375

269

241

318

Gain on sale of securities, net     

1,435

-

7

-

8

Non-recurring (loss) gain

-

1

-

42

-

Total non-interest income      

17,653

14,313

12,288

9,802

8,825

Total net revenue

59,618

49,538

47,341

40,947

39,960

Provision for loan losses   

2,840

2,500

2,250

2,000

2,263

Non-interest expense

Compensation and benefits

18,862

15,992

15,638

13,589

13,172

Occupancy and equipment     

5,985

4,599

4,490

4,395

4,063

Technology and communications

2,949

2,302

2,258

1,958

2,464

Marketing and promotion  

483

419

778

351

419

Professional services

1,600

1,327

1,493

1,365

1,146

FDIC premiums and assessments

919

907

870

681

542

Other real estate owned and foreclosures

66

42

(6)

179

153

Amortization of intangible assets     

1,357

1,314

1,357

1,311

1,314

Non-recurring and merger related expenses     

7,497

2,214

4,085

4,223

3,678

Other

4,548

3,046

3,221

2,142

2,579

Total non-interest expense     

44,266

32,162

34,184

30,194

29,530

Income from continuing operations before income taxes       

12,512

14,876

10,907

8,753

8,167

Income tax expense 

3,183

4,847

2,921

2,272

609

Net income from continuing operations

9,329

10,029

7,986

6,481

7,558

(Loss) gain from discontinued operations before income taxes 

     (including gain on disposals $4,962 in 2011 and $63 in 2012)

-

-

-

(261)

4,692

Income tax expense (benefit)

-

-

-

376

3,773

Net (loss) gain from discontinued operations

-

-

-

(637)

919

Net income 

$     9,329

$    10,029

$     7,986

$     5,844

$     8,477

Basic earnings per share:

Continuing operations

$        0.39

$        0.46

$        0.37

$        0.31

$        0.36

Discontinued operations

-

-

-

(0.03)

0.04

Total basic earnings per share

$        0.39

$        0.46

$        0.37

$        0.28

$        0.40

Diluted earnings per share:

Continuing operations

$        0.38

$        0.46

$        0.37

$        0.31

$        0.36

Discontinued operations

-

-

-

(0.03)

0.04

Total diluted earnings per share

$        0.38

$        0.46

$        0.37

$        0.28

$        0.40

Weighted average shares outstanding:      

Basic

24,165

21,921

21,742

20,955

20,930

Diluted

24,396

22,031

21,806

21,062

21,043

(1) See notes on pages F-1 and F-3 regarding merger, acquisitions and divestiture.

BERKSHIRE HILLS BANCORP, INC.

ASSET QUALITY ANALYSIS - (F-5)

At or for the Quarters Ended

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

(Dollars in thousands)

2012

2012

2012

2012

2011

NON-PERFORMING ASSETS

Non-accruing loans:

Residential mortgages

$           7,466

$          8,440

$     8,525

$     8,281

$     7,010

Commercial mortgages

12,617

13,552

15,336

12,151

14,280

Commercial business loans

3,681

2,024

1,047

1,029

990

Consumer loans

1,748

1,823

1,209

1,411

1,954

Total non-accruing loans

25,512

25,839

26,117

22,872

24,234

Other real estate owned

1,929

1,399

827

439

1,900

Total non-performing assets

$        27,441

$       27,238

$   26,944

$   23,311

$   26,134

Total non-accruing loans/total loans

0.64%

0.76%

0.78%

0.75%

0.82%

Total non-performing assets/total assets

0.52%

0.59%

0.60%

0.58%

0.65%

PROVISION AND ALLOWANCE FOR LOAN LOSSES

Balance at beginning of period

$        33,090

$       32,868

$   32,657

$   32,444

$   32,181

Charged-off loans

(3,073)

(2,353)

(2,102)

(1,923)

(2,313)

Recoveries on charged-off loans

351

75

63

136

313

Net loans charged-off

(2,722)

(2,278)

(2,039)

(1,787)

(2,000)

Provision for loan losses

2,840

2,500

2,250

2,000

2,263

Balance at end of period

$        33,208

$       33,090

$   32,868

$   32,657

$   32,444

Allowance for loan losses/total loans

0.83%

0.97%

0.98%

1.07%

1.10%

Allowance for loan losses/non-accruing loans

130%

128%

126%

143%

134%

NET LOAN CHARGE-OFFS

Residential mortgages

$         (1,034)

$           (243)

$       (886)

$       (381)

$       (449)

Commercial mortgages

(893)

(1,790)

(378)

(1,116)

(1,198)

Commercial business loans

(496)

(99)

(2)

(3)

(244)

Home equity 

(22)

(90)

(707)

(247)

(90)

Other consumer

(277)

(56)

(66)

(40)

(19)

Total, net

$         (2,722)

$        (2,278)

$   (2,039)

$   (1,787)

$   (2,000)

Net charge-offs (QTD annualized)/average loans 

0.28%

0.27%

0.25%

0.24%

0.27%

Net charge-offs (YTD annualized)/average loans 

0.26%

0.25%

0.24%

0.24%

0.27%

DELINQUENT AND NON-ACCRUING LOANS/TOTAL LOANS

30-89 Days delinquent

0.63%

0.62%

0.41%

0.55%

0.55%

90+ Days delinquent and still accruing

0.48%

0.38%

0.49%

0.40%

0.34%

Total accruing delinquent loans

1.11%

1.00%

0.90%

0.95%

0.89%

Non-accruing loans

0.64%

0.76%

0.78%

0.75%

0.82%

Total delinquent and non-accruing loans

1.75%

1.76%

1.68%

1.70%

1.71%

(1) Amounts related to loans and deposits of discontinued operations have not been reclassified on the above schedule, 

      although they are reclassified out of loans and deposits on the balance sheet and income statement. 

BERKSHIRE HILLS BANCORP, INC.

SELECTED FINANCIAL HIGHLIGHTS - (F-6)

At or for the Quarters Ended

Dec. 31,

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

2012

2012

2012

2012

2011

PER SHARE DATA

Core earnings, diluted

$      0.54

$       0.52

$       0.47

$       0.45

$      0.44

Net earnings, diluted

0.38

0.46

0.37

0.28

0.40

Tangible book value

15.56

15.86

15.49

15.81

15.51

Total book value

26.53

26.60

26.31

26.28

26.09

Market price at period end

23.86

22.88

22.00

22.92

22.19

Dividends

0.18

0.17

0.17

0.17

0.17

PERFORMANCE RATIOS

Core return on assets

1.02

%

1.00

%

0.94

%

0.94

%

0.93

%

Return on assets

0.72

0.88

0.73

0.59

0.85

Core return on equity

8.23

7.81

7.13

6.80

6.74

Return on equity

5.79

6.89

5.58

4.23

6.16

Net interest margin, fully taxable equivalent

3.67

3.50

3.70

3.62

3.61

Fee income/Net interest and fee income

27.35

28.35

25.52

23.44

21.44

Efficiency ratio 

59.68

56.54

59.29

59.27

59.44

GROWTH

Total commercial loans, year-to-date (annualized)

29

%

22

%

30

%

3

%

29

%

Total loans, year-to-date (annualized)

35

21

27

11

38

Total deposits, year-to-date (annualized)

30

12

16

11

41

Total net revenues, year-to-date, compared to prior year

39

34

45

43

33

Earnings per share, year-to-date, compared to prior year

62

106

110

40

(2)

Core earnings per share, year-to-date, compared to prior year

29

30

39

50

53

FINANCIAL DATA   (In millions)

Total assets

$    5,294

$     4,634

$     4,508

$     4,029

$    3,992

Total loans

3,989

3,418

3,366

3,039

2,957

Allowance for loan losses

33

33

33

33

32

Total intangible assets

274

239

240

222

223

Total deposits

4,100

3,450

3,410

3,184

3,101

Total stockholders' equity

666

591

583

557

552

Total core income 

13.2

11.4

10.2

9.4

9.3

Total net income

9.3

10.0

8.0

5.8

8.5

ASSET QUALITY RATIOS

Net charge-offs (current quarter annualized)/average loans

0.28

%

0.27

%

0.25

%

0.24

%

0.27

%

Non-performing assets/total assets

0.52

0.59

0.60

0.58

0.65

Allowance for loan losses/total loans

0.83

0.97

0.98

1.07

1.10

Allowance for loan losses/non-accruing loans

130

128

126

143

134

CAPITAL RATIOS

Stockholders' equity to total assets

12.60

%

12.75

%

12.94

%

13.82

%

13.82

%

Tangible stockholders' equity to tangible assets

7.81

8.01

8.04

8.80

8.70

(1) Reconciliation of Non-GAAP financial measures, including all references to core and tangible amounts, appear on pages F-9 and F-10. Tangible assets are total assets less total intangible assets.

(2) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(3) Amounts related to loans and deposits of discontinued operations have not been reclassified on the above schedule, although they are reclassified out of loans and deposits on the balance sheet and income statement.

BERKSHIRE HILLS BANCORP, INC.

AVERAGE BALANCES - (F-7)

Quarters Ended

Dec. 31, 

Sept. 30, 

June 30, 

Mar. 31, 

Dec. 31, 

(In thousands)

2012

2012

2012

2012

2011

Assets

Loans:

Residential mortgages

$   1,340,375

$   1,207,635

$   1,167,007

$   1,057,903

$ 1,039,025

Commercial mortgages

1,404,515

1,276,909

1,250,741

1,153,690

1,166,989

Commercial business loans

580,436

545,988

490,983

412,237

392,542

Consumer loans

598,802

368,795

375,090

366,035

376,385

Total loans

3,924,128

3,399,327

3,283,821

2,989,865

2,974,941

Securities

572,268

559,116

549,479

525,109

515,128

Short-term investments and loans held for sale

126,378

115,835

47,302

15,107

20,748

Total earning assets

4,622,774

4,074,278

3,880,602

3,530,081

3,510,817

Goodwill and other intangible assets

267,588

239,186

235,961

223,930

230,864

Other assets

320,104

258,246

235,712

235,909

247,376

Total assets

$   5,210,466

$   4,571,710

$   4,352,275

$   3,989,920

$ 3,989,057

Liabilities and stockholders' equity

Deposits:

NOW

$      355,366

$      291,158

$      297,431

$      272,239

$    274,041

Money market

1,362,868

1,170,840

1,136,161

1,084,948

953,162

Savings

463,692

376,064

370,182

359,859

446,672

Time

1,161,175

1,039,301