As filed with the Securities and Exchange Commission on October 19 , 2016

Registration No. 333-213256

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

PRE-EFFECTIVE AMENDMENT No. 2 TO THE

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

BERKSHIRE HILLS BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware (State or other jurisdiction of incorporation or organization)

6036 (Primary Standard Industrial Classification Code Number)

04-3510455 (I.R.S. Employer Identification Number)

 

24 North Street

Pittsfield, Massachusetts 01201

(413) 443-5601

(Address, Including Zip Code, and Telephone Number, Including

Area Code, of Registrant’s Principal Executive Offices)

 

Michael P. Daly

President and Chief Executive Officer

24 North Street

Pittsfield, Massachusetts 01201

(413) 443-5601

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

Copies to:

 

Lawrence M. F. Spaccasi, Esq. Marc Levy, Esq. Luse Gorman, PC 5335 Wisconsin Avenue, N.W., Suite 780 Washington, D.C. 20015 (202) 274-2000

Michael J. Mann, Esq. Donald R. Readlinger, Esq. Pepper Hamilton LLP 301 Carnegie Center, Suite 400 Princeton, NJ 08543 (609) 452-0808

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

 

If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ¨

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered		Proposed maximum offering price per share		Proposed maximum aggregate offering price				Amount of registration fee
Common Stock, $0.01 par value per share		4,317,235 shares (1)		N/A		$	221,657,465	(2)		$	22,321	(2)(3)

 

(1)

Represents the estimated maximum number of shares of Berkshire Hills Bancorp, Inc. common stock to be issuable upon the completion of the merger to which this Registration Statement relates. In accordance with Rule 416, under the Securities Act of 1933, this registration statement shall also register any additional shares of registrant’s common stock that may become issuable to prevent dilution resulting from stock splits, stock dividends or similar transactions. Under the Merger Agreement, in certain circumstances the Registrant may increase the exchange ratio pursuant to a formula in the Merger Agreement, and thus issue additional stock consideration to accommodate this increase, in order to prevent a termination of the Merger Agreement. In the event the Registrant increases the exchange ratio as described, the Registrant will file a registration statement pursuant to Rule 462(b) to cover the issuance of the additional shares of common stock.

(2)

Pursuant to Rule 457(f)(2), the registration fee was computed on the basis of $221,657,465, which was the aggregate book value, as of June 30, 2016, of the common stock and preferred stock of First Choice Bank that may be received by the Registrant pursuant to the merger.

(3)

Previously paid.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

Information in this proxy statement/prospectus is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

FIRST CHOICE BANK LOGO

 

PRELIMINARY – SUBJECT TO COMPLETION – DATED OCTOBER 19 , 2016

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

Dear First Choice Bank Shareholder:

 

The boards of directors of Berkshire Hills Bancorp, Inc., Berkshire Bank and First Choice Bank have agreed to a merger of First Choice Bank with and into Berkshire Bank (the “Merger”), with Berkshire Bank surviving as a wholly-owned subsidiary of Berkshire Hills Bancorp, Inc. First Choice Bank is holding a special meeting on November 22, 2016 at 10:00 a.m., at The Stone Terrace, 2275 Kuser Road, Hamilton Township, New Jersey 08610, for its shareholders of record on October 19, 2016, to vote on the proposals necessary to complete the Merger. If the Merger Agreement, dated as of June 24, 2016, by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and First Choice Bank (the “Merger Agreement”) is approved and the Merger is subsequently completed, First Choice Bank will merge with and into Berkshire Bank, with Berkshire Bank surviving as a wholly-owned subsidiary of Berkshire Hills Bancorp, Inc.

 

If the Merger is completed, each outstanding share of First Choice Bank common stock will be converted into the right to receive 0.5773 shares of Berkshire Hills Bancorp, Inc. common stock. In addition, each outstanding share of First Choice Bank preferred stock will be converted into the right to receive such number of Berkshire Hills Bancorp common stock equal to the number of shares of First Choice Bank common stock issuable upon the conversion of the First Choice Bank preferred stock multiplied by 0.5773. Based on Berkshire Hills Bancorp’s closing price of $25.51 on June 24, 2016 (the date preceding the public announcement of the proposed transaction), each share of First Choice Bank common stock exchanged for 0.5773 shares of Berkshire Hills Bancorp common stock, would have a value of $14.73, with a proposed aggregate value of approximately $111.7 million. Based on Berkshire Hills Bancorp’s closing price of $ 28.20 on October 19, 2016, each share of First Choice Bank common stock exchanged for 0.5773 shares of Berkshire Hills Bancorp common stock would have a value of $ 16.28 , with a proposed aggregate value of approximately $ 121.7 million. Berkshire Hills Bancorp common stock is listed on the New York Stock Exchange under the symbol “BHLB.” First Choice Bank stock is not traded on any established public trading market.

 

Although the number of shares of Berkshire Hills Bancorp common stock that holders of First Choice Bank common stock will be entitled to receive is fixed, the market value of the stock consideration will fluctuate with the market price of Berkshire Hills Bancorp common stock and will not be known at the time First Choice Bank shareholders vote on the merger. However, as described in more detail elsewhere in this proxy statement/prospectus, under the terms of the Merger Agreement, if the average price of Berkshire Hills Bancorp common stock over a specified period of time decreases below certain specified thresholds, First Choice Bank would have a right to terminate the Merger Agreement, unless Berkshire Hills Bancorp elects to increase the exchange ratio, which would result in additional shares of Berkshire Hills Bancorp common stock being issued.

 

The affirmative vote of two-thirds of the issued and outstanding common stock of First Choice Bank is required to approve the Merger Agreement. First Choice Bank has scheduled a special meeting so its shareholders can vote on the Merger Agreement. The First Choice Bank board of directors has determined that the Merger is advisable and in the best interests of First Choice Bank and the First Choice Bank board of directors unanimously recommends that First Choice Bank shareholders vote “FOR” the adoption of the Merger Agreement and “FOR” the approval of the other proposal described in this proxy statement/prospectus.

 

This document serves two purposes. It is the proxy statement being used by the First Choice Bank board of directors to solicit proxies for use at First Choice Bank special meeting. It is also the prospectus of Berkshire Hills Bancorp regarding the Berkshire Hills Bancorp common stock to be issued if the Merger is completed. This document describes the Merger in detail and includes a copy of the Merger Agreement as Annex A.

 

 

First Choice Bank shareholders will vote to approve the Merger Agreement and, if necessary, the proposal to adjourn the meeting described below at a special meeting of shareholders to be held at The Stone Terrace, 2275 Kuser Road, Hamilton Township, New Jersey 08610 at 10:00 a.m., local time, on November 22, 2016 .

 

Only shareholders of record as of October 19, 2016 are entitled to attend and vote at First Choice Bank special meeting. This document describes First Choice Bank special meeting, the Merger, the documents related to the Merger, and other related matters of First Choice Bank and Berkshire Hills Bancorp. Please read this entire document carefully, including the section discussing risks related to the Merger beginning on page 10. You can obtain information about Berkshire Hills Bancorp from documents that have been filed with the Securities and Exchange Commission.

 

Your vote is very important. Whether or not you plan to attend First Choice Bank special meeting, please take the time to submit your proxy by completing and mailing the enclosed proxy card, or by telephone or Internet, prior to the special meeting to ensure that your shares of First Choice Bank common stock will be represented and voted at the special meeting. If you do not return the proxy card, it will have the same effect as a vote “AGAINST” the Merger Agreement.

 

	Paul E. Fitzgerald
	President and Chief Executive Officer
	First Choice Bank

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY BANK REGULATORY AGENCY, NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The securities to be issued in connection with the Merger are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

This proxy statement/prospectus is dated [__________, 2016] and is first being mailed to shareholders of First Choice Bank on or about [__________, 2016].

 

 

This document incorporates important business and financial information about Berkshire Hills Bancorp, Inc. from documents filed by it with the Securities and Exchange Commission that have not been included in or delivered with this document. You may read and copy these documents at the Securities and Exchange Commission’s public reference facilities. Please call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available at the Internet site the SEC maintains at http://www.sec.gov. See “Where You Can Find More Information” on page 90 .

 

You also may request copies of these documents from Berkshire Hills Bancorp, Inc. Berkshire Hills Bancorp, Inc. will provide you with copies of these documents, without charge, upon written or oral request to:

 

Berkshire Hills Bancorp, Inc.

24 North Street

Pittsfield, Massachusetts 01201

Attention: Investor Relations Department

Telephone: (413) 236-3149

 

If you are a First Choice Bank shareholder and would like to request documents from Berkshire Hills Bancorp, Inc., please do so by November 15, 2016 to receive them before First Choice Bank’s special meeting.

 

 

FIRST CHOICE BANK
669 Whitehead Road
Lawrenceville, New Jersey 08648

 

Notice of Special Meeting of Shareholders
to be held November 22, 2016

 

A special meeting of shareholders of First Choice Bank will be held at 10:00 a.m. , local time, on November 22, 2016 at The Stone Terrace, 2275 Kuser Road, Hamilton Township, New Jersey 08610. Any adjournments or postponements of the special meeting will be held at the same location.

 

At the special meeting, you will be asked to:

 

1.

Consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of June 24, 2016, by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and First Choice Bank. A copy of the Merger Agreement is included as Annex A to the accompanying proxy statement/prospectus; and

 

2.

Consider and vote upon a proposal to adjourn or postpone the First Choice Bank special meeting to another time and/or place, if more time is needed to allow First Choice Bank to solicit additional proxies for the approval of the Merger Agreement.

 

No business may be transacted at the Special Meeting except as specified in this notice. The enclosed proxy statement/prospectus describes the Merger Agreement and the proposed Merger in detail. We urge you to read these materials carefully. The enclosed proxy statement/prospectus forms a part of this notice.

 

The board of directors of First Choice Bank unanimously recommends that First Choice Bank shareholders vote “FOR” the proposal to approve the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting to another time and/or place for the purpose of soliciting additional proxies in order to approve the Merger Agreement.

 

The board of directors of First Choice Bank has fixed the close of business on October 19, 2016 as the record date for determining the shareholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

 

Your vote is very important. Your proxy is being solicited by First Choice Bank’s board of directors. The proposal to approve the Merger Agreement must be approved by the affirmative vote of holders of at least two-thirds of the outstanding shares of First Choice Bank common stock entitled to vote in order for the proposed merger to be consummated. Whether or not you plan to attend the special meeting in person, we urge you to complete and mail the enclosed proxy card, in the accompanying envelope, which requires no postage if mailed in the United States , or follow the instructions on your proxy card to vote telephonically or through the Internet . You may revoke your proxy at any time before the special meeting. If you attend the special meeting and vote in person, your proxy vote will not be used.

 

Holders of First Choice Bank common stock have dissenters’ rights under New Jersey law. See “Questions and Answers About the Merger and First Choice Bank Special Meeting” on page 1 and “Dissenters’ Rights” on page 29.

 

	By Order of the Board of Directors
	Lisa M. Tuccillo
	Corporate Secretary

Lawrenceville, New Jersey

October 24, 2016

 

 

FIRST CHOICE BANK
669 Whitehead Road
Lawrenceville, New Jersey 08648

 

Notice of Special Meeting of Holders of
Series A Convertible Preferred Stock,

Series B Convertible Preferred Stock,

Series C Convertible Preferred Stock,
Series D Convertible Preferred Stock, and

Series E Convertible Preferred Stock
to be held November 22, 2016

 

Special meetings of the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, and Series E Convertible Preferred Stock of First Choice Bank will be held at 9:45 a.m. , local time, on November 22, 2016 at The Stone Terrace, 2275 Kuser Road, Hamilton Township, New Jersey 08610 . Any adjournments or postponements of the special meeting will be held at the same location.

 

At the special meetings, the holders of each series of convertible preferred stock, each series voting as a separate class, will be asked to consider and vote upon a proposal that the Merger of First Choice Bank with and into Berkshire Bank, with Berkshire Bank surviving as a wholly-owned subsidiary of Berkshire Hills Bancorp, not be deemed a liquidation event, as defined in First Choice Bank’s certificate of incorporation and the applicable certificate of designation for the series of convertible preferred stock.

 

Pursuant to a letter agreement with Berkshire Hills Bancorp, each director and certain officers of First Choice Bank, representing a majority of each series of convertible preferred stock, have agreed to vote all of their shares of First Choice Bank convertible preferred stock so that the Merger will not be deemed a liquidation event. Therefore, no proxies are being solicited from the holders of First Choice Bank convertible preferred stock in connection with the First Choice Bank special meetings.

 

No business may be transacted at the special meetings of the holders of convertible preferred stock except as specified in this notice.

 

The board of directors of First Choice Bank has fixed the close of business on October 19, 2016 as the record date for determining the holders of convertible preferred stock entitled to notice of, and to vote at, the special meetings and any adjournments or postponements of the special meetings.

 

	By Order of the Board of Directors
	Lisa M. Tuccillo
	Corporate Secretary

Lawrenceville, New Jersey

October 24, 2016

 

 

TABLE OF CONTENTS

 

	Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND FIRST CHOICE BANK SPECIAL MEETING	1
SUMMARY	5
RISK FACTORS	10
SELECTED HISTORICAL FINANCIAL INFORMATION	15
Selected Historical Financial and Other Data of BERKSHIRE HILLS Bancorp, Inc.	16
Selected Historical Financial and Other Data of First Choice Bank	21
SPECIAL MEETING OF FIRST CHOICE BANK SHAREHOLDERS	24
DISSENTERS’ RIGHTS	29
PROPOSAL I — THE PROPOSED MERGER	30
DESCRIPTION OF BERKSHIRE HILLS BANCORP, INC. CAPITAL STOCK	80
COMPARISON OF RIGHTS OF SHAREHOLDERS	82
MANAGEMENT AND OPERATIONS AFTER THE MERGER	89
PROPOSAL II — TO Consider and vote upon a proposal to adjourn or postpone the First Choice Bank special meeting to another time and/or place, if more time is needed to allow First Choice Bank to solicit additional proxies for the approval of the Merger Agreement	89
LEGAL MATTERS	90
EXPERTS	90
WHERE YOU CAN FIND MORE INFORMATION	90

 

Annex A	Agreement and Plan of Merger, dated as of June 24, 2016, by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and First Choice Bank	A-1
Annex B	Opinion of Ambassador Financial Group	B-1
Annex C	New Jersey Banking Act on Dissenters’ Rights	C-1

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER
AND FIRST CHOICE BANK SPECIAL MEETING

 

Q:

Why am I receiving these materials?

 

A:

Berkshire Hills Bancorp, Inc. (“Berkshire Hills Bancorp”) and Berkshire Bank entered into a Merger Agreement with First Choice Bank pursuant to which First Choice Bank will merge with and into Berkshire Bank, with Berkshire Bank as the surviving entity.

 

In order to complete the merger of First Choice Bank with and into Berkshire Bank, the shareholders of First Choice Bank must vote to approve the Merger Agreement. First Choice Bank will hold a special meeting of its shareholders to solicit this approval, as well as solicit approvals on other merger related matters. This proxy statement/prospectus contains important information about the Merger, the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus, the special meeting of First Choice Bank shareholders, and other related matters, and we encourage you to read it carefully.

 

Q:

What will First Choice Bank’s shareholders be voting on at the special shareholders meeting?

 

A:

At the special meeting of shareholders of First Choice Bank, First Choice Bank’s shareholders will be asked to vote to (i) approve the Merger Agreement, and (ii) if necessary, to approve a proposal to adjourn or postpone the First Choice Bank special meeting for the purpose of allowing additional time to solicit proxies. No business may be transacted at the First Choice Bank special meeting except as specified in the notice accompanying this proxy statement/prospectus.

 

Q:

WHAT DO I NEED TO DO NOW?

 

A:

After you have carefully read this proxy statement/prospectus, indicate on your proxy card how you want your shares to be voted, then sign and mail it in the enclosed postage-paid envelope as soon as possible or submit your proxy telephonically or by the internet so that your shares may be represented and voted at the First Choice Bank special meeting. If you sign and send in your proxy card and do not indicate how you want to vote, First Choice Bank will count your proxy card as a vote “FOR” approval of the Merger Agreement and any other proposal to be properly considered and voted on at the First Choice Bank special meeting.

 

Q:

WHAT AM I BEING ASKED TO VOTE ON AND HOW DOES MY BOARD RECOMMEND THAT I VOTE?

 

A:

You are being asked to vote “FOR” the approval of the Merger Agreement. The First Choice Bank board of directors has determined that the proposed merger is in the best interests of First Choice Bank shareholders, has approved the Merger Agreement and recommends that First Choice Bank shareholders vote “FOR” the approval of the Merger Agreement. You are also being asked to vote “FOR” the ability to adjourn the meeting and to transact any other business that properly comes before the special meeting, or any adjournment or postponements of the meeting.

 

Q:

WHAT WILL FIRST CHOICE BANK SHAREHOLDERS RECEIVE IN THE MERGER?

 

A:

If the shareholders of First Choice Bank approve the Merger Agreement and the other conditions to closing are satisfied, for each share of First Choice Bank common stock you own, you will receive 0.5773 shares of Berkshire Hills Bancorp common stock. In addition, each outstanding share of First Choice Bank preferred stock will be converted into the right to receive such number of Berkshire Hills Bancorp common stock equal to the number of shares of First Choice Bank common stock issuable upon the conversion of the First Choice Bank preferred stock multiplied by 0.5773. Based on 3,207,493 shares of First Choice Bank common stock issued and outstanding as of October 19, 2016 , plus 4,270,829 shares of First Choice Bank common stock issuable upon the conversion of the issued and outstanding shares of First Choice Bank

 

 

Series A through Series E preferred stock, and the 0.5773 exchange ratio, approximately 4,317,235 shares of Berkshire Hills Bancorp common stock will be issued to First Choice Bank shareholders.

 

Q:

WHY IS MY VOTE IMPORTANT?

 

A: The Merger cannot be completed unless the holders of two-thirds (2/3) of the issued and outstanding common stock of First Choice Bank vote to approve the Merger Agreement. If you do not return your proxy card by mail, telephonically or by the internet at or prior to the First Choice Bank special meeting, it will be more difficult for First Choice Bank to obtain the necessary vote to approve the Merger Agreement. The failure of a First Choice Bank shareholder to vote, by proxy or in person, will have the same effect as a vote against the Merger Agreement.

 

Q:

HOW DO I VOTE?

 

A:

You can vote by mail, telephonically or through the internet. If you vote by mail, you will need to complete, sign, date and return your proxy card in the postage-paid envelope provided. You can also vote in person at the First Choice Bank special meeting.

 

Q:

WHEN AND WHERE IS THE FIRST CHOICE BANK SPECIAL MEETING?

 

A:

The First Choice Bank special meeting will be held at The Stone Terrace, 2275 Kuser Road, Hamilton Township, New Jersey 08610 at 10:00 a.m., local time, on November 22, 2016 .

 

Q:

WHAT CONSTITUTES A QUORUM FOR THE FIRST CHOICE BANK SPECIAL MEETING?

 

A:

The presence at the First Choice Bank special meeting, in person or by proxy, of holders representing at least a majority of the outstanding shares of First Choice Bank common stock entitled to be voted at the First Choice Bank special meeting will constitute a quorum for the transaction of business at the First Choice Bank special meeting. Abstentions and broker non-votes, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum.

 

Q:

WHAT IS THE VOTE REQUIRED TO APPROVE EACH PROPOSAL AT THE FIRST CHOICE BANK SPECIAL MEETING?

 

A:

At the special meeting, the affirmative vote of holders of at least two-thirds of the issued and outstanding shares of First Choice Bank common stock is required to approve the Merger Agreement. The vote on the proposal to adjourn or postpone the First Choice Bank special meeting for the purpose, among others, of allowing additional time to solicit proxies requires the affirmative vote of holders of at least a majority in interest of the First Choice Bank common stockholders present in person or by proxy at the special meeting, even if less than a quorum is present.

 

Q:

DO THE HOLDERS OF PREFERRED STOCK GET TO VOTE ON PROPOSAL TO APPROVE THE MERGER AGREEMENT?

 

A:

The holders of First Choice Bank preferred stock are not entitled to vote on the proposal to approve the Merger Agreement, but do get to determine whether the Merger would be considered a liquidation event, entitling them to be paid their respective liquidation preferences in lieu of receiving merger consideration. Pursuant to a letter agreement with Berkshire Hills Bancorp, each director and certain officers of First Choice Bank, representing a majority of each series of preferred stock, have agreed to vote all of their shares of First Choice Bank preferred stock so that the Merger will not be deemed a liquidation event. Therefore, no proxies are being solicited from the holders of First Choice Bank preferred stock in connection with the First Choice Bank special meeting.

 

 

Q:

Are First Choice Bank shareholders entitled to dissenters’ rights?

 

A:

Yes. First Choice Bank common shareholders are entitled to dissenters’ rights under the New Jersey Banking Act. For further information, see “Proposal I—The Proposed Merger—Dissenters’ Rights.”

 

Q:

IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?

 

A:

No. Your broker cannot vote on either the merger proposal on your behalf without specific instructions from you. Your broker will vote your shares on the merger proposal only if you provide instructions on how to vote. You should follow the directions provided by your broker.

 

Q.

WHAT IF I FAIL TO INSTRUCT MY BROKER?

 

A.

If you fail to instruct your broker how to vote your shares and the broker submits an unvoted proxy, the resulting broker “non-vote” will be counted toward a quorum at the First Choice Bank special meeting, but it will have the same effect as a vote against the Merger Agreement.

 

Q.

CAN I ATTEND THE SPECIAL MEETING AND VOTE MY SHARES IN PERSON?

 

A.

Yes. All shareholders of First Choice Bank, including shareholders of record and shareholders who hold their shares “in street name” through banks, brokers, nominees or any other holder of record, are invited to attend the First Choice Bank special meeting. Holders of record of First Choice Bank common stock can vote in person at the First Choice Bank special meeting. If you are not a shareholder of record, you must obtain a proxy card, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the special meeting. If you plan to attend the special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. First Choice Bank reserves the right to refuse admittance to anyone without proper proof of share ownership or without proper photo identification.

 

Q:

CAN I CHANGE MY VOTE AFTER I HAVE VOTED?

 

A:

Yes. If you have not voted through your broker, there are three ways for you to revoke your proxy and change your vote. First, you may send written notice to the Corporate Secretary of First Choice Bank stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card (if you submitted your proxy by Internet or by telephone, you can resubmit by Internet or telephone). Third, you may vote in person at the First Choice Bank special meeting. If you have instructed a broker to vote your shares, you must follow the directions you receive from your broker to change your vote. Your last vote will be the vote that is counted.

 

Q:

SHOULD I SEND IN MY FIRST CHOICE BANK STOCK CERTIFICATES NOW?

 

A:

No. You should not send in your stock certificates at this time. You will separately receive a form with instructions for exchanging your First Choice Bank stock certificates sometime after we obtain First Choice Bank ’s shareholder approval and all necessary regulatory approvals.

 

Q:

I AM ALSO A BERKSHIRE HILLS BANCORP SHAREHOLDER. DO I NEED TO DO ANYTHING WITH MY BERKSHIRE HILLS BANCORP STOCK CERTIFICATES?

 

A.

No. Berkshire Hills Bancorp shareholders will not exchange their certificates in the Merger. The certificates currently representing shares of Berkshire Hills Bancorp common stock will continue to represent the same number of shares of common stock of Berkshire Hills Bancorp after the Merger.

 

 

Q:

WHEN DO YOU EXPECT TO MERGE?

 

A:

First Choice Bank, Berkshire Bank and Berkshire Hills Bancorp are working toward completing the Merger as quickly as possible, and expect to complete the Merger in the fourth quarter of 2016. However, First Choice Bank, Berkshire Bank and Berkshire Hills Bancorp cannot assure you when or if the Merger will occur. First Choice Bank, Berkshire Bank and Berkshire Hills Bancorp must first obtain the approval of the shareholders of First Choice Bank and all necessary regulatory approvals.

 

Q:

WHAT HAPPENS IF THE MERGER IS NOT COMPLETED?

 

A:

If the Merger is not completed, First Choice Bank shareholders will not receive any consideration for their shares of First Choice Bank capital stock in connection with the Merger. Instead, First Choice Bank will remain an independent entity. In addition, if the Merger Agreement is terminated in certain circumstances, a termination fee may be required to be paid by First Choice Bank. See “Proposal I—The Proposed Merger—Terminating the Merger Agreement” for a complete discussion of the circumstances under which termination fees will be required to be paid.

 

Q:

WHAT ARE THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO U.S. HOLDERS OF FIRST CHOICE BANK STOCK?

 

A:

The Merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Accordingly, U.S. holders of First Choice Bank common and preferred stock generally will not recognize any gain or loss on the exchange of shares of First Choice Bank stock for shares of Berkshire Hills Bancorp common stock. However, a U.S. holder of First Choice Bank stock generally will be subject to U.S. federal income tax on cash received in lieu of any fractional share of Berkshire Hills Bancorp common stock that a holder would otherwise be entitled to receive. For further information, see “Proposal I — The Proposed Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page 63 . This tax treatment may not apply to all First Choice Bank shareholders. Determining the actual tax consequences of the Merger to First Choice Bank shareholders can be complicated and will depend on your particular circumstances. First Choice Bank shareholders should consult their own tax advisor for a full understanding of the Merger’s tax consequences that are particular to each shareholder.

 

Q:

WHOM SHOULD I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL COPIES OF THIS PROXY STATEMENT/PROSPECTUS?

 

A:

First Choice Bank shareholders should contact:

First Choice Bank

669 Whitehead Road

Lawrenceville, New Jersey 08648

Attention: Lisa M. Tuccillo, Corporate Secretary

(609) 503-4828

 

 

 

 

 

 

 

 

 

 

 

 

RISK FACTORS

 

In addition to the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the section “Caution About Forward-Looking Statements” beginning on page 14, you should consider carefully the risk factors described below, in deciding how to vote. You should also read and consider the risk factors associated with the business of Berkshire Hills because the risk factors may affect the operations and financial results of the consolidated entity. These risk factors may be found in the periodic reports and other documents of Berkshire Hills Bancorp and is incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” on page 90 .

 

Because the market price of Berkshire Hills Bancorp common stock will fluctuate, First Choice shareholders cannot be sure of the trading price of the merger consideration they will receive and the price of Berkshire Hills Bancorp common stock might decrease after the Merger.

 

Upon completion of the merger, each share of First Choice Bank stock will be converted into the right to receive merger consideration consisting of shares of Berkshire Hills Bancorp common stock. The exchange ratio in the merger agreement will not be adjusted in the event of any change in the stock price of Berkshire Hills Bancorp prior to the merger. There also will be a period of time between the date when shareholders of First Choice vote on the merger agreement and the date when the merger is completed. The market price of Berkshire Hills Bancorp common stock may vary between the date of this proxy statement/prospectus, the date of the special meetings, and the date of completion of the merger. For example, during the twelve-month period ending on October 19, 2016, the price of Berkshire Hills Bancorp common stock varied from a low of $ 24.71 to a high of $ 30.69 and ended that period at $ 28.20 . The market value of Berkshire Hills Bancorp common stock fluctuates based upon general market economic conditions, Berkshire Hills Bancorp’s business and prospects and other factors. Many of these factors are beyond the control of First Choice and Berkshire Hills Bancorp and are not necessarily related to a change in the financial performance or condition of First Choice or Berkshire Hills. As Berkshire Hills Bancorp market share prices fluctuate, based on numerous factors, the value of the shares of Berkshire Hills Bancorp common stock that a First Choice shareholder will receive will correspondingly fluctuate. It is impossible to predict accurately the market price of Berkshire Hills Bancorp common stock after completion of the merger. Accordingly, the price of Berkshire Hills Bancorp common stock on the date of the special meetings may not be indicative of their prices immediately prior to completion of the merger and the price of Berkshire Hills Bancorp common stock after the merger is completed. Berkshire Hills Bancorp common stock is listed on the New York Stock Exchange under the symbol “BHLB.” We urge you to obtain current market quotations for Berkshire Hills Bancorp common stock. You can get these quotations from a newspaper, on the Internet or by calling your broker.

 

The restrictions on solicitation contained in the Merger Agreement and the termination fee may discourage other companies from trying to acquire First Choice Bank.

 

Until the completion of the Merger, First Choice Bank is prohibited from taking any action to knowingly initiate, solicit or engage in discussions or negotiations with, or knowingly provide any information to any person other than Berkshire Hills Bancorp concerning any purchase of a majority of the outstanding First Choice Bank common stock, any Merger of First Choice Bank, or the sale of substantially all of the assets of First Choice Bank, or any similar transaction. In addition, First Choice Bank has agreed to pay a termination fee to Berkshire Hills Bancorp in specified circumstances. These provisions could discourage other companies from trying to acquire First Choice Bank even though those other companies might be willing to offer greater value to First Choice Bank’s shareholders than Berkshire Hills Bancorp has offered in the Merger. The payment of the termination fee could also have a material adverse effect on First Choice Bank’s financial condition.

 

First Choice Bank will be subject to business uncertainties and contractual restrictions while the Merger is pending.

 

The pursuit of the Merger may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition could affect First Choice Bank’s financial results. In addition, the Merger Agreement requires that First Choice Bank operate in the usual, regular and ordinary course of business and restricts First Choice Bank from taking certain actions prior to the effective time of the Merger or termination of the Merger without Berkshire Hills

 

 

Bancorp’s consent in writing. These restrictions may prevent First Choice Bank from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

 

There is no assurance when or even if the Merger will be completed.

 

Completion of the Merger is subject to satisfaction or waiver of a number of conditions. See “Proposal I—The Proposed Merger—Conditions to Completing the Merger.” There can be no assurance that Berkshire Hills Bancorp and First Choice Bank will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived.

 

Berkshire Hills Bancorp and First Choice Bank can agree at any time to terminate the Merger Agreement, even if First Choice Bank’s shareholders have already voted to approve the Merger Agreement. Berkshire Hills Bancorp and First Choice Bank can also terminate the Merger Agreement under other specified circumstances. See “Proposal I—The Proposed Merger—Terminating the Merger Agreement.”

 

Certain of First Choice Bank’s officers and directors have interests that are different from, or in addition to, interests of First Choice Bank’s shareholders generally.

 

You should be aware that some of the directors and officers of First Choice Bank have interests in the Merger that are different from, or in addition to, the interests of First Choice Bank shareholders generally. These include: severance payments that certain officers may receive under existing employment agreements; the payment for stock options and stock warrants; provisions in the Merger Agreement relating to indemnification of directors and officers and insurance for directors and officers of First Choice Bank for events occurring before the Merger; retention agreements with certain key executives of First Choice Loan Services and an agreement with respect the shares of Berkshire Hills Bancorp common stock to be received by First Choice’s Chairman, Martin Tuchman. For a more detailed discussion of these interests, see “ Proposal I—The Proposed Merger—Interests of Certain Persons in the Merger that are Different from Yours” beginning on page 67 .

 

Failure to complete the Merger could negatively impact the future businesses and financial results of Berkshire Hills Bancorp, Berkshire Bank and First Choice Bank.

 

If the Merger is not completed, the ongoing businesses of Berkshire Hills Bancorp and First Choice Bank may be adversely affected and Berkshire Hills Bancorp and First Choice Bank will be subject to several risks, including the following:

 

·

Berkshire Hills Bancorp, Berkshire Bank and First Choice Bank will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, and other professional fees;

 

·

under the Merger Agreement, First Choice Bank is subject to certain restrictions on the conduct of its business prior to completing the Merger, which may adversely affect its ability to execute certain of its business strategies; and

 

·

matters relating to the Merger may require substantial commitments of time and resources by Berkshire Hills Bancorp, Berkshire Bank and First Choice Bank management, which could otherwise have been devoted to other opportunities that may have been beneficial to Berkshire Hills Bancorp, Berkshire Bank and First Choice Bank as independent companies, as the case may be.

 

In addition, if the Merger is not completed, Berkshire Hills Bancorp and/or First Choice Bank may experience negative reactions from the financial markets and from their respective customers and employees. Berkshire Hills Bancorp and/or First Choice Bank also could be subject to litigation related to any failure to complete the Merger or to enforcement proceedings commenced against Berkshire Hills Bancorp or First Choice Bank to perform their respective obligations under the Merger Agreement. If the Merger is not completed, Berkshire Hills Bancorp and First Choice Bank cannot assure their shareholders that the risks described above will not materialize and will not materially affect the business, financial results and stock prices of Berkshire Hills Bancorp and/or First Choice Bank.

 

 

The shares of Berkshire Hills Bancorp common stock to be received by First Choice Bank shareholders receiving the stock consideration as a result of the Merger will have different rights from shares of First Choice Bank common stock.

 

Following completion of the Merger, First Choice Bank shareholders will no longer be shareholders of First Choice Bank, a New Jersey bank, but instead will be shareholders of Berkshire Hills Bancorp, a Delaware corporation. There will be important differences between your current rights as a First Choice Bank shareholder and the rights to which you will be entitled as a Berkshire Hills Bancorp shareholder. See “Comparison of Rights of Shareholders” beginning on page 82 for a discussion of the different rights associated with Berkshire Hills Bancorp common stock and First Choice Bank common stock.

 

Berkshire Hills Bancorp may fail to realize the anticipated benefits of the merger.

 

The success of the Merger will depend on, among other things, Berkshire Hills Bancorp’s ability to realize anticipated cost savings and to combine the businesses of Berkshire Bank and First Choice Bank in a manner that does not materially disrupt the existing customer relationships of First Choice Bank or Berkshire Bank, or result in decreased revenues from any loss of customers. If Berkshire Hills Bancorp is not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.

 

Berkshire Hills Bancorp and First Choice Bank have operated and, until the completion of the Merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, the disruption of Berkshire Hills Bancorp’s or First Choice Bank’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of Berkshire Hills Bancorp to maintain relationships with customers and employees or to achieve the anticipated benefits of the Merger.

 

Berkshire Hills Bancorp and Berkshire Bank may not receive required regulatory approvals. Such approvals may be subject to adverse regulatory conditions.

 

Before the Merger may be completed and in connection with the change in control of First Choice Loan Services, various approvals or waivers must be obtained from, or notifications submitted to, various governmental entities and bank regulators, principally, the Federal Deposit Insurance Corporation, the New Jersey Commissioner of Banking and Insurance and the Massachusetts Department of Banking. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals or delay their receipt. Neither First Choice Bank nor Berkshire Hills Bancorp can guarantee that it will receive all required regulatory approvals in order to complete the Merger. In addition, some of the governmental authorities from whom those approvals must be obtained may impose conditions, terms, obligations or restrictions on the completion of the Merger or require changes in the terms of the Merger and such conditions, terms, obligations or restrictions may have the effect of delaying the completion of the Merger, imposing additional material costs on or materially limiting the revenues of the combined company following the Merger or otherwise reduce the anticipated benefits of the Merger if the Merger were consummated successfully within the expected timeframe. In addition, neither Berkshire Hills Bancorp, Berkshire Bank nor First Choice Bank can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Merger. Additionally, the completion of the Merger is conditioned on the absence of any orders, decrees or injunction by any court or agency of competent jurisdiction that would enjoin or prohibit the completion of the Merger.

 

The fairness opinion obtained by First Choice Bank from its financial advisor will not reflect changes in circumstances subsequent to the date of the Merger Agreement.

 

First Choice Bank has obtained a fairness opinion dated as of June 24, 2016, from its financial advisor, Ambassador Financial Group, Inc. (“Ambassador”). First Choice Bank has not obtained, and will not obtain, an updated opinion as of the date of this proxy statement/prospectus from its financial advisor. Changes in the operations and prospects of Berkshire Hills Bancorp or First Choice Bank, general market and economic conditions and other factors that may be beyond the control of Berkshire Hills Bancorp and First Choice Bank, and on which the fairness opinion was based, may alter the value of First Choice Bank or the price of shares of Berkshire Hills Bancorp common stock or First Choice Bank common stock by the time the Merger is completed. The opinion does

 

 

not speak to the time the Merger will be completed or to any other date other than the date of such opinion. As a result, the opinion will not address the fairness of the exchange ratio, from a financial point of view, at the time the Merger is completed. For a description of the opinion that First Choice Bank received from Ambassador, please see “The Merger—Opinion of First Choice Bank’s Financial Advisor, Ambassador Financial Group, Inc.” beginning on page 37 of this proxy statement/prospectus.

 

First Choice Bank shareholders will have a reduced ownership percentage and voting interest after the Merger and will exercise less influence over management.

 

The holders of First Choice Bank common stock currently have the right to vote in the election of the board of directors of First Choice Bank and on certain other matters affecting First Choice Bank. When the Merger occurs, each shareholder of First Choice Bank that receives shares of Berkshire Hills Bancorp common stock will become a shareholder of Berkshire Hills Bancorp with a percentage ownership of the combined organization that is much smaller than the shareholder’s current percentage ownership of First Choice Bank. Upon completion of the Merger, the former First Choice Bank shareholders will own approximately 12% of the outstanding shares of Berkshire Hills Bancorp common stock . Because of this, First Choice Bank’s shareholders will have less influence on the management and policies of Berkshire Hills Bancorp than they now have on the management and policies of First Choice Bank.

 

Risks Relating to Berkshire Hills Bancorp’s Business

 

You should read and consider risk factors specific to Berkshire Hills Bancorp’s business that will also affect the combined company after the Merger. These risks are described in the sections entitled “Risk Factors” in Berkshire Hills Bancorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Berkshire Hills Bancorp’s Quarterly Report on Form 10-Q for the period ended June 30, 2016, and in other documents incorporated by reference into this proxy statement/prospectus. Please see the section entitled “Where You Can Find More Information” beginning on page 90 of this proxy statement/prospectus for the location of information incorporated by reference into this proxy statement/prospectus.

 

 

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The sections of this document which contain forward-looking statements include, but are not limited to, “Questions And Answers About the Merger and First Choice Bank Special Meeting,” “Summary,” “Risk Factors,” “Proposal I—The Proposed Merger—Background of the Merger,” and “Proposal I—The Proposed Merger—First Choice Bank’s Reasons for the Merger and Recommendation of the First Choice Bank Board.” You can identify these statements from the use of the words “may,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

 

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions and the risks and other factors set forth in the “Risk Factors” section beginning on page 10.

 

Because of these and other uncertainties, Berkshire Hills Bancorp’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire Hills Bancorp’s and First Choice Bank’s past results of operations do not necessarily indicate Berkshire Hills Bancorp’s and First Choice Bank’s combined future results. You should not place undue reliance on any forward-looking statements, which speak only as of the dates on which they were made. Berkshire Hills Bancorp is not undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Berkshire Hills Bancorp qualifies all of its forward-looking statements by these cautionary statements.

 

 

SELECTED HISTORICAL FINANCIAL INFORMATION

 

The following tables show summarized historical financial data for Berkshire Hills Bancorp and First Choice Bank. You should read this summary financial information in connection with Berkshire Hills Bancorp’s historical financial information, which is incorporated by reference into this document.

 

Unaudited consolidated interim financial statements for Berkshire Hills Bancorp and the unaudited interim financial statements for First Choice Bank at or for the six months ended June 30, 2016 include normal, recurring adjustments necessary to fairly present the data for those periods. The unaudited data is not necessarily indicative of expected results of a full year’s operation.

 

 

Selected Historical Financial and Other Data of BERKSHIRE HILLS Bancorp, Inc.

 

		At June 30,								At December 31,
(In thousands, except per share data)		2016				2015				2015				2014				2013				2012				2011 (1)
Selected Financial Data:
Total assets		$	8,043,659			$	7,518,747			$	7,831,915			$	6,502,031			$	5,672,799			$	5,296,809			$	3,992,257
Total earnings assets			7,327,099				6,740,128				7,140,387				5,923,462				5,085,152				4,682,755				3,519,852
Total investments			1,288,101				1,379,340				1,371,316				1,205,794				870,091				573,871				533,181
Total borrowings			1,320,236				1,266,266				1,264,147				1,052,323				1,064,107				448,088				237,402
Total loans			6,000,301				5,284,614				5,725,236				4,680,600				4,180,523				3,988,654				2,956,570
Allowance for loan losses			(41,397	)			(37,197	)			(39,308	)			(35,662	)			(33,323	)			(33,208	)			(32,444	)
Total intangible assets			348,986				320,516				334,607				276,270				270,662				274,258				223,364
Total deposits			5,656,724				5,322,176				5,589,135				4,654,679				3,848,529				4,100,409				3,101,175
Total shareholders’ equity			923,420				827,151				887,189				709,287				678,062				667,265				551,808
Net income			31,958				18,803				49,518				33,744				41,143				33,188				17,348
Adjusted net income(2)			33,003				26,930				59,610				44,742				46,696				44,245				27,714
Selected Operating Data:
Total interest and dividend income		$	137,494			$	113,154			$	247,030			$	207,042			$	203,741			$	175,939			$	138,260
Total interest expense			22,356				15,024				33,181				28,351				34,989				32,551				31,740
Net interest income			115,138				98,130				213,849				178,691				168,752				143,388				106,520
Fee income			30,790				29,437				57,480				53,434				50,525				51,265				33,727
All other non-interest (loss) income			(605	)			(95	)			(3,192	)			(5,664	)			7,707				2,791				2,076
Total non-interest income			30,185				29,342				54,288				47,770				58,232				54,056				35,803
Total net revenue			145,323				127,472				268,137				226,461				226,984				197,444				142,323
Provision for loan losses			8,528				8,055				16,726				14,968				11,378				9,590				7,563
Total non-interest expense			93,368				99,173				196,829				165,986				157,359				140,806				116,442
Income tax expense - continuing operations			11,469				1,441				5,064				11,763				17,104				13,223				1,884
Net (loss) income from discontinued operations			—				—				—				—				—				(637	)			914
Net income		$	31,958			$	18,803			$	49,518			$	33,744			$	41,143			$	33,188			$	17,348
Dividends per common share		$	0.40			$	0.38			$	0.76			$	0.72			$	0.72			$	0.69			$	0.65
Basic earnings per common share			1.05				0.71				1.74				1.36				1.66				1.49				0.97
Diluted earnings per common share			1.04				0.70				1.73				1.36				1.65				1.49				0.97
Weighted average common shares outstanding – basic			30,561				26,557				28,393				24,730				24,802				22,201				17,885
Weighted average common shares outstanding – diluted			30,725				26,713				28,564				24,854				24,965				22,329				17,952

 

(1)

Adjusted measurements are non-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions and restructuring activities. Refer to the Reconciliation of Non-GAAP Financial Measures for additional information.

(2)

Non-GAAP financial measure.

 

		At or For the Six Months Ended June 30,								At or For the Years Ended December 31,
		2016				2015				2015				2014				2013				2012				2011(4)
Selected Operating Ratios and Other Data: (1)
Share Data:
Net earnings, diluted		$	1.04			$	0.70			$	1.73			$	1.36			$	1.65			$	1.49			$	0.97
Adjusted earnings, diluted(2)			1.07				1.01				2.09				1.80				1.87				1.98				1.54
Total book value per share			29.64				28.02				28.64				28.17				27.08				26.53				26.09
Tangible book value per share(2)			18.44				17.16				17.84				17.19				16.27				15.56				15.51
Dividends			0.40				0.38				0.76				0.72				0.72				0.69				0.65
Market price at year end			26.92				28.48				29.11				26.66				27.27				23.86				22.19
Performance Ratios: (1)(3)
Return on average assets			0.82	%			0.55	%			0.68	%			0.55	%			0.78	%			0.73	%			0.50	%
Adjusted return on average assets(2)			0.85				0.79				0.82				0.73				0.88				0.98				0.80
Return on average equity			7.18				5.03				6.14				4.87				6.09				5.66				3.64
Adjusted return on equity(2)			7.41				7.20				7.40				6.46				6.92				7.54				5.76
Net interest margin, fully tax equivalent (FTE)(4)			3.32				3.24				3.31				3.26				3.63				3.62				3.57
Fee income/total net revenue			21.19				23.09				21.44				23.60				22.26				25.96				23.70
Growth Ratios:
Total commercial loans			5.28	%			17.07	%			28.65	%			14.80	%			4.51	%			28.54	%			29.29	%
Total loans			4.80				12.90				23.32				11.96				4.81				34.91				38.02
Total deposits			1.21				14.34				20.08				20.95				(6.14	)			32.22				40.68
Total net revenue (compared to prior year)			14.00				20.23				18.40				(0.23	)			14.96				38.73				33.39
Earnings per share (compared to prior year)			47.89				69.05				27.21				(17.58	)			10.74				53.61				(2.00	)
Adjusted earnings per share (compared to prior year)2)			4.96				17.33				16.11				(3.74	)			(5.56	)			28.57				52.94
Asset Quality Ratios: (5)
Net loans charged-off/average total loans			0.22	%			0.26	%			0.25	%			0.29	%			0.29	%			0.26	%			0.27	%
Allowance for loan losses/total loans			0.69				0.70				0.69				0.76				0.80				0.83				1.10
Capital and Liquidity Ratios:
Tier 1 capital to average assets – Company			7.67	%			7.44	%			7.71	%			7.01	%			N/A%				N/A%				N/A%
Total capital to risk-weighted assets – Company			11.35				11.66				11.91				11.38				N/A				N/A				N/A
Tier 1 capital to average assets – Bank			7.57				7.47				7.66				7.18				7.99				7.46				8.41
Total capital to risk-weighted assets – Bank			10.63				10.97				11.16				10.78				11.62				11.79				11.29
Shareholders’ equity/total assets			11.48				11.00				11.33				10.91				11.95				12.60				13.82
Tangible common shareholders’ equity to tangible assets (2)			7.46				7.04				7.37				6.96				7.54				7.82				8.71
Loans/deposits			106				99				102				101				109				97				95

 

(1)

Adjusted measurements are non-GAAP financial measures that are adjusted to exclude certain revenue and expense items primarily related to acquisitions and restructuring activities. Refer to the Reconciliation of Non-GAAP Financial Measures and discussion of Non-GAAP financial measures for additional information.

(2)

Non-GAAP financial measure.

 

 

(3)

All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(4)

Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.

(5)

Generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost. The fair value of loans acquired in a business combination includes expected loan losses, and there is no loan loss allowance recorded for these loans at the time of acquisition. Accordingly, the ratio of the loan loss allowance to total loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge-offs are normally reduced for loans acquired in a business combination since these loans are recorded net of expected loan losses. Therefore, the ratio of net loan charge-offs to average loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Other institutions may have loans acquired in a business combination, and therefore there may be no direct comparability of these ratios between and among other institutions.

 

 

 

 

 

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

 

				At or For the Six Months Ended June 30,								At or For the Years Ended December 31,
(in thousands)				2016				2015				2015				2014				2013				2012				2011
Net income (GAAP)				$	31,958			$	18,803			$	49,518			$	33,744			$	41,143			$	33,188			$	17,348
Securities (gains) losses and other revenue adjustments					(23	)			(2,418	)			(2,110	)			9,691				(6,045	)			(1,485	)			(2,101	)
Merger, acquisition, restructuring, conversion related and other expense adjustments					1,658				13,132				17,611				8,492				15,348				18,656				19,014
Income Tax adjustments					(590	)			(2,587	)			(5,409	)			(7,185	)			(3,750	)			(6,114	)			(6,547	)
Total adjusted income (non-GAAP)		(A)		$	33,003			$	26,930			$	59,610			$	44,742			$	46,696			$	44,245			$	27,714
Total revenue (GAAP)				$	145,323			$	127,472			$	268,137			$	226,461			$	226,984			$	197,444			$	142,323
Securities (gains) losses and other revenue adjustments					(23	)			(2,418	)			(2,110	)			9,691				(6,045	)			(1,485	)			(2,101	)
Total operating revenue (non-GAAP)		(B)		$	145,300			$	125,054			$	266,027			$	236,152				220,939				195,959				140,222
Total non-interest expense (GAAP)				$	93,368			$	99,173			$	196,830			$	165,986			$	157,359			$	141,443			$	116,055
Total acquisition, restructuring and other expense adjustments					(1,658	)			(13,132	)			(17,611	)			(8,492	)			(15,348	)			(18,656	)			(19,014	)
Adjusted non-interest expense (non-GAAP)		(C)		$	91,710			$	86,041			$	179,219			$	157,494			$	142,011			$	122,787			$	97,041
(in millions, except per share data)
Total average assets		(D)		$	7,800			$	6,846			$	7,249			$	6,171			$	5,306			$	4,531			$	3,485
Total average shareholders’ equity		(E)			891				748				805				693				675				588				481
Total average tangible shareholders’ equity(2)		(F)			551				459				494				415				403				376				320
Total tangible shareholders’ equity, period end(2)		(G)			574				507				553				433				407				392				328
Total tangible assets, period end(2)		(H)			7,695				7,198				7,497				6,226				5,402				5,021				3,769
Total common shares outstanding, period end (thousands)		(I)			31,156				29,521				30,974				25,183				25,036				25,149				21,147
Average diluted shares outstanding (thousands)		(J)			30,728				26,713				28,564				24,854				24,965				22,329				17,952
GAAP earnings per share, diluted				$	1.04			$	0.70			$	1.73			$	1.36			$	1.65			$	1.49			$	0.97
Adjusted earnings per share, diluted(2)		(A/J)			1.07				1.01				2.09				1.80				1.87				1.98				1.54
Book value per share (period end)					29.64				28.02				28.64				28.17				27.08				26.53				26.09
Tangible book value per share (period end)(2)		(G/I)			18.44				17.16				17.84				17.19				16.27				15.56				15.51
Total shareholders’ equity/total assets					11.48				11.00				11.33				10.91				11.95				12.60				13.82
Total tangible shareholders’ equity/total tangible assets(2)		(G)/(H)			7.46				7.04				7.38				6.95				7.54				7.79				8.70
Performance ratios(1)
GAAP return on assets					0.82	%			0.55	%			0.68	%			0.55	%			0.78	%			0.73	%			0.50	%
Adjusted return on assets(2)		(A/D)			0.85				0.79				0.82				0.73				0.88				0.98				0.80
GAAP return on equity					7.18				5.03				6.15				4.87				6.09				5.66				3.64
Adjusted return on equity(2)		(A/E)			7.41				7.20				7.40				6.46				6.92				7.52				5.76

 

(1)

Ratios are annualized and based on average balance sheet amounts, where applicable. Quarterly data may not sum to year-to-date data due to rounding.

(2)

Non-GAAP financial measure.

 

 

NON-GAAP FINANCIAL MEASURES

 

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with Berkshire Hills Bancorp’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided above. In all cases, it should be understood that non-GAAP financial measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP adjusted earnings can be of substantial importance to Berkshire Hills Bancorp’s results for any particular quarter or year. Berkshire Hills Bancorp’s non-GAAP earnings information set forth is not necessarily comparable to non-GAAP information which may be presented by other companies. Each non-GAAP measure used by Berkshire Hills Bancorp in this proxy statement/prospectus as supplemental financial data should be considered in conjunction with Berkshire Hills Bancorp’s GAAP financial information.

 

Berkshire Hills Bancorp utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for adjusted revenue and expense. These measures exclude amounts which Berkshire Hills Bancorp views as unrelated to its normalized operations, including securities gains/losses, merger costs, restructuring costs, and systems conversion costs. Adjusted earnings are presented net of an adjustment for income tax expense. References to adjusted net income or adjusted income are also meant to refer to adjusted earnings. Berkshire Hills Bancorp also calculates adjusted earnings per share based on its measure of adjusted earnings. Berkshire Hills Bancorp views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating Berkshire Hills Bancorp’s operating performance. Management also believes that the computation of non-GAAP earnings and earnings per share may facilitate the comparison of Berkshire Hills Bancorp to other companies in the financial services industry.

 

Adjusted revenue and adjusted expense are computed based on the items used to compute adjusted earnings. Adjusted revenue excludes net securities gains. In several years, securities gains were recognized on stock positions held in acquired banks that resulted in the recording of revenue to recognize the gain at the time of the merger. In 2014, revenue was also adjusted to exclude a loss recorded on the termination of hedges, which was related to the acquisition of branches that was completed in the first quarter of that year. In 2013 and 2014, an adjustment was recorded for non-material out of period adjustments to net interest income, which were largely offsetting between the two periods.

 

Adjusted non-interest expense excludes merger and acquisition costs. These costs include professional fees, severance/benefit costs, systems conversion costs, and contract termination costs. Berkshire Hills Bancorp views merger and acquisition costs as part of the economic investment in acquired operations which are intended to provide future earnings benefits and return on investment. Restructuring costs include costs and losses related to the disposition of branches and other leased and owned real estate, as well as costs related to organization restructurings. Berkshire Hills Bancorp evaluates restructuring costs and considers the length of time for future operating benefits to payback these costs. Berkshire Hills Bancorp also includes net operating results of discontinued operations with restructuring costs. Berkshire Hills Bancorp adjusts expenses to exclude costs related to the conversion of core systems and other major computer systems which are not typical of normal annual operations and which build infrastructure for future expansion. In some cases, variable compensation costs related to the above projects are among the costs excluded in determining adjusted non-interest expense.

 

Berkshire Hills Bancorp determines the amount of the income tax expense adjustment as the difference between tax expense based on the GAAP tax rate and based on the effective tax rate applicable to core income. In 2014, due to the components of income in that year, Berkshire Hills Bancorp determined the income tax expense associated with the adjusting items for revenue and expense, and this amount was recorded as the income tax expense adjustment.

 

Adjusted return on assets and adjusted return on equity are computed as non-GAAP measures of performance and are based on adjusted net income and are used for the same reasons that adjusted net income is measured. Berkshire Hills Bancorp also measures its tangible equity, which excludes the balance of goodwill and other intangible assets. Berkshire Hills Bancorp measures tangible book value per share and the ratio of tangible equity to tangible assets. Tangible book value per share is an important valuation metric utilized by the investment community. The ratio of tangible equity to tangible assets is used by analysts and investors as one measure considered in evaluating Berkshire Hills Bancorp’s leverage.

 

 

Selected Historical Financial and Other Data of First Choice Bank

 

		At June 30,								At December 31,
(in thousands, except per share data)		2016				2015				2015				2014				2013				2012				2011
Selected Financial Data:
Total assets		$	1,101,117			$	1,205,001			$	1,122,802			$	1,199,655			$	934,029			$	900,138			$	669,292
Securities			444,956				522,312				517,157				528,279				375,784				248,783				166,787
Loans held for sale			123,574				171,732				112,464				149,272				74,986				245,365				185,818
Loans			448,506				449,778				424,276				463,831				439,841				369,745				293,917
Allowance for loan losses			(14,037	)			(13,541	)			(12,852	)			(14,277	)			(6,657	)			(5,947	)			(4,968	)
Bank owned life insurance			10,243				—				10,092				—				—				—				—
Deposits			872,549				925,729				901,600				916,205				805,730				699,223				542,816
Borrowed funds and subordinated notes			98,848				164,106				107,899				171,156				35,252				96,845				50,935
Total stockholders’ equity			111,653				102,152				101,572				100,875				83,005				82,284				63,303
Selected Operating Data:
Total interest and dividend income		$	17,305			$	18,538			$	36,834			$	35,684			$	30,726			$	28,754			$	22,589
Total interest expense			4,141				4,526				8,840				9,052				8,512				8,554				7,225
Net interest income			13,164				14,012				27,994				26,632				22,214				20,200				15,364
Net gain on sale of loans and mortgage banking revenue			38,860				40,697				67,930				53,618				59,831				71,312				39,936
All other fee income			2,865				1,313				2,768				2,423				636				1,260				1,410
Total net revenue			54,889				56,022				98,692				82,673				82,681				92,772				56,710
Provision for loan losses			1,405				3,931				5,298				13,686				5,805				1,715				3,158
Total non-interest expense			44,370				48,403				90,156				65,500				65,784				74,585				46,735
Income tax expense			3,282				1,418				895				702				4,059				6,457				2,738
Net income		$	5,833			$	2,271			$	2,343			$	2,785			$	7,033			$	10,015			$	4,079
Preferred dividend			774				774				1,548				1,368				1,235				1,068				682
Net income to common shareholders			5,059				1,497				795				1,417				5,798				8,947				3,397
Dividends per common share		$	0.16			$	—			$	—			$	0.16			$	0.15			$	0.15			$	0.10

 

 

		At or For the Six Months Ended June 30,								At or For the Year Ended December 31,
		2016				2015				2015				2014				2013				2012				2011
Selected Operating Ratios and Other Data:
Share Data:
Book value per common share		$	18.98			$	16.03			$	15.85			$	15.63			$	15.02			$	14.79			$	11.75
Performance Ratios(1):
Return on average assets			1.04	%			0.39	%			0.20	%			0.26	%			0.80	%			1.32	%			0.75	%
Return on average equity			10.45				4.45				2.31				2.76				8.47				12.17				6.44
Net interest rate margin, fully tax equivalent (FTE) (2)			2.55				2.54				2.58				2.68				2.72				2.84				3.01
Non-interest income/total net revenue			70.80				72.64				68.83				64.86				72.36				76.87				70.42
Non-interest expense/average assets			7.93				8.25				7.80				6.06				7.45				9.80				8.69
Dividend payout ratio			22.06				34.08				66.07				67.54				23.90				15.12				24.00
Growth Ratios:
Total loans			10.80	%			(6.25	)%			(8.53	)%			5.45	%			18.96	%			25.80	%			37.57	%
Total deposits			(6.66	)			2.06				(1.59	)			13.71				15.23				28.81				41.45
Total net revenue			(2.06	)			17.96				19.38				(0.01	)			(10.88	)			63.59				87.87
Asset Quality Ratios:
Net loan charge-off/average total loans			0.08	%			1.60	%			1.18	%			1.08	%			0.98	%			0.15	%			0.49	%
Allowance for loan losses/total loans			3.13				3.01				3.03				3.08				1.51				1.61				1.69
Capital Ratios:
Tier 1 capital to average assets			9.43	%			8.62	%			9.03	%			8.42	%			9.26	%			9.37	%			9.56	%
Total capital to risk-weighted assets			18.64				16.84				18.60				18.13				16.63				16.82				16.73
Tier 1 capital to risk-weighted assets			17.37				15.58				17.33				16.88				15.43				15.65				15.48
Stockholders equity/total assets			10.14				8.48				9.05				8.41				8.89				9.14				9.46

 

(1)

All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(2)

Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

Berkshire Hills Bancorp common stock is listed on the New York Stock Exchange under the symbol “BHLB.” First Choice Bank stock is not traded on any established public trading market. The following table lists the high and low prices per share for Berkshire Hills Bancorp common stock and the cash dividends declared by Berkshire Hills Bancorp for the periods indicated.

 

		Berkshire Hills Common Stock
		High				Low				Dividends
Quarter Ended
December 31, 2016 (through October 19, 2016)		$	28.25			$	27.30			$	0.20
September 30, 2016			28.22				26.07				0.20
June 30, 2016			28.18				24.80				0.20
March 31, 2016			29.85				24.71				0.20
December 31, 2015			30.69				26.32				0.19
September 30, 2015			29.81				26.68				0.19
June 30, 2015			29.30				26.77				0.19
March 31, 2015			27.92				24.26				0.19
December 31, 2014			26.91				22.84				0.18
September 30, 2014			25.11				22.37				0.18
June 30, 2014			26.64				22.06				0.18
March 31, 2014			27.38				23.95				0.18

 

On June 24, 2016, which is the last day on which shares of Berkshire Hills Bancorp common stock traded preceding the public announcement of the proposed Merger, the closing price of Berkshire Hills Bancorp common stock was $25.51. On October 19, 2016, which is the most recently practicable date prior to the mailing of this proxy statement/prospectus, the closing price of Berkshire Hills Bancorp common stock was $ 28.20 .You should obtain current market quotations for Berkshire Hills Bancorp common stock, as the market price of Berkshire Hills Bancorp common stock will fluctuate between the date of this document and the date on which the Merger is completed, and thereafter. You can get these quotations from a newspaper, on the Internet or by calling your broker.

 

As of October 19, 2016, there were approximately 3,600 holders of record of Berkshire Hills Bancorp common stock. As of October 19, 2016, there were approximately 496 holders of record of First Choice Bank common stock.

 

Following the Merger, the declaration of dividends will be at the discretion of Berkshire Hills Bancorp’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of Berkshire Hills Bancorp, applicable state law and government regulations and other factors deemed relevant by Berkshire Hills Bancorp’s board of directors.

 

 

SPECIAL MEETING OF FIRST CHOICE BANK SHAREHOLDERS

 

This section contains information for First Choice Bank shareholders about the special meeting of shareholders that First Choice Bank has called to consider and approve the Merger Agreement.

 

Together with this document, First Choice Bank is also sending you a notice of the First Choice Bank special meeting of shareholders and a form of proxy that is solicited by its board of directors. The special meeting of shareholders will be held on November 22, 2016 at 10:00 a.m., local time, at The Stone Terrace, 2275 Kuser Road, Hamilton Township, New Jersey 08610. This proxy statement/prospectus is first being mailed to shareholders of First Choice Bank on or about October 24, 2016 .

 

Matters to Be Considered

 

The purpose of First Choice Bank special meeting of shareholders is: (i) to vote on a proposal to approve the Merger Agreement, and (ii) to vote upon a proposal to adjourn or postpone the First Choice Bank special meeting for the purpose, among others, of allowing additional time to solicit proxies. No business may be transacted at the special meeting except as specified in the notice accompanying this proxy statement/ prospectus.

 

Proxies

 

You may vote your shares of First Choice Bank common stock in any one of four alternative ways:

 

·

By paper proxy card;

 

·

By telephonic proxy;

 

·

By proxy via the internet; or

 

·

In person at First Choice Bank shareholders’ meeting.

 

Please read the following instructions and vote by whatever method is most convenient for you:

 

Paper Proxy Card. Each copy of this document mailed to First Choice Bank shareholders is accompanied by a proxy card with voting instructions for submission by mail. You should complete and return the proxy card accompanying this document to ensure that your vote is counted at the First Choice Bank special meeting, or at any adjournment or postponement of the meeting, regardless of whether you plan to attend the First Choice Bank special meeting.

 

Voting by Telephone. If you wish to vote by telephone and you are a shareholder of record of First Choice Bank, use a touch-tone telephone to call toll-free 1-800-652-VOTE (8683) within the USA, US territories and Canada and follow the instructions. If you vote by telephone, you must have your control number and proxy card available when you call.

 

Voting by the Internet. If you wish to vote through the Internet and you are a shareholder of record of First Choice Bank, you can access the web page at https://www. envisionreports.com/CHO and follow the on-screen instructions. If you vote through the Internet, you must have your control number and proxy card available when you access the web page.

 

You can revoke your proxy at any time before the vote is taken at the First Choice Bank special meeting. If your shares are held in “street name,” your broker will vote your shares on the proposal to approve the Merger Agreement only if you provide instructions to your broker on how to vote. If you have not voted through your broker, you may revoke your proxy by:

 

·

submitting written notice of revocation to the Secretary of First Choice Bank prior to the voting of such proxy;

 

·

submitting a properly executed proxy bearing a later date; or

 

·

voting in person at the special meeting; however, simply attending the special meeting without voting will not revoke an earlier proxy.

 

 

Written notices of revocation and other communications about revoking your proxy should be addressed to:

 

First Choice Bank

669 Whitehead Road

Lawrenceville, New Jersey 08648

Attention: Lisa M. Tuccillo, Corporate Secretary

 

If your shares of common stock are held in street name, you should follow the instructions of your broker regarding the revocation of proxies.

 

All shares of common stock represented by valid proxies received by First Choice Bank through this solicitation, that are not revoked, will be voted in accordance with your instructions on the proxy card. If you do not specify on your proxy card how you want your shares voted before signing and returning it, your proxy will be voted “FOR” approval of the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting if more time is needed to solicit additional proxies for the approval of the Merger Agreement.

 

First Choice Bank shareholders should NOT send stock certificates with their proxy cards. After the Merger is completed, First Choice Bank shareholders will be sent a transmittal form and instructions, at which time they will be requested to submit their stock certificates.

 

Solicitation of Proxies

 

First Choice Bank is soliciting proxies and will bear the entire cost of soliciting proxies from its shareholders. In addition to solicitation of proxies by mail, First Choice Bank will request that banks, brokers and other record holders send proxies and proxy material to the beneficial owners of First Choice Bank common stock and secure their voting instructions, if necessary. First Choice Bank will reimburse the record holders for their reasonable expenses in taking those actions. First Choice Bank may use several of its regular employees, who will not be specially compensated, to solicit proxies from First Choice Bank shareholders, either personally or by telephone, telegram, facsimile or letter.

 

Record Date

 

First Choice Bank board of directors has fixed the close of business on October 19, 2016 as the record date for determining First Choice Bank shareholders entitled to receive notice of and to vote at the First Choice Bank special meeting of shareholders. On October 19, 2016, 3,207,493 shares of First Choice Bank common stock were outstanding and held by approximately 496 holders of record.

 

Voting Rights and Vote Required

 

The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of First Choice Bank common stock is necessary to constitute a quorum at the First Choice Bank special meeting of shareholders. Abstentions and broker non-votes will be counted solely for the purpose of determining whether a quorum is present. An unvoted proxy submitted by a broker is sometimes referred to as a broker non-vote.

 

Approval of the Merger Agreement requires the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of First Choice Bank common stock entitled to vote at the First Choice Bank special meeting. You are entitled to one vote for each share of First Choice Bank common stock you held as of the record date.

 

Because the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of First Choice Bank common stock entitled to vote at the First Choice Bank special meeting is needed for First Choice Bank and Berkshire Hills Bancorp to proceed with the Merger, the failure to vote by proxy or in person will have the same effect as a vote “AGAINST” the Merger Agreement. Abstentions and broker non-votes also will have the same effect as a vote “AGAINST” the Merger Agreement. Accordingly, First Choice Bank board of directors urges First Choice Bank shareholders to complete, date and sign the accompanying proxy card and return it promptly in the enclosed postage-paid envelope, or submit their proxy by telephone or internet.

 

As of the record date, directors and executive officers of First Choice Bank and their affiliates had the right to vote 1,093,179 shares of First Choice Bank common stock, or approximately 34.1% of the outstanding First Choice Bank common stock at that date. At the time the Merger Agreement with Berkshire Hills Bancorp was

 

 

signed, each director and certain officers of First Choice Bank entered into a separate letter agreement with Berkshire Hills Bancorp, pursuant to which, among other things, they agreed to vote or cause to be voted all shares over which they maintain sole or shared voting power in favor of approval of the Merger Agreement.

 

The holders of First Choice Bank Preferred Stock are not entitled to vote on the proposal to approve the Merger Agreement, but the Merger would be considered a liquidation event, entitling the holders of First Choice Bank Preferred Stock to be paid their respective liquidation preferences in lieu of receiving merger consideration, unless the holders of a majority of each series of First Choice Bank Preferred Stock determine that the Merger will not deemed a liquidation event.

 

At the time the Merger Agreement with Berkshire Hills Bancorp was signed, each director and certain officers of First Choice Bank entered into a separate letter agreement with Berkshire Hills Bancorp, pursuant to which, among other things, they agreed to vote or cause to be voted all shares of First Choice Bank Preferred Stock over which they maintain sole or shared voting power that the Merger not be deemed a liquidation event.

 

The directors and officers who signed these letter agreements hold a majority of each series of First Choice Bank Preferred Stock. Therefore, no proxies are being solicited from the holders of First Choice Bank Preferred Stock in connection with the determinations by each series of First Choice Bank Preferred Stock that the Merger will not be deemed a liquidation event.

 

Recommendation of the Board of Directors

 

First Choice Bank board of directors has unanimously approved the Merger Agreement and the transactions contemplated in the Merger Agreement. First Choice Bank board of directors has determined that the Merger Agreement and the transactions contemplated in the Merger Agreement are advisable and in the best interests of First Choice Bank and its shareholders and unanimously recommends that you vote “FOR” approval of the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting if more time is needed to solicit additional proxies for the approval of the Merger Agreement.

 

See “Proposal I—The Proposed Merger—First Choice Bank’s Reasons for the Merger and Recommendation of the First Choice Bank Board” on page 34 for a more detailed discussion of First Choice Bank board of directors’ recommendation.

 

Voting at the First Choice Bank Special Meeting

 

If you want to vote your shares of First Choice Bank common stock held in street name in person at the First Choice Bank special meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

 

 

Security Ownership of Certain Beneficial Owners of First Choice Bank and First Choice Bank Directors and Executive Officers

 

The following table sets forth the number of shares of First Choice Bank common stock beneficially owned by any person (including any group) who is known to First Choice Bank to be the beneficial owner of more than five percent of First Choice Bank’s class of common stock, each director of First Choice Bank, and all directors and officers of First Choice Bank as a group, as of October 19, 2016. The table, together with the notes below the table, include First Choice Bank’s present commitments to such persons with respect to the issuance of shares of First Choice Bank common stock, namely through exercise of warrants and options, or conversion of preferred stock. Except for Mr. Tuchman, no person is known by First Choice Bank to own more than ten percent of First Choice Bank’s outstanding common stock.

 

Name		Amount and Nature of Beneficial Ownership(1)				Percent of Class(2)
Steven J. Doerler(3)			63,339				2.0	%
Nancy E. Dudas(4)			60,386				1.9	%
Paul E. Fitzgerald(5)			26,050				*
James J. Kreig			100				*
Geoffrey R. Morsell(6)			45,050				1.4	%
Munish Sood(7)			179,868				5.5	%
Martin Tuchman(8)			805,920				24.9	%
Richard L. Weise(9)			65,736				2.0	%
Robert L. Workman(10)			94,604				2.9	%
Total owned by directors and executive officers as a group (12 persons)(11)			1,474,217				41.1	%

 

 

(1)

Any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: voting power, which includes the power to vote, or to direct the voting of, our common stock; and/or, investment power, which includes the power to dispose, or to direct the disposition of, our common stock, is determined to be a beneficial owner of the common stock. Unless otherwise indicated, the beneficial owner has sole voting and investment power. Shares beneficially owned include warrants and options to purchase shares which are currently exercisable or which will be exercisable within 60 days of October 19, 2016.

(2)

Based on 3,207,493 shares issued and outstanding as of October 19, 2016. Percentage calculations presume that the identified individual or group exercises all of his, her or their respective warrants and options and that no other holders of warrants or options exercise their warrants or options.

(3)

Includes 20,150 shares of common stock issuable upon exercise of options, 2,667 shares of common stock issuable upon exercise of warrants, 1,000 shares issuable upon conversion of Series A Preferred Stock, and 6,504 shares issuable upon conversion of Series C Preferred Stock. Excludes 1,071 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017.

(4)

Includes 18,600 shares of common stock issuable upon exercise of options, 2,667 shares of common stock issuable upon exercise of warrants, 5,000 shares issuable upon conversion of Series A Preferred Stock, and 1,734 shares issuable upon conversion of Series C Preferred Stock. Excludes 3,751 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017.

(5)

Includes 25,000 shares of common stock issuable upon exercise of options.

(6)

Includes 22,100 shares of common stock issuable upon exercise of options, 2,667 shares of common stock issuable upon exercise of warrants, and 100 shares issuable upon conversion of Series A Preferred Stock. Excludes 571 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017, and 314 shares of common stock issuable upon conversion of Series E Preferred Stock, which are not convertible prior to July 2019.

(7)

Includes 19,650 shares of common stock issuable upon exercise of options, 2,667 shares of common stock issuable upon exercise of warrants, 4,700 shares issuable upon conversion of Series A Preferred Stock, 5,000 shares issuable upon conversion of Series B Preferred Stock and 3,469 shares issuable upon conversion of

 

 

Series C Preferred Stock. Excludes 1,785 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017, and 1,257 shares of common stock issuable upon conversion of Series E Preferred Stock, which are not convertible prior to July 2019. Includes shares with respect to which Mr. Sood serves as custodian for his minor children. 

(8)

Includes 21,650 shares of common stock issuable upon exercise of options and 7,484 shares of common stock issuable upon exercise of warrants. Excludes 2,391,958 shares of common stock otherwise issuable upon exercise of warrants and conversion of Series A, B and C Preferred Stock but for the limitations on exercise and conversion set forth in the terms of such warrants and preferred stock to comply with New Jersey banking regulations, 561,357 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017, and 745,534 shares of common stock issuable upon conversion of Series E Preferred Stock, which are not convertible prior to July 2019.

(9)

Includes 17,150 shares of common stock issuable upon exercise of options, 2,667 shares of common stock issuable upon exercise of warrants, 3,600 shares issuable upon conversion of Series A Preferred Stock, 1,000 shares issuable upon conversion of Series B Preferred Stock and 1,734 shares issuable upon conversion of Series C Preferred Stock. Excludes 1,142 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017, and 628 shares of common stock issuable upon conversion of Series E Preferred Stock, which are not convertible prior to July 2019.

(10)

Includes 17,950 shares of common stock issuable upon exercise of options, 20,000 shares issuable upon conversion of Series A Preferred Stock, 5,000 shares issuable upon conversion of Series B Preferred Stock and 6,504 shares issuable upon conversion of Series C Preferred Stock. Excludes 1,785 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017, and 7,861 shares of common stock issuable upon conversion of Series E Preferred Stock, which are not convertible prior to July 2019.

(11)

Includes 207,250 shares of common stock issuable upon exercise of options, 38,134 shares of common stock issuable upon exercise of warrants, and 135,654 shares of common stock issuable upon conversion of Series A, B and C Preferred Stock. Excludes 2,304,334 shares of common stock otherwise issuable upon conversion of Series A, B and C Preferred Stock but for the application of New Jersey banking regulations limiting the current conversion of such stock, excludes 571,282 shares of common stock issuable upon conversion of Series D Preferred Stock, which are not convertible prior to June 2017, and 755,594 shares of common stock issuable upon conversion of Series E Preferred Stock, which are not convertible prior to July 2019.

 

 

DISSENTERS’ RIGHTS

 

Under the New Jersey Banking Act, shareholders of First Choice Bank who are entitled to vote on the proposal to approve the Merger Agreement have the right to dissent from the Merger and to receive payment in cash for the fair value of their shares of First Choice Bank common stock instead of the merger consideration. First Choice Bank shareholders electing to do so must comply with the statutory provisions relating to dissenters’ rights in order to perfect their dissenters’ rights. A copy of the applicable statutory provisions are attached as Annex C of this document.

 

Ensuring perfection of dissenters’ rights can be complicated. The procedural rules are specific and must be followed precisely. A First Choice Bank shareholder’s failure to comply with these procedural rules may result in his or her becoming ineligible to pursue dissenters’ rights.

 

The following is intended as a brief summary of the material provisions of the New Jersey Banking Act procedures that a First Choice Bank shareholder must follow in order to dissent from the Merger and obtain payment of the fair value of his or her shares of First Choice Bank common stock instead of the merger consideration. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to the statutory provisions relating to dissenters’ rights, the full text of which appears in Annex C of this proxy statement/prospectus. First Choice Bank is notifying each of the holders of record of its common stock as of October 19, 2016 that dissenters’ rights are available and intends that this proxy statement/prospectus constitutes this notice.

 

If you are a First Choice Bank shareholder and you wish to exercise your dissenters’ rights, you must satisfy the following:

 

You must serve a written notice of dissent: You must serve a written notice of dissent from the merger agreement at the principal office of First Choice Bank no later than the third day prior to the First Choice Bank special meeting of shareholders. Delivery of the notice of dissent may be made by registered mail or in person by you or your agent.

 

You must not vote for approval of the merger agreement: You must not vote for approval of the merger agreement. If you vote, by proxy or in person, in favor of the merger agreement, this will terminate your dissenters’ rights.

 

You must make a written demand for dissenters’ rights: You must deliver a written demand for dissenters’ rights to the principal office of First Choice Bank within 30 days after the filing of the merger agreement with the New Jersey Commissioner of Banking and Insurance following the First Choice Bank special meeting of shareholders where the merger agreement was approved by shareholders. This written demand for dissenters’ rights must be separate from your proxy card. A vote against the merger agreement alone will not constitute a demand for dissenters’ rights. Delivery of the demand for payment may be made by registered mail or in person by you or your agent.

 

If you are a First Choice Bank shareholder who elects to exercise dissenters’ rights, you may mail or deliver a written demand to: First Choice Bank, 669 Whitehead Road, Lawrenceville, New Jersey 08648, Attention: Paul E. Fitzgerald, President and Chief Executive Officer.

 

The written demand for dissenters’ rights should state that the shareholder is demanding payment of the value of the shareholder’s shares and may specify the shareholder’s name, mailing address and the number of shares of common stock owned. Berkshire Hills Bancorp may within ten days of receipt of the demand for dissenters’ rights offer to pay the shareholder an amount for his shares that in the opinion of Berkshire Hills Bancorp does not exceed the amount which would be paid if First Choice Bank liquidated as of the filing of the merger agreement with the New Jersey Commissioner of Banking and Insurance following the special meeting of shareholders.

 

If a shareholder fails to accept the offer from Berkshire Hills Bancorp or if no offer is made, the shareholder must within three weeks after the receipt of the offer from Berkshire Hills Bancorp or within three weeks after the demand was made if no offer was made by Berkshire Hills Bancorp, initiate an action in New Jersey Superior Court. Berkshire Hills Bancorp has no obligation to file this action, and if you do not file this action within the above time frame, you will lose your dissenters’ rights.

 

 

The court will appoint a board of three appraisers to determine the value of the shares of all shareholders who are party to the action. In determining such fair value, the appraisers may take into account all relevant factors, including hearing evidence from the parties and upon such determination will file a report in the Superior Court where the determination of any two of the appraisers will control. Either party may appeal the ruling to the Superior Court within ten days of the filing of the appraisers’ report and the Superior Court will issue a final ruling. Berkshire Hills Bancorp will then pay the dissenting shareholders of First Choice Bank the judicially determined value of First Choice Bank shares plus a judicially determined interest rate. Berkshire Hills Bancorp will be responsible for paying the fees of the appraisers.

 

Shareholders considering seeking dissenters’ rights for their shares should note that the fair value of their shares determined under the New Jersey Banking Act could be more, the same, or less than the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares.

 

IF YOU FAIL TO STRICTLY COMPLY WITH THE PROCEDURES DESCRIBED ABOVE YOU WILL LOSE YOUR DISSENTERS’ RIGHTS. CONSEQUENTLY, IF YOU WISH TO EXERCISE YOUR DISSENTERS’ RIGHTS, WE STRONGLY URGE YOU TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO DO SO.

 

PROPOSAL I — THE PROPOSED MERGER

 

The following summary of the Merger Agreement is qualified by reference to the complete text of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus and is incorporated by reference into this proxy statement/prospectus. You should read the Merger Agreement completely and carefully as it, rather than this description, is the legal document that governs the Merger.

 

General

 

The Merger Agreement provides for the merger of First Choice Bank with and into Berkshire Bank, with Berkshire Bank as the surviving entity. First Choice Bank will cease to exist upon closing of the Merger. First Choice Loan Services, Inc. will become a wholly-owned subsidiary of Berkshire Bank.

 

Background of the Merger

 

On November 18, 2015, the board of directors of First Choice Bank held one of its regular monthly meetings. As part of the board’s regular efforts to deliver value to shareholders, discussion at the meeting included consideration of the strategic alternatives available to the bank. At the meeting, the board considered, among other alternatives, a potential sale of its subsidiary, First Choice Loan Services, and/or a potential sale of the bank itself. Given certain challenges facing the bank, including increasing regulatory compliance costs, and the prospects of operating the bank without First Choice Loan Services, the board determined it would consider a potential sale of the bank. A committee of the board was established to take the lead in evaluating strategic alternatives, on behalf of the board as they were presented. Chairman, Martin Tuchman, Vice Chair Munish Sood and Robert Workman were appointed as the members of the committee. Houlihan Lokey Capital Inc. had been invited to the meeting to discuss its qualifications to provide financial advisory and investment banking services in connection with a potential sale or other transaction. After the meeting, a proposal was received from Houlihan Lokey and thereafter other investment bankers were interviewed by representatives of the First Choice board. On January 16, 2016, First Choice Bank signed an engagement letter with Houlihan Lokey.

 

In early 2016, Houlihan Lokey worked with the management of First Choice Bank to prepare a Confidential Information Memorandum to be used in the process of a potential transaction. Houlihan Lokey presented to First Choice Bank a list of potential acquirers to be contacted. This list contained institutions that might be interested in acquiring First Choice Bank in its entirety, as well as institutions that might have an interest in acquiring the bank or First Choice Loan Services only. In late March, the Confidential Information Memorandum was nearly complete and the First Choice board committee authorized Houlihan Lokey to start contacting institutions that might have an interest in acquiring First Choice Bank in its entirety.

 

 

On March 24, 2016 Houlihan Lokey contacted Berkshire Hills Bancorp and had a discussion which resulted in Berkshire Hills Bancorp having an initial interest in First Choice Bank. Berkshire Hills Bancorp informed Houlihan Lokey that it would not participate in an auction process and would only proceed with a potential transaction if First Choice Bank agreed to negotiate with Berkshire Hills Bancorp on an exclusive basis.

 

On March 29, 2016 a confidentiality agreement with Berkshire Hills Bancorp was signed and on April 4, 2016, an initial meeting between First Choice Bank’s representatives and Berkshire Hills Bancorp’s representatives took place in New Jersey.

 

On April 12, 2016, before Houlihan Lokey had commenced a comprehensive solicitation effort, and before receiving any competing offers, it received a non-binding, indicative proposal from Berkshire Hills Bancorp. Houlihan Lokey presented the proposal initially to the First Choice board committee for consideration and then to the First Choice Bank board of directors on April 14, 2016, along with a proposed 30-day Exclusivity Agreement. Berkshire Hills Bancorp’s initial proposal, based on preliminary information and subject to due diligence, proposed a valuation of First Choice Bank at 1.3 to 1.4 times its tangible book value. Based on a representative price of $27.00 per share of Berkshire Hills Bancorp common stock, the initial proposal suggested an exchange ratio of between 0.65 and 0.70 shares of Berkshire Hills Bancorp common stock for each share of First Choice Bank common stock.

 

At the meeting, Houlihan Lokey reported on the general banking environment and historical acquisitions of similar banks and financial institutions; its analysis of First Choice Bank and First Choice Loan Services, including their strengths and business challenges, the potential for selling First Choice Loan Services and continuing to operate First Choice Bank as an independent institution, and provided a detailed analysis of the indicative proposal from Berkshire Hills Bancorp. Houlihan Lokey opined that while solicitation efforts had been limited to date, Berkshire Hills Bancorp was ideally suited to acquire both First Choice Bank and First Choice Loan Services in a combined transaction. Berkshire Hills Bancorp was unwilling to proceed with further diligence absent an agreement regarding exclusivity. After hearing the report from and engaging in a discussion with Houlihan Lokey, and further discussing the proposal among the directors, based on the report of its financial advisor, the financial strength and market capitalization of Berkshire Hills Bancorp, the board’s perception of Berkshire Hills Bancorp’s ability to acquire and integrate First Choice Loan Services, the fact that its common stock was listed on a national exchange, NYSE, its history of paying dividends to its stockholders and the prospect of consummating the transaction prior to the end of 2016, the First Choice Bank board determined to grant Berkshire Hills Bancorp the requested 30-day exclusivity. The Exclusivity Agreement was signed on April, 15, 2016.

 

From April 15, 2016 through June 24, 2016, Berkshire Hills Bancorp conducted an extensive due diligence investigation of First Choice Bank and First Choice Loan Services, including substantial financial analysis, management meetings and document review.

 

During this time, because negotiations had proceeded constructively towards a potential transaction, First Choice Bank determined that it was appropriate to extend the exclusivity period on three occasions, first on May 13, 2016, extending until May 27, 2016, second on May 27, 2016 extending until June 1, 2016, and finally on June 2, 2016, extending until June 24, 2016.

 

On May 31, 2016, Berkshire Hills Bancorp provided the First Choice board committee with a revised indication of interest with respect to the proposed merger, which reflected the results of Berkshire Hills Bancorp’s due diligence investigations available at that time. The revised indication proposed an exchange ratio of 0.5864 shares of Berkshire Hills Bancorp common stock for each share of First Choice Bank common stock, based on a valuation of $16.25 per share of First Choice Bank common stock and $27.71 per share of Berkshire Hills Bancorp common stock, its closing price on the New York Stock Exchange on May 31, 2016. First Choice Bank’s outstanding warrants and options would receive a cash payment at the closing of the Merger. The revised proposal was subject to certain contingencies, including those based on First Choice Bank obtaining a minimum tangible book value per share on June 30, 2016, resolution of certain matters relating to loans guaranteed by the U.S. Small Business Administration, and key executives of First Choice Loan Services agreeing to continue employment following the merger.

 

 

From May 31, 2016 to June 6, 2016, representatives from Houlihan Lokey and First Choice Bank’s Chairman, Martin Tuchman, negotiated with Berkshire Hills Bancorp on the terms of the revised indication. On June 2, 2016, First Choice Bank received a second revised indication from Berkshire Hills Bancorp. The second revised indication included a $15.75 per share valuation of the First Choice Bank common stock, or an exchange ratio of 0.5684. Berkshire Hills Bancorp cited the results of its additional due diligence investigations, in particular with respect to First Choice Bank’s loan portfolio and allowance for loan losses, as the primary reason for the decrease in valuation and exchange ratio.

 

On June 6, 2016, after additional negotiations by representatives of First Choice Bank and Houlihan Lokey with Berkshire Hills Bancorp, a further revised indication was presented orally to Houlihan Lokey, who relayed it to the board of directors of First Choice Bank. The June 6 oral indication included an increase in the exchange ratio, from 0.5684 to 0.5773, as more particularly described below under “The Merger Agreement—Consideration to be Received in the Merger”. In addition, in response to a concern of First Choice with respect to the fixed nature of the exchange ratio, First Choice would be permitted to distribute to its stockholders, as a special cash dividend, 35% of any core earnings between July 1, 2016 and closing in excess of a $14.22 tangible book value per share, assuming First Choice was able to achieve a tangible book value of not less than $14.22 per share at closing and had positive core net income at closing. The special dividend proposal was initially suggested by First Choice Bank as a method of continuing to provide value in the form of cash to its stockholders during the pendency of the Merger, thereby decreasing First Choice Bank’s concern regarding the fixed nature of the exchange ratio. Berkshire Hills Bancorp agreed with the proposal as a method of transferring to First Choice Bank’s stockholders a portion of the earnings generated by First Choice Bank during the pendency of the Merger, while maintaining a majority of the earnings for the surviving bank. In addition, Berkshire Hills Bancorp believed the special dividend rate of 35% would continue to motivate First Choice Bank to operate in a profitable and efficient manner. Houlihan Lokey provided the Board with some additional feedback received from Berkshire Hills Bancorp with respect to its due diligence investigations, including Berkshire Hills Bancorp’s analysis of the risks associated with the acquisition analysis of the market and other factors for consideration. The First Choice board of directors then unanimously authorized the committee to move forward with the negotiation of a definitive merger agreement consistent with the final offer and term sheet, for presentation to the board for final approval. The Board also agreed to extend the exclusivity period to permit a merger agreement to be negotiated and executed and authorized the President to obtain proposals from independent investment banking firms to provide a fairness opinion prior to entering into a final merger agreement.

 

On June 10, 2016, First Choice Bank engaged Ambassador to provide a fairness opinion in connection with the proposed merger.

 

On June 10, 2016, Berkshire Hills Bancorp delivered a draft merger agreement to Houlihan Lokey, which was distributed to First Choice Bank and its counsel, Pepper Hamilton LLP. Between June 10 and June 24, 2016, the parties, with the assistance of their respective counsel, negotiated the final form of merger agreement.

 

Between June 10, 2016 and June 17, 2016 extensive conference calls took place between Pepper Hamilton and the Committee members and representatives of management, to discuss issues presented by the draft merger agreement. Discussion included the fixed nature of the exchange ratio, the ability to extract additional value for the stockholders of First Choice Bank through the proposed special dividend, the defined terms, calculation and conditions for payment of the proposed special dividend, treatment of certain matters relating to loans guaranteed by the U.S. Small Business Administration, the procedures to exchange preferred stock for merger consideration, and the proposed representations and warranties, the proposed pre-closing operating covenants (particularly with respect to payment of regular dividends, investment of the securities portfolio, extending credit and maintaining the allowance for loan losses), employee matters, conditions to closing (including the percentage of dissenting shares) and each party’s right to terminate the merger agreement, including the circumstances under which First Choice Bank would be responsible for a termination fee, and the termination provisions relating to a decrease in the market price of Berkshire Hills Bancorp’s stock.

 

Between June 13, 2016 and June 23, 2016 representatives of Houlihan Lokey, attorneys from Pepper Hamilton and employees of First Choice Bank conducted due diligence investigations of the business and operations of Berkshire Hills Bancorp, which included a two (2) day onsite visit to Berkshire Hills Bancorp’s main office on June 15, 2016 and June 16, 2016.

 

 

On June 17, 2016, First Choice’s legal counsel forwarded to Berkshire Hills Bancorp’s legal counsel, Luse Gorman, PC, a revision of the June 10, 2016 draft merger agreement, reflecting the comments of the First Choice negotiation working group and the discussions with Pepper Hamilton described above. On June 21, 2016, Berkshire Hills Bancorp returned to First Choice Bank a revised draft merger agreement, and between June 21 and June 24, the parties negotiated the remaining open issues, with focus on the special dividend, its calculations and conditions to payment, the treatment of certain matters relating to loans guaranteed by the U.S. Small Business Administration, the closing condition relating to dissenting shares, the pre-closing investment of the securities portfolio and the termination fee payable by First Choice Bank in certain circumstances.

 

On June 15, 2016, the boards of directors of Berkshire Hills Bancorp and Berkshire Bank held a special meeting to consider the proposed merger. The boards reviewed and discussed the material terms of the merger agreement, as well as certain other agreements (including a voting agreement to be signed by the directors and certain officers of First Choice Bank and an agreement to be signed by Mr. Tuchman, First Choice Bank’s largest shareholder, that would govern certain of his activities as a stockholder of Berkshire Hills Bancorp after the closing), with senior management, Luse Gorman, PC, counsel to Berkshire Hills Bancorp, and Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”), Berkshire Hills Bancorp’s financial advisor. Luse Gorman made a detailed presentation describing the key terms of the merger and the merger agreement. Sandler O’Neill presented a detailed financial analysis relating to the proposed transaction and answered follow-up questions from the boards. Following the boards’ discussion, the boards of directors of Berkshire Hills Bancorp and Berkshire Bank each unanimously authorized management to continue to finalize the Merger Agreement.

 

At the regularly scheduled meeting of Berkshire Hills Bancorp and Berkshire Bank on June 23, 2016, the boards of directors were updated on and considered further the proposed merger. The boards reviewed and discussed the updated merger agreement, and related agreements with senior management, Luse Gorman and Sandler O’Neill. Sandler O’Neill updated its financial analysis relating to the proposed transaction, presented the fairness opinion with respect to the merger consideration, and answered follow-up questions from the boards. Following the boards’ discussion, the boards of directors of Berkshire Hills Bancorp and Berkshire Bank each unanimously approved the Merger Agreement and the proposed Merger and authorized management to execute the Merger Agreement following the negotiation of the remaining non-material issues.

 

On June 24, 2016, the board of directors of First Choice Bank held a special meeting to consider the proposed merger. The board reviewed and discussed the material terms of the merger agreement as well as certain other agreements including a voting agreement to be signed by the directors and certain officers of First Choice Bank, and an agreement to be signed by Mr. Tuchman as the largest stockholder of First Choice Bank which would restrict his activities as a stockholder of Berkshire Hills Bancorp after the closing. A representative from Pepper Hamilton LLP, as counsel to First Choice Bank, made a detailed presentation describing the key terms of the merger and the merger agreement. Representatives of Houlihan Lokey were present at the meeting and to provide additional information and guidance on the terms of the merger agreement. Representatives of Ambassador were also present at the meeting to present the Ambassador fairness opinion with respect to the exchange ratio to the Board and answer questions. Based on the exchange ratio of 0.5773 and the closing price per share of Berkshire Hills Bancorp common stock on June 24, 2016 (the date preceding the public announcement of the proposed transaction), the merger consideration exchanged per share of First Choice Bank common stock would have a value of $14.73. The market value of the merger consideration will continue to fluctuate with the market price of Berkshire Hills Bancorp common stock.

 

After discussion, the First Choice Bank board of directors unanimously approved the Merger Agreement and the proposed Merger, authorized the submission of the Merger Agreement and proposed Merger to the stockholders for their consideration and approval, and unanimously recommended that First Choice Bank shareholders vote “FOR” the proposal to approve the Merger Agreement. In addition, each of the directors and certain members of senior management of First Choice Bank signed voting agreements agreeing to vote their shares of First Choice Bank common stock for the approval of the proposed merger with Berkshire Bank.

 

The Merger Agreement was subsequently executed and delivered by the parties and First Choice Bank and Berkshire Hills Bancorp issued a joint press release on June 27, 2016 announcing the transaction.

 

 

First Choice Bank’s Reasons for the Merger and Recommendation of the First Choice Bank Board

 

The board of directors of First Choice Bank believes that the Merger Agreement and the Merger are fair to and in the best interests of the bank, and that the consideration to be paid in the Merger is fair to and in the best interests of the stockholders of First Choice Bank. Accordingly, First Choice board has approved the Merger Agreement and unanimously recommends that First Choice Bank stockholders vote “FOR” the adoption of the Merger Agreement.

 

In approving the Merger Agreement, First Choice’s board of directors consulted with legal counsel as to its legal duties and the terms of the Merger Agreement and with its financial advisors with respect to the financial aspects of the transaction and specific transaction terms. In arriving at its determination, First Choice’s board of directors also considered a number of factors, including the following:

 

·

the form and value of the consideration to be received by First Choice’s stockholders pursuant to the Merger Agreement;

 

·

its belief that the Merger was more favorable to First Choice’s stockholders than the other alternatives reasonably available to First Choice and its stockholders, including the form and amount of the merger consideration and the alternative of remaining as a stand-alone, independent bank;

 

·

First Choice’s board of directors’ familiarity with and review of information concerning First Choice’s business, results of operations, financial condition, competitive position and future prospects;

 

·

the current and prospective environment in which First Choice and First Choice Loan Services operates, including national, regional and local economic conditions, the competitive environment for banks and other financial institutions generally, the increased regulatory burdens on financial institutions generally and the trend toward consolidation in the banking industry and in the financial services industry;

 

·

the financial presentation and advice of the First Choice’s financial advisor Houlihan Lokey;

 

·

the opinion of Ambassador that, as of the date of its opinion, that the exchange ratio provided for in the Merger is fair to the holders of First Choice common stock from a financial point of view;

 

·

the limited liquidity of First Choice’s common stock and preferred stock, and the greater liquidity of the Berkshire Hills Bancorp common stock and its listing for trading on the New York Stock Exchange;

 

·

the ability of First Choice’s stockholders to participate in the combined business of Berkshire Hills Bancorp following the Merger;

 

·

the financial strength of Berkshire Hills Bancorp and its history of paying dividends to its stockholders;

 

·

the ability of Berkshire Hills Bancorp to execute a merger transaction from a financial and regulatory perspective and its recent history of being able to successfully integrate its merger partners;

 

·

the terms and conditions of the Merger Agreement, including the conditions to closing of the merger and the likelihood of their being satisfied, including the absence of any financing or Berkshire stockholder approval conditions to Berkshire’s obligation to complete the merger;

 

 

·

the potential for First Choice Bank to pay a special dividend to the holders of its common stock prior to the effectiveness of the Merger;

 

·

the synergies of Berkshire Bank’s residential mortgage origination business and First Choice Loan Services mortgage origination business and the ability of Berkshire Hills Bancorp to allocate the financial resources necessary to grow the combined businesses;

 

·

the financial risks to the business of First Choice Loan Services and resulting risk to First Choice Bank, if there is a material increase in mortgage interest rates;

 

·

the dependence of the First Choice Loan Services business on certain key members of management, and the risk that First Choice Loan Services would be unable to retain their services absent a transaction such as the Merger;

 

·

the financial attributes of the First Choice Bank common and preferred stock, dividend yields, liquidity, and corporate fundamentals;

 

·

the favorable tax treatment of the Berkshire Hills Bancorp proposal, which contemplated a tax-free exchange of First Choice shares for Berkshire Hills Bancorp shares;

 

·

the fact that Berkshire Bank does not currently operate in First Choice’s market area and the potential benefit that would have to many of First Choice Bank’s current employees;

 

·

the favorable results of the financial, business and legal due diligence investigations undertaken by First Choice Bank and its advisors;

 

·

First Choice Bank’s current condition and historical operating results and the potential effects of a merger with Berkshire Hills Bancorp;

 

·

adverse conditions in markets and prices for stock of financial institutions generally;

 

·

adverse and increased regulatory compliance obligations, regulatory scrutiny and the resulting increased financial burden to banks, especially smaller local and regional banks, which limits growth opportunities; and

 

·

the potential effects of the merger on First Choice Bank ’s depositors and customers and the communities served by First Choice Bank , which was deemed to be favorable given that they would be served by a geographically diversified organization with greater resources than First Choice Bank has.

 

In the course of its deliberations, the First Choice board also considered a variety of countervailing factors and risks with respect to entering into the Merger Agreement, including:

 

·

the risk that the transactions contemplated by the Merger Agreement might not be consummated due to failure to satisfy the closing conditions set forth therein, some of which are outside of First Choice Bank ’s control (including, without limitation, the receipt of regulatory approvals), and the potential adverse effect resulting therefrom due to the public announcement of the Merger Agreement;

 

·

the possibility that another party might have been willing to provide merger consideration higher than that provided in the Merger Agreement;

 

·

t he restrictions that the Merger Agreement imposes on soliciting competing proposals, and the fact that Firestone might be obligated to pay a termination fee of $4.1 million to Berkshire under specified circumstances;

 

 

·

t he restrictions the Merger Agreement places on the conduct of First Choice Bank ’s business prior to the consummation of the transactions contemplated by the Merger Agreement, which generally require First Choice Bank to use commercially reasonable efforts to conduct its business in the ordinary course of business (subject to certain limitations), which may delay or prevent First Choice Bank from undertaking business opportunities that may arise pending completion of the Merger;

 

·

t hat First Choice Bank will no longer exist as a stand-alone, independent bank, and as such, its shareholders will no longer benefit as directly from the future financial performance or appreciation in the value of First Choice Bank distinct from the combined entity; and

 

·

t he interests of First Choice Bank ’s executive officers and directors in the transactions contemplated by the Merger Agreement, as described under the heading “Proposal I—The Proposed Merger—Interests of Certain Persons in the Merger that are Different from Yours.”

 

The above discussion of the information and factors considered by First Choice Bank’s board of directors is not intended to be exhaustive, but includes the material factors considered by the board of directors in arriving at its determination to approve, and to recommend that the First Choice Bank common stockholders vote to approve and adopt, the Merger Agreement. The First Choice Bank board of directors did not assign any relative or specific weights to the above factors, and individual directors may have given differing weights to different factors. The First Choice Bank board of directors unanimously recommends that First Choice Bank stockholders vote “FOR” the adoption of the Merger Agreement.

 

Berkshire Hills Bancorp’s and Berkshire Bank’s Reasons for the Merger

 

Berkshire Hills Bancorp’s and Berkshire Bank’s boards of directors reviewed and discussed the transaction with their management and unanimously determined that the Merger is advisable and is fair to, and in the best interests of, Berkshire Hills Bancorp and Berkshire Bank. In reaching its determination, the Berkshire Hills Bancorp and Berkshire Bank boards of directors considered a number of factors, including, among others, the following:

 

·

the Merger will expand Berkshire Bank’s residential mortgage business and broaden its consolidated asset and revenue mix;

 

·

the Merger will diversify the geographic and sector mix of Berkshire Bank’s loan portfolio;

 

·

the First Choice Bank Merger is expected to improve Berkshire Bank’s earnings, capital and liquidity ratios. With the benefit of cost savings from merger efficiencies, Berkshire Hills Bancorp’s return on assets and return on equity are targeted to improve when the acquisition is fully integrated. The Berkshire Hills Bancorp common stock issued as merger consideration is expected to increase the ratios of equity to assets and tangible equity to assets. Berkshire Bank’s ratio of loans/deposits (a key measure of liquidity) is expected to benefit as a result of the more favorable ratio at First Choice Bank;

 

·

the Merger will provide Berkshire Bank entry into the Princeton, New Jersey and Greater Philadelphia banking markets and complement Berkshire Bank’s existing lending team at 44 Business Capital in the Philadelphia market; and

 

·

following consummation of the Merger, First Choice Loan Services will operate as a subsidiary of Berkshire Bank with no change expected to First Choice Loan Services’ operations or systems, which will ensure continuity of operations.

 

The Berkshire Hills Bancorp and Berkshire Bank boards of directors also considered the potential risks related to the merger but concluded that the anticipated benefits of the merger were likely to substantially outweigh these risks. These potential risks included:

 

·

First Choice Bank’s ratio of non-accrual loans to total loans;

 

 

·

the possibility of certain potential deposit run-off, primarily related to non-relationship accounts;

 

·

the possibility of encountering difficulties in achieving anticipated cost synergies and savings in the amounts estimated or in the time frame contemplated;

 

·

the possibility of encountering difficulties in successfully integrating First Choice Bank’s business, operations and workforce with those of Berkshire Bank;

 

·

the transaction-related restructuring charges and other merger-related costs, including the payments and other benefits to be received by First Choice Bank management in connection with the merger pursuant to existing First Choice Bank plans and compensation arrangements and the merger agreement;

 

·

diversion of management attention and resources from the operation of Berkshire Hills Bancorp’s business towards the completion of the merger; and

 

·

the regulatory and other approvals required in connection with the merger and the risk that such regulatory approvals will not be received in a timely manner and may impose unacceptable conditions.

 

This discussion of the factors considered by Berkshire Hills Bancorp’s and Berkshire Bank’s boards of directors is not exhaustive. Berkshire Hills Bancorp’s and Berkshire Bank’s boards of directors considered these factors as a whole, and considered them to be favorable to, and supportive of, its determination. Berkshire Hills Bancorp’s and Berkshire Bank’s boards of directors did not consider it practical, nor did it attempt, to quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above, individual members of Berkshire Hills Bancorp’s and Berkshire Bank’s boards of directors may have given different weights to different factors.

 

Opinion of First Choice Bank’s Financial Advisor, Ambassador Financial Group, Inc.

 

First Choice Bank retained Ambassador to provide a fairness opinion to the First Choice Bank board of directors in connection with the possible business combination of First Choice Bank with Berkshire Bank and payment of stock consideration by Berkshire Hills Bancorp. Ambassador is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Ambassador is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

 

On June 24, 2016, Ambassador delivered to the First Choice Bank board its oral opinion, which was subsequently confirmed in writing, to the effect that, as of such date, that the exchange ratio provided for in the Merger was fair to the holders of First Choice Bank common stock from a financial point of view. Ambassador’s opinion was approved by Ambassador’s Fairness Opinion Committee. Ambassador has consented to the inclusion of its opinion in this proxy statement/prospectus.

 

The full text of Ambassador’s written opinion to First Choice Bank, which sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement/prospectus and is incorporated by reference in its entirety into this proxy statement/prospectus. Holders of First Choice Bank common stock are encouraged to read the opinion carefully in its entirety. The following summary of Ambassador’s opinion is qualified in its entirety by reference to the full text of such opinion.

 

Ambassador delivered its opinion to the First Choice Bank board of directors for the benefit of the First Choice Bank board (in its capacity as such) in connection with its evaluation of a merger with Berkshire Bank and payment of stock consideration by Berkshire Hills Bancorp. Ambassador’s opinion is not intended and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the merger or any matter relating thereto. Ambassador’s opinion does not address the relative merits of the merger as compared to any other transaction or business strategy in which First Choice Bank might engage or the merits of the underlying decision by First Choice Bank to engage in the merger.

 

 

No limitations were imposed by First Choice Bank on the scope of Ambassador’s investigation or on the procedures followed by Ambassador in rendering its opinion.

 

In rendering the opinion, Ambassador:

 

·

Reviewed a draft of the merger agreement dated June 23, 2016;

 

·

Reviewed First Choice Bank’s audited consolidated financial statements as of December 31, 2015 and 2014 and related audited consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years ending December 31, 2015 and 2014;

 

·

Reviewed Berkshire Hills Bancorp’s Form 10-Q for the quarterly period ended March 31, 2016 and Form 10-K for the fiscal year ended December 31, 2015, including the financial statements contained therein;

 

·

Reviewed First Choice Bank’s and Berkshire Bank’s respective quarterly call reports for June 30, 2015, September 30, 2015, December 31, 2015, and March 31, 2016;

 

·

Reviewed other publicly available information regarding First Choice Bank and Berkshire Hills Bancorp, including certain publicly available research analysts estimates for Berkshire Hills Bancorp;

 

·

Reviewed certain non-public information provided to Ambassador by or on behalf of First Choice Bank and Berkshire Hills Bancorp regarding First Choice Bank (including financial projections and forecasts for First Choice Bank provided to Ambassador by the management of First Choice Bank) and projected cost savings anticipated by the management of Berkshire Hills Bancorp to be realized from the merger;

 

·

Reviewed recently reported stock prices and trading activity of Berkshire Hills Bancorp’s common stock;

 

·

Discussed the past and current operations, financial condition and future prospects of each company with senior executives of First Choice Bank and Berkshire Hills Bancorp;

 

·

Reviewed and analyzed certain publicly available financial and stock market data of banking companies that Ambassador selected as relevant to Ambassador’s analysis of Berkshire Hills Bancorp;

 

·

Reviewed and analyzed certain publicly available financial data of transactions that Ambassador selected as relevant to Ambassador’s analysis of First Choice Bank;

 

·

Considered Berkshire Hills Bancorp’s financial and capital position and certain potential pro forma financial effects of the merger on Berkshire Hills Bancorp;

 

·

Conducted other analyses and reviewed other information Ambassador considered necessary or appropriate; and

 

·

Incorporated Ambassador’s assessment of the overall economic environment and market conditions, as well as Ambassador’s experience in mergers and acquisitions, bank stock valuations and other transactions.

 

 

In rendering Ambassador’s opinion, Ambassador also relied upon and assumed, without independent verification, the accuracy, reasonableness and completeness of the information provided to Ambassador by or on behalf of First Choice Bank and Berkshire Hills Bancorp and publicly available information used in Ambassador’s analyses. Ambassador did not assume any responsibility for the accuracy, reasonableness and completeness of any of the foregoing materials provided to Ambassador and publicly available information or for the independent verification thereof. With respect to the financial projections and forecasts for First Choice Bank reviewed by Ambassador and other non-public information related to projected cost savings referred to above, Ambassador assumed, with First Choice Bank’s consent, that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of First Choice Bank and Berkshire Hills Bancorp, as the case may be, as to the future financial performance of First Choice Bank and such cost savings and that the financial results reflected in such projections and forecasts as well as such cost savings would be realized in the amounts and at the times projected. With respect to the publicly available research analyst estimates for Berkshire Hills Bancorp referred to above, Ambassador assumed, with First Choice Bank’s consent, that such estimates represent reasonable estimates and judgments as to the future financial performance of Berkshire Hills Bancorp. Ambassador assumed no responsibility for and expressed no view as to any of the foregoing financial projections and forecasts, other non-public information and publicly available research analyst estimates reviewed by Ambassador or the assumptions on which they were based

 

Ambassador is not an expert in the evaluation of deposit accounts or loan, mortgage or similar portfolios or allowances for losses with respect thereto and Ambassador was not requested to, and Ambassador did not, conduct a review of individual credit files or loan, mortgage or similar portfolios. Ambassador assumed no responsibility for and expressed no view as to the adequacy or sufficiency of allowances for losses or other matters with respect thereto and Ambassador assumed that each of First Choice Bank and Berkshire Hills Bancorp had, and the pro forma combined company would have, appropriate reserves to cover any such losses. Ambassador did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of First Choice Bank or Berkshire Hills Bancorp, and Ambassador was not furnished with any such valuation or appraisal.

 

Ambassador’s opinion was based on conditions as they existed and the information Ambassador received, as of the date of Ambassador’s opinion. Ambassador does not have any obligation to update, revise or reaffirm its opinion. Ambassador expressed no opinion as to the actual value of Berkshire Hills Bancorp’s common stock when issued in the merger or the prices at which Berkshire Hills Bancorp’s common stock might trade at any time.

 

In rendering its opinion, Ambassador assumed, with First Choice Bank’s consent, that the merger and other transactions (including, without limitation, the payment of a special dividend to holders of First Choice Bank common stock equal to 35% of First Choice Bank’s core net income in excess of $14.22 tangible book value per share from July 1, 2016 until the month end immediately preceding the closing of the merger, subject to certain conditions and limitations) would be consummated on the terms described in the merger agreement, without any waiver or modification of any material terms or conditions. Ambassador also assumed, with First Choice Bank’s consent, that, in the course of obtaining the necessary governmental, regulatory and other third party approvals, consents and releases for the merger, including with respect to any divestiture or other requirements, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on First Choice Bank, Berkshire Hills Bancorp or the merger (including the contemplated benefits thereof). Ambassador also assumed, with First Choice Bank’s consent, that the final merger agreement would not differ from the draft reviewed by Ambassador in any respect material to its analyses or opinion. Ambassador further assumed, with First Choice Bank’s consent, that the merger would qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

Ambassador expressed no view or opinion as to any terms or other aspects (other than the exchange ratio to the extent expressly specified in Ambassador’s opinion) of the merger or any related transaction, including the treatment of First Choice Bank preferred stock or the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of First Choice Bank (other than holders of First Choice Bank common stock to the extent expressly specified in Ambassador’s opinion) or any other party to the merger. Ambassador expressed no opinion with respect to the fairness of the amount or nature of any compensation to any of the officers, directors, or employees of any party to the merger, or any class of such persons, relative to the exchange ratio or otherwise.

 

 

In performing its analyses, Ambassador made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Ambassador, First Choice Bank and Berkshire Hills Bancorp. Any estimates contained in the analyses performed by Ambassador are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, Ambassador’s opinion was among several factors taken into consideration by the First Choice Bank board in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the First Choice Bank board with respect to the fairness of the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between First Choice Bank and Berkshire Hills Bancorp and the decision to enter into the merger agreement was solely that of the First Choice Bank board.

 

Selected Implied Transaction Ratios for the Merger

 

Based on First Choice Bank’s financial information as of March 31, 2016, for the three months ended March 31, 2016 annualized or for the twelve months ended March 31, 2016, Ambassador calculated the following transaction ratios (assuming the First Choice Bank preferred stock is fully converted) using Berkshire Hills Bancorp’s closing common stock price of $26.91 per share as of June 23, 2016:

 

		June 23, 2016
Aggregate total deal consideration/last three months earnings annualized		32.4X
Aggregate total deal consideration/last twelve months (“LTM”) earnings		57.8X
Price/tangible book per share		115%
Aggregate total deal consideration/tangible book value		116%

 

The following is a summary of the material financial analysis presented by Ambassador to the First Choice Bank board in connection with rendering its opinion. This summary is not a complete description of the analyses and procedures performed by Ambassador in the course of arriving at its opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Ambassador did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Ambassador believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. No company, transaction or business used in Ambassador’s analyses for comparative purposes is identical to First Choice Bank, Berkshire Hills Bancorp or the proposed merger and an evaluation of the results of those analyses is not entirely mathematical.

 

Comparable Transactions Analysis for First Choice Bank

 

Ambassador performed a comparable transaction analysis by reviewing the following information for purposes of comparison with selected implied transaction ratios for the merger:

 

·

Publicly available acquisition metrics of 429 selected transactions in the United States that were announced from January 1, 2013 through June 23, 2016 with announced deal values in excess of $10 million, excluding mergers of equals (“Nationwide Transactions”).

 

 

·

Publicly available acquisition metrics of 24 selected transactions in which the selling bank was based in Eastern Pennsylvania or New Jersey that were announced from January 1, 2014 through June 23, 2016 with announced deal values between $25 million and $250 million, excluding mergers of equals and transactions with no price information (“Eastern Pennsylvania and New Jersey Transactions”).

 

·

Publicly available acquisition metrics of Investors Bancorp, Inc.’s announced acquisition of the Bank of Princeton, which is located in New Jersey.

 

 

The results of the analysis are set for in the following tables: 

 

Nationwide Transactions(1)
										Price/
						Price/				Tangible
		Number				LTM				Common
Year		of Deals				Earnings				Book (%)
Highest 3rd by Announced Price-to-Tangible Book
2016(2)			20				18.0	X			168	%
2015			47				23.7				181
2014			45				18.6				194
2013			33				17.2				167
Middle 3rd by Announced Price-to-Tangible Book
2016			19				19.7	X			132	%
2015			46				22.8				143
2014			44				24.1				144
2013			33				19.7				130
Lowest 3rd by Announced Price-to-Tangible Book
2016			19				20.6	X			111	%
2015			46				23.4				118
2014			44				24.2				110
2013			33				20.0				98
Berkshire Hills Bancorp/First Choice Bank Merger(3)
June 23, 2016			—				32.4				116

 

Source: SNL Financial, Charlottesville, Virginia.

 

(1)

Median pricing data of the selected transactions in the sub-group indicated are shown. Based on information as of respective announcement of the selected transactions.

(2)

Through June 23, 2016.

(3)

First Choice bank net income and earnings are based on first quarter 2016 annualized (not LTM) and assumes preferred stock is fully converted into common stock.

 

 

Eastern Pennsylvania and New Jersey Transactions⁽¹⁾

 

						Price/
Acquirer/Seller		Deal Value (in millions)				LTM Earnings				Common Tangible Book				Assets				Deposits
High ROE (over 5%)
Univest Corporation of Pennsylvania/ Valley Green Bank		$	78				15.3	X			234	%			21.0	%			23.2	%
Investors Bancorp, Inc./ Bank of Princeton			155				13.8				151				15.0				18.9
Center Bancorp, Inc./ ConnectOne Bancorp, Inc.			240				23.3				179				19.3				24.8
Penns Woods Bancorp, Inc./ Luzerne National Bank Corporation			46				20.3				165				15.0				17.2
Lakeland Bancorp, Inc./ Somerset Hills Bancorp			66				19.5				152				17.8				20.5
Wilshire Bancorp, Inc./ BankAsiana			31				14.2				137				15.1				18.8
Peoples Financial Services Corp./ Penseco Financial Services Corp.			156				15.0				147				16.8				21.0
Lakeland Bancorp, Inc./ Pascack Bancorp, Inc.			42				17.3				130				11.9				14.4
DNB Financial Corporation/ East River Bank			49				22.1				155				15.8				21.0
National Penn Bancshares, Inc./ TF Financial Corporation			142				21.0				148				16.7				20.5
OceanFirst Financial Corp./ Cape Bancorp, Inc.			206				18.2				139				13.2				16.0
Provident Financial Services, Inc./ Team Capital Bank			124				19.2				191				13.1				16.7
Beneficial Bancorp, Inc./ Conestoga Bank			100				24.5				160				13.9				18.7
Lakeland Bancorp, Inc./ Harmony Bank			32				20.8				125				10.7				12.3
Univest Corporation of Pennsylvania/ Fox Chase Bancorp, Inc.			244				24.8				134				22.2				34.0
Northfield Bancorp, Inc./ Hopewell Valley Community Bank			55				22.8				148				13.4				12.4
WSFS Financial Corporation/ Penn Liberty Financial Corp.			102				31.8				199				18.7				18.2
Median							20.3	X			151	%			15.1	%			18.8	%
Low ROE (Below 5%)
Haven Bancorp, MHC/ Hilltop Community Bancorp, Inc.		$	27				29.8	X			130	%			16.1	%			19.0	%
Bryn Mawr Bank Corporation/ Continental Bank Holdings, Inc.			109				42.3				175				16.6				23.6
WSFS Financial Corporation/ Alliance Bancorp, Inc. of Pennsylvania			93				36.6				136				22.2				27.1
Tompkins Financial Corporation/ VIST Financial Corp.			84				18.4				116				5.7				6.9
ESSA Bancorp, Inc./ Eagle National Bancorp, Inc.			25				NM				112				14.4				17.0
Prudential Bancorp, Inc./ Polonia Bancorp, Inc.			38				NM				101				13.0				20.2
Cape Bancorp, Inc./ Colonial Financial Services, Inc.			56				NM				88				10.1				11.7
Median							33.2	X			116	%			14.4	%			19.0	%
Berkshire Hills Bancorp/First Choice Bank(2) Merger
6/23/16			(118	)			32.4				116				10.5				13.0

 

Source: SNL Financial, Charlottesville, Virginia.

 

(1)

Based on information as of respective announcement of the selected transactions. “NM” indicates that statistic was considered not meaningful and excluded from median calculation.

(2)

First Choice Bank net income and earnings are based on first quarter 2016 annualized (not LTM) and assumes preferred stock is fully converted into common stock.

 

 

Side-by-Side Comparison of First Choice Bank and Bank of Princeton⁽¹⁾

 

		First Choice Bank				Bank of Princeton
Established Date			March 2007				April 2007
Assets (in millions)		$	1,125			$	1,035
Equity (in millions)			101				95
Deal Pricing
Price/ MRQ Annualized Earnings June 23, 2016			32.4	X			13.7	X
Price/LTM Earnings June 23, 2016			57.8	X			13.8	X
Price/Tangible Equity as of June 23, 2016 (2)			116	%			151	%
Financial Ratios
Loans/assets			48.00	%			81.00	%
Yield on loans			4.50				5.21
Yield on earning assets			3.30				4.61
Cost of funds			0.85				0.77
Reserves/loans			2.43				1.34
NPA’s+90 days PD/Assets			3.59				1.17
Net interest margin			2.51				3.90
Efficiency ratio			91.00				55.00
Return on equity LTM			1.99				12.80
Return on equity MRQ			3.57				11.89
Income and Expense to average assets
Net interest income			2.43	%			3.77	%
Noninterest income			5.82				0.17
Noninterest expense			7.61				2.23
Net operating income			0.64				1.71
Provision expense			0.41				0.21
Net income			0.18				1.13
Deposit Mix (% of deposits)
Noninterest bearing			6.00	%			19.00	%
NOW			5.00				16.00
MMDA/savings			53.00				32.00
Retail CD’s			30.00				25.00
Jumbo CD’s			6.00				8.00
Total			100.00	%			100.00	%
Loan Mix (% of loans)
Construction			2.00	%			18.00	%
Multi-family			3.00				4.00
CRE—owner			14.00				26.00
CRE—investor			33.00				32.00
C&I			6.00				6.00
Residential mortgage			34.00				10.00
Home equity			7.00				4.00
Consumer			1.00				—
Total			100.00	%			100.00	%

 

Source: SNL Financial, Charlottesville, Virginia.

 

(1)

As of March 31, 2016 or the twelve months ended March 31, 2016, except where noted.

(2)

Assumes preferred stock is converted and price to tangible book as of March 31, 2106.

 

 

Discounted Dividend Analysis of First Choice Bank with Cost Savings

 

Ambassador performed a discounted dividend analysis including cost savings to estimate a range for the implied equity value of First Choice Bank common stock. In this analysis, Ambassador assumed discount rates of 10%, 12% and 14% and calculated terminal values of 10X, 12X and 14X estimated earnings at the end of seven years. Ambassador used financial projections and forecasts for First Choice Bank provided to Ambassador by the management of First Choice Bank, as reflected in the following table, and projected cost savings anticipated by the management of Berkshire Hills Bancorp to be realized from the merger of $14.9 million in year 1 and $15.1 million in year 2.

 

		Assets(1) In millions				Equity In millions				Net Income In thousands				Equity/ Assets				ROA				ROE				Preferred Dividend				Common Dividend(2)
2016 - Budget		$	1,142			$	105.8			$	4,166				9.26	%			0.36	%			3.94	%		$	1,548			$	513
2017 - Budget			1,198				110.2				6,853				9.20				0.57				6.22				1,548				539
2018 - Estimated			1,258				115.5				7,422				9.18				0.59				6.43				1,548				566
2019 - Estimated			1,321				121.4				8,057				9.19				0.61				6.64				1,548				594
2020 - Estimated			1,387				128.0				8,737				9.23				0.63				6.83				1,548				624

 

(1)

Asset growth rate of 5% per year in 2018 through 2020.

(2)

Dividend growth rate of 5% per year starting in 2017.

 

This analysis indicated an implied present value reference range of First Choice Bank common stock of $13.10 per share to $21.35 per share, which are 97% and 161%, respectively, of First Choice Bank’s fully-converted tangible book value as of March 31, 2016.

 

Comparable Institutions Analysis for Berkshire Hills Bancorp

 

Ambassador performed a comparable institutions analysis by comparing the financial condition and performance and stock performance of Berkshire Hills Bancorp with those of the following fourteen selected publicly traded institutions headquartered in Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island or Vermont that had assets between $5 billion and $10 billion, nonperforming assets to assets ratios less than 2% and returns on equity greater than 5%, excluding mutual institutions and merger or acquisition targets:

 

		Assets(1)
Institution		In Millions				City, State		Ticker		Exchange
Boston Private Financial Holdings, Inc.		$	7,414			Boston, MA		BPFH		NASDAQ
Brookline Bancorp, Inc.			6,181			Boston, MA		BRKL		NASDAQ
Community Bank System, Inc.			8,616			De Witt, NY		CBU		NYSE
Customers Bancorp, Inc.			9,039			Wyomissing, PA		CUBI		NYSE
Dime Community Bancshares, Inc.			5,517			Brooklyn, NY		DCOM		NASDAQ
First Commonwealth Financial Corporation			6,699			Indiana, PA		FCF		NYSE
Flushing Financial Corporation			5,813			Uniondale, NY		FFIC		NASDAQ
Independent Bank Corp.			7,189			Rockland, MA		INDB		NASDAQ
NBT Bancorp Inc.			8,473			Norwich, NY		NBTB		NASDAQ
Northwest Bancshares, Inc.			8,916			Warren, PA		NWBI		NASDAQ
Provident Financial Services, Inc.			9,026			Iselin, NJ		PFS		NYSE
S&T Bancorp, Inc.			6,479			Indiana, PA		STBA		NASDAQ
Tompkins Financial Corporation			5,765			Ithaca, NY		TMP		NYSE MKT
United Financial Bancorp, Inc.			6,319			Glastonbury, CT		UBNK		NASDAQ
Berkshire Hills Bancorp, Inc.			7,832			Pittsfield, MA		BHLB		NYSE

 

(1)

December 31, 2015.

 

 

Ambassador compared the financial condition and performance of Berkshire Hills Bancorp and the selected institutions in several financial categories as of March 31, 2016, or for the twelve months ended March 31, 2016, as indicated in the following table:

 

Financial Condition and Performance of Berkshire Hills Bancorp and Comparable Institutions⁽¹⁾

 

										Tangible
						Tangible Equity/				Common Equity/								Return on				Return on
		Assets				Tangible				Tangible				NPAs/				Average				Average
		In Millions				Assets				Assets				Assets(2)				Assets				Equity
Maximum		$	9,039				10.41	%			10.41	%			1.26	%			1.72	%			17.04	%
75th Percentile			8,580				8.85				8.82				0.95				1.07				9.93
Median			6,944				8.28				8.28				0.76				0.95				8.86
25th Percentile			6,216				8.04				7.78				0.46				0.83				7.87
Minimum			5,517				6.59				5.71				0.29				0.73				5.53
Berkshire Hills Bancorp		$	7,808				7.66	%			7.66	%			0.53	%			0.75	%			6.66	%
Adjusted(3)			N/A				N/A				N/A				N/A				0.85				7.53

 

Source: SNL Financial, Charlottesville, Virginia.

 

Ambassador then compared the stock performance of Berkshire Hills Bancorp and the selected institutions in several categories, as indicated in the following table:

 

Stock Performance of Berkshire Hills Bancorp and Comparable Institutions⁽⁴⁾

 

		Stock Price/
		LTM				Est. 2016				Tangible								Dividend				Shares Traded
		Earnings				Earnings(5)				Book				Assets				Yield				Daily(6)
Maximum			23.1	X			17.7	X			260	%			21.6	%			4.06	%			593,460
75th Percentile			17.3				16.0				207				16.4				3.26				262,231
Median			16.3				14.5				167				14.0				3.06				164,601
25th Percentile			13.1				13.4				140				12.2				2.92				106,065
Minimum			7.9				10.3				127				7.9				0.00				36,285
Berkshire Hills Bancorp			14.3	X			11.5	X			146	%			10.7	%			2.97	%			106,928
Adjusted(2)			12.5				—				—				—				—				—

 

Source: SNL Financial, Charlottesville, Virginia.

 

(1)

Financial data is as of March 31, 2016, or the twelve months ended March 31, 2016.

(2)

Includes loans 90 days past due and still accruing interest, and troubled debt restructurings .

(3)

Adjusted to exclude non-recurring expenses and net securities gains assuming a 34% tax rate .

(4)

Based on historical financial data as of March 31, 2016, or for the twelve months ended March 31, 2016, publicly available research analysts estimates and stock market data as of June 23, 2016 .

(5)

2016 mean estimates from SNL Financial .

(6)

Trailing twelve months ended June 23, 2016 .

 

 

Contribution Analysis

 

Ambassador analyzed the relative contribution of Berkshire Hills Bancorp and First Choice Bank to various pro forma balance sheet items and net income of the combined entity. This analysis excludes the impact of purchase accounting marks and one-time merger costs. The results of Ambassador’s analysis are set forth in the following table:

 

Berkshire Hills Bancorp and First Choice Bank Contribution Analysis⁽¹⁾

 

		Percentage Contribution
		Berkshire Hills Bancorp				First Choice Bank
Pro Forma Ownership			87.8	%			12.2	%
Balance Sheet
Assets			87.4	%			12.6	%
Gross loans – held for investment			92.7				7.3
Deposits			86.0				14.0
Tangible common equity			90.0				10.0
Income statement
Net income			96.9	%			3.1	%
— with pre-tax cost savings(2)			85.5				14.5

 

(1)

Absent accounting marks. Balance sheet data is based on March 31, 2016. Income statement data is based on the twelve months ended March 31, 2016.

(2)

Cost savings were estimated by BHLB and assumes a 40% tax rate.

 

Financial Impact Analysis on Berkshire Hills Bancorp

 

Ambassador also conducted a financial impact analysis that included the impact of the transaction on Berkshire Hills Bancorp’s tangible book value per share at March 31, 2016 and on Berkshire Hills Bancorp’s earnings per share for the twelve months ended March 31, 2016. Ambassador used historical financial data as of March 31, 2016, or for the twelve months ended March 31, 2016, and included projected cost savings anticipated by the management of Berkshire Hills Bancorp to be realized from the merger. The analysis indicated that the merger could be dilutive to tangible book per share as of March 31, 2016 and could be accretive to earnings per share for the twelve months ended March 31, 2016, absent one-time merger costs. All of the results of Ambassador’s financial impact analysis may vary materially from the actual results achieved by Berkshire Hills Bancorp.

 

Other disclosures

 

Ambassador, as part of its financial advisory business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and valuations for corporate and other purposes. First Choice Bank selected Ambassador to provide a fairness opinion based on Ambassador’s experience, including in connection with mergers and acquisitions of commercial banks and bank holding companies.

 

Pursuant to an engagement letter, First Choice Bank has agreed to pay Ambassador a fairness opinion fee totaling $110,000. First Choice Bank paid Ambassador a $25,000 engagement fee and $65,000 for presentation of its fairness opinion. First Choice Bank will pay an additional fee of $20,000 at closing. An additional fee will be charged if First Choice Bank requests an updated fairness opinion. First Choice Bank has also agreed to reimburse

 

 

Ambassador’s out-of-pocket expenses incurred in connection with its engagement and to indemnify Ambassador against certain liabilities arising out of the performance of its obligations under the engagement letter.

 

Other than this engagement over the two years preceding the date of Ambassador’s opinion, Ambassador has not provided investment banking or other consulting services to First Choice Bank for which Ambassador received compensation from First Choice Bank. Over the two years preceding the date of Ambassador’s opinion, Ambassador has not provided investment banking or other consulting services to Berkshire Hills Bancorp for which Ambassador received compensation from Berkshire Hills Bancorp. In the future, Ambassador may pursue the opportunities to provide investment banking and other consulting services to First Choice Bank and Berkshire Hills Bancorp, but none have been discussed or contemplated.

 

Ambassador is an approved broker-dealer for First Choice Bank and periodically purchases and sells securities to First Choice Bank.

 

Ambassador’s fairness committee approved the issuance of its opinion letter dated June 23, 2016.

 

Opinion of Berkshire Hills Bancorp’s Financial Advisor, Sandler O’Neill & Partners, L.P.

 

By letter dated June 10, 2016, Berkshire Hills Bancorp retained Sandler O’Neill, to act as financial advisor to Berkshire Hills Bancorp’s board of directors in connection with Berkshire Hills Bancorp’s consideration of a possible business combination involving Berkshire Hills Bancorp and First Choice Bank. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

 

Sandler O’Neill acted as financial advisor in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the June 23, 2016 meeting at which Berkshire Hills Bancorp’s board of directors considered and discussed the terms of the merger agreement and the merger, Sandler O’Neill delivered to Berkshire Hills Bancorp’s board of directors its oral opinion, which was subsequently confirmed in writing, that, as of such date, the Exchange Ratio was fair to Berkshire Hills Bancorp from a financial point of view. The full text of Sandler O’Neill’s opinion is an exhibit to the registration statement of which this proxy statement/prospectus forms a part. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion.

 

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Berkshire Hills Bancorp’s board of directors in connection with its consideration of the agreement and the merger and is directed only to the fairness, from a financial point of view, of the Exchange Ratio to Berkshire Hills Bancorp. Sandler O’Neill’s opinion does not constitute a recommendation to any holder of Berkshire Hills Bancorp’s common stock as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the merger or any other matter. The opinion does not address the underlying business decision of Berkshire Hills Bancorp to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Berkshire Hills Bancorp, or the effect of any other transaction in which Berkshire Hills Bancorp might engage. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any Berkshire Hills Bancorp or First Choice Bank officer, director or employee, or class of such persons, if any, relative to the amount of compensation to be received by any other shareholder. Sandler O’Neill’s opinion was approved by Sandler O’Neill’s fairness opinion committee.

 

In connection with rendering its opinion, Sandler O’Neill reviewed and considered, among other things:

 

·

a draft of the merger agreement, dated June 24, 2016;

 

 

·

certain publicly available financial statements and other historical financial information of Berkshire Hills Bancorp and the Bank that Sandler O’Neill deemed relevant;

 

·

certain publicly available financial statements and other historical financial information of First Choice Bank that Sandler O’Neill deemed relevant;

 

·

publicly available median analyst earnings per share estimates for Berkshire Hills Bancorp for the years ending December 31, 2016 through December 31, 2018 and an estimated long-term earnings per share growth rate for the years thereafter, as provided by and discussed with the senior management of Berkshire Hills Bancorp;

 

·

financial projections for First Choice Bank for the years ending December 31, 2016 through December 31, 2020, as provided by and discussed with the senior management of Berkshire Hills Bancorp;

 

·

the pro forma financial impact of the merger on Berkshire Hills Bancorp based on certain assumptions relating to transaction expenses, purchase accounting adjustments, a core deposit intangible asset, cost savings and expected deposit run-off, as provided by and discussed with the senior management of Berkshire Hills Bancorp;

 

·

the publicly reported historical price and trading activity for Berkshire Hills Bancorp common stock, including a comparison of certain stock trading information for Berkshire Hills Bancorp common stock and certain stock indices as well as similar publicly available information for certain other companies, the securities of which are publicly traded;

 

·

a comparison of certain financial information for Berkshire Hills Bancorp and First Choice Bank with similar bank and thrift institutions for which information is publicly available;

 

·

the financial terms of certain recent business combinations in the bank and thrift industry (on a regional and nationwide basis), to the extent publicly available;

 

·

the current market environment generally and the banking environment in particular; and

 

·

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

 

Sandler O’Neill also discussed with certain members of senior management of Berkshire Hills Bancorp the business, financial condition, results of operations and prospects of Berkshire Hills Bancorp and held similar discussions with certain members of the senior management of First Choice Bank regarding the business, financial condition, results of operations and prospects of First Choice Bank.

 

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by it from public sources, that was provided to it by Berkshire Hills Bancorp or its representatives or that was otherwise reviewed by it, and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Sandler O’Neill further relied on the assurances of the senior management of Berkshire Hills Bancorp that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading. Sandler O’Neill was not asked to and did not undertake an independent verification of any such information and did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Berkshire Hills Bancorp or First Choice Bank, or any of their respective subsidiaries, nor was Sandler O’Neill furnished with any such evaluations or appraisals. Sandler O’Neill did not render an opinion or evaluation on the collectability of any assets or the future performance of any loans of Berkshire Hills Bancorp or First Choice Bank. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of Berkshire Hills Bancorp or First Choice Bank, or the combined entity after the merger, and did not review any individual credit files relating to Berkshire Hills Bancorp or First Choice

 

 

Bank. Sandler O’Neill assumed, with Berkshire Hills Bancorp’s consent, that the respective allowances for loan losses for both Berkshire Hills Bancorp and First Choice Bank were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

 

In preparing its analyses, Sandler O’Neill used publicly available median analyst earnings per share estimates for Berkshire Hills Bancorp for the years ending December 31, 2016 through December 31, 2018 and an estimated long-term earnings per share growth rate for the years thereafter, as provided by and discussed with the senior management of Berkshire Hills Bancorp, and financial projections for First Choice Bank for the years ending December 31, 2016 through December 31, 2020, as provided by and discussed with the senior management of Berkshire Hills Bancorp. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to transaction expenses, purchase accounting adjustments, a core deposit intangible asset, cost savings and expected deposit run-off, as provided by and discussed with the senior management of Berkshire Hills Bancorp. With respect to the foregoing information, the senior management of Berkshire Hills Bancorp confirmed to Sandler O’Neill that such information reflected (or, in the case of the publicly available median analyst earnings per share estimates referred to above, were consistent with) the best currently available projections, estimates and judgments of management of the future financial performance of Berkshire Hills Bancorp and First Choice Bank, respectively, and Sandler O’Neill assumed that such performance would be achieved. Sandler O’Neill expressed no opinion as to such information, or the assumptions on which such information was based. Sandler O’Neill also assumed that there was no material change in Berkshire Hills Bancorp’s or First Choice Bank’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analysis that Berkshire Hills Bancorp and First Choice Bank would remain as going concerns for all periods relevant to its analyses.

 

Sandler O’Neill also assumed, with Berkshire Hills Bancorp’s consent, that in all respects material to its analysis, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Berkshire Hills Bancorp, First Choice Bank or the merger or any related transaction, (iii) the merger and any related transaction would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements, (iv) the merger would be consummated without First Choice Bank’s rights under Section 10.1.9 of the merger agreement having been triggered, and (v) the merger would qualify as a tax-free reorganization for federal income tax purposes. Sandler O’Neill expressed no opinion as to any of the legal, accounting or tax matters relating to the merger or any other transaction contemplated in connection therewith.

 

Sandler O’Neill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Events occurring after the date thereof could materially affect Sandler O’Neill’s opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Sandler O’Neill expressed no opinion as to the trading values of Berkshire Hills Bancorp common stock or First Choice Bank common stock at any time or what the value of Berkshire Hills Bancorp common stock would be once it is actually received by the holders of First Choice Bank common stock.

 

In rendering its opinion, Sandler O’Neill performed a variety of financial analyses. The summary below is not a complete description of the analyses underlying Sandler O’Neill’s opinion or the presentation made by Sandler O’Neill to Berkshire Hills Bancorp’s board of directors, but is a summary of all material analyses performed and presented by Sandler O’Neill. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not

 

 

necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to Berkshire Hills Bancorp or First Choice Bank and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Berkshire Hills Bancorp and First Choice Bank and the companies to which they are being compared. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Sandler O’Neill made its determination as to the fairness of the Exchange Ratio on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

 

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of Berkshire Hills Bancorp, First Choice Bank and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to Berkshire Hills Bancorp’s board of directors at its June 23, 2016, meeting, which was subsequently confirmed in writing on June 24, 2016. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of Berkshire Hills Bancorp’s common stock or the prices at which Berkshire Hills Bancorp’s common stock or First Choice Bank’s common stock may be sold at any time. The analyses of Sandler O’Neill and its opinion were among a number of factors taken into consideration by Berkshire Hills Bancorp’s board of directors in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the decision of Berkshire Hills Bancorp’s board of directors or management with respect to the fairness of the merger. See “Berkshire Hills Bancorp’s Reasons for the Merger; Recommendation of the Berkshire Hills Bancorp Board of Directors” for additional information on the factors Berkshire Hills Bancorp’s board of directors considered in reaching its decision to approve the merger agreement.

 

Summary of Proposed Merger Consideration and Implied Transaction Metrics. Sandler O’Neill reviewed the financial terms of the proposed merger. Pursuant to the terms of the merger agreement, each share of First Choice Bank common stock issued and outstanding immediately prior to the Effective Time, except for certain shares of First Choice Bank common stock as specified in the merger agreement, will be converted into the right to receive, without interest, 0.5773 shares of Berkshire Hills Bancorp common stock. Using Berkshire Hills Bancorp’s June 24, 2016 closing stock price of $25.51, and based upon 7,475,657 shares of First Choice Bank common stock outstanding, which includes 3,204,826 common shares outstanding and 4,270,831 common shares outstanding associated with the conversion of 51,000 shares of Series A-E convertible preferred stock, options to purchase 371,900 First Choice Bank shares with a weighted average exercise price of $12.70 per share and warrants to purchase 64,799 First Choice Bank shares with a weighted average exercise price of $10.00 per share, Sandler O’Neill calculated an implied transaction price per share of $14.73 and calculated an aggregate implied transaction value of approximately $111.7 million. Based upon financial information for First Choice Bank as or for the twelve months ended December 31, 2015 and three months ended March 31, 2016, Sandler O’Neill calculated the following implied transaction metrics:

 

  

Transaction Price / March 31, 2016 Book Value Per Share(1):			108	%
Transaction Price / March 31, 2016 Tangible Book Value Per Share(1):			109	%
Transaction Price / 2015 Net Income:			47.0	x
Transaction Price / 2016E Core Net Income(2):			17.7	x
Tangible Book Premium/Core Deposits(3):			1.3	%

 

(1)

Book Value and Tangible Book Value based on First Choice Bank common shares outstanding of 7,475,657, which consists of 3,204,826 common shares outstanding and 4,270,831 common shares outstanding associated with the conversion of 51,000 shares of Series A-E convertible preferred stock.

(2)

Estimated First Choice Bank earnings per share provided by and discussed with Berkshire Hills Bancorp senior management and assumes the conversion of First Choice Bank’s 51,000 shares of Series A-E preferred stock into 4,270,831 shares of First Choice Bank common stock. Estimated core net income excludes estimated gains recognized on the sale of securities during the three months ended June 30, 2016.

(3)

Core deposits are defined as total First Choice Bank deposits as of March 31, 2016 less jumbo deposits or time deposits over $100,000 and estimated deposit run-off.

  

Stock Trading History. Sandler O’Neill reviewed the historical publicly reported trading prices of Berkshire Hills Bancorp’s common stock for the three-year period ended June 24, 2016. Sandler O’Neill then compared the relationship between the movements in the price of Berkshire Hills Bancorp’s common stock to movements in its peer group as well as certain stock indices.

 

Berkshire Hills Bancorp’s Three-Year Stock Performance
		Beginning Value June 24, 2013				Ending Value June 24, 2016
Berkshire Hills Bancorp			100	%			95.3	%
Berkshire Hills Bancorp Peer Group			100	%			132.0	%
NASDAQ Bank Index			100	%			124.8	%
S&P 500 Index			100	%			129.5	%

 

Comparable Company Analyses. Sandler O’Neill used publicly available information to compare selected financial information for Berkshire Hills Bancorp with a group of financial institutions selected by Sandler O’Neill. The Berkshire Hills Bancorp peer group consisted of banks and thrifts whose securities are publicly traded on a United States exchange, are headquartered in the Mid-Atlantic or New England regions and with total assets for the most recent period reported between $6.5 billion and $10.0 billion, excluding targets of announced merger transactions and entities with large trust operations (the “Berkshire Hills Bancorp Peer Group”). The Berkshire Hills Bancorp Peer Group consisted of the following companies:

 

Community Bank System, Inc.	NBT Bancorp Inc.
Customers Bancorp, Inc.	Northwest Bancshares, Inc.
First Commonwealth Financial Corporation	Provident Financial Services, Inc.
Independent Bank Corp.

 

The analysis compared publicly available financial information for Berkshire Hills Bancorp with the corresponding data for the Berkshire Hills Bancorp Peer Group as of or for the twelve months ended March 31, 2016 (unless otherwise noted), with pricing data as of June 24, 2016. The table below sets forth the data for Berkshire Hills Bancorp and the high, low, mean and median data for the Berkshire Hills Bancorp Peer Group.

 

  

Berkshire Hills Bancorp Comparable Company Analysis (Berkshire Hills Bancorp Peer Group)
		Berkshire Hills Bancorp				Berkshire Hills Bancorp Peer Group High				Berkshire Hills Bancorp Peer Group Low				Berkshire Hills Bancorp Peer Group Mean				Berkshire Hills Bancorp Peer Group Median
Total Assets (in millions)		$	7,808			$	9,039			$	6,699			$	8,280			$	8,616
Loans/Deposits			102.50	%			111.60	%			67.70	%			95.30	%			93.20	%
Nonperforming Assets(1)/Total Assets			0.48	%			1.25	%			0.33	%			0.78	%			0.81	%
Net Charge-offs/Average Loans			0.23	%			0.33	%			(0.03	)%			0.10	%			0.10	%
Tangible Common Equity/Tangible Assets			7.66	%			10.41	%			5.71	%			8.34	%			8.69	%
Tier 1 Leverage Ratio			7.75	%			11.99	%			7.15	%			9.54	%			9.53	%
Total Risk-Based Capital Ratio			11.82	%			18.33	%			10.29	%			13.66	%			12.49	%
Total Commercial Real Estate Loans/Total Risk-Based Capital Ratio			218.50	%			585.60	%			60.00	%			259.80	%			213.40	%
LTM Return on Average Assets			0.75	%			1.15	%			0.73	%			0.91	%			0.95	%
LTM Return on Average Tangible Common Equity			11.20	%			14.80	%			7.10	%			11.60	%			11.70	%
LTM Net Interest Margin			3.35	%			3.70	%			2.82	%			3.33	%			3.40	%
LTM Efficiency Ratio			63.20	%			65.80	%			50.40	%			59.70	%			61.60	%
Price/Tangible Book Value			138.00	%			232.00	%			130.00	%			174.00	%			161.00	%
Price/LTM Earnings per share			13.6	x			22.2	x			12.1	x			16.4	x			16.0	x
Price/2016 Estimated Earnings Per Share			11.4	x			17.5	x			10.2	x			14.7	x			15.1	x
Price/2017 Estimated Earnings Per Share			11.1	x			16.7	x			9.2	x			13.5	x			14.2	x
Current Dividend Yield			3.10	%			4.20	%			0.00	%			2.90	%			3.20	%
Market Value (in millions)		$	795			$	1,753			$	670			$	1,182			$	1,194

 

(1)

Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases, and real estate owned.

 

Sandler O’Neill used publicly available information to perform a similar analysis for First Choice Bank and two groups of financial institutions as selected by Sandler O’Neill. The first peer group consisted of banks and thrifts whose securities are publicly traded on a United States exchange, are headquartered in the Mid-Atlantic region, with total assets between $750 million and $2.0 billion and nonperforming assets/total assets greater than 2.0% as of the most recent period reported, excluding targets of announced merger transactions (the “First Choice Bank Regional Peer Group”). The second peer group consisted of banks and thrifts whose securities are publicly traded on a United States exchange, with total assets between $800 million and $3.0 billion and LTM mortgage banking income greater than 15.0% of total LTM operating revenue as of the most recent period reported, excluding targets of announced merger transactions (the “First Choice Bank Nationwide Peer Group”).

 

The First Choice Bank Regional Peer Group consisted of the following companies:

 

BCB Bancorp, Inc.	Orange County Bancorp, Inc.
Carver Bancorp, Inc.	Parke Bancorp, Inc.
Community Financial Corporation	Severn Bancorp, Inc.
First United Corporation	Shore Bancshares, Inc.
Franklin Financial Services Corporation

 

The First Choice Bank Nationwide Peer Group consisted of the following companies:

 

Alerus Financial Corporation	Howard Bancorp, Inc.
BNCCORP, Inc.	Midland States Bancorp, Inc.

 

  

Carolina Financial Corporation	MVB Financial Corp.
Commerce Union Bancshares, Inc.	Northrim BanCorp, Inc.
First Internet Bancorp	Waterstone Financial, Inc.
Hampton Roads Bankshares, Inc.

 

The analysis compared publicly available financial information for First Choice Bank with the corresponding data for each of the peer groups as of or for the twelve months ended March 31, 2016 (unless otherwise noted), with pricing data as of June 24, 2016.

 

The table below sets forth the data for First Choice Bank and the high, low, mean and median data for the First Choice Bank Regional Peer Group.

 

First Choice Bank Comparable Company Analysis (First Choice Bank Regional Peer Group)
		First Choice Bank(1)				First Choice Bank Regional Peer Group High				First Choice Bank Regional Peer Group Low				First Choice Bank Regional Peer Group Mean				First Choice Bank Regional Peer Group Median
Total Assets (in millions)		$	1,125			$	1,706			$	754			$	1,075			$	1,070
Loans/Deposits			60.10	%			114.60	%			69.40	%			95.60	%			99.30	%
Nonperforming Assets(2)/Total Assets(3)			3.52	%			6.30	%			2.17	%			3.19	%			2.70	%
Net Charge-offs/Average Loans			0.65	%			0.46	%			0.01	%			0.13	%			0.09	%
Tangible Common Equity/Tangible Assets			9.02	%			12.25	%			1.32	%			8.17	%			8.58	%
Tier 1 Leverage Ratio(3)(4)			9.08	%			14.15	%			8.26	%			10.85	%			10.63	%
Total Risk-Based Capital Ratio(3)(4)			18.10	%			19.42	%			11.88	%			15.84	%			16.51	%
Total Commercial Real Estate Loans/Total Risk-Based Capital Ratio(3)(5)			191.60	%			470.60	%			176.10	%			270.30	%			210.80	%
LTM Return on Average Assets			0.18	%			1.41	%			(0.14	)%			0.61	%			0.59	%
LTM Return on Average Equity			4.20	%			11.50	%			(1.10	)%			6.30	%			6.20	%
LTM Net Interest Margin(3)			2.59	%			4.13	%			3.02	%			3.41	%			3.46	%
LTM Efficiency Ratio			91.40	%			98.40	%			37.30	%			73.80	%			76.70	%
Price/Tangible Book Value			—				141.00	%			74.00	%			102.00	%			99.00	%
Price/LTM Earnings per share			—				38.0	x			7.1	x			17.8	x			16.3	x
Price/2016 Estimated Earnings Per Share			—				15.1	x			15.1	x			15.1	x			15.1	x
Price/2017 Estimated Earnings Per Share			—				14.5	x			12.8	x			13.7	x			13.7	x
Current Dividend Yield			—				5.40	%			0.00	%			2.00	%			1.80	%
Market Value (in millions)			—			$	138			$	14			$	87			$	91

 

(1)

Tangible Common Equity/Tangible Assets for First Choice Bank represents Tangible Equity/Tangible Assets as of March 31, 2016.

(2)

Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases, and real estate owned.

(3)

Nonperforming Assets/Total Assets, Tier 1 Leverage Ratio, Total Risk-Based Capital Ratio and Total Commercial Real Estate Loans/Total Risk-Based Capital Ratio for Orange County Bancorp, Inc. reflects Bank level regulatory financial data.

(4)

Tier 1 Leverage Ratio and Total Risk-Based Capital Ratio for Carver Bancorp, Inc. reflects Bank level regulatory financial data as of December 31, 2015.

(5)

Total Commercial Real Estate Loans/Total Risk-Based Capital Ratio for Parke Bancorp, Inc. reflects Bank level regulatory financial data.

Note: Financial data for Orange County Bancorp, Inc. is as of or for the period ended December 31, 2015.

 

 

The table below sets forth the data for First Choice Bank and the high, low, mean and median data for the First Choice Bank Nationwide Peer Group.

 

First Choice Bank Comparable Company Analysis (First Choice Bank Nationwide Peer Group)
		First Choice Bank(1)				First Choice Bank Nationwide Peer Group High				First Choice  Bank  Nationwide  Peer Group Low				First Choice Bank Nationwide Peer Group Mean				First Choice  Bank  Nationwide  Peer Group  Median
Total Assets (in millions)		$	1,125			$	2,898			$	869			$	1,584			$	1,500
Loans/Deposits			60.10	%			121.10	%			53.30	%			87.40	%			85.50	%
Nonperforming Assets(2)/Total Assets			3.52	%			3.51	%			0.28	%			1.18	%			0.98	%
Net Charge-offs/Average Loans			0.65	%			0.50	%			(0.06	)%			0.15	%			0.08	%
Tangible Common Equity/Tangible Assets			9.02	%			22.62	%			5.15	%			9.78	%			7.94	%
Tier 1 Leverage Ratio			9.08	%			22.61	%			6.41	%			10.64	%			9.87	%
Total Risk-Based Capital Ratio			18.10	%			34.02	%			11.38	%			15.77	%			13.97	%
Total Commercial Real Estate Loans/Total Risk-Based Capital Ratio(3)			191.60	%			423.40	%			110.90	%			247.90	%			228.00	%
LTM Return on Average Assets			0.18	%			4.71	%			0.17	%			1.18	%			0.94	%
LTM Return on Average Equity			1.99	%			39.62	%			1.72	%			10.93	%			8.99	%
LTM Net Interest Margin(4)			2.59	%			4.38	%			2.45	%			3.52	%			3.55	%
LTM Efficiency Ratio			91.40	%			90.40	%			61.10	%			75.50	%			77.10	%
LTM Mortgage Income(5)/LTM Operating Revenue			67.80	%			69.00	%			16.20	%			29.40	%			23.60	%
Price/Tangible Book Value			—				231.00	%			72.00	%			126.00	%			116.00	%
Price/LTM Earnings per share			—				24.8	x			3.1	x			13.1	x			12.0	x
Price/2016 Estimated Earnings Per Share			—				21.3	x			9.6	x			13.9	x			12.0	x
Price/2017 Estimated Earnings Per Share			—				19.1	x			8.0	x			12.2	x			11.3	x
Current Dividend Yield			—				3.00	%			0.00	%			1.00	%			0.70	%
Market Value (in millions)			—			$	441			$	53			$	199			$	173

 

(1)

Tangible Common Equity/Tangible Assets for First Choice Bank represents Tangible Equity/Tangible Assets as of March 31, 2016.

(2)

Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases, and real estate owned.

(3)

Total Commercial Real Estate Loans/Total Risk-Based Capital Ratio for Howard Bancorp, Inc. reflects Bank level regulatory financial data.

(4)

LTM Net Interest Margin for Midland States Bancorp, Inc. for the period ended December 31, 2015.

(5)

Mortgage Banking Income defined as all revenues associated with mortgage banking activities, including origination revenues, gain on sale, and net servicing income related to 1-4 family residential first mortgage loans.

 

Analysis of Selected Merger Transactions. Sandler O’Neill reviewed two groups of recent merger and acquisition transactions. The first group consisted of six transactions announced between January 1, 2010 and June 24, 2016 with disclosed deal values at announcement involving bank and thrift targets headquartered in the Mid-Atlantic region with assets between $1.0 billion and $5.0 billion and nonperforming assets/total assets of greater than 2.0%, excluding Section 363 bankruptcy transactions (the “Regional Precedent Transactions”). The second group consisted of nine transactions announced between January 1, 2013 and June 24, 2016 with disclosed deal values at announcement involving bank and thrift targets with assets between $800 million and $2.0 billion and LTM mortgage banking income greater than 15.0% of total LTM operating revenue, excluding Section 363 bankruptcy transactions (the “Nationwide Precedent Transactions”).

 

The Regional Precedent Transactions group was composed of the following transactions:

 

Acquiror		Target
Bank of the Ozarks, Inc.		Intervest Bancshares Corporation
Berkshire Hills Bancorp Bancorp, Inc.		Beacon Federal Bancorp, Inc.
Tompkins Financial Corporation		VIST Financial Corp.

 

  

F.N.B. Corporation		Parkvale Financial Corporation
Valley National Bancorp		State Bancorp, Inc.
Susquehanna Bancshares, Inc.		Abington Bancorp, Inc.

 

The Nationwide Precedent Transactions group was composed of the following transactions:

 

Acquiror		Target
Mechanics Bank		California Republic Bancorp
TowneBank		Monarch Financial Holdings, Inc.
First Busey Corporation		Pulaski Financial Corp.
Green Bancorp, Inc.		Patriot Bancshares, Inc.
Renasant Corporation		Heritage Financial Group, Inc.
Eagle Bancorp, Inc.		Virginia Heritage Bank
Chemical Financial Corporation		Northwestern Bancorp
Old National Bancorp		United Bancorp, Inc.
Hanmi Financial Corporation		Central Bancorp, Inc.

 

Using the latest publicly available financial information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following multiples: transaction price to last-twelve-months earnings per share, transaction price to estimated forward earnings per share, transaction price to tangible book value per share, tangible book premium to core deposits and one-day market premium. Sandler O’Neill compared the indicated transaction metrics for the merger to the high, low, mean and median metrics of both the Regional Precedent Transactions group and the Nationwide Precedent Transactions group.

 

		Berkshire Hills Bancorp / First  Choice  Bank				Regional Precedent Transactions Group  High				Regional Precedent Transactions Group  Low				Regional Precedent Transactions Group  Mean				Regional Precedent Transactions Group Median
Transaction Price/LTM Earnings Per Share			54.8	x			33.4	x			13.7	x			24.5	x			23.7	x
Transaction Price/Estimated Forward Earnings Per Share			17.7	x(1)			31.1	x			12.8	x			22.6	x			23.2	x
Transaction Price/Tangible Book Value Per Share:			109.0	%			198.0	%			111.0	%			141.0	%			120.0	%
Core Deposit Premium(2):			1.3	%(3)			9.7	%			1.3	%			5.3	%			4.4	%
1-Day Market Premium:			—				109.0	%			13.8	%			56.2	%			48.9	%

 

(1)

2016 estimated First Choice Bank EPS provided by and discussed with Berkshire Hills Bancorp senior management and assumes the conversion of First Choice Bank’s 51,000 shares of Series A-E preferred stock into 4,270,831 shares of First Choice Bank common stock. 2016 estimated First Choice Bank EPS reflects estimated core net income, which excludes estimated gains recognized on the sale of securities during the three months ended June 30, 2016.

(2)

Core deposits are defined as total deposits less all jumbo deposits or time deposits over $100,000.

(3)

Core deposits for First Choice Bank are defined as total deposits as of March 31, 2016 less all jumbo deposits or time deposits over $100,000 and estimated deposit run-off.

 

		Berkshire Hills Bancorp / First Choice Bank				Nationwide Precedent Transactions Group  High				Nationwide  Precedent Transactions Group  Low				Nationwide Precedent Transactions Group  Mean				Nationwide Precedent Transactions Group Median
Transaction Price/LTM Earnings Per Share			54.8	x			25.8	x			14.9	x			20.3	x			18.1	x
Transaction Price/Estimated Forward Earnings Per Share			17.7	x(1)			24.0	x			16.3	x			19.5	x			18.8	x
Transaction Price/Tangible Book Value Per Share:			109.0	%			208.0	%			62.0	%			172.0	%			179.0	%
Core Deposit Premium(2):			1.3	%(3)			21.0	%			7.4	%			12.3	%			11.9	%
1-Day Market Premium:			—				125.6	%			4.1	%			52.7	%			50.1	%

 

 

(1)

2016 estimated First Choice Bank EPS provided by and discussed with Berkshire Hills Bancorp senior management and assumes the conversion of First Choice Bank’s 51,000 shares of Series A-E preferred stock into 4,270,831 shares of First Choice Bank common stock. 2016 estimated First Choice Bank EPS reflects estimated core net income, which excludes estimated gains recognized on the sale of securities during the three months ended June 30, 2016.

(2)

Core deposits are defined as total deposits less all jumbo deposits or time deposits over $100,000.

(3)

Core deposits for First Choice Bank are defined as total deposits as of March 31, 2016 less all jumbo deposits or time deposits over $100,000 and estimated deposit run-off.

 

Note: For targets that were publicly traded at announcement of the transaction, mortgage income defined as the sum of net servicing fees (income from servicing real estate mortgages, credit cards, and other financial assets held by others, net of related servicing assets' amortization expense) and net gain on sale of loans and leases; for targets that were private at announcement of the transaction, mortgage income defined as all revenues associated with mortgage banking activities, including origination revenues, gain on sale, and net servicing income related to 1-4 family residential first mortgage loans.

 

Net Present Value Analyses. Sandler O’Neill performed an analysis that estimated the net present value per share of Berkshire Hills Bancorp common stock assuming Berkshire Hills Bancorp performed in accordance with publicly available median analyst earnings per share estimates for Berkshire Hills Bancorp for the years ending December 31, 2016 through December 31, 2018 as well as an estimated long-term earnings per share growth rate for the years thereafter, as provided by and discussed with the senior management of Berkshire Hills Bancorp. To approximate the terminal value of a share of Berkshire Hills Bancorp common stock at December 31, 2020, Sandler O’Neill applied price to 2020 earnings multiples ranging from 13.0x to 18.0x and multiples of December 31, 2020 tangible book value ranging from 135% to 210%. The terminal values were then discounted to present values using different discount rates ranging from 8.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Berkshire Hills Bancorp’s common stock. As illustrated in the following tables, the analysis indicates an imputed range of values per share of Berkshire Hills Bancorp common stock of $20.15 to $34.70 when applying multiples of earnings and $20.80 to $39.89 when applying multiples of tangible book value.

 

Earnings Per Share Multiples

 

Discount Rate			13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
8.0%			$	25.99			$	27.73			$	29.48			$	31.22			$	32.96			$	34.70
9.0%			$	24.89			$	26.55			$	28.21			$	29.87			$	31.54			$	33.20
10.0%			$	23.84			$	25.42			$	27.01			$	28.60			$	30.19			$	31.78
11.0%			$	22.84			$	24.36			$	25.88			$	27.39			$	28.91			$	30.43
12.0%			$	21.90			$	23.35			$	24.80			$	26.25			$	27.70			$	29.15
13.0%			$	21.00			$	22.39			$	23.78			$	25.17			$	26.55			$	27.94
14.0%			$	20.15			$	21.48			$	22.81			$	24.14			$	25.46			$	26.79

  

Tangible Book Value Multiples

 

Discount Rate		135%				150%				165%				180%				195%				210%
8.0%		$	26.84			$	29.45			$	32.06			$	34.67			$	37.28			$	39.89
9.0%		$	25.70			$	28.19			$	30.68			$	33.17			$	35.66			$	38.15
10.0%		$	24.61			$	26.99			$	29.37			$	31.75			$	34.13			$	36.51
11.0%		$	23.58			$	25.86			$	28.13			$	30.40			$	32.68			$	34.95
12.0%		$	22.60			$	24.78			$	26.95			$	29.13			$	31.30			$	33.48
13.0%		$	21.68			$	23.76			$	25.84			$	27.92			$	30.00			$	32.08
14.0%		$	20.80			$	22.79			$	24.78			$	26.77			$	28.76			$	30.75

 

 

Sandler O’Neill also considered and discussed with the Berkshire Hills Bancorp board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Berkshire Hills Bancorp’s net income varied from 25% above estimates to 25% below estimates. This analysis resulted in the following range of per share values for Berkshire Hills Bancorp common stock, applying the price to 2020 earnings multiples range of 13.0x to 18.0x referred to above and a discount rate of 8.71%.

 

Earnings Per Share Multiples

 

Annual Budget Variance		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
(25.0%)		$	19.72			$	20.98			$	22.25			$	23.51			$	24.78			$	26.04
(20.0%)		$	20.82			$	22.16			$	23.51			$	24.86			$	26.21			$	27.56
(15.0%)		$	21.91			$	23.34			$	24.78			$	26.21			$	27.64			$	29.07
(10.0%)		$	23.01			$	24.52			$	26.04			$	27.56			$	29.07			$	30.59
(5.0%)		$	24.10			$	25.70			$	27.30			$	28.90			$	30.50			$	32.10
0.0%		$	25.20			$	26.88			$	28.57			$	30.25			$	31.94			$	33.62
5.0%		$	26.29			$	28.06			$	29.83			$	31.60			$	33.37			$	35.14
10.0%		$	27.39			$	29.24			$	31.09			$	32.95			$	34.80			$	36.65
15.0%		$	28.48			$	30.42			$	32.36			$	34.29			$	36.23			$	38.17
20.0%		$	29.58			$	31.60			$	33.62			$	35.64			$	37.66			$	39.68
25.0%		$	30.67			$	32.78			$	34.88			$	36.99			$	39.10			$	41.20

 

Sandler O’Neill also performed an analysis that estimated the net present value per share of First Choice Bank common stock assuming that First Choice Bank performed in accordance earning projections provided by and discussed with Berkshire Hills Bancorp senior management. To approximate the terminal value of First Choice Bank common stock at December 31, 2020, Sandler O’Neill applied price to 2020 earnings multiples ranging from 13.0x to 18.0x and multiples of December 31, 2020 tangible book value ranging from 80% to 130%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 17.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of First Choice Bank’s common stock. As illustrated in the following tables, the analysis indicates an imputed range of values per share of First Choice Bank common stock of $4.45 to $7.92 when applying earnings multiples and $6.55 to $13.67 when applying multiples of tangible book value.

 

Earnings Per Share Multiples

 

Discount Rate		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
11.0%		$	5.72			$	6.16			$	6.60			$	7.04			$	7.48			$	7.92
12.0%		$	5.48			$	5.90			$	6.32			$	6.74			$	7.17			$	7.59
13.0%		$	5.25			$	5.66			$	6.06			$	6.47			$	6.87			$	7.27
14.0%		$	5.04			$	5.43			$	5.81			$	6.20			$	6.59			$	6.98
15.0%		$	4.83			$	5.21			$	5.58			$	5.95			$	6.32			$	6.69
16.0%		$	4.64			$	5.00			$	5.35			$	5.71			$	6.07			$	6.42
17.0%		$	4.45			$	4.80			$	5.14			$	5.48			$	5.82			$	6.17

 

 

Tangible Book Value Multiples

 

Discount Rate		80%				90%				100%				110%				120%				130%
11.0%		$	8.41			$	9.46			$	10.51			$	11.56			$	12.61			$	13.67
12.0%		$	8.06			$	9.07			$	10.07			$	11.08			$	12.09			$	13.10
13.0%		$	7.73			$	8.69			$	9.66			$	10.62			$	11.59			$	12.55
14.0%		$	7.41			$	8.34			$	9.26			$	10.19			$	11.11			$	12.04
15.0%		$	7.11			$	8.00			$	8.89			$	9.77			$	10.66			$	11.55
16.0%		$	6.82			$	7.67			$	8.53			$	9.38			$	10.23			$	11.09
17.0%		$	6.55			$	7.37			$	8.19			$	9.01			$	9.82			$	10.64

 

Sandler O’Neill also considered and discussed with the Berkshire Hills Bancorp board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming First Choice Bank’s net income varied from 25% above projections to 25% below projections. This analysis resulted in the following range of per share values for First Choice Bank common stock, applying the price to 2020 earnings multiples range of 13.0x to 18.0x referred to above and a discount rate of 13.99%.

 

Earnings Per Share Multiples

 

Annual Estimate Variance		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
(25.0%)		$	3.78			$	4.07			$	4.36			$	4.65			$	4.94			$	5.23
(20.0%)		$	4.03			$	4.34			$	4.65			$	4.96			$	5.27			$	5.58
(15.0%)		$	4.28			$	4.61			$	4.94			$	5.27			$	5.60			$	5.93
(10.0%)		$	4.54			$	4.88			$	5.23			$	5.58			$	5.93			$	6.28
(5.0%)		$	4.79			$	5.16			$	5.52			$	5.89			$	6.26			$	6.63
0.0%		$	5.04			$	5.43			$	5.82			$	6.20			$	6.59			$	6.98
5.0%		$	5.29			$	5.70			$	6.11			$	6.51			$	6.92			$	7.33
10.0%		$	5.54			$	5.97			$	6.40			$	6.82			$	7.25			$	7.68
15.0%		$	5.80			$	6.24			$	6.69			$	7.13			$	7.58			$	8.03
20.0%		$	6.05			$	6.51			$	6.98			$	7.44			$	7.91			$	8.37
25.0%		$	6.30			$	6.78			$	7.27			$	7.75			$	8.24			$	8.72

 

Sandler O’Neill also performed an analysis that estimated the net present value per share of First Choice Bank common stock assuming that First Choice Bank performed in accordance earning projections provided by and confirmed with Berkshire Hills Bancorp senior management, inclusive of estimated cost savings associated with the transaction of $14.9 million for the year ending December 31, 2017, $15.2 million for the year ending December 31, 2018, $15.4 million for the year ending December 31, 2019, and $15.5 million for the year ending December 31, 2020, as provided by and discussed with Berkshire Hills Bancorp senior management. To approximate the terminal value of First Choice Bank common stock at December 31, 2020, Sandler O’Neill applied price to 2020 earnings multiples ranging from 13.0x to 18.0x and multiples of December 31, 2020 tangible book value ranging from 80% to 130%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 17.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of First Choice Bank’s common stock. As illustrated in the following tables, the analysis indicates an imputed range of values per share of First Choice Bank common stock of $12.07 to $21.46 when applying earnings multiples and $8.41 to $17.54 when applying multiples of tangible book value.

 

 

Earnings Per Share Multiples

 

Discount Rate		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
11.0%		$	15.50			$	16.69			$	17.88			$	19.08			$	20.27			$	21.46
12.0%		$	14.85			$	16.00			$	17.14			$	18.28			$	19.42			$	20.57
13.0%		$	14.24			$	15.33			$	16.43			$	17.52			$	18.62			$	19.72
14.0%		$	13.66			$	14.71			$	15.76			$	16.81			$	17.86			$	18.91
15.0%		$	13.10			$	14.11			$	15.12			$	16.12			$	17.13			$	18.14
16.0%		$	12.57			$	13.54			$	14.51			$	15.47			$	16.44			$	17.41
17.0%		$	12.07			$	13.00			$	13.93			$	14.86			$	15.78			$	16.71

 

Tangible Book Value Multiples

 

Discount Rate		80%				90%				100%				110%				120%				130%
11.0%		$	10.80			$	12.14			$	13.49			$	14.84			$	16.19			$	17.54
12.0%		$	10.35			$	11.64			$	12.93			$	14.22			$	15.52			$	16.81
13.0%		$	9.92			$	11.16			$	12.40			$	13.64			$	14.88			$	16.12
14.0%		$	9.51			$	10.70			$	11.89			$	13.08			$	14.27			$	15.46
15.0%		$	9.12			$	10.27			$	11.41			$	12.55			$	13.69			$	14.83
16.0%		$	8.76			$	9.85			$	10.95			$	12.04			$	13.14			$	14.23
17.0%		$	8.41			$	9.46			$	10.51			$	11.56			$	12.61			$	13.66

 

Sandler O’Neill also considered and discussed with the Berkshire Hills Bancorp board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming First Choice Bank’s net income varied from 25% above estimates to 25% below estimates. This analysis resulted in the following range of per share values for First Choice Bank common stock, applying the price to 2020 earnings multiples range of 13.0x to 18.0x referred to above and a discount rate of 13.99%.

 

Earnings Per Share Multiples

 

Annual Estimate Variance		13.0x				14.0x				15.0x				16.0x				17.0x				18.0x
(25.0%)		$	12.40			$	13.35			$	14.31			$	15.26			$	16.22			$	17.17
(20.0%)		$	12.65			$	13.63			$	14.60			$	15.57			$	16.55			$	17.52
(15.0%)		$	12.90			$	13.90			$	14.89			$	15.88			$	16.88			$	17.87
(10.0%)		$	13.16			$	14.17			$	15.18			$	16.19			$	17.21			$	18.22
(5.0%)		$	13.41			$	14.44			$	15.47			$	16.50			$	17.53			$	18.57
0.0%		$	13.66			$	14.71			$	15.76			$	16.81			$	17.86			$	18.92
5.0%		$	13.91			$	14.98			$	16.05			$	17.12			$	18.19			$	19.26
10.0%		$	14.16			$	15.25			$	16.34			$	17.43			$	18.52			$	19.61
15.0%		$	14.42			$	15.53			$	16.63			$	17.74			$	18.85			$	19.96
20.0%		$	14.67			$	15.80			$	16.93			$	18.05			$	19.18			$	20.31
25.0%		$	14.92			$	16.07			$	17.22			$	18.36			$	19.51			$	20.66

 

In connection with its analyses, Sandler O’Neill considered and discussed with the Berkshire Hills Bancorp board of directors how the present value analyses would be affected by changes in the underlying assumptions. Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of

 

 

such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

 

Pro Forma Merger Analysis. Sandler O’Neill analyzed certain potential pro forma effects of the merger based on the following assumptions: (i) the merger closes in the fourth calendar quarter of 2016; (ii) pursuant to the merger agreement, each share of First Choice Bank common stock issued and outstanding immediately prior to the Effective Time will be converted into the right to receive, without interest, 0.5773 shares of Berkshire Hills Bancorp common stock; (iii) all outstanding First Choice Bank options and warrants are cashed out by Berkshire Hills Bancorp at closing; and (iv) Berkshire Hills Bancorp’s closing stock price of $25.51 on June 24, 2016. Sandler O’Neill also incorporated the following assumptions, each of which were provided by and discussed with Berkshire Hills Bancorp’s senior management: (a) financial projections for First Choice Bank for the years ending December 31, 2016 through December 31, 2020; (b) estimated earnings per share projections for Berkshire Hills Bancorp, based on publicly available analyst consensus median earnings per share estimates for the years ending December 31, 2016 through December 31, 2018 with an estimated long-term earnings per share growth rate for the years thereafter; (c) a per share dividend payment at closing by First Choice Bank to holders of First Choice Bank common stock; (d) purchase accounting adjustments, including a gross credit mark on loans, a negative interest rate mark on gross loans, a negative mark on owned real estate, a fixed asset write-down, a positive interest rate mark on time deposits and a positive interest rate mark on borrowings; (e) the reversal of First Choice Bank’s existing allowance for loan and lease losses; (f) an estimated deposit run-off on First Choice Bank’s deposits; (g) estimated cost savings; (h) pre-tax one-time transaction costs and expenses; and (i) a mortgage bonus payment to First Choice Bank at close and over the subsequent three years. In addition, Sandler O’Neill assumed a core deposit premium on First Choice Bank’s core deposits with straight line depreciation over 5 years and a pre-tax opportunity cost of cash of approximately 2.0%. The analysis indicated that the merger could be accretive to Berkshire Hills Bancorp’s estimated earnings per share in 2017 (excluding transaction expenses in 2017) and dilutive to estimated tangible book value per share at close.

 

In connection with this analyses, Sandler O’Neill considered and discussed with the Berkshire Hills Bancorp board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

 

Sandler O’Neill’s Relationship. Sandler O’Neill is acting as financial advisor to Berkshire Hills Bancorp’s board of directors in connection with the merger and will receive a transaction fee in an amount equal to approximately $838,000, 10% of such fee was paid to Sandler O’Neill upon Berkshire Hills Bancorp’s entry into the merger agreement and the remainder will become payable at the time of closing of the merger. In addition, Sandler O’Neill received a fee in an amount equal to $200,000 upon rendering its fairness opinion to the Berkshire Hills Bancorp board of directors in connection with the merger, which fairness opinion fee will be credited in full towards the portion of the transaction fee which will become payable to Sandler O’Neill on the day of closing of the merger. Berkshire Hills Bancorp has also agreed to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement, including the reasonable fees and disbursements of its legal counsel. Berkshire Hills Bancorp has also agreed to indemnify Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons harmless from and against any and all losses, claims, damages and labilities, joint or several, to which it may become subject under applicable federal or state law.

 

In the two years preceding the date of Sandler O’Neill’s opinion, Sandler O’Neill provided certain other investment banking services to Berkshire Hills Bancorp and received fees for such services. Specifically, Sandler O’Neill advised Berkshire Hills Bancorp in its acquisition of Hampden Bancorp, Inc., for which it received fees totaling approximately $900,000. In addition, in the ordinary course of Sandler O’Neill’s business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to Berkshire Hills Bancorp, First Choice Bank and their respective affiliates. Sandler O’Neill may also actively trade the equity and debt securities of Berkshire Hills Bancorp, First Choice Bank or their respective affiliates for its own account and for the accounts of its customers.

 

 

Consideration to be Received in the Merger

 

Each share of First Choice Bank common stock issued and outstanding immediately prior to the effective time of the Merger (other than dissenting shares, if applicable) will be converted into the right to receive 0.5773 shares of Berkshire Hills Bancorp common stock as described herein. In addition, each outstanding share of First Choice Bank preferred stock will be converted into the right to receive such number of Berkshire Hills Bancorp common stock equal to the number of shares of First Choice Bank common stock issuable upon the conversion of the First Choice Bank preferred stock multiplied by 0.5773. Based on 3,207,493 shares of First Choice Bank common stock issued and outstanding as of October 19, 2016 , plus 4,270,829 shares of First Choice Bank common stock issuable upon the conversion of the issued and outstanding shares of First Choice Bank Series A through Series E preferred stock, and the 0.5773 exchange ratio, approximately 4,317,235 shares of Berkshire Hills Bancorp common stock will be issued to First Choice Bank shareholders.

 

Based on Berkshire Hills Bancorp’s closing price of $25.51 on June 24, 2016 (the date preceding the public announcement of the proposed transaction), each share of First Choice Bank common stock exchanged for 0.5773 shares of Berkshire Hills Bancorp common stock, would have a value of $14.73. Based on Berkshire Hills Bancorp’s closing price of $ 28.20 on October 19, 2016 , each share of First Choice Bank common stock exchanged for 0.5773 shares of Berkshire Hills Bancorp common stock would have a value of $ 16.28 . Berkshire Hills Bancorp common stock is listed on the New York Stock Exchange under the symbol “BHLB.” First Choice Bank stock is not traded on any established public trading market.

 

Berkshire Hills Bancorp will pay to each holder of First Choice Bank common stock otherwise entitled to receive a fractional share of Berkshire Hills Bancorp common stock, an amount in cash, rounded to the nearest cent and without interest, equal to the value of such fractional share determined in accordance with the paragraph above.

 

First Choice Bank Common Stock Special Dividend

 

Pursuant to the terms of the Merger Agreement, First Choice Bank may pay a special dividend to the holders of its common stock if:

 

·

its tangible book value per share as of the last day of the calendar month prior to the closing date of the Merger is greater than $14.22 per share, and

 

·

First Choice Bank has a positive core net income.

 

If both criteria are met, then First Choice Bank may pay a per share dividend to the holders of its common stock immediately prior to the effective time of the Merger in an aggregate amount not to exceed 35% of Core Net Income per share in excess of the $14.22 tangible book value per share, provided First Choice Bank maintains a tangible book value per common share of at least $14.22 following the payment of the special dividend.

 

Core Net Income is defined in the Merger Agreement as the consolidated net income of First Choice Bank and its subsidiaries for the period beginning July 1, 2016 and ending on the last day of the calendar month immediately preceding the closing date of the Merger, plus certain payments, if any, made by First Choice Bank to the U.S. to the U.S. Small Business Administration, and minus any non-core net income, including any gains on the sale of assets, reversals of provisions for loan and lease losses, other nonrecurring items or income that is not consistent with past practice.

 

Treatment of First Choice Bank Stock Options and Warrants

 

Under the terms of the merger agreement, outstanding options and warrants to purchase First Choice Bank common stock, whether or not vested; will be terminated with a payment to the holder of the option or warrant, as applicable, of an amount of cash equal to:

 

·

the excess, if any, of $16.00 over the applicable per share price of the option or warrant, as applicable, multiplied by

 

 

·

the number of shares of First Choice Bank common stock that the holder could have purchased with the option or warrant, as applicable, if the holder had exercised the option or warrant, as applicable, immediately prior to the date of the Merger.

 

Surrender of Stock Certificates

 

Promptly following the completion of the Merger, Berkshire Hills Bancorp will cause to be delivered to First Choice Bank shareholders a letter of transmittal, together with instructions for the surrender of their First Choice Bank stock certificates in exchange for the merger consideration. Until a First Choice Bank shareholder surrenders his, her or its First Choice Bank stock certificates in exchange for the merger consideration, First Choice Bank shareholders will not be paid dividends or other distributions declared after the Merger with respect to any Berkshire Hills Bancorp common stock for which their First Choice Bank shares may be exchanged. When First Choice Bank shareholders surrender their First Choice Bank stock certificates, Berkshire Hills Bancorp will pay any unpaid dividends or other distributions, without interest. After the completion of the Merger, there will be no further transfers of First Choice Bank stock. First Choice Bank stock certificates surrendered after the completion of the Merger will be canceled and exchanged for the merger consideration.

 

If their First Choice Bank stock certificates have been lost, stolen or destroyed, First Choice Bank shareholders will have to prove their ownership of these certificates and that they were lost, stolen or destroyed before they receive any consideration for their shares. The letter of transmittal will include instructions on how to provide evidence of ownership.

 

Accounting Treatment of the Merger

 

In accordance with current accounting guidance, the Merger will be accounted for pursuant to accounting standards for business combinations. The result of this is that the recorded assets and liabilities of Berkshire Hills Bancorp will be carried forward at their recorded amounts, the historical operating results will be unchanged for the prior periods being reported on and that the assets and liabilities of First Choice Bank will be adjusted to fair value at the date of the Merger. In addition, all identified intangibles will be recorded at fair value and included as part of the net assets acquired. To the extent that the purchase price, consisting of cash plus the number of shares of Berkshire Hills Bancorp common stock to be issued to former First Choice Bank shareholders and option and warrant holders at fair value, exceeds the fair value of the net assets including identifiable intangibles of First Choice Bank at the Merger date, that amount will be reported as goodwill. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. Identified intangibles will be amortized over their estimated lives. Further, operating results of First Choice Bank will be included in the operating results of Berkshire Hills Bancorp beginning from the date of completion of the Merger.

 

Material United States Federal Income Tax Consequences of the Merger

 

General. The following discussion sets forth the material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) of First Choice Bank preferred stock and common stock, generally referred to as “First Choice Bank stock,” who exchange First Choice Bank stock for Berkshire Hills Bancorp common stock in the Merger. The discussion also sets forth the material U.S. federal income tax consequences to U.S. holders of the pre-merger special dividend (as defined below), if made. This discussion does not address any tax consequences arising under the laws of any state, locality or foreign jurisdiction, or under any U.S. federal tax laws (such as the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010) other than federal income tax law. This discussion is based upon the Internal Revenue Code of 1986, as amended (referred to as the “Code”), the regulations of the U.S. Department of the Treasury and court and administrative rulings and decisions in effect on the date of this document. These laws may change, possibly retroactively, and any change could affect the continuing validity of this discussion.

 

For purposes of this discussion, you are a “U.S. holder” if you beneficially own First Choice Bank stock and you are:

 

·

a citizen or resident of the United States for U.S. federal income tax purposes;

 

 

·

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any of its political subdivisions;

 

·

a trust that (1) is subject to the primary supervision of a court within the United States and the control over substantial decisions of which is vested in one or more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

·

an estate that is subject to U.S. federal income tax on its income regardless of its source.

 

This discussion assumes that you hold your shares of First Choice Bank stock as a capital asset within the meaning of Section 1221 of the Code. Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

 

·

a financial institution;

 

·

a tax-exempt organization;

 

·

an S corporation or other pass-through entity;

 

·

an insurance company;

 

·

a mutual fund;

 

·

a regulated investment company or real estate investment trust;

 

·

a controlled foreign corporation or passive foreign investment company;

 

·

a dealer or broker in securities or foreign currencies;

 

·

a trader in securities who elects the mark-to-market method of accounting for your securities;

 

·

a First Choice Bank shareholder whose shares are qualified small business stock for purposes of Section 1202 of the Code or who may otherwise be subject to the alternative minimum tax provisions of the Code;

 

·

a First Choice Bank shareholder who received First Choice Bank stock through the exercise of employee stock options or otherwise as compensation, through the exercise of warrants or conversion of First Choice Bank preferred stock, or through a tax-qualified retirement plan;

 

·

an expatriate or person who has a functional currency other than the U.S. dollar; or

 

·

a First Choice Bank shareholder who holds First Choice Bank stock as part of a hedge, straddle or a constructive sale or conversion transaction.

 

In addition, this discussion does not address the tax consequences of the Merger to holders of First Choice Bank stock other than U.S. holders, holders of First Choice Bank options or warrants, or holders of First Choice Bank stock who exercise appraisal and/or dissenters rights. This discussion does not address the tax consequences to a holder of First Choice Bank stock of the receipt of regular monthly dividends paid consistently in accordance with past practice.

 

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds First Choice Bank stock, the tax treatment of a partner in the partnership will generally depend on the status of such partner and the activities of the partnership.

 

This discussion is not intended to be tax advice to any particular holder of First Choice Bank stock. Tax matters regarding the Merger are complicated, and the tax consequences of the Merger to you will depend on your particular situation. First Choice Bank shareholders are urged to consult their tax advisors as to the U.S. federal income tax consequences of the Merger, as well as the effects of state, local, federal non-income and non-U.S. tax laws.

 

It is a condition to the closing of the Merger that Berkshire Hills Bancorp receive the opinion of its legal counsel, Luse Gorman, PC, and First Choice Bank receive the opinion of its legal counsel, Pepper Hamilton LLP, each dated as of the effective time of the Merger, substantially to the effect that, on the basis of facts, representations

 

 

and assumptions set forth or referred to in that opinion (including factual representations contained in certificates of officers of Berkshire Hills Bancorp and First Choice Bank), the Merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. The tax opinions are not binding on the Internal Revenue Service, or “IRS,” or any court. Berkshire Hills Bancorp and First Choice Bank have not sought and will not seek any ruling from the IRS regarding any matters relating to the Merger and, as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which the opinions are based are inconsistent with the actual facts, the U.S. federal income tax consequences of the Merger could be adversely affected.

 

Based on the opinions that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code, the material U.S. federal income tax consequences of the Merger are as follows:

 

·

No gain or loss generally will be recognized by a U.S. holder of First Choice Bank stock upon the receipt of shares of Berkshire Hills Bancorp common stock in exchange therefor pursuant to the Merger (except in respect of cash received in lieu of fractional shares, as discussed below);

 

·

The aggregate adjusted tax basis of the shares of Berkshire Hills Bancorp common stock received by the U.S. holder in the Merger will be the same as the aggregate adjusted tax basis of shares of First Choice Bank stock surrendered in exchange therefor, reduced by the tax basis allocable to any fractional share of Berkshire Hills Bancorp common stock for which cash is received;

 

·

The holding period of Berkshire Hills Bancorp common stock received by a U.S. holder will include the holding period of the First Choice Bank stock exchanged therefor; and

 

·

Although no fractional shares of Berkshire Hills Bancorp common stock will be issued in the Merger, a U.S. holder who receives cash in lieu of such a fractional share of Berkshire Hills Bancorp common stock will generally be treated as having received the fractional share pursuant to the Merger and then having sold that fractional share of Berkshire Hills Bancorp common stock for cash. As a result, a U.S. holder will generally recognize gain or loss equal to the difference between the amount of cash received and the portion of the holder’s aggregate adjusted tax basis of the shares of First Choice Bank stock surrendered that is allocable to its fractional share. Any capital gain or loss will be long-term capital gain or loss if the holding period for the fractional share (including the holding period of the shares of First Choice Bank stock surrendered therefor) is more than one year. Long-term capital gains of individuals generally are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

 

For purposes of the above discussion of the bases and holding periods for shares of First Choice Bank stock and Berkshire Hills Bancorp common stock, First Choice Bank shareholders who acquired different blocks of First Choice Bank stock at different times or at different prices must calculate their basis and holding periods separately for each identifiable block of such stock exchanged or received in the Merger.

 

Pre-Merger Special Dividend. Under the terms of the merger agreement, First Choice Bank may, if certain circumstances are met, pay a per share distribution to the holders of First Choice Bank common stock immediately prior to the effective time of the Merger (the “pre-merger special dividend”). The pre-merger special dividend is intended to be treated as a distribution by First Choice Bank within the meaning of Section 301 of the Code and not as consideration paid for First Choice Bank stock in the Merger. It is possible that the IRS would disagree with the characterization of the pre-merger special dividend as a distribution by First Choice Bank within the meaning of Section 301 of the Code and instead seek to characterize the pre-merger special dividend as merger consideration paid by Berkshire Hills Bancorp in exchange for a portion of a holder’s First Choice Bank common stock. If this characterization were to be sustained, the tax consequences of the cash received pursuant to the pre-merger special dividend would be different than described herein.

 

Assuming the pre-merger special dividend is characterized as a distribution by First Choice Bank under Section 301 of the Code, the pre-merger special dividend will be treated as a dividend for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits of First Choice Bank. Generally, individual U.S. holders who meet applicable holding period requirements under the Code for “qualified dividends”

 

 

(generally more than 60 days during the 121-day period surrounding the ex-dividend date) will be taxed on the pre-merger special dividend at a maximum U.S. federal income tax rate of 20%. To the extent that the amount of any dividend exceeds First Choice Bank’s current and accumulated earnings and profits, the excess will first be treated as a tax-free return of capital, causing a reduction in the U.S. holder’s adjusted tax basis in the First Choice Bank common stock. If such basis is reduced to zero, any remaining portion of the pre-merger special dividend will be taxed as capital gain, which would be long-term capital gain if the U.S. holder has held the First Choice Bank common stock for more than one year at the time the pre-merger special dividend is received.

 

To the extent an individual U.S. holder of First Choice Bank common stock includes in income the pre-merger special dividend as a qualified dividend and such dividend constitutes an “extraordinary dividend” (generally, where the amount of the dividend exceeds 10% of the holder’s tax basis in its stock), any loss on the sale or exchange of such stock, to the extent of such dividend, will be treated as long-term capital loss. U.S. holders of First Choice common stock should consult their tax advisors regarding the possible applicability of the extraordinary dividend provisions of the Code with respect to the pre-merger special dividend and the potential effect of such provisions on any losses realized with respect to Berkshire Hills Bancorp common stock received in the merger.

 

In addition, U.S. holders that are corporations should consult their tax advisors regarding the possible availability of a dividends received deduction and the potential applicability of the extraordinary dividend provisions of the Code with respect to the pre-merger special dividend.

 

U.S. holders should consult their tax advisors regarding any alternative characterization of the pre-merger special dividend, including as consideration received in exchange for their shares of First Choice Bank common stock.

 

Backup Withholding. Payments of cash (including cash in lieu of a fractional share and the pre-merger special dividend, if any) to a U.S. holder of First Choice Bank stock may, under certain circumstances, be subject to information reporting and backup withholding (currently at a rate of 28%) unless such holder provides proof of an applicable exemption or, in the case of backup withholding, furnishes its taxpayer identification number and otherwise complies with the backup withholding rules. Any amounts withheld from payments to a U.S. holder of First Choice Bank stock under the backup withholding rules are not an additional tax and generally will be allowed as a refund or credit against such holder’s federal income tax liability provided that the holder timely furnishes the required information to the IRS.

 

Reporting Requirements. U.S. holders of First Choice Bank stock who receive Berkshire Hills Bancorp common stock pursuant to the Merger will be required to retain records pertaining to the Merger, and any such holder who, immediately before the Merger, holds at least 1% (by vote or value) of the outstanding First Choice Bank stock, or securities of First Choice Bank with a basis for federal income tax purposes of at least $1 million, will be required to file with its U.S. federal income tax return for the year in which the Merger takes place a statement setting forth certain facts relating to the Merger.

 

The preceding discussion is a summary of the material U.S. federal income tax consequences of the Merger to a U.S. holder of First Choice Bank stock does not address all potential tax consequences that apply or that may vary with, or are contingent on, individual circumstances, and should not be construed as tax advice. Moreover, the discussion does not address any U.S. federal non-income tax or any foreign, state or local tax consequences of the Merger. Tax matters are very complicated and, accordingly, we strongly urge you to consult with a tax advisor to determine the particular federal, state, local and foreign income and other tax consequences to you of the Merger.

 

Resale of Berkshire Hills Bancorp Common Stock

 

Shares of Berkshire Hills Bancorp common stock received by First Choice Bank shareholders in the Merger will be registered under the Securities Act of 1933 and will be freely transferable.

 

This proxy statement/prospectus does not cover resales of Berkshire Hills Bancorp’s common stock received by any person who may be deemed to be an affiliate of First Choice Bank or Berkshire Hills Bancorp.

 

 

Interests of Certain Persons in the Merger that are Different from Yours

 

In considering the recommendation of the First Choice Bank board of directors that you vote to approve the Merger Agreement, you should be aware that some of First Choice Bank’s officers and directors have employment and other compensation agreements or economic interests that are different from, or in addition to, those of First Choice Bank shareholders generally. The First Choice Bank board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement, and in recommending to the shareholders that the Merger Agreement be approved.

 

Employment Agreements with First Choice Bank. First Choice Bank previously entered into employment agreements with each of Howard N. Hall (on November 9, 2014), Joanne O’Donnell (on January 5, 2015), and Lisa M. Tuccillo (on March 1, 2013). Under the employment agreements, if an executive’s employment is terminated by First Choice Bank, or any successor, subsequent to the Merger and during the term of his or her employment agreement for any reason other than cause or the executive’s death, or if the executive resigns for good reason, then the executive will receive a severance amount equal to one and one-half times his or her base salary (one times base salary for Ms. O’Donnell). If payable, the cash severance payable to Mr. Hall, Ms. O’Donnell and Ms. Tuccillo is estimated to be $370,500, $211,000 and $270,000, respectively, less tax withholding. Additionally, Mr. Hall and Ms. O’Donnell would be entitled to continued health insurance, at no cost to the executive, for eighteen months (twelve months for Ms. O’Donnell). The employment agreements provide that the cash severance payments, will be paid over a period of eighteen months in the case of Mr. Hall, a period of twelve months in the case of Ms. O’Donnell, and in a single lump sum cash payment in the case of Ms. Tuccillo.

 

Cash Payment for Outstanding Options and Warrants.  Under the terms of the merger agreement, outstanding options and warrants to purchase First Choice Bank common stock, whether or not vested; will be terminated with a payment to the holder of the option or warrant, as applicable, of an amount of cash equal to (i) the excess, if any, of $16.00 over the applicable per share price of the option or warrant, as applicable, (ii) multiplied by the number of shares of First Choice Bank common stock that the holder could have purchased with the option or warrant, as applicable, if the holder had exercised the option or warrant, as applicable, immediately prior to the date of the Merger. Paul E. Fitzgerald, Howard N. Hall, Joanne O’Donnell and Lisa M. Tuccillo who hold 25,000; 10,000; 7,500 and 27,500 stock options, respectively, will receive cash payments of $2,500; $1,000, $750 and $124,025, respectively, upon termination of the options. Non-employee directors Steven Doerler, Nancy Dudas, Geoffrey Morsell, Munish Sood, Martin Tuchman, Richard Weise, and Robert Workman will each receive $98,500, $89,200, $103,015, $95,500, $107,500, $80,500, and $85,300, respectively, in cash upon the termination of the stock options held by each of them. Additionally, non-employee directors Steven Doerler, Nancy Dudas, Geoffrey Morsell, Munish Sood, Martin Tuchman, and Richard Weise will each receive a cash payment in exchange for the termination of the warrants held by each of them in the same manner as all other holders of warrants.

 

Severance Pay. Under the terms of the Merger Agreement, each person who is an employee of First Choice Bank or a subsidiary of First Choice Bank and who is terminated for a reason other than cause within twelve months subsequent to the date of the Merger or resigns for good reason within twelve months subsequent to the date of the Merger or is not offered employment as of the date of the Merger, excluding those employees who are entitled to benefits under employment or change of control arrangements, shall be entitled to severance benefits. The amount of the severance benefits shall be determined under the applicable employer’s severance plan, First Choice Bank or a subsidiary of First Choice Bank, or Berkshire Bank’s severance plan if such payments would be more favorable to such person.