Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: June
30, 2010
¨
|
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: 000-51584
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)
|
Registrant’s
telephone number, including area code: (413) 443-5601
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ 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 the 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 ¨
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 14,035,102 shares of common stock, par value $0.01 per share,
outstanding as of August 5, 2010.
BERKSHIRE
HILLS BANCORP, INC.
FORM
10-Q
INDEX
|
|
Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements (unaudited)
|
|
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2010 and December 31, 2009
|
3
|
|
|
|
|
Consolidated
Statements of Operations for the Three and Six Months Ended June 30, 2010
and 2009
|
4
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the Six Months Ended
June 30, 2010 and 2009
|
5
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2010 and
2009
|
6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
|
|
|
|
Selected
Financial Data
|
31
|
|
|
|
|
Average
Balances and Average Yields/Rates
|
32
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
39
|
|
|
|
Item
4.
|
Controls
and Procedures
|
39
|
|
|
|
PART II.
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
40
|
|
|
|
Item
1A.
|
Risk
Factors
|
40
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
41
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
41
|
|
|
|
Item
4.
|
Removed
and Reserved
|
41
|
|
|
|
Item
5.
|
Other
Information
|
41
|
|
|
|
Item
6.
|
Exhibits
|
41
|
|
|
|
Signatures
|
42
|
PART
I
ITEM 1. CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
|
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
June 30,
|
|
|
December 31,
|
|
(In
thousands, except share data)
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
27,931 |
|
|
$ |
25,770 |
|
Short-term
investments
|
|
|
14,317 |
|
|
|
6,838 |
|
Total
cash and cash equivalents
|
|
|
42,248 |
|
|
|
32,608 |
|
|
|
|
|
|
|
|
|
|
Trading
security
|
|
|
16,914 |
|
|
|
15,880 |
|
Securities
available for sale, at fair value
|
|
|
296,206 |
|
|
|
324,345 |
|
Securities
held to maturity (fair values of $58,775 and $58,567)
|
|
|
58,618 |
|
|
|
57,621 |
|
Federal
Home Loan Bank stock and other restricted securities
|
|
|
23,120 |
|
|
|
23,120 |
|
Total
securities
|
|
|
394,858 |
|
|
|
420,966 |
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
3,156 |
|
|
|
4,146 |
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
638,439 |
|
|
|
609,007 |
|
Commercial
mortgages
|
|
|
890,494 |
|
|
|
851,828 |
|
Commercial
business loans
|
|
|
191,277 |
|
|
|
186,044 |
|
Consumer
loans
|
|
|
299,771 |
|
|
|
314,779 |
|
Total
loans
|
|
|
2,019,981 |
|
|
|
1,961,658 |
|
Less: Allowance
for loan losses
|
|
|
(31,848 |
) |
|
|
(31,816 |
) |
Net
loans
|
|
|
1,988,133 |
|
|
|
1,929,842 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
|
37,914 |
|
|
|
37,390 |
|
Other
real estate owned
|
|
|
2,900 |
|
|
|
30 |
|
Goodwill
|
|
|
161,725 |
|
|
|
161,725 |
|
Other
intangible assets
|
|
|
12,840 |
|
|
|
14,375 |
|
Cash
surrender value of bank-owned life insurance policies
|
|
|
35,270 |
|
|
|
36,904 |
|
Other
assets
|
|
|
68,484 |
|
|
|
62,438 |
|
Total
assets
|
|
$ |
2,747,528 |
|
|
$ |
2,700,424 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$ |
276,149 |
|
|
$ |
276,587 |
|
NOW
deposits
|
|
|
187,401 |
|
|
|
197,176 |
|
Money
market deposits
|
|
|
605,529 |
|
|
|
532,840 |
|
Savings
deposits
|
|
|
217,977 |
|
|
|
208,597 |
|
Time
deposits
|
|
|
753,115 |
|
|
|
771,562 |
|
Total
deposits
|
|
|
2,040,171 |
|
|
|
1,986,762 |
|
Short-term
debt
|
|
|
72,250 |
|
|
|
83,860 |
|
Long-term
Federal Home Loan Bank advances
|
|
|
197,567 |
|
|
|
207,344 |
|
Junior
subordinated debentures
|
|
|
15,464 |
|
|
|
15,464 |
|
Other
liabilities
|
|
|
37,449 |
|
|
|
22,413 |
|
Total
liabilities
|
|
|
2,362,901 |
|
|
|
2,315,843 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Common
stock ($0.01 par value; 26,000,000 shares authorized; 15,848,825 shares
issued and 14,036,577 shares outstanding in 2010; 15,848,825 shares issued
and 13,916,094 shares outstanding in 2009)
|
|
|
158 |
|
|
|
158 |
|
Additional
paid-in capital
|
|
|
337,690 |
|
|
|
338,822 |
|
Unearned
compensation
|
|
|
(2,513 |
) |
|
|
(1,318 |
) |
Retained
earnings
|
|
|
101,193 |
|
|
|
99,033 |
|
Accumulated
other comprehensive loss
|
|
|
(5,979 |
) |
|
|
(2,968 |
) |
Treasury
stock, at cost (1,812,248 shares in 2010 and 1,932,731 shares in
2009)
|
|
|
(45,922 |
) |
|
|
(49,146 |
) |
Total
stockholders' equity
|
|
|
384,627 |
|
|
|
384,581 |
|
Total
liabilities and stockholders' equity
|
|
$ |
2,747,528 |
|
|
$ |
2,700,424 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands, except per share data)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest
and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
24,490 |
|
|
$ |
25,370 |
|
|
$ |
48,437 |
|
|
$ |
51,802 |
|
Securities
and other
|
|
|
3,473 |
|
|
|
3,395 |
|
|
|
7,008 |
|
|
|
6,843 |
|
Total
interest and dividend income
|
|
|
27,963 |
|
|
|
28,765 |
|
|
|
55,445 |
|
|
|
58,645 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
6,787 |
|
|
|
8,677 |
|
|
|
13,683 |
|
|
|
17,150 |
|
Borrowings
and junior subordinated debentures
|
|
|
2,305 |
|
|
|
3,364 |
|
|
|
4,594 |
|
|
|
7,060 |
|
Total
interest expense
|
|
|
9,092 |
|
|
|
12,041 |
|
|
|
18,277 |
|
|
|
24,210 |
|
Net
interest income
|
|
|
18,871 |
|
|
|
16,724 |
|
|
|
37,168 |
|
|
|
34,435 |
|
Non-interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit,
loan and interest rate swap fees
|
|
|
3,575 |
|
|
|
2,307 |
|
|
|
6,991 |
|
|
|
4,934 |
|
Insurance
commissions and fees
|
|
|
3,197 |
|
|
|
3,274 |
|
|
|
6,670 |
|
|
|
7,843 |
|
Wealth
management fees
|
|
|
1,140 |
|
|
|
1,113 |
|
|
|
2,316 |
|
|
|
2,302 |
|
Total
fee income
|
|
|
7,912 |
|
|
|
6,694 |
|
|
|
15,977 |
|
|
|
15,079 |
|
Gain
on sale of securities, net
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
1 |
|
Non-recurring
income
|
|
|
- |
|
|
|
1,240 |
|
|
|
- |
|
|
|
1,177 |
|
Other
|
|
|
51 |
|
|
|
468 |
|
|
|
484 |
|
|
|
820 |
|
Total
non-interest income
|
|
|
7,963 |
|
|
|
8,405 |
|
|
|
16,461 |
|
|
|
17,077 |
|
Total
net revenue
|
|
|
26,834 |
|
|
|
25,129 |
|
|
|
53,629 |
|
|
|
51,512 |
|
Provision
for loan losses
|
|
|
2,200 |
|
|
|
2,200 |
|
|
|
4,526 |
|
|
|
4,700 |
|
Non-interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
10,960 |
|
|
|
8,902 |
|
|
|
21,957 |
|
|
|
18,254 |
|
Occupancy
and equipment
|
|
|
2,963 |
|
|
|
2,859 |
|
|
|
5,998 |
|
|
|
5,987 |
|
Technology
and communications
|
|
|
1,373 |
|
|
|
1,370 |
|
|
|
2,756 |
|
|
|
2,655 |
|
Marketing
and professional services
|
|
|
1,116 |
|
|
|
1,121 |
|
|
|
2,413 |
|
|
|
2,461 |
|
Supplies,
postage and delivery
|
|
|
542 |
|
|
|
689 |
|
|
|
1,115 |
|
|
|
1,384 |
|
FDIC
premiums and assessments
|
|
|
874 |
|
|
|
2,387 |
|
|
|
1,647 |
|
|
|
3,079 |
|
Other
real estate owned
|
|
|
- |
|
|
|
19 |
|
|
|
27 |
|
|
|
161 |
|
Amortization
of intangible assets
|
|
|
768 |
|
|
|
833 |
|
|
|
1,536 |
|
|
|
1,666 |
|
Non-recurring
expenses
|
|
|
- |
|
|
|
601 |
|
|
|
21 |
|
|
|
601 |
|
Other
|
|
|
1,432 |
|
|
|
1,197 |
|
|
|
2,750 |
|
|
|
2,183 |
|
Total
non-interest expense
|
|
|
20,028 |
|
|
|
19,978 |
|
|
|
40,220 |
|
|
|
38,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
4,606 |
|
|
|
2,951 |
|
|
|
8,883 |
|
|
|
8,381 |
|
Income
tax expense
|
|
|
1,198 |
|
|
|
620 |
|
|
|
2,139 |
|
|
|
2,167 |
|
Net
income
|
|
$ |
3,408 |
|
|
$ |
2,331 |
|
|
$ |
6,744 |
|
|
$ |
6,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Cumulative preferred stock dividend and accretion
|
|
|
- |
|
|
|
393 |
|
|
|
- |
|
|
|
1,030 |
|
Less:
Deemed dividend resulting from preferred stock repayment
|
|
|
- |
|
|
|
2,954 |
|
|
|
- |
|
|
|
2,954 |
|
Net
income (loss) available to common stockholders
|
|
$ |
3,408 |
|
|
$ |
(1,016 |
) |
|
$ |
6,744 |
|
|
$ |
2,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share
|
|
$ |
0.25 |
|
|
$ |
(0.08 |
) |
|
$ |
0.49 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share
|
|
$ |
0.25 |
|
|
$ |
(0.08 |
) |
|
$ |
0.49 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,856 |
|
|
|
12,946 |
|
|
|
13,845 |
|
|
|
12,556 |
|
Diluted
|
|
|
13,894 |
|
|
|
12,946 |
|
|
|
13,875 |
|
|
|
12,598 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
|
|
|
other
comp-
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Preferred
|
|
|
paid-in
|
|
|
compen-
|
|
|
Retained
|
|
|
rehensive
|
|
|
Treasury
|
|
|
|
|
(In
thousands)
|
|
Shares
|
|
|
Amount
|
|
|
stock
|
|
|
capital
|
|
|
sation
|
|
|
earnings
|
|
|
loss
|
|
|
stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
12,253 |
|
|
$ |
142 |
|
|
$ |
36,822 |
|
|
$ |
307,620 |
|
|
$ |
(1,905 |
) |
|
$ |
127,773 |
|
|
$ |
(11,574 |
) |
|
$ |
(50,453 |
) |
|
$ |
408,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,214 |
|
|
|
- |
|
|
|
- |
|
|
|
6,214 |
|
Other
net comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,547 |
|
|
|
- |
|
|
|
5,547 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,761 |
|
Redemption
of preferred stock, including deemed dividend of $2,954
|
|
|
- |
|
|
|
- |
|
|
|
(37,046 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,954 |
) |
|
|
- |
|
|
|
- |
|
|
|
(40,000 |
) |
Preferred
stock discount accretion and dividends
|
|
|
- |
|
|
|
- |
|
|
|
224 |
|
|
|
- |
|
|
|
- |
|
|
|
(1,030 |
) |
|
|
- |
|
|
|
- |
|
|
|
(806 |
) |
Repurchase
of warrant issued with preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,040 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,040 |
) |
Issuance
of common stock, net of issuance costs of $2,266
|
|
|
1,610 |
|
|
|
16 |
|
|
|
- |
|
|
|
32,349 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,365 |
|
Cash
dividends declared ($0.32 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,932 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3,932 |
) |
Forfeited
shares
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
(15 |
) |
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
(108 |
) |
|
|
(50 |
) |
Exercise
of stock options
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(92 |
) |
|
|
- |
|
|
|
307 |
|
|
|
215 |
|
Restricted
stock grants
|
|
|
47 |
|
|
|
- |
|
|
|
- |
|
|
|
(92 |
) |
|
|
(1,104 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,196 |
|
|
|
- |
|
Stock-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
31 |
|
|
|
718 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
749 |
|
Other,
net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(17 |
) |
|
|
50 |
|
|
|
(64 |
) |
|
|
- |
|
|
|
(105 |
) |
|
|
(136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2009
|
|
|
13,916 |
|
|
$ |
158 |
|
|
$ |
- |
|
|
$ |
338,836 |
|
|
$ |
(2,168 |
) |
|
$ |
125,915 |
|
|
$ |
(6,027 |
) |
|
$ |
(49,163 |
) |
|
$ |
407,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
13,916 |
|
|
$ |
158 |
|
|
$ |
- |
|
|
$ |
338,822 |
|
|
$ |
(1,318 |
) |
|
$ |
99,033 |
|
|
$ |
(2,968 |
) |
|
$ |
(49,146 |
) |
|
$ |
384,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,744 |
|
|
|
- |
|
|
|
- |
|
|
|
6,744 |
|
Other
net comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,011 |
) |
|
|
- |
|
|
|
(3,011 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,733 |
|
Cash
dividends declared ($0.32 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,492 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4,492 |
) |
Forfeited
shares
|
|
|
(10 |
) |
|
|
- |
|
|
|
- |
|
|
|
14 |
|
|
|
57 |
|
|
|
- |
|
|
|
- |
|
|
|
(204 |
) |
|
|
(133 |
) |
Exercise
of stock options
|
|
|
13 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(108 |
) |
|
|
- |
|
|
|
318 |
|
|
|
210 |
|
Restricted
stock grants
|
|
|
130 |
|
|
|
- |
|
|
|
- |
|
|
|
(1,149 |
) |
|
|
(2,166 |
) |
|
|
- |
|
|
|
- |
|
|
|
3,315 |
|
|
|
- |
|
Stock-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
781 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
784 |
|
Other,
net
|
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
133 |
|
|
|
16 |
|
|
|
- |
|
|
|
(205 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2010
|
|
|
14,037 |
|
|
$ |
158 |
|
|
$ |
- |
|
|
$ |
337,690 |
|
|
$ |
(2,513 |
) |
|
$ |
101,193 |
|
|
$ |
(5,979 |
) |
|
$ |
(45,922 |
) |
|
$ |
384,627 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BERKSHIRE
HILLS BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Six Months Ended June 30,
|
|
(In
thousands)
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
6,744 |
|
|
$ |
6,214 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
4,526 |
|
|
|
4,700 |
|
Net
amortization of securities
|
|
|
1,347 |
|
|
|
535 |
|
Change
in unamortized net loan costs and premiums
|
|
|
388 |
|
|
|
294 |
|
Premises
depreciation and amortization expense
|
|
|
1,848 |
|
|
|
1,929 |
|
Stock-based
compensation expense
|
|
|
784 |
|
|
|
749 |
|
Amortization
of other intangibles
|
|
|
1,536 |
|
|
|
1,666 |
|
Income
from cash surrender value of bank-owned life insurance
policies
|
|
|
(583 |
) |
|
|
(599 |
) |
Gain
on sales of securities, net
|
|
|
- |
|
|
|
(1 |
) |
Net
decrease (increase) in loans held for sale
|
|
|
990 |
|
|
|
(7,133 |
) |
Net
change in other
|
|
|
3,431 |
|
|
|
(1,617 |
) |
Net
cash provided by operating activities
|
|
|
21,011 |
|
|
|
6,737 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Trading
security:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities, calls and prepayments
|
|
|
218 |
|
|
|
- |
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
Sales
|
|
|
3,159 |
|
|
|
7,914 |
|
Proceeds
from maturities, calls and prepayments
|
|
|
49,947 |
|
|
|
22,310 |
|
Purchases
|
|
|
(24,756 |
) |
|
|
(77,569 |
) |
Securities
held to maturity:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities, calls and prepayments
|
|
|
11,897 |
|
|
|
8,371 |
|
Purchases
|
|
|
(12,894 |
) |
|
|
(9,351 |
) |
|
|
|
|
|
|
|
|
|
Loan
(originations) and principal repayments, net
|
|
|
(66,479 |
) |
|
|
33,258 |
|
Proceeds
from surrender of life insurance
|
|
|
2,217 |
|
|
|
- |
|
Capital
expenditures
|
|
|
(2,420 |
) |
|
|
(1,002 |
) |
Net
cash used by investing activities
|
|
|
(39,111 |
) |
|
|
(16,069 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
53,409 |
|
|
|
121,814 |
|
Proceeds
from Federal Home Loan Bank advances and other borrowings
|
|
|
116,380 |
|
|
|
60,000 |
|
Repayments
of Federal Home Loan Bank advances and other borrowings
|
|
|
(137,767 |
) |
|
|
(137,299 |
) |
Net
proceeds from common stock issuance
|
|
|
- |
|
|
|
32,365 |
|
Net
proceeds from reissuance of treasury stock
|
|
|
210 |
|
|
|
215 |
|
Common
stock cash dividends paid
|
|
|
(4,492 |
) |
|
|
(3,932 |
) |
Net
impact of preferred stock and warrant including repurchase and
dividends
|
|
|
- |
|
|
|
(41,846 |
) |
Net
cash provided by financing activities
|
|
|
27,740 |
|
|
|
31,317 |
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
9,640 |
|
|
|
21,985 |
|
Cash
and cash equivalents at beginning of period
|
|
|
32,608 |
|
|
|
44,798 |
|
Cash
and cash equivalents at end of period
|
|
$ |
42,248 |
|
|
$ |
66,783 |
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid on deposits
|
|
|
13,708 |
|
|
|
17,019 |
|
Interest
paid on borrowed funds
|
|
|
4,616 |
|
|
|
7,264 |
|
Income
taxes(refunded) paid, net
|
|
|
(619 |
) |
|
|
1,908 |
|
Amount
due to broker
|
|
|
1,000 |
|
|
|
- |
|
The
accompanying notes are an integral part of these financial
statements.
Basis
of presentation and consolidation
The
consolidated financial statements (the “financial statements”) of Berkshire
Hills Bancorp, Inc. (the “Company” or “Berkshire”) have been prepared in
conformity with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information and with the instructions to Form 10-Q adopted by
the Securities and Exchange Commission (“SEC”). Accordingly, these financial
statements, including year-end consolidated balance sheet data presented, do not
include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation are reflected in the interim financial statements and
consist of normal recurring entries. These financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Berkshire Insurance
Group, Inc. (“BIG”) and Berkshire Bank (the “Bank”), together with the Bank’s
consolidated subsidiaries. One of the Bank’s consolidated subsidiaries is
Berkshire Bank Municipal Bank, a New York chartered limited-purpose commercial
bank. All significant inter-company transactions have been eliminated in
consolidation. The results of operations for the six months ended June 30, 2010
are not necessarily indicative of the results which may be expected for the
year. These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2009.
Business
Through
its wholly-owned subsidiaries, the Company provides a variety of financial
services to individuals, businesses, not-for-profit organizations, and
municipalities in and around western Massachusetts, southern Vermont and
northeastern New York. The Company also provides asset based middle market
commercial lending throughout New England. Its primary deposit
products are checking, NOW, money market, savings, and time deposit
accounts. Its primary lending products are residential mortgages,
commercial mortgages, commercial business loans and consumer loans. The Company
offers electronic banking, cash management, and other transaction and reporting
services; it also offers interest rate swap contracts to commercial customers.
The Company offers private banking services and wealth management services
including trust, financial planning, and investment services. The Company is an
agent for complete lines of property and casualty, life, disability, and health
insurance to individuals and businesses.
Business
segments
An
operating segment is a component of a business for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and evaluate performance.
The Company has two reportable operating segments, Banking and Insurance, which
are delineated by the consolidated subsidiaries of Berkshire Hills Bancorp,
Inc. 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, Inc., which provides commercial and consumer insurance
services. The only other consolidated financial activity of the
Company consists of the transactions of Berkshire Hills Bancorp,
Inc.
Use
of estimates
In
preparing the financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the consolidated balance sheets and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses; the valuation of deferred tax
assets; the estimates related to the initial measurement of goodwill and other
intangible assets and subsequent impairment analyses; the determination of
other-than-temporary impairment of investment securities; and the determination
of the fair value of assets and liabilities.
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
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In
thousands, except per share data)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
3,408 |
|
|
$ |
2,331 |
|
|
$ |
6,744 |
|
|
$ |
6,214 |
|
Less:
Cumulative preferred stock dividends and accretion
|
|
|
- |
|
|
|
393 |
|
|
|
- |
|
|
|
1,030 |
|
Less:
Deemed dividend resulting from preferred stock repayment
|
|
|
- |
|
|
|
2,954 |
|
|
|
- |
|
|
|
2,954 |
|
Net
income (loss) available to common stockholders
|
|
$ |
3,408 |
|
|
$ |
(1,016 |
) |
|
$ |
6,744 |
|
|
$ |
2,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
14,033 |
|
|
|
13,063 |
|
|
|
14,012 |
|
|
|
12,680 |
|
Less:
average number of unvested stock award shares
|
|
|
(177 |
) |
|
|
(117 |
) |
|
|
(167 |
) |
|
|
(124 |
) |
Average
number of basic shares outstanding
|
|
|
13,856 |
|
|
|
12,946 |
|
|
|
13,845 |
|
|
|
12,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
average number of dilutive unvested stock award shares
|
|
|
25 |
|
|
|
- |
|
|
|
17 |
|
|
|
11 |
|
Plus:
average number of dilutive stock options
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
|
|
31 |
|
Average
number of diluted shares outstanding
|
|
|
13,894 |
|
|
|
12,946 |
|
|
|
13,875 |
|
|
|
12,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share
|
|
$ |
0.25 |
|
|
$ |
(0.08 |
) |
|
$ |
0.49 |
|
|
$ |
0.18 |
|
Diluted
earnings (loss) per common share
|
|
$ |
0.25 |
|
|
$ |
(0.08 |
) |
|
$ |
0.49 |
|
|
$ |
0.18 |
|
For the
quarter ended June 30, 2010, 158 thousand shares of restricted stock and 257
thousand options were anti-dilutive and therefore excluded from the earnings per
share calculations. For the quarter ended June 30, 2009, 559 thousand shares of
restricted stock and 464 thousand options were anti-dilutive and therefore
excluded from the earnings per share calculations.
Recent
accounting pronouncements
Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation”.
New authoritative accounting guidance under ASC Topic 810 amends prior
guidance to provide more relevant and reliable information to users of financial
statements by enterprises involved with variable interest entities. This
accounting guidance became effective for the Company on January 1, 2010 and did
not have a significant impact on the Company’s financial
statements.
FASB ASC Topic 860, “Transfers and
Servicing”. New authoritative accounting guidance under ASC
Topic 860 amends prior accounting guidance to enhance reporting about transfers
of financial assets, including securitizations, and where companies have
continuing exposure to the risks related to transferred financial assets. The
new authoritative accounting guidance eliminates the concept of a “qualifying
special-purpose entity” and changes the requirements for derecognizing financial
assets. The new authoritative accounting guidance also requires additional
disclosures about all continuing involvements with transferred financial assets
including information about gains and losses resulting from transfers during the
period. This accounting guidance became effective for the Company on January 1,
2010 and did not have a significant impact on the Company’s financial
statements.
FASB Accounting Standards Update
(“ASU”) No. 2010-06, “Improving Disclosures about Fair Value
Measurements”. New authoritative accounting guidance under ASU
No. 2010-06 provides guidance that requires more robust disclosures about (1)
the different classes of assets and liabilities measured at fair value, (2) the
valuation techniques and inputs used, (3) the activity in Level 3 fair value
measurements, and (4) the transfers between Levels 1, 2, and 3. This guidance
became effective for the Company on January 1, 2010 and did not have a material
impact on the Company’s financial statements.
FASB ASU No. 2010-20, “Receivables
(Topic 310), Disclosures about the Credit Quality of Financing Receivables and
the Allowance for Credit Losses”. In July 2010, the FASB issued ASU
2010-20 which requires an entity to provide disclosures that facilitate
financial statement users’ evaluation of (1) the nature of credit risk inherent
in the entity’s loan portfolio (2) how that risk is analyzed and assessed in
arriving at the allowance for loan and lease losses and (3) the changes and
reasons for those changes in the allowance for loan and lease losses. For public
entities, the disclosures as of the end of a reporting period are effective for
interim and annual reporting periods ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective
for interim and annual reporting periods beginning on or after December 15,
2010. The adoption of this guidance will require significant additional
disclosures in the December 31, 2010 financial statements and subsequent
financial statements.
2.
|
TRADING ACCOUNT
SECURITY
|
The
Company holds a tax advantaged economic development bond that is being accounted
for at fair value. The security had an amortized cost of $14.8 million and $15.0
million and a fair value of $16.9 million and $15.9 million at June 30, 2010 and
December 31, 2009, respectively. As discussed further in Note 10-Derivative
Financial Instruments and Hedging Activities, the Company has entered into a
swap contract to swap-out the fixed rate of the security in exchange for a
variable rate. The Company does not purchase securities with the intent of
selling them in the near term, and there are no other securities in the trading
portfolio at June 30, 2010.
3.
|
SECURITIES AVAILABLE FOR SALE AND HELD TO
MATURITY
|
The
following is a summary of securities available for sale and held to
maturity:
(In thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
June
30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
$ |
77,627 |
|
|
$ |
2,773 |
|
|
$ |
(178 |
) |
|
$ |
80,222 |
|
Government
guaranteed residential mortgage-backed securities
|
|
|
12,394 |
|
|
|
277 |
|
|
|
- |
|
|
|
12,671 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
136,122 |
|
|
|
3,954 |
|
|
|
(42 |
) |
|
|
140,034 |
|
Corporate
bonds
|
|
|
32,448 |
|
|
|
304 |
|
|
|
(128 |
) |
|
|
32,624 |
|
Trust
preferred securities
|
|
|
22,285 |
|
|
|
26 |
|
|
|
(2,182 |
) |
|
|
20,129 |
|
Other
bonds and obligations
|
|
|
5,441 |
|
|
|
6 |
|
|
|
(3 |
) |
|
|
5,444 |
|
Total
debt securities
|
|
|
286,317 |
|
|
|
7,340 |
|
|
|
(2,533 |
) |
|
|
291,124 |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
|
5,245 |
|
|
|
55 |
|
|
|
(218 |
) |
|
|
5,082 |
|
Total
securities available for sale
|
|
|
291,562 |
|
|
|
7,395 |
|
|
|
(2,751 |
) |
|
|
296,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
|
7,488 |
|
|
|
- |
|
|
|
- |
|
|
|
7,488 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
86 |
|
|
|
4 |
|
|
|
- |
|
|
|
90 |
|
Tax
advantaged economic development bonds
|
|
|
50,871 |
|
|
|
573 |
|
|
|
(420 |
) |
|
|
51,024 |
|
Other
bonds and obligations
|
|
|
173 |
|
|
|
- |
|
|
|
- |
|
|
|
173 |
|
Total
securities held to maturity
|
|
|
58,618 |
|
|
|
577 |
|
|
|
(420 |
) |
|
|
58,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
350,180 |
|
|
$ |
7,972 |
|
|
$ |
(3,171 |
) |
|
$ |
354,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
$ |
73,277 |
|
|
$ |
1,836 |
|
|
$ |
(329 |
) |
|
$ |
74,784 |
|
Government
guaranteed residential mortgage-backed securities
|
|
|
12,923 |
|
|
|
224 |
|
|
|
(116 |
) |
|
|
13,031 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
179,674 |
|
|
|
4,714 |
|
|
|
(143 |
) |
|
|
184,245 |
|
Corporate
bonds
|
|
|
36,941 |
|
|
|
641 |
|
|
|
(245 |
) |
|
|
37,337 |
|
Trust
preferred securities
|
|
|
9,285 |
|
|
|
- |
|
|
|
(2,370 |
) |
|
|
6,915 |
|
Other
bonds and obligations
|
|
|
5,481 |
|
|
|
9 |
|
|
|
(20 |
) |
|
|
5,470 |
|
Total
debt securities
|
|
|
317,581 |
|
|
|
7,424 |
|
|
|
(3,223 |
) |
|
|
321,782 |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
|
2,679 |
|
|
|
55 |
|
|
|
(171 |
) |
|
|
2,563 |
|
Total
securities available for sale
|
|
|
320,260 |
|
|
|
7,479 |
|
|
|
(3,394 |
) |
|
|
324,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
|
14,737 |
|
|
|
- |
|
|
|
- |
|
|
|
14,737 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
139 |
|
|
|
3 |
|
|
|
- |
|
|
|
142 |
|
Tax
advantaged economic development bonds
|
|
|
42,572 |
|
|
|
951 |
|
|
|
(8 |
) |
|
|
43,515 |
|
Other
bonds and obligations
|
|
|
173 |
|
|
|
- |
|
|
|
- |
|
|
|
173 |
|
Total
securities held to maturity
|
|
|
57,621 |
|
|
|
954 |
|
|
|
(8 |
) |
|
|
58,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
377,881 |
|
|
$ |
8,433 |
|
|
$ |
(3,402 |
) |
|
$ |
382,912 |
|
The
amortized cost and estimated fair value of available for sale (“AFS”) and held
to maturity (“HTM”) securities, segregated by contractual maturity at June 30,
2010 are presented below. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations. Mortgage-backed securities are shown in total, as their
maturities are highly variable. Equity securities have no maturity
and are also shown in total.
|
|
Available for sale
|
|
|
Held to maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$ |
32,051 |
|
|
$ |
32,402 |
|
|
$ |
4,799 |
|
|
$ |
4,799 |
|
Over
1 year to 5 years
|
|
|
8,377 |
|
|
|
8,258 |
|
|
|
1,496 |
|
|
|
1,496 |
|
Over
5 years to 10 years
|
|
|
20,941 |
|
|
|
21,528 |
|
|
|
30,778 |
|
|
|
30,608 |
|
Over
10 years
|
|
|
76,432 |
|
|
|
76,231 |
|
|
|
21,459 |
|
|
|
21,782 |
|
Total
bonds and obligations
|
|
|
137,801 |
|
|
|
138,419 |
|
|
|
58,532 |
|
|
|
58,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
|
5,245 |
|
|
|
5,082 |
|
|
|
- |
|
|
|
- |
|
Residential
mortgage-backed securities
|
|
|
148,516 |
|
|
|
152,705 |
|
|
|
86 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
291,562 |
|
|
$ |
296,206 |
|
|
$ |
58,618 |
|
|
$ |
58,775 |
|
Securities
with unrealized losses, segregated by the duration of their continuous
unrealized loss positions, are summarized as follows:
|
|
Less
Than Twelve Months
|
|
|
Over
Twelve Months
|
|
|
Total
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
(In
thousands)
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
June
30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
178 |
|
|
$ |
7,054 |
|
|
$ |
178 |
|
|
$ |
7,054 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
41 |
|
|
|
7,914 |
|
|
|
1 |
|
|
|
142 |
|
|
|
42 |
|
|
|
8,056 |
|
Corporate
bonds
|
|
|
- |
|
|
|
- |
|
|
|
128 |
|
|
|
2,866 |
|
|
|
128 |
|
|
|
2,866 |
|
Trust
preferred securities
|
|
|
208 |
|
|
|
12,810 |
|
|
|
1,974 |
|
|
|
5,241 |
|
|
|
2,182 |
|
|
|
18,051 |
|
Other
bonds and obligations
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
323 |
|
|
|
3 |
|
|
|
323 |
|
Total
debt securities
|
|
|
249 |
|
|
|
20,724 |
|
|
|
2,284 |
|
|
|
15,626 |
|
|
|
2,533 |
|
|
|
36,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
|
203 |
|
|
|
3,233 |
|
|
|
15 |
|
|
|
1,485 |
|
|
|
218 |
|
|
|
4,718 |
|
Total
securities available for sale
|
|
|
452 |
|
|
|
23,957 |
|
|
|
2,299 |
|
|
|
17,111 |
|
|
|
2,751 |
|
|
|
41,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
advantaged economic development bonds
|
|
|
420 |
|
|
|
16,390 |
|
|
|
- |
|
|
|
- |
|
|
|
420 |
|
|
|
16,390 |
|
Total
securities held to maturity
|
|
|
420 |
|
|
|
16,390 |
|
|
|
- |
|
|
|
- |
|
|
|
420 |
|
|
|
16,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
872 |
|
|
$ |
40,347 |
|
|
$ |
2,299 |
|
|
$ |
17,111 |
|
|
$ |
3,171 |
|
|
$ |
57,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
$ |
17 |
|
|
$ |
2,984 |
|
|
$ |
312 |
|
|
$ |
7,128 |
|
|
$ |
329 |
|
|
$ |
10,112 |
|
Government
guaranteed residential mortgage-backed securities
|
|
|
116 |
|
|
|
5,113 |
|
|
|
- |
|
|
|
- |
|
|
|
116 |
|
|
|
5,113 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
143 |
|
|
|
21,610 |
|
|
|
- |
|
|
|
- |
|
|
|
143 |
|
|
|
21,610 |
|
Corporate
bonds
|
|
|
- |
|
|
|
- |
|
|
|
245 |
|
|
|
2,748 |
|
|
|
245 |
|
|
|
2,748 |
|
Trust
preferred securities
|
|
|
- |
|
|
|
- |
|
|
|
2,370 |
|
|
|
6,915 |
|
|
|
2,370 |
|
|
|
6,915 |
|
Other
bonds and obligations
|
|
|
- |
|
|
|
- |
|
|
|
20 |
|
|
|
440 |
|
|
|
20 |
|
|
|
440 |
|
Total
debt securities
|
|
|
276 |
|
|
|
29,707 |
|
|
|
2,947 |
|
|
|
17,231 |
|
|
|
3,223 |
|
|
|
46,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
|
- |
|
|
|
- |
|
|
|
171 |
|
|
|
1,104 |
|
|
|
171 |
|
|
|
1,104 |
|
Total
securities available for sale
|
|
|
276 |
|
|
|
29,707 |
|
|
|
3,118 |
|
|
|
18,335 |
|
|
|
3,394 |
|
|
|
48,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
advantaged economic development bonds
|
|
|
8 |
|
|
|
1,569 |
|
|
|
- |
|
|
|
- |
|
|
|
8 |
|
|
|
1,569 |
|
Total
securities held to maturity
|
|
|
8 |
|
|
|
1,569 |
|
|
|
- |
|
|
|
- |
|
|
|
8 |
|
|
|
1,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
284 |
|
|
$ |
31,276 |
|
|
$ |
3,118 |
|
|
$ |
18,335 |
|
|
$ |
3,402 |
|
|
$ |
49,611 |
|
Debt
Securities
The
Company expects to recover its amortized cost basis on all debt securities in
its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor
does it anticipate that it will be required to sell any of its securities in an
unrealized loss position as of June 30, 2010, prior to this recovery. The
Company’s ability and intent to hold these securities until recovery is
supported by the Company’s strong capital and liquidity positions as well as its
historical low portfolio turnover. The following summarizes, by investment
security type, the basis for the conclusion that the debt securities in an
unrealized loss position within the Company’s AFS and HTM portfolios were not
other-than-temporarily impaired at June 30, 2010:
AFS municipal bonds and
obligations
At June
30, 2010, 10 out of a total of 138 securities in the Company’s portfolio of AFS
municipal bonds and obligations were in unrealized loss positions. Aggregate
unrealized losses represented 2% of the amortized cost of securities in
unrealized loss positions. The 10 securities in unrealized loss positions are
all investment grade rated and all have insurance except for one bond, which is
AAA rated. There were no material underlying credit downgrades during the second
quarter of 2010. All securities are considered performing.
AFS residential
mortgage-backed securities
At June
30, 2010, 8 out of a total of 107 securities and 2 out of a total of 4
securities in the Company’s portfolios of AFS residential mortgage-backed were
in unrealized loss positions. Aggregate unrealized losses represented less than
1% of the amortized cost of securities in unrealized loss positions within both
portfolios. The Federal National Mortgage Association (“FNMA”), Federal Home
Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association
(“GNMA”) guarantee the contractual cash flows of the Company’s AFS residential
mortgage-backed securities. The securities are investment grade rated and there
were no material underlying credit downgrades during the second quarter of 2010.
All securities are considered performing.
AFS corporate
bonds
At June
30, 2010, 1 out of a total of 16 securities in the Company’s portfolio of AFS
corporate bonds was in an unrealized loss position. The aggregate unrealized
loss represented 4% of the amortized cost of the security. The security has a
short-term maturity (within 5 years), is investment grade rated, and there was
no material underlying credit downgrade during the second quarter of 2010. The
security is considered performing.
AFS trust preferred
securities
At June
30, 2010, 6 out of a total of 7 securities in the Company’s portfolio of AFS
trust preferred securities were in unrealized loss positions. Aggregate
unrealized losses represented 11% of the amortized cost of securities in
unrealized loss positions. The Company’s evaluation of the present value of
expected cash flows on these securities supports its conclusions about the
recoverability of the securities’ amortized cost bases.
At June
30, 2010, $1.5 million of the total unrealized losses was attributable to a $2.6
million investment in a Mezzanine Class B tranche of a $360 million pooled trust
preferred security issued by banking and insurance entities. The Company
evaluated the security, with a Level 3 fair value of $1.1 million, for potential
other-than-temporary-impairment (“OTTI”) at June 30, 2010 and determined that
OTTI was not evident based on both the Company’s more likely than not ability to
hold the security until the recovery of its remaining amortized cost and the
protection from credit loss afforded by $30 million in excess subordination
above current and projected losses. The security is considered
performing.
AFS other bonds and
obligations
At June
30, 2010, 5 out of a total of 8 securities in the Company’s portfolio of other
bonds and obligations were in unrealized loss positions. Aggregate unrealized
losses represented 1% of the book value of the securities in unrealized loss
positions. The securities are investment grade rated and there were no material
underlying credit downgrades during the second quarter of 2010. All securities
are considered performing.
HTM tax advantaged economic
development bonds
At June
30, 2010, 3 out of a total of 11 securities in the Company’s portfolio of tax
advantaged economic development bonds were in unrealized loss positions.
Aggregate unrealized losses represented 3% of the amortized cost of the
securities in unrealized loss positions. The securities are performing to terms
and there were no underlying internal credit downgrades during the second
quarter of 2010. All securities are considered performing.
Marketable
Equity Securities
In
evaluating its marketable equity securities portfolio for OTTI, the Company
considers its more likely than not ability to hold an equity security to
recovery of its cost basis in addition to various other factors, including the
length of time and the extent to which the fair value has been less than cost
and the financial condition and near term prospects of the issuer. Any OTTI is
recognized immediately through earnings.
At June
30, 2010, 2 out of a total of 4 securities in the Company’s portfolio of
marketable equity securities were in an unrealized loss position. The unrealized
loss represented 4% of the cost of the impaired securities. The Company has the
intent and ability to hold the securities until a recovery of their cost bases
and does not consider the securities other-than-temporarily impaired at June 30,
2010. As new information becomes available in future periods, changes to the
Company’s assumptions may be warranted and could lead to a different conclusion
regarding the OTTI of these securities.
Loans consist of the
following:
(In thousands)
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Total
residential mortgages
|
|
$ |
638,439 |
|
|
$ |
609,007 |
|
|
|
|
|
|
|
|
|
|
Commercial
mortgages:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
107,924 |
|
|
|
110,703 |
|
Single
and multi-family
|
|
|
81,029 |
|
|
|
80,624 |
|
Commercial
real estate
|
|
|
701,541 |
|
|
|
660,501 |
|
Total
commercial mortgages
|
|
|
890,494 |
|
|
|
851,828 |
|
|
|
|
|
|
|
|
|
|
Commercial
business loans:
|
|
|
|
|
|
|
|
|
Asset-based
lending
|
|
|
23,384 |
|
|
|
- |
|
Other
commercial business loans
|
|
|
167,893 |
|
|
|
186,044 |
|
Total
commercial business loans
|
|
|
191,277 |
|
|
|
186,044 |
|
Total
commercial loans
|
|
|
1,081,771 |
|
|
|
1,037,872 |
|
|
|
|
|
|
|
|
|
|
Consumer
loans:
|
|
|
|
|
|
|
|
|
Auto
|
|
|
52,746 |
|
|
|
76,861 |
|
Home
equity and other
|
|
|
247,025 |
|
|
|
237,918 |
|
Total
consumer loans
|
|
|
299,771 |
|
|
|
314,779 |
|
Total
loans
|
|
$ |
2,019,981 |
|
|
$ |
1,961,658 |
|
Activity in the allowance for loan
losses is as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(In
thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
31,829 |
|
|
$ |
22,903 |
|
|
$ |
31,816 |
|
|
$ |
22,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged-off
loans
|
|
|
(2,502 |
) |
|
|
(2,291 |
) |
|
|
(6,348 |
) |
|
|
(4,934 |
) |
Recoveries
on charged-off loans
|
|
|
321 |
|
|
|
105 |
|
|
|
1,854 |
|
|
|
243 |
|
Net
loans charged-off
|
|
|
(2,181 |
) |
|
|
(2,186 |
) |
|
|
(4,494 |
) |
|
|
(4,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
2,200 |
|
|
|
2,200 |
|
|
|
4,526 |
|
|
|
4,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$ |
31,848 |
|
|
$ |
22,917 |
|
|
$ |
31,848 |
|
|
$ |
22,917 |
|
Impaired
loans totaled $17.6 million and $56.9 million at June 30, 2010 and December 31,
2009, respectively. Based on collateral values or discounted cash
flow analyses, impaired loans with a carrying value of $11.2 million and $29.9
million were determined to require a valuation allowance of $3.4 million and
$6.4 million at June 30, 2010 and December 31, 2009, respectively.
A summary
of time deposits is as follows:
(In thousands)
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
Time
less than $100,000
|
|
$ |
380,667 |
|
|
$ |
381,141 |
|
Time
$100,000 or more
|
|
|
372,448 |
|
|
|
390,421 |
|
Total
time deposits
|
|
$ |
753,115 |
|
|
$ |
771,562 |
|
The
Bank’s actual and required capital ratios were as follows:
|
|
|
|
|
|
|
|
FDIC Minimum
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
to be Well Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital to risk weighted assets
|
|
|
10.7 |
% |
|
|
10.7 |
% |
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to risk weighted assets
|
|
|
9.5 |
|
|
|
9.5 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to average assets
|
|
|
8.1 |
|
|
|
7.9 |
|
|
|
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.
8.
|
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, 2010 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
as of December 31, 2009
|
|
|
99 |
|
|
$ |
24.49 |
|
|
|
430 |
|
|
$ |
23.35 |
|
Granted
|
|
|
130 |
|
|
|
16.61 |
|
|
|
- |
|
|
|
- |
|
Stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
(13 |
) |
|
|
16.75 |
|
Stock
awards vested
|
|
|
(43 |
) |
|
|
24.87 |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
(10 |
) |
|
|
18.77 |
|
|
|
(65 |
) |
|
|
16.75 |
|
Balance
as of June 30, 2010
|
|
|
176 |
|
|
$ |
18.90 |
|
|
|
352 |
|
|
$ |
24.81 |
|
During
the six months ended June 30, 2010, proceeds from stock option exercises totaled
$210 thousand. During the six months ended June 30, 2010, there were 43 thousand
shares issued in connection with vested stock awards. All of these
shares were issued from available treasury stock. Stock-based
compensation expense totaled $784 thousand and $749 thousand during the six
months ended June 30, 2010 and 2009, respectively. 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,
Inc. 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, Inc. 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, Inc. Management fees for corporate
services provided by the Bank to Berkshire Insurance Group, Inc. 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.
A summary
of the Company’s operating segments was as follows:
(In thousands)
|
|
Banking
|
|
|
Insurance
|
|
|
Parent
|
|
|
Eliminations
|
|
|
Total Consolidated
|
|
Three
months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
19,088 |
|
|
$ |
- |
|
|
$ |
(217 |
) |
|
$ |
- |
|
|
$ |
18,871 |
|
Provision
for loan losses
|
|
|
2,200 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,200 |
|
Non-interest
income
|
|
|
4,748 |
|
|
|
3,213 |
|
|
|
3,685 |
|
|
|
(3,683 |
) |
|
|
7,963 |
|
Non-interest
expense
|
|
|
17,474 |
|
|
|
2,303 |
|
|
|
252 |
|
|
|
(1 |
) |
|
|
20,028 |
|
Income
before income taxes
|
|
|
4,162 |
|
|
|
910 |
|
|
|
3,216 |
|
|
|
(3,682 |
) |
|
|
4,606 |
|
Income
tax expense (benefit)
|
|
|
1,017 |
|
|
|
373 |
|
|
|
(192 |
) |
|
|
- |
|
|
|
1,198 |
|
Net
income
|
|
$ |
3,145 |
|
|
$ |
537 |
|
|
$ |
3,408 |
|
|
$ |
(3,682 |
) |
|
$ |
3,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in millions)
|
|
$ |
2,659 |
|
|
$ |
32 |
|
|
$ |
362 |
|
|
$ |
(333 |
) |
|
$ |
2,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
17,029 |
|
|
$ |
- |
|
|
$ |
(303 |
) |
|
$ |
(2 |
) |
|
$ |
16,724 |
|
Provision
for loan losses
|
|
|
2,200 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,200 |
|
Non-interest
income
|
|
|
5,089 |
|
|
|
3,316 |
|
|
|
2,692 |
|
|
|
(2,692 |
) |
|
|
8,405 |
|
Non-interest
expense
|
|
|
17,028 |
|
|
|
2,641 |
|
|
|
309 |
|
|
|
- |
|
|
|
19,978 |
|
Income
(loss) before income taxes
|
|
|
2,890 |
|
|
|
675 |
|
|
|
2,080 |
|
|
|
(2,694 |
) |
|
|
2,951 |
|
Income
tax expense (benefit)
|
|
|
594 |
|
|
|
277 |
|
|
|
(251 |
) |
|
|
- |
|
|
|
620 |
|
Net
income (loss)
|
|
$ |
2,296 |
|
|
$ |
398 |
|
|
$ |
2,331 |
|
|
$ |
(2,694 |
) |
|
$ |
2,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in millions)
|
|
$ |
2,646 |
|
|
$ |
32 |
|
|
$ |
400 |
|
|
$ |
(395 |
) |
|
$ |
2,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
37,598 |
|
|
$ |
- |
|
|
$ |
(430 |
) |
|
$ |
- |
|
|
$ |
37,168 |
|
Provision
for loan losses
|
|
|
4,526 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,526 |
|
Non-interest
income
|
|
|
9,761 |
|
|
|
6,698 |
|
|
|
7,333 |
|
|
|
(7,331 |
) |
|
|
16,461 |
|
Non-interest
expense
|
|
|
35,044 |
|
|
|
4,612 |
|
|
|
566 |
|
|
|
(2 |
) |
|
|
40,220 |
|
Income
before income taxes
|
|
|
7,789 |
|
|
|
2,086 |
|
|
|
6,337 |
|
|
|
(7,329 |
) |
|
|
8,883 |
|
Income
tax expense (benefit)
|
|
|
1,690 |
|
|
|
856 |
|
|
|
(407 |
) |
|
|
- |
|
|
|
2,139 |
|
Net
income
|
|
$ |
6,099 |
|
|
$ |
1,230 |
|
|
$ |
6,744 |
|
|
$ |
(7,329 |
) |
|
$ |
6,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in millions)
|
|
$ |
2,676 |
|
|
$ |
31 |
|
|
$ |
392 |
|
|
$ |
(400 |
) |
|
$ |
2,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
35,036 |
|
|
$ |
- |
|
|
$ |
(601 |
) |
|
$ |
- |
|
|
$ |
34,435 |
|
Provision
for loan losses
|
|
|
4,700 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,700 |
|
Non-interest
income
|
|
|
9,182 |
|
|
|
7,895 |
|
|
|
6,872 |
|
|
|
(6,872 |
) |
|
|
17,077 |
|
Non-interest
expense
|
|
|
32,819 |
|
|
|
5,098 |
|
|
|
514 |
|
|
|
- |
|
|
|
38,431 |
|
Income
(loss) before income taxes
|
|
|
6,699 |
|
|
|
2,797 |
|
|
|
5,757 |
|
|
|
(6,872 |
) |
|
|
8,381 |
|
Income
tax expense (benefit)
|
|
|
1,478 |
|
|
|
1,147 |
|
|
|
(457 |
) |
|
|
(1 |
) |
|
|
2,167 |
|
Net
income (loss)
|
|
$ |
5,221 |
|
|
$ |
1,650 |
|
|
$ |
6,214 |
|
|
$ |
(6,871 |
) |
|
$ |
6,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets (in millions)
|
|
$ |
2,642 |
|
|
$ |
33 |
|
|
$ |
399 |
|
|
$ |
(395 |
) |
|
$ |
2,679 |
|
10.
|
DERIVATIVE
FINANCIAL INSTRUMENTS AND HEDGING
ACTIVITIES
|
As of
June 30, 2010, the Company held derivatives with a total notional amount of $530
million. Of this total, interest rate swaps with a combined notional amount of
$200 million were designated as cash flow hedges and $289 million have been
designated as economic hedges. The remaining $41 million notional
amount represents commitments to originate residential mortgage loans for sale
and commitments to sell residential mortgage loans, which are also accounted for
as derivative financial instruments. At June 30, 2010, no derivatives were
designated as hedges of net investments in foreign
operations. Additionally, the Company does not use derivatives for
trading or speculative purposes.
As part
of the Company’s risk management strategy, the Company enters into interest rate
swap agreements to mitigate the interest rate risk inherent in certain of the
Company’s assets and liabilities. Interest rate swap agreements involve the risk
of dealing with both Bank customers and institutional derivative counterparties
and their ability to meet contractual terms. The agreements are entered into
with counterparties that meet established credit standards and contain master
netting and collateral provisions protecting the at-risk party. The derivatives
program is overseen by the Risk Management Committee of the Company’s Board of
Directors. Based on adherence to the Company’s credit standards and the presence
of the netting and collateral provisions, the Company believes that the credit
risk inherent in these contracts was not significant at June 30,
2010.
The
Company pledged collateral to derivative counterparties in the form of cash
totaling $11.4 million and securities with an amortized cost of $14.1 million
and a fair value of $14.8 million as of June 30, 2010. No collateral was posted
from counterparties to the Company as of June 30, 2010. The Company may need to
post additional collateral in the future in proportion to potential increases in
unrealized loss positions. In the third quarter of 2010, the Company amended a collateral
support agreement which would have required the Company to post $1.2 million in
additional collateral if the amendment had been effective on June 30,
2010. Currently, there are no other contingent features that
would require the Company to post additional collateral.
Information
about interest rate swap agreements and non-hedging derivative assets and
liabilities at June 30, 2010, follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Average
|
|
|
Weighted Average Rate
|
|
|
Fair Value
|
|
|
|
Amount
|
|
|
Maturity
|
|
|
Received
|
|
|
Paid
|
|
|
Asset (Liability)
|
|
|
|
(In thousands)
|
|
|
(In years)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps on FHLBB borrowings
|
|
$ |
145,000 |
|
|
|
4.2 |
|
|
|
0.38
|
% |
|
|
4.15
|
% |
|
$ |
(13,835 |
) |
Forward-starting
interest rate swaps on FHLBB borrowings
|
|
|
40,000 |
|
|
|
3.3 |
|
|
|
- |
|
|
|
3.13 |
|
|
|
(343 |
) |
Interest
rate swaps on junior subordinated debentures
|
|
|
15,000 |
|
|
|
3.9 |
|
|
|
2.33 |
|
|
|
5.54 |
|
|
|
(1,150 |
) |
Total
cash flow hedges
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic
hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap on industrial revenue bond
|
|
|
14,782 |
|
|
|
19.4 |
|
|
|
0.72 |
|
|
|
5.09 |
|
|
|
(2,312 |
) |
Interest
rate swaps on loans with commercial loan customers
|
|
|
137,247 |
|
|
|
7.0 |
|
|
|
2.93 |
|
|
|
6.12 |
|
|
|
(9,465 |
) |
Reverse
interest rate swaps on loans with commercial loan
customers
|
|
|
137,247 |
|
|
|
7.0 |
|
|
|
6.12 |
|
|
|
2.93 |
|
|
|
9,486 |
|
Total
economic hedges
|
|
|
289,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging
derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to originate residential mortgage loans to be sold
|
|
|
20,355 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
(153 |
) |
Commitments
to sell residential mortgage loans
|
|
|
20,355 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
161 |
|
Total
non-hedging derivatives
|
|
|
40,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
529,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(17,611 |
) |
Information
about interest rate swap agreements and non-hedging derivative assets and
liabilities at December 31, 2009, follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Average
|
|
|
Weighted Average Rate
|
|
|
Fair Value
|
|
|
|
Amount
|
|
|
Maturity
|
|
|
Received
|
|
|
Paid
|
|
|
Asset (Liability)
|
|
|
|
(In thousands)
|
|
|
(In years)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps on FHLBB borrowings
|
|
$ |
145,000 |
|
|
|
4.7 |
|
|
|
0.28
|
% |
|
|
4.15
|
% |
|
$ |
(8,874 |
) |
Interest
rate swaps on junior subordinated debentures
|
|
|
15,000 |
|
|
|
4.4 |
|
|
|
2.12 |
|
|
|
5.54 |
|
|
|
(668 |
) |
Total
cash flow hedges
|
|
|
160,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic
hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap on industrial revenue bond
|
|
|
15,000 |
|
|
|
19.9 |
|
|
|
0.60 |
|
|
|
5.09 |
|
|
|
(1,018 |
) |
Interest
rate swaps on loans with commercial loan customers
|
|
|
93,962 |
|
|
|
7.0 |
|
|
|
2.50 |
|
|
|
6.32 |
|
|
|
(2,887 |
) |
Reverse
interest rate swaps on loans with commercial loan
customers
|
|
|
93,962 |
|
|
|
7.0 |
|
|
|
6.32 |
|
|
|
2.50 |
|
|
|
2,962 |
|
Total
economic hedges
|
|
|
202,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging
derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to originate residential mortgage loans to be sold
|
|
|
22,668 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
(273 |
) |
Commitments
to sell residential mortgage loans
|
|
|
22,668 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
305 |
|
Total
non-hedging derivatives
|
|
|
45,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
408,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,453 |
) |
Cash
flow hedges
The
effective portion of unrealized changes in the fair value of derivatives
accounted for as cash flow hedges are reported in other comprehensive income and
subsequently reclassified to earnings when gains or losses are realized. Each
quarter, the Company assesses the effectiveness of each hedging relationship by
comparing the changes in cash flows of the derivative hedging instrument with
the changes in cash flows of the designated hedged item or transaction. The
ineffective portion of changes in the fair value of the derivatives is
recognized directly in earnings.
The
Company has entered into several interest rate swaps with an aggregate notional
amount of $145 million to convert the LIBOR based floating interest rates on a
$145 million portfolio of FHLBB advances to fixed rates, with the objective of
fixing the Company’s monthly interest expense on these
borrowings.
The
Company has also entered into four forward-starting interest rate swaps each
with a notional value of $10 million. Two of these swaps take effect in April
2012 and the other two take effect in April 2013. All swaps have a one year
duration. This hedge strategy converts the LIBOR based rate of interest on
certain FHLB advances to fixed interest rates, thereby protecting the Company
from floating interest rate variability.
The
Company has also entered into an interest rate swap with a notional value of $15
million to convert the floating rate interest on its junior subordinated
debentures to a fixed rate of interest. The purpose of the hedge was to protect
the Company from the risk of variability arising from the floating rate interest
on the debentures.
Amounts
included in the Consolidated Statements of Income and in the other comprehensive
loss section of the Consolidated Statements of Changes in Stockholders’ Equity
related to interest rate derivatives designated as hedges of cash flows, were as
follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(In
thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps on FHLBB borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain recognized in accumulated other comprehensive
loss
|
|
$ |
(3,943 |
) |
|
$ |
5,015 |
|
|
$ |
(5,304 |
) |
|
$ |
6,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of realized gain from accumulated other comprehensive loss to other
non-interest income for termination of swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of unrealized loss from accumulated other comprehensive loss to other
non-interest income for hedge ineffectiveness
|
|
|
- |
|
|
|
(90 |
) |
|
|
- |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
tax benefit (expense) on items recognized in accumulated other
comprehensive loss
|
|
|
1,634 |
|
|
|
(1,976 |
) |
|
|
2,249 |
|
|
|
(2,446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps on junior subordinated debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain recognized in accumulated other comprehensive
loss
|
|
|
(334 |
) |
|
|
480 |
|
|
|
(482 |
) |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
tax benefit (expense) on items recognized in accumulated other
comprehensive loss
|
|
|
137 |
|
|
|
(192 |
) |
|
|
204 |
|
|
|
(227 |
) |
Other
comprehensive (loss) income recorded in accumulated other comprehensive
loss, net of reclassification adjustments and tax effects
|
|
$ |
(2,506 |
) |
|
$ |
3,237 |
|
|
$ |
(3,333 |
) |
|
$ |
4,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense recognized in interest expense on hedged FHLBB
borrowings
|
|
$ |
1,409 |
|
|
$ |
1,053 |
|
|
$ |
2,821 |
|
|
$ |
1,970 |
|
Net
interest expense recognized in interest expense on junior subordinated
debentures
|
|
$ |
126 |
|
|
$ |
102 |
|
|
$ |
255 |
|
|
$ |
173 |
|
The
Company’s accumulated other comprehensive loss totaled $6.0 million at June 30,
2010. Of this loss, $8.6 million was attributable to accumulated losses on cash
flow hedges, net of deferred tax benefits of $6.7 million, and $2.6 million was
attributable to accumulated gains on available-for-sale securities, net of
deferred tax expenses of $2.0 million.
The
Company’s accumulated other comprehensive loss totaled $3.0 million at December
31, 2009. Of this loss, $5.2 million was attributable to accumulated losses on
cash flow hedges, net of deferred tax benefits of $4.3 million, and $2.2 million
was attributable to accumulated gains on available-for-sale securities, net of
deferred tax expenses of $1.8 million.
Hedge
ineffectiveness on interest rate swaps designated as cash flow hedges was
immaterial to the Company’s financial statements during the six months ended
June 30, 2010 and 2009. The Company does not anticipate material
events or transactions within the next twelve months that are likely to result
in a reclassification of unrealized gains or losses from accumulated other
comprehensive loss to earnings.
Economic
hedges and non-hedging derivatives
The
Company has an interest rate swap with a $15.0 million notional amount to swap
out the fixed rate of interest on an economic development bond bearing a fixed
rate of 5.09%, currently within the Company’s trading portfolio under the fair
value option, in exchange for a LIBOR-based floating rate. The intent of the
economic hedge is to improve the Company’s asset sensitivity to changing
interest rates in anticipation of favorable average floating rates of interest
over the 21-year life of the bond. The fair value changes of the
economic development bond are mostly offset by fair value changes of the related
interest rate swap.
The
Company also offers certain derivative products directly to qualified commercial
borrowers. The Company economically hedges derivative transactions
executed with commercial borrowers by entering into mirror-image, offsetting
derivatives with third-party financial institutions. The transaction
allows the Company’s customer to convert a variable-rate loan to a fixed rate
loan. Because the Company acts as an intermediary for its customer, changes in
the fair value of the underlying derivative contracts mostly offset each other
in earnings. Credit valuation adjustments arising from the difference in credit
worthiness of the commercial loan and financial institution counterparties
totaled $22 thousand as of June 30, 2010 and were not material to the financial
statements. The interest income and expense on these mirror image
swaps exactly offset each other.
The
Company enters into commitments with certain of its retail customers to
originate fixed rate mortgage loans and simultaneously enters into an agreement
to sell these fixed rate mortgage loans to the Federal National Mortgage
Association. These commitments are considered derivative financial
instruments and are recorded at fair value with any changes in fair value
recorded through earnings.
Amounts
included in the Consolidated Statements of Operations related to economic hedges
and non-hedging derivatives were as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap on industrial revenue bond:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense recognized in interest and dividend income on
securities
|
|
$ |
(166 |
) |
|
$ |
(163 |
) |
|
$ |
(334 |
) |
|
$ |
(323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain recognized in other non-interest income
|
|
|
(1,135 |
) |
|
|
1,138 |
|
|
|
(1,294 |
) |
|
|
2,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps on loans with commercial loan customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) recognized in other non-interest income
|
|
|
4,973 |
|
|
|
(2,025 |
) |
|
|
6,578 |
|
|
|
(1,097 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse
interest rate swaps on loans with commercial loan
customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain recognized in other non-interest income
|
|
|
(4,973 |
) |
|
|
2,025 |
|
|
|
(6,578 |
) |
|
|
1,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unfavorable)
favorable change in credit valuation adjustment recognized in other
non-interest income
|
|
$ |
(323 |
) |
|
$ |
114 |
|
|
$ |
53 |
|
|
$ |
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging
derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to originate residential mortgage loans to be sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss recognized in other non-interest income
|
|
$ |
(153 |
) |
|
$ |
(343 |
) |
|
$ |
(185 |
) |
|
$ |
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to sell residential mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain recognized in other non-interest income
|
|
$ |
161 |
|
|
$ |
401 |
|
|
$ |
209 |
|
|
$ |
401 |
|
11.
|
FAIR
VALUE MEASUREMENTS
|
A
description of the valuation methodologies used for assets and liabilities
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 that are carried at fair value.
Recurring
fair value measurements
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of June 30, 2010 and December 31, 2009,
segregated by the level of the valuation inputs within the fair value hierarchy
utilized to measure fair value. There were no transfers between levels during
the six months ended June 30, 2010.
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
(In thousands)
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
account security
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
16,914 |
|
|
$ |
16,914 |
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
|
- |
|
|
|
80,222 |
|
|
|
- |
|
|
|
80,222 |
|
Governmentguaranteed
residential mortgage-backed securities
|
|
|
- |
|
|
|
12,671 |
|
|
|
- |
|
|
|
12,671 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
- |
|
|
|
140,034 |
|
|
|
- |
|
|
|
140,034 |
|
Corporate
bonds
|
|
|
- |
|
|
|
32,624 |
|
|
|
- |
|
|
|
32,624 |
|
Trust
preferred securities
|
|
|
- |
|
|
|
19,028 |
|
|
|
1,101 |
|
|
|
20,129 |
|
Other
bonds and obligations
|
|
|
- |
|
|
|
5,444 |
|
|
|
- |
|
|
|
5,444 |
|
Marketable
equity securities
|
|
|
3,552 |
|
|
|
- |
|
|
|
1,530 |
|
|
|
5,082 |
|
Derivative
assets
|
|
|
- |
|
|
|
9,647 |
|
|
|
- |
|
|
|
9,647 |
|
Derivative
liabilities
|
|
|
- |
|
|
|
27,105 |
|
|
|
153 |
|
|
|
27,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
(In
thousands)
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
account security
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
15,880 |
|
|
$ |
15,880 |
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds and obligations
|
|
|
- |
|
|
|
74,784 |
|
|
|
- |
|
|
|
74,784 |
|
Government
guaranteed residential mortgage-backed securities
|
|
|
- |
|
|
|
13,031 |
|
|
|
- |
|
|
|
13,031 |
|
Government-sponsored
residential mortgage-backed securities
|
|
|
- |
|
|
|
184,245 |
|
|
|
- |
|
|
|
184,245 |
|
Corporate
bonds
|
|
|
- |
|
|
|
37,337 |
|
|
|
- |
|
|
|
37,337 |
|
Trust
preferred securities
|
|
|
- |
|
|
|
6,051 |
|
|
|
864 |
|
|
|
6,915 |
|
Other
bonds and obligations
|
|
|
- |
|
|
|
5,470 |
|
|
|
- |
|
|
|
5,470 |
|
Marketable
equity securities
|
|
|
1,411 |
|
|
|
- |
|
|
|
1,152 |
|
|
|
2,563 |
|
Derivative
assets
|
|
|
- |
|
|
|
3,267 |
|
|
|
- |
|
|
|
3,267 |
|
Derivative
liabilities
|
|
|
- |
|
|
|
13,447 |
|
|
|
273 |
|
|
|
13,720 |
|
Trading Security
at Fair Value. The Company holds one security designated as a trading
security. It is a tax advantaged economic development bond issued by the Company
to a local nonprofit organization which provides wellness and health programs.
The determination of the fair value for this security is determined based on a
discounted cash flow methodology. Certain inputs to the fair value calculation
are unobservable and there is little to no market activity in the security,
therefore, the security meets the definition of a level 3 security and has been
classified as such.
Securities
Available for Sale (“AFS”). AFS securities classified as
Level 1 consist of publicly-traded equity securities for which the fair values
can be obtained through quoted market prices in active exchange markets. AFS
securities classified as Level 2 include most of the Company’s debt securities.
The pricing on Level 2 was primarily sourced from third party pricing services
and is based on models that consider standard input factors such as 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 condition, among other things. The Company
holds one trust preferred security and two limited partnership securities in its
AFS portfolio which are classified as Level 3. The securities’ fair values are
based on unobservable issuer-provided financial information and discounted cash
flow models derived from the underlying structured pool.
Derivative Assets
and Liabilities. The valuation of the Company’s interest rate swaps is
obtained from a third-party pricing service and is determined using a discounted
cash flow analysis on the expected cash flows of each derivative. The pricing
analysis is based on observable inputs for the contractual terms of the
derivatives, including the period to maturity and interest rate
curves.
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.
Although
the Company has determined that the majority of the inputs used to value its
interest rate 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,
2010, 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.
The
Company enters into various commitments to originate residential mortgage loans
for sale and commitments to sell residential mortgage loans. Such commitments
are considered to be derivative financial instruments and are carried at
estimated fair value on the consolidated balance sheets.
The
estimated fair value of commitments to originate residential mortgage loans for
sale is adjusted to reflect estimates for fall-out rates, associated servicing
and origination costs. These assumptions are considered significant unobservable
inputs resulting in a Level 3 classification. As of June 30, 2010, liabilities
derived from commitments to originate residential mortgage loans for sale
totaled $153 thousand. The estimated fair values of commitments to sell
residential mortgage loans were calculated by reference to prices quoted by the
Federal National Mortgage Association in secondary markets. These valuations
result in a Level 2 classification. As of June 30, 2010, assets derived from
commitments to sell residential mortgage loans totaled $161
thousand.
The table
below presents the changes in Level 3 assets that were measured at fair value on
a recurring basis at June 30, 2010 and 2009.
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Trading
|
|
|
Securities
|
|
|
|
|
|
|
Account
|
|
|
Available
|
|
|
Derivative
|
|
(In thousands)
|
|
Security
|
|
|
for Sale
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2009
|
|
$ |
15,880 |
|
|
$ |
2,016 |
|
|
$ |
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain recognized in other non-interest income
|
|
|
46 |
|
|
|
- |
|
|
|
241 |
|
Unrealized
gain included in accumulated other comprehensive loss
|
|
|
- |
|
|
|
267 |
|
|
|
- |
|
Amortization
of trading account security
|
|
|
(110 |
) |
|
|
- |
|
|
|
- |
|
Balance
as of March 31, 2010
|
|
$ |
15,816 |
|
|
$ |
2,283 |
|
|
$ |
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) recognized in other non-interest income
|
|
|
1,206 |
|
|
|
- |
|
|
|
(121 |
) |
Unrealized
gain included in accumulated other comprehensive loss
|
|
|
- |
|
|
|
348 |
|
|
|
- |
|
Amortization
of trading account security
|
|
|
(108 |
) |
|
|
- |
|
|
|
- |
|
Balance
as of June 30, 2010
|
|
$ |
16,914 |
|
|
$ |
2,631 |
|
|
$ |
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) relating to instruments still held at June 30,
2010
|
|
$ |
2,133 |
|
|
$ |
(1,510 |
) |
|
$ |
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Trading
|
|
|
Securities
|
|
|
|
|
|
|
|
Account
|
|
|
Available
|
|
|
Derivative
|
|
(In
thousands)
|
|
Security
|
|
|
for Sale
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
$ |
18,144 |
|
|
$ |
1,446 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss recognized in other non-interest income
|
|
|
(579 |
) |
|
|
- |
|
|
|
- |
|
Unrealized
loss included in accumulated other comprehensive loss
|
|
|
- |
|
|
|
(385 |
) |
|
|
- |
|
Balance
as of March 31, 2009
|
|
$ |
17,565 |
|
|
$ |
1,061 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss recognized in other non-interest income
|
|
|
(1,318 |
) |
|
|
- |
|
|
|
(343 |
) |
Unrealized
gain included in accumulated other comprehensive loss
|
|
|
- |
|
|
|
282 |
|
|
|
- |
|
Balance
as of June 30, 2009
|
|
$ |
16,247 |
|
|
$ |
1,343 |
|
|
$ |
(343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) relating to instruments still held at June 30,
2009
|
|
$ |
1,247 |
|
|
$ |
(1,896 |
) |
|
$ |
(343 |
) |
Non-recurring
fair value measurements
The
Company is required, on a non-recurring basis, to adjust the carrying value or
provide valuation allowances for certain assets using fair value measurements in
accordance with GAAP. The following is a summary of applicable non-recurring
fair value measurements. There are no liabilities measured at fair value on a
non-recurring basis.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Total
|
|
(In
thousands)
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Losses
|
|
|
Losses
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,799 |
|
|
$ |
(532 |
) |
|
$ |
(871 |
) |
Other
real estate owned
|
|
|
- |
|
|
|
- |
|
|
|
2,900 |
|
|
|
- |
|
|
|
(750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
10,699 |
|
|
$ |
(532 |
) |
|
$ |
(1,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Total
|
|
(In
thousands)
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Losses
|
|
|
Losses
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,144 |
|
|
$ |
(45 |
) |
|
$ |
(564 |
) |
Other
real estate owned
|
|
|
- |
|
|
|
- |
|
|
|
130 |
|
|
|
- |
|
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,274 |
|
|
$ |
(45 |
) |
|
$ |
(691 |
) |
Securities held
to maturity. Held to maturity
securities are recorded at amortized cost and are evaluated periodically for
impairment. No impairments were recorded on securities held to maturity during
the six months ended June 30, 2010 and 2009. Held for maturity securities are
fair valued using the same methodologies applied to the available for sales
securities portfolio. Most securities in the held to maturity
portfolio consist of economic development bonds and issues to local
municipalities that are not actively traded and are priced using a discounted
cash flows model. The Company views these as Level 3
pricing.
Restricted equity
securities. The Company’s restricted
equity securities balance is primarily composed of Federal Home Loan Bank of
Boston (“FHLBB”) stock having a carrying value of $21.1 million as of June 30,
2010. FHLBB stock is recorded at par and periodically evaluated for
impairment. The FHLBB is a cooperative that provides services to its
member banking institutions. The primary reason for joining the FHLBB was to
obtain funding from the FHLBB and the purchase of stock in the FHLBB is a
requirement for a member to gain access to funding. The Company purchases FHLBB
stock proportional to the volume of funding received and views the purchases as
a necessary long-term investment for the purposes of balance sheet liquidity and
not for investment return.
In
February 2009 the FHLBB announced that it has indefinitely suspended its
dividend payment beginning in the first quarter of 2009, and will continue the
moratorium, put into effect during the fourth quarter of 2008, on all excess
stock repurchases in an effort to help preserve capital. In addition, the FHLBB
reported a net loss for the years ended December 31, 2008 and
2009. However, the FHLBB has reported positive net income for the
first and second quarters of 2010. These factors were considered by
the Company’s management when determining if an other-than-temporary impairment
exists with respect to the Company’s investment in FHLBB. The Company also
reviewed recent public filings, rating agency’s analysis which showed
investment-grade ratings, capital position which exceeds all required capital
levels, and other factors. As a result of the Company’s review for OTTI,
management deemed the investment in the FHLBB stock not to be OTTI as of June
30, 2010 and it will continue to be monitored closely. There can be no assurance
as to the outcome of management’s future evaluation of the Company’s investment
in the FHLBB.
Loans.
Loans are generally not recorded at fair value on a recurring basis.
Periodically, the Company records non-recurring adjustments to the carrying
value of loans based on fair value measurements for partial charge-offs of the
uncollectible portions of those loans. Non-recurring adjustments can also
include certain impairment amounts for collateral-dependent loans calculated
when establishing the allowance for credit losses. Such amounts are generally
based on the fair value of the underlying collateral supporting the loan and, as
a result, the carrying value of the loan less the calculated valuation amount
does not necessarily represent the fair value of the loan. Real
estate collateral is typically valued using appraisals or other indications of
value based on recent comparable sales of similar properties or assumptions
generally observable in the marketplace. However, the choice of
observable data is subject to significant judgment, and there are often
adjustments based on judgment in order to make observable data comparable and to
consider the impact of time, the condition of properties, interest rates, and
other market factors on current values. Additionally, commercial real
estate appraisals frequently involve discounting of projected cash flows, which
relies inherently on unobservable data. Therefore, real estate
collateral related nonrecurring fair value measurement adjustments have
generally been classified as Level 3. Estimates of fair value used for
other collateral supporting commercial loans generally are based on assumptions
not observable in the marketplace and therefore such valuations have been
classified as Level 3.
Loans held for
sale. Loans originated and held for sale are carried at the lower of
aggregate cost or market value. No fair value adjustments were recorded on loans
held for sale during the six month periods ended June 30, 2010 and 2009. The
Company holds loans in the held for sale category for a period generally less
than 3 months and as a result fair value approximates carrying
value.
Capitalized
mortgage loan servicing rights. A loan
servicing right asset represents the amount by which the present value of the
estimated future net cash flows to be received from servicing loans are expected
to more than adequately compensate the Company for performing the servicing. The
fair value of servicing rights is estimated using a present value cash flow
model. The most important assumptions used in the valuation model are the
anticipated rate of the loan prepayments and discount rates. Adjustments are
only recorded when the discounted cash flows derived from the valuation model
are less than the carrying value of the asset. Although some assumptions in
determining fair value are based on standards used by market participants, some
are based on unobservable inputs and therefore are classified in Level 3 of the
valuation hierarchy. Write-downs on capitalized mortgage loan servicing rights
totaled $178 thousand and $144 thousand for the six months ended June 30, 2010
and 2009, respectively.
Non-financial
assets and non-financial liabilities
Other real estate
owned (“OREO”). OREO results from the foreclosure process on residential
or commercial loans issued by the Bank. Upon assuming the real estate, the
Company records the property at the fair value of the asset less the estimated
sales costs. Thereafter, OREO properties are recorded at the lower of cost or
fair value. OREO fair values are primarily determined based on Level 3 data
including sales comparables and appraisals.
Intangible assets
and goodwill. The Company’s other intangible balance totaled $12.8
million and $14.4 million as of June 30, 2010 and December 31, 2009,
respectively. Other intangible assets include core deposit intangibles,
insurance customer relationships, and non-compete agreements assumed by the
Company as part of historical acquisitions. Other intangibles are
initially recorded at fair value based on Level 3 data, such as internal
appraisals and customized discounted criteria, and are amortized over their
estimated lives on a straight-line or accelerated basis ranging from five to ten
years. No impairment was recorded on other intangible assets during the six
month periods ended June 30, 2010 and 2009.
The
Company’s goodwill balance as of June 30, 2010 and December 31, 2009 was $161.7
million. The Company tests goodwill impairment annually in the fourth quarter or
more frequently if events or changes in circumstances indicate that impairment
is possible. No impairment was recorded on goodwill during the six months ended
June 30, 2010 and 2009.
Summary
of estimated fair values of financial instruments
The
estimated fair values, and related carrying amounts, of the Company’s financial
instruments follow. Accordingly, the aggregate fair value amounts presented
herein may not necessarily represent the underlying fair value of the
Company.
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
42,248 |
|
|
$ |
42,248 |
|
|
$ |
32,608 |
|
|
$ |
32,608 |
|
Trading
security
|
|
|
16,914 |
|
|
|
16,914 |
|
|
|
15,880 |
|
|
|
15,880 |
|
Securities
available for sale
|
|
|
296,206 |
|
|
|
296,206 |
|
|
|
324,345 |
|
|
|
324,345 |
|
Securities
held to maturity
|
|
|
58,618 |
|
|
|
58,775 |
|
|
|
57,621 |
|
|
|
58,567 |
|
Restricted
equity securities
|
|
|
23,120 |
|
|
|
23,120 |
|
|
|
23,120 |
|
|
|
23,120 |
|
Net
loans
|
|
|
1,988,133 |
|
|
|
1,933,817 |
|
|
|
1,929,842 |
|
|
|
1,833,404 |
|
Loans
held for sale
|
|
|
3,156 |
|
|
|
3,156 |
|
|
|
4,146 |
|
|
|
4,146 |
|
Capitalized
mortgage servicing rights
|
|
|
1,727 |
|
|
|
1,727 |
|
|
|
1,620 |
|
|
|
1,620 |
|
Accrued
interest receivable
|
|
|
8,424 |
|
|
|
8,424 |
|
|
|
8,498 |
|
|
|
8,498 |
|
Cash
surrender value of bank-owned life insurance policies
|
|
|
35,270 |
|
|
|
35,270 |
|
|
|
36,904 |
|
|
|
36,904 |
|
Derivative
assets
|
|
|
9,647 |
|
|
|
9,647 |
|
|
|
3,267 |
|
|
|
3,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
$ |
2,040,171 |
|
|
$ |
2,053,356 |
|
|
$ |
1,986,762 |
|
|
$ |
2,007,774 |
|
Short-term
debt
|
|
|
72,250 |
|
|
|
72,250 |
|
|
|
83,860 |
|
|
|
83,860 |
|
Long-term
Federal Home Loan Bank advances
|
|
|
197,567 |
|
|
|
202,810 |
|
|
|
207,344 |
|
|
|
208,831 |
|
Junior
subordinated debentures
|
|
|
15,464 |
|
|
|
10,360 |
|
|
|
15,464 |
|
|
|
9,462 |
|
Derivative
liabilities
|
|
|
27,258 |
|
|
|
27,258 |
|
|
|
13,720 |
|
|
|
13,720 |
|
Other
than as discussed above, the following methods and assumptions were used by
management to estimate the fair value of significant classes of financial
instruments for which it is practicable to estimate that value.
Cash and cash
equivalents. Carrying value is assumed to represent fair value for cash
and cash equivalents that have original maturities of ninety days or
less.
Restricted equity
securities. Carrying value approximates fair value based on the
redemption provisions of the issuers.
Cash surrender
value of life insurance policies. Carrying value
approximates fair value.
Loans, net.
The carrying value of the loans in the loan portfolio is based on the
cash flows of the loans discounted over their respective loan rates. The rates
are adjusted for substandard and special mention loans to factor the impact of
declines in the loan’s credit standing. The fair value of the loans is estimated
by discounting future cash flows using the current interest rates at which
similar loans with similar terms would be made to borrowers of similar credit
quality.
Accrued interest
receivable. Carrying value
approximates fair value.
Deposits.
The fair value of demand, interest bearing checking, savings and money
market deposits is determined as the amount payable on demand at the reporting
date. The fair value of time deposits is estimated by discounting the estimated
future cash flows using market rates offered for deposits of similar remaining
maturities.
Borrowed funds.
The fair value of borrowed funds is estimated by discounting the future
cash flows using market rates for similar borrowings. Such funds
include all categories of debt and debentures in the table
above.
Junior
subordinated debentures. The Company utilizes a pricing service along
with internal models to estimate the valuation of its junior subordinated
debentures. The junior subordinated debentures re-price every ninety
days.
Off-balance-sheet
financial instruments. Off-balance-sheet financial instruments include
standby letters of credit and other financial guarantees and commitments
considered immaterial to the Company’s financial
statements.
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 of Financial Condition and Results of
Operations included in the 2009 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 2010 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 (“the Company” or “Berkshire”) is headquartered in Pittsfield,
Massachusetts. It has $2.7 billion in assets at June 30, 2010 and is the
parent of Berkshire Bank — America’s Most Exciting BankSM (“the
Bank”). The Company provides personal and business banking,
insurance, investment, and wealth management services through 45 financial
centers in western Massachusetts, northeastern New York, and southern Vermont.
Berkshire Bank provides 100% deposit insurance protection, regardless of amount,
based on a combination of FDIC insurance and membership in the Depositors
Insurance Fund (DIF). For more information, visit www.berkshirebank.com
or call 800-773-5601.
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., Berkshire Bank and Berkshire Insurance Group, Inc.. 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. Our ability to predict results or the actual effects of our plans
and strategies is 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, 2009 and in
this report and in other reports filed with the Securities and Exchange
Commission. 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 2009 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, the valuation of deferred tax assets, the estimates
related to the initial measurement of goodwill and intangible assets and
subsequent impairment analyses, the determination of other-than-temporary
impairment of investment securities, and the determination of fair value of
financial instruments are considered to be critical. 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 2009 Form 10-K. There have been no
significant changes in the Company’s application of critical accounting policies
since year-end 2009. Please refer to the note on Recent Accounting
Pronouncements in Note 1 to the consolidated financial statements of this report
for a detailed discussion of new accounting pronouncements. The Company performs
an annual impairment test of goodwill or more frequently if events or changes in
circumstances indicate that impairment is possible. There have been no such
events or changes in circumstance since the Company’s most recent report on Form
10-K.
RECENT
EVENTS
During
the first half of 2010, economic conditions in the United States continued to
improve, although the pace of improvement began to show signs of slowing during
the second quarter. Liquidity has returned to most of the the financial markets,
with continued normalization of credit spreads. The prolonged period
of low Federal funds rates continues to put pressure on spreads on earned
bank deposits. Housing prices stabilized in many markets, aided by
the first-time homebuyer tax credit as well as low interest rates attributable
to government monetary policy actions. Improved market conditions
have also resulted in recovery during the first half of 2010 of some of the
valuation losses previously recorded on several asset classes during 2008 and
into 2009. The U.S. government continues to pursue stabilizing
measures, including measures to help relieve large projected state and municipal
deficits.
The job
market also continued to improve in the first half of 2010, as the economy began
to add jobs in March which continued into the second quarter. However, U.S.
unemployment rates remained high at 9.5 percent in June
2010. Additionally, a significant number of U.S. residents are no
longer looking for work and, therefore, are not reflected in the U.S.
unemployment rates.
Concerns
about the future of the U.S. economy continue, including the pace and magnitude
of recovery from the recent economic recession, consumer confidence, volatility
in energy prices, volatility experienced by the credit markets including the
possibility that the recent European sovereign debt crisis will spread
and that trends in corporate earnings will continue to influence the U.S.
economic recovery and the capital markets. In particular, continued improvement
in unemployment rates and a sustained recovery of the housing markets remain
critical components of a broader U.S. economic recovery. Although consumer
confidence has improved from the levels seen early in 2009, it remains
relatively low on a historical basis. Additionally, there is uncertainty as
to the future course and efficacy of monetary and fiscal policy, and the impact
of growing government indebtedness. These conditions in combination
with general economic weakness and the impact of recent and proposed regulatory
changes may impact our results in 2010 depending in part on the nature and
timing of the economic recovery in the nation and in the Company’s
markets.
Financial
Regulatory Reform Legislation
On July
21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the “Act”) into law. The Act comprehensively
reforms the regulation of financial institutions, products and services.
Among other things, the Act provides for new capital standards that eliminate
the treatment of trust preferred securities as Tier 1 capital. Existing
trust preferred securities are grandfathered for banking entities with less than
$15 billion of assets, such as the Company. The Act permanently raises
deposit insurance levels to $250,000, retroactive to January 1, 2008, and
extends for two years the Transaction Account Guarantee Program, which will
become mandatory for all insured depository institutions. Pursuant to
modifications under the Act, deposit insurance assessments will be calculated
based on an insured depository institution’s assets rather than its insured
deposits and the minimum reserve ratio will be raised to 1.35%. In
addition, the Act authorizes the Federal Reserve Board to regulate interchange
fees for debit card transactions and establishes new minimum mortgage
underwriting standards for residential mortgages. The Act also establishes
the Bureau of Consumer Financial Protection (“CFPB”) as an independent bureau of
the Federal Reserve Board of Governors ("FRBG"). The CFPB has
the authority to prescribe rules governing the provision of consumer
financial products and services. The Act establishes a timeline for
the consolidation of the activities of the Office of Thrift Supervision (“OTS”)
into other existing bank regulatory agencies. The OTS is currently
the regulator of the holding company, Berkshire Hills Bancorp,
Inc.. It is expected that regulation of the holding company will
transfer to the Federal Reserve Board of Governors by the end of
2011. The Federal Reserve has different regulations, including
quantitative minimum consolidated capital ratios, which have not previously
applied to the holding company.
The Act
grants the SEC express authority to adopt rules granting proxy access for
shareholder nominees, and grants shareholders a non-binding vote on executive
compensation and “golden parachute” payments. Pursuant to modifications of
the proxy rules under the Act, the Company will be required to disclose the
relationship between executive pay and financial performance, the ratio of the
median pay of all employees to the pay of the chief executive officer, and
employee and director hedging activities. The Act also requires that stock
exchanges amend their listing rules (i) to require, among other things, that
each listed company’s compensation committee be granted the authority and
funding to retain independent advisors and (ii) to prohibit the listing of any
security of an issuer that does not adopt policies governing the claw back of
excess executive compensation based on inaccurate financial
statements. The Company is evaluating the Act and has not presently
formed conclusions about the impact of the Act on its operations and financial
position.
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE
RATIOS (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.50
|
% |
|
|
0.35
|
% |
|
|
0.49
|
% |
|
|
0.47
|
% |
Return
on average common equity
|
|
|
3.51 |
|
|
|
2.38 |
|
|
|
3.50 |
|
|
|
3.27 |
|
Net
interest margin, fully taxable equivalent
|
|
|
3.25 |
|
|
|
2.91 |
|
|
|
3.24 |
|
|
|
3.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET
QUALITY RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs (current quarter annualized)/average loans
|
|
|
0.44
|
% |
|
|
0.45
|
% |
|
|
0.46
|
% |
|
|
0.48
|
% |
Non-performing
assets/total assets
|
|
|
0.71 |
|
|
|
0.42 |
|
|
|
0.71 |
|
|
|
0.42 |
|
Allowance
for loan losses/total loans
|
|
|
1.58 |
|
|
|
1.16 |
|
|
|
1.58 |
|
|
|
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity to total assets
|
|
|
14.00
|
% |
|
|
15.20
|
% |
|
|
14.00
|
% |
|
|
15.20
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings, diluted
|
|
$ |
0.25 |
|
|
$ |
(0.08 |
) |
|
$ |
0.49 |
|
|
$ |
0.18 |
|
Total
common book value
|
|
|
27.40 |
|
|
|
29.29 |
|
|
|
27.40 |
|
|
|
29.29 |
|
Dividends
|
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.32 |
|
|
|
0.32 |
|
Common
stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
22.84 |
|
|
|
26.99 |
|
|
|
22.84 |
|
|
|
31.39 |
|
Low
|
|
|
16.81 |
|
|
|
19.87 |
|
|
|
16.20 |
|
|
|
18.46 |
|
Close
|
|
|
19.48 |
|
|
|
20.78 |
|
|
|
19.48 |
|
|
|
20.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL DATA: (In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,748 |
|
|
$ |
2,681 |
|
|
$ |
2,748 |
|
|
$ |
2,681 |
|
Total
loans
|
|
|
2,020 |
|
|
|
1,969 |
|
|
|
2,020 |
|
|
|
1,969 |
|
Allowance
for loan losses
|
|
|
32 |
|
|
|
23 |
|
|
|
32 |
|
|
|
23 |
|
Other
earning assets
|
|
|
412 |
|
|
|
415 |
|
|
|
412 |
|
|
|
415 |
|
Total
intangible assets
|
|
|
175 |
|
|
|
178 |
|
|
|
175 |
|
|
|
178 |
|
Total
deposits
|
|
|
2,040 |
|
|
|
1,951 |
|
|
|
2,040 |
|
|
|
1,951 |
|
Total
borrowings and debentures
|
|
|
285 |
|
|
|
297 |
|
|
|
285 |
|
|
|
297 |
|
Total
common stockholders' equity
|
|
|
385 |
|
|
|
408 |
|
|
|
385 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE PERIOD: (In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
18,871 |
|
|
$ |
16,724 |
|
|
$ |
37,168 |
|
|
$ |
34,435 |
|
Provision
for loan losses
|
|
|
2,200 |
|
|
|
2,200 |
|
|
|
4,526 |
|
|
|
4,700 |
|
Non-interest
income
|
|
|
7,963 |
|
|
|
8,405 |
|
|
|
16,461 |
|
|
|
17,077 |
|
Non-interest
expense
|
|
|
20,028 |
|
|
|
19,978 |
|
|
|
40,220 |
|
|
|
38,431 |
|
Net
income
|
|
|
3,408 |
|
|
|
2,331 |
|
|
|
6,744 |
|
|
|
6,214 |
|
(1) All performance ratios are annualized and
are based on average balance sheet amounts, where applicable.
AVERAGE
BALANCES AND AVERAGE YIELDS/RATES
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,
|
|
($
In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Average
Balance
|
|
|
Yield/Rate
(FTE
basis)
|
|
|
Average
Balance
|
|
|
Yield/Rate
(FTE
basis)
|
|
|
Average
Balance
|
|
|
Yield/Rate
(FTE
basis)
|
|
|
Average
Balance
|
|
|
Yield/Rate
(FTE
basis)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
636 |
|
|
|
5.26
|
% |
|
$ |
637 |
|
|
|
5.46
|
% |
|
$ |
625 |
|
|
|
5.29
|
% |
|
$ |
656 |
|
|
|
5.51
|
% |
Commercial
mortgages
|
|
|
877 |
|
|
|
4.96 |
|
|
|
810 |
|
|
|
5.17 |
|
|
|
867 |
|
|
|
4.95 |
|
|
|
807 |
|
|
|
5.28 |
|
Commercial
business loans
|
|
|
181 |
|
|
|
4.99 |
|
|
|
173 |
|
|
|
5.76 |
|
|
|
176 |
|
|
|
4.93 |
|
|
|
173 |
|
|
|
5.86 |
|
Consumer
loans
|
|
|
303 |
|
|
|
3.93 |
|
|
|
339 |
|
|
|
4.46 |
|
|
|
307 |
|
|
|
3.98 |
|
|
|
341 |
|
|
|
4.55 |
|
Total
loans
|
|
|
1,997 |
|
|
|
4.90 |
|
|
|
1,959 |
|
|
|
5.19 |
|
|
|
1,975 |
|
|
|
4.91 |
|
|
|
1,977 |
|
|
|
5.28 |
|
Securities
|
|
|
408 |
|
|
|
4.09 |
|
|
|
346 |
|
|
|
4.54 |
|
|
|
410 |
|
|
|
4.07 |
|
|
|
341 |
|
|
|
4.72 |
|
Fed
funds sold & short-term investments
|
|
|
11 |
|
|
|
0.10 |
|
|
|
74 |
|
|
|
0.24 |
|
|
|
9 |
|
|
|
0.15 |
|
|
|
62 |
|
|
|
0.20 |
|
Total
earning assets
|
|
|
2,416 |
|
|
|
4.75 |
|
|
|
2,379 |
|
|
|
4.94 |
|
|
|
2,394 |
|
|
|
4.75 |
|
|
|
2,380 |
|
|
|
5.06 |
|
Other
assets
|
|
|
304 |
|
|
|
|
|
|
|
304 |
|
|
|
|
|
|
|
305 |
|
|
|
|
|
|
|
299 |
|
|
|
|
|
Total
assets
|
|
$ |
2,720 |
|
|
|
|
|
|
$ |
2,683 |
|
|
|
|
|
|
$ |
2,699 |
|
|
|
|
|
|
$ |
2,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$ |
197 |
|
|
|
0.35
|
% |
|
$ |
187 |
|
|
|
0.45
|
% |
|
$ |
196 |
|
|
|
0.37
|
% |
|
$ |
190 |
|
|
|
0.43
|
% |
Money
market
|
|
|
598 |
|
|
|
0.98 |
|
|
|
483 |
|
|
|
1.42 |
|
|
|
570 |
|
|
|
1.00 |
|
|
|
473 |
|
|
|
1.41 |
|
Savings
|
|
|
221 |
|
|
|
0.25 |
|
|
|
211 |
|
|
|
0.34 |
|
|
|
222 |
|
|
|
0.29 |
|
|
|
212 |
|
|
|
0.39 |
|
Time
|
|
|
748 |
|
|
|
2.68 |
|
|
|
795 |
|
|
|
3.32 |
|
|
|
753 |
|
|
|
2.70 |
|
|
|
779 |
|
|
|
3.38 |
|
Total
interest-bearing deposits
|
|
|
1,764 |
|
|
|
1.54 |
|
|
|
1,676 |
|
|
|
2.08 |
|
|
|
1,741 |
|
|
|
1.57 |
|
|
|
1,654 |
|
|
|
2.09 |
|
Borrowings
and debentures
|
|
|
267 |
|
|
|
3.46 |
|
|
|
310 |
|
|
|
4.35 |
|
|
|
273 |
|
|
|
3.36 |
|
|
|
338 |
|
|
|
4.22 |
|
Total
interest-bearing liabilities
|
|
|
2,031 |
|
|
|
1.79 |
|
|
|
1,986 |
|
|
|
2.43 |
|
|
|
2,015 |
|
|
|
1.81 |
|
|
|
1,992 |
|
|
|
2.45 |
|
Non-interest-bearing
demand deposits
|
|
|
276 |
|
|
|
|
|
|
|
252 |
|
|
|
|
|
|
|
273 |
|
|
|
|
|
|
|
242 |
|
|
|
|
|
Other
liabilities
|
|
|
25 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
Total
liabilities
|
|
|
2,332 |
|
|
|
|
|
|
|
2,268 |
|
|
|
|
|
|
|
2,311 |
|
|
|
|
|
|
|
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
388 |
|
|
|
|
|
|
|
415 |
|
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
413 |
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
2,720 |
|
|
|
|
|
|
$ |
2,683 |
|
|
|
|
|
|
$ |
2,699 |
|
|
|
|
|
|
$ |
2,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
2.96
|
% |
|
|
|
|
|
|
2.51
|
% |
|
|
|
|
|
|
2.93
|
% |
|
|
|
|
|
|
2.61
|
% |
Net
interest margin
|
|
|
|
|
|
|
3.25
|
% |
|
|
|
|
|
|
2.91
|
% |
|
|
|
|
|
|
3.24
|
% |
|
|
|
|
|
|
3.01
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deposits (In millions)
|
|
$ |
2,040 |
|
|
|
|
|
|
$ |
1,928 |
|
|
|
|
|
|
$ |
2,014 |
|
|
|
|
|
|
$ |
1,896 |
|
|
|
|
|
Fully
taxable equivalent income adj. (In thousands)
|
|
$ |
693 |
|
|
|
|
|
|
$ |
562 |
|
|
|
|
|
|
$ |
1,339 |
|
|
|
|
|
|
$ |
1,128 |
|
|
|
|
|
Cost
of funds
|
|
|
|
|
|
|
1.58
|
% |
|
|
|
|
|
|
2.16
|
% |
|
|
|
|
|
|
1.60
|
% |
|
|
|
|
|
|
2.17
|
% |
Cost
of deposits
|
|
|
|
|
|
|
1.33
|
% |
|
|
|
|
|
|
1.81
|
% |
|
|
|
|
|
|
1.36
|
% |
|
|
|
|
|
|
1.81 |
% |
(1) The
average balances of loans include nonaccrual loans, loans held for sale, and
deferred fees and costs.
(2) The
average balance for securities available for sale is based on amortized
cost.
SUMMARY
Berkshire
reported net income of $3.4 million, or $0.25 per share, in the second quarter
of 2010. This was a 46% increase over second quarter net income of
$2.3 million in 2009 due to positive operating leverage resulting primarily from
strong revenue growth. For the first half of the year, Berkshire
reported net income of $6.7 million, or $0.49 per share, in
2010. This was a 9% increase over first half net income of $6.2
million in 2009.
The
Company’s earnings per share in 2009 were reduced by a one-time preferred stock
deemed dividend which had no impact on cash or stockholders’ equity, as well as
preferred stock cash dividends. As a result, the Company reported a
2009 second quarter loss of $0.08 per share and first half earnings of $0.18 per
share. Adjusted for the deemed dividend, adjusted earnings per share
were $0.15 in the second quarter and $0.41 in the first half of
2009. Earnings per share in 2010 represented increases of 67% and 20%
for the second quarter and first half of the year, compared to these prior year
adjusted results.
Second Quarter Financial Highlights
(revenue and expense comparisons are to prior year second quarter, unless
otherwise noted)
Revenue
Growth
|
·
|
13%
growth in net interest income, and 13% annualized growth compared to the
prior quarter
|
|
·
|
18%
growth in fee income
|
Loan
Growth
|
·
|
16%
annualized growth in commercial
loans
|
Net
Interest Margin
|
·
|
3.25%
net interest margin, compared to 2.91% in the prior year second
quarter
|
Expenses
|
·
|
Less
than 1% increase in non-interest expense, and decrease compared to linked
quarter
|
Asset
Quality
|
·
|
$5
million decrease (22%) in nonperforming assets to 0.71% of total
assets
|
|
·
|
0.44%
annualized net loan charge-offs/average
loans
|
|
·
|
0.21%
ratio of accruing delinquent loans/total loans – lowest since
2005
|
|
·
|
193%
ratio of the loan loss allowance to non-accruing
loans
|
Berkshire
generated positive earnings momentum as a result of double digit growth in both
net interest income and fee income. Commercial loans grew strongly,
including market share gains and the contribution of the new asset based lending
group. Problem assets, delinquent loans, and net charge-offs declined
and were all at favorable levels compared to industry averages. Total
New York region deposits increased at a 28% annualized rate during the second
quarter, reaching $311 million at mid-year. The Company is targeting
the opening of two new branches in that region in the second half of 2010, and
expects that deposit growth in New York and from the new Springfield private
banking group will provide additional funding support for targeted loan
growth.
All major
components of Berkshire’s operating strategy contributed to positive operating
leverage. Growth in earnings per share continues to be a key focus as
Berkshire provides more services in its role as the largest locally
headquartered regional bank. The Company also plans to roll out
enhanced course offerings at America’s Most Exciting Bank University, which is
an initiative to further empower team members to live the brand promise which is
a cornerstone of Berkshire’s business strategy. The process of
building and shaping of a brand and culture is expected to take place over a
period of years, and is expected to be a significant long run benefit to the
franchise.
At
mid-year 2010, Berkshire had actions in progress to add two branches to its
existing ten branch network in its New York region. A new branch at
979 Central Avenue in Albany is expected to open in August, and a new branch at
628 New Loudon Road in Latham is targeted to open in December. Both
branches will utilize automated cash handling equipment to free Berkshire team
members to have more interaction with customers at service
kiosks. The branches will also have cafes and will sell netbooks to
promote online banking. Both branches will have community rooms
packed with technology and visual elements which are available free of charge
for community functions and teleconferences. Berkshire Bank’s
community rooms reflect its emphasis on customer and community engagement; they
have been well received and are an important element in building strong branch
traffic. These two new branches will expand Berkshire’s franchise and
are well located to serve their immediate areas and the Company’s growing
customer base in the region. Berkshire is moving forward with its
expansion as a growing financial provider for this important and dynamic
northeastern market.
COMPARISON
OF FINANCIAL CONDITION AT JUNE 30, 2010 AND DECEMBER 31, 2009
Summary. Total period-end assets
remained steady at $2.7 billion in the first and second quarters of
2010. Total equity similarly remained steady at $385
million. The loan/deposit ratio was 99% at both the middle
and the start of the year. Nonperforming assets decreased to 0.71% of
total assets at mid-year from 1.43% at the start of the year, as the Company
moved forward with problem asset resolution strategies which were targeted at
the start of the year.
Securities. Total investment
securities decreased by $26 million (6%) due to a $45 million decrease in
available for sale mortgage backed securities as a result of run-off in the
ongoing low rate environment. The Company partially offset this
runoff with a $13 million increase in higher yielding trust preferred securities
issued by investment grade national banks, together with an $8 million increase
in held to maturity development bonds due to the origination of a bond for a
local non-profit entity. Marketable equity securities increased by $3
million due to the purchase of bank common stocks. The net unrealized
gain on all securities remained at $5 million, reflecting the absence of
material credit or interest rate changes affecting the portfolio. There are no
major categories of securities with gross unrealized losses exceeding 5% of
amortized cost, except for the $22 million portfolio of trust preferred
securities. This portfolio had a 10% unrealized loss due primarily to
the only pooled trust preferred security held by the Company, which had a $1.5
million (58%) unrealized loss compared to its $2.6 million amortized
cost. The unrealized loss on this security decreased from 65% at the
prior year-end and this impairment is not viewed as other than
temporary. All available for sale debt securities had investment
grade ratings at mid-year 2010 except for the above trust preferred security,
which was rated Caa1, and one unrated municipal security totaling $2 million
which was performing. Securities held to maturity consisted largely
of unrated local municipal and development bonds which were
performing. The duration of the available for sale debt securities
portfolio was 2.1 years at mid-year. The yield on investment
securities increased slightly to 4.09% in the second quarter of 2010, compared
to 4.01% in the fourth quarter of 2009.
Loans. Total
loans increased in the most recent quarter by $39 million at an 8% annualized
rate due primarily to a $42 million increase in commercial loans, which grew at
a 16% annualized rate. For the first six months of the year, total
loans grew by $58 million (6% annualized) including the $42 million in second
quarter commercial loan growth and $32 million in residential mortgages
purchased in the first quarter. The purchased mortgages were prime,
seasoned thirty year fixed rate Massachusetts residential mortgages purchased
from another sound institution in the state. Commercial loan growth
in the first half of the year included $23 million in asset based
loans. Berkshire’s new asset based lending unit was assembled in the
first quarter with its headquarters in Woburn, north of Boston. This
unit is expected to originate up to $100 million per year in asset based loans
to middle market businesses in New England and Northeastern New
York. Commercial real estate loans increased by $41 million (at a 12%
annualized rate) in the first half of the year. This growth included
increases related to commercial rental properties and health care related
borrowers. Home equity and other consumer loans increased at an 8%
annualized rate for the year-to-date. Auto loans decreased by $24
million to $53 million in the first half of the year, due to planned run-off of
the indirect auto loan portfolio. Loan prepayments generally remain
elevated due to the current low interest rate environment. The yield
on total loans decreased slightly to 4.90% in the most recent quarter, compared
to 4.95% in the fourth quarter of 2009.
Nonperforming
assets were reduced by 50% to $19 million in the first half of 2010 as a result
of the resolution strategies that the Company had in place at the start of the
year. Nonperforming assets declined to 0.71% of total assets from
1.43% of assets during this period. Collections of nonperforming
assets totaled $8 million, and gross charge-offs totaled $6
million. Other reductions included reclassifications to performing
status, including a $7 million commercial real estate loan that was returned to
accruing status based on its outlook and payment record. Loans added
to nonperforming status totaled $4 million in the first half of
2010. At mid-year, all nonperforming loans were under $2 million
except for one $6 million loan that was restructured and which was current in
its payments. Other real estate owned consisted primarily of one
commercial property which is being marketed for sale. Performing
troubled debt restructurings totaled $3 million at mid-year, which was down from
$18 million at year-end 2009 as a result of the reclassification of a number of
loans to a non-troubled status at the start of the fiscal year based on payment
histories and market level risk adjusted loan interest rates. Most of
the loans that were reclassified were loans restructured as part of the
Company’s loan initiative in the fourth quarter of 2009. At mid-year,
total accruing delinquent loans were a low 0.21% of total loans, the lowest
quarter-end result since 2005. First half annualized net loan
charge-offs measured 0.46% of average loans in 2010 compared to 0.48% in the
first half of 2009. For the first half of 2010, commercial loan net
charge-offs totaled $4.0 million, and were net of $1.6 million in recoveries on
previously charged-off loans. Gross commercial loan charge-offs
included $2.9 million related to residential construction loans and $1.7 million
in other commercial real estate loans.
Potential
problem loans are loans which are currently performing, but where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms and which may result in disclosure of such in the
future as problem loans. Potential problem loans are typically commercial loans
that are performing but are classified by the Company’s loan rating system as
“substandard.” The Company had $90 million in potential problem loans at
mid-year, compared to $61 million at the beginning of the year. This
increase was primarily in relation to the reclassification of loans from the
“special mention” category; these loans decreased to $55 million at mid-year
from $80 million at the start of the year. The increase in potential
problem loans also included upgrades of loans previously classified as
non-accruing. At mid-year, potential problem loans over $1 million
totaled $79 million and included $26 million in commercial rental properties,
$20 million in lodging loans, $10 million in loans to non-profits, and $23
million in all other categories, including building contractors and recreation
related borrowers.
Loan Loss
Allowance. The allowance was unchanged at $32 million at
mid-year 2010, compared to the start of the year. The allowance
decreased slightly to 1.58% of total loans from 1.62% during this
period. Due to the decrease in non-accruing loans, the ratio of the
allowance to non-accruing loans improved to 193% from 82% and the specific
allowance on impaired loans decreased to $3 million from $6
million. General pool reserves increased due to portfolio growth and
to the reclassification of certain loans into a higher risk pool. The
new asset based lending portfolio is included in the overall commercial and
industrial reserve pool, which is assigned a 2.08% reserve
percentage.
Deposits,
Borrowings, and Other Liabilities. Total deposits increased
by $53 million (5% annualized) in the first half of the year, with most of this
growth coming in the first quarter. This first half growth
included $24 million in the New York region (17% annualized growth) and $22
million from the new private banking team in the Springfield
market. Growth has been focused on money market deposit accounts,
which are more relationship based and which increased by $73 million, at a 27%
annualized rate. The Company has regularly offered limited time
pricing promotions for these accounts. Time deposits decreased by $18
million (5% annualized) in the first half as the Company de-emphasized higher
cost jumbo time deposits. Total deposit accounts of $250,000 or more
increased to $297 million at mid-year from $286 million at the start of the
year. The Dodd-Frank legislation permanently raised deposit insurance
levels to $250,000, retroactive to January 1, 2008, and extended for two years
the Transaction Account Guarantee Program, which will become mandatory for all
insured depository institutions. The cost of deposits continued to
decrease, falling to 1.33% in the most recent quarter, compared to 1.48% in the
fourth quarter of 2009. The Company is managing deposit pricing
with a goal of maintaining the net interest margin near current
levels. The Bank has $165 million in time deposits repricing in the
third quarter, which is expected to contribute to a further reduction in deposit
costs as maturing accounts are renewed at lower rates.
Total
borrowings declined by $21 million in the first half of the year as a result of
the deposit growth. Borrowings had declined by $50 million in the
first quarter and then rose in the second quarter as loan growth outpaced
deposit growth. The reductions included $10 million of net term
advances that repaid. The Company has emphasized short term
borrowings to match current variable rate loan originations, and has purchased
$40 million in forward starting interest rate swaps which will have the effect
of extending protection from rising rates in future years. The
average cost of borrowings decreased to 3.46% in the most recent quarter from
4.30% in the last quarter of 2009 primarily due to the prepayment of higher cost
borrowings at the end of last year. The borrowing cost increased in
the second quarter due to the lower average balance of low cost overnight
borrowings. Other liabilities increased by $15 million during
the first half of the year due primarily to higher interest rate swap valuation
liabilities reflecting near record low interest rates at
mid-year.
Stockholders’
Equity. Stockholders’ equity remained at $385 million through
the first half of the year. The benefit of retained earnings was
offset by the impact of unrealized losses on interest rate
swaps. Restricted stock grants totaling 130,000 shares were awarded,
including 26,000 performance based shares, with vesting scheduled over a 2-3
year period. Capital ratios declined slightly but remain strong, with
mid-year tangible equity/assets measuring 8.2% and total equity/assets measuring
14.0%. At mid-year, tangible book value per share measured $14.96,
while total book value per share measured $27.40. These non-GAAP
tangible equity measures exclude goodwill and intangible assets and are
regularly considered by investors. The Bank remained well capitalized, with
a 10.7% risk based capital ratio and an 8.0% tier one leverage
ratio.
COMPARISON
OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND
2009
Summary. Second
quarter net income of $3.4 million was 46% higher in 2010 than the $2.3 million
result in 2009. Second quarter 2009 results included non-recurring
items related to the termination of a merger agreement, along with certain
restructuring charges. Results in that period also included a
one-time $1.3 million special assessment by the FDIC which was charged to all
banks to bolster the insurance fund. Net of these non-recurring and
one-time items (after tax), second quarter earnings were $2.7 million in 2009,
and 2010 results represented a 25% increase over this adjusted
result. This growth resulted from the positive operating leverage of
revenue growth over nearly flat expenses.
First
half net income of $6.7 million in 2010 was 9% higher than the $6.2 million
result in 2009. Adjusted for the non-recurring items and the FDIC
assessment noted above, first half results in 2009 were $6.6 million, and 2010
results represented a 1% increase over this adjusted result. A
year-to-year decrease in net income in the first quarter was more than offset by
the strong growth in the second quarter.
Earnings
per share totaled $0.25 in the second quarter and $0.49 in the first half of
2010. In 2009, earnings available to common shareholders were net of
preferred stock dividends and accretion. Additionally, in the second
quarter of 2009, the Company repaid its U.S. Treasury preferred stock and
recorded a one time non-cash deemed dividend which had no impact on
stockholders’ equity. Also, in that quarter, the Company conducted a
successful common stock offering which increased total common shares
outstanding. Including the impacts of these events, the Company
recorded a loss of $0.08 per share in the second quarter of 2009 and earnings of
$0.18 per share for the first half of 2009. The dividend was
maintained at $0.16 per quarter in both years, which resulted in a 3.09%
dividend yield based on the $20.68 closing price of Berkshire’s common stock at
the end of 2009.
The
return on assets was 0.49% in the first half of 2010 and the return on equity
was 3.50%. These results were improved from 0.47% and 3.27% in the
first half of 2009. The improvement was greatest in the second
quarter, with the ROA increasing to 0.50% from 0.35% from year to
year. This improvement primarily resulted from the benefit of
positive operating leverage related to revenue growth in 2010 compared to the
recessionary results in 2009. This included the benefit of an
improvement in the first half net interest margin to 3.24% in 2010 compared to
3.01% in 2009. The improved results were achieved despite the costs
of additional business expansion in the last year, including the strengthening
of the New York regional team, the opening of a new regional headquarters and
branch in the Springfield region, the recruitment of a New England asset based
lending team, and the recruitment of a private banking
team. Berkshire has also maintained a modest asset sensitive interest
rate risk profile and has sacrificed higher current income in order to avoid the
negative impact of anticipated future interest rate increases.
Revenue. Total
net revenue increased by $1.7 million (7%) in the second quarter and by $2.1
million (4%) in the first half of 2010 compared to the same period in
2009. First half recurring revenue increased by 7% in 2010 compared
to 2009 due primarily to growth in net interest income and fee
income. Non-recurring revenue in 2009 resulted from a merger
termination fee and a gain on the termination of an interest rate
swap.
Net Interest
Income. Net
interest income increased by $2.1 million (13%) in the second quarter and by
$2.7 million (8%) in the first half of 2010 compared to 2009. This
growth was primarily due to the increase in the net interest margin
previously noted. While the first half yield on average earning
assets decreased year-to-year to 4.75% from 5.06%, the cost of funds decreased
to 1.60% from 2.17%. The Company is continually focused on maximizing
the spread between loans and deposits, and it has also benefited from the
restructuring of its borrowings at the end of 2009. First half net
interest income also benefited from a 1% increase in average earning assets in
2010 compared to the prior year. Net interest income also grew at a
13% annualized rate in the most recent quarter when compared to the prior
quarter, and this was the fourth consecutive quarter in which the margin
improved. Additionally, average earning assets increased at a 7%
annualized rate compared to the prior quarter, benefiting from 16% annualized
growth of commercial loans.
Non-Interest
Income.
Non-interest income decreased in the second quarter and first half of
2010 compared to 2009 due to the receipt of non-recurring revenue in 2009
related primarily to a merger termination. Excluding non-recurring
items, adjusted non-interest income increased by $0.8 million (11%) in the
second quarter and by $0.6 million (4%) in the first half of 2010 compared to
2009. These increases were due to higher fee income, which increased
by $0.9 million (6%) in the first half of 2010 compared to
2009. Total first half banking related fees increased by $2.1 million
(42%), including gains in most major categories. These gains offset a
$1.2 million decrease in insurance fee income which primarily reflected lower
seasonal contingency revenue and tighter pricing on premiums in the soft
insurance market. Second quarter banking related fees (for deposits,
loans, and swaps) increased by 55% over prior year results and at a 19%
annualized rate compared to the prior quarter. Berkshire has actively
promoted customer “opt-ins” for overdraft privileges under the new Regulation E
requirements which are becoming effective in the third quarter. It is
targeting to exceed an 80% opt-in rate and as a result does not expect a
material negative impact from this new regulation. First half non-interest
income provided 31% of total net revenues, reflecting the Company’s ongoing
emphasis on building non-interest revenue sources. Non-interest
income in the most recent quarter included a $0.3 million non-cash charge
related to a change in an interest rate swap valuation due to the prevailing low
interest rates.
Loan Loss
Provision. 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 was flat from year-to-year,
while the six month provision decreased slightly by $0.2 million. The
amount of the loan loss provision was approximately equal to the amount of net
loan charge-offs in all of the above periods.
Non-Interest
Expense and Income Tax Expense. Non-interest expense increased
by $0.1 million in the second quarter and by $1.8 million in the first half of
2010 compared to 2009. Results in 2009 included certain non-recurring
expenses related to a merger termination and restructuring charges, as well as a
$1.3 million charge for a one-time FDIC special assessment
fee. Excluding these items, adjusted non-interest expense increased
by $2.0 million (11%) and by $3.7 million (10%) in the second quarter and first
half of 2010 compared to 2009. These increases primarily reflected
compensation related expense, which increased by $2.1 million and $3.7 million,
respectively. In addition to business growth, compensation related
expense increases included the restoration of incentive compensation and a
decrease in compensation costs from unusually high levels charged against fee
income related to loan sales in the mortgage refinancing wave in 2009. The
Company had 602 full-time equivalent employees at mid-year 2010 compared to 622
at the end of 2009. The second quarter effective income tax rate was 26% in
2010, compared to 21% in 2009. The first half effective tax rate was 24% in 2010
and 26% in 2009. The 2010 effective tax rate is based on an
expectation of a full year tax rate of 24% in 2010, reflecting the expectation
of higher pre-tax profits and a resulting lower proportion of tax advantaged
revenue sources which benefit the overall effective rate.
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 the notes
to the financial statements. The Bank’s results reflected the same general
trends as the consolidated results previously reported, with higher revenues and
earnings for the second quarter and year-to-date. The insurance
segment reported lower expenses in the second quarter as a result of the
restructuring that was completed in the first quarter. This
expense reduction, which was equivalent to an annualized amount of $1.4 million,
was sufficient to more than offset the revenue decline, resulting in higher
second quarter earnings. Six month results for the insurance segment
were lower in 2010 as a result of a decline in the first quarter seasonal
contingency income due to conditions at the insurance
carriers. The parent’s results in 2010 primarily reflected
equity in undistributed income of subsidiaries; no dividends were paid to the
parent by the subsidiaries in the first half of 2010.
Comprehensive
Income. Accumulated
other comprehensive income is a component of total stockholders’ equity on the
balance sheet. Comprehensive income includes net income and 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 and interest rate swaps designated as cash flow
hedges. The Company recorded a $3.0 million increase in the
accumulated other comprehensive loss in the first half of 2010 due primarily to
a decrease in the fair value of its interest rate swaps as a result of near
record low interest rates. Total first half comprehensive income was
$3.7 million in 2010. In 2009, the first half change in accumulated other
comprehensive loss was a decrease of $5.5 million. The decreased loss
in 2009 primarily reflected improved conditions in the financial markets
following the near-crisis conditions that prevailed near the end of 2008. The
movement in the markets towards normalization resulted in improved market values
both for the Company’s interest rate swaps and for its securities portfolio.
Including net income and the change in accumulated other comprehensive loss, the
Company recorded total comprehensive income of $11.8 million in the first half
of 2009.
Liquidity and
Cash Flows. The Company’s primary source of funds was deposit growth in
the first half of 2010, and the primary use of funds was net loan growth and
the net repayment of borrowings. Net deposit growth and
borrowings are expected to be significant sources of funds during the remainder
of the year, and loan and securities growth are expected to be significant 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. The Company also uses interest rate swaps in managing
its funds sources and uses.
Berkshire
Hills Bancorp had a cash balance totaling $20 million at quarter-end, and this
cash was expected to fund all routine uses of cash for dividends, debt service,
and operating costs. The primary long run routine sources of funds
for the holding company are expected to be dividends from Berkshire Bank and
Berkshire Insurance Group, as well as cash from the exercise of stock
options. For 2010, there are no dividends expected to be paid by
these subsidiaries. As a result of the loss recorded in 2009,
Berkshire Bank is not currently eligible to pay dividends to its parent under
Massachusetts state banking statutes. The Company expects that, as a result of
retained earnings in 2010, the Bank will again become eligible to pay dividends
according to these statutes in 2011. As noted above, the Company
expects to meet all of its routine cash needs in 2010 from existing cash
balances on hand, including anticipated shareowner cash dividends. Additional
discussion about the Company’s liquidity and cash flows is contained in the
Company’s 2009 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, 2010, 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 2009 Form 10-K. As discussed in Part II, Item
1A of this report, there are financial system reforms which became federal law
in July 2010 and which constitute the most significant regulatory and systemic
reform since the 1930’s. It cannot be determined at this time what
the full impacts of the reforms will be. Some of the reforms are
intended to increase required capital levels in the banking system.
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 statements. 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 2009
Form 10-K. For the six months ended June 30, 2010, the Company did not engage in
any off-balance sheet transactions reasonably likely to have a material effect
on the Company’s financial statements. Information relating to payments due
under contractual obligations is presented in the 2009 Form 10-K. There were no
material changes in the Company’s payments due under contractual obligations
during the first three months of 2010, except for derivatives transactions. The
Company entered into $43 million in net additional interest rate swaps on
commercial loans, with an equal net increase in back-to-back swaps with
institutional third parties. The Company also entered into $40 million of
additional interest rate swaps on FHLBB borrowings. These were
forward starting swaps, and the Company pays a fixed rate and receives a
floating rate. Their goal is to extend protection from rising rates
in future years after certain existing interest rate swaps
expire. See note 10 on Derivative Financial Instruments and Hedging
Activities for additional information related to interest rate
swaps.
Fair Value
Measurements. The Company records fair value measurements of certain
assets and liabilities, as described in the related note in the financial
statements. There were no material changes in most instances in the
difference between fair value and book value of financial
instruments at mid-year 2010 compared to the prior
year-end. The fair value of loans improved to a discount of $54
million from a discount of $96 million on these dates,
respectively. This reflected lower market interest rates and an
improvement in the credit profile of the portfolio. The fair value of
deposits exceeded book value by $13 million compared to $21 million on these
dates, respectively. This reflected lower rates and balances in the
time deposit portfolio. Both of these changes indicate an improvement
in the economic value of the Company’s equity. Of note, the $1.2
million unrealized gain on the trading security recognized in non-interest
income in the most recent quarter was substantially offset by a charge to
non-interest income due to a decrease in the fair market value of the interest
rate swap related to that security.
ITEM
3.
|
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
There
have been no material changes to the way that the Company measures market risk
or in the Company’s market risk position during the first half of
2010. 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, 2009.
As
discussed in Item 2, a significant contributor to lower earnings in recent
quarters has been Berkshire’s targeted position to maintain a moderately asset
sensitive interest rate profile. Federal interventions to avoid a
financial crisis unexpectedly drove short-term interest rates to near zero where
they have remained since the fourth quarter of 2008. Berkshire
maintains a discipline to avoid undue risks to the market value of equity which
would result from taking on excessive fixed rate assets in the current
environment. As of mid-year 2010, the Company’s model indicated that
at current rates and volumes, net interest income would decrease in the range of
4-5% at the end of a two year period, compared to current levels, and
assuming no growth or change in mix. If rates were to
gradually rise 200 basis points over twelve months in this no growth
scenario, then net interest income would increase by about 6% at the end
of a two year period, compared to current levels. The Company
believes that rates will rise over the next two years, and that net interest
income will increase in the future both due to higher rates, and to increases in
volume and to favorable changes in mix. Additionally, the
Company is evaluating the retention of more fixed rate assets, as shown by the
purchase of fixed rate mortgages and trust preferred securities in the first
half of the year. Most of the loan originations that the Company has
retained have been adjustable rate, which has modestly increased asset
sensitivity. As a result, the Company may achieve a better balance of
adjustable and fixed rate originations in the coming months, while still
maintaining an overall asset sensitive position. Any such shift would
be targeted towards supporting the net interest margin in the remainder of 2010
and 2011.
Management
also believes that net interest income might increase by more than the modeled
amount in the expected scenarios of rising interest
rates. Management might decide to retain more, longer
duration assets, after interest rates increase, and this would contribute
additional income in the case of a parallel shift in the yield
curve. Also, the Company has experienced certain market floors on
deposit pricing in the current near zero short-term interest rate
environment. In the case of rising rates, deposits might not increase
in rate as quickly as they are modeled since they are presently above other
comparable market rates in some cases.
Of
further note, the Company’s fee income has been reduced by the economic and
financial market conditions which prompted federal interest rate
reductions. Higher future rates would in some cases be related to a
normalization of economic and market conditions, with the potential result that
non-interest income could also increase in addition to the interest income
changes which are modeled.
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.
PART
II
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.
The
following risk factors represent material updates and additions to the risk
factors previously disclosed in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2009 (“Form 10-K”). In addition to the other
information set forth in this report, the matters discussed below should be read
in conjunction with the risk factors and other information disclosed in our Form
10-K. These risk factors could materially affect our business,
financial condition or future results. Additional risks not presently
known to us, or that we currently deem immaterial, may also adversely affect our
business, financial condition or results of operations.
Changes in Laws and Regulation Could
Result in Reduced Earnings. Laws, regulations, and their
interpretation by regulatory agencies may change or generate enhanced scrutiny
of particular activities. Those changes or enhanced emphasis can impose costs or
otherwise affect our ability to compete successfully. The disruption in
financial markets may produce regulatory changes in the U.S. and elsewhere, the
effects of which are difficult to predict. For example, the President
recently signed the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”), which may, among other things, affect our leverage
limits and risk-based capital and liquidity requirements, require us to pay
higher assessments, and restrict or increase the regulation of certain of our
business activities. We cannot determine the ultimate effect that legislation,
or subsequent implementing regulations, if enacted, would have upon our earnings
and financial position.
Compliance with Evolving Regulations
Applicable to Banks and Other Financial Services Companies May Impact Us in Ways
that are Difficult to Predict. In light of current
economic conditions, banks and other financial services companies will continue
to be subject to enhanced regulatory and enforcement scrutiny and evolving
legislation and regulations in the U.S. and other countries. Evolving
regulations, such as the Basel capital regime and liquidity related regulations,
regulations that may be promulgated pursuant to the Dodd-Frank Act and other
regulations that generate increased scrutiny of particular activities, such as
anti-money laundering procedures and certain financial services and products,
require significant time, effort, and resources on our part to ensure compliance
in a rapidly changing environment. We often must meet significant milestones in
complying with these regulatory requirements. Failure to meet these requirements
and milestones could significantly and negatively affect our business. In
addition, our required regulatory capital may be affected by these or other
regulatory or legislative initiatives, such as Basel capital initiatives, and
regulations that may be promulgated pursuant to the Dodd-Frank Act, potentially
resulting in changes to the cost and composition of our regulatory capital. The
full scope and impact of possible enhanced regulatory and enforcement scrutiny
and evolving legislation and regulation is uncertain and difficult to
predict.
International Financial System Risk
May Increase. In the first half of 2010, concerns increased about the
potential for defaults among sovereign debt issuers in the European debt
markets. The Company has no significant direct exposure to these
markets, but these risks have caused increased volatility in the world’s
financial markets and there are increased risks of financial turmoil or systemic
dysfunction that could affect the world’s financial markets. Such
events could affect U.S. financial markets and potentially could cause future
federal interventions in the U.S. or abroad, and could affect the debt ratings
of other public and private debt issuers in addition to those in
Europe.
Proposed Financial Accounting
Standards May Increase Financial Statement
Volatility. On May 26, 2010, FASB issued an Exposure
Draft of a proposed Accounting Standards Update (ASU) intended to improve
accounting for financial instruments. The FASB also issued for public
comment a separate, but integral proposed ASU that would require total
comprehensive income and its components in two parts—net income and other
comprehensive income—be displayed in a continuous statement of financial
performance. The exposure draft outlines that financial
institutions will no longer be able to use held-to-maturity accounting for
financial instruments, replacing it with fair value through net income and fair
value through other comprehensive income. This proposal, if adopted,
could introduce new volatility to reported financial condition and results, and
could increase the volatility of financial markets.
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, 2010.
|
(c)
|
The
following table provides certain information with regard to shares
repurchased by the Company in the second quarter of
2010.
|
|
|
|
|
|
|
|
|
|
Total
number of shares
|
|
|
Maximum
number of
|
|
|
|
|
|
|
|
|
|
|
purchased
as part of
|
|
|
shares
that may yet
|
|
|
|
|
Total
number of
|
|
|
Average
price
|
|
|
publicly
announced
|
|
|
be
purchased under
|
|
Period
|
|
|
shares purchased
|
|
|
paid per share
|
|
|
plans or programs
|
|
|
the plans or programs
|
|
April
1-30, 2010
|
(1)
|
|
|
526 |
|
|
$ |
17.69 |
|
|
|
- |
|
|
|
97,993 |
|
May
1-31, 2010
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,993 |
|
June 1-30, 2010
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,993 |
|
Total
|
|
|
|
526 |
|
|
$ |
17.69 |
|
|
|
- |
|
|
|
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.
(1)
Shares represent common stock withheld by the Company to satisfy tax withholding
requirements on the vesting of shares under the Company’s benefit
plans.
ITEM
3.
|
DEFAULTS UPON SENIOR
SECURITIES
|
None.
ITEM
4.
|
REMOVED AND
RESERVED
|
Not
applicable.
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.
|
SIGNATURES
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 9, 2010
|
By:
|
/s/ Michael P. Daly
|
|
|
|
Michael
P. Daly
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Dated:
August 9, 2010
|
By:
|
/s/ Kevin P. Riley
|
|
|
|
Kevin
P. Riley
|
|
|
|
Executive
Vice President and Chief Financial Officer
|
|