Berkshire Hills Bancorp Inc. Reports Operating Results (10-Q)
Berkshire Hills has a market cap of $490.4 million; its shares were traded at around $22.72 with a P/E ratio of 13.9 and P/S ratio of 2.8. The dividend yield of Berkshire Hills stocks is 2.9%.
Highlight of Business Operations:Berkshire’s first quarter net income was $5.8 million ($0.28 per share) in 2012, compared to $2.8 million ($0.20 per share) in 2011. Results in both periods included nonrecurring and merger related charges, and results in the most recent quarter included a loss on discontinued operations. In the most recent quarter, net nonrecurring and merger related charges totaled $4.2 million, with a related tax benefit of $1.3 million, and the net after-tax loss on discontinued operations was $0.6 million. Excluding these items, adjusted net income was $9.4 million ($0.45 per share) in the most recent quarter. This is a non-GAAP measure which the Company views as equivalent to the run rate of its core operating profits. The return on average assets was 0.94% based on this adjusted measure. The GAAP return on assets was 0.59% during the quarter.
Revenue. Total first quarter net revenue increased by $12.7 million (45%) to $40.9 million in 2012 compared to $28.3 million in 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions. Revenue in the most recent quarter increased by $1.0 million (10% annualized) compared to the fourth quarter of 2011, which demonstrates Berkshire’s ongoing focus on business volume and revenue growth after the bank acquisitions. This ongoing revenue growth in the most recent quarter was primarily due to growth in non-interest income. The ratio of fee income to total net interest and fee income was 23% in the most recent quarter compared to 29% in the first quarter of 2011, which reflects the lower proportionate contribution of fee income in the acquired banks. As a result, first quarter annualized revenue per share decreased to $7.78 in 2012 compared to $8.09 in 2011. Berkshire anticipates increasing the ratio of fee income to total net interest and fee income to 30% or higher as a result of additional cross sales in new markets along with further wallet share growth in existing markets.
Net Interest Income. First quarter net interest income increased by $11.0 million (55%) to $31.1 million in 2012 compared to $20.1 million in 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions. Net interest income was stable in the most recent quarter compared to the fourth quarter of 2011. The net interest margin increased slightly to 3.62% from 3.61% for these periods, respectively. The net interest margin increased from 3.30% in the first quarter of 2011 primarily due to the 0.39% reduction in funding costs in the ongoing low rate environment, while the loan yield increased slightly due to the benefit of certain higher yielding loans acquired with the Rome and Legacy business combinations. While loan balances increased at an 11% annualized rate in the most recent quarter, much of this growth was recorded in the second half of the quarter. As a result, the average balance of earning assets only increased by 1% compared to the prior quarter. The contribution of this volume growth is expected to provide more benefit to net interest income beginning in the second quarter of 2012.
Non-Interest Income. First quarter non-interest income increased by $1.7 million (21%) to $9.8 million in 2012 compared to $8.1 million in 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions. Non-interest income increased by $1.0 million (11%) compared to the fourth quarter of 2011, which demonstrates Berkshire’s continuing non-interest income growth after the bank acquisitions. This growth was due to an increase in fee income, including the benefit of increases related to secondary market mortgage sales, insurance, and wealth management. These increases included increased business volume in these areas, along with some seasonal and pricing related factors. A seasonal reduction in deposit related fees was generally offset by a seasonal increase in insurance commissions and fees. Beginning in 2012, Berkshire has renegotiated its compensation arrangements with insurance carriers to substantially reduce the reliance on seasonal contingency income without reducing expected total yearly income. In previous years, Berkshire has had significant seasonality in its insurance revenues in the first two quarters of the year. As a result of this change, first quarter insurance related revenues decreased by $1.0 million year-to-year due to the higher contingency income recorded in 2011. The higher wealth management income in the most recent quarter included the benefit of increased assets under management. Total wealth and investment assets under management increased during the most recent quarter by 7% to $1.03 billion as of March 31, 2012. Included in other non-interest income is a $0.6 million credit for income on bank owned life insurance policies, which is partially offset by a $0.4 million charge representing the loss on investment tax credit limited partnership interests. This loss is offset by a $0.5 million credit to income tax expense representing the net tax benefit of these investments in renewable energy, low income housing, and other tax credit partnerships.
Income from Continuing Operations. First quarter income from continuing operations increased by $3.7 million (129%) to $6.5 million in 2012 compared to $2.8 million in 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions. Income in the most recent quarter included a noncash credit totaling $1.2 million representing the net accretion of purchase accounting entries, including $0.5 million related to loans and $0.7 million related to deposits. Income in the quarter also included a noncash charge of $1.3 million for the amortization of intangible assets, which also is primarily related to the Rome and Legacy acquisitions. The first quarter tax rate on income from continuing operations was 26% in 2012 compared to 19% in 2011. This significantly reflects the higher income expected in 2012, and the lower benefit of tax advantaged revenues as a percentage of pretax income. Income tax expense in the first quarter of 2011 reflects the impacts of adjustments as described in Note 3 of the consolidated financial statements.
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