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Regulatory action on Beacon Federal has no effect on acquisition

By Journal Staff


SYRACUSE — A report from a federal regulator of unsafe banking practices at Beacon Federal has no effect on its pending acquisition by Berkshire Hills Bancorp, Inc. (NASDAQ: BHLB), according to both banks.

DeWitt–based Beacon Federal and the federal Office of the Comptroller of the Currency (OCC) signed an agreement earlier this month outlining the steps the bank must take to address the issues the regulator found. But the acquisition is moving ahead and is expected to close in the fourth quarter this year, Beacon President and CEO Ross Prossner says.

Massachusetts–based Berkshire Hills announced plans in May to acquire Beacon Federal’s holding company, Beacon Federal Bancorp, Inc. (NASDAQ: BFED), in a $132 million deal.

Beacon Federal has total assets of $1 billion and branches in DeWitt, Marcy, and Rome; Smartt and Smyrna, Tenn.; and Chelmsford, Mass. A subsidiary, Beacon Comprehensive Services Corp., provides investments, insurance, tax preparation.

Berkshire Hills released a statement noting that its staff performed thorough due diligence on Beacon leading up to the acquisition agreement. The statement also said the company’s goal remains to close the deal in the fourth quarter.

“Berkshire looks forward to completing the acquisition in accordance with the merger agreement and looks forward to expanding our business in this region and in the Syracuse market,” the statement said.

Documents filed July 18 with the U.S. Securities and Exchange Commission outlined the OCC agreement with Beacon Federal. The regulator found “unsafe and unsound” banking practices at Beacon Federal, according to the filings, but the documents did not discuss the details.

Among other things, Beacon Federal agreed to implement a three-year business plan and review the qualifications of all its senior executive officers.

The bank must also establish new risk-management practices, diversify its assets, improve internal controls on its commercial-lending activities, and review and revise its loan policy. In addition, the regulator imposed specific capital requirements on the bank.

The agreement stems from an OCC examination that began last October, Prossner says. It was the first for the bank with the OCC, he adds.

Beacon Federal’s previous regulator, the Office of Thrift Supervision (OTS), was merged into the OCC by the Dodd-Frank financial reform legislation of 2010.

“With the OCC, it was just a different kind of exam with different examiners,” Prossner says. “It was a new experience.”

The bank had a good relationship with the OTS, he says. Both bank and regulator knew what to expect of each other, he adds.

A number of the issues raised by the OCC stemmed from differences in how it looked at Beacon Federal compared with the OTS, Prossner says. He says many of the items outlined in the agreement have already been addressed and the bank is well on its way to dealing with others.

Beacon Federal is already in compliance with the agreement’s capital requirements, Prossner says. The bank must maintain minimum tier-one capital of at least 9 percent of its adjusted total assets, according to the SEC filing.

The bank’s current tier-one capital level is 10.9 percent and the level was above 10 percent throughout the OCC exam, Prossner says.

He also notes that while the agreement forbids dividend payments or other capital distributions without OCC approval, that measure actually refers to payments from the bank to its holding company.

Beacon Federal Bancorp already has enough money in place to pay dividends to shareholders through the end of 2013, Prossner says.

Beacon Federal learns something from every regulatory exam it undergoes, Prossner adds, and this one was no different, but he declined to discuss specific items.


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