Berkshire Hills Reports 40% Increase in Third Quarter Earnings; Dividends Declared
Boston , MA – Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported third quarter 2018 net income of $32 million, a 40% increase over $23 million in the third quarter of 2017 due primarily to the benefit of business growth including expansion in Greater Boston through acquisition and business development.
THIRD QUARTER FINANCIAL HIGHLIGHTS (income statement comparisons are year over year and balance sheet growth is compared to prior quarter-end):
- $0.70 GAAP EPS and Non-GAAP Core EPS
- 6% annualized commercial loan growth
- 3.32% net interest margin
- 57.2% efficiency ratio
- 1.08% ROA
- 0.19% net loan charge-offs/average loans
- 0.30% non-performing assets/assets
CEO Michael Daly stated, "Our third quarter earnings came in as expected. Quarterly loan related fees reached a record high, supported by strong SBA lending activity and other commercial lending related fees. We once again moved up in the annual SBA rankings, breaking into the top 30 nationally based on dollar volume. Our profitability and efficiency have also improved over last year due to the positive operating leverage from our increased business scale and diversified revenues. We're seeing good growth in our Greater Boston and Mid-Atlantic markets, and steady business activity across the rest of our franchise. The Bank was recognized in the quarter by a United Nations IMPACT2030 Innovation Award for our support of volunteerism. This was our first full quarter following the completed integration of acquired operations and our teams are coordinating across our markets to engage our customers with our unique brand and culture promise."
The Board of Directors declared a quarterly cash dividend of $0.22 per common share to shareholders of record at the close of business on November 8, 2018, payable on November 21, 2018. The dividend equates to a 2.1% annualized yield based on the $41.57 average closing price of Berkshire Hills Bancorp common stock during the third quarter. The Board also declared a quarterly cash dividend of $0.44 per share of preferred stock, with the same record and payment dates as above. The quarterly common and preferred dividends were increased by 5% in the first quarter of the year.
Total assets increased in the third quarter by $128 million, or 4% annualized, to $12.0 billion. Loan growth resulted from a 6% annualized increase in commercial loans and 19% annualized growth in residential mortgages. Average deposits increased over the prior quarter; period-end deposits decreased due to a $75 million decrease in payroll deposits, which fluctuate daily. The deposit mix shifted towards time deposits reflecting the impact of higher interest rates on customer demand. The average cost of deposits increased by 0.13% compared to the prior quarter, and the ratio of loans/deposit increased to 102% during the quarter. Capital measures were unchanged, with the ratio of equity/assets measuring 12.7%, while the non-GAAP measure of tangible equity/tangible assets measuring 8.5%. During the quarter, book value per share increased to $32.84 and tangible book value per common share increased to $20.68.
RESULTS OF OPERATIONS
Third quarter EPS increased by 23% year-over-year, propelled by higher revenues and positive operating leverage. There were negligible net non-core items during the most recent quarter, and both GAAP EPS and the non-GAAP core EPS measure totaled $0.70. The third quarter ROA measured 1.08%, while the efficiency ratio improved year-over-year to 57.2%. The third quarter return on equity was 8.3%, while the non-GAAP measure of core return on tangible common equity was 13.7%. Revenue and expense in 2018 include Commerce Bancshares Corp. operations acquired in the fourth quarter of 2017. Most categories of revenue and expense increased year-over-year due to this acquisition.
Third quarter net interest income increased by 24% year-over year due to growth in average earning assets. The net interest margin measured 3.32% in the most recent quarter, compared to 3.50% in the prior quarter and to 3.36% in the third quarter of 2017. The net interest margin includes purchased loan accretion, which varies each quarter primarily due to the impact of recoveries of purchased credit impaired loans. This accretion contributed 0.17%, 0.25%, and 0.14% to the margin in the above quarters, respectively. Excluding accretion, asset yields and funding costs generally trended higher in recent quarters due to the impact of Federal Reserve interest rate hikes. Non-interest income increased by 2% year-over-year. Growth in loan and deposit related fee income partially offset a decrease in mortgage banking revenue. Loan related income reached a record quarterly level due to strong SBA loan originations and related sale gains, together with other commercial lending related fees. The loan loss provision increased year-over-year, exceeding net loan charge-offs, and adding to the loan loss allowance in line with loan growth during the quarter.
Third quarter non-interest expense decreased from the prior quarter including lower mortgage banking related expense and completion of Commerce related cost savings. Total full-time equivalent staff decreased to 1,970 positions at quarter-end from 1,992 positions at the start of the year. The third quarter effective income tax rate was 21% in 2018 compared to 24% in 2017, including the benefit of federal income tax reform which became effective in 2018.
INVESTOR CONFERENCE CALL
Berkshire will conduct a conference call/webcast at 10:00 a.m. eastern time on Thursday, October 18, 2018 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/10125042. 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 Berkshire's website at http://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 Thursday, October 25, 2018 by dialing 877-344-7529 and entering access number 10125042. The webcast will be available on Berkshire's website for an extended period of time.
Berkshire Hills Bancorp is the parent of Berkshire Bank - America's Most Exciting Bank®. The Company has approximately $12.0 billion in assets and 115 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.
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 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 primarily include securities gains/losses, merger costs, and restructuring costs. Securities gains/losses include unrealized gains/losses on equity securities beginning in the first quarter of 2018. 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 in 2017 and 2018 are primarily related to the business combinations with First Choice Bank and Commerce Bancshares Corp. 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 during the year.
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.
Investor Relations Contact
James M. Moses, Senior Executive Vice President & CFO; 413-236-3379
Elizabeth Mach; Senior Vice President, Marketing Officer; 413-445-8390