Berkshire Hills Reports Solid Fourth Quarter Earnings Growth

PITTSFIELD, Mass., Jan. 24, 2011 /PRNewswire/ -- Berkshire Hills Bancorp, Inc. (Nasdaq: BHLB) reported another solid quarter of earnings growth and strong asset quality metrics.  Core earnings per share reached $0.28 in the fourth quarter of 2010, representing growth of 12% over third quarter results.  Asset quality trends continued to improve and the loan loss provision covered net charge-offs.  For the quarter, GAAP earnings per share were $0.26 which included approximately $0.4 million in non-core charges relating to bank acquisitions.  Core and GAAP earnings for the fourth quarter 2010 were $3.9 million and $3.6 million, respectively.  For the year 2010, core earnings per share were $1.01, while GAAP earnings per share were $0.99.  The strong results for the quarter and year position Berkshire well for improving targeted earnings in 2011.  

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FOURTH QUARTER FINANCIAL HIGHLIGHTS (revenue and expense comparisons are to prior year fourth quarter, unless otherwise noted)

• 12% increase in core earnings per share compared to prior quarter
• 12% net interest income growth
• 18% fee income growth
• 17% annualized loan growth
• 26% annualized deposit growth
• 3.30% net interest margin, compared to 3.05% in the fourth quarter of 2009
• 1% decrease in core non-interest expense (1% increase with merger related costs)
• 0.59% non-performing assets/total assets
• 0.37% annualized net loan charge-offs/average loans
• 233% allowance for loan losses/non-accruing loans
• 1.49% allowance for loan losses/total loans

YEAR 2010 FINANCIAL HIGHLIGHTS

• 11% net interest income growth
• 6% fee income growth
• 9% loan growth
• 11% deposit growth

Michael P. Daly, President and Chief Executive Officer, stated, "We closed 2010 with our strongest quarterly core revenue growth of the year, on a seasonally adjusted basis.  Our results exceeded our expectations for the quarter and for the year, with strong business generation in all of our regions and very solid contributions from our new asset based lending and private banking teams.  This brought our full year core earnings per share to $1.01, before $0.02 in merger related charges.  We produced positive operating leverage throughout the year by combining revenue growth with expense control, including a 1% decrease in fourth quarter core expenses before merger charges.  Our asset quality has remained favorable, with improvements in major credit metrics in each quarter.  We also continued our New York expansion, with the opening of two new branches in the fourth quarter.  Our team has aggressively pursued growth and profitability initiatives in all business lines, producing high quality earnings and revenue growth for the year."

"We recently announced agreements to acquire Rome Bancorp in New York and Legacy Bancorp in our hometown of Pittsfield, Massachusetts.  We expect to complete these acquisitions by midyear 2011, bringing our total assets above $4 billion, with more than 60 branch offices, including 24 in our fast growing New York region.  These transactions are expected to be immediately accretive to earnings per share and offer the promise of strong investment returns, improved performance metrics, and higher market share.  We have opportunistically reached out to potential merger partners and have demonstrated to these companies that we are an attractive partner and that our stock is desirable merger consideration.  These announcements have been well received by the investment community, and we will continue to seek out profitable merger opportunities in and around our northeastern markets."

OUTLOOK

Berkshire expects to produce core earnings per share in the range of $1.40-$1.50 in 2011.  This would represent growth in the range of nearly 40-50% over 2010 core results.  Berkshire is targeting organic core revenue growth in the range of 6-9%, while core non-interest expense growth is expected to be limited to the range of 3-5%.  Asset quality metrics are expected to continue to improve, including further reductions in the rate of net loan charge-offs to the 25-30 basis point range.  Core earnings growth will also benefit from completion of the pending acquisitions of Rome Bancorp and Legacy Bancorp.  Berkshire is targeting a return to a $2.00 annualized core EPS run rate by the end of 2012.  The Company expects to record some non-core transaction costs related to these mergers as charges against GAAP earnings, but the accounting for these anticipated charges depends on timing and other factors which are presently indeterminate. Berkshire will provide additional information about its 2011 outlook in its conference call on January 25.  

DIVIDEND DECLARED

The Board of Directors maintained the cash dividend on Berkshire's common stock, declaring a dividend of $0.16 per share to stockholders of record at the close of business on February 10, 2011 and payable on February 24, 2011.  The $0.64 full year dividend in 2010 provided a 3.3% yield based on the average closing price of Berkshire's common stock in 2010.

FINANCIAL CONDITION

Total assets increased by 3% in the fourth quarter and by 7% for the year, ending 2010 with a balance of $2.9 billion.  Asset growth was driven by loan growth of 4% for the quarter and 9% for the year.  These increases were funded by deposit growth, which measured 7% for the quarter and 11% for the year.  Liquidity remained strong, with loans/deposits improving to 97%.  

Commercial loan growth of $174 million (17%) accounted for most of the loan growth in 2010.  Berkshire continues to improve its market share with high grade loan originations in all of its lending areas.  Berkshire's new Asset Based Lending Group contributed $98 million in net new outstandings for the year.  It has also expanded the lending geography and diversified the Company's industry exposure with strong and established new commercial relationships that are well known to the Group's seasoned lending team.  The Company's consumer lending also remained strong; the residential mortgage portfolio increased by 6% and the home equity loan portfolio increased by 7% for the year.

The level and trend of asset quality remained favorable through year-end 2010.  Non-performing assets decreased to 0.59% of total assets and accruing delinquent loans were 0.31% of total loans at year-end.  Annualized net loan charge-offs decreased to 0.37% of average loans in the fourth quarter, bringing the full year charge-off rate down to 0.42%.

Total deposits grew by 7% in the fourth quarter and by 11% for the year 2010.  Transaction account balances increased by 7%, reflecting the ongoing emphasis on low cost relationship based balances.  Most of the deposit growth resulted from higher money market balances, which increased by 34% during the year, including the benefit of new commercial and institutional accounts in the fourth quarter.  Berkshire has promoted money market accounts in the current low rate environment, which resulted in some shifting of balances from time deposits, which decreased by 4%.  Berkshire's new Private Banking Group, located in Springfield, contributed nearly $50 million to deposit growth in 2010.  Berkshire opened its 11th New York office in September, adding its second Albany branch, and opened its 12th office in Latham, New York at the end of the year.  The Bank is moving forward to open its next office, located in Rotterdam, New York during the first half of 2011.

Capital remained strong at year-end 2010, with equity/assets at 13.5% and tangible equity/assets at 7.9%.  Tangible common equity increased by 3% in 2010, rising to $15.27 per share at year-end.  Total common equity measured $27.56 at year-end, and was little changed during the year.  

RESULTS OF OPERATIONS

Net income was $3.6 million ($0.26 per share) in the fourth quarter and $13.7 million ($0.99 per share) for the year 2010.  Results of operations were improved from a loss of $24.2 million ($1.75 per share) and $16.1 million ($1.52 per share) in the same periods of 2009, reflecting a higher loan loss provision recorded in last year's fourth quarter.  Total pre-tax, pre-provision income increased by $6.4 million (32%) in 2010 compared to 2009, demonstrating the positive operating leverage from revenue growth and expense control.  The Company achieved this result while also absorbing the start-up losses of its successful expansion initiatives, including asset based lending, private banking, and de novo branches.  On a seasonally adjusted basis, revenue growth and profitability were the strongest in the final quarter, creating strong momentum for further gains in 2011.

Total core revenue increased by 13% in the fourth quarter and by 9% for the year 2010 compared to the same periods in 2009, reaching $108 million for the year 2010.  Revenue growth was primarily driven by higher net interest income, which increased by 12% in the fourth quarter and 11% for the year.  Net interest income was boosted by an increase in the net interest margin to 3.30% in the most recent quarter from 3.05% in the fourth quarter of 2009.  The margin improvement primarily reflected lower funding costs and included the benefit of borrowing and hedge restructurings and lower deposit costs.  The Company improved its margin while also maintaining its asset sensitive interest rate sensitivity, positioning it for further gains if interest rates begin to rise.  Interest income for 2010 also benefited from 6% growth in average earning assets between the first quarter and the final quarter, which primarily reflected the strong loan growth in the second half of the year.

Fee income increased by 18% for the fourth quarter and 6% for the full year of 2010 compared to 2009.  Full year results benefited from higher deposit, loan, and interest rate swap fee income, which offset lower wealth management and insurance fee income reflecting conditions in those markets.  Non-recurring charges to non-interest income in 2009 related to net costs of prepaying borrowings during the year.  

The loan loss provision decreased for the quarter and the year in 2010 compared to 2009 due to last year's fourth quarter loan initiative.  The provision slightly exceeded net loan charge-offs for both the quarter and the year in 2010.  Year-end 2010 loan loss allowance coverage remained strong at 1.49% of total loans and 233% of non-accruing loans.

Total non-interest expense decreased by 1% in the fourth quarter before non-core merger related charges, and increased by 1% including these charges.  Non-interest expense increased by 4% for the year.  Business expansion has contributed to expense growth, including the new asset based lending and private banking groups and de novo branches.  Compensation related expense increases have also included the restoration of incentive compensation and a decrease in compensation costs deferred or charged against non-interest income related to loan sales.  Expenses in 2009 included a special FDIC industry assessment totaling $1.3 million and professional services related to the loan initiative.  The 2010 effective income tax rate was 20% for the fourth quarter and 23% for the year.

CONFERENCE CALL

Berkshire will conduct a conference call/webcast at 10:00 a.m. Eastern time on Tuesday, January 25, 2011 to discuss the results for the quarter and guidance for expected future results.  

Information about the conference call follows:

Dial-in:  877-317-6789

Webcast:  www.berkshirebank.com (investor relations link)

A telephone replay of the call will be available through February 1, 2011 by calling 877-344-7529 and entering conference number: 447156.  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(SM).  The Company has $2.9 billion in assets and 42 full service branch offices in Massachusetts, New York, and Vermont.  The Company provides personal and business banking, insurance, wealth management, investment, private banking, and asset based lending 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). The Company currently has pending agreements to acquire Rome Bancorp, Inc. and Legacy Bancorp, Inc. For more information, visit www.berkshirebank.com or call 800-773-5601.  

FORWARD LOOKING STATEMENTS

Certain statements contained in this news release that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of our plans, objectives and expectations or those of our management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact, changes in the level of non-performing assets and charge-offs; changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; inflation, interest rate, securities market and monetary fluctuations; political instability; acts of war or terrorism; the timely development and acceptance of new products and services and perceived overall value of these products and services by users; changes in consumer spending, borrowings and savings habits; changes in the financial performance and/or condition of our borrowers; technological changes; acquisitions and integration of acquired businesses; the ability to increase market share and control expenses; changes in the competitive environment among financial holding companies and other financial service providers; the quality and composition of our loan or investment portfolio; the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; changes in our organization, compensation and benefit plans; the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; greater than expected costs or difficulties related to the opening of new branch offices or the integration of new products and lines of business, or both; and/or our success at managing the risk involved in the foregoing items.

ADDITIONAL INFORMATION FOR STOCKHOLDERS

The proposed transactions with Rome Bancorp, Inc. and Legacy Bancorp, Inc. will be submitted to their stockholders for their consideration, and Berkshire's stockholders are also expected to vote on the Legacy transaction. In connection with the proposed mergers, Berkshire will file with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 for each of the two entities being acquired that will include a Proxy Statement of the entity being acquired and a Proxy Statement/Prospectus of Berkshire, as well as other relevant documents concerning the proposed transaction.  Stockholders are urged to read these documents when they become 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 Proxy Statement/Prospectus for each entity, as well as other filings containing information about Berkshire Hills, Rome, and Legacy, may be obtained at the SEC's Internet site (http://www.sec.gov).  You will also be able to obtain these documents, free of charge, from Berkshire Hills Bancorp at www.berkshirebank.com under the tab "Investor Relations" or from Rome Bancorp's website at www.romesavings.com under the tab "Corporate Info" or from Legacy Bancorp by accessing Legacy Bancorp's website at www.legacy-banks.com under the tab "Investor Relations."

Under the terms of the Legacy Merger Agreement, Legacy and its advisors are permitted to solicit and consider acquisition proposals from third parties from the signing of the agreement through January 31, 2011.  It is not anticipated that any developments will be disclosed by either party with regard to this process unless Legacy's Board of Directors makes a decision with respect to a potential superior acquisition proposal.  There can be no assurance that the solicitation of proposals will result in an alternative transaction.

Berkshire, Rome, and Legacy and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Rome Bancorp and Legacy Bancorp in connection with the proposed mergers.  Information about the directors and executive officers of Berkshire Hills Bancorp is set forth in the proxy statement for Berkshire Hills Bancorp's 2010 annual meeting of stockholders, as filed with the SEC on a Schedule 14A on March 26, 2010.  Information about the directors and executive officers of Rome is set forth in the proxy statement, dated April 1, 2010, for Rome's 2010 annual meeting of stockholders, as filed with the SEC on Schedule 14A.  Information about the directors and executive officers of Legacy Bancorp is set forth in the proxy statement for Legacy Bancorp's 2010 annual meeting of stockholders, as filed with the SEC on a Schedule 14A on March 25, 2010.  Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus documents regarding the proposed mergers 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 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 and restructuring costs.  Similarly, the efficiency ratio is also adjusted for these non-core items.  Additionally, the Company adjusts core income to exclude amortization of intangibles to arrive at a measure of the underlying operating cash return for the benefit of shareholders.  The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.  In the first quarter of 2009, the Company adjusted core earnings per share and core return on tangible common equity to be net of preferred stock dividends.  These measures were not adjusted in this manner in the second quarter of 2009.  The second quarter deemed dividend was a nonrecurring non-cash charge with no impact on stockholders' equity and did not reflect a core economic event in the Company's view.  Additionally, the Company held cash at near-zero interest rates in the second quarter while it awaited the approval of the U.S. Treasury to repay the preferred stock.  Accordingly, the preferred stock cash dividend and accretion charges were viewed by the Company as non-core one-time charges against income available to common stockholders related to the process of repaying the preferred stock.  Other significant non-GAAP adjustments in 2009 related to a terminated merger agreement, borrowings prepayments, and the termination of an interest rate swap.  Non-GAAP adjustments in 2010 were primarily related to expense charges related to the pending Rome and Legacy mergers.

SOURCE Berkshire Hills Bancorp, Inc.