Ally O’Rourke – IR Officer Mike Daly – President and CEO Josephine Iannelli – EVP and CFO Sean Gray – EVP, Retail Banking George Bacigalupo – EVP, Commercial Banking.

Collyn Gilbert – Keefe Bruyette & Woods Inc. Matthew Kelley – Sterne Agee & Leach Inc. .

Good morning and welcome to the Berkshire Hills Bancorp’s Third Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Ally O’Rourke, Investor Relations Officer. Please go ahead..

Good morning and welcome to America’s most exciting Bank. Thank you for joining us in this discussion of third quarter results. Our news release is available on the Investor Relations section of our website, berkshirebank.com and will be furnished to the SEC.

Our discussion will include forward-looking statements and actual results could differ materially from those statements. For a discussion of related factors, please see our earnings release and our most recent SEC reports on Form 10-K and 10-Q. And with that, I will turn the call over to Mike Daly, President and CEO.

Mike?.

Thank you, Ally. Good morning everyone welcome to our third quarter conference call. With me this morning are Josephine Iannelli, our Chief Financial Officer and of course other members of our management team.

We released earnings last night and I am happy to report that we once again grew our core EPS by 5% over the prior quarter and by 7% year-over-year. We continue to benefit from strong balance sheet growth while tightly managing expenses.

Core EPS came in at $0.46 a share, that’s a 15% improvement from the fourth quarter of 2013 and we reported GAAP EPS of $0.48 a share due to the benefit of the lower tax rate, which Josephine will comment on in just a few minutes.

On previous calls we’ve discussed the volatility and accretion benefit and as we’ve said we expect to continue to wind that down. Now it is worth noting that if you back out purchase loan accretion, we’ve moved core EPS by 24% so far this year.

Loan growth continues to be strong for us and in the third quarter we grew loans at a 9% annualized pace with organic growth in every category. Our commercial loan growth on a net basis was less than the big second quarter we had, but I will point out that our originations were robust.

As we balance the need for net interest margin gains against loan growth, we’ve begun to move out some lower margin accounts, therefore having an effect on net growth. This will however bring stability and eventual margin expansion in 2015 even the freights remain unchanged.

Meanwhile new production continues to be healthy and we’ve maintained double-digit annualized commercial loan growth year-to-date and this is a trend I expect will hold through the remainder of the year.

We continue to see good growth from Eastern and Central Massachusetts along with our ABL team there and I was especially pleased with the performance of our New York team where we’re capitalizing on our expanded branch network between Albany and Syracuse.

In our Connecticut market we recruited another season to commercial real estate lender at the end of the quarter, and we continue to see good momentum in that region. We’ve also been actively building out our small business platform across the footprint.

We added a new experience team in Albany area with strong ties with the community and small business leaders in Central New York, Connecticut and Central Massachusetts.

We’re not only seeing good growth out of this loan book, but we were recently named the top SBA lender in Western Massachusetts and frankly that’s an even that I have been expecting based on the quality of the teams that we put in place. We also had good loan growth this quarter on the consumer and residential side.

Year-to-date mortgage is growing in the mid-single digits, which is what we expect over the long haul and as you know it can be variable and it depends a lot on a seasonality and market conditions, a business mix and also asset liability considerations.

I think we’ve got a solid mortgage operation at this time and a good product set and we continue to tinker with operational efficiency so I think that’s gone set us off to take advantage of future activity in the housing market.

Looking to the fourth quarter I expect total loan growth in the high single-digits lead by a return to double-digit commercial loan growth. Given recent market volatility and rate changes we’re not projecting significant growth in our mortgage and consumer portfolios in the fourth quarter.

Specifically within direct auto loans, where we achieved our objectives with strong year-to-date results already, and the recent compression will likely impact our growth appetite for the remainder of the year. We funded our loan growth this quarter with 8% annualized growth in deposits including 25% annualized DDA growth.

Our DDA penetration continues to climb and we had a good quarter for commercial DDAs, following the strong loan production that we’ve seen. These commercial deposits have a tendency to fluctuate and we do expect the return to a more normalized mid-single digit growth rate in the fourth quarter.

Altogether we expect to grow deposits at a low to mid-single digit annualized rate in the fourth quarter with the continued focus of course and DDAs. Of note, we just opened a new regional hub in Westborough covering much of our Central Massachusetts market.

We have commercial and retail underrun roof there including a full branch services mortgage lenders, small business and commercial lenders. So we expect to be able to build on the commercial and retail balances we already have in that region while using the added brand presence in turn to continue our momentum on the loan side.

Needless to say we’re looking forward to that braches grand opening celebration in November and yes Jim Curran I’ll be there. Turning to fee income, we posted 27% growth year-over-year with gains in well every category.

Quarter-over-quarter, total fee income was unchanged as solid growth in mortgage, insurance and wealth management was offset by lower swap income. Looking at the wealth management business, our assets under management grew at a 12% annualized rate in the third quarter, led by a pretty strong referral pipeline.

Income was up 6% annualized this quarter and has grown 11% year-to-date. We added a senior portfolio manager in our Eastern Massachusetts headquarters and a wealth advisor in our Central Massachusetts market. These folks will work hand in hand with our commercial teams to drive growth from their respective regions.

And I think it’s important to point out that we’ve kept expenses in check at the same time as we’ve added some serious talent over the last several months. Now at this point I want to turn it over to Josephine, she will walk you through some more details in the financials, and then I will come back and wrap it up.

Joe?.

Thanks, Mike and good morning everyone. I am pleased to say that we’ve recorded sequential core EPS growth of 5% for each of the last three quarters. And our core EPS is up 7% year-over-year. We continue to post increased revenues while controlling expenses.

And importantly we haven’t had any consequential non-core charges since our first quarter branch acquisitions. Our third quarter revenue was up 5% annualized over the prior quarter with list coming from both spread income and non-interest income. Spread income was driven by the 9% annualized increase in total loans that Mike discussed.

This more than offset the NIM compression that we experienced during the quarter. The net interest margin dipped by 6 basis points to 320 due to the lower earning asset yields in the ongoing low rate environment.

Excluding purchase loan accretion, our margin was 312, before accretion our net loan yield was 381 compared to 386 in the prior quarter and also reflected the shift in loan mix. We only saw 2 basis points of compression in the commercial yield to 387 before accretion.

Our net loan yield was 381 compared to 386 in the prior quarter and also reflected a shift in loan mix. We only saw 2 basis points of compression in the commercial yield to 387 before accretion. Our securities yield normalized after a timing related spike in the second quarter.

There was a slight change in our deposit mix resulting in a 1 bp increase in deposit class. We continue to focus strongly on growth and DDAs, which help both in managing our current margin and in providing long-term interest rate protection. We added $53 million in broker deposits and we’re able to bring down time deposit costs by 7 basis points.

Overall we held our total cost of funds flat. Looking forward, Mike has commented on our fourth quarter outlook for loan growth in the high single-digit. I expect the mix to improve with more medium term commercial loans and fewer lower rate auto loans. We expect the loan growth to be funded by a mix of deposits and borrowings.

Additionally, we continue to actively manage our balance sheet to find the best opportunities, both on investments and on the funding side, to achieve our objective both our markets and our asset liability management goals.

Before accretion, we expect to keep earning asset yield compression at a minimum due to the favorable loan mix and we expect similar results on the net interest margin. NIM before accretion is projected to come in around 3.10, which is in line with what we guided to at the start of the year.

While we’re not giving forward guidance for 2015 at this time, I do expect to see margin expansion next year as we further refine our business mix, and of course we look forward to addressing that more completely during our next call.

Based on strong loan growth and more stable asset yields, we expect our fourth quarter net interest income before accretion to be up more than 5% annualized, in line with what we saw this quarter. Purchase loan accretion will likely come down somewhat in Q4 and actual results will depend on recoveries and pre-payment activity.

Our volume growth should offset any decreases in accretion, with the results that our overall net interest income is expected to increase slightly in the fourth quarter. Moving on to non-interest income, our third quarter gain was primarily due to mortgage banking revenue, which was stronger than expected.

Mortgage originations increased, the volume sold was higher and the gain on sale margins improved. We expect mortgage revenues to decrease in the fourth quarter while other fee revenue sources should more than offset this. Total core net interest income is projected to be up a little in the fourth quarter from the third quarter.

On a year-over-year basis fee income is expected to be up more than 20% including the benefit of the New York branch purchase. Our loan loss provision decreased to $3.7 million in the third quarter. We had projected a drop from the second quarter, which was elevated due to the higher loan growth in that period.

As stated in our earnings release our credit metrics remain favorable and they strengthened during the quarter. Our commercial risk ratings continue to improve and we expect that the provision will remain around the current level in the fourth quarter.

Turning now to expenses, operating expenses were up 1% over the prior quarter with no material non-core charges. The modest increase in expense showed up in compensation and also in the other expense category, which includes lending cost related to growth in mortgage and consumer loan volumes.

We slightly improved the efficiency ratio which measured 60% to 89% for the quarter. We expect to see non-interest expense up a little in the fourth quarter while we absorbed to build out of our Westborough regional office. On the tax side we held our core tax rate around 30%, which is the rate we expect to carry through the remainder of the year.

As we discussed last quarter the GAAP tax rate of 26% includes the full year impact of the branch acquisition charges recorded in the first quarter. This brought our GAAP EPS to $0.48 for the third quarter.

Our GAAP results also included some small non-core securities gains offset by non-core expenses related to the Bank’s change to a commercial charter. We expect that this tax rate difference again will appear in the fourth quarter and then it will disappear as we roll into the new tax year.

Moving to the bottom-line we expected to do at least as well as he did in the third quarter and hopefully better. Looking at a year-over-year this would represent a 30% EPS increase before accretion over last year’s fourth quarter core results. That’s a significant lift as a result of our strategy.

As we noted in our release, our profitability measures have improved over the last several quarters, due to our revenue growth on a controlled expanse base. Our core return tangible equity has improved to 11.8% and our capital ratios improved modestly based on this internal capital generation.

Our tangible equity also improved and moved north towards 7% of tangible assets at quarter end. And our tangible book value moved up at a 7% annualize raise to 16.67% in the third quarter, while our dividend yielded 3%. I’d like to comment now on our interest rate risk management. As you know we have a goal of maintaining modest assets sensitivity.

Our expectations are in line with market sentiment that short-term rates will begin to increase in the second half of next year. We have been managing our interest rate sensitivity to take advantage of this projected outcome.

For both 100 and 200 basis point upward ramp scenarios we see our net interest income as being asset sensitive in the low to mid-single digit range for 2015 and into 2016. This improves as we look further out in 2016 when our interest rate swaps become effective.

Lastly, I am pleased to report that we continue to make progress and enhancing our financial division. During the most recent quarter we strengthen our management and probability analysis and in tax accounting. We continue to be closely engaged with our business lines on pricing, product management and analysis of growth initiative.

We are deeply into our budgeting process and while we are not providing 2015 guidance at this time, I can seek for all of our team about our excitement and anticipation or further progress towards our objectives going forward. With that, I’ll turn the call back over to Mike..

Josephine thanks, that was a great job. So, as Joe said, we’re expecting fourth quarter earnings to be as good as they were this quarter and we hope to do a little better as we consolidate the strong gain we’ve accumulate to this point. As you’ve heard this represented 30% growth year-over-year before runoff of accretion.

The volatility in the markets of late seems to have everyone second guessing rate expectations. As Joe has commented we’re managing our business in line with current market expectations, while hedging against future rate spikes.

We’re focused on growing revenues, maintaining expenses and improving our profitability and ultimately our returns for shareholders for actively managing our net interest margin and we expect to see expansion in 2015.

Our core return on tangible equity climbed to 11.8 this quarter and we saw sequential improvements in ROA, ROE and our efficiency ratio. We know we still have work to do here as we develop our 2015 business plan and we’re on it. Year-over-year our growth strong and we expect to continue to build on net base.

Our New England and New York footprint, our team strategy and America’s most exciting bank culture continue to be differentiators for us. Our footprint gives us the advantage of multiple geographies for driving growth and our people are dedicated and are motivated to achieve our goal.

So, I’m confident in the opportunities in front of us and our ability to capitalize on them. And with that I’ll open it up for any questions..

At this time, we will begin the question-and-answer session. (Operator Instructions). And our first question today comes from Mark Fitzgibbon of Sandler O’Neill..

Hi guys, it’s actually [inaudible] from Mark..

Hello Ana, how are you?.

And thanks for taking my question. Hi, great.

I was just wondering if you could comment a little bit on the M&A environment in your market if you are seeing any changes or just any commentary you might have?.

I’m not seeing any changes and the commentary would be really similar to what I’ve said in past quarters. We’re concentrating right now on our organic growth and our market penetration and we’ll be opportunistic in the event if there is something to take a look at, but I don’t see much change if any over the past several quarters..

Alright great, thanks.

And then my other question and you sort of touched on it in the prepared remarks, but I mean your loan in deposit growth looks great is there anywhere in your footprint that’s been particularly strong or that you are looking for to going forward?.

I think the Eastern Mass and the New York market and the Connecticut market, my guys would all say that we’re seeing good deliverables from all of those regions and frankly that’s one of the benefits that we’ve been talking about by having a diversified footprint..

Okay, great. Thanks so much..

The next question comes from Collyn Gilbert from KBW..

Collyn?.

Can you hear me?.

Yes, we can hear you.

How are you doing?.

Okay, sorry. Good.

How are you guys?.

Good..

Good.

Mike I just want to go back to your comment about what you guys are continuing to do on the loan portfolio side in terms of pushing out kind of lower margin credits and adding better yielding ones, can you talk just a little bit more about that and I presume from your comments again that this is sufficient enough what’s kind of the trend is going on there is sufficient enough to offset more yield compression that you’re seeing in other loan categories?.

Yes. We haven’t always been able to do this because loan growth always hasn’t been this strong.

But, right now I think our originations both on the commercial side and on the retail side have been strong enough for us to be pretty selective and we run into at times loans that either renew or [Part 3, 2.03] loans that come up and it’s to the benefit of us at this point that we can go forward and not renew those situations because the rates are just incredibly low and we place those with new origination opportunities.

Sean or Josephine or George if you have anything to add to that I’d be happy to have you do that at this point..

Mike, I agree with your comments. As we look to Q4, we would expect to bring on more the commercial fixed rate paper and possibly less of some of the consumer paper and I think some of that changing the mix will overall keep the yield compression low..

Okay, that’s helpful. And then just curious what was the composition of the resi mortgages that you guys put on the balance sheet this quarter? Like the structure..

Collyn, it was about 70% fix, 30% variable. Our variable concentration was probably more in that 7-1 and 10-1 arm product and also we work closely with finance in our out go committee to really make sure that our future hedges that Josephine talked about take into consideration any product that we’re putting on the balance sheet.

So still majority are identified for potential sales at future dates for season loan sales or through locking through our secondary desk..

And Sean you had mentioned to me earlier today or yesterday. One, our margins were good which you might wanted to talk about. Secondly, the fact that a much larger percentage of our work right now is purchase money..

Yes We’re seeing about 70% purchase, which we worked really hard to identify the appropriate type of originators in our market place and just have the right markets and right strategy to go after that purchase business.

So bodes well for us because we do feel that that’s a more consistent type of growth that we’ll see going into the future, regardless of the rate environment, and we did see our gross gain on sale go up to about 225 basis points which as we look out against our competitors we’re comfortable in that range and happy with what we are seeing..

That’s helpful.

Sean just on that point the purchase mortgages you’re seeing are these new customers to the bank or they current BHLB customers?.

Majority of new customers, we do most of this business in Eastern Mass where we don’t have a huge footprints. Largely because we had such a penetration in Western Mass. So most of these customers we’re seeing in Eastern mass they offer a sub also insurance opportunities and other bank products as we introduce them to Berkshire Bank via the mortgage..

Okay, that’s helpful. And then just one final question. I guess sort of big picture for you Mike or Josephine, can you just sort of update us on your efficiency, goals, targets I mean you guys has been bringing that down a little bit.

Just maybe a little bit more color how you see that shaking out over the next year or two?.

Joe you could give specific, but we know where we have to be and we want to be looking up at 60% and down at it. And so I don’t think anybody at my team believes that we’re going to be happy until we’re somewhere between 55% and 60% on the efficiency ratio and I think we can get there..

Yeah..

Do anybody want to scream on that?.

Not at all, I would just comment Collyn that our goal is to get as Mike said below 60% and we have operated there previously and we can do that through our revenue growth and positive operating leverage, as we utilize the infrastructure that we built and the revenue stream throughout our expanded footprint..

Do you think that could be achievable by 2016 or we out further years than that?.

I don’t think, let’s get through our 2015 budgeting and we’ll address that timing question I think on the next call if it’s alright Collyn..

Okay sure thanks, very good. Alright that’s all I had. Thanks guys..

Thank you..

And our next question comes from Matthew Kelley of Sterne Agee..

Yeah hi.

I was just wondering was there any change in C&I utilization rates what are you seeing from your customers in terms of drawdowns and needs for additional borrowing?.

George?.

Matt hi, this is George. No, actually utilization was unchanged over Q3 at just about 60% for both the ABL and the commercial loans..

Okay.

And question for Sean, any changes over the last couple of days and weeks here in application volume in the mortgage business at all with rates down a little bit over the last couple of weeks?.

We typically start to see a seasonal wind down as we move into the fourth quarter, I can say though with the recent rate changes October has remained a very strong month. But we are as Josephine mentioned in her comments as we move post Thanks Giving and into December typically this business does have a seasonal wind down..

I think it would be unreasonable to assume that you are going to have a big December in the mortgage business..

Right..

You never know what’s going to happen, but that would be an unlikely even just based on history..

And Sean, what was the average yield on the residential mortgages put onto the balance sheet in the quarter?.

I think it was right about 4, in that 3.95 to 4 range, Jose can pull it up..

One second Sean I am looking at that up for you..

Yes. Go ahead..

It was about 3.75..

Okay..

Okay, alright.

Then Mike how are you feeling on capital, you have a pretty good outlook for commercial loan growth TCE it’s in the 6.9 maybe just talk about the common ratios, total risk based ratios how you are feeling on that front and any need for capital over the next year?.

No, I mean I think we’re right where we have that and that is we’re returning, our returns are good enough to support our dividend and it’s I think certainly clearly enough to support the growth that we have and what we’ve projected.

So I’m comfortable with our capital levels and there continue to inch north and I think we’re in a pretty good place I don’t think there is any reason for us to be concerned about our capital levels..

Okay.

What was the rate on the brokerage money and what’s the total amount of brokerage money that you have now in the deposit business?.

Hey Matt I’ll take that one, I mean one second here I will get the numbers. So the Q3 net increase was $53 million, our gross bookings were probably closer to about $100 million and they generally had an average cost of 38 bps and we saw somewhere around the five month average maturity..

Okay.

And Josephine the tax rate, it sound like it’s going to be somewhere between the 26% and the 30% so it was 28% a good number to use for the fourth quarter as we transition to that 30%?.

Yes, I would say that we expected to carry through the remainder of the year at around 30%..

Okay. Okay. Great. Thank you very much..

Thanks, Matt..

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Daly for any closing remarks..

Okay. Well thank you very much for joining us today we look forward to getting back together with you for our fourth quarter conference call and I can assure you that our entire crew here will be working to your benefit. Thank you..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..