EX-99.1 2 berkshirepressrelease.txt 1 BERKSHIRE HILLS BANCORP, INC. REPORTS CORE EPS GROWTH DECLARES QUARTERLY CASH DIVIDEND Receives Regulatory Approvals for 2 New York Branches PITTSFIELD, MA--January 26, 2006--Berkshire Hills Bancorp, Inc. (NASDAQ: BHLB), the holding company for Berkshire Bank ("the Bank"), today reported $2.11 in core earnings per diluted share for the year 2005, a 10% increase compared to $1.92 for the year 2004. Core earnings totaled $15.8 million in the year 2005, increasing by 44% primarily due to the acquisition of Woronoco Bancorp, Inc. on June 1, 2005. Core earnings per share growth was less than core earnings growth, primarily due to the issuance of shares for the acquisition. The Company reported GAAP net income of $8.2 million ($1.10 per diluted share) for the year 2005, including an $8.8 million non-cash charge related to the termination of the Bank's Employee Stock Ownership Plan (ESOP). This charge did not reduce stockholders' equity. GAAP net income for the year 2004 was $11.5 million ($2.01 per diluted share). The Company also reported core earnings for the fourth quarter of 2005 were $4.6 million ($0.52 per diluted share), compared to $2.9 million ($0.51 per diluted share) in the same quarter of 2004. Fourth quarter 2005 GAAP net income totaled $4.8 million ($0.55 per diluted share), compared to $3.2 million ($0.55 per diluted share) in the fourth quarter of 2004. Fourth quarter financial highlights (compared to prior quarter) include: -- The net interest margin increased to 3.36%, the highest quarterly level in 2005. -- Annualized deposit growth was 10% (excluding brokered deposits) and commercial loan growth was 8%. -- Total fee income increased by 10%. Commenting on the Company's performance, Michael P. Daly, President and Chief Executive Officer of the Company and the Bank, stated, "Our strong performance in 2005 was due to both organic growth and strategic acquisitions. The Company's improved profitability also reflects our increased efficiency and continuing strong asset quality. We bolstered our efficiency with 37% cost saves in the Woronoco acquisition, which compared favorably to our 30% original target. The most recent quarter was the first quarter after our integration of Woronoco. Our emphasis was on developing the structure for accelerated organic growth in our major markets, which we announced at our investor conference last month, as we transition from a community to a regional bank. We recruited leadership to launch this effort in New York and expect to complete recruitment for our leadership team in Pioneer Valley. We also added a Chief Credit/Risk Officer to our senior management team. Furthermore, we completed the acquisition of two insurance agencies, improving our position as the premier insurance provider in our Massachusetts markets, and we intend to consummate additional insurance acquisitions in our major markets." DIVIDEND DECLARED The Board of Directors declared a quarterly cash dividend of $0.14 per share, payable on February 21, 2006, to stockholders of record at the close of business on February 6, 2006. NEW YORK EXPANSION The Company also announced additional plans for its expansion in New York with its receipt of regulatory approvals to open Bank branches in Delmar and Guilderland. The Company expects to open these new branches as well as the previously announced East Greenbush branch in the second quarter of 2006. Announcements will be made later of the opening dates for these branches. 2 CORE NET INCOME The following table represents a reconciliation of GAAP net income to core net income and earnings per share. 4Q2005 3Q2005 4Q2004 FY2005 FY2004 (In thousands, except earnings per share) -------- -------- -------- -------- -------- Net income - GAAP $4,838 $4,746 $3,177 $ 8,226 $11,509 Less: Gain on sale of securities, net 592 541 265 2,313 953 Plus: Non-recurring loss from discontinued operations - - - - 431 Plus: ESOP termination expense 113 - - 8,492 - Plus: Merger and conversion expense 236 538 - 1,400 - Net income - core $4,595 $4,743 $2,912 $15,805 $10,987 Earnings per diluted share - GAAP $0.55 $0.54 $0.55 $1.10 $2.01 Earnings per diluted share - core $0.52 $0.54 $0.51 $2.11 $1.92 Average diluted shares outstanding 8,813 8,856 5,725 7,503 5,731 Note: All adjustments to arrive at core net income are stated net of taxes. FINANCIAL CONDITION Total assets were $2.0 billion at December 31, 2005, up from $1.3 billion at year-end 2004. The increase included approximately $850 million in assets related to the Woronoco acquisition, and is net of a reduction of $243 million in loans and securities under a de-leveraging plan executed in conjunction with the acquisition. Most categories of assets and liabilities increased primarily due to the acquisition of Woronoco and secondarily to organic growth. Total assets at the end of the fourth quarter were relatively unchanged from the prior quarter-end. Loans totaled $1.42 billion at December 31, 2005, increasing by $588 million (71%) from year-end 2004. Loan growth included $528 million related to the Woronoco acquisition, consisting primarily of residential first and second mortgages. Excluding the impact of the loans acquired through the Woronoco acquisition and $4 million in third quarter loan sales, total loans increased by $64 million in 2005, growing at an 8% annual rate. In the fourth quarter, total loans were relatively unchanged. Annualized commercial loan growth of 8% was offset by runoff in the residential mortgage and consumer loan portfolios. Investment securities totaled $421 million at year-end, increasing by $6 million (2%) compared to year-end 2004. The impact of the purchased Woronoco securities was offset by the de-leveraging program, the sale of $46 million in securities to provide funds for the acquisition, and ongoing amortization during the year. Total investment securities decreased by 1% during the most recent quarter, due to sales and runoff. During the year, the Company emphasized the origination of higher-yielding loans and utilized cash flows from securities to help fund this growth. Deposits totaled $1.37 billion at year-end, increasing by $525 million (62%) from year-end 2004. Deposit growth included $443 million related to the Woronoco acquisition. Excluding the impact of the acquired Woronoco deposits, total deposits increased by $82 million for the year, growing at a 10% rate. Total deposits, excluding brokered time deposits, increased at a 10% annualized rate during the most recent quarter. Deposit growth in the Company's New York branches totaled $33 million for the year and $11 million for the quarter, accounting for about 40% and 35% of the total organic deposit growth for these periods, respectively. Borrowings also increased during the year due to the acquisition but decreased in the most recent quarter due to deposit growth. Stockholders' equity totaled $246 million at year-end 2005, increasing by $114 million, or 87%, from year-end 2004. Consideration for the Woronoco acquisition included the issuance of 2.93 million common shares valued at $108 million, with an additional $4 million credit to equity for the value of outstanding Woronoco stock options. The ESOP termination did not reduce stockholders' equity because the related charge to earnings was offset by credits to unearned compensation and additional paid-in capital. These credits also offset the $5 million impact of the transfer of 146,971 shares of treasury stock, which represented full payment of the ESOP loan. The contribution of net income to stockholders' equity was mostly offset by dividends, additional treasury stock purchases, and a decrease in accumulated other comprehensive income due to lower securities prices. Goodwill increased to $88 million and identifiable intangible assets increased to $12 million due to the Woronoco acquisition. As a result, tangible book value per share was $17.15 at December 31, 2005, compared to $21.19 at year-end 2004. The ratio of tangible equity to tangible assets was 7.56% at year-end 2005, down from 9.55% at year-end 2004 due to acquisition goodwill. The ratio of equity to assets increased to 12.1% from 10.1% for these respective dates due to the issuance of shares related to the Woronoco acquisition. During 2005, the Company repurchased 221,000 common shares, totaling $7.52 million, at an average share price of $34.00. Repurchases in the most recent quarter totaled 14,500 shares at a $32.03 average price. Additionally, treasury shares include 146,971 shares allocated by the ESOP for the repayment of its loan at the time of termination. Also during the year, the Company paid total cash dividends of $3.71 million. The quarterly cash dividend paid was increased from $0.12 per share to $0.14 per share, a 17% increase, beginning in the third quarter. 3 ASSET QUALITY Asset quality indicators remained favorable throughout 2005. The loans added through the Woronoco acquisition were primarily concentrated in comparatively low risk residential mortgage and home equity loans. The rate of net loan charge-offs to total average loans remained comparatively low at 0.08% for the year 2005. Additionally, the ratio of non-performing assets to total assets declined to 0.06% at year-end 2005, compared to 0.09% at year-end 2004. The year-end 2005 allowance for loan losses measured 0.92% of total loans, and the ratio of the allowance to non-performing loans remained strong at 1096% at year-end 2005, compared to 811% at year-end 2004. RESULTS OF OPERATIONS All major categories of income and expense increased in 2005 primarily due to the acquisition of Woronoco Bancorp on June 1, 2005. Core earnings per share reflects the ongoing business operations of the Company and includes the impact of shares issued in conjunction with the Woronoco acquisition. Core earnings per share increased by 2% and 10% for the fourth quarter and year in 2005, respectively, compared to 2004. In addition to the benefits of the Woronoco merger, these increases reflected the benefit of organic loan and deposit growth recorded by the Company over this period. The improvements also reflected the benefit of higher service fee income, including wealth management service fees, as well as the benefit of controlled expense growth and gains on the sale of securitized loans. Major items that created a difference between core earnings and net income were ESOP termination charges, merger/conversion charges, and net securities gains. The ESOP termination was a one-time event in 2005. Merger and conversion expense consisted primarily of costs related to systems conversions, interim systems, and operations integrations, as well as the cost of interim Woronoco staff retained through the conversion dates. Net securities gains primarily represented gains on equity sales as the Company adjusted its position to decrease exposure to equity market fluctuations. Core earnings of $4.6 million were slightly lower than GAAP net income of $4.8 million in the most recent quarter because securities gains exceeded non-core charges. For the year 2005, core earnings of $15.8 million were 92% higher than GAAP net income of $8.2 million due mainly to the non-core ESOP termination expense. The Company's core return on tangible assets measured 1.02% in the fourth quarter of 2005. This exceeded the 0.96% GAAP return on assets primarily due to the non-cash impact of the amortization of intangibles. The core return on tangible equity measured 13.5% in the fourth quarter of 2005. Analysis of equity net of intangibles is common in the industry due to the impact of merger transactions. Primarily due to the goodwill associated with the Woronoco acquisition, this measure exceeded the GAAP return on equity of 7.9% for this period. The efficiency ratio measured 57.1% for this most recent quarter. Berkshire's net interest margin increased to 3.36% in the fourth quarter of 2005, compared to 3.31% in the third quarter and 3.26% in the second quarter. The Company has benefited from the Bank's positive sensitivity to higher interest rates, its deposit and loan pricing strategies, and the de-leveraging program. The Company has emphasized low cost transaction accounts in its deposit promotions. Due to a 2% decrease in average earning assets, net interest income did not change significantly in the fourth quarter of 2005, compared to the third quarter. The Company's non-interest income totaled $4.3 million in the most recent quarter, compared to $4.0 million in the previous quarter. Total service fee income increased by $264 thousand (10%) in the most recent quarter, compared to the prior quarter, including the benefit of higher insurance revenues. Net securities gains were $882 thousand and $832 thousand in these two quarters, respectively. Excluding these gains, the ratio of core non-interest income to average assets improved to 0.67% from 0.60% in these quarters. Including these gains, the GAAP ratio of non-interest income to average assets increased to 0.85% from 0.77% in these quarters. Non-interest expense totaled $11.8 million in the fourth quarter of 2005, compared to $11.6 million in the prior quarter, including a non-core $168 thousand ESOP termination charge. The ratio of core tangible non-interest expense to average assets was 2.13% and 1.99% in these two quarters, respectively. Fourth quarter expenses included incentive related compensation and $383 thousand in costs of recently opened New York branches and expanded commercial lending, up from $190 thousand in the prior quarter. The GAAP ratio of non-interest expense to average assets measured 2.32% and 2.25% in these quarters, respectively. The effective tax rate measured 33.0% in the fourth quarter of 2005, compared to 34.1% in the third quarter. CONFERENCE CALL Michael P. Daly, President and Chief Executive Officer, and Wayne F. Patenaude, Senior Vice President, Treasurer and Chief Financial Officer, will host a conference call at 10:00 a.m. (EST) on Friday, January 27, 2006. Persons wishing to access the conference call may do so by dialing 1-877-407-8035. Replays of the conference call will be available beginning January 27, 2006 at 1:00 p.m. (EST) through February 2, 2006 at 11:59 p.m. (EST) by dialing 1-877-660-6853 and using Account #286 and Conference ID#184282 (both numbers are needed to access the replay). 4 BACKGROUND Berkshire Hills Bancorp, Inc. is the holding company for Berkshire Bank. Established in 1846, Berkshire Bank is one of Massachusetts' oldest and largest independent banks and the largest banking institution based in Western Massachusetts. The Bank is headquartered in Pittsfield, Massachusetts with branch offices serving communities throughout Western Massachusetts and Northeastern New York. The Bank is committed to operating as an independent super-community bank, delivering exceptional customer service and a broad array of competitively priced retail and commercial products to its customers. For more information on Berkshire Hills Bancorp, Inc. or Berkshire Bank, visit www.berkshirebank.com or call 413-443-5601. FORWARD-LOOKING STATEMENTS Statements contained in this news release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. These risks and uncertainties include among others: changes in market interest rates and general and regional economic conditions; changes in government regulations; changes in accounting principles; the quality or composition of the loan and investment portfolios; and the achievement of anticipated future earnings benefits from recent acquisitions. Additionally, other risks and uncertainties may be described in the Company's quarterly reports on Form 10-Q for the quarters ended March 31, June 30 and September 30 and in its annual report on Form 10-K, each filed with the Securities and Exchange Commission, which are available at the Securities and Exchange Commission's internet website (www.sec.gov) and to which reference is hereby made. Therefore, actual future results may differ significantly from results discussed in these forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements. NON-GAAP FINANCIAL MEASURES This press release contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (GAAP). The Company's management uses certain non-GAAP measures for operational and investment decisions and believes that these measures are among several useful measures for understanding its operating results, performance trends, and financial condition. These measures should not be construed as 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 and elsewhere in this release. NEWS CONTACT: Wayne F. Patenaude Senior Vice President, Treasurer and Chief Financial Officer 413-236-3195 5 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- Unaudited ----------------------------------- Dec. 31, Sept. 30, Dec. 31, 2005 2005 2004 ----------- ----------- ----------- (In thousands) Assets Cash and due from banks $ 30,977 $ 30,335 $ 15,237 Short-term investments 110 1,177 2,665 ----------- ----------- ----------- Total cash and cash equivalents 31,087 31,512 17,902 ----------- ----------- ----------- Securities available-for-sale, at fair value 390,876 398,937 384,421 Securities held-to-maturity, at amortized cost 29,908 26,951 29,942 Loans held for sale 2,093 1,852 1,053 Total loans 1,416,449 1,412,109 828,179 Less: Allowance for loan losses (13,001) (13,123) (9,337) ----------- ----------- ----------- Net loans 1,403,448 1,398,986 818,842 ----------- ----------- ----------- Premises and equipment, net 26,236 26,547 14,780 Accrued interest receivable 8,508 8,177 5,472 Goodwill 88,092 87,791 6,782 Identifiable intangible assets 11,524 11,951 472 Bank owned life insurance 19,002 18,800 18,200 Cash surrender value - other life insurance 11,503 11,431 5,862 Other assets 13,276 10,156 6,387 ----------- ----------- ----------- Total assets $2,035,553 $2,033,091 $1,310,115 =========== =========== =========== Liabilities and Stockholders' Equity Deposits $1,371,218 $1,347,751 $ 845,789 Borrowings 397,453 421,074 327,926 Trust preferred indebtedness 15,464 15,464 - Accrued expenses and other liabilities 5,352 3,165 4,664 ----------- ----------- ----------- Total liabilities 1,789,487 1,787,454 1,178,379 ----------- ----------- ----------- Stockholders' equity: Preferred stock ($.01 par value; 1,000,000 shares authorized; none issued or outstanding) - - - Common stock ($.01 par value; 26,000,000 shares authorized; 10,600,472 shares issued at December 31, 2005, 10,600,472 at September 30, 2005, and 7,673,761 at December 31, 2004; shares outstanding: 8,539,868 at December 31, 2005; 8,563,515 at September 30, 2005, and 5,873,563 at December 31, 2004) 106 106 77 Additional paid-in capital 198,667 198,744 77,588 Unearned compensation (1,435) (1,788) (7,414) Retained earnings 99,429 95,811 94,996 Accumulated other comprehensive income (2,239) 400 4,214 Treasury stock at cost (2,060,604 shares at December 31, 2005, 2,036,957 at September 30, 2005, and 1,800,198 at December 31, 2004) (48,462) (47,636) (37,725) ----------- ----------- ----------- Total stockholders' equity 246,066 245,637 131,736 ----------- ----------- ----------- Total liabilities and stockholders' equity $2,035,553 $2,033,091 $1,310,115 =========== =========== =========== 6 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES -------------------------------------------------------------------------------- LOAN ANALYSIS Unaudited ------------------------------------------------ December 31, September 30, December 31, 2005 2005 2004 --------------- --------------- --------------- Percent Percent Percent of of of Balance Total Balance Total Balance Total ------- ------- ------- ------- ------- ------- (Dollars in millions) Residential real estate loans: Residential one- to four-family $ 514 37 % $ 517 37 % $ 217 26 % Residential land development and construction 35 2 34 2 18 2 ------- ------- ------- ------- ------- ------- Total residential real estate loans 549 39 551 39 235 28 Commercial real estate loans: Commercial one-to four-family 20 1 21 1 16 2 Commercial land development and construction 59 4 51 4 21 3 Multi-family 49 3 47 3 16 2 Other commercial real estate 283 20 279 20 208 25 ------- ------- ------- ------- ------- ------- Total commercial real estate loans 411 28 398 28 261 32 Commercial business loans 159 11 161 11 151 18 Consumer loans: Automobile 148 11 150 11 123 15 Home equity and other loans 149 11 152 11 58 7 ------- ------- ------- ------- ------- ------- Total consumer loans 297 22 302 22 181 22 ------- ------- ------- ------- ------- ------- Total loans $1,416 100 % $1,412 100 % $ 828 100 % ======= ======= ======= ======= ======= ======= DEPOSIT ANALYSIS Unaudited ------------------------------------------------ December 31, September 30, December 31, 2005 2005 2004 ----------------------------------------------- Percent Percent Percent of of of Balance Total Balance Total Balance Total ------- ------- ------- ------- ------- ------- (Dollars in millions) Demand deposit accounts $ 180 13 % $ 178 13 % $ 110 13 % NOW accounts 149 11 145 11 101 12 Money market accounts 245 18 241 18 156 19 Savings accounts 222 16 231 17 163 19 ------- ------- ------- ------- ------- ------- Total core accounts 796 58 795 59 530 63 Certificates of deposit - regular 517 38 487 36 315 37 Certificates of deposit - brokered 58 4 66 5 - - ------- ------- ------- ------- ------- ------- Total certificates of deposit 575 42 553 41 315 37 Total deposits $1,371 100 % $1,348 100 % $ 845 100 % ======= ======= ======= ======= ======= ======= 7 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME -------------------------------------------------------------------------------- Unaudited ----------------------------------------- Three Months Ended Twelve Months Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2005 2004 2005 2004 -------- -------- -------- -------- (In thousands, except earnings per share) Interest and dividend income Loans $21,820 $11,519 $70,103 $43,766 Debt securities 4,135 3,984 15,711 16,100 Equity securities dividends 544 289 1,806 1,176 Short-term investments 13 15 112 39 -------- -------- -------- -------- Total interest and dividend income 26,512 15,807 87,732 61,081 -------- -------- -------- -------- Interest expense Deposits 7,359 3,183 21,048 12,393 Borrowings 4,116 2,425 15,067 8,331 -------- -------- -------- -------- Total interest expense 11,475 5,608 36,115 20,724 -------- -------- -------- -------- Net interest income 15,037 10,199 51,617 40,357 Provision for loan losses 315 425 1,313 1,565 -------- -------- -------- -------- Net interest income after provision for loan losses 14,722 9,774 50,304 38,792 -------- -------- -------- -------- Non-interest income Customer service fees 1,452 609 4,539 2,347 Wealth management service fees 729 714 2,742 2,670 Insurance fees 664 1 1,343 27 Loan service fees 189 129 749 374 Increase in cash surrender value of life insurance 244 196 893 639 Gain on sales of securities, net 882 390 3,532 1,402 Gain on sale of loans, and securitized loans, net - 81 773 166 Other non-interest income 137 78 352 139 -------- -------- -------- -------- Total non-interest income 4,297 2,198 14,923 7,764 -------- -------- -------- -------- Non-interest expense Salaries and employee benefits 5,758 4,195 20,281 16,882 Termination of Employee Stock Ownership Plan 168 - 8,836 - Occupancy and equipment 1,799 1,055 5,798 4,085 Marketing and advertising 355 357 1,088 991 Data processing 571 381 1,894 1,411 Professional services 471 326 1,899 1,552 Foreclosed real estate and repossessed assets, net 187 118 743 522 Merger and conversion expense 352 - 2,142 - Amortization of intangible assets 481 2 1,140 98 Other non-interest expense 1,658 866 5,177 3,436 -------- -------- -------- -------- Total non-interest expense 11,800 7,300 48,998 28,977 -------- -------- -------- -------- Income from continuing operations before income taxes 7,219 4,672 16,229 17,579 Provision for income taxes 2,381 1,495 8,003 5,639 -------- -------- -------- -------- Income from continuing operations 4,838 3,177 8,226 11,940 -------- -------- -------- -------- Loss from discontinued operations - - - (653) Income tax benefit - - - (222) -------- -------- -------- -------- Net loss from discontinued operations - - - (431) -------- -------- -------- -------- Net income $4,838 $ 3,177 $ 8,226 $11,509 ======== ======== ======== ======== Earnings per share Basic $0.57 $0.60 $1.16 $2.18 Diluted $0.55 $0.55 $1.10 $2.01 Weighted average shares outstanding Basic 8,420 5,281 7,122 5,284 Diluted 8,813 5,725 7,503 5,731 8 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- Unaudited Quarters Ended ------------------------------------------ Dec.31, Sept.30, June 30, Mar.31, Dec.31, 2005 2005 2005 2005 2004 --------- ------- -------- ------- ------- (In thousands, except earnings per share) Interest and dividend income Residential mortgage $7,142 $7,101 $ 4,444 $3,059 $2,967 Commercial real estate 7,001 6,673 4,977 4,044 3,761 Commercial business loans 2,865 2,884 2,505 2,222 2,216 Auto loans 2,256 2,274 1,991 1,806 1,863 Other consumer 2,556 2,217 1,309 785 712 --------- ------- -------- ------- ------- Total interest on loans 21,820 21,149 15,226 11,916 11,519 Securities 4,679 4,628 4,100 4,110 4,273 Short-term investments 13 62 22 11 15 --------- ------- -------- ------- ------- Total interest and dividend income 26,512 25,839 19,348 16,037 15,807 --------- ------- -------- ------- ------- Interest expense Deposits 7,359 5,979 4,318 3,373 3,183 Borrowings 4,116 4,806 3,522 2,637 2,425 --------- ------- -------- ------- ------- Total interest expense 11,475 10,785 7,840 6,010 5,608 --------- ------- -------- ------- ------- Net interest income 15,037 15,054 11,508 10,027 10,199 Provision for loan losses 315 204 300 493 425 --------- ------- -------- ------- ------- Net interest income after provision for loan losses 14,722 14,850 11,208 9,534 9,774 --------- ------- -------- ------- ------- Non-interest income Customer service fees 1,452 1,439 1,033 616 609 Wealth management service fees 729 680 663 670 714 Insurance fees 664 472 175 32 1 Loan service fees 189 179 198 174 129 Increase in cash surrender value of life insurance 244 245 200 203 196 Gain on sale of securities, net 882 832 1,388 429 390 Gain on sale of loans, and securitized loans, net - 22 162 588 81 Other non-interest income 137 86 97 32 78 --------- ------- -------- ------- ------- Total non-interest income 4,297 3,955 3,916 2,744 2,198 --------- ------- -------- ------- ------- Non-interest expense Salaries and benefits 5,758 5,699 4,485 4,335 4,195 Termination of Employee Stock Ownership Plan 168 - 8,667 - - Occupancy and equipment 1,799 1,655 1,212 1,140 1,055 Marketing and advertising 355 372 200 161 357 Data processing 571 518 454 347 381 Professional services 471 590 363 423 326 Foreclosed real estate and other loans, net 187 241 218 94 118 Merger and conversion expense 352 828 963 - - Amortization of intangible assets 481 481 156 30 2 Other non-interest expense 1,658 1,216 1,343 1,006 866 --------- ------- -------- ------- ------- Total non-interest expense 11,800 11,600 18,061 7,536 7,300 --------- ------- -------- ------- ------- Income (loss) before income taxes 7,219 7,205 (2,937) 4,742 4,672 Provision for income taxes 2,381 2,459 1,671 1,490 1,495 --------- ------- -------- ------- ------- Net income (loss) $4,838 $4,746 $(4,608) $3,252 $3,177 ========= ======= ======== ======= ======= Earnings (loss) per share Basic $0.57 $0.56 $(0.74) $0.61 $0.60 Diluted $0.55 $0.54 $(0.74) $0.57 $0.55 Weighted average shares outstanding Basic 8,420 8,456 6,257 5,300 5,281 Diluted 8,813 8,856 6,257 5,691 5,725 Dividends per share $0.14 $0.14 $0.12 $0.12 $0.12 9 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES ---------------------------------------------------------------------- Unaudited At or For the Quarters Ended ------------------------------------------- Dec.31, Sept.30, June 30, Mar.31, Dec.31, 2005 2005 2005 2005 2004 --------- -------- -------- ------- ------- (Dollars in thousands) ---------------------------------------------------------------------- NON-PERFORMING ASSETS ---------------------------------------------------------------------- Non-accrual loans: Residential mortgage $ 360 $ 393 $ 663 $ 298 $ 327 Commercial real estate 127 130 209 144 147 Commercial 553 876 613 832 523 Indirect automobile loans 75 106 78 95 154 Other consumer 71 55 29 1 1 --------- -------- -------- ------- ------- Total non-accrual loans $ 1,186 $ 1,560 $ 1,592 $1,370 $1,152 Real estate owned ("REO") - - - - - --------- -------- -------- ------- ------- Total non- performing assets $ 1,186 $ 1,560 $ 1,592 $1,370 $1,152 ========= ======== ======== ======= ======= Non-performing loans as a percentage of total loans 0.08% 0.11% 0.11% 0.16% 0.14% Non-performing assets to total assets 0.06% 0.08% 0.08% 0.11% 0.09% ---------------------------------------------------------------------- PROVISION AND ALLOWANCE FOR LOAN LOSSES ---------------------------------------------------------------------- Balance at beginning of period $13,123 $13,044 $ 9,645 $9,337 $9,392 Charge-offs (538) (284) (391) (328) (737) Recoveries 101 159 169 143 257 --------- -------- -------- ------- ------- Net loan charge-offs (437) (125) (222) (185) (480) Allowance attributed to acquired loans - - 3,321 - - Provision for loan losses 315 204 300 493 425 --------- -------- -------- ------- ------- Balance at end of period $13,001 $13,123 $13,044 $9,645 $9,337 ========= ======== ======== ======= ======= Allowance for loan losses as a percentage of non-performing loans 1096% 841% 819% 704% 811% Allowance for loan losses as a percentage of total loans 0.92% 0.93% 0.92% 1.13% 1.13% ---------------------------------------------------------------------- NET LOAN (CHARGE-OFFS) RECOVERIES ---------------------------------------------------------------------- Residential mortgage $- $- $- $- $- Commercial real estate - - - - (137) Commercial loans (268) 4 (109) (4) (164) Consumer loans (primarily automobile loans) (169) (129) (113) (181) (179) --------- -------- -------- ------- ------- Total $ (437) $ (125) $ (222) $ (185) $ (480) ========= ======== ======== ======= ======= Net charge-offs as a percentage of total average loans 0.03% 0.01% 0.02% 0.02% 0.06% ---------------------------------------------------------------------- AVERAGE FICO SCORES OF CONSUMER AUTOMOBILE LOANS 716 715 711 708 705 ---------------------------------------------------------------------- 10 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES SELECTED FINANCIAL RATIOS ------------------------------------------------------------------------------- Unaudited At or For the Quarters Ended ------------------------------------------ Dec.31, Sept.30, June 30, Mar.31, Dec.31, 2005 2005 2005 2005 2004 -------- ------- -------- ------- ------- PERFORMANCE RATIOS (annualized)(1) Return (loss) on assets 0.96 % 0.92 % (1.19)% 1.00 % 0.97 % Core return on tangible assets 1.02 1.04 0.94 0.91 0.90 Return (loss) on stockholders' equity 7.89 7.90 (11.26) 9.94 9.72 Core return on tangible stockholders' equity 13.49 14.47 11.42 9.52 9.46 Net interest margin, fully taxable equivalent 3.36 3.31 3.26 3.34 3.37 Core non-interest income to assets 0.67 0.60 0.65 0.71 0.55 Non-interest income to assets 0.85 0.77 1.00 0.84 0.67 Core tangible non- interest expense to assets 2.13 1.99 2.12 2.29 2.22 Non-interest expense to assets 2.32 2.25 4.62 2.30 2.22 Average earning assets to assets 90.43 90.35 92.29 94.44 94.51 Efficiency ratio 57.14 55.32 58.00 59.80 59.54 CAPITAL RATIOS Stockholders' equity to total assets 12.09 12.08 11.80 9.92 10.06 Tangible stockholders' equity to tangible assets 7.56 7.55 7.25 9.42 9.55 SHARE DATA Book value per share $28.81 $28.68 $28.45 $22.01 $22.43 Tangible book value per share 17.15 17.04 16.56 20.77 21.19 Stock price High 35.57 35.20 34.90 37.64 38.01 Low 31.75 31.90 30.97 33.40 35.40 Close 33.50 34.00 33.32 33.75 37.15 (1) All performance ratios are based on average balance sheet amounts, where applicable. 11 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCES --------------------------------------------------------------- Unaudited Quarters Ended ---------------------------------------------------------- Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 ---------------------------------------------------------- (In thousands) Assets Loans Residential mortgage $ 554,328 $ 561,048 $ 352,776 $ 239,755 $ 234,817 Commercial real estate 398,867 396,212 314,778 276,417 255,901 Commercial business 159,741 165,414 154,405 140,139 153,385 Auto loans 147,695 146,138 134,237 125,038 121,736 Other consumer 151,222 154,209 91,303 58,669 56,150 ---------- ---------- ---------- ---------- ---------- Total loans 1,411,853 1,423,021 1,047,499 840,018 821,989 Securities 425,237 435,853 393,962 396,473 416,854 Short-term investments 538 7,028 1,873 1,672 2,628 ---------- ---------- ---------- ---------- ---------- Total earning assets 1,837,628 1,865,902 1,443,334 1,238,163 1,241,471 Intangible assets 99,862 100,955 38,879 7,254 7,256 Other assets 94,608 98,394 81,732 65,606 64,805 ---------- ---------- ---------- ---------- ---------- Total assets $2,032,098 $2,065,251 $1,563,945 $1,311,023 $1,313,532 ========== ========== ========== ========== ========== Liabilities and stockholders' equity Deposits NOW $ 143,120 $ 135,638 $ 112,775 $ 94,809 $ 99,394 Money market 251,462 241,088 183,273 158,862 168,137 Savings 226,267 240,396 192,250 163,553 167,031 Certificates of deposit 558,963 515,120 384,443 319,682 316,898 ---------- ---------- ---------- ---------- ---------- Total interest bearing deposits 1,179,812 1,132,242 872,741 736,906 751,460 Borrowings 424,293 499,877 387,208 330,448 318,422 ---------- ---------- ---------- ---------- ---------- Total interest bearing liabilities 1,604,105 1,632,119 1,259,949 1,067,354 1,069,882 Non-interest- bearing demand deposits 175,025 185,183 129,700 107,835 108,832 Other liabilities 6,661 6,409 9,579 3,781 4,019 ---------- ---------- ---------- ---------- ---------- Total liabilities 1,785,791 1,823,711 1,399,228 1,178,970 1,182,733 Stockholders' equity 246,307 241,540 164,717 132,053 130,799 ---------- ---------- ---------- ---------- ---------- Total liabilities and equity $2,032,098 $2,065,251 $1,563,945 $1,311,023 $1,313,532 ========== ========== ========== ========== ========== Supplementary data Total core deposits $ 795,874 $ 802,305 $ 617,998 $ 525,059 $ 543,394 Total deposits 1,354,837 1,317,425 1,002,441 844,741 860,292 ---------------------------------------------------------- Notes: (1) Average balances for securities available-for-sale are based on amortized cost. (2) Average balances reflect the acquisition of Woronoco Bancorp, Inc. on June 1, 2005. 12 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES AVERAGE YIELDS (Fully Taxable Equivalent - Annualized) ---------------------------------------------------------------------- Unaudited Quarters Ended ------------------------------------------------ Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 --------- --------- --------- -------- -------- Earning assets Loans Residential mortgage 5.15 % 5.06 % 5.04 % 5.10 % 5.05 % Commercial real estate 6.96 6.68 6.34 5.93 5.88 Commercial 7.12 6.92 6.51 6.43 5.79 Auto loans 6.06 6.17 5.95 5.86 6.12 Other consumer 6.71 5.70 5.75 5.43 5.07 Total loans 6.15 5.91 5.83 5.73 5.61 Securities (1) 4.87 4.69 4.40 4.41 4.36 Short-term investments 3.96 3.50 2.91 2.67 2.28 Total earning assets 5.83 5.60 5.44 5.31 5.23 Funding liabilities Deposits NOW 0.65 0.42 0.18 0.18 0.09 Money Market 2.61 2.07 1.98 1.62 1.32 Savings 0.77 0.86 1.03 1.00 0.80 Certificates of deposit 3.57 3.12 2.99 2.91 2.84 Total interest bearing deposits 2.47 2.10 1.98 1.86 1.69 Borrowings 3.85 3.81 3.65 3.24 3.05 Total interest bearing liabilities 2.84 2.62 2.50 2.28 2.10 Net interest spread (FTE) 2.99 2.98 2.94 3.03 3.13 Net interest margin (FTE) 3.36 3.31 3.26 3.34 3.37 Cost of funds (2) 2.56 2.35 2.24 2.03 1.89 --------------------------------------------------------------------- (1) Average balances and yields for securities available-for-sale are based on amortized cost. Securities yields are calculated on a fully-taxable equivalent basis. (2) Cost of funds includes all deposits and borrowings. 13 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES -------------------------------------------------------------------------------- Unaudited Quarters Ended ------------------------------------------------------------------ Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2005 2005 2005 2005 2004 -------------------------------------------------------------------------------- (Dollars in thousands) Net income $ 4,838 $ 4,746 $ (4,608) $ 3,252 $ 3,177 Less: Gain on sale of securities, net (882) (832) (1,388) (429) (390) Plus: Termination of ESOP 168 - 8,667 - - Plus: Merger and conversion expense 352 828 963 - - Adj: Income taxes 119 1 (139) 150 125 ---------- ---------- ---------- ---------- ---------- Core income (A) 4,595 4,743 3,495 2,973 2,912 Plus: Amort. Intang. Assets (net of taxes) 322 322 105 20 1 ---------- ---------- ---------- ---------- ---------- Tangible core income (B) $ 4,917 $ 5,065 $ 3,600 $ 2,993 $ 2,913 ========== ========== ========== ========== ========== Total non- interest income $ 4,297 $ 3,955 $ 3,916 $ 2,744 $ 2,198 Less: Gain on sale of securities, net (882) (832) (1,388) (429) (390) ---------- ---------- ---------- ---------- ---------- Total core non-interest income (C) $ 3,415 $ 3,123 $ 2,528 $ 2,315 $ 1,808 ========== ========== ========== ========== ========== Total non- interest expense $ 11,800 $ 11,600 $ 18,061 $ 7,536 $ 7,300 Less: Termination of ESOP (168) - (8,667) - - Less: Merger and conversion expense (352) (828) (963) - - ---------- ---------- ---------- ---------- ---------- Core non- interest expense 11,280 10,772 8,431 7,536 7,300 Less: Amortization of intangible assets (481) (481) (156) (30) (2) ---------- ---------- ---------- ---------- ---------- Total core tangible non- interest expense (D) $ 10,799 $ 10,291 $ 8,275 $ 7,506 $ 7,298 ========== ========== ========== ========== ========== Total average assets(E) $2,032,098 $2,065,251 $1,563,945 $1,311,023 $1,313,532 Less: Average intangible assets (99,862) (100,955) (38,879) (7,254) (7,256) ---------- ---------- ---------- ---------- ---------- Total average tangible assets(F) $1,932,236 $1,964,296 $1,525,066 $1,303,769 $1,306,276 ========== ========== ========== ========== ========== Total average stockholders' equity (G) $ 246,307 $ 241,540 $ 164,717 $ 132,053 $ 130,799 Less: Average intangible assets (99,862) (100,955) (38,879) (7,254) (7,256) ---------- ---------- ---------- ---------- ---------- Total average tangible stockholders' equity (H) $ 146,445 $ 140,585 $ 125,838 $ 124,799 $ 123,543 ========== ========== ========== ========== ========== Total assets, period-end $2,035,553 $2,033,091 $2,066,593 $1,294,300 $1,310,115 Less: Intangible assets, period-end (99,616) (99,742) (102,167) (7,235) (7,254) ---------- ---------- ---------- ---------- ---------- Total tangible assets, period-end (I) $1,935,937 $1,933,349 $1,964,426 $1,287,065 $1,302,861 ========== ========== ========== ========== ========== Total stockholders' equity, period-end $ 246,066 $ 245,637 $ 244,497 $ 128,426 $ 131,736 Less: Intangible assets, period-end (99,616) (99,742) (102,167) (7,235) (7,254) ---------- ---------- ---------- ---------- ---------- Total tangible stockholders' equity, period-end (J) $ 146,450 $ 145,895 $ 142,330 $ 121,191 $ 124,482 ========== ========== ========== ========== ========== Total shares outstanding, # in thousands(K) 8,540 8,564 8,594 5,835 5,874 Core return on tangible assets (B/F) 1.02% 1.04% 0.94% 0.91% 0.90% Core return on tangible equity (B/H) 13.49 14.47 11.42 9.52 9.46 Core non- interest income to assets (C/E) 0.67 0.60 0.65 0.71 0.55 Core tangible non-interest exp to assets (D/E) 2.13 1.99 2.12 2.29 2.22 Tangible stockholders' equity to tangible assets (J/I) 7.56 7.55 7.25 9.42 9.55 Tangible book value per share (J/K) $17.15 $17.04 $16.56 $20.77 $21.19 Efficiency Ratio: is computed by dividing total tangible core non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income. The Company uses this non-GAAP measure, which is used widely in the banking industry, to provide important information regarding its operational efficiency. Note: Ratios are annualized and based on average balance sheet amounts, were applicable.