form10q-93756_berk.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended June 30, 2008
OR
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from __________________ to _________________
Commission
File Number 0-51584
BERKSHIRE
HILLS BANCORP, INC.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
04-3510455
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
24
North Street, Pittsfield, Massachusetts
|
01201
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(413)
443-5601
|
(Registrant’s
telephone number, including area code)
|
Not
Applicable
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
[X] No [ ]
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 definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one)
Large
Accelerated Filer ¨
|
Accelerated
Filer x
|
|
|
Non-Accelerated
Filer ¨
|
Smaller
Reporting Company ¨
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes
[ ] No [X]
The
Registrant had 10,390,554 shares of common stock, par value $0.01 per
share, outstanding as of August 5, 2008.
BERKSHIRE
HILLS BANCORP, INC.
FORM
10-Q
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ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
|
|
June
30,
|
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
31,470 |
|
|
$ |
33,259 |
|
Federal
funds sold and short-term investments
|
|
|
2,247 |
|
|
|
7,883 |
|
Total cash and
cash equivalents |
|
|
33,717 |
|
|
|
41,142 |
|
Trading
securities
|
|
|
14,959 |
|
|
|
- |
|
Securities
available for sale, at fair value
|
|
|
200,133 |
|
|
|
197,964 |
|
Securities
held to maturity
|
|
|
26,485 |
|
|
|
39,456 |
|
Federal
Home Loan Bank stock
|
|
|
21,077 |
|
|
|
21,077 |
|
Loans
held for sale
|
|
|
9,865 |
|
|
|
3,445 |
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
664,581 |
|
|
|
657,045 |
|
Commercial
mortgages
|
|
|
768,365 |
|
|
|
704,764 |
|
Commercial
business loans
|
|
|
197,580 |
|
|
|
203,564 |
|
Consumer
loans
|
|
|
347,515 |
|
|
|
378,643 |
|
Total
loans
|
|
|
1,978,041 |
|
|
|
1,944,016 |
|
Less: Allowance
for loan losses
|
|
|
(22,581 |
) |
|
|
(22,116 |
) |
Net
loans
|
|
|
1,955,460 |
|
|
|
1,921,900 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
|
38,054 |
|
|
|
38,806 |
|
Goodwill
|
|
|
161,526 |
|
|
|
161,632 |
|
Other
intangible assets
|
|
|
19,379 |
|
|
|
20,820 |
|
Cash
surrender value of life insurance policies
|
|
|
35,007 |
|
|
|
35,316 |
|
Other
assets
|
|
|
31,213 |
|
|
|
31,874 |
|
Total
assets
|
|
$ |
2,546,875 |
|
|
$ |
2,513,432 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$ |
225,001 |
|
|
$ |
231,994 |
|
NOW
deposits
|
|
|
193,551 |
|
|
|
213,150 |
|
Money
market deposits
|
|
|
457,694 |
|
|
|
439,341 |
|
Savings
deposits
|
|
|
217,605 |
|
|
|
210,186 |
|
Total
non-maturity deposits
|
|
|
1,093,851 |
|
|
|
1,094,671 |
|
Brokered
time deposits
|
|
|
3,008 |
|
|
|
21,497 |
|
Other
time deposits
|
|
|
714,371 |
|
|
|
706,395 |
|
Total
time deposits
|
|
|
717,379 |
|
|
|
727,892 |
|
Total
deposits
|
|
|
1,811,230 |
|
|
|
1,822,563 |
|
Borrowings
|
|
|
379,376 |
|
|
|
334,474 |
|
Junior
subordinated debentures
|
|
|
15,464 |
|
|
|
15,464 |
|
Other
liabilities
|
|
|
10,769 |
|
|
|
14,094 |
|
Total
liabilities
|
|
|
2,216,839 |
|
|
|
2,186,595 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred
stock ($.01 par value; 1,000,000 shares authorized; none
issued)
|
|
|
- |
|
|
|
- |
|
Common
stock ($.01 par value; 26,000,000 shares authorized; 12,513,825 shares
issued)
|
|
|
125 |
|
|
|
125 |
|
Additional
paid-in capital
|
|
|
265,904 |
|
|
|
266,134 |
|
Unearned
compensation
|
|
|
(2,571 |
) |
|
|
(2,009 |
) |
Retained
earnings
|
|
|
121,743 |
|
|
|
113,387 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(403 |
) |
|
|
1,217 |
|
Treasury
stock, at cost (2,129,200 shares at June 30, 2008
|
|
|
|
|
|
|
|
|
and
2,021,120 at December 31, 2007)
|
|
|
(54,762 |
) |
|
|
(52,017 |
) |
Total
stockholders' equity
|
|
|
330,036 |
|
|
|
326,837 |
|
Total
liabilities and stockholders' equity
|
|
$ |
2,546,875 |
|
|
$ |
2,513,432 |
|
See
accompanying notes to consolidated financial statements.
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
|
|
June
30,
|
|
|
|
|
(In
thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Interest
and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
29,823 |
|
|
$ |
29,152 |
|
|
$ |
61,146 |
|
|
$ |
57,674 |
|
Securities
and other
|
|
|
3,011 |
|
|
|
2,842 |
|
|
|
6,211 |
|
|
|
5,790 |
|
Total
interest and dividend income
|
|
|
32,834 |
|
|
|
31,994 |
|
|
|
67,357 |
|
|
|
63,464 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
10,521 |
|
|
|
12,318 |
|
|
|
22,809 |
|
|
|
24,267 |
|
Borrowings
and junior subordinated debentures
|
|
|
3,666 |
|
|
|
4,638 |
|
|
|
7,607 |
|
|
|
8,969 |
|
Total
interest expense
|
|
|
14,187 |
|
|
|
16,956 |
|
|
|
30,416 |
|
|
|
33,236 |
|
Net
interest income
|
|
|
18,647 |
|
|
|
15,038 |
|
|
|
36,941 |
|
|
|
30,228 |
|
Non-interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
commissions and fees
|
|
|
3,694 |
|
|
|
3,786 |
|
|
|
8,840 |
|
|
|
8,777 |
|
Deposit
service fees
|
|
|
2,486 |
|
|
|
1,788 |
|
|
|
4,641 |
|
|
|
3,302 |
|
Wealth
management fees
|
|
|
1,567 |
|
|
|
968 |
|
|
|
3,195 |
|
|
|
1,887 |
|
Loan
service fees
|
|
|
228 |
|
|
|
48 |
|
|
|
465 |
|
|
|
357 |
|
Total
fee income
|
|
|
7,975 |
|
|
|
6,590 |
|
|
|
17,141 |
|
|
|
14,323 |
|
Other
|
|
|
562 |
|
|
|
303 |
|
|
|
868 |
|
|
|
726 |
|
Gain
(loss) on sale of securities, net
|
|
|
(26 |
) |
|
|
- |
|
|
|
(26 |
) |
|
|
81 |
|
Total
non-interest income
|
|
|
8,511 |
|
|
|
6,893 |
|
|
|
17,983 |
|
|
|
15,130 |
|
Total
net revenue
|
|
|
27,158 |
|
|
|
21,931 |
|
|
|
54,924 |
|
|
|
45,358 |
|
Provision
for loan losses
|
|
|
1,105 |
|
|
|
100 |
|
|
|
1,930 |
|
|
|
850 |
|
Non-interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
9,842 |
|
|
|
8,230 |
|
|
|
19,498 |
|
|
|
16,741 |
|
Occupancy
and equipment
|
|
|
2,774 |
|
|
|
2,385 |
|
|
|
5,742 |
|
|
|
4,871 |
|
Marketing,
data processing, and professional services
|
|
|
2,181 |
|
|
|
2,116 |
|
|
|
4,302 |
|
|
|
4,063 |
|
Non-recurring
expense
|
|
|
683 |
|
|
|
- |
|
|
|
683 |
|
|
|
153 |
|
Amortization
of intangible assets
|
|
|
1,019 |
|
|
|
662 |
|
|
|
2,103 |
|
|
|
1,324 |
|
Other
|
|
|
2,133 |
|
|
|
1,710 |
|
|
|
4,378 |
|
|
|
3,360 |
|
Total
non-interest expense
|
|
|
18,632 |
|
|
|
15,103 |
|
|
|
36,706 |
|
|
|
30,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
7,421 |
|
|
|
6,728 |
|
|
|
16,288 |
|
|
|
13,996 |
|
Income
tax expense
|
|
|
1,708 |
|
|
|
2,152 |
|
|
|
4,526 |
|
|
|
4,478 |
|
Net
income
|
|
$ |
5,713 |
|
|
$ |
4,576 |
|
|
$ |
11,762 |
|
|
$ |
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.55 |
|
|
$ |
0.52 |
|
|
$ |
1.14 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.55 |
|
|
$ |
0.52 |
|
|
$ |
1.13 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,302 |
|
|
|
8,732 |
|
|
|
10,344 |
|
|
|
8,697 |
|
Diluted
|
|
|
10,384 |
|
|
|
8,875 |
|
|
|
10,420 |
|
|
|
8,855 |
|
See
accompanying notes to consolidated financial statements.
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
Six
Months Ended June 30,
|
|
(In
thousands except per share data)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Total
stockholders' equity at beginning of period
|
|
$ |
326,837 |
|
|
$ |
258,161 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
11,762 |
|
|
|
9,518 |
|
Change
in net unrealized loss on securities available-for-sale,
|
|
|
|
|
|
|
|
|
net
of reclassification adjustments and tax effects
|
|
|
(1,733 |
) |
|
|
(1,437 |
) |
Net
gain on derivative instruments
|
|
|
113 |
|
|
|
71 |
|
Total
comprehensive income
|
|
|
10,142 |
|
|
|
8,152 |
|
Cash
dividends declared ($0.31 per share in 2008 and $0.28 per share in
2007)
|
|
|
(3,078 |
) |
|
|
(2,456 |
) |
Treasury
stock purchased
|
|
|
(5,731 |
) |
|
|
(385 |
) |
Exercise
of stock options
|
|
|
1,112 |
|
|
|
1,457 |
|
Reissuance
of treasury stock-other
|
|
|
1,375 |
|
|
|
1,641 |
|
Stock-based
compensation
|
|
|
824 |
|
|
|
807 |
|
Tax
benefit (loss) from stock compensation
|
|
|
(69 |
) |
|
|
615 |
|
Other
equity changes, net
|
|
|
(1,376 |
) |
|
|
(1,640 |
) |
Total
stockholders' equity at end of period
|
|
$ |
330,036 |
|
|
$ |
266,352 |
|
See
accompanying notes to consolidated financial statements.
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Six
Months Ended June 30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
11,762 |
|
|
$ |
9,518 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,930 |
|
|
|
850 |
|
Depreciation,
amortization, and deferrals, net
|
|
|
3,896 |
|
|
|
2,833 |
|
Stock-based
compensation
|
|
|
824 |
|
|
|
807 |
|
Excess
tax effects from stock-based payment arrangements
|
|
|
69 |
|
|
|
(615 |
) |
Increase
in cash surrender value of bank-owned life insurance
policies
|
|
|
(794 |
) |
|
|
(498 |
) |
Net
loss (gains) on sales of securities, net
|
|
|
26 |
|
|
|
(81 |
) |
Net
change in loans held for sale
|
|
|
(6,420 |
) |
|
|
- |
|
Loss
from sale of premises
|
|
|
36 |
|
|
|
- |
|
Writedowns
of other real estate owned
|
|
|
136 |
|
|
|
- |
|
Net
change in all other assets
|
|
|
(3,195 |
) |
|
|
(3,731 |
) |
Net
change in other liabilities
|
|
|
2,261 |
|
|
|
(1,214 |
) |
Net
cash provided by operating activities
|
|
|
10,531 |
|
|
|
7,869 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Sales
of securities available for sale
|
|
|
7,684 |
|
|
|
2,046 |
|
Proceeds
from maturities, calls and prepayments - securities available for
sale
|
|
|
14,166 |
|
|
|
15,982 |
|
Purchases
of securities available for sale
|
|
|
(26,765 |
) |
|
|
(10,169 |
) |
Proceeds
from maturities, calls and prepayments - securities held to
maturity
|
|
|
22,495 |
|
|
|
5,736 |
|
Purchases
of securities held to maturity
|
|
|
(9,526 |
) |
|
|
(5,411 |
) |
Purchase
of trading security
|
|
|
(15,000 |
) |
|
|
- |
|
Increase
in loans, net
|
|
|
(36,098 |
) |
|
|
(31,004 |
) |
Capital
expenditures
|
|
|
(1,276 |
) |
|
|
(4,006 |
) |
Proceeds
from surrender of life insurance
|
|
|
1,103 |
|
|
|
- |
|
Payment
for acquisition
|
|
|
(1,030 |
) |
|
|
- |
|
Proceeds
from sale of other real estate owned
|
|
|
287 |
|
|
|
- |
|
Proceeds
from sale of premises and equipment
|
|
|
74 |
|
|
|
- |
|
Total
net cash used by investing activities
|
|
|
(43,886 |
) |
|
|
(26,826 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(11,334 |
) |
|
|
6,576 |
|
Proceeds
from Federal Home Loan Bank ("FHLB") advances
|
|
|
179,835 |
|
|
|
79,325 |
|
Repayments
of Federal Home Loan Bank advances and other borrowings
|
|
|
(134,805 |
) |
|
|
(71,247 |
) |
Treasury
stock purchased
|
|
|
(5,731 |
) |
|
|
(385 |
) |
Proceeds
from reissuance of treasury stock
|
|
|
1,112 |
|
|
|
1,457 |
|
Excess
tax effects from stock-based payment arrangements
|
|
|
(69 |
) |
|
|
615 |
|
Cash
dividends paid
|
|
|
(3,078 |
) |
|
|
(2,456 |
) |
Net
cash provided by financing activities
|
|
|
25,930 |
|
|
|
13,885 |
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(7,425 |
) |
|
|
(5,072 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
41,142 |
|
|
|
30,985 |
|
Cash
and cash equivalents at end of period
|
|
$ |
33,717 |
|
|
$ |
25,913 |
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid on deposits
|
|
$ |
22,896 |
|
|
$ |
24,472 |
|
Interest
paid on borrowed funds
|
|
|
7,671 |
|
|
|
8,917 |
|
Income
taxes paid, net
|
|
|
3,511 |
|
|
|
5,006 |
|
See
accompanying notes to consolidated financial statements.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Basis
of Presentation and Consolidation, and Use of Estimates
The
consolidated financial statements include the accounts of Berkshire Hills
Bancorp, Inc. ("Berkshire" or the "Company") and its wholly-owned subsidiaries:
Berkshire Bank (the "Bank") and Berkshire Insurance Group, but exclude its
wholly-owned subsidiary Berkshire Hills Capital Trust I, which is accounted for
using the equity method. The consolidated financial statements and
notes thereto have been prepared in conformity with U.S. generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. All significant
intercompany transactions have been eliminated in consolidation. The results of
operations for the six months ended June 30, 2008 are not necessarily indicative
of the results which may be expected for the year.
The
preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, as of the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses for the periods presented. Actual results could differ from those
estimates. Material estimates that are susceptible to near-term changes include
the determination of the allowance for loan losses, tax related assets and
liabilities, and the carrying value of goodwill and other intangible
assets. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in Berkshire’s Annual Report on Form 10-K for the year ended December
31, 2007.
Business
Through
its wholly-owned subsidiaries, the Company provides a variety of financial
services to individuals, municipalities and businesses through its offices in
Western Massachusetts, Vermont and Northeastern New York. Its primary
deposit products are checking, NOW, money market, savings, and time deposit
accounts. Its primary lending products are residential mortgage,
commercial mortgage, commercial business loans and consumer loans. The Company
offers electronic banking, cash management, and other transaction and reporting
services. The Company offers wealth management services including trust,
financial planning, and investment services. The Company is the agent for
complete lines of property and casualty, life, disability, and health
insurance.
Acquisitions
In
January 2008, the Company acquired the Center for Financial
Planning (“CFP”) in Albany, New York. This acquisition provides a foundation for
the Bank’s New York region wealth management and investment services. The
acquisition was accounted for as a purchase transaction with all cash
consideration funded through internal sources. The operating results of CFP are
included with the Company's results of operations since the date of acquisition.
The purchase of CFP did not significantly impact the Company's consolidated
financial statements.
BERKSHIRE
HILLS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
On
September 21, 2007, the Company completed its acquisition of Factory Point
Bancorp, Inc. and its subsidiary, Factory Point National Bank of Manchester
Center, Vermont (collectively “Factory Point”) for $79.4 million, including the
assumption of Factory Point stock options. Under the terms of the agreement, the
Company issued 1,913,353 shares of the Company’s common stock and paid $16.0
million in cash in exchange for all outstanding Factory Point shares and also
assumed all outstanding Factory Point stock options. Concurrent with the merger
of Berkshire Hills Bancorp and Factory Point Bancorp, the Bank and Factory Point
National Bank merged with the Bank as the surviving entity. The
operating results of Factory Point are included with the Company's results of
operations since the date of acquisition. See footnote 2 in Berkshire’s Annual
Report on Form 10-K for the year ended December 31, 2007 for additional
information for this acquisition.
Earnings
Per Common Share
Earnings
per common share have been computed based on the following (average diluted
shares outstanding are calculated using the treasury stock method):
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
(In
thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
income applicable to common stock
|
|
$ |
5,713 |
|
|
$ |
4,576 |
|
|
$ |
11,762 |
|
|
$ |
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
10,425 |
|
|
|
8,831 |
|
|
|
10,466 |
|
|
|
8,791 |
|
Less:
average number of unvested stock award shares
|
|
|
(123 |
) |
|
|
(99 |
) |
|
|
(122 |
) |
|
|
(94 |
) |
Average
number of basic shares outstanding
|
|
|
10,302 |
|
|
|
8,732 |
|
|
|
10,344 |
|
|
|
8,697 |
|
Plus:
average number of dilutive unvested stock award shares
|
|
|
6 |
|
|
|
99 |
|
|
|
7 |
|
|
|
94 |
|
Plus:
average number of dilutive shares based on stock options
|
|
|
76 |
|
|
|
44 |
|
|
|
69 |
|
|
|
64 |
|
Average
number of diluted shares outstanding
|
|
|
10,384 |
|
|
|
8,875 |
|
|
|
10,420 |
|
|
|
8,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.55 |
|
|
$ |
0.52 |
|
|
$ |
1.14 |
|
|
$ |
1.09 |
|
Diluted
earnings per share
|
|
$ |
0.55 |
|
|
$ |
0.52 |
|
|
$ |
1.13 |
|
|
$ |
1.07 |
|
Statements
of Financial Accounting Standards
SFAS No.
141, "Business Combinations (Revised 2007)." SFAS 141R replaces SFAS 141,
"Business Combinations," and applies to all transactions and other events in
which one entity obtains control over one or more other businesses. SFAS 141R
requires an acquirer, upon initially obtaining control of another entity, to
recognize the assets, liabilities and any non-controlling interest in the
acquiree at fair value as of the acquisition date. Contingent consideration is
required to be recognized and measured at fair value on the date of acquisition
rather than at a later date when the amount of that consideration may be
determinable beyond a reasonable doubt. This fair value approach replaces the
cost-allocation process required under SFAS 141 whereby the cost of an
acquisition was allocated to the individual assets acquired and liabilities
assumed based on their estimated fair value. SFAS 141R requires acquirers to
expense acquisition-related costs as incurred rather than allocating such costs
to the assets acquired and liabilities assumed, as was previously the case under
SFAS 141. Under SFAS 141R, the requirements of SFAS 146, “Accounting for Costs
Associated with Exit or Disposal Activities," would have to be met in order to
accrue for a restructuring plan in purchase accounting. Pre-acquisition
contingencies are to be recognized at fair value, unless it is a non-contractual
contingency that is not likely to materialize, in which case, nothing should be
recognized in purchase accounting and, instead, that contingency would be
subject to the probable and estimable recognition criteria of SFAS 5,
"Accounting for Contingencies." The allowance for loan losses related to loans
acquired will not be included in the Company’s allowance for loan losses, but
will be reflected in the fair value of loans acquired. SFAS 141R is expected to
have a significant impact on the Company's accounting for business combinations
closing on or after January 1, 2009.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS No.
157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements (see Note 10 - Fair Value
Measurements).
SFAS No.
159, "The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115." SFAS 159 permits
entities to choose to measure eligible items at fair value at specified election
dates (see Note 2 – Securities and Note 10 - Fair Value
Measurements).
SFAS No.
160, "Noncontrolling Interest in Consolidated Financial Statements, an amendment
of ARB Statement No. 51." SFAS 160 amends Accounting Research Bulletin (ARB) No.
51, "Consolidated Financial Statements," to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as minority interest,
is an ownership interest in the consolidated entity that should be reported as a
component of equity in the consolidated financial statements. Among other
requirements, SFAS 160 requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
non-controlling interest. It also requires disclosure, on the face of the
consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest. SFAS 160 is
effective for the Company on January 1, 2009 and is not expected to have a
significant impact on the Company's financial statements.
SFAS No.
161, "Disclosures About Derivative Instruments and Hedging Activities, an
Amendment of FASB Statement No. 133." SFAS 161 amends SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," to amend and expand the
disclosure requirements of SFAS 133 to provide greater transparency about (i)
how and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedge items are accounted for under SFAS 133 and its
related interpretations, and (iii) how derivative instruments and related hedged
items affect an entity's financial position, results of operations and cash
flows. To meet those objectives, SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative agreements. SFAS 161
is effective for the Company on January 1, 2009 and is not expected to have a
significant impact on the Company's financial statements.
SEC
Staff Accounting Bulletins
SAB No.
109, "Written Loan Commitments Recorded at Fair Value Through Earnings." SAB No.
109 supersedes SAB 105, "Application of Accounting Principles to Loan
Commitments," and indicates that the expected net future cash flows related to
the associated servicing of the loan should be included in the measurement of
all written loan commitments that are accounted for at fair value through
earnings. The guidance in SAB 109 became effective on January 1, 2008 and did
not have a material impact on the Company's financial statements.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary
of securities follows:
|
|
Amortized
|
|
|
Fair
|
|
(In
thousands)
|
|
Cost
|
|
|
Value
|
|
June
30, 2008
|
|
|
|
|
|
|
Trading
- municipal bond
|
|
$ |
15,000 |
|
|
$ |
14,959 |
|
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
$ |
72,084 |
|
|
$ |
71,553 |
|
Mortgage-backed
securities, other
|
|
|
108,814 |
|
|
|
109,864 |
|
Other
bonds and obligations
|
|
|
17,640 |
|
|
|
16,190 |
|
Total
debt securities
|
|
|
198,538 |
|
|
|
197,607 |
|
Total
equity securities
|
|
|
2,384 |
|
|
|
2,526 |
|
Total
securities available for sale
|
|
|
200,922 |
|
|
|
200,133 |
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
|
25,522 |
|
|
|
25,734 |
|
Mortgage-backed
securities
|
|
|
963 |
|
|
|
960 |
|
Total
securities held to maturity
|
|
|
26,485 |
|
|
|
26,694 |
|
Total
securities
|
|
$ |
242,407 |
|
|
$ |
241,786 |
|
|
|
Amortized
|
|
|
Fair
|
|
(In
thousands)
|
|
Cost
|
|
|
Value
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
$ |
74,223 |
|
|
$ |
75,186 |
|
Mortgage-backed
securities
|
|
|
103,387 |
|
|
|
104,518 |
|
Other
bonds and obligations
|
|
|
15,601 |
|
|
|
15,265 |
|
Total
debt securities
|
|
|
193,211 |
|
|
|
194,969 |
|
Total
equity securities
|
|
|
2,836 |
|
|
|
2,995 |
|
Total
securities available for sale
|
|
|
196,047 |
|
|
|
197,964 |
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
|
36,981 |
|
|
|
37,233 |
|
Mortgage-backed
securities
|
|
|
2,475 |
|
|
|
2,456 |
|
Total
securities held to maturity
|
|
|
39,456 |
|
|
|
39,689 |
|
Total
securities
|
|
$ |
235,503 |
|
|
$ |
237,653 |
|
Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities - Including an
amendment of FASB Statement No. 115." SFAS 159 permits the Company to choose to
measure eligible items at fair value at specified election dates. Unrealized
gains and losses on items for which the fair value measurement option has been
elected are reported in earnings at each subsequent reporting date. The fair
value option (i) may be applied instrument by instrument, with certain
exceptions, thus the Company may record identical financial assets and
liabilities at fair value or by another measurement basis permitted under
generally accepted accounting principals, (ii) is irrevocable (unless a new
election date occurs) and (iii) is applied only to entire instruments and not to
portions of instruments. Adoption of SFAS 159 on January 1, 2008 did not have a
significant impact on the Company's financial statements.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company elected to account for one security at fair value under SFAS No. 159
acquired during the second quarter of 2008. This security is classified as
trading on the condolidated balance sheet. The Company has the intent and
ability to hold this security to maturity and will report the purchase of this
security in the investing section on the consolidated statement of cash flows.
The investment security accounted for at fair value has an amortized cost of
$15.0 million and a fair value of $14.96 million at June 30, 2008. See note 9 –
Derivative Financial Instruments for additional information related to this
investment security and related interest rate swap.
The
unrealized losses on the other bonds and obligations available for sale
increased to $1.5 million at June 30, 2008. This portfolio consists of
investment grade corporate trust preferred securities and corporate debt. The
unrealized losses on the portfolio are due to an increase in credit spreads and
liquidity issues in the marketplace. The Company has concluded these unrealized
losses are temporary in nature since they are not related to the underlying
credit quality of the issuers, and the Company has the intent and ability to
hold these investments for a time necessary to recover its cost and will
ultimately recover its cost at maturity (i.e. these investments have contractual
maturities that, absent credit default, ensure the Company will ultimately
recover its cost).
Loans consisted of the
following:
|
|
June
30, 2008
|
|
|
December
31, 2007
|
|
(Dollars
in millions)
|
|
Balance
|
|
|
Balance
|
|
Residential
mortgages:
|
|
|
|
|
|
|
1 -
4 Family
|
|
$ |
630 |
|
|
$ |
610 |
|
Construction
|
|
|
35 |
|
|
|
47 |
|
Total
residential mortgages
|
|
|
665 |
|
|
|
657 |
|
|
|
|
|
|
|
|
|
|
Commercial
mortgages:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
132 |
|
|
|
125 |
|
Single
and multi-family
|
|
|
76 |
|
|
|
69 |
|
Other
commercial mortgages
|
|
|
560 |
|
|
|
510 |
|
Total
commercial mortgages
|
|
|
768 |
|
|
|
704 |
|
|
|
|
|
|
|
|
|
|
Commercial
business loans
|
|
|
198 |
|
|
|
204 |
|
Total
commercial loans
|
|
|
966 |
|
|
|
908 |
|
|
|
|
|
|
|
|
|
|
Consumer
loans:
|
|
|
|
|
|
|
|
|
Auto
and other
|
|
|
173 |
|
|
|
211 |
|
Home
equity
|
|
|
174 |
|
|
|
168 |
|
Total
consumer loans
|
|
|
347 |
|
|
|
379 |
|
Total
loans
|
|
$ |
1,978 |
|
|
$ |
1,944 |
|
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for loan
losses was as follows:
|
|
Six
Months Ended June 30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Balance
at beginning of period
|
|
$ |
22,116 |
|
|
$ |
19,370 |
|
Provision
for loan losses
|
|
|
1,930 |
|
|
|
850 |
|
Loans
charged-off
|
|
|
(1,637 |
) |
|
|
(1,305 |
) |
Recoveries
|
|
|
172 |
|
|
|
236 |
|
Balance
at end of period
|
|
$ |
22,581 |
|
|
$ |
19,151 |
|
A summary
of period end time deposits is as follows:
|
|
June
30, 2008
|
|
|
December
31, 2007
|
|
(Dollars
in millions)
|
|
Balance
|
|
|
Balance
|
|
Time
less than $100,000
|
|
$ |
390 |
|
|
$ |
409 |
|
Time
$100,000 or more
|
|
|
324 |
|
|
|
298 |
|
Brokered
time
|
|
|
3 |
|
|
|
21 |
|
Total
time deposits
|
|
$ |
717 |
|
|
$ |
728 |
|
The
Bank’s actual and required capital ratios were as follows:
|
|
|
|
|
|
|
|
|
FDIC
Minimum
|
|
June
30, 2008
|
|
December
31, 2007
|
to
be Well Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk weighted assets
|
|
10.2
|
%
|
|
|
10.4
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to risk weighted assets
|
|
9.1
|
|
|
|
9.3
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to average assets
|
|
7.7
|
|
|
|
8.0
|
|
|
|
5.0
|
|
At each
date shown, Berkshire Bank met the conditions to be classified as “well
capitalized” under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, an institution must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table above.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK-BASED
COMPENSATION PLANS
A
combined summary of activity in the Company’s stock award and stock option plans
for the six months ended June 30, 2008 is presented in the following
table:
|
|
Non-vested
Stock Awards Outstanding
|
|
|
Stock
Options Outstanding
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
Number
of
|
|
|
Exercise
|
|
(Shares
in thousands)
|
|
Shares
|
|
|
Fair
Value
|
|
|
Shares
|
|
|
Price
|
|
Balance,
December 31, 2007
|
|
|
105 |
|
|
$ |
31.88 |
|
|
|
644 |
|
|
$ |
21.90 |
|
Granted
|
|
|
62 |
|
|
|
22.29 |
|
|
|
- |
|
|
|
- |
|
Stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
|
|
17.56 |
|
Stock
awards vested
|
|
|
(42 |
) |
|
|
29.92 |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
(1 |
) |
|
|
33.07 |
|
|
|
- |
|
|
|
- |
|
Balance,
June 30, 2008
|
|
|
124 |
|
|
$ |
27.46 |
|
|
|
581 |
|
|
$ |
22.64 |
|
During
the six months ended June 30, 2008 and 2007, proceeds from stock option
exercises totaled $1.1 million and $1.5 million, respectively. During the six
months ended June 30, 2008, there were 125,000 shares issued in connection with
stock option exercises and non-vested stock awards. All of these
shares were issued from available treasury stock. Stock-based
compensation expense totaled $824 thousand and $807 thousand during the six
months ended June 30, 2008 and 2007. Stock-based compensation expense is
recognized ratably over the requisite service period for all
awards.
The
Company has two reportable operating segments, Banking and Insurance, which are
delineated by the consolidated subsidiaries of Berkshire Hills
Bancorp. Banking includes the activities of Berkshire Bank and its
subsidiaries, which provide commercial and consumer banking
services. Insurance includes the activities of Berkshire Insurance
Group, which provides commercial and consumer insurance services. The
only other consolidated financial activity of the Company is the Parent, which
consists of the transactions of Berkshire Hills Bancorp. Management fees for
corporate services provided by the Bank to Berkshire Insurance Group and the
Parent are eliminated.
The
accounting policies of each reportable segment are the same as those of the
Company. The Insurance segment and the Parent reimburse the Bank for
administrative services provided to them. Income tax expense for the
individual segments is calculated based on the activity of the segments, and the
Parent records the tax expense or benefit necessary to reconcile to the
consolidated total. The Parent does not allocate capital
costs. Average assets include securities available-for-sale based on
amortized cost.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary
of the Company’s operating segments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(In
thousands)
|
|
Banking
|
|
|
Insurance
|
|
|
Parent
|
|
|
Eliminations
|
|
Consolidated
|
|
Three
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
19,007 |
|
|
$ |
- |
|
|
$ |
14,040 |
|
|
$ |
(14,400 |
) |
|
$ |
18,647 |
|
Provision
for loan losses
|
|
|
1,105 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,105 |
|
Net
interest income after provision for loan losses
|
|
|
17,902 |
|
|
|
- |
|
|
|
14,040 |
|
|
|
(14,400 |
) |
|
|
17,542 |
|
Non-interest
income
|
|
|
4,807 |
|
|
|
3,703 |
|
|
|
(8,195 |
) |
|
|
8,196 |
|
|
|
8,511 |
|
Non-interest
expense
|
|
|
15,676 |
|
|
|
2,455 |
|
|
|
501 |
|
|
|
- |
|
|
|
18,632 |
|
Income
before income taxes
|
|
|
7,033 |
|
|
|
1,248 |
|
|
|
5,344 |
|
|
|
(6,204 |
) |
|
|
7,421 |
|
Income
tax expense (benefit)
|
|
|
1,592 |
|
|
|
485 |
|
|
|
(369 |
) |
|
|
- |
|
|
|
1,708 |
|
Net
income
|
|
$ |
5,441 |
|
|
$ |
763 |
|
|
$ |
5,713 |
|
|
$ |
(6,204 |
) |
|
$ |
5,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in
millions)
|
|
$ |
2,489 |
|
|
$ |
31 |
|
|
$ |
341 |
|
|
$ |
(339 |
) |
|
$ |
2,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(In
thousands)
|
|
Banking
|
|
|
Insurance
|
|
|
Parent
|
|
|
Eliminations
|
|
Consolidated
|
|
Three
months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
15,495 |
|
|
$ |
- |
|
|
$ |
(457 |
) |
|
$ |
- |
|
|
$ |
15,038 |
|
Provision
for loan losses
|
|
|
100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100 |
|
Net
interest income after provision for loan losses
|
|
|
15,395 |
|
|
|
- |
|
|
|
(457 |
) |
|
|
- |
|
|
|
14,938 |
|
Non-interest
income
|
|
|
3,100 |
|
|
|
3,793 |
|
|
|
4,975 |
|
|
|
(4,975 |
) |
|
|
6,893 |
|
Non-interest
expense
|
|
|
12,303 |
|
|
|
2,581 |
|
|
|
219 |
|
|
|
- |
|
|
|
15,103 |
|
Income
before income taxes
|
|
|
6,192 |
|
|
|
1,212 |
|
|
|
4,299 |
|
|
|
(4,975 |
) |
|
|
6,728 |
|
Income
tax expense (benefit)
|
|
|
1,932 |
|
|
|
497 |
|
|
|
(277 |
) |
|
|
- |
|
|
|
2,152 |
|
Net
income
|
|
$ |
4,260 |
|
|
$ |
715 |
|
|
$ |
4,576 |
|
|
$ |
(4,975 |
) |
|
$ |
4,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in
millions)
|
|
$ |
2,153 |
|
|
$ |
31 |
|
|
$ |
279 |
|
|
$ |
(276 |
) |
|
$ |
2,187 |
|
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8. OPERATING
SEGMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(In
thousands)
|
|
Banking
|
|
|
Insurance
|
|
|
Parent
|
|
|
Eliminations
|
|
Consolidated
|
|
Six
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
37,909 |
|
|
$ |
- |
|
|
$ |
16,532 |
|
|
$ |
(17,500 |
) |
|
$ |
36,941 |
|
Provision
for loan losses
|
|
|
1,930 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,930 |
|
Net
interest income after provision for loan losses
|
|
|
35,979 |
|
|
|
- |
|
|
|
16,532 |
|
|
|
(17,500 |
) |
|
|
35,011 |
|
Non-interest
income
|
|
|
9,121 |
|
|
|
8,860 |
|
|
|
(4,803 |
) |
|
|
4,805 |
|
|
|
17,983 |
|
Non-interest
expense
|
|
|
31,081 |
|
|
|
4,949 |
|
|
|
676 |
|
|
|
- |
|
|
|
36,706 |
|
Income
before income taxes
|
|
|
14,019 |
|
|
|
3,911 |
|
|
|
11,053 |
|
|
|
(12,695 |
) |
|
|
16,288 |
|
Income
tax expense (benefit)
|
|
|
3,688 |
|
|
|
1,547 |
|
|
|
(709 |
) |
|
|
- |
|
|
|
4,526 |
|
Net
income
|
|
$ |
10,331 |
|
|
$ |
2,364 |
|
|
$ |
11,762 |
|
|
$ |
(12,695 |
) |
|
$ |
11,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in
millions)
|
|
$ |
2,477 |
|
|
$ |
32 |
|
|
$ |
340 |
|
|
$ |
(338 |
) |
|
$ |
2,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(In
thousands)
|
|
Banking
|
|
|
Insurance
|
|
|
Parent
|
|
|
Eliminations
|
|
Consolidated
|
|
Six
months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
31,225 |
|
|
$ |
- |
|
|
$ |
(997 |
) |
|
$ |
- |
|
|
$ |
30,228 |
|
Provision
for loan losses
|
|
|
850 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
850 |
|
Net
interest income after provision for loan losses
|
|
|
30,375 |
|
|
|
- |
|
|
|
(997 |
) |
|
|
- |
|
|
|
29,378 |
|
Non-interest
income
|
|
|
6,200 |
|
|
|
8,854 |
|
|
|
10,355 |
|
|
|
(10,279 |
) |
|
|
15,130 |
|
Non-interest
expense
|
|
|
25,062 |
|
|
|
5,081 |
|
|
|
369 |
|
|
|
- |
|
|
|
30,512 |
|
Income
before income taxes
|
|
|
11,513 |
|
|
|
3,773 |
|
|
|
8,989 |
|
|
|
(10,279 |
) |
|
|
13,996 |
|
Income
tax expense (benefit)
|
|
|
3,460 |
|
|
|
1,547 |
|
|
|
(529 |
) |
|
|
- |
|
|
|
4,478 |
|
Net
income
|
|
$ |
8,053 |
|
|
$ |
2,226 |
|
|
$ |
9,518 |
|
|
$ |
(10,279 |
) |
|
$ |
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in
millions)
|
|
$ |
2,137 |
|
|
$ |
31 |
|
|
$ |
278 |
|
|
$ |
(275 |
) |
|
$ |
2,171 |
|
9. DERIVATIVE
FINANCIAL INSTRUMENTS
The fair
value of derivative positions outstanding is included in accrued interest
payable and other liabilities in the accompanying consolidated balance sheets.
At June 30, 2008, the Company had outstanding interest rate swaps with a total
notional amount of $125.0 million that are designated as hedges of FHLB advances
and junior subordinated debentures. The swaps effectively convert the debt from
floating rate to fixed rate and qualify for cash flow hedge accounting under
SFAS No. 133 with the objective of protecting the overall cash flows from
the Company’s monthly interest payments for the $125.0 million in floating rate
FHLB advances and junior subordinated dentures.
During
the second quarter of 2008, the Company initiated a program to provide
derivative financial instruments to certain customers, acting as an intermediary
in the transaction. All of these customer derivatives, however, are
immediately hedged upon issuance by executing a mirror image derivative with a
dealer counterparty such that the Company has no net interest rate risk exposure
resulting from the transactions. Exposure with respect to these derivatives is
largely limited to nonperformance by either the customer or the other
counterparty. The notional amount of customer derivatives and the related
counterparty derivatives each totaled $11.0 million at June 30, 2008. The
customer derivatives and the related counterparty derivatives are marked to
market and any difference is reflected in noninterest income.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company executed an economic hedge in the second quarter and entered into a
transaction whereby the Company elected to account for a $15.0 million
fixed-rate internal revenue bond security at fair value under FAS 159 and
entered into a $15.0 million pay-fixed and receive-floating interest rate swap
with a counterparty and has accounted for the derivative at fair value under
SFAS No. 133. The changes in the fair value of the investment security and
interest rate swap are expected to offset each other with any differences
reflected in non-interest income. The Company elected the fair value option for
this municipal obligation security due to several factors such as the large
dollar amount of the obligation in relation to other municipal obligation
securities in the Company’s held to maturity portfolio as well as the term of
the obligation which was 21.5 years at origination. The intent of the economic
hedge was to improve the Company’s asset sensitivity to changing interest
rates.
Interest Rate
Derivatives. The notional amounts and estimated fair values of interest
rate derivative positions outstanding at June 30, 2008 are presented in the
following table (amounts in thousands). The Company utilizes independent third
party valuation models with observable market data inputs to estimate fair
values of interest rate swaps. The Company also obtains dealer quotations for
these derivatives for comparative purposes to assess the reasonableness of the
model valuations.
A
summary of Interest rate derivatives at June 30, 2008,
follows:
|
|
Notional
Amount
|
|
|
Estimated
Fair Value
|
|
Interest
rate swaps on variable-rate borrowings
|
|
$ |
125,000 |
|
|
$ |
312 |
|
Customer
related interest rate swaps
|
|
|
|
|
|
|
|
|
Receive
floating/pay fixed
|
|
|
11,050 |
|
|
|
(18 |
) |
Receive
fixed/pay floating
|
|
|
11,050 |
|
|
|
27 |
|
Receive
floating/pay fixed interest rate swap related to the IRB
Security
|
|
|
15,000 |
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
The
weighted average rate paid and received for interest rate swaps
outsandings
|
|
|
|
|
|
as
of June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
Fixed
Interest Rate Paid
|
|
|
Floating Interest
Rate Received
|
|
Cash
flow hedge interest rate swaps on variable-rate borrowings
|
|
|
4.38 |
% |
|
|
2.97 |
% |
Interest
rate contracts involve the risk of dealing with institutional derivative
counterparties and their ability to meet contractual terms. Institutional
counterparties must have an investment grade credit rating and be approved by
the Company’s Risk Management Committee. The Company's credit exposure, net of
collateral pledged, relating to interest rate swaps with upstream financial
institution counterparties was not material at June 30, 2008. Collateral levels
for upstream financial institution counterparties are monitored and adjusted on
a regular basis for changes in interest rate swap values.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
10. FAIR
VALUE MEASUREMENT
Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 157, "Fair Value
Measurements," for financial assets and financial liabilities. In accordance
with Financial Accounting Standards Board Staff Position (FSP) No. 157-2,
"Effective Date of FASB Statement No. 157," the Company will delay application
of SFAS 157 for non-financial assets and non-financial liabilities, until
January 1, 2009. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. A
fair value measurement assumes that the transaction to sell the asset or
transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the
asset or liability. The price in the principal (or most advantageous) market
used to measure the fair value of the asset or liability shall not be adjusted
for transaction costs. An orderly transaction is a transaction that assumes
exposure to the market for a period prior to the measurement date to allow for
marketing activities that are usual and customary for transactions involving
such assets and liabilities; it is not a forced transaction. Market participants
are buyers and sellers in the principal market that are (i) independent, (ii)
knowledgeable, (iii) able to transact and (iv) willing to transact.
SFAS 157
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses
prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on
the amount that currently would be required to replace the service capacity of
an asset (replacement cost). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that market
participants would use in pricing the asset or liability. Inputs may be
observable, meaning those that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the
reporting entity's own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. In that regard, SFAS 157 establishes
a fair value hierarchy for valuation inputs that gives the highest priority to
quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
|
·
|
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets
or liabilities that the reporting entity has the ability to access at the
measurement date.
|
|
·
|
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly.
These might include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability (such as interest
rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
are derived principally from or corroborated by market data by correlation
or other means.
|
|
·
|
Level
3 Inputs - Unobservable inputs for determining the fair values of assets
or liabilities that reflect an entity's own assumptions about the
assumptions that market participants would use in pricing the assets or
liabilities.
|
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Company's financial assets and financial liabilities
carried at fair value effective January 1, 2008.
In
general, fair value is based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value. These adjustments may include amounts to
reflect counterparty credit quality, the Company's creditworthiness, among other
things, as well as unobservable parameters. Any such valuation adjustments are
applied consistently over time. The Company's valuation methodologies may
produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. While management believes the
Company's valuation methodologies are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.
Securities
Available for Sale. Securities classified as
available for sale are reported at fair value utilizing Level 2 inputs. For
these securities, the Company obtains fair value measurements from an
independent pricing service. The fair value measurements consider observable
data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment speeds, credit information and the bond's terms and
conditions, among other things.
Trading Securities
at Fair Value.
Securities accounted for at fair value are reported utilizing Level 2 inputs
obtained from third parties.
Derivatives.
Currently, the Company uses swaps to manage its interest rate risk. The valuation of these
instruments is determined using widely accepted valuation techniques including
discounted cash flow analysis on the expected cash flows of each derivative.
This analysis reflects the contractual terms of the derivatives, including the
period to maturity, and uses observable market-based inputs, including interest
rate curves, foreign exchange rates, and implied volatilities.
To comply
with the provisions of SFAS No. 157, the Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the
respective counterparty’s nonperformance risk in the fair value
measurements. In adjusting the fair value of its derivative contracts
for the effect of nonperformance risk, the Company has considered the impact of
netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees.
Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties. However, as of June 30,
2008, the Company has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative positions and
has determined that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Company has determined
that its derivative valuations in their entirety are classified in Level 2 of
the fair value hierarchy.
BERKSHIRE
HILLS BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of June 30, 2008, segregated by the level
of the valuation inputs within the fair value hierarchy utilized to measure fair
value:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
Value
|
|
Securities
available for sale
|
|
$ |
- |
|
|
$ |
200,133 |
|
|
$ |
- |
|
|
$ |
200,133 |
|
Trading
securities
|
|
|
- |
|
|
|
14,959 |
|
|
|
- |
|
|
|
14,959 |
|
Net
derivative asset
|
|
|
- |
|
|
|
256 |
|
|
|
- |
|
|
|
256 |
|
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). Financial
assets and financial liabilities measured at fair value on a non-recurring basis
were not significant at June 30, 2008.
Certain
non-financial assets and non-financial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test. Certain non-financial assets and liabilities
measured at fair value on a non-recurring basis include those measured at fair
value in the second step of a goodwill impairment test, as well as intangible
assets and other non-financial long-lived assets measured at fair value for
impairment assessment. As stated above, SFAS 157 will be applicable to these
fair value measurements beginning January 1, 2009.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Management’s
discussion and analysis of financial condition and results of operations is
intended to assist in understanding the financial condition and results of
operations of the Company. The following discussion and analysis should be read
in conjunction with the Company’s consolidated financial statements and the
notes thereto appearing in Part I, Item 1 of this document and with Management’s
Discussion and Analysis included in the 2007 Annual Report on Form
10-K. In the following discussion, income statement comparisons are
against the same period of the previous year and balance sheet comparisons are
against the previous fiscal year-end, unless otherwise
noted. Operating results discussed herein are not necessarily
indicative of the results for the year ending December 31, 2008 or any future
period. In management’s discussion and analysis of financial
condition and results of operations, certain reclassifications have been made to
make prior periods comparable. Tax-equivalent adjustments are the result of
increasing income from tax-advantaged securities by an amount equal to the taxes
that would be paid if the income were fully taxable based on a 35% federal
income tax rate.
Berkshire
Hills Bancorp, Inc. is the holding company for Berkshire Bank. Established in
1846, Berkshire Bank is one of Massachusetts' oldest and largest independent
banks and the largest banking institution based in Western Massachusetts. The
Bank is headquartered in Pittsfield, Massachusetts with branches serving
communities throughout Western Massachusetts, Northeastern New York and Southern
Vermont. The Bank is transitioning into a regional financial services company
and is positioning itself as the financial institution of choice in its retail
and commercial markets, delivering exceptional customer service and a broad
array of competitively priced deposit, loan, insurance, wealth management and
trust services, and investment products. Berkshire Hills Bancorp is
also the holding company for Berkshire Insurance Group, which sells all lines of
insurance (personal, commercial, employee benefits, and life insurance) in ten
locations in Massachusetts and in affiliation with the branch offices of
Berkshire Bank.
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements that are based on assumptions and may
describe future plans, strategies and expectations of Berkshire Hills Bancorp,
Inc. and subsidiaries. This document may include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements, which
are based on certain assumptions and describe future plans, strategies, and
expectations of the Company, are generally identified by use of the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,”
“seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,”
“should,” “could,” “may,” or similar expressions. Although we believe that our
plans, intentions and expectations, as reflected in these forward-looking
statements are reasonable, we can give no assurance that these plans, intentions
or expectations will be achieved or realized. Our ability to predict results or
the actual effects of our plans and strategies are inherently uncertain. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
in this Form 10-Q. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth under Item 1A. -
“Risk Factors” in our annual report on Form 10-K for the year ended December 31,
2007 and in Form 10-Q, and in other reports filed with the Securities and
Exchange Commission. There are a number of factors, many of which are beyond our
control, that could cause actual conditions, events, or results to differ
significantly from those described in the forward-looking statements. These
factors include, but are not limited to: general economic conditions, either
nationally or locally in some or all of the areas in which we conduct our
business; conditions in the securities markets or the banking industry; changes
in interest rates and energy prices, which may affect our net income or
future
cash
flows; changes in deposit flows, and in demand for deposit, loan, and investment
products and other financial services in our local markets; changes in real
estate values, which could impact the quality of the assets securing our loans;
changes in the quality or composition of the loan or investment portfolios;
changes in competitive pressures among financial institutions or from
non-financial institutions; the ability to successfully integrate any assets,
liabilities, customers, systems, and management personnel we may acquire into
our operations and our ability to realize related revenue synergies and cost
savings within expected time frames; our timely development of new and
competitive products or services in a changing environment, and the acceptance
of such products or services by our customers; the outcome of pending or
threatened litigation or of other matters before regulatory agencies, whether
currently existing or commencing in the future; changes in accounting
principles, policies, practices, or guidelines; changes in legislation and
regulation; operational issues and/or capital spending necessitated by the
potential need to adapt to industry changes in information technology systems on
which we are highly dependent; changes in the monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board; war or terrorist activities; and other economic, competitive,
governmental, regulatory, and geopolitical factors affecting the Company’s
operations, pricing, and services. Additionally, the timing and occurrence or
non-occurrence of events may be subject to circumstances beyond our control. You
should not place undue reliance on these forward-looking statements, which
reflect our expectations only as of the date of this report. We do not assume
any obligation to revise forward-looking statements except as may be required by
law.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND NEW ACCOUNTING
PRONOUNCEMENTS
The
Company’s significant accounting policies are described in Note 1 to the
consolidated financial statements in the 2007 Form 10-K. Please see those
policies in conjunction with this discussion. The accounting
and reporting policies followed by the Company conform, in all material
respects, to accounting principles generally accepted in the United States and
to general practices within the financial services industry. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
While the Company bases estimates on historical experience, current information
and other factors deemed to be relevant, actual results could differ from those
estimates.
The
Company considers accounting estimates to be critical to reported financial
results if (i) the accounting estimate requires management to make assumptions
about matters that are highly uncertain and (ii) different estimates that
management reasonably could have used for the accounting estimate in the current
period, or changes in the accounting estimate that are reasonably likely to
occur from period to period, could have a material impact on the Company’s
financial statements.
Accounting
policies related to the allowance for loan losses, income taxes, and goodwill
and identifiable intangible assets are considered to be critical, as these
policies involve considerable subjective judgment and estimation by
management. For additional information regarding critical
accounting policies, refer to Note 1 - Summary of Significant
Accounting Policies in the notes to consolidated financial statements and the
sections captioned "Critical Accounting Policies" and "Loan Loss Allowance" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 2007 Form 10-K. There have been no significant
changes in the Company’s application of critical accounting policies since
year-end 2007. Please refer to the note on Recent Accounting Pronouncements in
Note 1 to the financial statements of this report for a detailed discussion of
new accounting pronouncements. The Company performs an annual impairment test of
goodwill in the fourth quarter of its fiscal year end. As of June 30, 2008,
there have been no events requiring the Company to perform an interim impairment
test of goodwill.
The
following summary data is based in part on the consolidated financial statements
and accompanying notes, and other information appearing elsewhere in this Form
10-Q.
|
|
At
or for the Three Months Ended
|
|
|
At
or for the Six Months Ended
|
|
|
June
30,
|
|
|
June
30,
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Performance
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.91
|
% |
|
|
0.84
|
% |
|
|
0.94
|
% |
|
|
0.88
|
% |
Return
on average equity
|
|
|
6.89 |
|
|
|
6.86 |
|
|
|
7.15 |
|
|
|
7.27 |
|
Net
interest margin
|
|
|
3.45 |
|
|
|
3.15 |
|
|
|
3.43 |
|
|
|
3.19 |
|
Stockholders'
equity/total assets
|
|
|
12.96 |
|
|
|
12.28 |
|
|
|
12.96 |
|
|
|
12.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Data: (In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,547 |
|
|
$ |
2,170 |
|
|
$ |
2,547 |
|
|
$ |
2,170 |
|
Total
loans
|
|
|
1,978 |
|
|
|
1,730 |
|
|
|
1,978 |
|
|
|
1,730 |
|
Other
earning assets
|
|
|
275 |
|
|
|
227 |
|
|
|
275 |
|
|
|
227 |
|
Total
intangible assets
|
|
|
181 |
|
|
|
121 |
|
|
|
181 |
|
|
|
121 |
|
Deposits
|
|
|
1,811 |
|
|
|
1,529 |
|
|
|
1,811 |
|
|
|
1,529 |
|
Borrowings
and debentures
|
|
|
395 |
|
|
|
369 |
|
|
|
395 |
|
|
|
369 |
|
Stockholders'
equity
|
|
|
330 |
|
|
|
266 |
|
|
|
330 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs annualized/average loans
|
|
|
0.13
|
% |
|
|
0.14
|
% |
|
|
0.15
|
% |
|
|
0.12
|
% |
Loan
loss allowance/total loans
|
|
|
1.14 |
|
|
|
1.11 |
|
|
|
1.14 |
|
|
|
1.11 |
|
Nonperforming
assets/total assets
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
- diluted
|
|
$ |
0.55 |
|
|
$ |
0.52 |
|
|
$ |
1.13 |
|
|
$ |
1.07 |
|
Dividends
declared
|
|
|
0.16 |
|
|
|
0.14 |
|
|
|
0.31 |
|
|
|
0.28 |
|
Book
value
|
|
|
31.78 |
|
|
|
30.12 |
|
|
|
31.78 |
|
|
|
30.12 |
|
Common
stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
26.94 |
|
|
|
34.00 |
|
|
|
26.94 |
|
|
|
34.82 |
|
Low
|
|
|
22.52 |
|
|
|
31.43 |
|
|
|
20.61 |
|
|
|
31.43 |
|
Close
|
|
|
23.65 |
|
|
|
31.51 |
|
|
|
23.65 |
|
|
|
31.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period: (In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
18,647 |
|
|
$ |
15,038 |
|
|
$ |
36,941 |
|
|
$ |
30,228 |
|
Provision
for loan losses
|
|
|
1,105 |
|
|
|
100 |
|
|
|
1,930 |
|
|
|
850 |
|
Non-interest
income
|
|
|
8,511 |
|
|
|
6,893 |
|
|
|
17,983 |
|
|
|
15,130 |
|
Non-interest
expense
|
|
|
18,632 |
|
|
|
15,103 |
|
|
|
36,706 |
|
|
|
30,512 |
|
Net
income
|
|
|
5,713 |
|
|
|
4,576 |
|
|
|
11,762 |
|
|
|
9,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) All
performance ratios are annualized and based on average balance sheet
amounts where applicable.
|
|
Average Balances and Average Yields/Rate
The
following table presents average balances and an analysis of average rates and
yields on an annualized fully taxable equivalent basis for the periods
included.
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Average
|
|
|
Yield
/
|
|
|
Average
|
|
|
Yield
/
|
|
|
Average
|
|
|
Yield
/
|
|
|
Average
|
|
|
Yield
/
|
|
(Dollars
in millions)
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
665 |
|
|
|
5.66
|
% |
|
$ |
612 |
|
|
|
5.36
|
% |
|
$ |
662 |
|
|
|
5.68
|
% |
|
$ |
608 |
|
|
|
5.33
|
% |
Commercial
mortgages
|
|
|
746 |
|
|
|
6.44 |
|
|
|
593 |
|
|
|
7.55 |
|
|
|
728 |
|
|
|
6.64 |
|
|
|
586 |
|
|
|
7.51 |
|
Commercial
business loans
|
|
|
196 |
|
|
|
6.57 |
|
|
|
192 |
|
|
|
7.81 |
|
|
|
200 |
|
|
|
7.06 |
|
|
|
190 |
|
|
|
7.95 |
|
Consumer
loans
|
|
|
355 |
|
|
|
6.02 |
|
|
|
344 |
|
|
|
6.98 |
|
|
|
365 |
|
|
|
6.30 |
|
|
|
342 |
|
|
|
6.98 |
|
Total
loans
|
|
|
1,962 |
|
|
|
6.11 |
|
|
|
1,741 |
|
|
|
6.71 |
|
|
|
1,955 |
|
|
|
6.30 |
|
|
|
1,726 |
|
|
|
6.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities and
other
|
|
|
273 |
|
|
|
5.22 |
|
|
|
234 |
|
|
|
5.91 |
|
|
|
275 |
|
|
|
5.30 |
|
|
|
235 |
|
|
|
5.99 |
|
Total
earning assets
|
|
|
2,235 |
|
|
|
6.00 |
|
|
|
1,975 |
|
|
|
6.63 |
|
|
|
2,230 |
|
|
|
6.17 |
|
|
|
1,961 |
|
|
|
6.63 |
|
Other
assets
|
|
|
287 |
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
281 |
|
|
|
|
|
|
|
210 |
|
|
|
|
|
Total
assets
|
|
$ |
2,522 |
|
|
|
|
|
|
$ |
2,187 |
|
|
|
|
|
|
$ |
2,511 |
|
|
|
|
|
|
$ |
2,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
deposits
|
|
$ |
203 |
|
|
|
0.73
|
% |
|
$ |
140 |
|
|
|
1.50
|
% |
|
$ |
205 |
|
|
|
0.91
|
% |
|
$ |
141 |
|
|
|
1.52
|
% |
Money
market deposits
|
|
|
492 |
|
|
|
2.14 |
|
|
|
310 |
|
|
|
3.73 |
|
|
|
479 |
|
|
|
2.50 |
|
|
|
302 |
|
|
|
3.68 |
|
Savings
deposits
|
|
|
213 |
|
|
|
0.71 |
|
|
|
196 |
|
|
|
1.08 |
|
|
|
211 |
|
|
|
0.84 |
|
|
|
198 |
|
|
|
1.07 |
|
Time
deposits
|
|
|
705 |
|
|
|
4.08 |
|
|
|
704 |
|
|
|
4.78 |
|
|
|
710 |
|
|
|
4.25 |
|
|
|
703 |
|
|
|
4.78 |
|
Total
interest-bearing deposits
|
|
|
1,613 |
|
|
|
2.62 |
|
|
|
1,350 |
|
|
|
3.66 |
|
|
|
1,605 |
|
|
|
2.86 |
|
|
|
1,344 |
|
|
|
3.64 |
|
Borrowings
and debentures
|
|
|
344 |
|
|
|
4.29 |
|
|
|
386 |
|
|
|
4.82 |
|
|
|
346 |
|
|
|
4.42 |
|
|
|
381 |
|
|
|
4.75 |
|
Total
interest-bearing liabilities
|
|
|
1,957 |
|
|
|
2.91 |
|
|
|
1,736 |
|
|
|
3.92 |
|
|
|
1,951 |
|
|
|
3.13 |
|
|
|
1,725 |
|
|
|
3.89 |
|
Non-interest-bearing
demand deposits
|
|
|
221 |
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
219 |
|
|
|
|
|
|
|
175 |
|
|
|
|
|
Other
liabilities
|
|
|
11 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
Total
liabilities
|
|
|
2,189 |
|
|
|
|
|
|
|
1,921 |
|
|
|
|
|
|
|
2,180 |
|
|
|
|
|
|
|
1,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
333 |
|
|
|
|
|
|
|
266 |
|
|
|
|
|
|
|
331 |
|
|
|
|
|
|
|
264 |
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
2,522 |
|
|
|
|
|
|
$ |
2,187 |
|
|
|
|
|
|
$ |
2,511 |
|
|
|
|
|
|
$ |
2,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
3.09
|
% |
|
|
|
|
|
|
2.71
|
% |
|
|
|
|
|
|
3.04
|
% |
|
|
|
|
|
|
2.74
|
% |
Net
interest margin
|
|
|
|
|
|
|
3.45
|
% |
|
|
|
|
|
|
3.15
|
% |
|
|
|
|
|
|
3.43
|
% |
|
|
|
|
|
|
3.19
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deposits (in
millions)
|
|
$ |
1,834 |
|
|
|
|
|
|
$ |
1,528 |
|
|
|
|
|
|
$ |
1,824 |
|
|
|
|
|
|
$ |
1,519 |
|
|
|
|
|
Fully
taxable equivalent income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
(in
thousands)
|
|
|
532 |
|
|
|
|
|
|
|
540 |
|
|
|
|
|
|
|
1,024 |
|
|
|
|
|
|
|
1,093 |
|
|
|
|
|
SUMMARY
Berkshire’s
second quarter 2008 net income was $5.7 million ($0.55 per diluted share),
compared to $4.6 million ($0.52 per diluted share) in the second quarter
2007. For the first half of the year, Berkshire reported 2008 net
income of $11.8 million ($1.13 per diluted share) compared to $9.5 million
($1.07 per diluted share) in first half of 2007.
Recent
highlights include the following:
|
·
|
16%
decrease in nonperforming assets to 0.42% of total assets during the
second quarter
|
|
·
|
13%
decrease in accruing delinquent loans to 0.37% of total loans during the
second quarter
|
|
·
|
9%
annualized increase in personal demand deposit balances in the first six
months
|
|
·
|
13%
annualized increase in total commercial loans in the first six
months
|
|
·
|
3.45%
net interest margin, increased from 3.41% in the prior quarter and 3.15%
in the second quarter of 2007
|
|
·
|
0.15%
annualized net loan charge-offs (percent of average loans) in the first
six months
|
First
half 2008 earnings included the benefit of Berkshire’s Vermont region, which was
formed with the acquisition of Factory Point Bancorp in September 2007. Most
major categories of revenue and expense increased due to this acquisition, and
earnings per share included the impact of additional shares issued in the
acquisition. First half earnings also included the seasonal benefit of insurance
contingency revenue.
Berkshire
produced a 24% increase in second quarter revenues, which contributed to a 25%
increase in earnings and higher earnings per share, which totaled $0.55 for the
quarter. Non-interest income increased 24% in the second quarter from
increases in deposit service fees, wealth management fees, other income and loan
services fees benefiting from the Factory Point acquisition and solid growth in
commercial products and demand deposit accounts. Second quarter results include
$0.7 million in non-recurring expenses related to severance and reversals of
deferred loan costs and late fees receivable. The second quarter effective tax
rate was 23% and includes a $0.4 million credit from the reduction in a
valuation reserve for deferred state tax assets due to higher taxable income in
Berkshire Bank.
The
Company’s loan performance remained well controlled in 2008. Berkshire does not
offer subprime lending programs and does not purchase investment securities
backed by subprime mortgages. The second quarter loan loss provision was $1.1
million compared to $0.1 million in 2007. The provision was unusually low in
2007 due to the outplacement of certain commercial loan balances in that
period.
COMPARISON
OF FINANCIAL CONDITION AT JUNE 30, 2008 AND DECEMBER 31, 2007
Balance Sheet
Summary. Total assets
grew at a 3% annualized rate to $2.55 billion from $2.51 billion during the
first half of 2008. Asset growth resulted primarily from loans which
grew at a 4% annualized rate to $1.98 billion from $1.94
billion. Total deposits decreased by $11 million to $1.81 billion
from $1.82 billion primarily from $18 million in run-off of brokered time
deposits. Stockholders’ equity grew at a 2% annualized rate to
$330 million from $327 million.
Assets. The $33 million increase in assets was
primarily due to a $34 million increase in loans. Total loans
increased by $34 million in the first half due to commercial loan growth of $58
million. Commercial loans grew at a 13% annualized rate in the first half of the
year due to commercial real estate loans in and around Berkshire’s markets,
representing increased market share as local business borrowers have relied more
on regional lenders and less on national lenders. Permanent residential
mortgages and home equity
loans increased by $27
million at a 7% annualized rate in the first half of 2008. Auto loans decreased
by $38 million due to a planned reduction related to pricing and underwriting
conditions in that market. Consumer construction loans decreased by $12 million
due to slower residential construction.
Loan
performance remained well-controlled during the first half of the
year. The Company does not offer subprime lending programs or Alt A
mortgage programs. The annualized rate of net loan charge-offs was
0.15% during the year. Total nonperforming assets decreased slightly
during the year to 0.42% of total assets from 0.46% at year-end
2007. Nonperforming assets totaled $10.8 million at June 30, 2008,
and included two commercial relationships with balances over $1.0 million
totaling $4.2 million at quarter-end 2008. The decrease in nonperforming assets
was due mainly to pay downs of a few small commercial mortgages during the year.
Total accruing delinquent loans were 0.37% of total loans at the end of the
second quarter, compared to 0.43% at year-end 2007. The loan loss
allowance remained flat at 1.14% of total loans at the end of the second quarter
of 2008. Impaired loans totaled $14.3 million at the end of the
second quarter with a specific valuation allowance of $1.1 million. Based on
management's assessment of national economic trends and trends in the Company's
commercial loan risk ratings, the Company recognizes that the level of problem
assets and loan chargeoffs may be higher in some future periods.
In
addition to the nonperforming assets discussed above, the Company has identified
approximately $27.2 million in potential problem loans at the end of the second
quarter 2008, as compared to $23.1 million at year-end 2007. Potential problem
loans are loans that are currently performing, but where known information about
possible credit problems of the related borrowers causes management to have
doubts as to the ability of such borrowers to comply with the present loan
repayment terms and which may result in disclosure of such loans as
nonperforming at some time in the future. Potential problem loans are typically
loans that are performing but are classified by the Company’s loan rating system
as “substandard.” At quarter-end 2008 and year-end 2007, potential problem loans
primarily consisted of commercial business loans and commercial mortgages. At
the end of the second quarter 2008, there were eight potential problem loans
that exceeded $1.0 million, totaling $19.1 million in aggregate, compared to six
potential problem loans exceeding $1.0 million, totaling $14.2 million at
year-end 2007. Management cannot predict the extent to which economic conditions
may worsen or other factors which may impact borrowers and the potential problem
loans. Accordingly, there can be no assurance that other loans will not become
90 days or more past due, be placed on nonaccrual, become restructured, or
require increased allowance coverage and provision for loan losses.
Liabilities. For
the first half of 2008, consumer non-maturity deposit balances increased by
about $45 million (7%). This was primarily due to money market account
promotions and steady growth in relationships, as reflected in the 9% annualized
first half growth rate in personal demand deposit balances. Most of Berkshire’s
retail deposit and loan promotions are linked to companion checking accounts.
Consumer deposit growth was offset by lower commercial balances and the planned
pay down of $18 million in higher cost brokered time deposits in the second
quarter. The number of commercial checking accounts increased at a 5% annualized
rate in the first half, and commercial deposits (including municipalities)
reflected targeted run-off of higher cost accounts. Excluding brokered deposits,
total deposits increased by $7 million during the first half of the year.
Deposit growth in the first quarter was offset by reductions in the second
quarter as the Company targeted run-off of certain higher cost money market and
time accounts. Berkshire began to promote time accounts around mid-year in
anticipation of rising interest rates later in the year.
Berkshire also entered into $125 million in interest rate swaps in the
first half to fix the rate on variable rate borrowings, thereby reducing risk
related to rising rates. Berkshire increased borrowings by $45 million
during the first half to fund loan growth and brokered time deposit
payoffs.
Equity. Stockholders’ equity
increased by $3 million (2% annualized) to $330 million due primarily to the
benefit of retained earnings. Book value per share increased to
$31.78 at the end of the second quarter from $31.15 at year-end
2007. The ratio of total equity to assets decreased to 12.96% from
13.00% during the quarter. The Company repurchased 200,000 shares of
common stock during the first half of 2008 at an average cost of $24.41 per
share under its announced repurchase plan. The Company increased its
quarterly dividend to $0.16 in the second quarter of 2008, an increase of 14%
compared to the same period in 2007.
COMPARISON
OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND
2007
Net
Income. Net income increased for both the three and six months
ended June 30, 2008 compared to the same periods in 2007. Net income
increased by $1.1 million (25%) and $2.2 million (24%) for these periods,
respectively. Net income increased from the acquisition of Factory
Point, stronger net interest margin and an increase in fee income. Diluted
earnings per share was $0.55 and $1.13 for the three and six months ended June
30, 2008 compared to $0.52 and $1.07 for the same periods in 2007. The first
half return on assets was 0.94% and return on equity was 7.1% in 2008, compared
to 0.88% and 7.3% in 2007.
Total Net
Revenue. Net revenue increased by $5.2 million (24%) and $9.6
million (21%) in the second quarter and first half of 2008 compared to the same
periods in 2007. These increases were primarily due to higher net
interest income and fee income. First half net revenue per diluted share
increased by 3% to $5.27 in 2008 from $5.12 in 2007.
Net Interest
Income. Net interest income increased by $3.6 million (24%)
and $6.7 million (22%) in the second quarter and first half of 2008, compared to
the same periods in 2007. The increase reflected an improvement in
the net interest margin and the benefit of growth in average earning assets
which was due to the Factory Point acquisition and commercial loan
growth. Average earning assets increased by $260 million (13%) and
$269 million (14%) in the second quarter and first half of 2008, compared to
2007.
The net
interest margin increased to 3.45% from 3.15% for the second quarter of 2008
compared to 2007, and 3.43% from 3.19% for the first half of 2008 compared to
2007, due primarily to a balance sheet restructuring in the third quarter of
2007, favorable deposit pricing strategies, rate reductions by the Federal
Reserve in the first quarter of 2008 and an increase in non-interest bearing
demand deposit accounts. The yield on earning assets declined 63 basis points
(“bp”) from 6.63% for the second quarter of 2007 to 6.00% in 2008. The rate paid
on interest-bearing liabilities decreased 101 bp from 3.92% for the second
quarter of 2007 to 2.91% in 2008. These declines were driven by the several
interest rate reductions in the Federal Funds rate during the first quarter of
2008. The Company anticipates that any additional benefits from Federal Reserve
interest rate reductions will be limited for interest-bearing deposits due to
the inability to further lower deposit rates at these low levels.
Non-Interest
Income. Total second quarter fee income increased by $1.4
million (21%) in 2008 compared to 2007, and first half fee income increased by
$2.8 million (20%). These increases were due mainly to an increase in
deposit service fees and wealth management fees. For the first half
of the year, deposit fee income increased by $1.3 million due primarily to the
Factory Point acquisition and growth in transaction accounts. For the
first half of the year, wealth management fees grew by $1.3 million, reflecting
growth in total assets under management from the Factory Point and Center for
Financial Planning acquisitions and organic growth.
Provision for
Loan Losses. The provision for loan
losses is a charge to earnings in an amount sufficient to maintain the allowance
for loan losses at a level deemed adequate by the Company. The level of the
allowance is a critical accounting estimate which is subject to uncertainty. The
level of the allowance was included in the discussion of financial
condition. The second quarter provision for loan losses was $1.1 million
in 2008, compared to $0.1 million in 2007. For the first six months,
the provision was $1.9 million in 2008, compared to $0.9 million in
2007. The increase in the provision for loan losses in 2008 reflects
higher net charge-offs, commercial loan growth and, as previously mentioned, the
2007 second quarter provision which was unusually low due to the impact of the
outplacement of certain large commercial loan balances during that
quarter.
Non-Interest
Expense and Income Tax Expense. Non-interest expense increased
by $3.5 million (23%) in the second quarter and by $6.2 million (20%) in the
first half of 2008 compared to 2007. The increases in non-interest
expense resulted mainly from the additional expenses associated with the Factory
Point acquisition. Other expense is up $1.0 million for the first half of 2008
compared to 2007, and includes $0.3 million in additional expenses associated
with loan collection and other real estate owned costs and expenses associated
with the Factory Point acquisition. Second quarter 2008 expense included
$0.7 million in non-core charges related to severance and charge-offs of certain
deferred loan costs and late fees receivable.
The
effective tax rate in the second quarter and first half of 2008 was 23% and 28%,
compared to 32% in the same periods of 2007. The second quarter tax rate
included a credit resulting from the reduction in the valuation reserve for
deferred state tax assets due to higher taxable income in Berkshire
Bank. The second quarter 2008 effective tax rate was 30% before the
impact of this credit. The State of Massachusetts lowered the state
income tax rate on Massachusetts financial institutions from the current rate of
10.5% to 9.0% in the third quarter of 2008. The reduction in rate will be phased
in over a three year period. The Company will assess the impact this rate
reduction will have on its net deferred state tax assets in the third quarter of
2008. The Company anticipates the impact of the rate reduction will not be
material.
Results of
Segment Operations. The Company has designated two operating
segments for financial statement disclosure: banking and insurance. Additional
information about the Company’s accounting for segment operations is contained
in Note 8 to the financial statements.
One of
the Company's strategies is to emphasize fee income growth to diversify
revenues, and reduce reliance on net interest income where margins are under
pressure. The Company's acquisition of insurance agencies in the
fourth quarter of 2006 was a significant step in implementing this
strategy. The second quarter and first half net profit of the
insurance segment was $0.8 million and $2.4 million and $0.7 million and $2.2
million for the same periods in 2007. The acquired agencies have a
significant seasonality to revenues and earnings due to the impact of annual
contingency revenues which are received in the first half of the
year. The first quarter income of the insurance segment is expected
to be the highest quarterly income of this segment due to this
seasonality. Net profit from the banking segment totaled $5.4 million
and $10.3 million for the second quarter and first half of 2008 compared to $4.3
million and $8.1 million in 2007. The increase in net profit from the banking
segment is primarily from the acquisition of Factory Point, the improvement in
net interest margin and increased fee income.
Comprehensive
Income. Accumulated other comprehensive income is a component of total
stockholders’ equity on the balance sheet. Comprehensive income
includes changes in accumulated other comprehensive income, which consists
principally of changes (after-tax) in the unrealized market gains and losses of
investment securities available for sale. The change in accumulated
other comprehensive income was a loss of $1.6 million in the first half of 2008,
compared to a loss of $1.4 million in the first half of 2007 primarily due to
changes in bond prices and the value of interest rate swaps as a result of
interest rate changes. The Company recorded first half total
comprehensive income of $10.1 million in 2008, compared to $8.2 million in
2007.
Liquidity and
Cash Flows. The Company’s primary
sources of funds were deposit growth and borrowings in the first half of
2008. The primary use of funds was loan growth. Net
deposit and loan growth are expected to continue to be significant sources and
uses of funds. Borrowings from the Federal Home Loan Bank are a significant
source of liquidity for daily operations and for borrowings targeted for
specific asset/liability purposes. Berkshire Hills Bancorp’s primary routine
sources of funds are expected to be dividends from Berkshire Bank and Berkshire
Insurance Group. The holding company also receives cash from the
exercise of stock options and uses cash for dividends, stock repurchases and
debt service. Additional discussion about the Company’s liquidity and
cash flows is contained in the Company’s 2007 Form 10-K in Item 7.
Capital
Resources. Please see the “Equity”
section of the Comparison of Financial Condition for a discussion of
stockholders’ equity. At June 30, 2008, Berkshire Bank continued to
be classified as “well capitalized.” Additional information about
regulatory capital is contained in the notes to the consolidated financial
statements and in the 2007 Form 10-K.
Off-Balance Sheet
Arrangements and Contractual Obligations. In the normal course
of operations, the Company engages in a variety of financial transactions that,
in accordance with generally accepted accounting principles are not recorded in
the Company’s financial instruments. These transactions involve, to varying
degrees, elements of credit, interest rate and liquidity risk. Such
transactions are used primarily to manage customers’ requests for funding and
take the form of loan commitments and lines of credit. A further presentation of
the Company’s off-balance sheet arrangements is presented in the Company’s 2007
Form 10-K. For the six months ended June 30, 2008, the Company did not engage in
any off-balance sheet transactions reasonably likely to have a material effect
on the Company’s financial condition, results of operations or cash
flows. Information relating to payments due under contractual
obligations is presented in the 2007 Form 10-K.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the
quarter ended June 30, 2008, the Bank showed a neutral to slightly asset
sensitive position to parallel interest rates changes over the course of the
next twelve months. These results are in contrast to the
results reported at fiscal year end 2007 in which the company exhibited a more
liability sensitive profile to changes in general market rates. The
primary reasons for this change are several strategic actions that the company
took in the first half of 2008 in order to better position itself for a
potential increase in market rates. As previously discussed, the
Company entered into cash flow derivate hedges in order to transition some of
its short term floating rate liability costs into long term fixed rate products
while we felt that these rates were at advantageous levels. Berkshire
has also tried to extend liabilities by offering our customers competitively
priced 2-5 year Certificates of Deposit. Finally, during the first
half of the year Berkshire began a back-to-back interest rate swap program with
selected, high credit quality commercial customers in which it was ultimately
able to grow the short term adjustable rate portion of its commercial
portfolio.
There
have been no material changes to the way that the Company measures market risk
during the first half of 2008. For further discussion about the
Company’s Quantitative and Qualitative Aspects of Market Risk, please review
Item 7A of the Report 10-K filed for the fiscal year ended December 31,
2007.
ITEM
4. CONTROLS AND PROCEDURES
As of the
end of the period covered by this Quarterly Report on Form 10-Q, an evaluation
was carried out by the Company's management, with the participation of its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective as of the end of the period covered by
this report. No change in the Company's internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934) occurred during the last fiscal quarter that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
ITEM
1. LEGAL
PROCEEDINGS
The Company is not involved in any
legal proceedings other than routine legal proceedings occurring in the normal
course of business. Such routine proceedings, in the aggregate, are
believed by management to be immaterial to the Company’s financial condition or
results of operations.
There
have been no material changes to the risk factors previously disclosed in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007. In addition to the other information set forth in this report,
you should carefully consider the factors discussed in Part I, “Item 1A. Risk
Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are
not the only risks that we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
|
No
Company unregistered securities were sold by the Company during the
quarter ended June 30, 2008.
|
(c)
|
The
following table provides certain information with regard to shares
repurchased by the Company in the second quarter of
2008.
|
|
|
|
|
|
|
|
|
Total
number of shares
|
|
|
Maximum
number of
|
|
|
|
Total
number
|
|
|
Average
|
|
|
purchased
as part of
|
|
|
shares
that may yet
|
|
|
|
of
shares
|
|
|
price
paid
|
|
|
publicly
announced
|
|
|
be
purchased under
|
|
Period
|
|
purchased
|
|
|
per
share
|
|
|
plans
or programs
|
|
|
the
plans or programs
|
|
April
1-30, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
197,993 |
|
May
1-31, 2008
|
|
|
100,000 |
|
|
|
25.88 |
|
|
|
100,000 |
|
|
|
97,993 |
|
June
1-30, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,993 |
|
Total
|
|
|
100,000 |
|
|
$ |
25.88 |
|
|
|
100,000 |
|
|
|
97,993 |
|
On
December 14, 2007, the Company authorized the purchase of up to 300,000
additional shares, from time to time, subject to market conditions. The
repurchase plan will continue until it is completed or terminated by the Board
of Directors. The Company has no plans that it has elected to
terminate prior to expiration or under which it does not intend to make further
purchases. During the quarter, 14,598 shares were repurchased by the Company to
fund tax withholdings for vested stock awards and cashless stock option
exercises during the period. These shares are not included in the total number
of shares purchased as part of publicly announced plans.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
The
annual meeting of the stockholders of the company was held on May 15,
2008.
|
|
|
|
|
1.
|
The
following individuals were elected as directors, each for a three-year
term by the following vote:
|
|
|
FOR
|
|
WITHHELD
|
|
Michael
P. Daly
|
9,428,518
|
|
192,852
|
|
David
B. Farrell
|
9,425,166
|
|
196,204
|
|
Susan
M. Hill
|
9,478,650
|
|
142,720
|
|
Cornelius
D. Mahoney
|
6,812,894
|
|
2,808,476
|
|
Catherine
B. Miller
|
9,385,983
|
|
235,387
|
|
2.
|
The
approval of the Amended and Restated Berkshire Hills Bancorp, Inc. 2003
Equity Compensation Plan:
|
FOR
|
|
AGAINST
|
|
ABSTENTIONS
|
|
BROKER
NON-VOTE
|
7,262,093
|
|
461,481
|
|
65,774
|
|
1,832,022
|
|
3.
|
The
appointment of Wolf & Company, P.C. as independent auditors of
Berkshire Hills Bancorp, Inc. for
the fiscal year ending December 31, 2008 was ratified by the stockholders
by the following vote:
|
FOR
|
|
AGAINST
|
|
ABSTENTIONS
|
9,568,950
|
|
46,135
|
|
6,285
|
ITEM
5. OTHER
INFORMATION
None.
|
3.1
|
Certificate
of Incorporation of Berkshire Hills Bancorp, Inc.(1)
|
|
3.2
|
Amended
and restated Bylaws of Berkshire Hills Bancorp, Inc.(2)
|
|
4.1
|
Draft
Stock Certificate of Berkshire Hills Bancorp, Inc.(1)
|
|
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer
|
|
32.2
|
Section
1350 Certification of Chief Financial Officer
|
|
|
_________________________________________
|
|
(1)
|
Incorporated
herein by reference from the Exhibits to Form S-1, Registration Statement
and amendments thereto, initially filed on March 10, 2000, Registration
No. 333-32146.
|
|
(2)
|
Incorporated
herein by reference from the Exhibits to the Form 8-K as filed on February
29, 2008.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BERKSHIRE
HILLS BANCORP, INC. |
|
|
|
|
|
|
Dated:
August 11, 2008
|
By:
|
/s/ Michael
P. Daly
|
|
|
Michael
P. Daly
|
|
|
President,
Chief Executive Officer
|
|
|
and
Director
|
|
|
|
|
|
|
Dated:
August 11, 2008
|
By:
|
/s/ Kevin
P. Riley
|
|
|
Kevin
P. Riley
|
|
|
Executive
Vice President, Chief Financial Officer
|
|
|
and
Treasurer
|
- 31 -