Exhibit 99.3
BERKSHIRE HILLS BANCORP, INC.
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Condensed Combined Financial Statements
On June 1, 2005, Berkshire Hills Bancorp, Inc. ("Berkshire") acquired all
of the common stock of Woronoco Bancorp, Inc. ("Woronoco"). Pursuant to the
merger agreement, each share of Woronoco common stock was converted into either
one share of Berkshire common stock or $36.00 in cash, without interest, subject
to the requirement that 75% of the outstanding shares of Woronoco common stock
were converted into the right to receive Berkshire stock and 25% of the shares
of Woronoco common stock were converted into the right to receive cash. In
addition, each holder of an option to acquire stock of Woronoco was converted
into an option to acquire an equal number of shares of Berkshire at the same
exercise price. The aggregate purchase price of $147 million reflects: (1) the
issuance of 2,928,792 shares of Berkshire stock valued at $108.4 million; (2)
the payment of $35.1 million in cash; and (3) the conversion of Woronoco options
into options to acquire shares of Berkshire stock, valued at $3.5 million.
The following unaudited pro forma consolidated condensed combined balance
sheet as of March 31, 2005 and the unaudited pro forma consolidated condensed
combined statements of income for the three months ended March 31, 2005 and the
year ended December 31, 2004 give effect to the merger, accounted for as a
purchase.
The unaudited pro forma consolidated condensed combined balance sheet of
Berkshire and subsidiaries and Woronoco and subsidiaries at March 31, 2005 has
been prepared as if the merger had been consummated on that date. The unaudited
pro forma consolidated condensed combined statements of income for the three
months ended March 31, 2005 and for the twelve months ended December 31, 2004
have been prepared as if the merger had been consummated at the beginning of the
periods presented. The unaudited pro forma consolidated condensed combined
financial statements are based on the historical financial statements of
Berkshire and Woronoco under the purchase method of accounting and the
assumptions and adjustments in the notes that follow. The pro forma financial
statements also give effect to the deleveraging program that was announced in
conjunction with the acquisition based on the adjustments summarized in the
notes accompanying the financial statements. The unaudited pro forma
consolidated condensed combined financial statements do not give effect to any
revenue enhancement opportunities or anticipated cost savings in connection with
the merger.
The unaudited pro forma consolidated condensed combined financial
statements should be read in conjunction with the historical consolidated
financial statements of Berkshire Hills Bancorp and Woronoco Bancorp, including
the respective notes to those financial statements. The pro forma information is
not necessarily indicative of the combined financial position or the results of
operations in the future or of the combined financial position or the results of
operations that would have been realized had the merger been consummated during
the periods or as of the date for which the pro forma financial information is
presented.
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UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED BALANCE SHEET
At March 31, 2005
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Historical Historical Pro Forma Pro Forma
Berkshire Hills Woronoco Acquisition Deleverage Pro Forma
Bancorp Bancorp Adjustment Adjustment Combined
---------- ---------- ---------- ---------- ----------
(In thousands)
Assets:
Cash and cash equivalents $ 14,962 $ 20,315 $ -- $ (4,400) $ 30,877
Investment securities 371,312 244,999 (54,509) (1) (102,000) 459,802
Loans, net 845,371 620,035 (9,994) (2) (90,000) 1,365,412
Premises and equipment, net 15,567 10,206 230 (3) -- 26,003
Goodwill 6,782 3,137 81,403 (1-8) -- 91,322
Other intangible assets 453 78 11,982 (4) -- 12,513
Other assets 39,853 13,796 3,013 (5) 1,540 58,202
---------- ---------- ---------- ---------- ----------
Total assets $1,294,300 $ 912,566 $ 32,125 $ (194,860) $2,044,131
========== ========== ========== ========== ==========
Liabilities and stockholders' equity:
Deposits $ 847,381 $ 446,645 $ 143 (6) $ (25,368) 1,268,801
Borrowed funds 314,471 380,753 (147)(7) (166,632) 528,445
Other liabilities 4,022 5,382 -- -- 9,404
---------- ---------- ---------- ---------- ----------
Total liabilities 1,165,874 832,780 (4) (192,000) 1,806,650
Total stockholders' equity 128,426 79,786 32,129 (8) (2,860) 237,481
---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $1,294,300 $ 912,566 $ 32,125 $ (194,860) $2,044,131
========== ========== ========== ========== ==========
See accompanying notes to these pro forma consolidated condensed combined financial statements
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2005
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Historical Historical Pro Forma Pro Forma
Berkshire Hills Woronoco Acquisition Deleverage Pro Forma
Bancorp Bancorp Adjustments Adjustments Combined
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
Interest and dividend income $ 16,037 $ 11,027 $ 153 (1) $ (1,826) (8) $ 25,391
Interest expense 6,010 5,637 (132)(2) (2,020) (8) 9,495
---------- ---------- ---------- ---------- ----------
Net interest income 10,027 5,390 285 194 15,896
Provision for loan losses 493 14 -- -- 507
Non-interest income 2,744 1,624 -- -- 4,368
Non-interest expense 7,536 5,609 (7) 446 (3,6,7) -- 13,591
---------- ---------- ---------- ---------- ----------
Income before income taxes 4,742 1,391 (161) 194 6,166
Income tax expense 1,490 615 (56)(4) 68 (4) 2,117
---------- ---------- ---------- ---------- ----------
Net income $ 3,252 $ 776 $ (105) $ 126 $ 4,049
========== ========== ========== ========== ==========
Earnings per share
Basic $ 0.61 $ 0.21 $ 0.49
Diluted $ 0.57 $ 0.21 $ 0.47
Shares used for calculating earnings per share
Basic 5,300 3,642 2,929 (5) 8,229
Diluted 5,691 3,734 3,004 (5) 8,695
See accompanying notes to these pro forma consolidated condensed combined financial statements
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UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED STATEMENTS OF INCOME
For the Twelve Months ended December 31, 2004
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Historical Historical Pro Forma Pro Forma
Berkshire Hills Woronoco Acquisition Deleverage Pro Forma
Bancorp Bancorp Adjustments Adjustments Combined
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
Interest and dividend income $ 61,081 $ 40,772 $ 610 (1) $ (7,304) $ 95,159
Interest expense 20,724 19,784 (368)(2) (8,082) 32,058
---------- ---------- ---------- ---------- ----------
Net interest income 40,357 20,988 978 778 63,101
Provision for loan losses 1,565 373 -- -- 1,938
Non-interest income 7,764 6,283 -- -- 14,047
Non-interest expense 28,977 23,203 (7) 1,782 (3,6,7) -- 53,962
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes 17,579 3,695 (804) 778 21,248
Income tax expense 5,639 1,112 (281)(4) 272 6,742
---------- ---------- ---------- ---------- ----------
Net income from continuing
operations $ 11,940 $ 2,583 $ (523) $ 506 $ 14,506
========== ========== ========== ========== ==========
Earnings from continuing operations
per share
Basic $ 2.26 $ 0.76 $ 1.77
Diluted $ 2.08 $ 0.72 $ 1.66
Shares used for calculatingearnings from continuing operations pershare
Basic 5,284 3,419 2,929 (5) 8,213
Diluted 5,731 3,580 3,004 (5) 8,735
See accompanying notes to these pro forma consolidated condensed combined financial statements
NOTES TO PRO FORMA CONSOLIDATED CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
Adjustments used in the preparation of the unaudited pro forma
consolidated condensed combined balance sheet are as follows:
(1) Adjustment to record sale of securities to fund the cash portion of
acquisition. The adjustment includes $35,146,000 cash paid for shares of
Woronoco common stock and $19,363,000 in incremental direct costs of the
acquisition.
(2) Adjustment to record acquired loans at estimated fair value.
(3) Adjustment to record premises at estimated fair value.
(4) Adjustment to record core deposit intangible asset at $9,664,000 and
intangible asset representing non-competition agreements at $2,317,550.
(5) Adjustment to record tax and other assets at estimated fair value.
(6) Adjustment to record time deposits at estimated fair value.
(7) Adjustment to record borrowings at estimated fair value.
(8) Reflects issuance of 2,928,792 shares of Berkshire common stock with a
value of $108,394,000 (based on purchase accounting methodology),
estimated fair value of Woronoco stock options converted into
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Berkshire stock options of $3,521,000, and the elimination of Woronoco's
March 31, 2005 equity of $79,786,000.
(9) Adjustment to record deleveraging including sale of securities and sale of
loans. The proceeds from these sales were used to pay down borrowings and
maturing deposits. Also records net $4,400,000 loss on deleveraging,
primarily due to penalties paid to Federal Home Loan Bank of Boston for
prepayment of borrowings. Berkshire's financial statements at March 31,
2005 include additional deleveraging totaling approximately $43,000,000
accomplished in the first quarter of 2005, through net reductions in the
securities portfolio from sales and run-off. Proceeds were used to pay
down borrowings and to fund loan growth that would otherwise have been
funded through borrowings.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED COMBINED STATEMENTS OF
INCOME (UNAUDITED)
Adjustments used in the preparation of the unaudited pro forma
consolidated condensed combined statements of income are as follows (adjustments
are based on annual data; the three month financial statement adjustments are
one quarter of annual adjustments).
(1) Adjustment to record net amortization of fair value adjustments on loans,
net of elimination of historic amortization/accretion of
premiums/discounts and deferred costs. Adjustment also includes foregone
interest income on securities sold to fund the cash portion of the
acquisition, assuming an average 4% yield on these securities.
(2) Adjustment to record net amortization of fair value adjustments on
deposits and borrowings, net of elimination of historic amortization of
brokered deposit premiums.
(3) Adjustment to record amortization of intangibles related to core deposits
and non-competition agreements, as well as additional depreciation related
to premises fair value adjustments.
(4) Record tax effect of the above adjustments, using a 35% tax rate.
(5) The pro forma net income per common share amounts and average common
shares outstanding include the effect of the adjustments described above
and the issuance of 2,928,792 shares of Berkshire common stock in
connection with the acquisition. The calculation of pro forma diluted
earnings per share also includes the dilutive effect of Woronoco stock
options converted into Berkshire stock options by application of the
"treasury stock method" of accounting, based on market prices in June
2005.
(6) The following table summarizes the estimated impact of the amortization of
the core deposit intangible, the non-competition agreement intangible, and
the net impact of amortization/accretion of the purchase accounting
adjustments made in connection with the merger for the years indicated.
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Projected future Non-competition Other Net increase/
amounts for the Core deposit agreement purchase (decrease)
years ended intangible intangible accounting in income
December 31, amortization (1) amortization (2) net impact (3) before taxes
--------------- ---------------- ---------------- -------------- --------------
(In thousands)
2006 $ (1,029) $ (773) $ 1,820 $ 18
2007 (1,029) (773) 1,615 (187)
2008 (1,029) (322) 1,423 72
2009 (1,029) - 1,172 143
2010 (1,029) - 947 (82)
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(1) The core deposit intangible is estimated to have a useful life of
about 9.4 years and is amortized over its useful life on a straight-line
basis.
(2) The non-competition agreement intangible is amortized on a
straight-line basis over the three year life of the agreement.
(3) Purchase accounting fair value adjustments are amortized/accreted over
the estimated lives of the related assets and liabilities. Loan fair value
adjustments are amortized based on the sum of the years digits method,
based on expected lives ranging from 1 - 11 years. The premises fair value
adjustment is depreciated over 39 years. The time deposits and borrowings
fair value adjustments are amortized/accreted on a straight-line basis
over various estimated expected lives.
(7) Pro forma non-interest expense adjustments exclude incremental indirect
merger and conversion/integration expenses, which are estimated to be
$1,500,000 before tax for 2005. Merger expenses reported in the
Woronoco historical income statements included $766,000 in the first
quarter of 2005 and $3,999,000 for the year 2004.
(8) Reflects the estimated effect of the deleverage program on interest income
and expense. Also includes the effect of $43,000,000 net reductions in
Berkshire's securities portfolio in the first quarter of 2005.
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