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EXHIBIT 99.2
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RECENT DEVELOPMENTS
THE FOLLOWING TABLES CONTAIN CERTAIN INFORMATION CONCERNING THE FINANCIAL
POSITION AND RESULTS OF OPERATIONS OF BERKSHIRE BANCORP AND BERKSHIRE BANK AT
AND FOR THE DATES INDICATED. THE DATA PRESENTED AT MARCH 31, 2000 AND FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 ARE DERIVED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BUT, IN THE OPINION OF MANAGEMENT,
REFLECT ALL ADJUSTMENTS NECESSARY TO PRESENT FAIRLY THE RESULTS FOR THESE
INTERIM PERIODS. THESE ADJUSTMENTS CONSIST ONLY OF NORMAL RECURRING ADJUSTMENTS.
THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS THAT MAY BE EXPECTED FOR THE
YEAR ENDED DECEMBER 31, 2000. THIS INFORMATION SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS PROSPECTUS.
<TABLE>
<CAPTION>
At At
March 31, December 31,
2000 1999
----------- ------------
(In thousands)
<S> <C> <C>
Selected Financial Data:
Total assets................................. $875,453 $841,651
Loans, net................................... 695,815 665,554
Investment securities:
Available for sale..................... 91,753 93,084
Held to maturity....................... 21,444 17,014
Federal Home Loan Bank stock........... 4,217 3,843
Savings Bank Life Insurance stock...... 2,043 2,043
Deposits (1)................................. 688,033 680,767
Federal Home Loan Bank advances.............. 86,347 58,928
Repurchase agreements........................ 870 1,120
Total retained earnings...................... 88,611 88,352
Real estate owned............................ 220 220
Nonperforming loans.......................... 2,547 2,841
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<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2000 1999
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(IN THOUSANDS)
<S> <C> <C>
SELECTED OPERATING DATA:
Total interest and dividend income........... $15,546 $13,918
Total interest expense....................... 7,343 6,296
-------- --------
Net interest income....................... 8,203 7,622
Provision for loan losses.................... 810 675
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Net interest income after provision
for loan losses.......................... 7,393 6,947
Noninterest income:
Service charges and fees.................. 1,093 670
Gain on sales and dispositions of
securities, net.......................... 232 532
Other..................................... 53 132
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Total noninterest income............... 1,378 1,325
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Total noninterest expense.............. 6,432 5,926
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Income before income taxes................ 2,339 2,346
Income taxes.............................. 782 615
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Net income............................. $ 1,557 $ 1,731
======== ========
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<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
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<S> <C> <C>
SELECTED OPERATING RATIOS AND OTHER DATA:
PERFORMANCE RATIOS (2):
Average yield on interest-earning assets............ 7.69% 7.54%
Average rate paid on interest-bearing liabilities... 4.30 4.07
Interest rate spread (3)............................ 3.39 3.47
Net interest margin (4)............................. 4.06 4.13
Ratio of interest-bearing assets to interest-
bearing liabilities................................ 118.46 119.37
Ratio of net interest income after provision
for loan losses to noninterest expense............. 114.93 117.22
Noninterest expense as a percent of average assets.. 3.00 3.03
Return on average assets (5)........................ 0.73 0.89
Return on average equity (6)........................ 6.94 8.11
Average equity to average assets.................... 10.47 10.93
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<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
REGULATORY CAPITAL RATIOS:
Tier 1 capital to average assets............................... 7.96% 7.91%
Total capital to risk-weighted assets.......................... 12.56 12.90
ASSET QUALITY RATIOS:
Nonperforming loans as a percent of total loans (7)............ 0.36 0.42
Nonperforming assets as a percent of total assets (8).......... 0.32 0.36
Allowance for loan losses as a percent of total loans.......... 1.30 1.27
Allowance for loan losses as a percent of nonperforming loans.. 359.95 300.39
Net loans charged-off as a percent of interest-earning loans... l0.03 0.31
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(1) INCLUDES MORTGAGORS' ESCROW ACCOUNTS.
(2) PERFORMANCE RATIOS ARE BASED ON AVERAGE DAILY BALANCES DURING THE INDICATED PERIODS AND ARE
ANNUALIZED FOR INTERIM PERIODS.
(3) DIFFERENCE BETWEEN WEIGHTED AVERAGE YIELD ON INTEREST-EARNING ASSETS AND WEIGHTED AVERAGE
COST OF INTEREST-BEARING LIABILITIES.
(4) NET INTEREST INCOME AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS.
(5) NET INCOME DIVIDED BY AVERAGE TOTAL ASSETS.
(6) NET INCOME DIVIDED BY AVERAGE TOTAL EQUITY.
(7) NONPERFORMING LOANS CONSIST OF NONACCRUAL LOANS.
(8) NONPERFORMING ASSETS CONSIST OF NONACCRUAL LOANS AND REAL ESTATE OWNED.
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COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER 31, 1999
Total assets increased $33.8 million, or 4.0%, from $841.7 million at
December 31, 1999 to $875.5 million at March 31, 2000, primarily a result of a
$30.3 million, or 4.5%, increase in net loans. The increase in loans was mainly
due to a $22.7 million increase in automobile loans as Berkshire Bank began to
expand its presence into eastern New York through the establishment of
additional relationships with car dealers in late 1999 and early 2000 and
increased originations by existing dealers. The increase in loans was also due
to a $10.1 million increase in commercial loans. A $3.5 million increase in the
investment securities portfolio also contributed to the growth in assets.
Nonperforming assets decreased $294,000, or 9.6%, from $3.1 million at
December 31, 1999 to $2.8 million at March 31, 2000, due primarily to a decrease
in nonaccruing automobile loans. The decrease in nonaccrual loans was due to the
improved financial condition of borrowers, which management attributes to the
strong economy.
Advances from the Federal Home Loan Bank of Boston increased $27.4
million, or 46.5%, from $58.9 million at December 31, 1999 to $86.3 million at
March 31, 2000. Management determined to fund asset growth through additional
borrowings instead of through the sale of assets or more aggressive pricing of
deposits. Additionally, asset growth was funded by a $7.3 million, or 1.1%,
increase in deposits from $680.8 million at December 31, 1999 to $688.0 million
at March 31, 2000. This increase was primarily due to a $6.6 million, or 16.5%,
increase in commercial checking accounts due to increased marketing efforts and
product offerings.
Total retained earnings were $88.6 million at March 31, 2000 compared to
$88.4 million at December 31, 1999. The increase in retained earnings was due to
net income of $1.6 million, offset by a decline in net accumulated unrealized
gains on available for sale securities of $1.3 million. The decrease in the
unrealized gains on securities occurred due to market declines in Berkshire
Bank's debt securities portfolios due primarily to the rising interest rate
environment. The decrease in unrealized gains on securities was also caused by a
decline in the market value of the equity securities portfolio, consisting
primarily of bank, financial and industrial stocks, which experienced general
market declines during the first quarter of 2000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
MARCH 31, 1999
NET INCOME. Net income decreased $174,000, or 10.1%, from $1.7 million for
the three months ended March 31, 1999 to $1.6 million for the three months ended
March 31, 2000. The decrease was primarily attributable to a $506,000 increase
in non-interest expense, and a $135,000 increase in the provision for loan
losses due to loan growth, particularly automobile and commercial loans. These
decreases were partially offset by a $581,000 increase in net interest income
due to the growth in the loan portfolio. The efficiency ratio at March 31, 2000
was 68.8% compared to 70.3% at March 31, 1999.
NET INTEREST INCOME. Net interest income increased $581,000, or 7.6%, to
$8.2 million for the three months ended March 31, 2000 compared to $7.6 million
for the three months ended March 31, 1999, primarily due to an increase in the
average balance of interest earning assets due to loan growth.
Interest and dividend income increased $1.6 million, or 11.7%, from $13.9
million for the three months ended March 31, 1999 to $15.5 million for the three
months ended March 31, 2000. The yield on interest-earning assets was 7.69% and
7.54% for the three-month periods ended March 31, 2000 and
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1999, respectively. Interest income on loans increased by $1.6 million, or
12.6%, to $14.0 million for the three months ended March 31, 2000 from $12.4
million for the same period in 1999, primarily due to an $69.2 million increase
in the average balance of loans, primarily automobile loans. To a lesser extent,
the increase in interest income was also attributable to a 10 basis point
increase in the average yield on loans from 8.10% for the three months ended
March 31, 1999 to 8.20% for the three months ended March 31, 2000. Even though
interest rates rose sharply in the first quarter of 2000, strong competition in
Berkshire Bank's market area limited Berkshire Bank from correspondingly raising
the rates charged on its loans.
Interest expense increased $1.0 million, or 16.7%, from $6.3 million for
the three months ended March 31, 1999 to $7.3 million for the three months ended
March 31, 2000. The increase in interest expense was primarily due to a $36.2
million, or 107.1%, increase in average borrowings to $69.9 million for the
three months ended March 31, 2000 from $33.8 million for the three months ended
March 31, 1999 due to an increase in Federal Home Loan Bank borrowings which
were primarily used to fund loan growth. The increase in interest expenses was
also attributable to a rise in market interest rates, including a 128 basis
point increase in the average rate paid on Federal Home Loan Bank borrowings
from 4.50% to 5.78%. Also contributing to the increase in interest expense was
an increase in the average balance of interest bearing deposits to $611.5
million for the first quarter of 2000 from $576.0 million for the previous
year's quarter due to increased deposit inflows resulting from increased
promotional activity and more aggressive deposit pricing which began in late
1999 and continued through the first quarter of 2000. A 9 basis point increase
in the average rate paid on interest-bearing deposit accounts for the three
months ended March 31, 2000 to 4.13% from 4.04% for the three months ended March
31, 1999 also contributed to the increase in interest expense.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$135,000, or 20.0%, for the three months ended March 31, 2000 to $810,000 from
$675,000 to reflect the growth in the loan portfolio and, in particular, the
increase in the average balance of commercial and automobile loans, which
generally bear a greater degree of risk than one- to four-family mortgage loans
or loans secured by real estate, and due to management's consideration of the
growth of such loans as a percentage of the total loan portfolio. As of March
31, 2000, commercial loans and consumer loans, excluding home equity loans,
totaled $355.3 million or 50.4% of total loans as compared to $227.9 million and
36.2% as of March 31, 1999. Management determined to increase the provision
notwithstanding the fact that nonperforming loans decreased in the first quarter
of 2000 compared to the first quarter of 1999. At March 31, 2000 and 1999, the
allowance for loan losses was $9.2 million and $7.8 million, respectively, which
represented 359.95% of nonperforming loans and 1.30% of total loans at March 31,
2000 compared to 261.52% of nonperforming loans and 1.23% of total loans at
March 31, 1999. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998" and "BUSINESS OF BERKSHIRE BANK--LENDING
ACTIVITIES--ALLOWANCE FOR LOAN LOSSES" in the Prospectus.
NONINTEREST INCOME. Non-interest income totaled $1.4 million for the three
months ended March 31, 2000 and $1.3 million for the three months ended March
31, 1999, an increase of $53,000, or 4.0%, due primarily to a $423,000, or
63.1%, increase in service fees and charges to $1.1 million for the three months
ended March 31, 2000 from $670,000 for the three months ended March 31, 1999.
This increase was primarily due to a $170,000 increase in loan servicing fees
due to a higher volume of loans being serviced, primarily automobile loans, and
a $165,000 increase in trust fees, due to an increase in trust department
assets. Also contributing to the increase in noninterest income was a $20,000
increase in ATM fees and a $15,000 increase in checking account fees due to
increased volume. Offsetting these
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increases was a $291,000, or 55.6%, decrease in gains on the sale of securities
from $523,000 for the three months ended March 31, 1999 to $232,000 for the
three months ended March 31, 2000.
NONINTEREST EXPENSE. Noninterest expense increased $506,000, or 8.5%, to
$6.4 million for the three months ended March 31, 2000, compared to $5.9 million
for the three months ended March 31, 1999. The increase was primarily due to a
$259,000, or 8.2%, increase in salaries and benefits from $3.2 million for the
three months ended March 31, 1999 to $3.4 million for the three months ended
March 31, 2000 due to normal salary increases. Also contributing to the increase
in noninterest expense was $156,000 in costs associated with repossession and
related liquidation costs, $70,000 in occupancy and equipment expenses, $65,000
in office supplies and $48,000 in costs associated with the establishment of the
new insurance agency. These costs were offset by decreases of $130,000 in data
processing costs and $37,000 in marketing expenses.
INCOME TAXES. Income taxes for the three months ended March 31, 2000 were
$782,000, an increase of $167,000, or 27.2%, from $615,000 for the three months
ended March 31, 1999. The effective tax rates for the three months ended March
31, 2000 and the three months ended March 31, 1999 were 33.4% and 26.2%,
respectively. The lower effective tax rate for 1999 was attributable to state
tax loss carryforwards and a larger deduction in 1999 in connection with the
establishment of Greater Berkshire Foundation, Inc. in 1997. In connection with
Berkshire Bank's application for rehabilitating a historic firehouse in
Pittsfield, Massachusetts, it booked tax credits in 1999. These tax credits will
not be available in 2000.
