The head of Berkshire Hills Bancorp Inc. describes its third bank deal in less than a year as a "small acquisition" with "big upside."
Acquiring Connecticut Bank and Trust Co. would extend Pittsfield, Mass.-based Berkshire's reach into the coveted Hartford market at a reasonable price of $30 million, Michael Daly, Berkshire's chief executive, said Wednesday. He was speaking in a conference call discussing the deal and third-quarter earnings.
The deal builds on the $4 billion-asset lender's other big, post-crisis expansion moves. In July it closed the purchase of Legacy Bancorp Inc., also of Pittsfield, and in April bought Rome Bancorp Inc. in Rome, N.Y.
"I feel good about the deal terms," he said. "…You can see we've been busy on the M&A front."
The deposit premium in the Connecticut Bank deal is lower than other comparable New England bank transactions, he said. Berkshire is issuing less than 5% of its shares to pay for the cash-and-stock deal, which values Connecticut Bank at around 138% of its tangible book. That price is in line with what other healthy banks in attractive markets have been selling for.
Berkshire, the parent of Berkshire Bank, expects to earn enough in less than six months to replenish the capital it would lose in absorbing the $283 million-asset franchise, he said.
That is a short earn-back period. 1st United Bancorp Inc., of Boca Raton, Fla., on Monday said it would take less than three years to generate enough capital to fill the capital hole that would be created by its deal for Anderen Financial Inc. outside of Tampa.
Berkshire does not have a presence in Hartford — New England's second biggest market after Boston — but it is familiar with the market, with an office in nearby Springfield, Mass., Daly said.
The idea is to increase revenue at Connecticut Bank's eight branches by providing more capital to service large commercial clients. Berkshire also sees a chance to ramp up sales of its own insurance and wealth management products that Connecticut Bank lacks.
That is the same plug-and-play strategy Berkshire has used in its other deals, which helped drive its third quarter profits to $4.4 million, 133% higher than in the prior quarter and 27% higher than a year earlier.
Daly gave an update on Berkshire's previous deals. Rome's deposits have risen, he said. Berkshire recently completed the sale of four of Legacy's branches, and it is slated to finish the conversion of Legacy this quarter.
That timetable would free up the company to integrate Connecticut Bank in 2012; the deal is scheduled to close by the second quarter.
Connecticut Bank earned $922,000 in the first half of the year, up from $507,000 in the same period a year earlier. David A. Lentini, its president and chief executive, said in July that its earnings have suffered from weak demand for business loans.
Jefferies & Company, Inc. advised Berkshire. Keefe, Bruyette and Woods Inc. advised Connecticut Bank.
Berkshire said it would pay $7.90 for each of the seller's shares, or 28% above the stock's closing price Tuesday.
When the deal is completed, Berkshire Hills would have 20 branches in the Hartford/Springfield, Mass., metropolitan market.
When asked about doing more deals, Daly said Berkshire will not "count on" other acquisitions but is open to them if they are right. It expects to have its hands full with its most recent purchases and exploiting its new market opportunities, he said.
