Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Berkshire Hills Bancorp Inc. (NYSE:BHLB)

Q1 2008 Earnings Call

April 30, 2008 10:00 am ET

Executives

David Gonci - Corporate Finance Officer

Mike Daly - President and CEO

Kevin Riley - EVP, CFO and Treasurer

Sean Gray - SVP and Head of Retail Banking

Shepard Rainie - EVP and Chief Risk Officer

Analysts

Mark Fitzgibbon - Sandler O'Neill

Julienne Cassarino - Prospector Partners

Brian Rohman - Robeco Investment Management

Mike Shafir - Sterne, Agee & Leach

John Stewart - Sandler O'Neill Asset Management

Operator

Hello and welcome to the Berkshire Hills Bancorp, First Quarter Earnings Release Conference Call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note this conference is being recorded.

Now I would like to turn the conference over to David Gonci, Corporate Finance Officer. Mr. Gonci, the floor is yours, sir.

David Gonci

Thank you. Good morning. Thank you all for joining this discussion of our first quarter results. Our news release is available in the Investor Relations section of our website, berkshirebanc.com, and will be furnished to the SEC.

Our discussion may include forward-looking statements, and actual results could differ materially from those statements. For a discussion of related factors, please see our earnings release and our most recent SEC Reports on Forms 10-K and 10-Q.

Now I will turn the call over to Mike Daly, President and CEO.

Mike Daly

Thank you, Dave. Good morning, everyone. Welcome to our first-quarter conference call. I am Mike Daly, President and Chief Executive Officer. With me this morning are Kevin Riley, our Chief Financial Officer, and other members of the management team.

We released our first quarter financial results yesterday. Today, Kevin and I will discuss our results and our outlook for the current year. And after we conclude our prepared remarks, we will be glad to take questions from our callers.

Well, we got off to a very good, solid and clean start in the first quarter. We reported record earnings per share of $0.58, which met our guidance and consensus expectations. This was a 4% increase from our $0.56 EPS in the first quarter of 2007, and it's close to the 5% normalized core increase in EPS that we are expecting for the year. So our first quarter was pretty much on pace with the earnings growth rate that we are targeting for the year.

Now, I would like to get into more detail about our first quarter performance, but before I do that, I want to jump right over to the subject of asset quality, since this is so important to the investor community in this environment.

As we noted in our earnings release, our asset quality remains sound. There are presently no signs of any significant systemic downturn in loan performance. Our first quarter net charge-off rate was a modest 17 basis points annualized. Non-performers and delinquent loans increased slightly from linked-quarter, but certainly remain at very reasonable levels. And as we noted at the end of 2007, we have only two loans over $1 million which are delinquent, and we've made good progress towards resolving them as well.

So our loan performance continues to be good. We remain watchful of the economic and real estate environments. And as I have stated in the past, we intend to manage our asset quality very proactively. Now, I will continue to emphasize that we have no subprime lending programs, we have no Alt-A mortgage programs, no shared national credit. In our securities portfolio, we have no collateralized debt obligations, no preferred stocks and no significant investments in trust-preferred securities.

Our securities are mostly US agency mortgage-backed securities. Our loans are mostly real estate-secured loans to borrowers in and around our markets. They've got conforming loan structures and conforming loan-to-value ratios. And I do feel that this kind of portfolio will hold up comparatively well as we move forward through uncertain economic times.

Now let me turn back to our record first quarter results. Kevin is going to provide some more detail on the income statement items in a few minutes, but I would like to highlight some of the overall revenue-related items.

First, our annualized commercial mortgage growth continued strong at an 8% pace in the first quarter. We expect these loans to be the primary driver of our loan growth this year. I think we've got a competitive advantage in this area as the only locally headquartered regional bank. And we can provide more responsiveness than the national banks, especially at this time. And we've got larger lending limits than the smaller community banks. We're also seeing some pull-back by national lenders and loan conduits. So we are actively pursuing some very good business in and around our regional markets as a result.

The pipeline of committed new commercial credits increased by almost 70% to $50 million during the quarter. We anticipate growing this portfolio at a double-digit annualized rate for the remainder of the year. This is above our organic growth rate in 2007. We expect to continue mid single-digit annualized growth in residential mortgages and home equity lines. This is consistent with our organic growth in 2007. First-quarter results were seasonally low, but I expect we will see a pickup in the pace of originations, particularly in the Albany, New York, region as the year continues.

We've changed the scope of our indirect auto lending program and we've seen some runoff there as a result. I'm okay with that. I'd expect to see some additional runoff there throughout the rest of the year. I think we're going to look for a pickup in commercial loan originations to offset this runoff. So we will still achieve mid single-digit annualized growth rate in total loans for the remainder of the year. We had a very good quarter for deposit growth, total deposits growing at 12% annualized rate in the first quarter, even while we were reducing the cost of deposits and increasing our net interest margin.

Our recent emphasis, as you know, has been on money market accounts, which has been good for both relationship cross-sale potential and for our ability to bring the project costs down in this environment. Interest rates had declined, I think, a little bit more than any of us expected. Our original guidance was that deposits would increase at a mid single-digit annualized rate in 2008. We do expect deposit growth to slow from the first-quarter pace as we continue to manage down the high-cost accounts. And we will be focusing on deposit pricing in order to protect the net interest margin as we go forward through the year. So we will continue to target mid single-digit deposit growth through the end of the year.

Now, as you know, insurance revenues are our largest source of fee income, and the first quarter includes seasonally high annual contingency payments. These seasonal revenues are received in the first and second quarters, and the timing can change from year-to-year. Our first-quarter insurance revenues were up 3% from year-to-year. This is always a little unpredictable from quarter-to-quarter in the first two quarters. And with additional second-quarter contingency income and some organic growth, we're still looking for full-year revenue growth of up to 8% for this business line. And so I'm pretty pleased with that.

All of our business units have put in place referral goals for our insurance business. We've recently had some very positive results with some sales originated by agents in our branches. So I am pretty excited about that as well.

Now, some of you know 2008 is the first year of competitive auto insurance in Massachusetts. Now this is a major change from the previous regulatory pricing structure. It is causing a little market turmoil at the moment and we expect that there's a good many customers that are going to see a premium savings as a result of these changes, and I think with our large presence and our media profile in Western Mass., this is an opportunity for us to gain market share as customers shop more actively in the market. And as an independent agent, we represent a number of competitive carriers. And I think in many cases, we can deliver the best solutions to the market in this new competitive environment. So I see real opportunity here.

Our first quarter wealth management fees increased by 10% over the prior quarter. This was the first quarter of combined operations with the Vermont wealth management team. We had some seasonal benefit in the first quarter, but we feel good about our prospects for double-digit annualized organic growth in wealth management income this year. We're targeting to achieve over $1 billion in assets under management this year, based on where capital markets were at the start of this year.

And we're pleased to announce the purchase of the Center for Financial Planning in Albany in January. That added about $50 million in assets under management. The integration of these customers is going very well. I had the privilege of meeting many of them last night, and I am confident that they are as pleased with the partnership as we are. And this center also gives us a new platform on which to grow this business in the Albany market.

So, all of our topline elements are positioned to grow in accordance with our plans this year. Our credit costs are staying within our projections. And as Kevin will discuss in a few minutes, our expenses are under good control. So we're optimistic at this point about our prospects for growing earnings per share this year, as we did in the first quarter. Now, this is not to say that all of us in the industry aren't looking at some of the uncertainties related to the economy, the real estate market conditions, and of course, the impact of the sharp reduction in short-term interest rates.

But I think that the stronger fundamentals of community and regional banking are increasingly on display here in this environment. And those of us who bank on Main Street rather than Wall Street have the advantage of knowing our customers, knowing our markets, and we do have less reliance on complex products and funding sources dictated by the capital markets. So I expect our core results will continue to outpace some of our larger competitors, as they did in the second half of 2007. So we expect to see improved results in all of our regions this year due to the pull-back by some larger lenders in our mature market, Berkshire County. We're even having the opportunity to provide new proposals to some strong existing prospects right here in our own backyard.

Our Pioneer Valley market provides us access to business opportunities in the Hartford-Springfield corridor, and I'm going to talk a little bit more about that market in a minute. Our integration of the Vermont region has gone well. We're pursuing some larger lending opportunities there that Factory Point was not previously able to pursue. In New York, we are concentrating on building business volume in the 10 de novo branches. This continues to be, I think, the most economically strongest market for us. We're also looking at future locations to continue to expand our de novo branch network after this year.

And I would like to mention we have some pretty exciting product plans under development, as well as some new ways to deliver our insurance and banking services together in the same location. You're going to hear more about that in the next couple of quarters, but what I can say now is that we are expanding the service offerings under our small business banking program, which I really feel is very timely and it's well suited to our market. Now, we have centralized our credit support for this program in Vermont and we're working on ways to expedite things like local loan decisions. And we're also developing some exciting improved electronic banking options for this market.

We have also dedicated ourselves this year to higher service standards across the company and more active two-way cross-sales across business lines. And I do expect that these activities are going to build better identification with our brand as America's Most Exciting Bank, and our core values, which we abbreviate internally here as RIGHT: Respect, Integrity, Guts, Having fun and Teamwork. And this theme has taken hold throughout the company. It is creating a service difference in all our areas and I want to share that with you because I'm very, very pleased with it.

We also had some pretty exciting organizational announcements that we made recently. We hired Tom Creed as our Senior Vice President and Regional Commercial Executive and leader for the Pioneer Valley region. Tom was most recently the Regional Executive for Sovereign Bank, where he managed the business and corporate groups in Western Mass. and all of Connecticut. And over two decades, Tom has been very active and he is well regarded in the Springfield market. We're pleased to have his leadership in developing this market.

And Mike Oleksak, who has really been wearing two hats as our EVP of Commercial Banking and also regional leader in the Pioneer Valley, can really now give his full attention to the integrated development of our commercial banking effort in all our regions.

In our news release we also announced the promotion of Sean Gray to Senior Vice President and Head of Retail Banking. Sean joined us about 18 months ago from Bank of America. He has implemented our new sales and services disciplines across the company. He also helped us to introduce our new branding theme. And so I really feel that this young man has the vision to develop our retail bank in distinctive new ways. That's going to enhance the customer experience as well as add franchise value.

We're also saying goodbye to Guy Boyer. He has capably pitched in in our executive team after previously serving as President of Factory Point Bank. I do want to wish him well as he moves into a leadership position at a mutual community bank in the Eastern part of Massachusetts. He is a good man and a good friend, and I wish him all the best.

Now I would like to ask Kevin to provide a little more detail on the [fourth] quarter results and guidance, and then it will come back to me and I will sum it up. Kevin?

Kevin Riley

Thank you, Mike, and good morning, everyone. Well, the first-quarter earnings were $0.58 per share, up 4% over the prior year, and fell in line with our guidance. Part of the good news was that it was a clean quarter, with no noncore items. Since our results for the first quarter came in line with our expectations, we continue to feel that we're on track to achieve our EPS guidance of $2.16 for the year.

General financial trends we saw in this quarter were; the margin improved as we expected, we saw growth in key business lines, our expenses were where we targeted, and our loan losses remained generally low.

Before I get into the numbers, I would like to remind everyone that our insurance revenues are seasonally high for the first and second quarter due to contingency revenue being recognized during those periods. So the first-quarter results included these seasonal revenues, and this makes the quarter's profits not reflective of an average quarterly run rate. Our results also include earnings from our acquisition of Factory Point, so year-to-year comparisons of revenue expenses are affected.

Our net interest margin for the first quarter increased to 3.41% as compared to the prior quarter of 3.38%. This was the highest margin recorded in more than three years. Our continued emphasis on money market deposits has positioned us well to lowering our deposit costs as rates decreased in the first quarter. For the year, we continue to feel that we are well positioned to produce a margin of around 3.38%. As I have mentioned previously, if rates continue to fall we may hit some floors with regards to rates on some of our deposit products. However, at this time, we do not feel that this will have any impact on our margin outlook.

On a brighter note, we have seen some improvement in certain lending spreads in our markets, but competition still remains strong. But I also want to note that in this low rate environment we have begun to fix some of our liability pricing to protect ourselves when rates trend back up. Over the past few months, either through interest rate swaps or fixed borrowings, we have locked up over $100 million of our funding with fixed rates in the ranges of three to 10 years. At this point, our interest rate sensitivity remains pretty well balanced, with some modest short-term liability sensitivity.

Turning to loan volume, we produced a solid 8% annualized growth rate in commercial real estate loans in the first quarter. This growth mostly offset the impact of runoff in our indirect auto portfolio as we have stepped back on the current pricing and underwriting conditions in this market. We still expect total loan growth for the year to be in the mid single-digit area. Again, this growth will be led by commercial real estate lending. There is also expected growth in our residential and home equity portfolios, all of which will help offset the current attrition in our indirect auto loan portfolio.

Our total deposit growth was strong for the quarter, increasing at annualized rate of 12%. The strength in deposits was better than we expected. The greatest growth came in money markets, which were up 17% for the quarter. Transactional and time deposits posted slight decreases for the quarter. The transactional deposits were down and we believe it's because of seasonality. And time deposits were down due to our choice not to participate in competing for high-cost deposits.

Our deposit pricing strategy has been to be less aggressive. However, our money market pricing promotions have been quite effective. The outlook for the year is that deposit growth should be in the mid single-digits. This would include the planned impact of some higher-cost brokered CDs and relationships running off in the second quarter.

Net interest income for the first quarter was at $18.3 million. We believe the second quarter will come in at approximately the same level, with higher volumes offsetting some slight decrease in margin. Non-interest income for the quarter was $9.5 million. Most fee income categories came in at expected levels, including our insurance fee revenue, which is seasonally high for the first quarter and totaled $5.1 million.

When comparing the first quarter to the fourth, all categories were up except for service fees on deposit accounts, which were seasonally down. For the second quarter, we expect non-interest income to exceed $8.7 million and, for the year, our growth to remain at approximately 20%.

Our loan loss provision was $825,000 for the first quarter, which more than covered our net charge-offs. The annualized charge-off rate for the first quarter remained at a modest 17 basis points. For the second quarter, we are estimating a loan loss provision of $1 million, which is expected to cover charge-offs and growth in our loan portfolios. At this time, we do not feel the charge-off rate increasing, but recognize the potential of increases based on the current economic conditions.

Turning to non-interest expense, which was $18.1 million for the quarter and down 2% from the fourth quarter, we see this being further reduced in the second quarter to approximately $17.7 million. The first-quarter expenses are always seasonally high due to payroll taxes and occupancy expense. We continue to see good expense management and expect to see a full year's efficiency ratio of 61% or less. Just to note, the first quarter's efficiency ratio was 60.1%, which benefited from our seasonally high insurance revenues. Our tax rate for the first quarter was 31.8%, which was a little bit less than our prior estimate of 32%. We project the second-quarter tax rate to be approximately 31%.

Now turning to our share count, due to our share repurchased in the last two quarters, our average diluted shares decreased by 2% to 10.46 million for the first quarter. During this quarter, we repurchased 100,000 shares at an average price of $22.88. Our second-quarter forecast is based on 10.41 million average diluted shares. During the second quarter, we will continue to assess the market for additional opportunities to repurchase our shares.

With all that said, we are expecting the second quarter to produce $0.55 per share, which is up $0.03 and represents a 6% increase over our reported $0.52 last year for the same period. We feel this reflects a strong discipline in managing all of our business lines, especially during these challenging economic times.

With that, I will turn the call back over to Mike.

Mike Daly

Thanks, Kevin. We do expect to keep our earnings momentum up. As Kevin said, we expect second quarter EPS of $0.55. That would be up $0.03 or a 6% increase over last year's second quarter. We continue to provide guidance of $2.16 in EPS for the full year 2008, which would be nearly a 14% increase over the $1.90 in EPS in '07, core EPS, and about a 5% increase over the $2.06 EPS level that we viewed as our normalized run rate in 2007.

We believe that these results will put us in the forefront of earners in the banking community in 2008, and we will be targeting a resumption of double-digit earnings growth when the economic environment has regained more solid footing.

We have seen bank stocks react to the credit problems in the US. Over the last year, we have slightly outperformed the bank and thrift stock index, but most of these stocks have been significantly discounted. I do believe that our stock is undervalued, and we noted in our news release that we purchased 100,000 shares during the quarter at an average price of $22.88 per share. Now, we've got about 200,000 shares left in our current treasury stock buyback authorization, so we will continue to evaluate repurchase opportunities as we go forward.

We anticipate that bank and thrift M&A values will also adjust based on current market and economic outlook, and we continue to be active in considering bank acquisition opportunities. We still feel that there has to be a strong strategic fit and an appropriate long-run return on investment in any acquisition situation. We intend to be patient in finding and acting on the appropriate opportunities.

We understand the increased emphasis on tangible book value in the current environment. We will be cognizant of impacts on both tangible book value and earnings per share in any situation that we evaluate. And I do feel there are a number of potential opportunities in finding partners in wealth management and insurance, and I am hopeful that these acquisitions will be a more consistent part of our growth going forward.

Lastly, we announced a dividend increase in our news release. That equates to a 7% increase. This follows the 7% dividend increase that we announced in the third quarter last year. We are encouraged by our prospects this year, and we want to reflect this in our dividends and as a cash return to our investors.

I want to conclude with this. Over the long run, regional banking franchises, I think, will be strengthened by the changes in the industry. And our team is moving forward to secure a premium position in the financial services environment of the future.

Now with that, I will conclude my prepared remarks, and I will invite questions from our listeners. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Mark Fitzgibbon of Sandler O'Neill.

Mark Fitzgibbon - Sandler O'Neill

Good morning guys.

Mike Daly

Hey, Mark how are you?

Mark Fitzgibbon - Sandler O'Neill

Terrific Thanks. First question I have for you, Mike, to follow up on your comments about acquisitions, would you consider buying distressed banks or thrifts if the opportunities presented themselves, or are you really looking to buy companies that are running right already? That would be the first question.

Mike Daly

The answer is yes, certainly. I think any time there's opportunity and we can take advantage of it, we're going to be active in that regard. So I wouldn't discount that as an opportunity or a possibility.

Mark Fitzgibbon - Sandler O'Neill

Okay. And then sort of related, do you think you have enough capital to take advantage of the increased lending opportunities that exist out there, as well as potentially M&A opportunities?

Mike Daly

I think we certainly have enough capital to continue to support our organic loan growth. I think we will take a look at whatever opportunities are out there from an acquisition standpoint, and we will cross that bridge when we get to it.

Mark Fitzgibbon - Sandler O'Neill

Okay. And then the indirect auto lending business is something that you've purposely been dialing back on. Do you think it would make sense at some point to just totally get out of that business? Is it a business you don't like or is it a business that you sort of feel like the pricing isn't appropriate right now?

Mike Daly

Well, I think it has gotten more difficult to do the indirect auto business the way that we have always done it, Mark. We have historically suggested that we can stay in the indirect auto business and do nothing but prime loans. And there's a lot of pullback in the indirect business right now. So a lot of the dealers are finding that there are fewer outlets. And so it has become a little bit more difficult to keep the volume up with just the prime loans.

So I think it is an area that we're going to continue to look at. It doesn't bother me to see that portfolio run down a bit. And I think we will be looking at all of our lines of businesses and determining whether they make sense in the future or not.

Mark Fitzgibbon - Sandler O'Neill

And then, Kevin, I plugged into my model the numbers that you gave us for the first quarter, and that kind of implies, if you back into a net interest margin of about 327, 328, something like that. Is that kind of in sync with your estimates?

Kevin Riley

I didn't follow the question totally.

Mark Fitzgibbon - Sandler O'Neill

Well, I plugged in your fee income, your expense expectations, provisions, balance sheet growth, et cetera, and it implies that the margin would have to come in say, 13, 14 basis points. Is that in sync with your thinking?

Kevin Riley

13, 14 basis points?

Mark Fitzgibbon - Sandler O'Neill

Yes. Well, maybe let me ask it a different way. What is your margin assumption for the second quarter?

Kevin Riley

Our net interest margin for the second quarter?

Mark Fitzgibbon - Sandler O'Neill

Yes.

Kevin Riley

We are targeting a little bit probably lighter than what we saw in the first quarter, but in the high 330s.

Mark Fitzgibbon - Sandler O'Neill

Okay. Great, thank you.

Mike Daly

Thanks Mark.

Operator

The next question we have comes from Julienne Cassarino with Prospector Partners.

Julienne Cassarino - Prospector Partners

Well, good morning.

Mike Daly

Hi, Julienne, how are you.

Julienne Cassarino - Prospector Partners

Good thank you. I just wanted to see at the end of the quarter what the balance of troubled debt restructurings was. It was $4.6 million in the 10-K at year end. I was wondering what that balance was now.

Mike Daly

Dave, do you have the breakdown on that, or Kevin?

Kevin Riley

We're looking it up right now.

Mike Daly

One second, Julienne. We'll get you that answer.

Julienne Cassarino - Prospector Partners

Thanks.

Kevin Riley

Do you have a second question?

Julienne Cassarino - Prospector Partners

No, I really didn't. It's nice to see --

Kevin Riley

3.5.

Julienne Cassarino - Prospector Partners

I'm sorry, 3.5?

Kevin Riley

Right.

Julienne Cassarino - Prospector Partners

Great, thank you.

Kevin Riley

Thank you.

Operator

The next question we have comes from Brian Rohman of Robeco Investment Management.

Brian Rohman - Robeco Investment Management

Good morning.

Mike Daly

Hi, Brian how are you.

Brian Rohman - Robeco Investment Management

That was a good quarter. Nice job.

Mike Daly

Thank you.

Brian Rohman - Robeco Investment Management

A couple of questions, capital ratios, tangible stockholders' equity to tangible assets went down sequentially to 6.19%. Mark was sort of asking a question around this. Anything below six starts to get a little skinny. I mean, there's issues about acquisitions, capital raises, asset growth. Maybe you could just discuss that?

Mike Daly

Interestingly, Brian, you hit them all. I think those are all the --

Brian Rohman - Robeco Investment Management

I'm interested in your answers, yes.

Mike Daly

Well, you know I'm not going to get into too much detail as to what our responses would be to those, but those are the issues that we look at when we look at acquisitions, which is how and where we would raise capital if an acquisition opportunity came up. There are acquisition opportunities that actually provide capital and increase the tangible book value to us that we will look at.

So I think partnering and doing deals with people can be different in a lot of regards. They don't always reduce tangible book value. So I think we will have to take a look at all of the options and opportunities for us to keep our tangible book value at the forefront of acquisition opportunities.

Brian Rohman - Robeco Investment Management

Okay. So you agree the 6.19% is, while not problematic, is starting to get to the bottom of what is a comfortable range?

Mike Daly

Well, I think in this environment, everybody's eyes are on that measurement. So I don't think we are any different. We're going to be cautious and judicious with any additional use of capital. And I think that when you get down under 6%, you have to have a pretty darn good reason for it.

Brian Rohman - Robeco Investment Management

Okay. Next question is residential construction lending and related land loans, which the land loans sometimes end up in the commercial real estate section. Of breakout, just remind me how big those two pieces are combined.

Mike Daly

Can you just, Brian, I lost you a little there. You're looking for the two pieces. Can you just --

Brian Rohman - Robeco Investment Management

Residential construction, how big is that portfolio? And then land loans related to residential construction, how big is that? Sometimes I've noticed with banks that that piece is not in the construction portfolio, but is in the commercial real estate portfolio. So basically, I'm looking for land loans and commercial real, and construction, resi construction?

Kevin Riley

Resi construction is $101 million, and land development loans are $75 million.

Brian Rohman - Robeco Investment Management

Okay. And then I know your non-performers aren't particular meaningful, but do you have any non-performers in either category?

Kevin Riley

No.

Mike Daly

None.

Brian Rohman - Robeco Investment Management

Okay, that's good. Last question is the margin; you discussed the money market account product, which is growing quite rapidly. What's the rate you're paying out on that? And also, what is the rate on a six-month CD?

Mike Daly

Sean, what are you going to give us the rates on that?

Sean Gray

Sure. The six-month CD is currently at 2%, and we do have a promo rate with the money market for the first three months that is in the 3.30% range. The overall rate on that whole product base is between about 2.75% and 2.80% for that product.

Brian Rohman - Robeco Investment Management

Okay, great. Thank you very much.

Mike Daly

Thanks, Brian. Come open up some money market accounts with us.

Brian Rohman - Robeco Investment Management

No, you're not a mutual.

Operator

The question we'll have from Mike Shafir of Sterne, Agee.

Mike Shafir - Sterne, Agee & Leach

Hey good morning guys.

Mike Daly

Hi, Mike how are you.

Mike Shafir - Sterne, Agee & Leach

Doing well, thank you. Just to kind of talk a little bit about the acquisition strategy, certainly a lot of your neighbors in that market have an excess of 15% capital, and a lot of those guys will be coming up on their anniversaries, where they're going to be able to explore their strategic options and so forth.

Do you feel like the balance sheets at those institutions would be suitable to partner with? And also, obviously, there would be some massive kind of cost saves opportunities operating within those markets in terms of the combinations.

Mike Daly

A pretty direct question for a conference call, Mike. We're certainly looking at all of our options. That will include banks that are within our footprint, and that would include banks in Western Mass., in Massachusetts and New York. So I can't comment any further than that.

Mike Shafir - Sterne, Agee & Leach

Okay. Thanks a lot, guys.

Mike Daly

Thanks Mike.

Operator

The next question we have comes from John Stewart from Sandler O'Neill Asset Management.

John Stewart - Sandler O'Neill Asset Management

Good morning guys.

Mike Daly

Hi, John how are you.

John Stewart - Sandler O'Neill Asset Management

Good thanks. I just wanted to follow up on the charge-off guidance. I believe you said you are expecting charge-offs to be -- or not expecting them to rise throughout the year. If I kind of normalize for the large Albany loan that's been in the charge-off numbers for the previous two quarters, your rates were kind of 9 basis points, 11 basis points and then 17 this quarter. Can you just kind of talk about what you're seeing to make you confident that that number will sort of normalize around 17, 18 basis points, something like that, going forward?

Mike Daly

Sure. Shep?

Shepard Rainie

Yes. What we are seeing is a lot of sort of smaller-ticket type stuff that comes up periodically. There is interesting growth in recoveries that we're starting to see also on small-ticket stuff. I'm not saying that we at this point would say yea or nay in terms of what are we going to do on any of the larger loans that we have. But I am telling you, we've got sonar buoys in the water all over the place. And at this point, we're just not seeing a lot of risk in what we're managing closely.

Mike Daly

Shep, the increase of the 9 bips up to 16 or 17, we forecasted some of that as we went into this. So would you suggest that this is really a reflection of the environment and our aggressive approach to going after this? I guess the question [Mike] had was how can we be comforted that the 17 bips in that area isn't going to go to 30 bips, I guess. Isn't that [Mike], basically your question?

John Stewart - Sandler O'Neill Asset Management

Yes, that is my question.

Mike Daly

And again, Shep, we've done a considerable amount of homework on where our charge-offs are coming from. There is nothing out there that looks like it would initially drive those numbers any higher than they are today, correct?

Shepard Rainie

Exactly. What I was trying to say is I think at this point it's a lot of granular stuff and not big-ticket kinds of numbers.

Mike Daly

Okay. John, does that help?

John Stewart - Sandler O'Neill Asset Management

It does, thank you. I guess all my other questions have been answered, so thanks, guys.

Mike Daly

Thanks John.

Operator

Gentlemen, I'm seeing no further questions at this time.

David Gonci

All right, that concludes the call. We thank you all for joining us, and we look forward to speaking with you again next quarter.

Operator

Thank you for joining today's conference. At this time, you may disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Berkshire Hills Bancorp Inc. Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts