Sunday January 20, 2013

PITTSFIELD -- Despite a lagging economic recovery and added banking regulations designed to curb the kinds of risky lending practices that spurred the 2008 recession, Berkshire Bank, the county’s largest, has grown substantially the last two years by expanding into central New York state, the outer Boston area, even north central Connecticut.

Last November, that growth led
to its stock being listed on the New York Stock Exchange for the
frst time.

Last week, President and CEO Michael P. Daly, who on Jan. 1 became chairman of the bank’s holding company, Berkshire Hills Bancorp, Inc., sat down with The Eagle to discuss where the county’s economy is headed, the banking industry in general, and Berkshire Bank’s plans for the coming year.

Q: A lot of economists are predicting slow growth in 2013. What’s your take on what will happen in the Berkshires?

A: I think that there will continue to be growth. I don’t think it will be enormous growth. I’m optimistic that there will be opportunities for companies.

But these are changing times. I think you have to be willing to change your business model as often as possible to maintain the type of growth you’ve seen in the past. I think there will be a disproportionate level of growth for different industries and companies.

Q: How does the political situation in Washington affect the banking industry in particular?

A: It affects the banking industry in this way: Regulation is always a good thing, but overregulating and underregulating are both a recipe for problems.

As we continue to see overregulation, the smaller banks are the ones that bear the brunt of that.

Frankly, it’s counterintuitive to what we hear. What we hear is that stronger regulation will prevent many of these large banks from creating issues [abuses] again.

But what has happened is that the large banks can handle the cost of regulation. And it has had the unintended consequence of having an impact on the smaller community banks.

Q: How does it affect community banks?

A: It affects them in the cost of doing business. The more regulation that gets pushed down on a $500-million or $200-million or a
$1-billion bank, the more costly it is for them to do business. When they have to absorb those kinds of costs, the more difficult it is for them to compete. And, I think that’s problematic.

Q: What needs to be done to loosen that up a little bit -- less regulation?

A: Smarter regulation. If you look at some of the regulatory overreach that occurs in the banking industry today, you can’t have the same regulatory oversight required of J.P. Morgan as you do a $300 million community bank. And the $300 million community bank isn’t conducting themselves in a way that creates risk to the degree that J.P. Morgan or Citibank does.

So smarter regulation would mean using more common sense, and requiring less of community banks that aren’t involved in the type of derivative financing or risky type loans that the larger banks are involved in.

Q: How does this situation affect Berkshire Bank?

A: Again, it affects all banks. But it will
affect banks under $1 billion and banks over $10 billion more than it will banks that are $2, $3 $4 to $10 billion, because they have the ability to be more cost-effective, spread the cost around, create efficiencies.

Q: Berkshire Bank has assets of $5.5 billion. I know you’ve expanded a lot over the last three or four years. Was this expansion by design so you wouldn’t get caught up in this?

A: I think people in the industry have known for some time that there was a size that was necessary in order to survive in a different economy. And so we knew that we either had to grow to a point where we could afford to create different revenue streams, and hire the massive amounts of people that are necessary to manage the regulatory area.

And we also knew that diversifying into other regions, not unlike Berkshire County, would give us more growth.

Fortunately, we’re now at a size, it’s a compelling size, for New England and other areas of the Northeast. There’s only about six other banks that are in this size range.

Q: What does being in this range position you for?

A: It gives us the ability to continue to hire the best and the brightest people from around the country. People will move here to work for an organization that has some momentum and an upside.

And because our stock does well it gives us an opportunity to partner with other banks that don’t have those advantages.

Q: I know you’re not going to tell me your trade secrets, but do you think there will be more Berkshire Bank expansion this year?

A: Partnerships and acquisitions will continue to be part of our strategy. We’re never aggressive about buying other banks.

We look to develop relationships with other CEOs, who believe their shareholders, and our shareholders can do better collectively than they can do individually.

When those situations arise we will take advantage of them. It will all depends on the economics.

Q: Has the culture at Berkshire Bank changed since the bank has gotten larger? I hear things like Berkshire isn’t as friendly as it used to be. What would you say to people who say that?

A: I’d say that we do more business than any bank in the Berkshires. We have more customers. We have a great number of very satisfied customers.

That doesn’t happen by accident. The bigger we get the more we give back to this community.

We’re a Pittsfield-based, $5.5 billion company that has never forgotten where it started. So I think that’s not the reality. It’s talk. And we continue to grow our customer base here in the Berkshires.

Q: Berkshire has expanded to the west, the east and the south over the past few years. If the bank decided to expand again, what area would you consider?

A: We’ve made our strategy pretty clear publicly that it’s New England and New York opportunities. We’ll look at opportunities in various areas of New England and New York.

You can never pinpoint where you’re next deal is going to come because deals come for a variety of reasons.

Q: But New England and New York are where you want to be?

A: Yes. There’s a lot of opportunity.

Q: You’re not going to say Ohio or Pennsylvania?

A:
No.

Q: Why did you decide to list your stock on the New York Stock Exchange?

A: We’ve grown to a size where the New York Stock Exchange exposure gives us access to a greater number of potential investors.

We receive inquiries from many investors. These investors became more frequent. And the New York Stock Exchange had a larger reach for us. So the time was right to move to the New York Stock Exchange and be listed with more successful companies.

To reach Tony Dobrowolski:
TDobrowolski@berkshireeagle.com
(413) 496-6224