With its first bank acquisition deal in more than a decade, the $1.3 billion-asset Berkshire Hills Bancorp Inc. of Pittsfield, Mass., is heading for bigger things, its chief executive and president says.
“We really believe we are on our way to becoming a super community bank,” Michael P. Daly said Friday in a conference call with reporters and analysts after announcing a $145 million cash-and-stock deal for the $895 million-asset Woronoco Bancorp Inc. in Westfield, Mass.
It is just a year since Mr. Daly, who had been put in charge a year before, said he wanted to turn the company into a super-community operation with branches throughout New England and upstate New York.
The Woronoco deal would combine two of Massachusetts’ oldest thrifts and create by far the largest banking company in the western part of the state, with 22 branches. It would also combine the buyer’s commercial lending and wealth management expertise with the seller’s insurance and consumer banking operations to form what the partners are calling a well-rounded community bank.
“The combination makes the best sense of any transaction in Massachusetts in more than 10 years,” said Cornelius D. Mahoney, Woronoco’s president and chief executive, who would join Berkshire Hills’ board.
Mr. Daly said Woronoco’s insurance operations, including one agency the company bought in October, would supplement Berkshire Hills’ noninterest income. And because commercial loans make up only 3% of Woronoco’s portfolio, Berkshire Hills has an ample room to expand its government banking and business-lending operations, he said.
“I really believe there is a significant commercial lending opportunity for us in the Pioneer Valley,” the area in and around Springfield, Mr. Daly said. He worked in that market 15 years ago, at the beginning of his banking career.
Longer-term, the deal could be a springboard for Berkshire Hills to expand beyond its home Berkshire County into upstate New York, Vermont, northern Connecticut, and the rest of western Massachusetts, as it has said it wants to do.
When Mr. Daly took over, the company was having problems related to its indirect automobile lending, a line of business it has since exited.
Within a year he had put the company back on track and said it was on the lookout for expansion opportunities.
Berkshire Hills also said Friday that it plans to sell as much as $250 million of the postmerger company’s loans and investments and prepay its Federal Home Loan bank debt with the proceeds. It also plans to depend less on brokered certificates deposit and focus more on core deposits.
Jared Shaw, an analyst with Keefe, Bruyette & Woods Inc. in New York, said that the deal would benefit both companies’ shareholders, and that the price, 1.7 times Woronoco’s book, is reasonable.
Berkshire Hills agreed to pay $36 a share for 25% of Woronoco’s stock and swap its own shares for the rest. The buyer’s stock was trading at $36.80 late Friday, down 0.54% from Thursday’s close, and Woronoco’s was down about 2%, to $36.52.
Mr. Shaw said entering the Springfield market is a smart move for Berkshire Hills. Larger banks focus on growth in eastern Massachusetts and have overlooked this market, he said. All of the six Massachusetts banking companies for which purchase deals were announced earlier this year are in greater Boston or the Cape Cod area.
Berkshire has the No. 1 market share in Berkshire County, so it really needed to look elsewhere for growth, Mr. Shaw said. “And I think this gives them a toehold in a good market.”
