Berkshire Hills Bancorp, Inc. (NYSE: BHLB) reported second quarter GAAP earnings of $0.52 per share in 2016 compared to $0.35 in 2015. Core earnings increased to $0.54 per share from $0.51 for these respective periods. Results increased due to expanded operations and improved profitability. Core EPS is a non-GAAP financial measure and is adjusted to exclude net non-core charges primarily related to acquisitions and restructuring activities. GAAP results last year included higher noncore charges related to the Hampden Bancorp acquisition.
SECOND QUARTER FINANCIAL HIGHLIGHTS (comparisons are to prior quarter unless otherwise stated):
- 5% total loan growth
- 4% total commercial loan growth
- 3.31% net interest margin (fully taxable equivalent)
- 58.7% efficiency ratio (non-GAAP financial measure)
- 0.26% non-performing assets/assets
- 0.22% net loan charge-offs/average loans
CEO Michael Daly stated, "Our commercial and retail teams posted solid growth in the second quarter of 2016. This included the benefit of the Philadelphia area SBA lending business acquired during the quarter and operating as 44 Business Capital, a division of Berkshire Bank. Loan balances were up in all major lending categories and our total loan yield improved despite the ongoing market interest rate pressures. Profitability metrics also improved, including improved efficiency from our increased business scale."
Mr. Daly concluded, "Our recent agreement to acquire First Choice Bank adds new dimensions to our business model. This includes new branches in attractive Princeton and Philadelphia area markets, along with a strong mortgage banking platform with operations in targeted national markets. These operations complement our other recent development strategies. They are targeted to enhance our liquidity and capital strength, as well as to provide additional earnings and profitability gains beginning in 2017."
DIVIDEND DECLARED
The Board of Directors voted to declare a cash dividend of $0.20 per share to shareholders of record at the close of business on August 4, 2016, payable on August 18, 2016. The dividend equates to a 3.0% annualized yield based on the $26.87 average closing price of Berkshire's common stock during the second quarter.
FINANCIAL CONDITION
Loan growth in all major categories benefited from strong originations activities. Commercial outstandings increased in all major regions, with the strongest growth posted in Connecticut and Eastern Massachusetts. Berkshire added $37 million in new commercial balances with the acquisition of assets and operations related to 44 Business Capital. Residential mortgage growth included both retail originations and increased wholesale activity with financial institutions in the region. Consumer loan growth reflected the Company's expanded indirect auto lending in its markets. Deposits increased in all categories, with transaction balances accounting for the highest growth rate. The planned deposit contribution from First Choice will contribute an important new source of funds for lending. Total assets increased to $8.0 billion as of midyear and are expected to be approximately $9 billion when the First Choice merger is completed.
Total book value per share advanced to $29.64. Tangible book value per share (a non-GAAP financial measure) was flat at $18.44 due primarily to the goodwill recorded for the 44 Business Capital acquisition. Problem assets and net loan charge-offs remained comparatively low and were slightly improved during the quarter.
RESULTS OF OPERATIONS
Return on equity and return on assets improved year-over-year on both a GAAP and core basis. Over the five most recent quarters, the GAAP ROE has varied depending primarily on merger related charges. The core return on tangible equity has exceeded 12% in all five of these quarters.
The net interest margin decreased to 3.31% from 3.33% in the linked quarter, including a decrease in purchased loan accretion to $2.0 million from $2.1 million in the prior quarter. Funding costs increased including the impact of forward interest rate swaps which became effective as scheduled. Fee income also increased quarter over quarter including the benefit of SBA loan sale gains contributed by the new 44 Business Capital operations as well as higher mortgage banking volume.
Total non-interest expense decreased by $0.8 million compared to the linked quarter, including a seasonal reduction in payroll tax expense. Total full-time equivalent staff increased to 1,222 persons at quarter-end, compared to 1,208 at the start of the quarter, including the acquired operations. The loan loss provision increased by $0.5 million due to portfolio growth. The tax rate decreased to 25% from 28% in the prior quarter due to additional tax credit related benefits on investment projects.
BACKGROUND
Berkshire Hills Bancorp is the parent of Berkshire Bank – America's Most Exciting Bank®. The Company, recognized for its entrepreneurial approach and distinctive culture, has approximately $8.0 billion in assets and 93 full service branch offices in Massachusetts, New York, Connecticut, and Vermont providing personal and business banking, insurance, and wealth management services. The Company has a pending agreement to acquire First Choice Bank, a $1.1 billion bank with eight branches in the Princeton, New Jersey area and a national mortgage originations subsidiary. For more information, visit www.berkshirebank.com.
