[BERKSHIRE HILLS BANCORP LOGO]
Keefe, Bruyette & Woods
Regional Bank Conference
Michael P. Daly,
President & Chief Executive Officer
Boston, Massachusetts
March 2-3, 2005
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CAUTIONARY STATEMENT
Statements contained in this presentation 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 and the quality or composition of the loan and investment
portfolios and other factors that may be described in Berkshire Hills Bancorp,
Inc.'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 the forward-looking statements.
You are cautioned not to place undue reliance on any forward-looking statements,
which speak only as of March 2 and March 3, 2005. Except as required by
applicable law or regulation, Berkshire Hills Bancorp, Inc. undertakes no
obligation to update any forward-looking statements, to reflect events or
circumstances that occur after March 2 and March 3, 2005.
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BERKSHIRE HILLS BANCORP
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>> Profile
>> Strategic Actions
>> Financial Report
>> Expansion Strategy
>> Creating Value
>> Questions and Discussion
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PROFILE
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>> State chartered savings bank with commercial bank balance sheet
>> Market capitalization - approximately $218.2 million
>> Ownership structure as of December 31, 2004
- Insiders (not including options) 20.63%
- Berkshire Bank Foundation 9.70%
- Institutional holders 45.00%
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PROFILE
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At December 31, 2004
>> Assets $1.3 billion
>> Loans $828 million
>> Deposits $846 million
>> Operations 12 full-service branches;
1 loan production office
6 free standing ATM's
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ORIGINAL BHL FRANCHISE
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[MAP]
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EXISTING BHL FRANCHISE
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[MAP]
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STRATEGIC ACTIONS
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Proven ability to execute
>> October 2002 Management changes
>> December 2002 Sale of $69.7 mm in sub-prime auto loans
>> March 2003 Performance benchmarks announced
>> December 2003 Sale of $9.9 mm in sub-prime auto loans
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Strategic Actions
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Proven ability to execute
>> January 2004 Six Sigma initiative implemented
>> June 2004 Sale of 60% ownership of EastPoint
Technologies, LLC
>> July 2004 Opened representative (LPO) office in
Albany, NY
>> October 2004 Purchased branch in Oriskany Falls, NY -
Allowing de novo branching in NY
>> December 2004 Purchased Berkshire Financial Planning
>> December 2004 Signed a definitive merger agreement to
acquire Woronoco Bancorp, Inc.
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PERFORMANCE
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>> Every business line experienced organic double-digit growth
- $134 mm in new commercial loans; net growth of 10%
- 23% growth in adjustable rate mortgages
- 19% growth in installment loans
- 18% growth in equity lines
- 18% asset growth in Wealth Management
- 17% growth in core non-interest income
- 9,000 new accounts opened at the branches
- 38% increase in municipal deposits; $70 mm in deposits
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PERFORMANCE
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30% Increase in earnings for 2004
---
Met or exceeded consensus
earnings estimates over
last 8 quarters
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DIFFERENTIATING FACTORS
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>> No silos - keep it simple
>> Strong board of directors
>> Culture of enthusiasm, teamwork, energy and cross-selling
>> Ability to attract and maintain the best
>> Implemented Six Sigma
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EFFICIENCY RATIO & NON-INTEREST EXPENSE
TO AVERAGE ASSETS
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[BAR GRAPH]
2002 2003 2004
Efficiency Ratio excl. EastPoint 70.25% 66.24% 60.80%
Efficiency Ratio 7.07% 4.72% ---
Non-Interest Expense 4.31% 3.21% 2.22%
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*2002-2003 Includes income/expense from 60% ownership of EastPoint Technologies,
LLC, which was sold in June 2004
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QUALITY LOAN GROWTH
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|X| Compound growth rate since 2002 = 7%
|X| Sold high risk/high yielding sub-prime auto loans
[BAR GRAPH]
- ---------------------- ------------ ---------- ---------- ---------- ---------
2000 2001 2002 2003 2004
- ---------------------- ------------ ---------- ---------- ---------- ---------
- ---------------------- ------------ ---------- ---------- ---------- ---------
Total Loans $794 $803 $723 $792 $828
- ---------------------- ------------ ---------- ---------- ---------- ---------
- ---------------------- ------------ ---------- ---------- ---------- ---------
AVG Yield 8.53% 8.38% 7.19% 5.96% 5.61%
- ---------------------- ------------ ---------- ---------- ---------- ---------
(1) Sold $69.7 mm in sub-prime auto loans in Dec 2002
(2) Sold $9.9 mm in sub-prime auto loans in Dec 2003
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LOAN PORTFOLIO COMPOSITION
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At December 31, 2004
[PIE GRAPH]
Residential 1-4, 28%
Commercial, 18%
Commercial RE, 31%
Consumer, 23%
Fixed 29.00%
Adjustable 71.00%
Loan to Deposit Ratio 97.92%
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LOAN PORTFOLIO COMPOSITION
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|X| Commercial bank focused
|X| Better positioned for rising rates
December 31, 2004 December 31, 2002
----------------- -----------------
Amount Amount
($Millions) % of Loans ($Millions) % of Loans
---------- ---------- ----------- ---------
Commercial loans 150,879 18% 165,274 23%
Commercial RE 260,574 31% 157,101 22%
--------- ---- -------- ----
COMMERCIAL 411,453 49% 322,375 45%
Automobile 123,027 15% 113,321 16%
Other Consumer 4,292 1% 5,017 1%
Hone Equity 54,157 7% 40,713 5%
--------- ---- -------- ----
CONSUMER 181,476 23% 159,051 22%
Residential 1-4 235,250 28% 241,596 33%
--------- ---- -------- ----
TOTAL 828,179 100% 723,022 100%
Fixed 32.08% 37.81%
Adjustable 67.92% 62.19%
Loan to Deposit Ratio 95.87% 92.42%
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COMMERCIAL LOANS
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[X] Compound growth rate since 2000 = 11%
[BAR GRAPH]
2000 2001 2002 2003 2004
Total Commercial Loans $266 $299 $322 $372 $411
AVG Yield 9.19% 8.51% 6.70% 6.03% 5.84%
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COMMERCIAL LOANS
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At December 31, 2004
Other Commercial RE 50%
Commercial 37%
Commercial 1-4 4%
Commercial LDC 5%
Multi-Family 4%
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CONSUMER LOANS
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|X| Compound growth rate since 2002 = 7%
|X| Portfolio's average FICO at 705 at 12/31/04
[BAR GRAPH]
- ---------------------------- ---------- --------- --------- --------- ---------
2000* 2001 2002 2003 2004
- ---------------------------- ---------- --------- --------- --------- ---------
- ---------------------------- ---------- --------- --------- --------- ---------
Subprime Loans n/a $116 $20 $1 n/a
- ---------------------------- ---------- --------- --------- --------- ---------
- ---------------------------- ---------- --------- --------- --------- ---------
AVG Yield 9.10% 9.15% 8.25% 6.68% 5.65%
- ---------------------------- ---------- --------- --------- --------- ---------
- ---------------------------- ---------- --------- --------- --------- ---------
Total Consumer Loans $283 $271 $159(1) $154(2) $181
- ---------------------------- ---------- --------- --------- --------- ---------
*Sub-prime loans not specifically identified
(1) Sold $69.7 mm in sub-prime auto loans in Dec 2002
(2) Sold $9.9 mm in sub-prime auto loans in Dec 2003
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CONSUMER LOANS
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At December 31, 2004
[PIE GRAPH]
Home Equity 30%
Other Consumer 1%
Automobile 68%
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RESIDENTIAL MORTGAGE PORTFOLIO MIX
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[BAR GRAPH]
12/31/02 3/31/2003 6/30/2003 9/30/2003 12/31/2003 '01/31/04 03/31/04 06/30/04 9/30/04 12/31/04
Fixed 49% 52% 58% 59% 51% 59% 42% 39% 37% 35%
Variable 51% 49% 42% 43% 49% 42% 58% 61% 63% 65%
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ASSET QUALITY
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Trends since management changes
[TABLE]
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Percent except NPA and NPL totals 4Q04 4Q03 4Q02
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NPA's ($thousands) 1,152 3,199 5,241
NPA/total loans and REO 0.14% 0.40% 0.70%
Allowance/total loans 1.13% 1.13% 1.43%
Allowance/NPL's 810.50% 280.37% 275.54%
Loan delinquency/total loans 000% 0.67% 1.40%
Net loan charge-offs/average loans 0.06% 0.11% 0.37%
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TOTAL DEPOSITS
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[X] Core deposit compound growth rate = 7%
[BAR GRAPH]
- ------------------ ----------- ------------ ----------- ------------ -----------
2000 2001 2002 2003 2004
- ------------------ ----------- ------------ ----------- ------------ -----------
- ------------------ ----------- ------------ ----------- ------------ -----------
Core Deposits $410 $425 $452 $509 $531
- ------------------ ----------- ------------ ----------- ------------ -----------
- ------------------ ----------- ------------ ----------- ------------ -----------
Certificates of $320 $318 $330 $321 $315
Deposit
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Total $730 $743 $782 $830 $846
Core deposits consist of demand, NOW,
savings and money market accounts
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DEPOSIT MIX
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|X| Focused on core deposit growth
December 31, 2004 December 31, 2002
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Amount Amount
($Millions) % of Deposits ($Millions) % of Deposits
---------- ------------ --------- ------------
Demand deposits $ 110,129 13% $ 87,149 11%
NOW accounts 100,709 12% 92,245 12%
Savings accounts 163,264 19% 158,468 20%
Money market accounts 156,412 19% 114,309 15%
-------- ---- -------- ----
Total core accounts 530,514 63% 452,171 58%
Certificates of deposit 315,275 37% 330,189 42%
-------- ---- -------- ----
Total deposits $ 845,789 100% $ 782.360 100%
--------- ---- -------- ----
--------- ---- -------- ----
Cost of Deposits 1.48% 2.14%
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WEALTH MANAGEMENT
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>> 18.4% asset growth
>> $358 mm under management
>> 89% new money to Berkshire Bank
>> 97% retention ratio
>> 20.7% revenue growth
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EPS/NET INTEREST MARGIN
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|X| Lower margin more than offset by strong credit quality & expense control
|X| Better positioned for rising rate environment
[BAR GRAPH]
2001 2002 2003 2004
---- ---- ---- ----
Diluted EPS 1.35 0.36 1.57 2.01
Net Interest Margin 4.35% 4.12% 3.57% 3.29%
(1) Management changes and sale of sub-
prime auto loans occurred in 4th qtr 2002
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BERKSHIRE COUNTY DEPOSIT MARKET SHARE
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(Market size $00 billion as of 09/30/04)
[X] #1 in Berkshire County with 00.0% of market share
[BAR GRAPH]
Berkshire Bank Legacy Bank Greylock FCU Banknorth
2000 22.4 13.7 11.1 8.9
2001 23.5 14.9 12.1 8.7
2002 24.3 14.3 15.1 8.4
2003 25.9 13.7 18.3 8.4
2004 26.4 13.2 19.3 9.1
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SIX SIGMA INITIATIVE (B6s)
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>> Why? Increase productivity, reduce error rates, cost
savings potential
>> Pilot program in May 2003
>> Trained 13 employees at "Green Belt" level
>> Hired "Black Belt" level training officer
>> Currently - 17 Six Sigma projects at various stages of completion
>> Beginning in 2005 - Additional 10-12 employees will attend
"Green Belt" training
"Berkshire Six Sigma...is the new way to think about how we work... It's going
to enable growth in everything that we do."
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CAPITAL RATIOS AT DECEMBER 31, 2004
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|X| Well capitalized with flexibility to execute expansion strategy
[BAR GRAPH]
Tangible Equity Ratio 9.37%
Tier 1 Leverage 9.14%
Capital Ratio
Tier 1 Capital Ratio 12.86%
Total Capital Ratio 14.22%
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CREATING VALUE
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WORONOCO BRINGS... BERKSHIRE BRINGS...
o Quality institution with strong o Quality institution with
CONSUMER base strong COMMERCIAL base
o Strong business and wealth o Trust and wealth management
management demographics
o Government banking
o Platform agency to offer
insurance o High asset quality
o Low risk profile
COMBINED COMPANY...
o Attractive commercial and community banking franchise
o Non-interest income potential
o Management synergies
o Solid asset quality
o Satisfies stated acquisition criteria
o Capital-friendly disciplined pricing
o Accretive to earnings
o Contiguous market
COMPELLING STRATEGIC FIT
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EXPANDED FRANCHISE
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[MAP]
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COMBINED PROFILE
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>> Assets Initially $2.1 billion
>> Loans $1.5 billion
>> Deposits $1.3 billion
>> Operations 23 full-service branches;
1 loan production office
10 free standing ATMs
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WORONOCO ACQUISITION
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>> Accretive to earnings in 2005
>> Expected to be 6% accretive in 1st full year
>> 30% cost saves achieved within 2005
>> $250 million deleverage
>> No revenue enhancements built into the assumptions
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PRO FORMA MARKET SHARE
>> 1st in Pittsfield and Westfield, MA and Berkshire County
>> 14th in Massachusetts
>> 4th Largest publicly traded bank headquartered in MA
MAJOR PLAYER IN THE MARKETS WE SERVE
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MARKET SHARE OPPORTUNITY
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>> 8th in Hampden County, 10th in Hampshire County
BHL WRO
Berkshire County Hampden County
---------------- --------------
Total Businesses 6,525 14,506
Total Sales ($M) 7,561 21,928
C&I and Comm. RE Loans ($M) 377 80
C&I and Comm. RE Loans /Sales 4.98% 0.37%
COMMERCIAL LENDING OPPORTUNITY
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COMBINED LOAN PORTFOLIO
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[PIE CHART]
1-4 Family, 41%
Comm. RE, 28%
Commercial, 12%
Consumer, 19%
BALANCED ASSET MIX
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COMBINED DEPOSIT ANALYSIS
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[PIE CHART]
Jumbo, 16%
Brokered, 6%
Transaction, 22%
MM & Sav., 37%
Time < 100k, 19%
DIVERSIFIED COMBINED DEPOSIT MIX
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EPS IMPACT
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PRO FORMA INCOME BREAKDOWN
2005(1) 2006
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Berkshire Net Income (Consensus Estimates) 12,232 13,413
Woronoco Net Income (Revised Estimates) 2,794 5,916
------ ------
Pro Forma Net Income 15.026 19.329
-------- --------
After Tax Acquisition Adjustments:
- ------------------------------------------------------
Cost Savings (30.00%) 1,846 4,356
Amortization of Core Deposit Intangible (457) (914)
Amortization of Purchase Accounting Adjustments (194) (387)
Lost Income from Cash Used (763) (1,455)
-------- --------
Spread Gain from Balance Sheet Restructuring
ADJUSTED NET INCOME 15,813 21,636
Pro Forma EPS $2.27 $2.52
Berkshire's Stand Alone EPS $2.26 $2.44
Accretion/ (Dilution) 0.44% 3.28%
Pro Forma EPS (ex security gains) $2.13 $2.41
Berkshire's Stand Alone EPS (ex security gains) $2.10 $2.28
Accretion/ (Dilution) 1.43% 5.70%
Pro Forma Return on Average Assets 0.97% 1.02%
Pro Forma Return on Average Equity 8.75% 8.78%
Pro Forma Tier 1 Leverage 7.18% 7.14%
1 Assumes the transaction closes on 6/30/2005.
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CREATING VALUE
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>> Motivate and retain the best quality people
>> Drive organic loan & deposit growth; relationship building
>> Continue to expand fee based income
o Consumer & commercial fee based business
o Wealth management
o Private banking
o Insurance
>> De novo expansion
>> Cross-selling initiatives
>> Develop Six Sigma culture
>> Flawless execution on Woronoco transaction
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PERFORMANCE BENCHMARKS
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Benchmarks announced in March 2003
Within 3 years:
|X| Double digit ROE
|X| 1.0% ROA
|X| Efficiency ratio below 60%
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Actual Results 4Q04 Annualized 2003 2002
- --------------------------------------------------------------------------------
ROE 9.72% 7.28% 1.54%
ROA 0.97% 0.80% 0.20%
Efficiency Ratio 60.80% 66.00% 70.06%
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INVESTOR PRESENTATION
MARCH 2-3, 2005
If you have any questions, please contact:
Wayne F. Patenaude, CFA
Senior Vice President and CFO
(413) 236-3195
wpatenaude@berkshirebank.com
OR
L. Alexandra Dest, Investor Relations
Vice President and Senior Investment Officer
(413) 236-3163
adest@berkshirebank.com
Company website: www.berkshirebank.com
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