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Berkshire Hills Bancorp (NYSE:BHLB) popularly known in our part of Massachusetts as the Berkshire Bank, is a financial institution with 75 full-service branches in Massachusetts, Vermont, New York and Connecticut. In addition, the bank has 10 residential and commercial offices in eastern and central Massachusetts.

History
The Berkshire Bank has been around since 1846 and is currently headquartered in Pittsfield, Massachusetts. Over the years, it secured its footing in the highly desirable market of the Northeastern states, with personal and business accounts, wealth management services and both residential and commercial mortgages.

Berkshire has established itself as a premier community bank in several states in the region, with a reputation for quality and service. Currently at the head of Berkshire Bank is Michael R. Daly, who has been the company's CEO since 2002. Mr. Daly with the help of his directors and management has been able to provide stable leadership during the difficult years of the recent recession in Berkshire County and the surrounding area where the bank operates.

Diamond In The Rough

The Lead Independent Director of the bank has been one of America's true All Star financial leaders, Lawrence A. Bossidy. He held the positions of Chairman and Chief Executive Officer of Honeywell International and before that he was chairman and Chief Executive Officer of AlliedSignal. Before that, he spent more than 30 years rising in executive positions at General Electric (NYSE:GE). Mr. Bossidy has served as a member of the Boards of Merck, J.P. Morgan and K&F Industries Holdings.

Mr. Bossidy was born is Pittsfield, MA. where Berkshire is headquartered. Jack Welch worked with Larry Bossidy for many years and said many times that "Larry is a quick thinker, who energizes others around him. When he gets behind an idea, he lights up the room. He has both the mental toughness as well as the broad perspective that is necessary to lead and deliver results".

Performance in 2013

By the end of the third quarter in 2013, Berkshire was reporting an increase in core income from $31 million to $36.7 million, a jump of 18 percent. Over the time period of the first 9 months of 2013, the company logged an 8 percent increase in commercial loans and a 7 percent annualized increase in total deposits. The bank was even able to report a 4 percent decrease in core non-interest expenses!

Stable Dividend Payments to Shareholders

An aspect of Berkshire Hills Bancorp stock that shareholders most appreciate is the stable dividend payments. The current $.18 per share dividend has been the same for five quarters in a row, steadily climbing over the past 12 years. With an annual dividend that adds up to $.72 per share, BHLB is one of the better plays for those interested in owning a dividend paying financial stock. The dividend compares very favorably to the poor dividends paid by the mega banks like Bank of America (NYSE:BAC) which we are skeptical of. See our recent story here.

Berkshire Bank Stock
During 2013, Berkshire Bank stock experienced stable growth. The company's steady leadership promises continued growth as the economy improves in 2014. As employment improves throughout the East coast, both residential and commercial loans are likely to increase, bringing with it increased income for this institution. In addition, during the summer of 2013, Berkshire announced an aggressive effort for cost cutting that is expected to make a significant impact as 2014 proceeds forward.

Challenges for 2014
In mid-2013, Berkshire announced the acquisition of 20 Bank of America branches, further expanding the institution's ability to serve customers in New York State. The expansion can be expected to increase the company's expenses, which could offset some of the bank's cost cutting. In addition, rising interest rates may slow new mortgages to some extent, causing a reduction in projected growth for the bank in 2014.

Possible Takeover Candidate

This expansion into New York makes BHLB a better acquisition candidate for a larger bank that wants to expand into the fairly stable areas of Western Massachusetts, Northeastern New York and Southern Vermont. Berkshire is really the only public bank that covers this desirable part of the United States.

Competition

Berkshire Bank faces significant competition in Berkshire County. A major competitor is the bank where I have done business for many years, the well run Adams Community Bank which was founded in 1869. Adams Community has locations throughout Berkshire County and is known for it's "family-style customer service".

Other competitors include the Toronto Dominion Bank (NYSE:TD) and various local credit unions scattered around Berkshires footprint.

Banking Outlook for 2014

Like other institutions, Berkshire Bank may be affected by some fundamental issues that threaten the entire industry as 2014 moves forward. The Federal Reserves recently announced changes in monetary policy that may play a part in holding down growth. In addition, a strict regulatory climate is causing some hesitation in plans for expansion. Increased competition is also expected to play a role in many financial institutions' ability to increase their income over the coming year.

Greater emphasis on customer service and satisfaction may create a climate of slowed growth for industry as a whole. Privacy concerns may force banks to increase their costs overall. Although Berkshire is expected to maintain a close eye on regulatory and capital requirements, they will have to implement a significant outreach to attract new customers and maintain current customers.

Conclusion

BHLB's current price of $27 is off its 52-week high of $29.38 but significantly higher than its low of $23.38. Our price target for 2014 is $32.40.

Investors interested in a growing bank that pays a good dividend, has good management and outstanding oversight by their board should consider taking a small position in this bank for 2014.

Shareholders can also be comfortable that Larry Bossidy is involved in agenda setting, communication with other independent directors planning and performance evaluation for our Berkshire Bank.

If Warren Buffett (BRK-B) could take a position in a small to medium size bank, we strongly believe he would join us in picking Berkshire Bank as a worthwhile investment for 2014.

Source: Warren Buffett Would Love Our Top Long Pick For 2014-Berkshire Bank

Additional disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.