Berkshire Hills Bancorp, Inc (NYSE: BHLB), parent of Berkshire Bank, reported first quarter core earnings per share totaling $0.54 in 2013, which was a 20% increase over 2012 first quarter core EPS of $0.45. First quarter core earnings reached a record $13.5 million, which was a 43% increase over prior year first quarter results. Berkshire has entered its fourth year of consecutive quarterly core earnings growth due to ongoing business expansion and improved profitability. Per share results include the impact of shares issued for bank acquisitions in 2012.
First quarter GAAP earnings in both years included the impact of net non-core charges related primarily to merger and integration expenses which were generally within the range of the Companys expectations. These net charges totaled $0.12 and $0.17 per share after-tax in first quarter 2013 and 2012, respectively. Including these non-core items, first quarter GAAP net income was $0.42 and $0.28 per share in 2013 and 2012, respectively.
FIRST QUARTER FINANCIAL HIGHLIGHTS
20% increase in core earnings per share, compared to first quarter of 2012
39% increase in net revenue, compared to first quarter of 2012
12% annualized increase in commercial business loans during quarter
10% annualized increase in average deposit balances over prior quarter
3.73% net interest margin, increased from 3.67% in the prior quarter
57% efficiency ratio, improved from 60% in the prior quarter
0.56% non-performing assets/total assets
0.23% annualized net loan charge-offs/average loans
Berkshire Chairman and CEO Michael Daly stated, We achieved our bottom line objective in the first quarter, with a 20% increase in core earnings per share compared to the same period in 2012. This follows the 29% full year increase we achieved in 2012 for core EPS. We are generating business in our new markets by leveraging our brand and culture with increasingly sophisticated products and technologies. During the first quarter, we also completed the integration of our Beacon Syracuse operations. We are improving our efficiency, and achieved a 7% annualized increase in core earnings compared to the most recent quarter.
Daly continued, We remain focused on commercial lending, driven by 12% annualized growth in commercial business loans in the most recent quarter. During this quarter, we also announced the recruitment of an experienced Eastern Massachusetts commercial banking team, as well as the recruitment of an experienced Syracuse commercial leader. Our mortgage and consumer lending revenue is benefiting from our 2012 expansion in Eastern Massachusetts and now in Central New York. We continue to pursue our growth targets for the year based on our multiple initiatives.
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 May 16, 2013, payable on May 30, 2013. This dividend equates to a 2.9% annualized yield based on the $24.59 average closing price of Berkshires common stock in the first quarter of 2013.
FINANCIAL CONDITION
Berkshire managed its balance sheet in the first quarter to build targeted business volumes while repositioning assets acquired through bank acquisitions in 2012 and benefiting the loan yield. Targeted fixed rate mortgages were replaced with shorter duration securities that support the asset sensitive balance sheet profile in the event of future higher interest rates. Measures of asset quality, liquidity, and capital remained favorable.
Total commercial loans benefited from 12% annualized growth in commercial business loans during the first quarter. Berkshire is building business loan volume in its markets while it targets relationships with middle market customers who require a full range of products and services provided by a responsive local banking partner. Total originations of commercial loan commitments were up 23% from the prior quarter and 48% from the prior year first quarter. Collections of acquired impaired and other targeted commercial credit balances were approximately $19 million, or 4% of total commercial loans on an annualized basis, as the Company continues to make progress with integrating and optimizing acquired bank portfolios to contribute to its balanced portfolio growth objectives. In the most recent quarter, Berkshire expanded its commercial lending program, including an experienced new team in Eastern Massachusetts, a new commercial leader in its recently acquired Syracuse market, and team additions in the Hartford/Springfield region. These teams are expected to contribute to increased commercial originations in these regional markets where Berkshire increased its presence in 2012.
Asset quality metrics remained favorable in the most recent quarter. Quarter-end non-performing assets were 0.56% of total assets. Net loan charge-offs measured 0.23% of average loans, which was the lowest level in the last five quarters. Accruing delinquent loans declined slightly to 1.08% of total loans during the quarter. The loan loss allowance increased slightly to 0.86% of total loans during this period. For loans from business activities (excluding acquired loans), net charge-offs averaged 0.26% and the related allowance measured 1.22% of these loans.
Ongoing deposit acquisition resulted in 10% annualized growth in total average deposits, including 10% annualized growth in average transaction balances. Outstanding balances were affected by seasonal factors at the start and end of the period. Berkshire promotes lower cost transaction accounts as a focus of relationship based business development for retail and business accounts.
Stockholders equity increased based on retained earnings. Tangible book value per share increased at a 6% annualized rate to $15.87, while the ratio of tangible equity/assets improved to 8.1% from 7.8% during the quarter. Total book value per share increased to $26.68 and total equity/assets improved to 12.8%. Near the end of the quarter, Berkshire announced that it had completed the repurchase of approximately 100 thousand outstanding common shares and authorized a new 500 thousand share repurchase program which will be available indefinitely for future stock buybacks.
RESULTS OF OPERATIONS
Berkshire posted strong growth in first quarter revenue, earnings, and earnings per share in 2013 compared to 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, absorbing charges related to its branch and team expansion, and investing in technology and other infrastructure. Results in 2013 included the operations of The Connecticut Bank and Trust Company and Beacon Federal Bancorp, along with mortgage operations in Eastern Massachusetts - all of which were acquired after the first quarter of 2012.
The first quarter core return on equity was 8.1% in 2013, compared to 6.8% in 2012. Including the amortization of intangible assets, Berkshire generated $0.59 in tangible equity per share, which equated to a 15.1% annualized return on starting tangible equity in the most recent quarter. First quarter GAAP return on equity included net non-core charges and measured 6.3% and 4.2% in 2013 and 2012, respectively. The reconciliation of net income and core income, together with related profitability measures, is shown on table F-9 of the financial tables.
Berkshires total first quarter net revenue increased by 39% to $57 million in 2013 compared to 2012. Compared to the linked quarter, first quarter net interest income benefited from a 2% annualized increase in average loan balances and a 6 basis point increase in the net interest margin. Net interest income declined slightly compared to the prior quarter due to fewer days in the first quarter of the year.
The net interest margin improved to 3.73% from 3.67% in the prior quarter and from 3.62% in the first quarter of 2012. The improvement compared to the linked quarter included the benefit of lower amortization of mortgage premiums due to a decline in residential mortgage prepayment speeds. Net interest income includes the net benefit from loan purchase accounting accretion which totaled $3.8 million and $3.2 million in the two most recent respective quarters, including approximately $2.3 million in each quarter from the collection of acquired impaired loans.
Compared to the prior quarter, changes in fee income included seasonal factors for deposit and insurance fees. Loan related fees decreased primarily due to lower volumes and margins in mortgage banking operations, including seasonal factors and processing related costs. Wealth management fees increased by 21% to a quarterly record of $2.3 million compared to the prior quarter including the benefit of higher volume and stronger margins related to improved securities market conditions.
The first quarter provision for loan losses increased to $2.4 million in 2013 from $2.0 million in 2012. Net loan charge-offs totaled $2.3 million and $1.8 million in these periods, respectively. There were no significant changes in the Companys favorable charge-off metrics. Following the loan loss provision, the loan loss allowance increased to $33.3 million from $33.2 million during the quarter.
First quarter 2013 non-interest expense totaled $39.5 million. This included $5.1 million in non-recurring and merger related expense primarily related to the completion of the Beacon Federal acquisition and the related systems conversion. Berkshire has substantially completed its projected cost savings and efficiencies totaling approximately $5.5 million annualized based on a 30% gross cost saving expectation for these acquired operations. Net of the above charges, core first quarter non-interest expense totaled $34.4 million. Most major categories of expense were flat or down from the prior quarter; the Company consolidated two New York branches during this period. The efficiency ratio improved to 57% due to expense reductions from the prior quarter. The core effective income tax rate was 32% in the most recent quarter. This rate increased from 30% for the prior fiscal year due to higher expected pretax income in 2013 based on Berkshires growth and the lower proportionate benefit of tax preference items.
Pittsfield, Mass. April 29, 2013 Berkshire Hills Bancorp, Inc.