County's biggest banks to merge
PITTSFIELD -- The holding companies of Berkshire County's two largest banks have reached an agreement that will allow Berkshire Bank to acquire Legacy Banks for $108 million.
The merger, expected to be finalized in June 2011, will create a combined institution under the Berkshire Bank name with approximately $4 billion in assets and 66 branches in three states, making it the largest regional banking company in Western Massachusetts. Officials from both companies announced the plan on Tuesday.
Berkshire Bank President and CEO Michael P. Daly will head the new entity, while Patrick J. Sullivan, who succeeded J. Williar Dunlaevy as president and CEO of Legacy Banks in April, will join Berkshire Bank's executive team. Dunlaevy, the chairman and CEO of Legacy Bancorp, will be one of two Legacy directors to join Berkshire's board.
Daly and Sullivan said the merger makes sense given the trend toward consolidation in the banking industry.
Berkshire Bank's holding company has posted strong growth this year, including net income of $3.4 million during the third quarter of 2010, a 78 percent increase over the same time period last year. But Legacy Bancorp has reported net losses during the first three quarters of 2010, including $1.7 million during the most recent period that ended on Sept. 30.
"We both want to be survivors in a consolidated industry," Sullivan said. "And we wanted to make sure that the Berkshires has a major financial institution that's based in the Berkshires."
"We think from our standpoint that it's a great merger," Daly said. "Out of all the acquisitions we've done, this one has the most benefit for shareholders and employees, our community and our customers."
Daly said Berkshire's "growth, earnings, strength of capital will improve with this transaction."
Legacy has nearly $1 billion in assets and 19 branches in Massachusetts and northeastern New York. Berkshire Bank has almost $3 billion in assets and 47 branches in Massachusetts, southern Vermont, and northeastern and central New York. Some branches will likely be sold because they overlap, Daly said.
Once the merger is approved by the Federal Deposit Insurance Corporation and regulatory agencies in Massachusetts, New York and Vermont, the bank's new headquarters will be located at Legacy's main office on North Street.
Together, Berkshire and Legacy have 850 employees, and they were notified of the merger plans late Tuesday afternoon. Daly said the merger could result in 40 to 50 "initial layoffs" that will probably go into effect during the mid to late part of 2011.
"The reason that we are always very careful giving numbers is that during a six- to nine-month period of time, there's a significant amount of attrition that takes place in any organization," Daly said. "It's hard to give a number."
Conversations between the two banks began two or three months ago, Sullivan said. But he said the discussions did not take place because Legacy was in financial trouble.
"It's no secret that we've been losing money," Sullivan said. "We've been working through our asset-quality problems during this recession like everybody else has."
Sullivan described it as "more of a long-term, strategic view than a short-term view" for shareholders. Legacy went public five years ago, and "we're at that point where it's where do we go?" he said.
"Today's market is heavily influenced on what shareholders want for returns," Sullivan said, "and we really felt as though this was the time to put ourselves together with the currency, i.e. Berkshire, that has the ability to grow."
Sullivan said Legacy wanted to remain based out of Berkshire County. "We didn't want to acquire or be acquired from the outside," he said. "The second thing is we wanted to make sure our customers were taken care of."
Daly said depositors at both banks will see no change in service until after the merger is official.
"Initially, they'll see nothing," he said. "Sometime in the mid part of 2011, we'll consummate the transaction and they'll be on one platform. So those customers that are doing business with Legacy Bank and those doing business with Berkshire Bank will do business with any number of our branches, and they'll be dealing as though they are all part of one institution."
In Berkshire County, the branches will be known as Berkshire Bank Legacy Region; at the branches outside Berkshire County, the Berkshire Bank name will remain the same.
The two publicly traded companies will hold a joint conference call at 10 a.m. today to discuss the merger with investors and the financial community.
The merger is valued at $13 per share of Legacy's common stock, which is based on the $20.75 closing price for each share of Berkshire stock for the 10 day period that ended on Dec. 15. This means that Legacy shareholders will receive a roughly 50 percent market premium on each share of stock that they own, which is currently trading at $8.50 per share, according to Sullivan.
Daly said the increase in price for Legacy stock could result in a short-term decrease in the price of Berkshire stock.
"But we believe after the conference call that the long-run projection of our stock is significantly north of where it is today," he said.
This is the 12th acquisition in Berkshire Bank's 164-year history, its fourth since 2005, and the second in the last three months. In October, Berkshire Hills Bancorp acquired a bank corporation in Rome, N.Y., for $74 million, but that transaction won't be finalized until March.
Legacy Banks traces its origins back to three banks, Lee National, City Savings and Lenox Savings, which were founded in 1835, 1890 and 1893, respectively. Lee National was purchased by City Savings in 1997, and City Savings and Lenox Savings created Legacy when they merged in January 2002.
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