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: ~~September 30, 2014~~March 31, 2015

o	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: 001-15781

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 o

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 x No o

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~~ o

~~Accelerated Filer~~ x

~~Non-Accelerated Filer~~ o

Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer oSmaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

The Registrant had ~~25,183,284~~29,517,572 shares of common stock, par value $0.01 per share, outstanding as of ~~November~~May 6, ~~2014.~~2015.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

				Page

PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014			4

	Consolidated Statements of ~~Income~~Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~			5

	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~			6

	Consolidated Statements of Changes in Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~			7

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~			8

	Notes to Consolidated Financial Statements
		Note 1	Basis of Presentation	10
	~~Note 2~~	~~Branch Acquisition~~	11
	Note 32	Trading Security	1412
		Note 43	Securities Available for Sale and Held to Maturity	1513
		Note 4	Loans	17
		Note 5	~~Loans~~Loan Loss Allowance	1928
		Note 6	~~Loan Loss Allowance~~Deposits	3032
		Note 7	~~Deposits~~Borrowed Funds	3532
		Note 8	~~Borrowed Funds~~Stockholders’ Equity	3533
		Note 9	~~Stockholders’ Equity~~Earnings per Share	3736
		Note 10	~~Earnings per Share~~Stock-Based Compensation Plans	4236
		Note 11	~~Stock-Based Compensation Plans~~Operating Segments	4237
		Note 12	~~Operating Segments~~	43
	~~Note 13~~	Derivative Financial Instruments and Hedging Activities	4437
		Note 1413	Fair Value Measurements	5043
		Note 1514	Net Interest Income after Provision for Loan Losses	5851
		Note 1615	Subsequent Events	5851

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			5952

	Selected Financial Data			6356

	Average Balances and Average Yields/Rates			6457

	Non-GAAP Financial Measures			6558

Item 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk			7568

Item 4.	Controls and Procedures			7669

Table of Contents

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	7770

Item 1A.	Risk Factors	7770

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7770

Item 3.	Defaults Upon Senior Securities	7871

Item 4.	Mine Safety Disclosures	7871

Item 5.	Other Information	7871

Item 6.	Exhibits	7871

Signatures		8073

Table of Contents

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,			March 31,			December 31,
(In thousands, except share data)	2014			2013			2015			2014
Assets
Cash and due from banks	$	58,624		$	56,841		$	43,089		$	54,179
Short-term investments	12,201			18,698			19,125			17,575
Total cash and cash equivalents	70,825			75,539			62,214			71,754

Trading security	14,745			14,840			14,970			14,909
Securities available for sale, at fair value	1,058,965			760,048			1,099,656			1,091,818
Securities held to maturity (fair values of $43,771 and $45,764)	42,596			44,921
Securities held to maturity (fair values of $44,744 and $44,997)							42,818			43,347
Federal Home Loan Bank stock and other restricted securities	54,646			50,282			58,734			55,720
Total securities	1,170,952			870,091			1,216,178			1,205,794

Loans held for sale, at fair value	29,091			15,840			29,305			19,493

Residential mortgages	1,445,861			1,384,274			1,473,239			1,496,204
Commercial real estate	1,595,400			1,417,120			1,672,099			1,611,567
Commercial and industrial loans	732,960			687,293			826,815			804,366
Consumer loans	778,561			691,836			756,510			768,463
Total loans	4,552,782			4,180,523			4,728,663			4,680,600
Less: Allowance for loan losses	(34,966		)	(33,323		)	(36,286		)	(35,662		)
Net loans	4,517,816			4,147,200			4,692,377			4,644,938

Premises and equipment, net	87,166			84,459			85,053			87,279
Other real estate owned	4,854			2,758			1,444			2,049
Goodwill	264,770			256,871			264,742			264,742
Other intangible assets	12,524			13,791			10,627			11,528
Cash surrender value of bank-owned life insurance policies	103,749			101,530			105,302			104,588
Deferred tax assets, net	38,503			50,711			26,828			28,776
Other assets	51,908			54,009			77,169			61,090
Total assets	$	6,352,158		$	5,672,799		$	6,571,239		$	6,502,031

Liabilities
Demand deposits	$	844,480		$	677,917		$	892,225		$	869,302
NOW deposits	420,290			353,612			436,458			426,108
Money market deposits	1,394,558			1,383,856			1,372,924			1,407,179
Savings deposits	474,774			431,496			512,607			496,344
Time deposits	1,429,231			1,001,648			1,505,469			1,455,746
Total deposits	4,563,333			3,848,529			4,719,683			4,654,679

Short-term debt	887,000			872,510			894,500			900,900
Long-term Federal Home Loan Bank advances	64,105			101,918			61,618			61,676
Subordinated borrowings	89,730			89,679			89,765			89,747
Total borrowings	1,040,835			1,064,107			1,045,883			1,052,323

Other liabilities	51,053			82,101			89,443			85,742
Total liabilities	5,655,221			4,994,737			5,855,009			5,792,744

Stockholders’ equity
Common stock ($.01 par value; 50,000,000 shares authorized and 26,525,466 shares issued and 25,172,565 shares outstanding in 2014; 26,525,466 shares issued and 25,036,169 shares outstanding in 2013)	265			265
Common stock ($.01 par value; 50,000,000 shares authorized and 26,525,466 shares issued and 25,252,635 shares outstanding in 2015; 26,525,466 shares issued and 25,182,566 shares outstanding in 2014)							265			265
Additional paid-in capital	585,300			587,247			585,307			587,289
Unearned compensation	(6,890		)	(5,563		)	(7,226		)	(6,147		)
Retained earnings	149,448			141,958			160,241			156,446
Accumulated other comprehensive income (loss)	2,208			(9,057		)	9,068			6,579
Treasury stock, at cost (1,352,901 shares in 2014 and 1,489,297 shares in 2013)	(33,394		)	(36,788		)
Treasury stock, at cost (1,272,831 shares in 2015 and 1,342,900 shares in 2014)							(31,425		)	(33,145		)
Total stockholders’ equity	696,937			678,062			716,230			709,287
Total liabilities and stockholders’ equity	$	6,352,158		$	5,672,799		$	6,571,239		$	6,502,031

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

	Three Months Ended				Nine Months Ended					Three Months Ended
	September 30,				September 30,					March 31,
(In thousands, except per share data)	2014		2013		2014			2013		2015			2014
Interest and dividend income
Loans	$	43,958	$	50,025	$	128,761		$	142,549	$	44,445		$	42,494
Securities and other	8,098		4,479		24,265			12,533		8,306			7,301
Total interest and dividend income	52,056		54,504		153,026			155,082		52,751			49,795
Interest expense
Deposits	4,877		5,278		14,076			15,693		4,949			4,721
Borrowings	2,230		3,357		6,906			10,479		2,309			2,308
Total interest expense	7,107		8,635		20,982			26,172		7,258			7,029
Net interest income	44,949		45,869		132,044			128,910		45,493			42,766
Non-interest income
Loan related income	1,471		1,308		4,565			6,669		1,283			1,248
Mortgage banking income	994		444		2,057			4,790		1,253			372
Deposit related fees	6,449		4,559		18,498			13,623		5,677			5,439
Insurance commissions and fees	2,632		2,473		8,141			7,877		2,967			3,049
Wealth management fees	2,330		2,137		7,173			6,471		2,603			2,549
Total fee income	13,876		10,921		40,434			39,430		13,783			12,657
Other	520		832		1,446			1,722		(1,255		)	524
Gain on sale of securities, net	245		361		482			1,366		34			34
Loss on termination of hedges	—		—		(8,792		)	—		—			(8,792		)
Total non-interest income	14,641		12,114		33,570			42,518		12,562			4,423
Total net revenue	59,590		57,983		165,614			171,428		58,055			47,189
Provision for loan losses	3,685		3,178		11,070			8,278		3,851			3,396
Non-interest expense
Compensation and benefits	20,665		18,506		60,803			54,398		21,811			19,859
Occupancy and equipment	6,780		5,614		20,250			17,119		7,108			6,814
Technology and communications	3,484		3,304		11,062			9,775		3,593			3,778
Marketing and promotion	659		590		1,801			1,831		713			521
Professional services	830		1,757		3,006			5,011		1,272			1,152
FDIC premiums and assessments	1,163		856		3,201			2,574		1,129			1,009
Other real estate owned and foreclosures	13		138		569			445		251			523
Amortization of intangible assets	1,236		1,307		3,816			4,029		901			1,306
Acquisition, restructuring and conversion related expenses	238		6,516		6,729			12,355		4,421			6,301
Other	4,619		4,196		13,072			12,665		3,949			4,097
Total non-interest expense	39,687		42,784		124,309			120,202		45,148			45,360

Income before income taxes	16,218		12,021		30,235			42,948		9,056			(1,567		)
Income tax expense	4,230		3,917		7,888			12,342
Net income	$	11,988	$	8,104	$	22,347		$	30,606
Income tax expense (benefit)										297			(461		)
Net income (loss)										$	8,759		$	(1,106	)

Earnings per share:
Basic	$	0.48	$	0.33	$	0.90		$	1.23	$	0.35		$	(0.04	)
Diluted	$	0.48	$	0.33	$	0.90		$	1.22	$	0.35		$	(0.04	)

Weighted average common shares outstanding:
Basic	24,747		24,748		24,721			24,835		24,803			24,698
Diluted	24,861		24,873		24,835			25,001		24,955			24,698

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(In thousands)	2014			2013			2014			2013			2015			2014

Net income	$	11,988		$	8,104		$	22,347		$	30,606
Net income (loss)													$	8,759		$	(1,106	)
Other comprehensive income, before tax:
Changes in unrealized gain (loss) on securities available-for-sale	(3,858		)	(443		)	13,275			(13,140		)
Changes in unrealized gain on securities available-for-sale													9,337			6,021
Changes in unrealized (loss) gain on derivative hedges	980			(1,152		)	2,246			6,446			(3,901		)	4,533
Changes in unrealized gain on terminated swaps	—			236			3,237			707			—			3,237
Changes in unrealized gains and losses on pension	(455		)	—			(455		)	—
Changes in unrealized (loss) gain on pension													(1,531		)	—
Income taxes related to other comprehensive income:
Changes in unrealized gain (loss) on securities available-for-sale	1,477			163			(5,004		)	4,920
Changes in unrealized gain on securities available-for-sale													(3,605		)	(2,221		)
Changes in unrealized (loss) gain on derivative hedges	(396		)	472			(906		)	(2,585		)	1,572			(1,832		)
Changes in unrealized gain on terminated swaps	—			(95		)	(1,312		)	(398		)	—			(1,312		)
Changes in unrealized gains and losses on pension	184			—			184			—
Total other comprehensive income (loss)	(2,068		)	(819		)	11,265			(4,050		)
Changes in unrealized (loss) gain on pension													617			—
Total other comprehensive income													2,489			8,426
Total comprehensive income	$	9,920		$	7,285		$	33,612		$	26,556		$	11,248		$	7,320

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

														Accumulated																						Accumulated
					Additional									other													Additional									other
	Common stock				paid-in			Unearned			Retained			comprehensive			Treasury						Common stock				paid-in			Unearned			Retained			comprehensive			Treasury
(In thousands)	Shares		Amount		capital			compensation			earnings			(loss) income			stock			Total			Shares		Amount		capital			compensation			earnings			(loss) income			stock			Total

Balance at December 31, 2012	25,148		$	265	$	585,360		$	(3,035	)	$	122,014		$	(2,979	)	$	(34,360	)	$	667,265
Balance at December 31, 2013																							25,036		$	265	$	587,247		$	(5,563	)	$	141,958		$	(9,057	)	$	(36,788	)	$	678,062

Comprehensive income:
Net income	—		—		—			—			30,606			—			—			30,606
Other comprehensive loss	—		—		—			—			—			(4,050		)	—			(4,050		)
Net loss																							—		—		—			—			(1,106		)	—			—			(1,106		)
Other comprehensive income																							—		—		—			—			—			8,426			—			8,426
Total comprehensive income																				26,556																						7,320
Cash dividends declared ($0.54 per share)	—		—		—			—			(13,587		)	—			—			(13,587		)
Cash dividends declared ($0.18 per share)																							—		—		—			—			(4,561		)	—			—			(4,561		)
Treasury stock purchased	(480	)	—		—			—			—			—			(12,249		)	(12,249		)	(100	)	—		—			—			—			—			(2,467		)	(2,467		)
Forfeited shares	(55	)	—		218			1,256			—			—			(1,474		)	—			(1	)	—		1			5			—			—			(6		)	—
Exercise of stock options	235		—		—			—			(3,042		)	—			6,063			3,021			61		—		—			—			(793		)	—			1,512			719
Restricted stock grants	159		—		(677		)	(3,817		)	—			—			4,494			—			126		—		37			(3,144		)	—			—			3,107			—
Stock-based compensation	—		—		726			1,385			—			—			—			2,111			—		—		41			891			—			—			—			932
Net tax benefit related to stock-based compensation	—		—		1,428			—			—			—			—			1,428			—		—		(1,984		)	—			—			—			—			(1,984		)
Other, net	(55	)	—		(14		)	—			—			—			(1,336		)	(1,350		)	(17	)	—		—			—			—			—			(431		)	(431		)
Balance at September 30, 2013	24,952		$	265	$	587,041		$	(4,211	)	$	135,991		$	(7,029	)	$	(38,862	)	$	673,195
Balance at March 31, 2014																							25,105		$	265	$	585,342		$	(7,811	)	$	135,498		$	(631	)	$	(35,073	)	$	677,590

Balance at December 31, 2013	25,036		$	265	$	587,247		$	(5,563	)	$	141,958		$	(9,057	)	$	(36,788	)	$	678,062
Balance at December 31, 2014																							25,183		$	265	$	585,289		$	(6,147	)	$	156,446		$	6,579		$	(33,145	)	$	709,287

Comprehensive income:
Net income	—		—		—			—			22,347			—			—			22,347			—		—		—			—			8,759			—			—			8,759
Other comprehensive income	—		—		—			—			—			11,265			—			11,265			—		—		—			—			—			2,489			—			2,489
Total comprehensive income																				33,612																						11,248
Cash dividends declared ($0.54 per share)	—		—		—			—			(13,694		)	—			—			(13,694		)
Cash dividends declared ($0.19 per share)																							—		—		—			—			(4,799		)	—			—			(4,799		)
Treasury stock purchased	(100	)	—		—			—			—			—			(2,468		)	(2,468		)	—		—		—			—			—			—			—			—
Forfeited shares	(7	)	—		(6		)	176			—			—			(170		)	—			(9	)	—		22			214			—			—			(236		)	—
Exercise of stock options	89		—		—			—			(1,163		)	—			2,215			1,052			11		—		—			—			(165		)	—			281			116
Restricted stock grants	175		—		(3		)	(4,319		)	—			—			4,322			—			92		—		19			(2,286		)	—			—			2,267			—
Stock-based compensation	—		—		41			2,816			—			—			—			2,857			—		—		—			993			—			—			—			993
Net tax benefit related to stock-based compensation	—		—		(1,973		)	—			—			—			—			(1,973		)	—		—		(23		)	—			—			—			—			(23		)
Other, net	(20	)	—		(6		)	—			—			—			(505		)	(511		)	(24	)	—		—			—			—			—			(592		)	(592		)
Balance at September 30, 2014	25,173		$	265	$	585,300		$	(6,890	)	$	149,448		$	2,208		$	(33,394	)	$	696,937

Balance at March 31, 2015																							25,253		$	265	$	585,307		$	(7,226	)	$	160,241		$	9,068		$	(31,425	)	$	716,230

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

(In thousands)

2014

2013

Cash flows from operating activities:

Net income

$
22,347

$
30,606

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

11,070

8,278

Net amortization of securities

1,380

1,199

Change in unamortized net loan costs and premiums

(2,260
)
(7,152
)
Premises and equipment depreciation and amortization expense

6,127

5,382

Stock-based compensation expense

2,855

2,111

Accretion of purchase accounting entries, net

(4,989
)
(17,732
)
Amortization of other intangibles

3,816

4,029

Write down of other real estate owned

160

—

Excess tax loss from stock-based payment arrangements

(101
)
(1,428
)
Income from cash surrender value of bank-owned life insurance policies

(2,219
)
(2,101
)
Gain on sales of securities, net

(482
)
(1,366
)
Net (increase) decrease in loans held for sale

(13,251
)
58,304

Loss on disposition of assets

668

3,880

Loss (gain) on sale of real estate

148

(48
)
Loss on termination of hedges

3,237

—

Net change in other

(7,493
)
21,640

Net cash provided by operating activities

21,013

105,602

Cash flows from investing activities:

Net decrease in trading security

403

381

Proceeds from sales of securities available for sale

143,488

8,592

Proceeds from maturities, calls and prepayments of securities available for sale

102,425

91,153

Purchases of securities available for sale

(524,809
)
(331,269
)
Proceeds from maturities, calls and prepayments of securities held to maturity

3,761

6,857

Purchases of securities held to maturity

(1,436
)
(2,758
)
Net change in loans

(374,616
)
(23,930
)
Purchases of bank owned life insurance

—

(10,000
)
Proceeds from sale of Federal Home Loan Bank stock

5,213

2,361

Purchase of Federal Home Loan Bank stock

(9,576
)
(4,918
)
Net investment in limited partnership tax credits

(2,884
)
—

Proceeds from the sale of premises and equipment

2,315

—

Purchase of premises and equipment, net

(6,224
)
(8,916
)
Acquisitions, net of cash paid

423,416

—

Proceeds from sale of other real estate

1,571

1,790

Net cash (used in) provided by in investing activities

(236,953
)
(270,657
)
~~(continued)~~

Three Months Ended March 31,

(In thousands)

2015

2014

Cash flows from operating activities:

Net income (loss)

$
8,759

$
(1,106
)
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

3,851

3,396

Net amortization of securities

(317
)
604

Change in unamortized net loan costs and premiums

398

64

Premises and equipment depreciation and amortization expense

2,096

1,944

Stock-based compensation expense

993

932

Accretion of purchase accounting entries, net

(367
)
(1,999
)
Amortization of other intangibles

901

1,306

Write down of other real estate owned

—

125

Excess tax loss from stock-based payment arrangements

23

(89
)
Income from cash surrender value of bank-owned life insurance policies

(714
)
(813
)
Gain on sales of securities, net

(34
)
(34
)
Net (increase) decrease in loans held for sale

(9,812
)
8,171

Loss on disposition of assets

1,136

834

Loss on sale of real estate

154

208

Loss on termination of hedges

—

3,237

Amortization of interest in tax-advantaged projects

2,882

421

Net change in other

(6,145
)
(183
)
Net cash provided by operating activities

3,804

17,018

Cash flows from investing activities:

Net decrease in trading security

142

135

Proceeds from sales of securities available for sale

4,693

3,171

Proceeds from maturities, calls and prepayments of securities available for sale

40,552

25,440

Purchases of securities available for sale

(41,068
)
(291,662
)
Proceeds from maturities, calls and prepayments of securities held to maturity

729

1,762

Purchases of securities held to maturity

(200
)
—

Net change in loans

(68,671
)
(59,851
)
Purchases of bank owned life insurance

—

—

Proceeds from sale of Federal Home Loan Bank stock

103

78

Purchase of Federal Home Loan Bank stock

(3,117
)
(2,920
)
Net investment in limited partnership tax credits

—

(2,500
)
Proceeds from the sale of premises and equipment

—

—

Purchase of premises and equipment, net

(946
)
(3,130
)
Acquisitions, net of cash paid

—

423,416

Proceeds from sale of other real estate

578

483

Net cash (used in) provided by investing activities

(67,205
)
94,422

(continued)

The accompanying notes are an integral part of these consolidated financial statements.

8

Table of Contents

BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

2014

2013

2015

2014

Cash flows from financing activities:

Net increase (decrease) in deposits

249,507

(216,539
)

65,007

(70,422
)
Proceeds from Federal Home Loan Bank advances and other borrowings

4,722,052

935,656

2,200,000

900,018

Repayments of Federal Home Loan Bank advances and other borrowings

(4,745,324
)
(554,060
)

(2,206,440
)
(937,682
)
Purchase of treasury stock

(2,468
)
(12,249
)

—

(2,467
)
Exercise of stock options

1,052

3,021

116

719

Excess tax loss from stock-based payment arrangements

101

1,428

(23
)
89

Common stock cash dividends paid

(13,694
)
(13,587
)

(4,799
)
(4,561
)
Net cash provided by financing activities

211,226

143,670

Net cash provided (used) by financing activities

53,861

(114,306
)

Net change in cash and cash equivalents

(4,714
)
(21,385
)

(9,540
)
(2,866
)

Cash and cash equivalents at beginning of year

75,539

98,244

71,754

75,539

Cash and cash equivalents at end of year

$
70,825

$
76,859

$
62,214

$
72,673

Supplemental cash flow information:

Interest paid on deposits

$
13,901

$
15,707

$
4,902

$
4,718

Interest paid on borrowed funds

7,719

10,550

2,306

3,145

Income taxes paid, net

473

(4,023
)

274

146

Acquisition of non-cash assets and liabilities:

Assets acquired

18,064

—

—

18,064

Liabilities assumed

(441,550
)
(1,672
)

—

(441,550
)

Other non-cash changes:

Other net comprehensive income (loss)

8,028

(4,050
)
Other net comprehensive income

2,489

5,189

Real estate owned acquired in settlement of loans

3,975

3,374

127

476

The accompanying notes are an integral part of these consolidated financial statements.

9

Table of Contents

NOTE 1.                                              BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and contain all adjustments, consisting solely of normal, recurring adjustments, necessary for a fair presentation of results for such periods.

In addition, these interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to U.S. GAAP have been omitted.

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for Berkshire Hills Bancorp, Inc. (the “Company”) previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013.~~2014.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation.

Recently Adopted Accounting ~~Principles~~Standards

OnIn January 2014, the Financial Accounting Standard Board “FASB” issued Accounting Standard Updated “ASU” ASU No. 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects.” ASU No. 2014-01 permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. This new guidance also requires new disclosures for all investors in these projects. ASU No. 2014-01 is effective for interim and annual reporting periods beginning after December 15, 2014. Upon adoption, the guidance must be applied retrospectively to all periods presented. However, entities that use the effective yield method to account for investments in these projects before adoption may continue to do so for these pre-existing investments. The Company has elected not to adopt the proportional amortization method, which had no impact on our consolidated financial statements.
Also in January 2014, the FASB issued ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The Company adopted the provisions of ASU No. 2014-04 effective January 1, 2014 we adopted Accounting Standards Update (“ASU”) ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” to eliminate diversity in practice. This ASU requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. The adoption of this ASU2015, which did not have a material effect on our consolidated financial statements. See Note 4 - Loans to the Consolidated Financial Statements for the disclosures required by ASU No. 2014-04.

In June 2014, the FASB issued ASU No. 2014-11 related to repurchase-to-maturity transactions, repurchase financing and disclosures. The pronouncement changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other
~~Future Application~~10

Table of ~~Accounting Pronouncements~~Contents
repurchase agreements. The pronouncement also requires two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is not permitted. As of March 31, 2015 the Company did not have any repurchase transactions, and therefore the adoption of this pronouncement did not have an impact on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-14 related to classification of certain government-guaranteed mortgage loans upon foreclosure. The objective of this guidance is to reduce diversity in practice related to how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The amendments in this guidance require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The pronouncement is effective for interim and annual reporting periods beginning after December 15, 2014. The ~~adoption~~Company adopted the provisions of ~~this pronouncement is~~ASU No. 2014-14 effective January 1, 2015, which did not ~~expected to~~ have a material ~~impact~~effect on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-11 related to repurchase-to-maturity transactions, repurchase financing and disclosures. The pronouncement changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The pronouncement also requires two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the typesFuture Application of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is not permitted. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.
10Accounting Pronouncements

~~Table of Contents~~

In May 2014, the FASB issued ASU No. 2014-09 related to the recognition of revenue from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016 using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. Early adoption is not permitted. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.

In ~~January 2014,~~February 2015, the FASB issued ASU No. 2014-04 related to reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure. The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The pronouncement states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) The creditor obtaining legal title2015-02, “Amendments to the ~~residential real estate property upon completion~~Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of ~~a foreclosure; or (2) The borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a~~whether limited partnerships and similar legal ~~agreement. Additionally,~~entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2014-04 requires interim and annual disclosure of both: (1) The amount of foreclosed residential real estate property held by the creditor; and (2) The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The pronouncement2015-02 is effective for interim and annual reporting periods beginning after December 15, ~~2014.~~2015. Early adoption is not permitted; however, the FASB has issued a proposal to extend the effective date by one year.
In April 2015, the FASB issued ASU No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a
11

Table of Contents
cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.
In January 2014, the FASB issued ASU No. 2014-01 related to accounting for investments in qualified affordable housing projects. The pronouncement permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. This new guidance also requires new disclosures for all investors in these projects. The pronouncement is effective for interim and annual reporting periods beginning after December 15, 2014. Upon adoption, the guidance must be applied retrospectively to all periods presented. However, entities that used the effective yield method to account for investments in these projects before adoption may continue to do so for these pre-existing investments. If elected, the policy change is not expected to have a material impact on our consolidated financial statements.
~~NOTE 2.~~~~BRANCH ACQUISITION~~
~~New York Branch Acquisition~~
On January 17, 2014, Berkshire Bank purchased twenty branch banking offices located in central and eastern New York State, from Bank of America, National Association. Berkshire Bank received $423.1 million in cash, which was net of $17.4 million cash consideration paid and acquisition costs, and assumed certain related deposit liabilities associated with these branches (the “branch acquisition”). Consideration paid included a 2.25% premium on deposits received. The branch acquisition increased the Bank’s customer base and lending opportunities, and enhanced the Bank’s geographical market presence between Albany and Syracuse, New York. In addition, the acquired deposits augmented the Bank’s sources of liquidity.
11

~~Table of Contents~~
On the acquisition date, the acquired branches had assets with a carrying value of approximately $8.9 million, including loans outstanding with a carrying value of approximately $4.5 million, as well as deposits with a carrying value of approximately $440.5 million. The results from the acquired branch operations are included in the Company’s Consolidated Statement of Income from the date of acquisition.
The assets and liabilities obtained and assumed in the branch acquisition were recorded at fair value based on management’s best estimate using information available at the date of acquisition. Consideration paid, and fair values of the assets acquired and liabilities assumed are summarized in the following table:

Fair Value

As Recorded at

(in thousands)

As Acquired

Adjustments

Acquisition

Consideration paid:

Cash consideration paid to Bank of Amercia

$
17,105

Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value:

Cash and short-term investments

$
440,521

$
—

$
440,521

Loans

4,541

(533
)(a)
4,008

Premises and equipment

4,381

(710
)(b)
3,671

Core deposit intangibles

—

2,550
(c)
2,550

Other intangibles

—

(79
)(d)
(79
)
Deposits

(440,507
)
(15
)(e)
(440,522
)
Other liabilities

—

(944
)(f)
(944
)
Total identifiable net assets

$
8,936

$
269

$
9,205

Goodwill

$
7,900

~~Explanation of Certain Fair Value Adjustments~~
~~(a)~~The adjustment represents the write down of the book value of loans to their estimated fair value based on current interest rates and expected cash flows, which includes an estimate of expected loan loss inherent in the portfolio. Loans that met the criteria and are being accounted for in accordance with ASC 310-30 had a carrying amount of $201 thousand. Non-impaired loans not accounted for under 310-30 had a carrying value of $4.3 million.
~~(b)~~The amount represents the adjustment of the book value of buildings, and furniture and equipment, to their estimated fair value based on appraisals and other methods. The adjustments will be depreciated over the estimated economic lives of the assets.
~~(c)~~The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized over the estimated useful life of the deposit base.
~~(d)Represents an intangible liability related to assumed leases, which was recorded as an identifiable intangible and will be amortized over the remaining life of the leases.~~
~~(e)The adjustment is necessary because the weighted average interest rate of deposits exceeded the cost of similar funding at the time of acquisition.~~
~~(f)Represents an establishment of a reserve on certain acquired lines of credit, which were determined to have specific credit risk at the time of acquisition.~~
Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired were estimated using cash flow projections based on the remaining maturity and repricing terms.  Cash flows were adjusted by estimating future credit losses and the rate of prepayments.  Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.  For collateral dependent loans with deteriorated credit quality, to estimate the fair value we analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral.  Those values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.  There was no carryover of the seller’s allowance for credit losses associated with the loans that were acquired in the branch acquisition as the loans were initially recorded at fair value.
12

~~Table of Contents~~
~~Information about the acquired loan portfolio subject to ASC 310-30 as of January 17, 2014 is as follows (in thousands):~~

ASC 310-30 Loans

Contractually required principal and interest at acquisition

$
201

Contractual cash flows not expected to be collected (nonaccretable discount)

(100
)
Expected cash flows at acquisition

101

Interest component of expected cash flows (accretable premium)

20

Fair value of acquired loans

$
121

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately nine years utilizing a straight-line method.  Other intangibles consist of leasehold intangible liability, which is amortized over the remaining life of three years using a straight-line method.
~~The goodwill, which is not amortized for book purposes, was assigned to our banking segment and is not deductible for tax purposes.~~
The fair value of savings and transaction deposit accounts acquired in the branch acquisition was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand.  The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.
Direct acquisition and integration costs of the branch acquisition were expensed as incurred, and totaled $3.7 million during the nine months ending September 30, 2014 and $1.1 million during the same period of 2013.
The following table presents selected unaudited pro forma financial information reflecting the branch acquisition assuming it was completed as of January 1, 2013.  The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the combined financial results of the Company and acquired branches had the transaction actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period.  Pro forma basic and diluted earnings per common share were calculated using Berkshire’s actual weighted-average shares outstanding for the periods presented. The unaudited pro forma information is based on the actual financial statements of Berkshire for the periods shown, and on the calculated results of the acquired branches for the 2013 period shown and in 2014 until the date of acquisition, at which time their operations became included in Berkshire’s financial statements.
The unaudited pro forma information, for the nine months ended September 30, 2014 and 2013, set forth below reflects adjustments related to (a) purchase accounting fair value adjustments; (b) amortization of core deposit and other intangibles; and (c) adjustments to interest income and expense due to additional investments and borrowing reductions as a result of the branch acquisition. Direct acquisition and integration-related costs incurred by the Company during 2014 are reversed; as those expenses are assumed to have occurred prior to 2013. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities beyond investment of cash received from deposits, or anticipated cost-savings.
13

~~Table of Contents~~
~~Information in the following table is shown in thousands, except earnings per share:~~

Pro Forma (unaudited)

Nine months ended September 30,

2014

2013

Net interest income

$
133,170

$
133,991

Non-interest income

33,779

46,283

Net income

24,971

30,561

Pro forma earnings per share:

Basic

$
1.01

$
1.23

Diluted

$
1.01

$
1.22

NOTE 3.2.                                              TRADING 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 ~~$12.7~~$12.4 million and ~~$13.1~~$12.6 million, and a fair value of ~~$14.7~~$15.0 million and ~~$14.8~~$14.9 million, at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively. As discussed further in Note 1312 - 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 ~~September 30, 2014.~~March 31, 2015.

1412

Table of Contents

NOTE 4.3. 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

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

September 30, 2014

March 31, 2015

Securities available for sale

Debt securities:

Municipal bonds and obligations

$
129,981

$
5,781

$
(238
)
$
135,524

$
149,454

$
6,391

$
(395
)
$
155,450

Government-guaranteed residential mortgage-backed securities

74,127

490

(335
)
74,282

64,456

696

(113
)
65,039

Government-sponsored residential mortgage-backed securities

780,475

3,401

(6,305
)
777,571

750,730

13,157

(1,466
)
762,421

Corporate bonds

2,556

—

—

2,556

55,560

411

(614
)
55,357

Trust preferred securities

15,620

874

(1,096
)
15,398

12,773

736

(82
)
13,427

Other bonds and obligations

3,232

—

(78
)
3,154

3,203

—

(7
)
3,196

Total debt securities

1,005,991

10,546

(8,052
)
1,008,485

1,036,176

21,391

(2,677
)
1,054,890

Marketable equity securities

48,993

3,684

(2,197
)
50,480

38,150

7,536

(920
)
44,766

Total securities available for sale

1,054,984

14,230

(10,249
)
1,058,965

1,074,326

28,927

(3,597
)
1,099,656

Securities held to maturity

Municipal bonds and obligations

4,004

—

—

4,004

4,847

—

—

4,847

Government-sponsored residential mortgage-backed securities

71

3

—

74

70

5

—

75

Tax advantaged economic development bonds

38,189

1,385

(213
)
39,361

37,570

1,921

—

39,491

Other bonds and obligations

332

—

—

332

331

—

—

331

Total securities held to maturity

42,596

1,388

(213
)
43,771

42,818

1,926

—

44,744

Total

$
1,097,580

$
15,618

$
(10,462
)
$
1,102,736

$
1,117,144

$
30,853

$
(3,597
)
$
1,144,400

December 31, 2013

December 31, 2014

Securities available for sale

Debt securities:

Municipal bonds and obligations

$
77,852

$
1,789

$
(1,970
)
$
77,671

$
127,014

$
6,859

$
(174
)
$
133,699

Government-guaranteed residential mortgage-backed securities

78,885

544

(658
)
78,771

68,972

702

(206
)
69,468

Government-sponsored residential mortgage-backed securities

531,441

2,000

(10,783
)
522,658

755,893

7,421

(3,130
)
760,184

Corporate bonds

40,945

157

(1,822
)
39,280

55,134

120

(1,103
)
54,151

Trust preferred securities

16,927

1,249

(1,565
)
16,611

16,607

820

(1,212
)
16,215

Other bonds and obligations

3,250

—

(166
)
3,084

3,211

—

(52
)
3,159

Total debt securities

749,300

5,739

(16,964
)
738,075

1,026,831

15,922

(5,877
)
1,036,876

Marketable equity securities

20,042

2,266

(335
)
21,973

48,993

7,322

(1,373
)
54,942

Total securities available for sale

769,342

8,005

(17,299
)
760,048

1,075,824

23,244

(7,250
)
1,091,818

Securities held to maturity

Municipal bonds and obligations

4,244

—

—

4,244

4,997

—

—

4,997

Government-sponsored residential mortgage-backed securities

73

2

—

75

70

4

—

74

Tax advantaged economic development bonds

40,260

1,255

(414
)
41,101

37,948

1,680

(34
)
39,594

Other bonds and obligations

344

—

—

344

332

—

—

332

Total securities held to maturity

44,921

1,257

(414
)
45,764

43,347

1,684

(34
)
44,997

Total

$
814,263

$
9,262

$
(17,713
)
$
805,812

$
1,119,171

$
24,928

$
(7,284
)
$
1,136,815

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The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at ~~September 30, 2014~~March 31, 2015 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

Available for sale

Held to maturity

Amortized

Fair

Amortized

Fair

Amortized

Fair

Amortized

Fair

(In thousands)

Cost

Value

Cost

Value

Cost

Value

Cost

Value

Within 1 year

$
2,556

$
2,556

$
1,356

$
1,356

$
31,062

$
30,557

$
1,214

$
1,214

Over 1 year to 5 years

1,257

1,268

16,980

17,860

1,256

1,264

16,802

17,774

Over 5 years to 10 years

15,586

15,879

11,446

11,410

17,319

17,698

12,232

12,532

Over 10 years

131,990

136,929

12,743

13,071

171,353

177,911

12,500

13,149

Total bonds and obligations

151,389

156,632

42,525

43,697

220,990

227,430

42,748

44,669

Marketable equity securities

48,993

50,480

—

—

38,150

44,766

—

—

Residential mortgage-backed securities

854,602

851,853

71

74

815,186

827,460

70

75

Total

$
1,054,984

$
1,058,965

$
42,596

$
43,771

$
1,074,326

$
1,099,656

$
42,818

$
44,744

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Table of Contents

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

Less Than Twelve Months

Over Twelve Months

Total

Gross

Gross

Gross

Gross

Gross

Gross

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

(In thousands)

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

September 30, 2014

March 31, 2015

Securities available for sale

Debt securities:

Municipal bonds and obligations

$
6

$
995

$
232

$
9,971

$
238

$
10,966

$
62

$
19,756

$
333

$
11,796

$
395

$
31,552

Government-guaranteed residential mortgage-backed securities

163

29,109

172

7,520

335

36,629

11

5,638

102

6,701

113

12,339

Government-sponsored residential mortgage-backed securities

1,373

222,117

4,932

158,167

6,305

380,284

—

—

1,466

142,786

1,466

142,786

Corporate bonds

614

33,680

—

—

614

33,680

Trust preferred securities

—

—

1,096

2,458

1,096

2,458

82

2,192

—

—

82

2,192

Other bonds and obligations

—

—

78

2,983

78

2,983

—

—

7

2,057

7

2,057

Total debt securities

1,542

252,221

6,510

181,099

8,052

433,320

769

61,266

1,908

163,340

2,677

224,606

Marketable equity securities

1,694

20,165

503

4,587

2,197

24,752

636

7,364

284

4,576

920

11,940

Total securities available for sale

3,236

272,386

7,013

185,686

10,249

458,072

1,405

68,630

2,192

167,916

3,597

236,546

Securities held to maturity

Tax advantaged economic development bonds

—

—

213

7,856

213

7,856

—

—

—

—

—

—

Total securities held to maturity

—

—

213

7,856

213

7,856

—

—

—

—

—

—

Total

$
3,236

$
272,386

$
7,226

$
193,542

$
10,462

$
465,928

$
1,405

$
68,630

$
2,192

$
167,916

$
3,597

$
236,546

December 31, 2013

December 31, 2014

Securities available for sale

Debt securities:

Municipal bonds and obligations

$
1,657

$
17,776

$
313

$
1,854

$
1,970

$
19,630

$
8

$
1,001

$
166

$
7,206

$
174

$
8,207

Government guaranteed residential mortgage-backed securities

658

35,631

—

—

658

35,631

46

7,122

160

16,727

206

23,849

Government-sponsored residential mortgage-backed securities

10,783

423,203

—

—

10,783

423,203

236

30,672

2,894

167,473

3,130

198,145

Corporate bonds

1,822

29,124

—

—

1,822

29,124

1,103

39,571

—

—

1,103

39,571

Trust preferred securities

—

—

1,565

2,039

1,565

2,039

65

935

1,147

2,408

1,212

3,343

Other bonds and obligations

166

3,082

—

—

166

3,082

—

52

3,035

52

3,035

Total debt securities

15,086

508,816

1,878

3,893

16,964

512,709

1,458

79,301

4,419

196,849

5,877

276,150

Marketable equity securities

117

1,653

218

1,782

335

3,435

1,039

9,902

334

4,755

1,373

14,657

Total securities available for sale

15,203

510,469

2,096

5,675

17,299

516,144

2,497

89,203

4,753

201,604

7,250

290,807

Securities held to maturity

Tax advantaged economic development bonds

57

9,429

357

7,901

414

17,330

—

—

34

7,972

34

7,972

Total securities held to maturity

57

9,429

357

7,901

414

17,330

—

—

34

7,972

34

7,972

Total

$
15,260

$
519,898

$
2,453

$
13,576

$
17,713

$
533,474

$
2,497

$
89,203

$
4,787

$
209,576

$
7,284

$
298,779

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 ~~September 30, 2014,~~March 31, 2015, 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 historically 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 ~~September 30, 2014:~~March 31, 2015:

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AFS municipal bonds and obligations

At ~~September 30, 2014, 17~~March 31, 2015, 28 of the total ~~185~~190 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~2.1%~~1.2% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the ~~third~~first quarter of ~~2014.~~2015. All securities are performing.

AFS residential mortgage-backed securities

At ~~September 30, 2014, 65~~March 31, 2015, 36 out of the total ~~197~~198 securities in the Company’s portfolios of AFS residential mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~1.6%~~1.0% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s residential mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the past quarter. All securities are performing.

AFS corporate bonds
At March 31, 2015, 2 out of 6 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 1.8% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities. Neither bond is investment grade rated.
At March 31, 2015, $0.5 million of the total unrealized losses was attributable to a $31.1 million investment. The Company evaluated this security, with a Level 2 fair value of $30.6 million, for potential other-than-temporary impairment (“OTTI”) at March 31, 2015 and determined that OTTI was not evident based on both the Company’s ability and intent to hold the security until the recovery of its remaining amortized cost.
AFS trust preferred securities

At ~~September 30, 2014,~~March 31, 2015, 2 out of the ~~total 5~~4 securities in the Company’s portfolio of AFS trust preferred securities were in unrealized loss positions. Aggregate unrealized losses represented ~~30.8%~~3.6% 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 basis. ~~Of the 2~~Both securities ~~1 security is~~are investment grade rated. The Company reviews the financial strength of all of the single issue trust issuers and has concluded that the amortized cost remains supported by the market value of these securities and they are performing.

At September 30, 2014, $1.0 million of the total unrealized losses was attributable to a $2.8 million investment in a Mezzanine Class B tranche of a $360 million pooled trust preferred security collateralized by banking and insurance entities. The Company evaluated the security, with a Level 3 fair value of $1.5 million, for potential other-than-temporary-impairment (“OTTI”) at September 30, 2014 and determined that OTTI was not evident based on both the Company’s ability and intent to hold the security until the recovery of its remaining amortized cost and the protection from credit loss afforded by $57.2 million in excess subordination above current and projected losses. The security is performing.
AFS other bonds and obligations

At ~~September 30, 2014,~~March 31, 2015, 4 of the total 8 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~2.5%~~0.4% of the amortized cost of securities in unrealized loss positions. The securities are investment grade rated and there were no material underlying credit downgrades during ~~the third~~first quarter of ~~2014.~~2015. All securities are performing.
~~HTM tax advantaged economic development bonds~~
At September 30, 2014, 1 of the total 7 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 2.6% of the amortized cost of securities in unrealized loss positions. The Company has the intent of maintaining these bonds to recovery. These securities are performing. The Company expects to receive all future cash flows associated with these securities.

Marketable Equity Securities

In evaluating its marketable equity securities portfolio for OTTI, the Company considers its ability to more likely than not hold an equity security to recovery. The Company additionally considers other various factors including
18

~~Table of Contents~~
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.

16

Table of Contents
At ~~September 30, 2014, 12~~March 31, 2015, 6 out of the total 3029 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented ~~8.2%~~7.2% of the amortized cost of the securities. The Company has the ability and intent to hold the securities until recovery of their cost basis and does not consider the securities other-than-temporarily impaired at ~~September 30, 2014.~~March 31, 2015. 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.

NOTE 5.4. LOANS

The Company’s loan portfolio is segregated into the following segments: residential mortgage, commercial real estate, commercial and industrial, and consumer. Residential mortgage loans include classes for 1- 4 family owner occupied and construction loans. Commercial real estate loans include construction, single and multi-family, and other commercial real estate classes. Commercial and industrial loans include asset based lending loans, lease financing and other commercial business loan classes. Consumer loans include home equity, direct and indirect auto and other. These portfolio segments each have unique risk characteristics that are considered when determining the appropriate level for the allowance for loan losses.

A substantial portion of the loan portfolio is secured by real estate in western Massachusetts, southern Vermont, northeastern New York, and in the Bank’s other New England lending areas. The ability of many of the Bank’s borrowers to honor their contracts is dependent, among other things, on the specific economy and real estate markets of these areas.

Total loans include business activity loans and acquired loans. Acquired loans are those loans acquired from the acquisitions of the 20 acquired branches, Beacon Federal Bancorp, Inc., The Connecticut Bank and Trust Company, Legacy Bancorp, Inc., and Rome Bancorp, Inc. The following is a summary of total loans:

September 30, 2014

December 31, 2013

March 31, 2015

December 31, 2014

(In thousands)

Business
Activities Loans

Acquired
Loans

Total

Business
Activities Loans

Acquired
Loans

Total

Business
Activities Loans

Acquired
Loans

Total

Business
Activities Loans

Acquired
Loans

Total

Residential mortgages:

1-4 family

$
1,136,351

$
284,966

$
1,421,317

$
1,027,737

$
333,367

$
1,361,104

$
1,188,018

$
256,503

$
1,444,521

$
1,199,408

$
268,734

$
1,468,142

Construction

23,512

1,032

24,544

18,158

5,012

23,170

27,796

922

28,718

27,044

1,018

28,062

Total residential mortgages

1,159,863

285,998

1,445,861

1,045,895

338,379

1,384,274

1,215,814

257,425

1,473,239

1,226,452

269,752

1,496,204

Commercial real estate:

Construction

152,060

6,601

158,661

125,247

13,770

139,017

182,800

4,046

186,846

169,189

4,201

173,390

Single and multi-family

122,239

58,143

180,382

63,493

64,827

128,320

142,297

48,429

190,726

140,050

53,168

193,218

Other commercial real estate

1,032,612

223,745

1,256,357

871,271

278,512

1,149,783

1,086,893

207,634

1,294,527

1,030,837

214,122

1,244,959

Total commercial real estate

1,306,911

288,489

1,595,400

1,060,011

357,109

1,417,120

1,411,990

260,109

1,672,099

1,340,076

271,491

1,611,567

Commercial and industrial loans:

Asset based lending

341,584

—

341,584

294,241

3,130

297,371

354,106

—

354,106

341,246

—

341,246

Other commercial and industrial loans

338,454

52,922

391,376

323,196

66,726

389,922

424,565

48,144

472,709

411,945

51,175

463,120

Total commercial and industrial loans

680,038

52,922

732,960

617,437

69,856

687,293

778,671

48,144

826,815

753,191

51,175

804,366

Total commercial loans

1,986,949

341,411

2,328,360

1,677,448

426,965

2,104,413

2,190,661

308,253

2,498,914

2,093,267

322,666

2,415,933

Consumer loans:

Home equity

248,500

67,593

316,093

232,677

74,154

306,831

255,368

62,247

317,615

252,681

65,951

318,632

Auto and other

338,436

124,032

462,468

213,171

171,834

385,005

351,826

87,069

438,895

346,480

103,351

449,831

Total consumer loans

586,936

191,625

778,561

445,848

245,988

691,836

607,194

149,316

756,510

599,161

169,302

768,463

Total loans

$
3,733,748

$
819,034

$
4,552,782

$
3,169,191

$
1,011,332

$
4,180,523

$
4,013,669

$
714,994

$
4,728,663

$
3,918,880

$
761,720

$
4,680,600

The carrying amount of the acquired loans at March 31, 2015 totaled $715 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with

1917

Table of Contents

~~The carrying amount of the acquired~~ASC 310-30. These purchased credit-impaired loans ~~at September 30, 2014 totaled $819 million. These loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Topic 310-30, with~~presently maintain a carrying ~~amount~~value of ~~$19~~$12.7 million (and a note balance of ~~$34 million) and~~$23.9). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Loans that were considered not impaired at the acquisition date ~~with~~had a carrying amount of ~~$800~~$702 million.
The carrying amount of the acquired loans at December 31, 2014 totaled $762 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $13.8 million (and a note balance of $25.8). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Loans that were considered not impaired at the acquisition date had a carrying amount of $747.9 million.

The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer.

Three Months Ended September 30,

(In thousands)

2014

2013

Balance at beginning of period

$
2,440

$
3,328

Sales

—

—

Change in accretable difference based on re-estimation of cash flows

1,214

2,125

Accretion

(458
)
(1,547
)
Balance at end of period

$
3,196

$
3,906

Nine months ended September 30,

Three Months Ended March 31,

(In thousands)

2014

2013

2015

2014

Balance at beginning of period

$
2,559

$
8,247

$
2,541

$
2,559

Acquisitions

—

—

Sales

—

(301
)

—

—

Change in accretable difference based on re-estimation of cash flows

2,644

2,125

Reclassification form nonaccretable difference for loans with improved cash flows

1,330

1,540

Accretion

(2,007
)
(6,165
)

(440
)
(945
)
Balance at end of period

$
3,196

$
3,906

$
3,431

$
3,154

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Table of Contents

The following is a summary of past due loans at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:
~~Business Activities Loans~~

(in thousands)

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Current

Total Loans

Past Due >
90 days and
Accruing

September 30, 2014

Residential mortgages:

1-4 family

$
2,290

$
347

$
4,720

$
7,357

$
1,128,994

$
1,136,351

$
1,524

Construction

—

—

—

—

23,512

23,512

—

Total

2,290

347

4,720

7,357

1,152,506

1,159,863

1,524

Commercial real estate:

Construction

—

—

621

621

151,439

152,060

—

Single and multi-family

201

160

668

1,029

121,210

122,239

121

Other commercial real estate

2,610

340

10,084

13,034

1,019,578

1,032,612

867

Total

2,811

500

11,373

14,684

1,292,227

1,306,911

988

Commercial and industrial loans:

Asset based lending

—

661

—

661

340,923

341,584

—

Other commercial and industrial loans

390

180

1,190

1,760

336,694

338,454

6

Total

390

841

1,190

2,421

677,617

680,038

6

Consumer loans:

Home equity

431

81

1,821

2,333

246,167

248,500

424

Auto and other

707

75

364

1,146

337,290

338,436

27

Total

1,138

156

2,185

3,479

583,457

586,936

451

Total

$
6,629

$
1,844

$
19,468

$
27,941

$
3,705,807

$
3,733,748

$
2,969

Business Activities Loans

(in thousands)

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Current

Total Loans

Past Due >
90 days and
Accruing

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Current

Total Loans

Past Due >
90 days and
Accruing

December 31, 2013

March 31, 2015

Residential mortgages:

1-4 family

$
2,500

$
623

$
7,382

$
10,505

$
1,017,232

$
1,027,737

$
1,451

$
1,888

$
888

$
4,066

$
6,842

$
1,181,176

$
1,188,018

$
1,699

Construction

—

—

41

41

18,117

18,158

—

—

—

414

414

27,382

27,796

414

Total

2,500

623

7,423

10,546

1,035,349

1,045,895

1,451

1,888

888

4,480

7,256

1,208,558

1,215,814

2,113

Commercial real estate:

Construction

174

—

3,176

3,350

121,897

125,247

—

—

—

758

758

182,042

182,800

—

Single and multi-family

139

654

679

1,472

62,021

63,493

168

245

247

406

898

141,399

142,297

—

Other commercial real estate

622

4,801

6,912

12,335

858,936

871,271

865

1,900

330

9,202

11,432

1,075,461

1,086,893

266

Total

935

5,455

10,767

17,157

1,042,854

1,060,011

1,033

2,145

577

10,366

13,088

1,398,902

1,411,990

266

Commercial and industrial loans:

Asset based lending

—

—

—

—

294,241

294,241

—

—

—

—

—

354,106

354,106

—

Other commercial and industrial loans

1,136

386

1,477

2,999

320,197

323,196

42

1,371

150

725

2,246

422,319

424,565

—

Total

1,136

386

1,477

2,999

614,438

617,437

42

1,371

150

725

2,246

776,425

778,671

—

Consumer loans:

Home equity

732

54

1,655

2,441

230,236

232,677

572

589

154

2,546

3,289

252,079

255,368

1,354

Auto and other

524

231

390

1,145

212,026

213,171

142

744

54

255

1,053

350,773

351,826

3

Total

1,256

285

2,045

3,586

442,262

445,848

714

1,333

208

2,801

4,342

602,852

607,194

1,357

Total

$
5,827

$
6,749

$
21,712

$
34,288

$
3,134,903

$
3,169,191

$
3,240

$
6,737

$
1,823

$
18,372

$
26,932

$
3,986,737

$
4,013,669

$
3,736

Business Activities Loans
(in thousands)

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Current

Total Loans

Past Due >
90 days and
Accruing

December 31, 2014

Residential mortgages:

1-4 family

$
5,580

$
146

$
4,053

$
9,779

$
1,189,629

$
1,199,408

$
1,527

Construction

666

410

—

1,076

25,968

27,044

—

Total

6,246

556

4,053

10,855

1,215,597

1,226,452

1,527

Commercial real estate:

Construction

—

2,000

720

2,720

166,469

169,189

—

Single and multi-family

178

156

458

792

139,258

140,050

—

Other commercial real estate

692

705

9,383

10,780

1,020,057

1,030,837

621

Total

870

2,861

10,561

14,292

1,325,784

1,340,076

621

Commercial and industrial loans:

Asset based lending

—

—

—

—

341,246

341,246

—

Other commercial and industrial loans

1,040

498

856

2,394

409,551

411,945

6

Total

1,040

498

856

2,394

750,797

753,191

6

Consumer loans:

Home equity

333

1,000

1,387

2,720

249,961

252,681

230

Auto and other

831

65

315

1,211

345,269

346,480

10

Total

1,164

1,065

1,702

3,931

595,230

599,161

240

Total

$
9,320

$
4,980

$
17,172

$
31,472

$
3,887,408

$
3,918,880

$
2,394

2119

Table of Contents

Acquired Loans

(in thousands)

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Current

Total Loans

Past Due >
90 days and
Accruing

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Acquired
Credit
Impaired

Total Loans

Past Due >
90 days and
Accruing

September 30, 2014

March 31, 2015

Residential mortgages:

1-4 family

$
1,047

$
301

$
2,576

$
3,924

$
281,042

$
284,966

$
962

$
187

$
592

$
1,930

2,709

$
361

$
256,503

$
144

Construction

—

—

—

—

1,032

1,032

—

—

—

—

—

—

922

—

Total

1,047

301

2,576

3,924

282,074

285,998

962

187

592

1,930

2,709

361

257,425

144

Commercial real estate:

Construction

686

—

806

1,492

5,109

6,601

806

—

—

676

676

1,281

4,046

—

Single and multi-family

728

267

579

1,574

56,569

58,143

508

323

45

2,728

3,096

4,924

48,429

2,257

Other commercial real estate

88

122

1,736

1,946

221,799

223,745

—

1,116

116

2,269

3,501

5,222

207,634

—

Total

1,502

389

3,121

5,012

283,477

288,489

1,314

1,439

161

5,673

7,273

11,427

260,109

2,257

Commercial and industrial loans:

Asset based lending

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Other commercial and industrial loans

142

97

1,199

1,438

51,484

52,922

158

285

—

586

871

705

48,144

3

Total

142

97

1,199

1,438

51,484

52,922

158

285

—

586

871

705

48,144

3

Consumer loans:

Home equity

466

204

583

1,253

66,340

67,593

98

209

228

1,118

1,555

170

62,247

242

Auto and other

1,593

148

1,507

3,248

120,784

124,032

66

1,394

23

731

2,148

—

87,069

19

Total

2,059

352

2,090

4,501

187,124

191,625

164

1,603

251

1,849

3,703

170

149,316

261

Total

$
4,750

$
1,139

$
8,986

$
14,875

$
804,159

$
819,034

$
2,598

$
3,514

$
1,004

$
10,038

$
14,556

$
12,663

$
714,994

$
2,665

Acquired Loans

(in thousands)

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Current

Total Loans

Past Due >
90 days and
Accruing

30-59 Days
Past Due

60-89 Days
Past Due

Greater
Than 90
Days Past
Due

Total Past
Due

Acquired
Credit
Impaired

Total Loans

Past Due >
90 days and
Accruing

December 31, 2013

December 31, 2014

Residential mortgages:

1-4 family

$
1,891

$
437

$
2,577

$
4,905

$
328,462

$
333,367

$
805

$
1,133

$
638

$
1,651

$
3,422

$
375

$
268,734

$
269

Construction

134

32

625

791

4,221

5,012

501

—

—

—

—

—

1,018

—

Total

2,025

469

3,202

5,696

332,683

338,379

1,306

1,133

638

1,651

3,422

375

269,752

269

Commercial real estate:

Construction

—

—

805

805

12,965

13,770

805

—

—

691

691

1,296

4,201

—

Single and multi-family

350

188

1,335

1,873

62,954

64,827

512

277

—

572

849

5,477

53,168

—

Other commercial real estate

537

518

6,108

7,163

271,349

278,512

2,925

—

715

2,004

2,719

5,504

214,122

329

Total

887

706

8,248

9,841

347,268

357,109

4,242

277

715

3,267

4,259

12,277

271,491

329

Commercial and industrial loans:

Asset based lending

—

—

—

—

3,130

3,130

—

—

—

—

—

—

—

—

Other commercial and industrial loans

440

135

1,239

1,814

64,912

66,726

318

202

32

855

1,089

986

51,175

—

Total

440

135

1,239

1,814

68,042

69,856

318

202

32

855

1,089

986

51,175

—

Consumer loans:

Home equity

425

545

636

1,606

72,548

74,154

35

176

95

1,049

1,320

171

65,951

466

Auto and other

2,606

641

1,641

4,888

166,946

171,834

82

1,170

944

1,363

3,477

—

103,351

194

Total

3,031

1,186

2,277

6,494

239,494

245,988

117

1,346

1,039

2,412

4,797

171

169,302

660

Total

$
6,383

$
2,496

$
14,966

$
23,845

$
987,487

$
1,011,332

$
5,983

$
2,958

$
2,424

$
8,185

$
13,567

$
13,809

$
761,720

$
1,258

2220

Table of Contents

The following is summary information pertaining to non-accrual loans at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:

September 30, 2014

December 31, 2013

March 31, 2015

December 31, 2014

(In thousands)

Business
Activities Loans

Acquired
Loans

Total

Business
Activities Loans

Acquired
Loans

Total

Business
Activities Loans

Acquired
Loans (1)

Total

Business
Activities Loans

Acquired
Loans (2)

Total

Residential mortgages:

1-4 family

$
3,196

$
1,614

$
4,810

$
5,931

$
1,772

$
7,703

$
2,367

$
1,786

$
4,153

$
2,526

$
1,382

$
3,908

Construction

—

—

—

41

123

164

—

—

—

—

—

—

Total

3,196

1,614

4,810

5,972

1,895

7,867

2,367

1,786

4,153

2,526

1,382

3,908

Commercial real estate:

Construction

621

—

621

3,176

—

3,176

758

—

758

720

—

720

Single and multi-family

547

71

618

511

823

1,334

406

471

877

458

141

599

Other commercial real estate

9,217

1,736

10,953

6,047

3,183

9,230

8,936

1,939

10,875

8,762

1,675

10,437

Total

10,385

1,807

12,192

9,734

4,006

13,740

10,100

2,410

12,510

9,940

1,816

11,756

Commercial and industrial loans:

Other commercial and industrial loans

1,184

1,041

2,225

1,434

921

2,355

725

569

1,294

850

811

1,661

Total

1,184

1,041

2,225

1,434

921

2,355

725

569

1,294

850

811

1,661

Consumer loans:

Home equity

1,397

485

1,882

1,083

602

1,685

1,192

876

2,068

1,157

583

1,740

Auto and other

337

1,441

1,778

249

1,559

1,808

252

712

964

305

1,169

1,474

Total

1,734

1,926

3,660

1,332

2,161

3,493

1,444

1,588

3,032

1,462

1,752

3,214

Total non-accrual loans

$
16,499

$
6,388

$
22,887

$
18,472

$
8,983

$
27,455

$
14,636

$
6,353

$
20,989

$
14,778

$
5,761

$
20,539

(1)At quarter end March 31, 2015, acquired credit impaired loans accounted for $1.0 million of non-accrual loans that are not presented in the above table.
(2)At year end 2014, acquired credit impaired loans accounted for $1.2 million of non-accrual loans that are not presented in the above table.

2321

Table of Contents

Loans evaluated for impairment as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 were as follows:

Business Activities Loans

(In thousands)

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

September 30, 2014

March 31, 2015

Loans receivable:

Balance at end of period

Individually evaluated for impairment

$
3,808

$
22,018

$
1,113

$
749

$
27,688

$
3,028

$
22,342

$
262

$
448

$
26,080

Collectively evaluated

1,156,055

1,284,893

678,925

586,187

3,706,060

1,212,786

1,389,648

778,409

606,746

3,987,589

Total

$
1,159,863

$
1,306,911

$
680,038

$
586,936

$
3,733,748

$
1,215,814

$
1,411,990

$
778,671

$
607,194

$
4,013,669

Business Activities Loans

(In thousands)

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

December 31, 2013

December 31, 2014

Loans receivable:

Balance at end of year

Individually evaluated for impairment

$
6,237

$
22,429

$
1,380

$
515

$
30,561

$
3,238

$
22,015

$
743

$
452

$
26,448

Collectively evaluated for impairment

1,039,658

1,037,582

616,057

445,333

3,138,630

1,223,214

1,318,061

752,448

598,709

3,892,432

Total

$
1,045,895

$
1,060,011

$
617,437

$
445,848

$
3,169,191

$
1,226,452

$
1,340,076

$
753,191

$
599,161

$
3,918,880

Acquired Loans

(In thousands)

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

September 30, 2014

March 31, 2015

Loans receivable:

Balance at end of Period

Individually evaluated for impairment

$
934

$
4,625

$
60

$
184

$
5,803

$
1,194

$
6,203

$
47

$
546

$
7,990

Collectively evaluated

285,064

283,864

52,862

191,441

813,231

256,231

253,906

48,097

148,770

707,004

Total

$
285,998

$
288,489

$
52,922

$
191,625

$
819,034

$
257,425

$
260,109

$
48,144

$
149,316

$
714,994

Acquired Loans

(In thousands)

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Total

December 31, 2013

December 31, 2014

Loans receivable:

Balance at end of year

Individually evaluated for impairment

$
1,568

$
6,295

$
367

$
154

$
8,384

$
695

$
5,637

$
39

$
199

$
6,570

Collectively evaluated for impairment

336,811

350,814

69,489

245,834

1,002,948

269,057

265,854

51,136

169,103

755,150

Total

$
338,379

$
357,109

$
69,856

$
245,988

$
1,011,332

$
269,752

$
271,491

$
51,175

$
169,302

$
761,720

2422

Table of Contents

The following is a summary of impaired loans at ~~September 30, 2014:~~March 31, 2015:

Business Activities Loans

At September 30, 2014

At March 31, 2015

(In thousands)

Recorded Investment

Unpaid Principal
Balance

Related Allowance

Recorded Investment

Unpaid Principal
Balance

Related Allowance

With no related allowance:

Residential mortgages - 1-4 family

$
3,453

$
3,453

$
—

$
3,028

$
3,028

$
—

Commercial real estate - single and multifamily

180

180

—

Other commercial real estate loans

15,047

15,047

—

14,380

14,380

—

Commercial real esate - construction

621

621

—

2,632

2,632

—

Other commercial and industrial loans

552

552

—

262

262

—

Consumer - home equity

630

630

—

334

334

—

Consumer - other

119

119

—

114

114

—

With an allowance recorded:

Residential mortgages - 1-4 family

$
325

$
355

$
30

Other commercial real estate loans

3,941

6,350

2,409

$
4,064

$
5,150

$
1,086

Other commercial and industrial loans

249

561

312

Total

Residential mortgages

$
3,778

$
3,808

$
30

$
3,028

$
3,028

$
—

Commercial real estate

19,609

22,018

2,409

21,256

22,342

1,086

Commercial and industrial loans

801

1,113

312

262

262

—

Consumer

749

749

—

448

448

—

Total impaired loans

$
24,937

$
27,688

$
2,751

$
24,994

$
26,080

$
1,086

Acquired Loans

At September 30, 2014

At March 31, 2015

(In thousands)

Recorded Investment

Unpaid Principal
Balance

Related Allowance

Recorded Investment

Unpaid Principal
Balance

Related Allowance

With no related allowance:

Residential mortgages - 1-4 family

$
934

$
934

$
—

$
625

$
625

$
—

Commercial real estate - single and multifamily

2,857

2,857

—

Other commercial real estate loans

4,625

4,625

—

1,649

1,649

—

Other commercial and industrial loans

60

60

—

47

47

—

Consumer - home equity

184

184

—

197

197

—

With an allowance recorded:

Residential mortgages - 1-4 family

$
—

$
—

$
—

$
517

$
569

$
52

Commercial real estate - single and multifamily

318

330

12

Other commercial real estate loans

—

—

—

504

691

187

Other commercial and industrial loans

—

—

—

Commercial real esate - construction

420

676

256

Consumer - home equity

288

349

61

Total

Residential mortgages

$
934

$
934

$
—

$
1,142

$
1,194

$
52

Commercial real estate

4,625

4,625

—

5,748

6,203

455

Commercial and industrial loans

60

60

—

47

47

—

Consumer

184

184

—

485

546

61

Total impaired loans

$
5,803

$
5,803

$
—

$
7,422

$
7,990

$
568

2523

Table of Contents

The following is a summary of impaired loans at December 31, ~~2013:~~2014:

Business Activities Loans

At December 31, 2013

At December 31, 2014

(In thousands)

Recorded Investment

Unpaid Principal
Balance

Related Allowance

Recorded Investment

Unpaid Principal
Balance

Related Allowance

With no related allowance:

Residential mortgages - 1-4 family

$
3,406

$
3,406

$
—

$
2,528

$
2,528

$
—

Commercial real estate - construction

3,176

3,176

—

16,990

16,990

—

Commercial real estate - single and multifamily

—

—

—

—

—

—

Other commercial real estate loans

18,909

18,909

—

102

102

—

Other commercial and industrial loans

811

811

—

743

743

—

Consumer - home equity

270

270

—

87

87

—

Consumer - other

—

—

—

With an allowance recorded:

Residential mortgages - 1-4 family

$
1,926

$
2,831

$
905

$
555

$
710

$
155

Commercial real estate - construction

—

—

—

3,511

4,431

920

Commercial real estate - single and multifamily

—

—

—

490

492

2

Other commercial real estate loans

125

344

219

—

—

—

Other commercial and industrial loans

514

569

55

—

—

—

Consumer - home equity

142

245

103

194

248

54

Consumer - other

105

117

12

Total

Residential mortgages

$
5,332

$
6,237

$
905

$
3,083

$
3,238

$
155

Commercial real estate

22,210

22,429

219

21,093

22,015

922

Commercial and industrial loans

1,325

1,380

55

743

743

—

Consumer

412

515

103

386

452

66

Total impaired loans

$
29,279

$
30,561

$
1,282

$
25,305

$
26,448

$
1,143

Acquired Loans

At December 31, 2013

At December 31, 2014

(In thousands)

Recorded Investment

Unpaid Principal
Balance

Related Allowance

Recorded Investment

Unpaid Principal
Balance

Related Allowance

With no related allowance:

Residential mortgages - 1-4 family

$
381

$
381

$
—

$
189

$
189

$
—

Other commercial real estate loans

3,853

3,853

—

5,206

5,206

—

Other commercial and industrial loans

367

367

—

39

39

—

Consumer - home equity

—

—

—

With an allowance recorded:

Residential mortgages - 1-4 family

$
957

$
1,187

$
230

$
458

$
506

$
48

Other commercial real estate loans

1,954

2,442

488

383

431

48

Consumer - home equity

115

154

39

124

199

75

Total

Residential mortgages

$
1,338

$
1,568

$
230

$
647

$
695

$
48

Other commercial real estate loans

5,807

6,295

488

5,589

5,637

48

Other commercial and industrial loans

367

367

—

39

39

—

Consumer - home equity

115

154

39

124

199

75

Total impaired loans

$
7,627

$
8,384

$
757

$
6,399

$
6,570

$
171

2624

Table of Contents

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

Business Activities Loans

Nine Months Ended September 30, 2014

Nine Months Ended September 30, 2013

(in thousands)

Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized

With no related allowance:

Residential mortgages - 1-4 family

$
4,342

$
140

$
4,873

$
64

Commercial real estate - construction

16,765

470

2,332

25

Other commercial real estate loans

2,117

—

23,538

547

Commercial and industrial loans

1,582

60

1,182

34

Consumer - home equity

411

9

1,145

8

Consumer - other

122

3

130

2

With an allowance recorded:

Residential mortgages - 1-4 family

$
396

$
3

$
1,569

$
9

Commercial real estate - construction

3,776

30

1,938

—

Other commercial real estate loans

593

4

86

—

Commercial and industrial loans

—

—

759

—

Consumer - home equity

—

—

55

—

Total

Residential mortgages

$
4,738

$
143

$
6,442

$
73

Commercial real estate

23,251

504

27,894

572

Commercial and industrial loans

1,582

60

1,941

34

Consumer loans

533

12

1,330

10

Total impaired loans

$
30,104

$
719

$
37,607

$
689

Three Months Ended March 31, 2015

Three Months Ended March 31, 2014

(in thousands)

Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized

With no related allowance:

Residential mortgages - 1-4 family

$
3,108

$
28

$
4,142

$
23

Commercial real estate - construction

2,628

1

1,957

—

Commercial real estate - single and multifamily

180

—

—

—

Other commercial real estate loans

15,315

131

16,180

154

Commercial and industrial loans

578

3

1,337

7

Consumer - home equity

334

—

348

1

Consumer - other

115

1

124

1

With an allowance recorded:

Residential mortgages - 1-4 family

$
—

$
—

$
1,774

$
16

Commercial real estate - construction

—

—

1,013

—

Other commercial real estate loans

5,267

—

3,450

—

Commercial and industrial loans

—

—

55

1

Consumer - home equity

—

—

41

—

Total

Residential mortgages

$
3,108

$
28

$
5,916

$
39

Commercial real estate

23,390

132

22,600

154

Commercial and industrial loans

578

3

1,392

8

Consumer loans

449

1

513

2

Total impaired loans

$
27,525

$
164

$
30,421

$
203

Acquired Loans

Nine Months Ended September 30, 2014

Nine Months Ended September 30, 2013

Three Months Ended March 31, 2015

Three Months Ended March 31, 2014

(in thousands)

Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized

With no related allowance:

Residential mortgages - 1-4 family

$
1,046

$
8

$
410

$
3

$
670

$
3

$
1,303

$
5

Commercial real estate - single and multifamily

2,892

24

—

—

Other commercial real estate loans

5,575

146

3,035

53

1,662

3

4,821

25

Commercial and industrial loans

457

13

182

—

Other commercial and industrial loans

64

3

—

—

Consumer - home equity

55

—

—

—

197

2

562

1

Consumer - other

—

—

154

—

With an allowance recorded:

Residential mortgages - 1-4 family

$
164

$
4

$
566

$
3

$
569

$
—

$
162

$
—

Commercial real estate - single and multifamily

397

—

—

—

Other commercial real estate loans

—

—

1,163

6

691

—

1,577

46

Commercial real esate - construction

666

44

—

—

Consumer - home equity

349

—

—

—

Consumer - other

—

—

70

2

Total

Residential mortgages

$
1,210

$
12

$
976

$
6

$
1,239

$
3

$
1,465

$
5

Other commercial real estate loans

5,575

146

4,198

59

6,308

71

6,398

71

Commercial and industrial loans

457

13

182

—

64

3

632

3

Consumer loans

55

—

—

—

546

2

154

—

Total impaired loans

$
7,297

$
171

$
5,356

$
65

$
8,157

$
79

$
8,649

$
79

2725

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Troubled Debt Restructuring Loans

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.

The following tables include the recorded investment and number of modifications identified during the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~for the nine months ended September 30, 2013, respectively. There were no modifications identified~~ for the three months ended ~~September 30, 2013.~~March 31, 2014, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modifications for the three ~~and nine~~ months ending ~~September 30, 2014~~March 31, 2015 were attributable to interest rate concessions, maturity date extensions and released collateral. The ~~modifications~~modification for the ~~nine~~three months ending ~~September 30, 2013 were~~March 31, 2014 was attributable to ~~interest rate~~ concessions ~~and maturity date extensions.~~granted as ordered by bankruptcy court.

Modifications by Class

Modifications by Class

Three months ending September 30, 2014

Three months ending March 31, 2015

(Dollars in thousands)

Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Troubled Debt Restructurings

Residential - 1-4 Family

2

$
231

$
232

Commercial - Single and multifamily

—

—

—

Commercial - Construction

1

$
123

$
123

Commercial - Other

1

1,596

1,596

1

2,000

2,000

3

$
1,827

$
1,828

Modifications by Class

Nine months ending September 30, 2014

(Dollars in thousands)

Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Troubled Debt Restructurings

Residential - 1-4 Family

5

$
600

$
598

Commercial - Single and multifamily

1

623

623

Commercial - Other

7

6,400

6,400

13

$
7,623

$
7,621

Modifications by Class

Nine months ending September 30, 2013

(Dollars in thousands)

Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Troubled Debt Restructurings

Residential - 1-4 Family

5

$
941

$
941

Residential - Construction

1

320

320

Commercial - Single and multifamily

2

2,366

2,406

Commercial - Other

10

3,882

3,450

Commercial business - Other

4

100

100

22

$
7,609

$
7,217

Commercial and industrial - Other

1

33

33

Total

3

$
2,156

$
2,156

28

~~Table of Contents~~

Modifications by Class

Three months ending March 31, 2014

(Dollars in thousands)

Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Troubled Debt Restructurings

Residential - 1-4 Family

1

$
122

$
119

The following table discloses the recorded investment and number of modifications for TDRs within the last three ~~and nine~~ months where a concession has been made, that then defaulted in the respective reporting period.

Modifications that Subsequently Defaulted

Modifications that Subsequently Defaulted

Three months ending September 30, 2014

Three months ending March 31, 2015

Number of Contracts

Recorded Investment

Number of Contracts

Recorded Investment

Troubled Debt Restructurings

Commercial and industrial - Other

—

$
—

Commercial - Other

1

$
668

Modifications that Subsequently Defaulted

Nine months ending September 30, 2014

Number of Contracts

Recorded Investment

Troubled Debt Restructurings

Commercial and industrial - Other

2

$
158

Modifications that Subsequently Defaulted

Three months ending September 30, 2013

Number of Contracts

Recorded Investment

Troubled Debt Restructurings

Commercial - Single and multifamily

1

$
37

Commercial - Other

5

929

Commercial and industrial - Other

1

—

7

$
966

Modifications that Subsequently Defaulted

Nine months ending September 30, 2013

Number of Contracts

Recorded Investment

Troubled Debt Restructurings

Commercial - Single and multifamily

5

$
261

Commercial - Other

5

929

Commercial and industrial - Other

1

—

11

$
1,190

2926

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For the three months ended March 31, 2014, there were no loans that were restructured within the last twelve months that have subsequently defaulted during the period.

The following table presents the Company’s TDR activity for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

Three months ending

September 30,

(In thousands)

2014

2013

Balance at beginning of the period

$
15,113

$
10,160

Principal Payments

(339
)
(55
)
TDR Status Change (1)

(245
)
—

Other Reductions (2)

—

156

Newly Identified TDRs

1,828

—

Balance at end of the period

$
16,357

$
10,261

Nine months ending

September 30,

(In thousands)

2014

2013

Balance at beginning of the period

$
10,822

$
4,626

Principal Payments

(1,299
)
(92
)
TDR Status Change (1)

(886
)
(1,164
)
Other Reductions (2)

99

(326
)
Newly Identified TDRs

7,621

7,217

Balance at end of the period

$
16,357

$
10,261

Three Months Ending

March 31,

(In thousands)

2015

2014

Balance at beginning of the period

$
16,714

$
10,822

Principal payments

(484
)
(872
)
TDR status change (1)

—

(52
)
Other reductions/increases (2)

(1,182
)
95

Newly identified TDRs

2,156

119

Balance at end of the period

$
17,204

$
10,112

(1)         TDR ~~Status~~status change classification represents TDR loans with a specified interest rate equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan was on current payment status and not impaired based on the terms specified by the restructuring agreement.
(2)         Other ~~Reductions~~reductions classification consists of transfer to other real estate owned and charge-offs and advances to loans.

The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.
As of March 31, 2015, the Company maintained foreclosed residential real estate property with a fair value of $653 thousand. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure totaled $5.1 million. As of December 31, 2014, foreclosed residential real estate property totaled $1.3 million.
27

Table of Contents

NOTE 6.5. LOAN LOSS ALLOWANCE

Activity in the allowance for loan losses for the ~~nine~~three months ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~ was as follows:

~~Business Activities Loans~~

Business Activities Loans (In thousands)	Residential mortgages			Commercial real estate		Commercial and industrial loans		Consumer			Unallocated		Total
March 31, 2015
Balance at beginning of period	$	6,836		$	14,690	$	5,206	$	5,928		$	135	$	32,795
Charged-off loans	128			1,605		223		202			—		2,158
Recoveries on charged-off loans	67			3		5		61			—		136
Provision for loan losses	(702		)	1,330		1,460		(751		)	158		1,495
Balance at end of period	$	6,073		$	14,418	$	6,448	$	5,036		$	293	$	32,268
Individually evaluated for impairment	—			1,086		—		—			—		1,086
Collectively evaluated	6,073			13,332		6,448		5,036			293		31,182
Total	$	6,073		$	14,418	$	6,448	$	5,036		$	293	$	32,268

(In thousands)	Residential mortgages			Commercial real estate		Commercial and industrial loans		Consumer		Unallocated			Total
September 30, 2014
Business Activities Loans (In thousands)															Residential mortgages			Commercial real estate		Commercial and industrial loans			Consumer		Unallocated			Total
March 31, 2014
Balance at beginning of period	$	6,937		$	13,705	$	5,173	$	3,644	$	68		$	29,527	$	6,937		$	13,705	$	5,173		$	3,644	$	68		$	29,527
Charged-off loans	1,253			2,327		2,007		806		—			6,393		706			660		189			429		—			1,984
Recoveries on charged-off loans	118			8		87		229		—			442		7			1		20			79		—			107
Provision for loan losses	(224		)	4,966		1,534		2,278		(26		)	8,528		(575		)	1,900		(185		)	836		(248		)	1,728
Balance at end of period	$	5,578		$	16,352	$	4,787	$	5,345	$	42		$	32,104	$	5,663		$	14,946	$	4,819		$	4,130	$	(180	)	$	29,378
Individually evaluated for impairment	30			2,409		312		—		—			2,751		397			1,558		54			9		—			2,018
Collectively evaluated	5,548			13,943		4,475		5,345		42			29,353		5,266			13,388		4,765			4,121		(180		)	27,360
Total	$	5,578		$	16,352	$	4,787	$	5,345	$	42		$	32,104	$	5,663		$	14,946	$	4,819		$	4,130	$	(180	)	$	29,378

Business Activities Loans

(In thousands)	Residential mortgages			Commercial real estate		Commercial and industrial loans		Consumer		Unallocated			Total
September 30, 2013
Balance at beginning of period	$	5,928		$	18,863	$	5,605	$	1,466	$	29		$	31,891
Charged-off loans	1,180			3,293		1,631		815		—			6,919
Recoveries on charged-off loans	153			500		87		180		—			920
Provision for loan losses	1,827			779		1,472		2,309		(339		)	6,048
Balance at end of period	$	6,728		$	16,849	$	5,533	$	3,140	$	(310	)	$	31,940
Individually evaluated for impairment	697			783		441		21		—			1,942
Collectively evaluated	6,031			16,066		5,092		3,119		(310		)	29,998
Total	$	6,728		$	16,849	$	5,533	$	3,140	$	(310	)	$	31,940

Acquired Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans			Consumer		Unallocated		Total
March 31, 2015
Balance at beginning of period	$	615	$	790	$	1,093		$	369	$	—	$	2,867
Charged-off loans	238		405		198			433		—		1,274
Recoveries on charged-off loans	—		—		41			28		—		69
Provision for loan losses	372		1,579		(11		)	416		—		2,356
Balance at end of period	$	749	$	1,964	$	925		$	380	$	—	$	4,018
Individually evaluated for impairment	52		455					61		—		568
Collectively evaluated	697		1,509		925			319		—		3,450
Total	$	749	$	1,964	$	925		$	380	$	—	$	4,018

Acquired Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Unallocated		Total
March 31, 2014
Balance at beginning of period	$	625	$	2,339	$	597	$	235	$	—	$	3,796
Charged-off loans	429		447		52		405		—		1,333
Recoveries on charged-off loans	73		1		5		14		—		93
Provision for loan losses	401		231		548		488		—		1,668
Balance at end of period	$	670	$	2,124	$	1,098	$	332	$	—	$	4,224
Individually evaluated for impairment	30		250		21		—		—		301
Collectively evaluated	640		1,874		1,077		332		—		3,923
Total	$	670	$	2,124	$	1,098	$	332	$	—	$	4,224

3028

Table of Contents

~~Acquired Loans~~

(In thousands)

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Unallocated

Total

September 30, 2014

Balance at beginning of period

$
625

$
2,339

$
597

$
235

$
—

$
3,796

Charged-off loans

1,087

1,287

422

1,004

—

3,800

Recoveries on charged-off loans

171

1

101

51

—

324

Provision for loan losses

818

5

725

994

—

2,542

Balance at end of period

$
527

$
1,058

$
1,001

$
276

$
—

$
2,862

Individually evaluated for impairment

—

—

—

—

—

—

Collectively evaluated

527

1,058

1,001

276

—

2,862

Total

$
527

$
1,058

$
1,001

$
276

$
—

$
2,862

~~Acquired Loans~~

(In thousands)

Residential
mortgages

Commercial
real estate

Commercial and
industrial loans

Consumer

Unallocated

Total

September 30, 2013

Balance at beginning of period

$
509

$
390

$
96

$
314

$
8

$
1,317

Charged-off loans

437

933

200

886

—

2,456

Recoveries on charged-off loans

1

11

80

125

—

217

Provision for loan losses

360

806

430

705

(71
)
2,230

Balance at end of period

$
433

$
274

$
406

$
258

$
(63
)
$
1,308

Individually evaluated for impairment

233

374

—

—

—

607

Collectively evaluated

200

(100
)
406

258

(63
)
701

Total

$
433

$
274

$
406

$
258

$
(63
)
$
1,308

Credit Quality Information

Business Activities Loans Credit Quality Analysis

The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential credit problems and are evaluated closely by management. Substandard and non-accruing loans are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Company assigns an internal risk rating at origination and reviews the rating annually, semiannually or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations.

The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention and Substandard. Loans that are current within 59 days are rated Pass. Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status. Home equity loans are risk rated based on the same rating system as the Company’s residential mortgages.

Ratings for other consumer loans, including auto loans, are based on a two rating system. Loans that are current within 119 days are rated Performing while loans delinquent for 120 days or more are rated Non-performing. Other consumer loans are placed on non-accrual at such time as they become Non-performing.

Acquired Loans Credit Quality Analysis

Upon acquiring a loan portfolio, our internal loan review function assigns risk ratings to the acquired loans, utilizing the same methodology as it does with business activities loans. This may differ from the risk rating policy of the predecessor bank. Loans which are rated Substandard or worse according to the rating process outlined below are deemed to be credit impaired loans accounted for under ASC 310-30, regardless of whether they are classified as performing or non-performing.

~~Table of Contents~~

The Bank utilizes an eleven grade internal loan rating system for each of its acquired commercial real estate, construction and commercial loans as outlined in the Credit Quality Information section of this Note. The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention and Substandard. Residential mortgages that are current within 59 days are rated Pass. Residential mortgages that are 60 — 89 days delinquent are rated Special Mention. Residential mortgages delinquent for 90 days or greater are rated Substandard. Home equity loans are risk rated based on the same rating system as the Company’s residential mortgages. Other consumer loans are rated based on a two rating system. Other consumer loans that are current within 119 days are rated Performing while loans delinquent for 120 days or more are rated Non-performing. Non-performing other consumer loans are deemed to be credit impaired loans accounted for under ASC 310-30.

The Company subjects loans that do not meet the ASC 310-30 criteria to ASC 450-20 by collectively evaluating these loans for an allowance for loan loss. The Company applies a methodology similar to the methodology prescribed for business activities loans, which includes the application of environmental factors to each category of loans. The methodology to collectively evaluate the acquired loans outside the scope of ASC 310-30 includes the application of a number of environmental factors that reflect management’s best estimate of the level of incremental credit losses that might be recognized given current conditions. This is reviewed as part of the allowance for loan loss adequacy analysis. As the loan portfolio matures and environmental factors change, the loan portfolio will be reassessed each quarter to determine an appropriate reserve allowance.

Additionally, the Company considers the need for an additional reserve for acquired loans accounted for outside of the scope of ASC 310-30 under ASC 310-20. At acquisition date, the Bank determined a fair value mark with

Table of Contents

credit and interest rate components. Under the Company’s model, the impairment evaluation process involves comparing the carrying value of acquired loans, including the entire unamortized premium or discount, to the recorded reserve allowance. If necessary, the Company books an additional reserve to account for shortfalls identified through this calculation. Fair value marks are not bifurcated when evaluating for impairment.

A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans. At ~~September 30, 2014,~~March 31, 2015, the allowance for loan losses related to acquired loans was ~~$2.9~~$4.0 million using the above mentioned criteria.

The Company presented several tables within this footnote separately for business activity loans and acquired loans in order to distinguish the credit performance of the acquired loans from the business activity loans.

~~Table of Contents~~

The following table presents the Company’s loans by risk rating at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:

Business Activities Loans

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages				1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Grade:
Pass	$	1,131,284	$	1,019,732	$	23,512	$	18,117	$	1,154,796	$	1,037,849	$	1,183,064	$	1,195,209	$	27,382	$	26,634	$	1,210,446	$	1,221,843
Special mention	347		623		—		—		347		623		888		146		—		410		888		556
Substandard	4,720		7,382		—		41		4,720		7,423		4,066		4,053		414		—		4,480		4,053
Total	$	1,136,351	$	1,027,737	$	23,512	$	18,158	$	1,159,863	$	1,045,895	$	1,188,018	$	1,199,408	$	27,796	$	27,044	$	1,215,814	$	1,226,452

Commercial Real Estate

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Other				Total commercial real estate				Construction				Single and multi-family				Other				Total commercial real estate
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Grade:
Pass	$	149,266	$	120,071	$	119,092	$	59,636	$	964,548	$	800,672	$	1,232,906	$	980,379	$	179,868	$	166,295	$	140,022	$	137,533	$	1,023,304	$	959,836	$	1,343,194	$	1,263,664
Special mention	—		—		—		140		3,068		8,150		3,068		8,290		—		—		—		—		6,891		6,933		6,891		6,933
Substandard	2,794		5,176		3,147		3,717		64,923		61,807		70,864		70,700		2,932		2,894		2,275		2,517		56,625		63,995		61,832		69,406
Doubtful	—		—		—		—		73		642		73		642		—		—		—		—		73		73		73		73
Total	$	152,060	$	125,247	$	122,239	$	63,493	$	1,032,612	$	871,271	$	1,306,911	$	1,060,011	$	182,800	$	169,189	$	142,297	$	140,050	$	1,086,893	$	1,030,837	$	1,411,990	$	1,340,076

Commercial and Industrial Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total comm. and industrial loans				Asset based lending				Other				Total comm. and industrial loans
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Grade:
Pass	$	341,584	$	294,241	$	329,989	$	313,984	$	671,573	$	608,225	$	354,106	$	341,246	$	410,699	$	404,846	$	764,805	$	746,092
Special mention	—		—		950		884		950		884		—		—		187		560		187		560
Substandard	—		—		7,515		7,725		7,515		7,725		—		—		13,679		6,539		13,679		6,539
Doubtful	—		—		—		603		—		603
Total	$	341,584	$	294,241	$	338,454	$	323,196	$	680,038	$	617,437	$	354,106	$	341,246	$	424,565	$	411,945	$	778,671	$	753,191

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Auto and other				Total consumer loans				Home equity				Auto and other				Total consumer loans
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Performing	$	247,103	$	231,594	$	338,099	$	212,922	$	585,202	$	444,516	$	254,176	$	251,524	$	351,574	$	346,175	$	605,750	$	597,699
Nonperforming	1,397		1,083		337		249		1,734		1,332		1,192		1,157		252		305		1,444		1,462
Total	$	248,500	$	232,677	$	338,436	$	213,171	$	586,936	$	445,848	$	255,368	$	252,681	$	351,826	$	346,480	$	607,194	$	599,161

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Acquired Loans

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages				1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Grade:
Pass	$	282,089	$	330,353	$	1,032	$	1,081	$	283,121	$	331,434	$	253,866	$	266,445	$	922	$	1,018	$	254,788	$	267,463
Special mention	301		437		—		—		301		437		707		638		—		—		707		638
Substandard	2,576		2,577		—		3,931		2,576		6,508		1,930		1,651		—		—		1,930		1,651
Total	$	284,966	$	333,367	$	1,032	$	5,012	$	285,998	$	338,379	$	256,503	$	268,734	$	922	$	1,018	$	257,425	$	269,752

Commercial Real Estate

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Other				Total commercial real estate				Construction				Single and multi-family				Other				Total commercial real estate
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Grade:
Pass	$	4,357	$	7,154	$	45,213	$	46,961	$	205,393	$	254,787	$	254,963	$	308,902	$	2,765	$	2,904	$	41,145	$	44,497	$	192,233	$	195,681	$	236,143	$	243,082
Special mention	—		—		625		4,799		5,650		9,034		6,275		13,833		—		—		120		533		2,208		4,868		2,328		5,401
Substandard	2,244		6,616		12,305		13,067		12,702		14,691		27,251		34,374		1,281		1,297		7,164		8,138		13,193		13,573		21,638		23,008
Total	$	6,601	$	13,770	$	58,143	$	64,827	$	223,745	$	278,512	$	288,489	$	357,109	$	4,046	$	4,201	$	48,429	$	53,168	$	207,634	$	214,122	$	260,109	$	271,491

Commercial and Industrial Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total comm. and industrial loans				Asset based lending				Other				Total comm. and industrial loans
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Grade:
Pass	$	—	$	3,130	$	46,508	$	59,615	$	46,508	$	62,745	$	—	$	—	$	44,922	$	45,757	$	44,922	$	45,757
Special mention	—		—		1,981		2,396		1,981		2,396		—		—		—		1,723		—		1,723
Substandard	—		—		4,433		4,715		4,433		4,715		—		—		3,222		3,695		3,222		3,695
Total	$	—	$	3,130	$	52,922	$	66,726	$	52,922	$	69,856	$	—	$	—	$	48,144	$	51,175	$	48,144	$	51,175

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Auto and other				Total consumer loans				Home equity				Auto and other				Total consumer loans
(In thousands)	Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Sept. 30, 2014		Dec. 31, 2013		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014		Mar. 31, 2015		Dec. 31, 2014
Performing	$	67,108	$	73,552	$	122,591	$	170,275	$	189,699	$	243,827	$	61,371	$	65,368	$	86,356	$	102,182	$	147,727	$	167,550
Nonperforming	485		602		1,441		1,559		1,926		2,161		876		583		713		1,169		1,589		1,752
Total	$	67,593	$	74,154	$	124,032	$	171,834	$	191,625	$	245,988	$	62,247	$	65,951	$	87,069	$	103,351	$	149,316	$	169,302

The following table summarizes information about total loans rated Special Mention or lower as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013.~~2014. The table below includes consumer loans that are special mention and substandard accruing that are classified in the above table as performing based on payment activity.

	September 30, 2014						December 31, 2013						March 31, 2015						December 31, 2014
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Non-Accrual	$	16,499	$	6,388	$	22,887	$	18,472	$	8,983	$	27,455	$	14,636	$	7,373	$	22,009	$	14,778	$	6,927	$	21,705
Substandard Accruing	68,859		29,961		98,820		70,667		38,891		109,558		68,228		21,266		89,494		66,995		23,839		90,834
Total Classified	85,358		36,349		121,707		89,139		47,874		137,013		82,864		28,639		111,503		81,773		30,766		112,539
Special Mention	4,521		8,910		13,431		10,081		17,853		27,934		8,175		3,286		11,461		9,113		8,800		17,913
Total Criticized	$	89,879	$	45,259	$	135,138	$	99,220	$	65,727	$	164,947	$	91,039	$	31,925	$	122,964	$	90,886	$	39,566	$	130,452

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NOTE 7.6. DEPOSITS

A summary of time deposits is as follows:

(In thousands)	September 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014
Time less than $100,000	$	524,752	$	490,902	$	506,577	$	515,570
Time $100,000 or more	904,479		510,746		998,892		940,176
Total time deposits	$	1,429,231	$	1,001,648	$	1,505,469	$	1,455,746

Included in time deposits are brokered deposits of ~~$329.5~~$478.8 million and ~~$23.4~~$430.8 million at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively. ~~Also included~~Included in money market deposits presented on the consolidated balance sheet are ~~certificates~~reciprocal deposits of ~~deposit through the Certificate of Deposit Account Registry Service (CDARS) network of $40.4~~$7.4 million and $9.4 million at ~~September 30, 2014. There were no CDARS deposits at~~March 31, 2015 and December 31, ~~2013.~~2014, respectively.

NOTE 8.7. BORROWED FUNDS

Borrowed funds at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 are summarized, as follows:

September 30, 2014

December 31, 2013

Weighted

Weighted

Average

Average

(dollars in thousands)

Principal

Rate

Principal

Rate

Short-term borrowings:

Advances from the FHLBB

$
877,000

0.21
%
$
862,510

0.22
%
Other Borrowings

10,000

1.80

10,000

1.92

Total short-term borrowings:

887,000

0.23

872,510

0.24

Long-term borrowings:

Advances from the FHLBB

64,105

0.94

101,918

1.23

Subordinated borrowings

74,266

7.00

74,215

7.00

Junior subordinated borrowings

15,464

2.08

15,464

2.09

Total long-term borrowings:

153,835

3.98

191,597

3.53

Total

$
1,040,835

0.77
%
$
1,064,107

0.83
%

	March 31, 2015				December 31, 2014
			Weighted				Weighted
			Average				Average
(dollars in thousands)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLBB	$	884,500	0.25	%	$	890,900	0.24	%
Other Borrowings	10,000		1.83		10,000		1.80
Total short-term borrowings:	894,500		0.25		900,900		0.23
Long-term borrowings:
Advances from the FHLBB	61,618		0.91		61,676		0.93
Subordinated borrowings	74,301		7.00		74,283		7.00
Junior subordinated borrowings	15,464		2.11		15,464		2.08
Total long-term borrowings:	151,383		4.02		151,423		4.03
Total	$	1,045,883	0.80	%	$	1,052,323	0.79	%

Short term debt includes Federal Home Loan Bank of Boston (“FHLBB”) advances with an original maturity of less than one year and a short-term line-of-credit drawdown through a correspondent bank. The Bank also maintains a $3.0 million secured line of credit with the FHLBB that bears a daily adjustable rate calculated by the FHLBB. There was no outstanding balance on the FHLBB line of credit for the periods ended ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013.~~2014.

The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank of Boston took place for the periods ended ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013.~~2014.

Long-term FHLBB advances consist of advances with an original maturity of more than one year. The advances outstanding at ~~September 30,~~March 31, 2015 include callable advances totaling $5.0 million, and amortizing advances totaling $5.1 million. The advances outstanding at December 31, 2014 include callable advances totaling $5.0 million, and amortizing advances totaling ~~$5.3 million. The advances outstanding at December 31, 2013 include callable advances totaling $5.0 million, and amortizing advances totaling $5.5~~$5.1 million. All FHLBB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

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A summary of maturities of FHLBB advances as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 is as follows:

	September 30, 2014				December 31, 2013				March 31, 2015				December 31, 2014
			Weighted				Weighted				Weighted				Weighted
			Average				Average				Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate		Principal		Rate		Principal		Rate
Fixed rate advances maturing:
2014	$	779,371	0.21	%	$	882,525	0.28	%
2015	150,000		0.26		—		—		$	934,500	0.25	%	$	940,900	0.24	%
2016	1,535		0.85		1,583		0.79		1,503		0.03		1,519		0.88
2017	5,000		4.33		5,000		4.33		5,000		4.33		5,000		4.33
2018 and beyond	5,199		3.84		5,320		3.83
Total fixed rate advances	$	941,105	0.26	%	$	894,428	0.35	%

Variable rate advances maturing:
2014	$	—	—	%	$	10,000	0.32	%
2015	—		—		20,000		0.30
2016	—		—		10,000		0.30
2017	—		—		—		—
2018 and beyond	—		—		30,000		0.30
Total variable rate advances	$	—	—	%	$	70,000	0.30	%
2018									—		0.00		—		0.00
2019 and beyond									5,115		3.91		5,157		3.85
Total FHLBB advances	$	941,105	0.26	%	$	964,428	0.32	%	$	946,118	0.29	%	$	952,576	0.28	%

The Company does not have variable-rate debt for the periods ended March 31, 2015 and December 31, 2014.

In September 2012, the Company issued fifteen year subordinated notes in the amount of $75.0 million at a discount of 1.15%. The interest rate is fixed at 6.875% for the first ten years. After ten years, the notes become callable and convert to an interest rate of three-month LIBOR rate plus 511.3 basis points.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million. The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85% and had a rate of 2.11% and 2.08% ~~and 2.09%~~ at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to stockholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.

~~Table of Contents~~

NOTE 9.8. STOCKHOLDERS’ EQUITY

The actual and required capital ratios were as follows:

Regulatory Minimum

September 30, 2014

December 31, 2013

to be Well Capitalized

Company (consolidated)

Total capital to risk weighted assets

11.6
%
N/A
%
10.0
%

Tier 1 capital to risk weighted assets

9.3

N/A

6.0

Tier 1 capital to average assets

7.1

N/A

5.0

Bank

Total capital to risk weighted assets

11.0
%
11.6
%
10.0
%

Tier 1 capital to risk weighted assets

9.5

10.0

6.0

Tier 1 capital to average assets

7.3

8.0

5.0

		Regulatory				Regulatory
		Minimum to be				Minimum to be
	March 31, 2015	Well Capitalized		December 31, 2014		Well Capitalized

Company (consolidated)
Total capital to risk weighted assets	11.4	10.0	%	11.4	%	10.0	%
Common Equity Tier 1 Capital to risk weighted assets	9.1	6.5		N/A		N/A
Tier 1 capital to risk weighted assets	9.2	8.0		9.0		6.0
Tier 1 capital to average assets	7.1	5.0		7.0		5.0

Bank
Total capital to risk weighted assets	10.8	10.0	%	10.8	%	10.0	%
Common Equity Tier 1 Capital to risk weighted assets	9.4	6.5		N/A		N/A
Tier 1 capital to risk weighted assets	9.4	8.0		9.3		6.0
Tier 1 capital to average assets	7.3	5.0		7.2		5.0

At each date shown, the Company and the 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.

Table of Contents

Effective January 1, 2015, the Company and the Bank became subject to the Basel III rule that requires the Company and the Bank to assess their Common Equity Tier 1 Capital to risk weighted assets and the Company and the Bank each exceed the minimum to be well capitalized.

Accumulated other comprehensive income (loss)

Components of accumulated other comprehensive income ~~(loss) are~~is as follows:

(In thousands)

September 30, 2014

December 31, 2013

Other accumulated comprehensive income (loss), before tax:

Net unrealized holding gain (loss) on AFS securities

$
3,981

$
(9,294
)
Net loss on effective cash flow hedging derivatives

(43
)
(2,289
)
Net loss on terminated swap

—

(3,237
)
Net unrealized holding (loss) gain on pension plans

(438
)
17

Income taxes related to items of accumulated other comprehensive income (loss):

Net unrealized holding gain (loss) on AFS securities

(1,486
)
3,518

Net loss on effective cash flow hedging derivatives

17

923

Net loss on terminated swap

—

1,312

Net unrealized holding (loss) gain on pension plans

177

(7
)
Accumulated other comprehensive income (loss)

$
2,208

$
(9,057
)

~~Table of Contents~~

(In thousands)	March 31, 2015			December 31, 2014
Other accumulated comprehensive income, before tax:
Net unrealized holding gain on AFS securities	$	25,330		$	15,993
Net loss on effective cash flow hedging derivatives	(7,200		)	(3,299		)
Net unrealized holding (loss) on pension plans	(3,822		)	(2,291		)

Income taxes related to items of accumulated other comprehensive income:
Net unrealized holding gain on AFS securities	(9,682		)	(6,077		)
Net loss on effective cash flow hedging derivatives	2,902			1,330
Net unrealized holding (loss) on pension plans	1,540			923
Accumulated other comprehensive income	$	9,068		$	6,579

The following table presents the components of other comprehensive income ~~(loss)~~ for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

(In thousands)

Before Tax

Tax Effect

Net of Tax

Three Months Ended September 30, 2014

Net unrealized holding loss on AFS securities:

Net unrealized loss arising during the period

$
(3,613
)
$
1,377

$
(2,236
)
Less: reclassification adjustment for (gains) realized in net income

(245
)
100

(145
)
Net unrealized holding gain on AFS securities

(3,858
)
1,477

(2,381
)

Net gain on cash flow hedging derivatives:

Net unrealized (gain) arising during the period

980

(396
)
584

Less: reclassification adjustment for losses realized in net income

—

—

—

Net gain on cash flow hedging derivatives

980

(396
)
584

Net unrealized holding loss on pension plans

Net unrealized loss arising during the period

(455
)
184

(271
)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—

Net unrealized holding loss on pension plans

(455
)
184

(271
)
Other Comprehensive Loss

$
(3,333
)
$
1,265

$
(2,068
)

Three Months Ended September 30, 2013

Net unrealized holding loss on AFS securities:

Net unrealized loss arising during the period

$
(82
)
$
17

$
(65
)
Less: reclassification adjustment for (gains) realized in net income

(361
)
146

(215
)
Net unrealized holding loss on AFS securities

(443
)
163

(280
)

Net loss on cash flow hedging derivatives:

Net unrealized loss arising during the period

(785
)
324

(461
)
Less: reclassification adjustment for (gains) realized in net income

(367
)
148

(219
)
Net gain on cash flow hedging derivatives

(1,152
)
472

(680
)

Net gain on terminated swap:

Net unrealized loss arising during the period

—

—

—

Less: reclassification adjustment for losses realized in net income

236

(95
)
141

Net gain on terminated swap

236

(95
)
141

Other Comprehensive Loss

$
(1,359
)
$
540

$
(819
)

(In thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended March 31, 2015
Net unrealized holding gains on AFS securities:
Net unrealized gains arising during the period	$	9,371		$	(3,617	)	$	5,754
Less: reclassification adjustment for (gains) realized in net income	(34		)	12			(22		)
Net unrealized holding gain on AFS securities	9,337			(3,605		)	5,732

Net loss on cash flow hedging derivatives:
Net unrealized loss arising during the period	(3,901		)	1,572			(2,329		)
Less: reclassification adjustment for gains (losses) realized in net income	—			—			—
Net loss on cash flow hedging derivatives	(3,901		)	1,572			(2,329		)

Net unrealized holding loss on pension plans
Net unrealized loss arising during the period	(1,596		)	643			(953		)
Less: reclassification adjustment for gains (losses) realized in net income	65			(26		)	39
Net unrealized holding loss on pension plans	(1,531		)	617			(914		)
Other comprehensive income	$	3,905		$	(1,416	)	$	2,489

Three Months Ended March 31, 2014
Net unrealized holding loss on AFS securities:
Net unrealized loss arising during the period	$	6,055		$	(2,233	)	$	3,822
Less: reclassification adjustment for (gains) realized in net income	(34		)	12			(22		)
Net unrealized holding gain on AFS securities	6,021			(2,221		)	3,800

Net loss on cash flow hedging derivatives:
Net unrealized loss arising during the period	(860		)	368			(492		)
Less: reclassification adjustment for (gains) realized in net income	5,393			(2,200		)	3,193
Net gain on cash flow hedging derivatives	4,533			(1,832		)	2,701

Net gain on terminated swap:
Net unrealized loss arising during the period	—			—			—
Less: reclassification adjustment for losses realized in net income	3,237			(1,312		)	1,925
Net gain on terminated swap	3,237			(1,312		)	1,925
Other comprehensive income	$	13,791		$	(5,365	)	$	8,426

3834

~~Table of Contents~~

(In thousands)

Before Tax

Tax Effect

Net of Tax

Nine Months Ended September 30, 2014

Net unrealized holding gain on AFS securities:

Net unrealized gain arising during the period

$
13,757

$
(5,197
)
$
8,560

Less: reclassification adjustment for (gains) realized in net income

(482
)
193

(289
)
Net unrealized holding gain on AFS securities

13,275

(5,004
)
8,271

Net loss on cash flow hedging derivatives:

Net unrealized (loss) arising during the period

(3,147
)
1,295

(1,852
)
Less: reclassification adjustment for losses realized in net income

5,393

(2,201
)
3,192

Net gain on cash flow hedging derivatives

2,246

(906
)
1,340

Net loss on terminated swap:

Net unrealized loss arising during the period

—

—

—

Less: reclassification adjustment for losses realized in net income

3,237

(1,312
)
1,925

Net loss on terminated swap

3,237

(1,312
)
1,925

Net unrealized holding loss on pension plans

Net unrealized loss arising during the period

(455
)
184

(271
)
Less: reclassification adjustment for (gains) losses realized in net income

—

—

—

Net unrealized holding loss on pension plans

(455
)
184

(271
)
Other Comprehensive Income

$
18,303

$
(7,038
)
$
11,265

Nine Months Ended September 30, 2013

Net unrealized holding loss on AFS securities:

Net unrealized (loss) arising during the period

$
(11,774
)
$
4,369

$
(7,405
)
Less: reclassification adjustment for (gains) realized in net income

(1,366
)
551

(815
)
Net unrealized holding loss on AFS securities

(13,140
)
4,920

(8,220
)

Net gain on cash flow hedging derivatives:

Net unrealized gain arising during the period

7,540

(3,025
)
4,515

Less: reclassification adjustment for losses realized in net income

(1,094
)
440

(654
)
Net gain on cash flow hedging derivatives

6,446

(2,585
)
3,861

Net gain on terminated swap:

Net unrealized loss arising during the period

—

—

—

Less: reclassification adjustment for losses realized in net income

707

(398
)
309

Net gain on terminated swap

707

(398
)
309

Other Comprehensive Loss

$
(5,987
)
$
1,937

$
(4,050
)

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The following table presents the changes in each component of accumulated other comprehensive income (loss), for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

Net unrealized

Net loss on

Net loss

Net unrealized

holding (loss) gain

effective cash

on

holding loss

on AFS

flow hedging

terminated

on

(in thousands)

Securities

derivatives

swap

pension plans

Total

Three Months Ended September 30, 2014

Balance at Beginning of Period

$
4,876

$
(610
)
$
—

$
10

$
4,276

Other Comprehensive Loss Before reclassifications

(2,236
)
584

—

(271
)
(1,923
)
Amounts Reclassified from Accumulated other comprehensive income

(145
)
—

—

—

(145
)
Total Other Comprehensive (Loss) Income

(2,381
)
584

—

(271
)
(2,068
)
Balance at End of Period

$
2,495

$
(26
)
$
—

$
(261
)
$
2,208

Three Months Ended September 30, 2013

Balance at Beginning of Period

$
(1,230
)
$
(2,016
)
$
(2,209
)
$
(755
)
$
(6,210
)
Other Comprehensive Loss Before reclassifications

(65
)
(461
)
—

—

(526
)
Amounts Reclassified from Accumulated other comprehensive income

(215
)
(219
)
141

—

(293
)
Total Other Comprehensive (Loss) Income

(280
)
(680
)
141

—

(819
)
Balance at End of Period

$
(1,510
)
$
(2,696
)
$
(2,068
)
$
(755
)
$
(7,029
)

Nine Months Ended September 30, 2014

Balance at Beginning of Period

$
(5,776
)
$
(1,366
)
$
(1,925
)
$
10

$
(9,057
)
Other Comprehensive Loss Before reclassifications

8,560

(1,852
)
—

(271
)
6,437

Amounts Reclassified from Accumulated other comprehensive income

(289
)
3,192

1,925

—

4,828

Total Other Comprehensive (Loss)

8,271

1,340

1,925

(271
)
11,265

Balance at End of Period

$
2,495

$
(26
)
$
—

$
(261
)
$
2,208

Nine Months Ended September 30, 2013

Balance at Beginning of Period

$
6,710

$
(6,557
)
$
(2,377
)
$
(755
)
$
(2,979
)
Other Comprehensive Loss Before reclassifications

(7,405
)
4,515

—

—

(2,890
)
Amounts Reclassified from Accumulated other comprehensive income

(815
)
(654
)
309

—

(1,160
)
Total Other Comprehensive (Loss) Income

(8,220
)
3,861

309

—

(4,050
)
Balance at End of Period

$
(1,510
)
$
(2,696
)
$
(2,068
)
$
(755
)
$
(7,029
)

~~Table of Contents~~

	Net unrealized			Net loss on			Net loss			Net unrealized
	holding (loss) gain			effective cash			on			holding loss
	on AFS			flow hedging			terminated			on
(in thousands)	Securities			derivatives			swap			pension plans			Total
Three Months Ended March 31, 2015
Balance at Beginning of Period	$	9,916		$	(1,969	)	$	—		$	(1,368	)	$	6,579
Other Comprehensive Gain (Loss) Before reclassifications	5,754			(2,329		)	—			(953		)	2,472
Amounts Reclassified from Accumulated other comprehensive income	(22		)	—			—			39			17
Total Other Comprehensive Income (Loss)	5,732			(2,329		)	—			(914		)	2,489
Balance at End of Period	$	15,648		$	(4,298	)	$	—		$	(2,282	)	$	9,068

Three Months Ended March 31, 2014
Balance at Beginning of Period	$	(5,776	)	$	(1,366	)	$	(1,925	)	$	(1,368	)	$	(10,435	)
Other Comprehensive Gain (Loss) Before reclassifications	3,822			(492		)	—			—			3,330
Amounts Reclassified from Accumulated other comprehensive income	(22		)	3,193			1,925			—			5,096
Total Other Comprehensive Income (Loss)	3,800			2,701			1,925			—			8,426
Balance at End of Period	$	(1,976	)	$	1,335		$	—		$	(1,368	)	$	(2,009	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

Affected Line Item in the

Three Months Ended September 30,

Statement where Net Income

(in thousands)

2014

2013

is Presented

Realized (gains) on AFS securities:

$
(245
)
$
(361
)
Non-interest income

100

146

Tax expense

(145
)
(215
)
Net of tax

Realized losses on cash flow hedging derivatives:

—

(367
)
Non-interest income

—

148

Tax expense

—

(219
)
Net of tax

Amortization of realized gains on terminated swap:

—

236

Non-interest income

—

(95
)
Tax expense

—

141

Net of tax

Total reclassifications for the period

$
(145
)
$
(293
)
Net of tax

							Affected Line Item in the							Affected Line Item in the
	Nine Months Ended September 30,						Statement Where Net Income	Three Months Ended March 31,						Statement where Net Income
(in thousands)	2014			2013			Is Presented	2015			2014			is Presented
Realized (gains) on AFS securities:
	$	(482	)	$	(1,366	)	Non-interest income	$	(34	)	$	(34	)	Non-interest income
	193			551			Tax expense	12			12			Tax expense
	(289		)	(815		)	Net of tax	(22		)	(22		)	Net of tax

Realized losses on cash flow hedging derivatives:
	5,393			(1,094		)	Interest income	—			5,393			Non-interest income
	(2,201		)	440			Tax expense	—			(2,200		)	Tax expense
	3,192			(654		)	Net of tax	—			3,193			Net of tax

Amortization of realized gains on terminated swap:
	3,237			707			Interest income	—			3,237			Non-interest income
	(1,312		)	(398		)	Tax expense	—			(1,312		)	Tax expense
	1,925			309			Net of tax	—			1,925			Net of tax

Realized loss on pension plans:
								65			—			Non-interest income
								(26		)	—			Tax expense
								39			—			Net of tax
Total reclassifications for the period	$	4,828		$	(1,160	)	Net of tax	$	17		$	5,096		Net of tax

4135

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NOTE ~~10.~~9. EARNINGS PER SHARE

Earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(In thousands, except per share data)	2014		2013		2014		2013		2015		2014

Net income	$	11,988	$	8,104	$	22,347	$	30,606
Net income/(loss)									$	8,759	$	(1,106	)

Average number of common shares issued	26,525		26,525		26,525		26,525		26,525		26,525
Less: average number of treasury shares	1,360		1,519		1,400		1,403		1,295		1,425
Less: average number of unvested stock award shares	418		258		404		287		427		402
Average number of basic common shares outstanding	24,747		24,748		24,721		24,835		24,803		24,698
Plus: dilutive effect of unvested stock award shares	68		46		59		60		89		—
Plus: dilutive effect of stock options outstanding	46		79		55		106		63		—
Average number of diluted common shares outstanding	24,861		24,873		24,835		25,001		24,955		24,698

Earnings per share:
Basic	$	0.48	$	0.33	$	0.90	$	1.23	$	0.35	$	(0.04	)
Diluted	$	0.48	$	0.33	$	0.90	$	1.22	$	0.35	$	(0.04	)

For the ~~nine~~three months ended ~~September 30, 2014, 345~~March 31, 2015, 338 thousand shares of restricted stock and ~~291~~210 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. For the ~~nine~~three months ended ~~September 30, 2013, 239~~March 31, 2014, 335 thousand shares of restricted stock and ~~464~~321 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.

NOTE ~~11.~~10. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 is presented in the following table:

	Non-vested Stock								Non-vested Stock
	Awards Outstanding				Stock Options Outstanding				Awards Outstanding				Stock Options Outstanding
			Weighted-				Weighted-				Weighted-				Weighted-
			Average				Average				Average				Average
	Number of		Grant Date		Number of		Exercise		Number of		Grant Date		Number of		Exercise
(Shares in thousands)	Shares		Fair Value		Shares		Price		Shares		Fair Value		Shares		Price
Balance, December 31, 2013	334		$	23.26	442		$	20.41
Balance, December 31, 2014									424		$	24.33	282		$	20.42
Granted	174		24.68		—		—		92		24.90		—		—
Stock options exercised	—		—		(90	)	11.79		—		—		(11	)	10.52
Stock awards vested	(83	)	22.78		—		—		(82	)	24.22		—		—
Forfeited	(7	)	23.54		—		—		(10	)	23.50		—		—
Expired	—		—		(69	)	36.50		—		—		—		—
Balance, September 30, 2014	418		$	24.33	283		$	20.32
Exercisable options, September 30, 2014					283		$	20.63
Balance, March 31, 2015									424		$	24.48	271		$	21.12
Exercisable options, March 31, 2015													271		$	21.12

During the ~~nine~~three months ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ proceeds from stock option exercises totaled ~~$1,052~~$116 thousand and totaled ~~$3.0 million,~~$718 thousand, respectively. During the ~~nine months~~quarter ended ~~September 30, 2014,~~March 31, 2015, there were 8382 thousand

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shares issued in connection with vested stock awards. During the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, there were 9562 thousand shares issued in connection with vested stock awards. All of these shares were

~~Table of Contents~~

issued from available treasury stock. Stock-based compensation expense totaled ~~$2.9 million~~$993 thousand and ~~$2.1 million~~$932 thousand during the ~~nine months~~quarters ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.

NOTE ~~12.~~11. OPERATING SEGMENTS

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 the Bank and its subsidiaries, which provide retail and commercial banking, along with wealth management and investment services. Insurance includes the activities of Berkshire Insurance Group, Inc. (“BIG”), which provides retail and commercial 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 BIG 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.

~~Table of Contents~~

A summary of the Company’s operating segments was as follows:

(In thousands)	Banking		Insurance		Parent			Eliminations			Total Consolidated		Banking			Insurance		Parent			Eliminations			Total Consolidated
Three months ended September 30, 2014
Three months ended March 31, 2015
Net interest income	$	45,786	$	—	$	5,163		$	(6,000	)	$	44,949	$	46,339		$	—	$	5,154		$	(6,000	)	$	45,493
Provision for loan losses	3,685		—		—			—			3,685		3,851			—		—			—			3,851
Non-interest income	12,009		2,632		6,693			(6,693		)	14,641		9,413			2,967		3,785			(3,603		)	12,562
Non-interest expense	37,388		1,983		316			—			39,687		42,494			1,939		715			—			45,148
Income before income taxes	16,722		649		11,540			(12,693		)	16,218		9,407			1,028		8,224			(9,603		)	9,056
Income tax expense (benefit)	4,426		252		(448		)	—			4,230		433			399		(535		)	—			297
Net income	$	12,296	$	397	$	11,988		$	(12,693	)	$	11,988	$	8,974		$	629	$	8,759		$	(9,603	)	$	8,759

Average assets (in millions)	$	6,249	$	27	$	766		$	(777	)	$	6,265	$	6,479		$	28	$	757		$	(767	)	$	6,497

Three months ended September 30, 2013
Three months ended March 31, 2014
Net interest income (expense)	$	46,808	$	—	$	(939	)	$	—		$	45,869	$	43,712		$	—	$	(946	)	$	—		$	42,766
Provision for loan losses	3,178		—		—			—			3,178		3,396			—		—			—			3,396
Non-interest income	9,645		2,469		9,033			(9,033		)	12,114		1,374			3,049		(252		)	252			4,423
Non-interest expense	40,229		1,981		572			2			42,784		42,574			2,322		464			—			45,360
Income before income taxes	13,046		488		7,522			(9,035		)	12,021		(884		)	727		(1,662		)	252			(1,567		)
Income tax expense (benefit)	4,313		188		(584		)	—			3,917		(192		)	287		(556		)	—			(461		)
Net income	$	8,733	$	300	$	8,106		$	(9,035	)	$	8,104	$	(692	)	$	440	$	(1,106	)	$	252		$	(1,106	)

Average assets (in millions)	$	5,259	$	28	$	736		$	(735	)	$	5,287	$	5,829		$	26	$	722		$	(726	)	$	5,851

Nine months ended September 30, 2014
Net interest income	$	134,740	$	—	$	3,304		$	(6,000	)	$	132,044
Provision for loan losses	11,070		—		—			—			11,070
Non-interest income	25,429		8,141		18,713			(18,713		)	33,570
Non-interest expense	116,932		6,192		1,185			—			124,309
Income before income taxes	32,167		1,949		20,832			(24,713		)	30,235
Income tax expense (benefit)	8,642		761		(1,515		)	—			7,888
Net income	$	23,525	$	1,188	$	22,347		$	(24,713	)	$	22,347

Average assets (in millions)	$	6,065	$	27	$	744		$	(747	)	$	6,088

Nine months ended September 30, 2013
Net interest income (expense)	$	131,796	$	—	$	12,114		$	(15,000	)	$	128,910
Provision for loan losses	8,278		—		—			—			8,278
Non-interest income	34,664		7,851		18,523			(18,520		)	42,518
Non-interest expense	112,181		6,152		1,868			1			120,202
Income before income taxes	46,001		1,699		28,769			(33,521		)	42,948
Income tax expense (benefit)	13,521		656		(1,835		)	—			12,342
Net income	$	32,480	$	1,043	$	30,604		$	(33,521	)	$	30,606

Average assets (in millions)	$	5,212	$	27	$	746		$	(743	)	$	5,242

NOTE ~~13.~~12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of ~~September 30, 2014,~~March 31, 2015, the Company held derivatives with a total notional amount of ~~$1.0~~$1.1 billion. That amount included $300.0 million in forward starting interest rate swap derivatives that were designated as cash flow hedges for accounting purposes. The Company also had economic hedges and non-hedging derivatives totaling ~~$658.1~~$724.1 million and ~~$40.9~~$68.4 million, respectively, which are not designated as hedges for accounting purposes and are therefore recorded at fair value. Economic hedges included interest rate swaps totaling ~~$593.7~~$585.6 million, risk participation agreements with dealer banks of $49.0 million, and ~~$64.4~~$89.4 million in forward commitment contracts.

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

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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

~~Table of Contents~~

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 ~~September 30, 2014.~~March 31, 2015.

The Company pledged collateral to derivative counterparties in the form of cash totaling ~~$1.2~~$5.3 million and securities with an amortized cost of ~~$23.2~~$27.5 million and a fair value of ~~$23.4~~$27.7 million as of ~~September 30, 2014.~~March 31, 2015. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

Information about derivative assets and liabilities at ~~September 30, 2014,~~March 31, 2015, follows:

			Weighted	Weighted Average Rate				Estimated					Weighted	Weighted Average Rate				Estimated
	Notional		Average			Contract		Fair Value			Notional		Average			Contract		Fair Value
	Amount		Maturity	Received		pay rate		Asset (Liability)			Amount		Maturity	Received		pay rate		Asset (Liability)
	(In thousands)		(In years)					(In thousands)			(In thousands)		(In years)					(In thousands)
Cash flow hedges:
Forward-starting interest rate swaps on FHLBB borrowings	$	300,000	4.5	0.00	%	2.29	%	$	(42	)	$	300,000	4.0	0.00	%	2.29	%	$	(7,200	)
Total cash flow hedges	300,000							(42		)	300,000							(7,200		)

Economic hedges:
Interest rate swap on tax advantaged economic development bond	12,693		15.2	0.52	%	5.09	%	(2,258		)	12,412		14.7	0.52	%	5.09	%	(2,799		)
Interest rate swaps on loans with commercial loan customers	290,513		6.0	2.31	%	4.52	%	(8,555		)	286,590		6.0	2.19	%	4.59	%	(15,405		)
Reverse interest rate swaps on loans with commercial loan customers	290,513		6.0	4.52	%	2.31	%	8,643			286,590		6.0	4.59	%	2.19	%	15,444
Risk Participation Agreements with Dealer Banks											49,038		15.9					(100		)
Forward sale commitments	64,392		0.2					(25		)	89,432		0.2					(388		)
Total economic hedges	658,111							(2,195		)	724,062							(3,248		)

Non-hedging derivatives:
Interest rate lock commitments	40,907		0.2					383			68,374		0.2					977
Total non-hedging derivatives	40,907							383			68,374							977

Total	$	999,018						$	(1,854	)	$	1,092,436						$	(9,471	)

4538

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Information about derivative assets and liabilities at December 31, ~~2013,~~2014, follows:

			Weighted	Weighted Average Rate				Estimated					Weighted	Weighted Average Rate				Estimated
	Notional		Average			Contract		Fair Value			Notional		Average			Contract		Fair Value
	Amount		Maturity	Received		pay rate		Asset (Liability)			Amount		Maturity	Received		pay rate		Asset (Liability)
	(In thousands)		(In years)					(In thousands)			(In thousands)		(In years)					(In thousands)
Cash flow hedges:
Interest rate swaps on FHLBB borrowings	$	150,000	2.5	0.25	%	2.61	%	$	(3,102	)
Forward-starting interest rate swaps on FHLBB borrowings	260,000		4.5	—		1.88	%	1,015			$	300,000	4.3	0.00	%	2.29	%	$	(3,299	)
Interest rate swaps on junior subordinated notes	15,000		0.4	2.09	%	5.54	%	(203		)
Total cash flow hedges	425,000							(2,290		)	300,000							(3,299		)

Economic hedges:
Interest rate swap on tax advantaged economic development bond	13,095		15.9	0.54	%	5.09	%	(1,889		)	12,554		14.9	0.52	%	5.09	%	(2,578		)
Interest rate swaps on loans with commercial loan customers	206,933		5.4	2.44	%	4.68	%	(6,278		)	297,158		6.0	2.23	%	4.54	%	(12,183		)
Reverse interest rate swaps on loans with commercial loan customers	206,933		5.4	4.68	%	2.44	%	6,286			297,158		6.0	4.54	%	2.23	%	12,221
Risk participation agreements with dealer banks											45,842		16.6					(91		)
Forward sale commitments	32,911		0.2					261			42,366		0.2					(510		)
Total economic hedges	459,872							(1,620		)	695,078							(3,141		)

Non-hedging derivatives:
Interest rate lock commitments	20,199		0.2					258			39,589		0.2					625
Total non-hedging derivatives	20,199							258			39,589							625

Total	$	905,071						$	(3,652	)	$	1,034,667						$	(5,815	)

Cash flow hedges

The effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges is reported in other comprehensive income and subsequently reclassified to earnings in the same period or periods during which the hedged transaction is forecasted to affect earnings. 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 six forward-starting interest rate swap contracts with a combined notional value of $300.0 million as of ~~September 30, 2014.~~March 31, 2015. The six forward starting swaps will become effective in 2016. All have durations of three years. This hedge strategy converts the one month rolling FHLBB borrowings based on the FHLBB’s one month fixed interest rate to fixed interest rates, thereby protecting the Company from floating interest rate variability.

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Amounts included in the Consolidated Statements of Income and in the other comprehensive income section of the Consolidated Statements of Comprehensive Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:

~~Table of Contents~~

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

2014

2013

2014

2013

Interest rate swaps on FHLBB borrowings:

Unrealized (loss) gain recognized in accumulated other comprehensive loss

$
979

$
(2,155
)
$
(3,148
)
$
3,280

Reclassification of unrealized (loss) gain from accumulated other comprehensive loss to interest expense

—

803

—

2,713

Reclassification of unrealized loss from accumulated other comprehensive loss to other non-interest income for termination of swaps

—

236

8,630

707

Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps

—

(95
)
(3,611
)
(395
)

Net tax benefit (expense) on items recognized in accumulated other comprehensive loss

(396
)
597

1,270

(2,358
)

Interest rate swaps on junior subordinated debentures:

Unrealized loss recognized in accumulated other comprehensive loss

—

(9
)
(1
)
(14
)

Reclassification of unrealized loss from accumulated other comprehensive loss to interest expense

—

131

204

387

Net tax expense on items recognized in accumulated other comprehensive loss

—

(47
)
(80
)
(149
)
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects

$
583

$
(539
)
$
3,264

$
4,171

Net interest expense recognized in interest expense on hedged FHLBB borrowings

$
—

$
913

$
—

$
3,232

Net interest expense recognized in interest expense on junior subordinated notes

$
—

$
131

$
204

$
387

	Three Months Ended March 31,
(In thousands)	2015			2014

Interest rate swaps on FHLBB borrowings:
Unrealized (loss) recognized in accumulated other comprehensive loss	$	(3,901	)	$	(785	)

Reclassification of unrealized loss from accumulated other comprehensive income to other non-interest income for termination of swaps	—			8,630

Reclassification of unrealized deferred tax benefit from accumulated other comprehensive income to tax expense for terminated swaps	—			(3,611		)

Net tax benefit on items recognized in accumulated other comprehensive income	1,572			314

Interest rate swaps on junior subordinated debentures:
Unrealized loss recognized in accumulated other comprehensive income	—			(1		)

Reclassification of unrealized loss from accumulated other comprehensive income to interest expense	—			129

Net tax expense on items recognized in accumulated other comprehensive income	—			(51		)
Other comprehensive loss recorded in accumulated other comprehensive income, net of reclassification adjustments and tax effects	$	(2,329	)	$	(3,815	)

Net interest expense recognized in interest expense on junior subordinated notes	$	—		$	129

Hedge ineffectiveness on interest rate swaps designated as cash flow hedges was immaterial to the Company’s financial statements during the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013.~~2014.

Amounts reported in accumulated other comprehensive ~~loss~~income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate liabilities. During the next twelve months, the Company does not anticipate any such reclassifications.

As a result of the branch acquisition, in the first quarter of 2014, the Company initiated and subsequently terminated all of its interest rate swaps, with various institutions, associated with FHLB advances with 3-month LIBOR based floating interest rates with an aggregate notional amount of $30 million, all of its interest rate swaps associated with 90 day rolling FHLB advances issued using the FHLB’s 3-month fixed interest rate with an aggregate notional amount of $145 million and all of its forward-starting interest rate swaps associated with 90 day rolling FHLB advances issued using the FHLB’s 3-month fixed interest rate with an aggregate notional amount of $235 million. In the first quarter of 2014, the Company elected to extinguish $215 million of FHLB advances related to the terminated swaps. As a result the Company reclassified $8.6 million of losses from the effective portion of the unrealized changes in the fair value of the terminated derivatives from other comprehensive income to non-interest income as the forecasted transactions to the related FHLB advances will not occur.

Economic hedges

As of ~~September 30, 2014,~~March 31, 2015, the Company has an interest rate swap with a ~~$12.7~~$12.4 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.

Table of Contents

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

~~Table of Contents~~

valuation adjustments arising from the difference in credit worthiness of the commercial loan and financial institution counterparties totaled ~~$87.8~~$38.6 thousand as of ~~September 30, 2014.~~March 31, 2015. The interest income and expense on these mirror image swaps exactly offset each other.

The Company has risk participation agreements with dealer banks. Risk participation agreements occur when the Company participates on a loan and a swap where another bank is the lead. The Company gets paid a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default. Changes in fair value are recorded in current period earnings.

The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans held for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings.

The Company uses the following types of forward sale commitments contracts:

· Best efforts loan sales,

· Mandatory delivery loan sales, and

· To Be Announced (“TBA”) mortgage-backed securities sales.

A best efforts contract refers to a loan sale agreement where the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. The Company may enter into a best efforts contract once the price is known, which is shortly after the potential borrower’s interest rate is locked.

A mandatory delivery contract is a loan sale agreement where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.

The Company may sell TBA mortgage-backed securities to hedge the changes in fair value of interest rate lock commitments and held for sale loans, which do not have corresponding best efforts or mandatory delivery contracts. These security sales transactions are closed once mandatory contracts are written. On the closing date the price of the security is locked-in, and the sale is paired-off with a purchase of the same security. Settlement of the security purchase/sale transaction is done with cash on a net-basis.

Non-hedging derivatives

The Company enters into interest rate lock commitments (“IRLCs”) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in noninterest income in the Company’s consolidated statements of income. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

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Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In thousands)	2014			2013			2014			2013			2015			2014

Economic hedges
Interest rate swap on industrial revenue bond:
Unrealized (loss) gain recognized in other non-interest income	$	(84	)	$	(32	)	$	(815	)	$	740		$	(271	)	$	(381	)

Interest rate swaps on loans with commercial loan customers:
Unrealized (loss) gain recognized in other non-interest income	391			154			(1,341		)	6,704			(3,114		)	187

Reverse interest rate swaps on loans with commercial loan customers:
Unrealized loss recognized in other non-interest income	(391		)	(154		)	1,341			(6,704		)	3,114			(187		)

Favorable (Unfavorable) change in credit valuation adjustment recognized in other non-interest income	59			(5		)	70			332			1			7

Risk Participation Agreements:
Unrealized loss recognized in other non-interest income													(9		)	—

Forward Commitments:
Unrealized loss recognized in other non-interest income	(25		)	(822		)	(694		)	(822		)	(388		)	(108		)
Realized loss in other non-interest income	(75		)	231			(417		)	8,377			(91		)	(164		)

Non-hedging derivatives
Interest rate lock commitments
Unrealized gain recognized in other non-interest income	$	383		$	976		$	1,420		$	976		$	977		$	377
Realized gain (loss) in other non-interest income	711			(63		)	1,746			(3,423		)
Realized gain in other non-interest income													755			469

Assets and Liabilities Subject to Enforceable Master Netting Arrangements

Interest Rate Swap Agreements (“Swap Agreements”)

The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. The Company had net asset positions with its commercial banking counterparties totaling ~~$8.9~~$15.4 million and ~~$7.8~~$12.3 million as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively. The Company had net liability positions with its financial institution counterparties totaling ~~$10.9~~$25.5 million and ~~$11.2~~$18.2 million as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively. At ~~September 30, 2014,~~March 31, 2015, the Company ~~also had~~did not have a net liability position ~~of $264 thousand~~ with its commercial banking counterparties, as compared to a ~~$720 thousand~~$0.1 million liability at December 31, ~~2013.~~2014. The collateral posted by the Company that covered liability positions was ~~$10.9~~$25.5 million and ~~$11.2~~$18.2 million as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, respectively.

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The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:

Offsetting of Financial Assets and Derivative Assets

						Net Amounts												Net Amounts
	Gross		Gross Amounts			of Assets		Gross Amounts Not Offset in						Gross		Gross Amounts		of Assets		Gross Amounts Not Offset in
	Amounts of		Offset in the			Presented in the		the Statements of Condition						Amounts of		Offset in the		Presented in the		the Statements of Condition
	Recognized		Statements of			Statements of		Financial		Cash				Recognized		Statements of		Statements of		Financial		Cash
(in thousands)	Assets		Condition			Condition		Instruments		Collateral Received		Net Amount		Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
As of September 30, 2014
As of March 31, 2015
Interest Rate Swap Agreements:
Institutional counterparties	$	—	$	—		$	—	$	—	$	—	$	—	$	42	$	—	$	42	$	—	$	—	$	42
Commercial counterparties	8,910		(3		)	8,907		—		—		8,907		15,444		—		15,444		—		—		15,444
Total	$	8,910	$	(3	)	$	8,907	$	—	$	—	$	8,907	$	15,486	$	—	$	15,486	$	—	$	—	$	15,486

Offsetting of Financial Liabilities and Derivative Liabilities

						Net Amounts															Net Amounts
	Gross			Gross Amounts		of Liabilities			Gross Amounts Not Offset in							Gross			Gross Amounts		of Liabilities			Gross Amounts Not Offset in
	Amounts of			Offset in the		Presented in the			the Statements of Condition							Amounts of			Offset in the		Presented in the			the Statements of Condition
	Recognized			Statements of		Statements of			Financial		Cash					Recognized			Statements of		Statements of			Financial		Cash
(in thousands)	Liabilities			Condition		Condition			Instruments		Collateral Pledged		Net Amount			Liabilities			Condition		Condition			Instruments		Collateral Pledged		Net Amount
As of September 30, 2014
As of March 31, 2015
Interest Rate Swap Agreements:
Institutional counterparties	$	(11,346	)	$	433	$	(10,913	)	$	9,883	$	1,030	$	—		$	(25,546	)	$	—	$	(25,546	)	$	20,456	$	5,090	$	—
Commercial counterparties	(264		)	—		(264		)	—		—		(264		)	—			—		—			—		—		—
Total	$	(11,610	)	$	433	$	(11,177	)	$	9,883	$	1,030	$	(264	)	$	(25,546	)	$	—	$	(25,546	)	$	20,456	$	5,090	$	—

Offsetting of Financial Assets and Derivative Assets

					Net Amounts												Net Amounts
	Gross		Gross Amounts		of Assets		Gross Amounts Not Offset in						Gross		Gross Amounts		of Assets		Gross Amounts Not Offset in
	Amounts of		Offset in the		Presented in the		the Statements of Condition						Amounts of		Offset in the		Presented in the		the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash				Recognized		Statements of		Statements of		Financial		Cash
(in thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount		Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
As of December 31, 2013
As of December 31, 2014
Interest Rate Swap Agreements:													��
Institutional counterparties	$	—	$	—	$	—	$	—	$	—	$	—	$	23	$	—	$	23	$	—	$	—	$	23
Commercial counterparties	7,799		—		7,799		—		—		7,799		12,270		—		12,270		—		—		12,270
Total	$	7,799	$	—	$	7,799	$	—	$	—	$	7,799	$	12,293	$	—	$	12,293	$	—	$	—	$	12,293

Offsetting of Financial Liabilities and Derivative Liabilities

						Net Amounts															Net Amounts
	Gross			Gross Amounts		of Liabilities			Gross Amounts Not Offset in							Gross			Gross Amounts		of Liabilities			Gross Amounts Not Offset in
	Amounts of			Offset in the		Presented in the			the Statements of Condition							Amounts of			Offset in the		Presented in the			the Statements of Condition
	Recognized			Statements of		Statements of			Financial		Cash					Recognized			Statements of		Statements of			Financial		Cash
(in thousands)	Liabilities			Condition		Condition			Instruments		Collateral Pledged		Net Amount			Liabilities			Condition		Condition			Instruments		Collateral Pledged		Net Amount
As of December 31, 2013
As of December 31, 2014
Interest Rate Swap Agreements:
Institutional counterparties	$	(13,157	)	$	1,913	$	(11,244	)	$	9,544	$	1,700	$	—		$	(18,232	)	$	58	$	(18,174	)	$	14,984	$	3,190	$	—
Commercial counterparties	(720		)	—		(720		)	—		—		(720		)	(50		)	—		(50		)	—		—		(50		)
Total	$	(13,877	)	$	1,913	$	(11,964	)	$	9,544	$	1,700	$	(720	)	$	(18,282	)	$	58	$	(18,224	)	$	14,984	$	3,190	$	(50	)

NOTE ~~14.~~13. 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~~Fair Value Measurements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

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	September 30, 2014									March 31, 2015
	Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs			Fair Value		Inputs		Inputs		Inputs		Fair Value

Trading security	$	—	$	—	$	14,745		$	14,745	$	—	$	—	$	14,970	$	14,970
Available-for-sale securities:
Municipal bonds and obligations	—		135,524		—			135,524		—		155,450		—		155,450
Governmentguaranteed residential mortgage-backed securities	—		74,282		—			74,282		—		65,039		—		65,039
Government-sponsored residential mortgage-backed securities	—		777,571		—			777,571		—		762,421		—		762,421
Corporate bonds	—		2,556		—			2,556		—		55,357		—		55,357
Trust preferred securities	—		13,850		1,548			15,398		—		13,427		—		13,427
Other bonds and obligations	—		3,154		—			3,154		—		3,196		—		3,196
Marketable equity securities	49,375		357		748			50,480		43,690		357		719		44,766
Loans held for sale	—		29,091		—			29,091		—		29,305		—		29,305
Derivative assets	—		9,343		383			9,726		—		15,444		977		16,421
Derivative liabilities	103		11,613		(77		)	11,639		295		25,504		93		25,892

	December 31, 2013								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value		Inputs		Inputs		Inputs		Fair Value

Trading security	$	—	$	—	$	14,840	$	14,840	$	—	$	—	$	14,909	$	14,909
Available-for-sale securities:
Municipal bonds and obligations	—		77,671		—		77,671		—		133,699		—		133,699
Government guaranteed residential mortgage-backed securities	—		78,771		—		78,771		—		69,468		—		69,468
Government-sponsored residential mortgage-backed securities	—		522,658		—		522,658		—		760,184		—		760,184
Corporate bonds	—		39,280		—		39,280		—		54,151		—		54,151
Trust preferred securities	—		15,372		1,239		16,611		—		14,667		1,548		16,215
Other bonds and obligations	—		3,084		—		3,084		—		3,159		—		3,159
Marketable equity securities	20,891		357		725		21,973		53,806		358		778		54,942
Loans Held for Sale	—		15,840		—		15,840		—		19,493		—		19,493
Derivative assets	242		7,799		277		8,318		—		12,328		625		12,953
Derivative liabilities	—		11,964		—		11,964		417		18,259		93		18,769

There were no transfers between levels during the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 or ~~2013.~~2014.

Trading Security at Fair Value. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit 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. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.

Securities Available for Sale. 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, overseen by management, 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 pooled trust preferred security and~~owns one privately owned equity ~~security. Both securities~~security classified as Level 3. The security’s fair ~~values are based on~~value is determined through unobservable issuer-provided financial information and ~~the pooled security also utilizes discounted cash flow models derived from the underlying structured pool and therefore both are classified as Level 3.~~a pricing model utilizing peer data.

Loans held for sale. The Company elected the fair value option for all loans held for sale (HFS) originated on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.

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					Aggregate Fair Value						Aggregate Fair Value
September 30, 2014	Aggregate		Aggregate		Less Aggregate
March 31, 2015							Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal		Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	29,091	$	28,424	$	667	$	29,305	$	28,483	$	822

					Aggregate Fair Value						Aggregate Fair Value
December 31, 2013	Aggregate		Aggregate		Less Aggregate
December 31, 2014							Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal		Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	15,840	$	15,641	$	199	$	19,493	$	18,885	$	608

The changes in fair value of loans held for sale for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2015 and December 31, 2014, were gains of $1$214 thousand and ~~$468~~$409 thousand, respectively. ~~The changes in fair value of loans held for sale were gains of $2.0 million and losses of $1.9 million for the three and nine months ended September 30, 2013.~~ The changes in fair value are included in mortgage banking income in the Consolidated Statements of Income.

Derivative Assets and Liabilities.

Interest Rate Swap. 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 ~~September 30, 2014,~~March 31, 2015, 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.

Interest Rate Lock Commitments. The Company enters into IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, IRLCs are classified as Level 3 measurements.

Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the IRLCs and loans held for sale. To Be Announced (“TBA”) mortgage-backed securities forward commitment sales are used as the hedging instrument, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.

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The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013.~~2014.

Assets (Liabilities)

Securities

Interest Rate

Trading

Available

Lock

Forward

(In thousands)

Security

for Sale

Commitments

Commitments

Three Months Ended September 30, 2014

Balance as of June 30, 2014

$
14,971

$
2,217

$
660

$
(163
)
Purchase of Marketable Equity Security

—

—

—

—

Unrealized (loss) gain, net recognized in other non-interest income

(91
)
—

769

240

Unrealized gain included in accumulated other comprehensive loss

—

79

—

—

Paydown of trading security

(135
)
—

—

—

Transfers to held for sale loans

—

—

(1,046
)
—

Balance as of September 30, 2014

$
14,745

$
2,296

$
383

$
77

Nine Months Ended September 30, 2014

Balance as of December 31, 2013

$
14,840

$
1,964

$
258

$
19

Purchase of Marketable Equity Security

—

—

—

—

Unrealized (loss) gain, net recognized in other non-interest income

308

—

2,563

58

Unrealized gain included in accumulated other comprehensive loss

—

332

—

—

Paydown of trading account security

(403
)
—

—

—

Transfers to held for sale loans

—

—

(2,438
)
—

Balance as of September 30, 2014

$
14,745

$
2,296

$
383

$
77

Unrealized gains (losses) relating to instruments still held at September 30, 2014

$
—

$
(1,028
)
$
383

$
77

	Assets (Liabilities)
				Securities			Interest Rate
	Trading			Available			Lock			Forward
(In thousands)	Security			for Sale			Commitments			Commitments

Three Months Ended March 31, 2015
Balance as of December 31, 2014	$	14,909		$	2,326		$	625		$	(93	)
Sale of AFS Security	—			(1,327		)	—			—
Unrealized (loss) gain, net recognized in other non-interest income	203			—			1,730			—
Unrealized gain included in accumulated other comprehensive loss	—			(280		)	—			—
Paydown of trading security	(142		)	—			—			—
Transfers to held for sale loans	—			—			(1,378		)	—
Balance as of March 31, 2015	$	14,970		$	719		$	977		$	(93	)

Unrealized gains (losses) relating to instruments still held at March 31, 2015	$	2,558		$	(51	)	$	977		$	(93	)

Assets (Liabilities)

Securities

Interest Rate

Trading

Available

Lock

Forward

(In thousands)

Security

for Sale

Commitments

Commitments

Three Months Ended September 30, 2013

Balance as of June 30, 2013

$
15,564

$
1,819

$
(1,507
)
$
1,403

Greenpark Acquisition

—

—

—

—

Unrealized (loss) gain recognized in other non-interest income

(107
)
—

5,054

(1,628
)
Unrealized loss included in accumulated other comprehensive loss

—

(70
)
—

—

Paydown of trading security

(127
)
—

—

—

Transfers to held for sale loans

—

—

(2,571
)
—

Balance as of September 30, 2013

$
15,330

$
1,749

$
976

$
(225
)

Nine Months Ended September 30, 2013

Balance as of December 31, 2012

$
16,893

$
885

$
6,258

$
(1,055
)
Greenpark Acquisition

—

770

—

—

Unrealized (loss) gain recognized in other non-interest income

(1,180
)
—

8,353

830

Unrealized loss included in accumulated other comprehensive loss

—

94

—

—

Paydown of trading account security

(383
)
—

—

—

Transfers to held for sale loans

—

—

(13,635
)
—

Balance as of September 30, 2013

$
15,330

$
1,749

$
976

$
(225
)

Unrealized gains (losses) relating to instruments still held at September 30, 2013

$
—

$
(1,624
)
$
976

$
(225
)

	Assets (Liabilities)
				Securities			Interest Rate
	Trading			Available			Lock			Forward
(In thousands)	Security			for Sale			Commitments			Commitments

Three Months Ended March 31, 2014
Balance as of December 31, 2013	$	14,840		$	1,964		$	258		$	19
Purchase of Marketable Equity Security	—			—			—			—
Unrealized (loss) gain, net recognized in other non-interest income	218			—			719			(115		)
Unrealized gain included in accumulated other comprehensive loss	—			82			—			—
Paydown of trading account security	(135		)	—			—			—
Transfers to held for sale loans	—			—			(600		)	—
Balance as of March 31, 2014	$	14,923		$	2,046		$	377		$	(96	)

Unrealized gains (losses) relating to instruments still held at March 31, 2014	$	1,962		$	(1,288	)	$	377		$	(96	)

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Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:

	Fair Value				Significant Unobservable Input			Fair Value					Significant Unobservable Input
(In thousands)	September 30, 2014		Valuation Techniques	Unobservable Inputs	Value			March 31, 2015			Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading Security	$	14,745	Discounted Cash Flow	Discount Rate	2.96		%	$	14,970		Discounted Cash Flow	Discount Rate	2.34		%

Trust Preferred Securities	2,296		Discounted Cash Flow	Discount Rate	13.25		%
				Credit Spread	10.18		%
AFS Securities								719			Pricing Model	Median Peer Price/Tangible Book Value Percentage Multiple	93.35		%

Forward Commitments	77		Historical Trend	Closing Ratio	91.94		%	(93		)	Historical Trend	Closing Ratio	89.54		%
			Pricing Model	Origination Costs, per loan	$	2,500					Pricing Model	Origination Costs, per loan	$	2,500

Interest Rate Lock Commitment	383		Historical Trend	Closing Ratio	91.94		%	977			Historical Trend	Closing Ratio	89.54		%
			Pricing Model	Origination Costs, per loan	$	2,500					Pricing Model	Origination Costs, per loan	$	2,500

Total	$	17,501						$	16,573

	Fair Value				Significant Unobservable Input			Fair Value					Significant Unobservable Input
(In thousands)	December 31, 2013		Valuation Techniques	Unobservable Inputs	Value			December 31, 2014			Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading Security	$	14,840	Discounted Cash Flow	Discount Rate	3.39		%	$	14,909		Discounted Cash Flow	Discount Rate	2.60		%

Trust Preferred Securities	1,964		Discounted Cash Flow	Discount Rate	13.17		%
AFS Securities								2,326			Discounted Cash Flow	Discount Rate	13.74		%
				Credit Spread	9.45		%					Credit Spread	11.06		%

Forward Commitments	19		Historical Trend	Closing Ratio	94.83		%	(93		)	Historical Trend	Closing Ratio	91.07		%
			Pricing Model	Origination Costs, per loan	$	2,500					Pricing Model	Origination Costs, per loan	$	2,500

Interest Rate Lock Commitment	258		Historical Trend	Closing Ratio	94.83		%	625			Historical Trend	Closing Ratio	91.07		%
			Pricing Model	Origination Costs, per loan	$	2,500					Pricing Model	Origination Costs, per loan	$	2,500

Total	$	17,081						$	17,767

~~Non-recurring fair value measurements~~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.

	September 30, 2014		December 31, 2013		Nine months ended September 30, 2014			March 31, 2015		December 31, 2014		Three months ended March 31, 2015
	Level 3		Level 3		Total			Level 3		Level 3		Total
(In thousands)	Inputs		Inputs		Gains (Losses)			Inputs		Inputs		Gains (Losses)
Assets
Impaired loans	$	3,561	$	5,542	$	(1,981	)	$	6,111	$	5,820	$	292
Capitalized mortgage servicing rights	3,845		4,112		—			3,871		3,757		—
Other real estate owned	4,854		2,995		(148		)	1,444		2,049		(155		)

Total	$	12,260	$	12,649	$	(2,129	)	$	11,426	$	11,626	$	137

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Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:

Fair Value

(in thousands)

September 30, 2014

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (a)

March 31, 2015

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (a)

Assets

Impaired loans

3,561

Fair value of collateral

Loss severity

.10% to 100.0% (83.35%)

6,111

Fair value of collateral

Loss severity

3.78% to 53.08% (23.5%)

Appraised value

$0 to $1,600.0 ($1,093.5)

Appraised value

$139.5 to $1,600.0 ($981.7)

Capitalized mortgage servicing rights

3,845

Discounted cash flow

Constant prepayment rate (CPR)

7.30% to 18.96% (9.03%)

3,871

Discounted cash flow

Constant prepayment rate (CPR)

8.2% to 19.85% (11.05%)

Discount rate

10.00% to 13.00% (10.44%)

Discount rate

10.00% to 13.00% (10.42%)

Other real estate owned

4,854

Fair value of collateral

Appraised value

$57 to $1,950.0 ($974.4)

1,444

Fair value of collateral

Appraised value

$57 to $700.0 ($470.7)

Total

12,260

11,426

(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.

Fair Value

(in thousands)

December 31, 2013

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (a)

December 31, 2014

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (a)

Assets

Impaired loans

5,542

Fair value of collateral

Loss severity

4.2% to 100.0% (57.41%)

5,820

Fair value of collateral

Loss severity

0.31% to 38.7% (12.65%)

Appraised value

$0 to $900.0 ($505.4)

Appraised value

$5 to $1,600.0 ($912.7)

Capitalized mortgage servicing rights

4,112

Discounted cash flow

Constant prepayment rate (CPR)

6.96% to 15.97% (8.58%)

3,757

Discounted cash flow

Constant prepayment rate (CPR)

7.83% to 19.00% (9.92%)

Discount rate

10.00% to 13.00% (10.34%)

Discount rate

10.00% to 13.00% (10.43%)

Other real estate owned

2,995

Fair value of collateral

Appraised value

$0 to $774.0 ($413.4)

2,049

Fair value of collateral

Appraised value

$57 to $700.0 ($462.6)

Total

12,649

11,626

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013.~~2014.

Impaired 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, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

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 exceed adequate compensation 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.

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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 less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.

Summary of ~~estimated fair values~~Estimated Fair Values of ~~financial instruments~~Financial Instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments follow. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

	September 30, 2014											March 31, 2015
	Carrying		Fair									Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3			Amount		Value		Level 1		Level 2		Level 3

Financial Assets

Cash and cash equivalents	$	58,624	$	58,624	$	58,624	$	—	$	—		$	62,214	$	62,214	$	62,214	$	—	$	—
Trading security	14,745		14,745		—		—		14,745			14,970		14,970		—		—		14,970
Securities available for sale	1,058,965		1,058,965		49,375		1,007,294		2,296			1,099,656		1,099,656		43,690		1,055,247		719
Securities held to maturity	42,596		43,771		—		—		43,771			42,818		44,744		—		—		44,744
Restricted equity securities	54,646		54,646		—		54,646		—
FHLB bank stock and restricted securities												58,734		58,734		—		58,734		—
Net loans	4,517,816		4,560,815		—		—		4,560,815			4,692,377		4,736,177		—		—		4,736,177
Loans held for sale	29,091		29,091		—		29,091		—			29,305		29,305		—		29,305		—
Accrued interest receivable	17,102		17,102		—		17,102		—			17,786		17,786		—		17,786		—
Cash surrender value of bank-owned life insurance policies	103,749		103,749		—		103,749		—			105,302		105,302		—		105,302		—
Derivative assets	9,726		9,726		—		9,343		383			16,421		16,421		—		15,444		977
Assets held for sale	1,260		1,260		—		1,260		—			1,266		1,266		—		1,266		—


Financial Liabilities

Total deposits	$	4,563,333	$	4,565,618	—		$	4,565,618	$	—		$	4,719,683	$	4,720,914	—		$	4,720,914	$	—
Short-term debt	887,000		887,115		—		887,115		—			894,500		894,675		—		894,675		—
Long-term Federal Home Loan Bank advances	64,105		65,711		—		65,711		—			61,618		63,273		—		63,273		—
Subordinated borrowings	89,730		87,630		—		87,630		—			89,765		94,062		—		94,062		—
Derivative liabilities	11,639		11,639		103		11,613		(77		)	25,892		25,892		295		25,504		93
Liabilities held for sale	—		—		—		—		—

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	December 31, 2013										December 31, 2014
	Carrying		Fair								Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3

Financial Assets

Cash and cash equivalents	$	75,539	$	75,539	$	75,539	$	—	$	—	$	71,754	$	71,754	$	71,754	$	—	$	—
Trading security	14,840		14,840		—		—		14,840		14,909		14,909		—		—		14,909
Securities available for sale	760,048		760,048		20,891		737,193		1,964		1,091,818		1,091,818		5,806		1,035,686		2,326
Securities held to maturity	44,921		45,764		—		—		45,764		43,347		44,997		—		—		44,997
Restricted equity securities	50,282		50,282		—		50,282		—
FHLB bank stock and restricted securities											55,720		55,720		—		55,720		—
Net loans	4,147,200		4,154,663		—		—		4,154,663		4,644,938		4,695,256		—		—		4,695,256
Loans held for sale	15,840		15,840		—		15,840		—		19,493		19,493		—		19,493		—
Accrued interest receivable	15,072		15,072		—		15,072		—		17,274		17,274		—		17,274		—
Cash surrender value of bank-owned life insurance policies	101,530		101,530		—		101,530		—		104,588		104,588		—		104,588		—
Derivative assets	8,318		8,318		242		7,799		277		12,953		12,953		—		12,328		625
Assets held for sale	3,969		3,969		—		3,969		—		1,280		1,280		—		1,280		—

Financial Liabilities

Total deposits	$	3,848,529	$	3,848,926	$	—	$	3,848,926	$	—	$	4,654,679	$	4,655,234	$	—	$	4,655,234	$	—
Short-term debt	872,510		872,545		—		872,545		—		900,900		900,983		—		900,983		—
Long-term Federal Home Loan Bank advances	101,918		103,660		—		103,660		—		61,676		63,283		—		63,283		—
Subordinated borrowings	89,679		87,882		—		87,882		—		89,747		93,441		—		93,441		—
Derivative liabilities	11,964		11,964		—		11,964		—		18,769		18,769		417		18,259		93
Liabilities held for sale	24,834		24,834		—		24,834		—

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~~FHLB bank stock and restricted 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 origination rates. The origination 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, non-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.

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Subordinated borrowings. 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.

NOTE ~~15.~~14. NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

Presented below is net interest income after provision for loan losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively.

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(In thousands)	2014		2013		2014		2013		2015		2014
Net interest income	$	44,949	$	45,869	$	132,044	$	128,910	$	45,493	$	42,766
Provision for loan losses	3,685		3,178		11,070		8,278		3,851		3,396
Net interest income after provision for loan losses	$	41,264	$	42,691	$	120,974	$	120,632	$	41,642	$	39,370

NOTE ~~16.~~15. SUBSEQUENT EVENTS

On ~~November 3, 2014,~~April 17, 2015, the Company ~~entered into a merger agreement with~~acquired all of the outstanding common shares of Hampden Bancorp, Inc. (“Hampden”),. Hampden Bank, the ~~parent company~~wholly owned subsidiary of Hampden, Bank, pursuant to which Hampden will merge with and into the Company in a transaction to be accounted for as a business combination. It is expected that Hampden Bank will also merge with and into Berkshire Bank. Headquartered in Springfield, Mass., Hampden had ~~$706 million in total assets as of September 30, 2014 (unaudited) and, through Hampden Bank, operates~~ 10 banking offices providing a range of ~~banking~~ services in ~~Western Massachusetts.~~the Springfield area and has merged with and into Berkshire Hills Bancorp, Inc.

~~Under~~Excluding Hampden shares held by Berkshire, Hampden shareholders received 4.2 million shares of the ~~terms~~Company’s common stock. As of April 17, 2015, Hampden, on a consolidated basis, had assets with a carrying value of approximately $687.8 million, including loans outstanding with a carrying value of approximately $501.0 million, as well as deposits with a carrying value of approximately $482.1 million. The results of Hampden’s operations will be included in the Company’s Consolidated Statement of Income from the date of acquisition. The Company incurred $3.3 million of merger and acquisition expenses related to the Hampden and Hampden Bank merger for the three months ended March 31, 2015. Excluding the $3.3 million of merger and acquisition expenses, this merger agreement ~~each outstanding share of Hampden common stock will be converted into the right to receive 0.81 of a share of Company common stock.~~

The transaction is subject to closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Hampden. The merger is currently expected to be completed in the second quarter of 2015. If the merger is not consummated under specified circumstances, Hampden has agreed to pay the Company a termination fee of $3.6 million during the first 45 days following date of merger agreement and $4.7 million thereafter.

~~This merger agreement~~ had no significant effect on the Company’s financial statements for the periods ~~presented.~~presented

As a result of the proximity of the closing of the merger with Hampden to the date these consolidated financial statements are available to be issued, the Company is still evaluating the estimated fair values of the assets acquired and the liabilities assumed. Accordingly, the amount of any goodwill and other intangible assets to be recognized in connection with this transaction is also yet to be determined.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

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 the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the ~~2013~~2014 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 ~~2014~~2015 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 ~~loans and~~ securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a ~~40.3%~~40.5% marginal income tax rate. In the discussion, references to earnings per share refer to diluted earnings per share unless otherwise specified.

Berkshire Hills Bancorp (“Berkshire” or “the Company”) is a Delaware corporation headquartered in Pittsfield, Massachusetts and the holding company for Berkshire Bank (“the Bank”) and Berkshire Insurance Group. Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter. The Bank is one of Massachusetts’ oldest and largest independent banks and is the largest banking institution based in Western Massachusetts. Berkshire Bank operates under the brand America’s Most Exciting Bank®.

On ~~January~~April 17, ~~2014,~~2015 Berkshire completed the acquisition of ~~20 Central New York branches with $440 million in deposits. On November 3, 2014, the Company entered into a definitive merger agreement to acquire~~Springfield, MA. based Hampden Bancorp, Inc. (“~~Hampden”~~Hampden’)~~, which is headquartered in Springfield, Massachusetts.~~. Hampden’s operations will be included with Berkshire’s results following the acquisition date. As of ~~June 30, 2014,~~March 31, 2015, Hampden had ~~$701~~$710 million in total assets, $508 million in ~~net~~ loans, ~~$492~~and $501 million in ~~deposits, and $87~~deposits. For the quarter ended March 31, 2015, Hampden’s unaudited results of operations included $5.27 million in ~~equity.~~net interest income, $0.80 million in non-interest income, and $4.17 million in operating non-interest expense. Hampden operated ten branches in the Springfield area and it is planned that three of these branches will be consolidated with existing Berkshire branches when the systems integration is completed in the latter part of June. On completion of these consolidations, the Company expects to have 17 total branches in the Springfield area, including existing Berkshire branches. The Company ~~plans~~issued approximately 4.2 million net shares as merger consideration, bringing its total shares outstanding to complete the merger transaction in the second quarter of 2015. Berkshire continues to pursue opportunities for both strong organic growth and growth through partnerships that deliver benefits to its constituencies. For more information, visit www.berkshirebank.com or call 800-773-5601.

On July 11, 2014, the Bank ended its membership in the DIF, which insures deposit balances held by Massachusetts-chartered savings banks in excess of federal deposit insurance coverage. The Bank’s growth in deposit size necessitated the Bank’s withdrawal from the DIF and the concurrent charter conversion of the Bank from a Massachusetts-chartered savings bank to a Massachusetts-chartered trust company and change in holding company status of the Company from a savings and loan holding company to a bank holding company.approximately 29.5 million shares.

Berkshire is a regional financial services company that seeks to distinguish itself over the long term based on the following attributes:

· Strong growth from organic, de novo, product, and acquisition strategies

· Solid capital, core funding, and risk management culture

· Experienced executive team focused on earnings and stockholder value

· Distinctive brand and culture as America’s Most Exciting Bank®

· Diversified integrated financial service revenues

· Positioned to be regional consolidator in attractive markets

Shown below is a profile of the Company including Hampden Bancorp, which was acquired on April 17, 2015.

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2013~~2014 and the Risk Factors in Item 1A of this report. Because of these and other uncertainties, Berkshire’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire’s past results of operations do not necessarily indicate Berkshire’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Berkshire is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Berkshire qualifies all of its forward-looking statements by these cautionary statements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND RECENT ACCOUNTING PRONOUNCEMENTS

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent 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.

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The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Please see those policies in conjunction with this

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discussion. Management believes that the following policies would be considered critical under the SEC’s definition:

Allowance for Loan Losses. The allowance for loan losses represents probable credit losses that are inherent in the loan portfolio at the financial statement date and which may be estimated. Management uses historical information, as well as current economic data, to assess the adequacy of the allowance for loan losses as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. Although management believes that it uses appropriate available information to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation. Conditions in the local economy and real estate values could require the Company to increase provisions for loan losses, which would negatively impact earnings.

Acquired Loans. Loans that the Company acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Going forward, the Company continues to evaluate reasonableness of expectations for the timing and the amount of cash to be collected. Subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral dependent loans with deteriorated credit quality, the Company estimates the fair value of the underlying collateral of the loans. These values are discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.

Income Taxes. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. The Company uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carry back” refund claims could be made. A valuation allowance is maintained for deferred tax assets that management estimates are more likely than not to be unrealizable based on available evidence at the time the estimate is made. In determining the valuation allowance, the Company uses historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carry-forward periods, tax planning opportunities and other relevant considerations. These underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance. Should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset could differ materially from the amounts recorded in the financial statements. If the Company is not able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination is made.

Goodwill and Identifiable Intangible Assets. Goodwill and identifiable intangible assets are recorded as a result of business acquisitions and combinations. These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and analysis of market pricing multiples. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.

Determination of Other-Than-Temporary Impairment of Securities. The Company evaluates debt and equity securities within the Company’s available for sale and held to maturity portfolios for other-than-temporary

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impairment (“OTTI”), at least quarterly. If the fair value of a debt security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met: (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of

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its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the loss is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Noncredit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes. In evaluating its marketable equity securities portfolios for OTTI, the Company considers its intent and 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 on marketable equity securities is recognized immediately through earnings. Should actual factors and conditions differ materially from those expected by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

Fair Value of Financial Instruments. The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Trading assets, securities available for sale, and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, or to establish a loss allowance or write-down based on the fair value of impaired assets. Further, the notes to financial statements include information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. For financial instruments not recorded at fair value, the notes to financial statements disclose the estimate of their fair value. Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

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SELECTED FINANCIAL DATA

The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Form 10-Qs.

	At or for the Three						At or for the Nine						At or for the Three
	Months Ended September 30,						Months Ended September 30,						Months Ended March 31,
	2014			2013			2014			2013			2015			2014

PER COMMON SHARE DATA
Net earnings, diluted	$	0.48		$	0.33		$	0.90		$	1.22		$	0.35		$	(0.04	)
Core earnings, diluted	0.46			0.43			1.32			1.47
Adjusted earnings, diluted (1)													0.50			0.42
Total common book value	27.69			26.98			27.69			26.98			28.36			26.99
Dividends	0.18			0.18			0.54			0.54			0.19			0.18
Common stock price:
High	25.11			29.38			27.28			29.38			27.92			27.28
Low	22.37			24.34			22.06			23.38			24.27			23.95
Close	23.49			25.11			23.49			25.11			27.70			25.88

PERFORMANCE RATIOS(2)
Return on average assets	0.77		%	0.61		%	0.49		%	0.78		%	0.54		%	(0.08		)%
Return on average common equity	6.95			4.74			4.31			6.07			5.00			(0.64		)
Net interest margin, fully taxable equivalent	3.20			3.93			3.27			3.76			3.18			3.35
Fee income/Net interest and fee income	23.59			19.23			23.44			23.42			23.25			22.84

ASSET QUALITY RATIOS(3)
Net charge-offs (period annualized)/average loans	0.28		%	0.32		%	0.30		%	0.28		%	0.28		%	0.30		%
Allowance for loan losses/total loans	0.77			0.83			0.77			0.83			0.77			0.79

CONDITION RATIOS
Stockholders’ equity to total assets	10.97		%	12.35		%	10.97		%	12.35		%	10.90		%	11.27		%
Investments to total assets	18.43			14.48			18.43			14.48			18.51			19.05
Loans/deposits	100			104			100			104			100			101

FINANCIAL DATA: (In millions)
Total assets	$	6,352		$	5,450		$	6,352		$	5,450		$	6,571		$	6,010
Total earning assets	5,765			4,856			5,765			4,856			5,993			5,408
Total investments													1,216			1,145
Total loans	4,553			4,024			4,553			4,024			4,729			4,243
Allowance for loan losses	35			33			35			33			36			34
Total intangible assets	277			272			277			272			275			280
Total deposits	4,563			3,882			4,563			3,882			4,720			4,219
Total borrowings	1,041			830			1,041			830			1,046			1,026
Total common stockholders’ equity	697			673			697			673			716			678

FOR THE PERIOD: (In thousands)
Net interest income	$	44,949		$	45,869		$	132,044		$	128,910		$	45,493		$	42,766
Non-interest income	14,641			12,114			33,570			42,518			12,562			4,423
Provision for loan losses	3,685			3,178			11,070			8,278			3,851			3,396
Non-interest expense	39,687			42,784			124,309			120,202			45,148			45,360
Net income	11,988			8,104			22,347			30,606
Core income	11,369			10,749			32,697			36,692
Net income (loss)													8,759			(1,106		)
Adjusted income (1)													12,374			10,412

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

~~(2)Core~~Adjusted income and ~~core~~adjusted earnings are non-GAAP financial measures that the Company believes provide investors with information that is useful in understanding our financial performance and condition.

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

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

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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 September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
	2014				2013				2014				2013				2015				2014
($ In millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		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	$	1,413	3.86	%	$	1,248	3.99	%	$	1,391	3.99	%	$	1,252	4.07	%	$	1,470	3.94	%	$	1,379	4.12	%
Commercial real estate	1,579		4.26		1,354		5.80		1,496		4.29		1,381		5.51		1,647		4.12		1,420		4.44
Commercial and industrial loans	717		3.79		648		6.09		702		3.86		625		4.84		807		3.70		685		3.97
Consumer loans	763		3.34		651		4.39		731		3.46		644		4.71		765		3.23		700		3.56
Total loans(1)	4,472		3.91		3,901		5.02		4,320		4.00		3,902		4.81		4,689		3.86		4,184		4.13
Investment securities(2)	1,170		2.98		735		2.77		1,148		3.05		661		2.93		1,177		3.10		1,048		3.04
Short term investments and loans held for sale(3)	39		1.65		61		4.05		32		1.52		83		2.63		55		1.40		28		1.51
Total interest-earning assets	5,681		3.70		4,697		4.66		5,500		3.78		4,646		4.52		5,921		3.67		5,260		3.89
Intangible assets	278				272				278				273				276				278
Other non-interest earning assets	306				318				309				323				300				313
Total assets	$	6,265			$	5,287			$	6,087			$	5,242			$	6,497			$	5,851

Liabilities and stockholders’ equity
Deposits:
NOW	$	418	0.17	%	$	346	0.18	%	$	418	0.15	%	$	357	0.24	%	$	423	0.14	%	$	410	0.15	%
Money market	1,405		0.37		1,330		0.44		1,448		0.37		1,389		0.40		1,409		0.40		1,490		0.37
Savings	480		0.14		442		0.16		475		0.15		445		0.17		502		0.15		464		0.16
Time	1,407		0.91		1,064		1.29		1,210		1.01		1,100		1.25		1,420		0.92		1,070		1.15
Total interest-bearing deposits	3,710		0.52		3,182		0.66		3,551		0.53		3,291		0.64		3,754		0.53		3,434		0.56
Borrowings and notes(4)	992		0.89		722		1.85		1,010		0.92		573		2.58		1,107		0.85		912		1.03
Total interest-bearing liabilities	4,702		0.60		3,904		0.88		4,561		0.62		3,864		0.91		4,861		0.61		4,346		0.66
Non-interest-bearing demand deposits	824				659				785				647				870				750
Other non-interest earning liabilities	49				40				50				58				65				63
Total liabilities	5,575				4,603				5,396				4,569				5,796				5,159

Total stockholders’ equity(2)	690				684				691				673				701				692
Total liabilities and stockholders’ equity	$	6,265			$	5,287			$	6,087			$	5,242			$	6,497			$	5,851

Net interest spread			3.10	%			3.78	%			3.17	%			3.61	%			3.06	%			3.23	%
Net interest margin(5)			3.20				3.93				3.27				3.76				3.18				3.35
Cost of funds			0.51				0.75				0.53				0.78				0.51				0.56
Cost of deposits			0.43				0.55				0.43				0.53				0.43				0.46

Supplementary data
Total deposits (In millions)	$	4,535			$	3,840			$	4,337			$	3,936			$	4,624			$	4,184
Fully taxable equivalent income adj. (In thousands)	859				652				2,429				1,925				889				718

~~(1)~~	(1) The average balances of loans include nonaccrual loans and deferred fees and costs. (2) The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment. (3) Interest income on loans held for sale is included in loan interest income on the income statement. (4) The average balances of borrowings includes the capital lease obligation presented under other liabilities on the consolidated balance sheet. (5) Purchased loan accretion totaled $320 thousand and $2.8 million for the three months ended March 31, 2015 and ~~deferred fees and costs.~~
~~(2)~~	~~The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.~~
~~(3)~~	~~Interest income on loans held for sale is included in loan interest income on the income statement.~~
~~(4)~~	~~The average balances of borrowings includes the capital lease obligation presented under other liabilities on the consolidated balance sheet.~~
~~(5)~~	~~Purchased loan accretion totaled $1.2 million and $8.5 million for the three months ended September 30,~~ 2014, ~~and 2013, respectively. Purchased loan accretion totaled $5.0 million and $15.7 million for the nine months ended September 30, 2014 and 2013,~~ respectively.

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NON-GAAP FINANCIAL MEASURES

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

The Company utilizes the non-GAAP measure of ~~core~~adjusted earnings in evaluating operating trends, including components for ~~core~~operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations, including securities gains/losses, losses recorded for hedge terminations, merger costs, restructuring costs, systems conversion costs, and out-of-period adjustments. ~~Non-core~~Non-operating adjustments are presented net of an adjustment for income tax expense. This adjustment ~~in 2013 was based on the marginal tax rate applied to the net non-core pre-tax adjustments. In 2014, due to the comparative magnitude of the non-core items, this adjustment was~~is determined as the difference between the GAAP tax rate and the effective tax rate applicable to ~~core~~operating income. ~~Accordingly, GAAP income exceeded core income in the most recent quarter due~~

Charges related to merger and acquisition activity consist primarily of severance/benefit related expenses, contract termination costs, and professional fees. Systems conversion costs relate primarily to the ~~higher effective full year tax~~Company’s operating systems conversion and related systems conversions costs. Restructuring costs primarily consist of costs and losses associated with the consolidation of branches and other operating facilities of the Company. Out-of-period accounting adjustments for interest income on acquired loans were recorded following systems conversions and merger related accounting activity and were deemed non-operating. Non-operating expenses include variable rate ~~on core income before the net non-core charges.~~compensation related to non-operating items.

The Company also calculates ~~core~~adjusted earnings per share based on its measure of ~~core earnings.~~earnings from ongoing operations. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s operating performance. Management also believes that the computation of non-GAAP ~~core~~adjusted earnings and ~~core~~adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.

The Company adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community. Charges related to merger and acquisition activity consist primarily of severance/benefit related expenses, contract termination costs, and professional fees. Systems conversion costs relate primarily to the Company’s core systems conversion and related systems conversions costs. Restructuring costs primarily consist of employee severance costs and costs and losses associated with the disposition of assets which were undertaken as a project to right-size expenses following a decline in revenue in 2013. Out-of-period accounting adjustments for interest income on acquired loans were recorded following systems conversions and merger related accounting activity and were deemed non-core. Non-core expenses include variable rate compensation related to non-core items.

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The following table summarizes the reconciliation of non-GAAP items recorded for the time periods and dates indicated:

At or for the
Quarters Ended

At or for the
Nine Months Ended

Sept. 30,

Sept. 30,

Sept. 30,

Sept. 30,

(Dollars in thousands)

2014

2013

2014

2013

Net income (GAAP)

$
11,988

$
8,104

$
22,347

$
30,606

Non-GAAP measures

Adj: Gain on sale of securities, net

(245
)
(361
)
(482
)
(1,366
)
Adj: Loss on termination of hedges

—

—

8,792

—

Adj: Acquisition, restructuring and conversion related expenses (1)

238

7,016

6,730

12,855

Adj: Out-of-period adjustment (2)

—

(2,222
)
1,381

(1,287
)
Adj: Income taxes

(612
)
(1,788
)
(6,071
)
(4,116
)

Net non-core (charges) credits

(619
)
2,645

10,350

6,086

Total core income (non-GAAP)

(A)

$
11,369

$
10,749

$
32,697

$
36,692

Total revenue

$
59,590

$
57,983

$
165,614

$
171,428

Adj: Gain on sale of securities and other non-recurring gain, net

(245
)
(361
)
(482
)
(1,366
)
Adj: Loss on termination of hedges

—

—

8,792

—

Adj: Out-of-period adjustment (2)

—

(2,222
)
1,381

(1,287
)
Total core revenue

$
59,345

$
55,400

$
175,305

$
168,775

Total non-interest expense

$
39,687

$
42,784

$
124,310

$
120,202

Less: Total non-core expense (see above)

(238
)
(7,016
)
(6,730
)
(12,855
)
Core non-interest expense

$
39,449

$
35,768

$
117,580

$
107,347

Net earnings per share, diluted (GAAP)

$
0.48

$
0.33

$
0.90

$
1.22

Non-core earnings per share, diluted

(0.02
)
0.10

0.42

0.25

Core earnings per share, diluted

(A/G)

0.46

0.43

1.32

1.47

Average diluted shares outstanding (thousands) (GAAP)

24,861

24,873

24,835

25,001

Adj: dilutive potential common shares outstanding (thousands)

—

—

—

—

Average core diluted shares outstanding (thousands)

(G)

24,861

24,873

24,835

25,001

(Dollars in millions, except per share data)

Total assets, period-end (GAAP)

6,352

5,450

6,352

5,450

Less: intangible assets, period-end

277

272

277

272

Total tangible assets, period-end

6,075

5,178

6,075

5,178

Total stockholders’ equity, period-end (GAAP)

697

673

697

673

Less: intangible assets, period-end

277

272

277

272

Total tangible stockholders’ equity, period-end

420

401

420

401

BERKSHIRE HILLS BANCORP, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES - UNAUDITED - (F-9)

			At or for the Quarters Ended
			Mar 31,			Mar. 31,
(in thousands)			2015			2014
Net income (loss) (GAAP)			$	8,759		$	(1,106	)
Adj: Gain on sale of securities, net			(34		)	(34		)
Adj: Loss on termination of hedges			—			8,792
Adj: Merger and acquisition expense			3,275			3,637
Adj: Restructuring and conversion expense			1,146			2,665
Adj: Out-of-period adjustment (1)			—			1,381
Adj: Income taxes			(772		)	(4,923		)
Total adjusted income (non-GAAP)	(A)		$	12,374		$	10,412

Total revenue (GAAP)			$	58,055		$	47,189
Adj: Gain on sale of securities, net			(34		)	(34		)
Adj: Loss on termination of hedges			—			8,792
Adj: Out-of-period adjustment (1)			—			1,381
Total operating revenue (non-GAAP)	(B)		$	58,021		$	57,328

Total non-interest expense (GAAP)			$	45,148		$	45,360
Less: Total non-operating expense (see above)			(4,421		)	(6,302		)
Operating non-interest expense (non-GAAP)	(C)		$	40,727		$	39,058

(in millions, except per share data)
Total average assets	(D)		$	6,497		$	5,851
Total average stockholders’ equity	(E)		701			692
Total average tangible stockholders’ equity	(F)		426			413
Total tangible stockholders’ equity, period-end (2)	(G)		441			398

Total common shares outstanding, period-end (thousands)	(H)		25,253			25,105
Average diluted shares outstanding (thousands) (3)	(I)		24,955			24,833

Adjusted earnings per share, diluted	(A/I)		$	0.50		$	0.42
Tangible book value per share, period-end	(G/H)		$	17.46		$	15.84

Performance ratios (4)
Adjusted return on assets	(A/D)		0.76		%	0.71		%
Adjsuted return on equity	(A/E)		7.06			6.02
Adjusted return on tangible equity (5)	(A/F)		12.14			10.84
Efficiency ratio	(C-L)/(B+J+M)		63.27			64.42

Supplementary data (in thousands)
Tax benefit - tax-advantaged commercial project investments (6)	(J)		$	4,034		$	555
Non-interest income charge - tax-advantaged commercial project investments (7)	(K)		(2,851		)	(417		)
Net income on tax-advantaged commercial project investments	(J+K	)	1,183			138
Intangible amortization	(L)		901			1,306
Fully taxable equivalent income adjustment	(M)		889			718

(1) Acquisition, restructuring, conversion and other related expenses include $1.3 million in acquisition expenses and $5.7 million of restructuring, conversion and other expenses for the nine months ended September 30, 2014. Acquisition, restructuring, conversion and other related expenses include $7.1 million in acquisition related expenses and $5.8 million of restructuring, conversion and other expenses for the nine months ended September 30, 2013.

~~(2)~~ The out of period ~~adjustments~~adjustment shown above ~~relate~~relates to interest income earned on loans acquired in bank acquisitions.

~~(3) The Company evaulates its non-core items to arrive~~(2) Total tangible stockholders’ equity is computed by taking total stockholders’ equity less the intangible assets at ~~an effective non-core tax rate which is consistent with the Company’s overall tax rate analysis.~~period-end.

(4) Dilutive potential common shares outstanding includes the number of additional common shares that would have been outstanding from the assumption that options were exercised, and that other shares were issued upon the satisfaction of certain conditions.

~~(5)~~(3) Average diluted shares computed for ~~core~~adjusted earnings per share differ from GAAP average diluted shares, in Q1the first quarter of 2014, due to the GAAP net loss compared to ~~core~~adjusted net income for the period.

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

(5) Adjusted return on tangible equity is computed by dividing the total adjusted income adjusted for the tax-affected amortization of intangible assets, assuming a 40% marginal rate, by tangible equity.

(6) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation, low-income housing, new market projects, and renewable energy projects.

(7) The non-interest income charge is the reduction to the tax-advantaged commercial project investments, which are incurred as the tax credits are generated.

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SUMMARY

Berkshire recorded ~~third~~first quarter 2015 earnings of ~~$12.0~~$8.8 million, ~~($0.48~~or $0.35 per ~~share)~~share. First quarter results included $3.6 million in ~~2014, compared~~net charges related primarily to ~~$8.1 million ($0.33 per share) in 2013. For~~ the ~~first nine months~~acquisition of ~~the year,~~Hampden Bancorp and restructuring charges. The company views these charges as non-operating. The Company’s adjusted earnings were ~~$22.3~~$12.4 million, ~~($0.90~~or $0.50 per ~~share) in 2014, compared~~share before non-operating items. Adjusted earnings is a non-GAAP financial measure intended to ~~$30.6 million ($1.22 per share) in 2013. On January 17, 2014, Berkshire acquired 20 New York branches with $440 million in deposit balances, bringing~~measure the ~~Company’s total branch count~~performance of ongoing operations. This measure is further described and reconciled to 90 offices. Following the acquisition, Berkshire extinguished certain borrowings and terminated the related cash flow hedges. The related charges against income resulted in a first quarter loss of $1.1 million ($0.04 per share).

~~Berkshire recorded significant net charges which it deemed as non-core in both 2014 and 2013. These charges were discussed~~GAAP results in the previous section on non-GAAP financial measures. Non-core charges in 2014 primarily related to the first quarter acquisition of New York branches. Non-core charges in 2013 primarily related to restructuring charges in the second half of the year following a revenue downturn in the first half of the year.

~~Excluding net non-core charges, Berkshire’s third quarter core~~Adjusted earnings per share increased by 7%19% over the first quarter of 2014 due to ~~$0.46 in 2014 compared to $0.43 in 2013. Beginning after~~ the ~~turn~~expansion of ~~the year, Berkshire has been generating higher revenue as it builds~~ business ~~volumes across its regional markets. This revenue-driven positive operating leverage has led to improved core profitability. Core~~operations. Adjusted earnings per share ~~has advanced~~increased by ~~$0.02 per share in each quarter since~~4% over the fourth quarter of ~~2013. For~~2014 including the benefits of growth in loans, mortgage originations, and income on tax-advantaged commercial development projects. Berkshire recorded a loss of $1.1 million, or $0.04 per share, in the first ~~nine months~~quarter of 2014 due to $11.5 million in net non-operating charges primarily for the ~~year, core~~acquisition of 20 New York branches and the related loss on the termination of hedges. Before net non-operating charges, Berkshire’s adjusted earnings in this period totaled $10.4 million, or $0.42 per share.

During the most recent quarter, Berkshire’s Board of Directors increased the quarterly dividend to shareholders by 6% to $0.19 per share ~~totaled $1.32 in 2014 compared to $1.47 in the prior year.~~

~~Berkshire continues to pay a quarterly dividend of~~from $0.18 per ~~share.~~share which was in effect throughout 2014. This dividend ~~equated~~equates to a ~~3.0%~~2.9% annualized yield based on the ~~$24.02~~$26.18 average closing price of Berkshire’s common stock during the ~~most recent~~first quarter.

~~Third~~First quarter ~~2014~~2015 financial highlights ~~are shown below (comparisons are to prior quarter):~~included:

· 5%14% annualized increase in ~~net revenue~~

·~~9% annualized increase in total~~commercial loans

· 8%6% annualized increase in deposits

· 6%11% annualized increase in demand deposits

· ~~0.44%~~9% increase in fee income (year-over-year)

·0.36% non-performing assets/assets

· 0.28% annualized net loan charge-offs/average loans

~~During~~Berkshire continued its momentum of sequential and year-over-year growth in adjusted EPS in the most recent quarter. The Company also maintained double digit annualized expansion in its focus areas of commercial loans and demand deposits, where it continued to capitalize on the strength of its regional bank franchise. This contributed to an increase in the net interest margin before purchased loan accretion. Most categories of fee income also increased year over year as the Company further developed revenue synergies and deepened its market and wallet share. The Company is maintaining its focus on expense disciplines and efficiency while improving its overall franchise positioning and talent redeployment to better serve its customers. Berkshire’s goal is to continue to generate positive core operating leverage from revenue synergies and expense management to further improve operating earnings and profitability.

In the most recent quarter, Berkshire ~~recruited a five person small business~~announced the recruitment of leadership talent for its Hartford commercial banking team inand for its Albany ~~following the first quarter branch purchase in New York. A senior commercial real estate lender was added in Hartford~~private banking and wealth management professionals were recruited to serve several Massachusetts markets. Berkshire’s strong electronic banking solution was enhanced with the addition of a leading online fraud protection service,teams. Hockey legend Ray Bourque and left wing Milan Lucic joined Berkshire as spokespersons and the Company ~~added to~~completed a second successful season in its ~~solutions for mobile customers. Berkshire’s initiatives were recognized~~partnership with several marketing, communications and philanthropic awards, and its growing small business banking team was named the top SBA lender in Western Massachusetts. In addition, the Company recently opened a new branch located within its Westborough office, which servesNESN (New England Sports Network) as the ~~regional headquarters in the Central Massachusetts market.~~

~~Additional initiatives undertaken in 2014 include the purchase~~Official Bank of 20 branches in New York in January, the recruitment of a New York regional leader, the promotion of Josephine Iannelli to Executive Vice President/Chief Financial Officer, the recruitment of an SVP/Treasurer, the consolidation of four branches, and the opening of a de novo branch in the Albany area market. In June 2014 Berkshire announced that William J. Ryan had been appointed as Chairman of the Board of Directors. Mr. Ryan, 70, previously served as Chairman of the Board and CEO of TD Banknorth Inc. from 1989 to March 2007.

In July 2014, the Bank changed its charter from a Massachusetts chartered savings bank to a Massachusetts chartered trust company. Simultaneously, the Company changed its holding company status from a savings and loan holding company to a bank holding company, and it elected the financial holding company designation as a bank holding company. At the time of these changes, the Bank also terminated its participation in the DIF. This change had no impactBoston Bruins coverage on the ~~Bank’s ongoing participation in FDIC deposit insurance.~~network, garnering widespread brand recognition and significant business leads.

67Berkshire’s acquisition of Springfield-based Hampden Bancorp was completed on April 17, 2015 on schedule. The Hampden acquisition boosted total assets by approximately 11% to $7.3 billion and total shares outstanding increased to approximately 29.5 million shares. Berkshire’s goal is that the transaction will be accretive to earnings per share, accretive to return on assets, and accretive to equity and tangible equity after merger efficiencies are fully achieved. Berkshire is also targeting strategic benefits from its new position in the top five for deposit market share in the Springfield MSA and increases in its overall business volume in the Hartford/Springfield market which is the second largest economic area in New England. Operationally, Berkshire

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~~In November 2014 Berkshire announced~~will target efficiencies and long run revenue synergies from the product set and capabilities that it ~~had entered into~~can provide to the individuals and businesses in this market.

Hampden operated ten branch offices and the Company plans to consolidate three of these offices with existing offices in the Springfield market, resulting in a net addition of seven offices. The Company also announced the consolidation of two other offices in the first quarter bringing the total branch count to 96 offices net of these planned consolidations. The Company continues to review its branch locations with the goal of improving profitability while improving its overall franchise positioning and talent deployment to better serve its customers. Additional branch consolidations or sales are anticipated during the second quarter. These changes reflect changing patterns of retail banking customer interaction. Berkshire has a multichannel strategy to further penetrate and service the retail market. The Company announced its plan to implement the Apple Pay service for its customers in the second quarter. The expansion of its small business banking team resulted in Berkshire’s designation as the SBA Lender of the Quarter for being one of the most active SBA lenders in the Commonwealth of Massachusetts.

During the first quarter, Berkshire expanded its board of directors with the appointment to the board of Paul Bossidy, former President and CEO of GE Capital Solutions. Pursuant to the Hampden merger agreement, Berkshire recently appointed two former Hampden directors to its board: Thomas Burton (a former Hampden President and CEO) and Richard Suski (a certified public accountant with a career serving financing institutions in Connecticut and Massachusetts). Glenn Welch, the Hampden ~~Bank which is headquartered~~President and CEO, joined Berkshire’s team as an Executive Vice President and will be developing the Company’s business initiatives with other financial institutions in ~~Springfield, Massachusetts. Berkshire targets to achieve financial, strategic,~~its region. Additionally, on April 23, 2015, the Board of Directors established two new board committees: the Capital/Risk Management Committee (combining two existing committees) and ~~operational benefits as a result of this business combination.~~the Compliance/Regulatory Committee. Following the restructuring, the five standing Board committees include Audit, Capital/Risk Management, Corporate Governance/Nominating, Compensation, and the Compliance/Regulatory Committees.

COMPARISON OF FINANCIAL CONDITION AT ~~SEPTEMBER 30, 2014~~MARCH 31, 2015 AND DECEMBER 31, ~~2013~~2014

Summary: ~~Berkshire~~Total assets increased ~~its total assets by $679 million (12%)~~at a 4% annualized rate to $6.6 billion in the first ~~nine months of 2014, including $372 million growth~~quarter due primarily to a 4% annualized increase in total loans ~~and a $301 increase in investment securities. Balance sheet growth was~~ funded by a ~~$715 million~~6% annualized increase in ~~deposits, which included the $440 million in deposits of the acquired branches, along with a $347 million increase in brokered~~total deposits. ~~At September 30, 2014, measures of asset quality,~~Capital and liquidity ratios remained solid and ~~interest rate sensitivity were improved from year-end. Measures of capital remained within the Company’s targets.~~

did not change significantly. Tangible book value per share increased ~~by 2%~~at a 6% annualized rate to ~~$16.67 in the third quarter~~$17.46 and ~~was up 2% from $16.27 at the start of the year, more than offsetting the dilution from the branch purchase in the first quarter. Total~~total book value per share increased at a 3% annualized rate to $28.36. With the completion of the Hampden Bancorp merger on April 17, 2015, total assets increased by 1%approximately 11% to ~~$27.69~~$7.3 billion.

Securities: Total investment securities were unchanged at $1.2 billion during the quarter. Investments in bank capital instruments were reduced as a result of new risk based capital requirements that became effective during the quarter that increased the required support for these investments. The Company reduced its investment in equity securities and ~~was up 2% from $27.08 at the start of the year.~~

~~Securities.~~ ~~Total~~trust preferred securities by $15 million and increased by $301 million to $1.17 billion during the first nine months of 2014. The portfolio was increased to initially utilize the funds provided from the branch acquisition and also to supplement earning asset growth based on the higher returns available on certain securities. Securities growth wasits investment in available for sale ~~securities and~~municipal bonds by $22 million. The Company realized $1.4 million in net losses on the sale of bonds which was primarily ~~comprised~~related to the sale of a ~~$255~~pooled trust preferred security which was reported with a $1.0 million ~~increase in government-sponsored residential mortgage-backed securities, most of which~~unrealized loss at year-end 2014. The bond losses were ~~collateralized mortgage obligations. Municipal bonds increased by $58 million, and a $37 million decrease in corporate bonds was mostly~~ offset by ~~a $29~~$1.4 million ~~increase~~ in ~~equity securities, which was concentrated in bank stocks. With~~net gains realized on the ~~recent change in the Bank’s charter, the Bank is no longer eligible to make future purchases~~sale of equity ~~securities, although this activity is permitted by the Company as a bank holding company.~~

securities. Due to the decrease in medium and long term interest rates ~~that developed~~ during ~~2014,~~ the quarter, the Company recorded a net unrealized securities gain of $9.3 million in other comprehensive income, and the portfolio ~~moved to~~had a ~~$5.2 million, or 0.5%,~~net unrealized gain of $27 million at ~~the third quarter end,~~(2.4% of cost) quarter-end compared to ~~an $8.5~~$18 million ~~or 1.0%, unrealized loss~~(1.6% of cost) at the start of the ~~year. Additionally, the Company recorded $0.5 million in securities gains during 2014.~~quarter. The ~~taxable equivalent~~overall portfolio yield ~~on investment securities~~ increased to ~~2.98%~~3.10% in the first quarter of 2015 from 3.00% in the linked quarter and 3.04% in the first quarter of 2014. During the most recent quarter, ~~compared to 2.72%~~measures of yield, duration, and extension risk were little changed except for a modest shortening in the ~~fourth quarter of 2013. This reflected a lengthening of durations, along with~~portfolio life due to higher projected prepayment speeds following the higher yield on the dividend paying equity securities that replaced corporate bonds. The effective duration of the portfolio increased to 5.0 years at period- end from 4.7 years at the start of the year. At period-end, the average life extension risk was modeled at 2.5 years in the event of a 300 basis point risedip in interest ~~rates. During the first nine months of 2014, the Company did not record any write-downs of investment~~rates after year-end. Except for securities ~~and none of the Company’s investment securities were classified as other-than-temporarily impaired.~~

~~Loans.~~ Total loans increased by $372 million, or 12% annualized, to $4.55 billion in the first nine months of 2014, including 14% annualized commercial loan growth and 17% annualized consumer loan growth. Portfolio growth has benefited from Berkshire’s business expansion and team recruitment as it pursues market share acquisition in all business lines due to the strength of its regional franchise and capabilities. Loan growth was 9% annualized in the most recent quarter. Commercial loan production has been spread across Berkshire’s regions, with the largest contribution in Eastern Massachusetts and New York. Commercial loans increased by $224 million, including a $57 million in increase in multifamily loans, a $121 million increase in all other commercial real estate loans, and a $44 million increase in asset based lending balances. The $121 million growth in all other commercial real estate loans included a $36 million increase in owner occupied properties, which totaled $523 million at period-end. Commercial balances benefited from increased wholesale activity including participations with community banks in the Company’s ~~footprint. Growth in asset based lending balances was primarily due to new originations; utilization of commercial lines of credit has remained generally stable around 60% during~~higher yielding mutual fund, all other available for sale debt securities were investment grade rated throughout the year. The commercial loan pipeline at the end of the third quarter remained consistent with the pipeline at midyear. Consumer auto loans increased by $77 million, or 27% annualized, for the year to date due to promotions of prime indirect loan originations in the region. Year to date annualized residential mortgage growth was 6% and consisted primarily of newly originated jumbo mortgages; conforming fixed rate originations are mostly sold to secondary market investors. Mortgage growth included the impacts of seasoned loan purchases and sales. During the first nine months of 2014, loan balances acquired in business

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~~combinations decreased~~quarter. The mutual fund invests in U.S. corporate bonds targeted for upgrades and is reported with the Company’s corporate bonds. The Company’s held to ~~$819 million, or 18%~~maturity securities are generally unrated local securities, all of which are performing and none of which is deemed criticized according to the Company’s internal ratings systems.

Loans. Berkshire continued to generate strong double digit commercial loan growth, which measured 14% annualized in the first quarter of 2015, including 11% annualized growth in commercial and industrial loan balances. Managed reductions in other loans resulted in 4% annualized growth in total loans ~~from $1.011~~to $4.73 billion ~~or 24% of total~~during the quarter. Residential mortgage loans decreased as most first quarter mortgage originations were sold into the secondary market following a decrease in interest rates at the start of the year. The decrease in consumer loans was due to a change in the auto loan portfolio strategy initiated in the final quarter of 2014 to de-emphasize originations of lower coupon super-prime auto loans.

The $48 million increase in total loans during the quarter was due to the $83 million increase in commercial loans. Approximately $60 million of this increase was attributable to commercial real estate loans. The remaining growth was primarily split between asset based loans and other commercial and industrial loans. Commercial loan growth included wholesale acquisitions and is net of targeted reductions in lower yielding commercial relationships managed with a goal of supporting the net interest margin. The commercial pipeline at quarter-end was up from the start of the year and line of credit usage improved slightly to 62%.

The yield ~~was 3.91%~~on the total portfolio decreased to 3.86% in the ~~third~~most recent quarter ~~of 2014,~~ compared to 3.96% in the ~~prior~~linked quarter ~~and 4.26% in the fourth quarter of 2013. The loan yield included~~due to lower purchased loan ~~accretion, which includes recoveries on the collection of purchased credit impaired loans. Excluding the impact of purchased loan~~accretion. Before this accretion, the ~~loan~~ yield ~~was 3.81%, 3.86%, and 4.02% in~~measured 3.83% compared to 3.82% for the above periods, respectively. ~~The decline in loan yield includes the impact of lower market interest rates and spreads, the improving credit quality of the portfolio, and the higher mix of adjustable rate commercial~~At quarter-end, loans ~~and indirect automobile loans. During the first nine months of the year, loans~~ with contractual pricing adjustments within one year decreased to 35% of total loans from 37% at the start of the year. Loans repricing in one to five years increased ~~by 1%~~ to ~~33%~~26% from 24% of total loans, and loans repricing ~~after~~over five years remained unchanged at 39% of total loans.

At the end of the period, the remaining carrying balance of purchased credit impaired loans was ~~$19~~$13 million and the contractual amount owed on these loans was ~~$34~~$24 million. The balance of accretable yield on these loans was ~~$3.2 million. The purchased loan accretion reported by~~$3.4 million which increased from $2.5 million at the ~~Company includes recoveries~~start of ~~non-accretable discount and accretion of accretable yield on purchased impaired loans. Purchased loan accretion also includes accretion related~~the quarter due to premiums and discounts recorded on non-impaired purchased loans. Total purchased loan accretion recorded to income was $5.0 million in the first nine months of 2014, including $4.9 million of recoveries recorded for purchased credit impaired loans.loans with improved cash flows.

Asset Quality. Asset quality metrics remained favorable and continued to improve in the first quarter of 2015. Annualized net loan charge-offs measured 0.28% of average loans for the quarter. Annualized net charge-0ffs were 0.20% of average loans from business activities and 0.65% of average loans acquired in business combinations. Quarter-end non-performing assets decreased to 0.36% of total assets and accruing delinquent loans decreased to 0.43% of total loans. The loan loss allowance increased to 0.77% of total loans; approximately 15% of quarter-end loans were balances recorded at fair value in prior year bank acquisitions. Acquired loans are recorded at fair value and are ~~initially~~ categorized as performing regardless of their payment status. Therefore, some overall portfolio measures of asset performance are not comparable between periods or among institutions as a result of recent business combinations. Several asset quality measures improved during the first nine months of 2014. Compared to the start of the year, nonperforming assets decreased to 0.44% of total assets from 0.53%, and accruing delinquent loans decreased to 0.44% of total loans from 0.73%. Loans which became non-accruing totaled $5 million in the most recent quarter, ~~totaled $6 million,~~ which was within the range of ~~$4-9~~$4 - 9 million ~~in several prior quarters. Annualized net loan charge-offs measured 0.29% of average loans~~experienced in the ~~first nine months of 2014, compared to 0.29% in the year 2013.~~past several quarters. The balance of loans identified as troubled debt restructurings increased to ~~$16.4~~$17.2 million from ~~$10.8~~$16.7 million during the ~~first nine months of 2014.~~quarter.

Loan Loss Allowance. The determination of the allowance for loan losses is a critical accounting estimate. The Company considers the allowance for loan losses appropriate to cover probable losses which can be reasonably estimated in the loan portfolio as of the balance sheet date. Under accounting standards for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. A loan loss allowance is recorded by the Company for the emergence of new probable and estimable losses on acquired loans which were not impaired as of the acquisition date. Because of the accounting for acquired loans, some measures of the loan loss allowance are not comparable to periods prior to the acquisition date.

The total amount of the loan loss allowance increased by ~~$1.6~~$0.6 million to ~~$35.0~~$36.3 million in the first ~~nine months~~quarter of ~~2014 primarily~~2015 due to growth in the loan portfolio. The ratio of the allowance to total loans ~~decreased~~increased to 0.77% ~~of total loans, compared to 0.80% at~~from 0.76% during the ~~start of the year.~~quarter. For loans from business activities, this ratio decreased to ~~0.86%~~0.80% from ~~0.93%,~~0.84% during the

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quarter, while the allowance on loans acquired ~~loans decreased~~in business combinations increased to ~~0.35%~~0.56% from 0.38%. At period-end, the total allowance provided 2.8X coverage of ~~nine month~~ annualized net charge-offs and ~~1.5X~~165% coverage of period-end non-accrual loans. For business activities loans, these ratios measured 4.0X and ~~1.9X,~~220% respectively, and for loans acquired in business combinations, these ratios measured ~~0.6X~~0.8X and ~~0.4X.~~63%.

The credit risk profile of the Company’s loan portfolio is described in the Loan Loss Allowance note in the consolidated financial statements. The Company’s risk management process focuses primary attention on loans with higher than normal risk, which includes loans rated special mention and classified (substandard and lower). These loans are referred to as criticized loans. Criticized loans were reduced to ~~$135~~$123 million ~~(2.1%~~(1.9% of assets) ~~at period-end~~ from ~~$165~~$130 million ~~(2.9%~~(2.0% of assets) at the start of the year. The Company views its potential problem loans as those loans from business activities which are rated as classified and continue to accrue interest. These loans have a possibility of loss if weaknesses are not corrected. Classified loans acquired in business combinations are recorded at fair value and are classified as performing at the time of acquisition and therefore have not generally been viewed as potential problem loans. Potential problem loans ~~decreased~~increased slightly to ~~$69~~$68 million from ~~$71~~$67 million during the ~~first nine months of 2014. As acquired loans age, there is increased potential that they may become problem loans.~~quarter. The balance of accruing classified acquired loans decreased to ~~$30~~$21 million from ~~$39~~

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$24 million during the ~~first nine months of the year.~~quarter. There were no significant changes in the composition of non-accruing and potential problem assets during the quarter. The Company’s evaluation of its credit risk profile also compares the amount of criticized assets to the total of the Bank’s Tier 1 Capital plus the loan loss allowance. This ratio declined to ~~29%~~25% from ~~37%~~28% during the ~~first nine months of 2014.~~

~~Other Assets.~~ Goodwill increased by $8 million in the first nine months of the year due to the first quarter branch acquisition. The deferred tax asset decreased to $39 million from $51 million due to accretion of purchased loan discount and an increase in the unrealized gain on investment securities.quarter.

Deposits. Total deposits increased by ~~$715~~$65 million, or ~~19%,~~6% annualized, to ~~$4.56~~$4.72 billion in the first ~~nine months~~quarter of ~~2014. The increase~~2015. Growth included ~~$440~~increases in most major categories and was concentrated primarily in relationship oriented transaction accounts, which increased by $33 million, ~~acquired with the New York branch purchase~~ and ~~a $347 million increase~~ in brokered time ~~deposits. During 2014,~~deposits, which increased by $48 million. Berkshire expanded its personal relationship deposit bundles which require the Company adjusted its funding strategies based on the acquisition of the new core deposits, diversification of its liquidity sources, and the funding of the strong loan growth. Additionally, the Company’s business strategies included reductions in its utilization of ~~municipal~~a demand deposit ~~sources~~account, and ~~changes~~demand deposit balances increased at an 11% annualized rate during the quarter. The Company does not expect that its branch consolidations will have any material impact on its deposit balances. The Company ended its participation in ~~the supplemental depositors insurance provided by~~ the Massachusetts Depositors Insurance ~~Fund. The benefits~~Fund (“DIF”) at mid-year 2014 and the one year transitional coverage of ~~these strategies included improved liquidity measures, greater flexibility, lower funding costs, and improved asset sensitivity~~existing balances expires at mid-year in 2015. Hampden Bank’s participation in this fund terminated with no transitional coverage as of the ~~asset/liability profile. Berkshire continues~~Hampden merger date. Normal FDIC insurance coverage remains in place for the Bank’s deposits. The Company has initiated limited offerings of reciprocal deposit money market accounts and collateralized deposit accounts for certain institutional customers and is targeting to ~~increase its~~maintain positive overall organic deposit balance growth in 2015 while transitioning from the DIF program. Including the benefit of demand deposit account relationships, reflecting its emphasis on promotion of these low cost relationship based accounts. Excluding acquired deposits, total demand deposits increased by $56 million in the first nine months. Most of this increase was in the third quarter and was related to growth in commercial and small business balances. During the quarter, the Company decided to end its classification of its Tennessee branch as held for sale. As a result, the $23 million in deposits of this branch were reclassified from other liabilities and were included in total deposits.

Acquired New York deposits included $110 million in demand deposits, $80 million in NOW accounts, $124 million in money market deposits, $36 million in savings accounts, and $90 million in time deposits. The total balance of deposits in the acquired branches has been stable subsequent to their acquisition. In the second quarter, the Company merged Berkshire Bank Municipal Bank into Berkshire Bank, which had no material impact on the Company’s operations. In 2014, the Company began utilizing brokered deposits as an alternative to Federal Home Loan Bank borrowings in order to diversify its funding sources and to achieve better execution of its asset/liability objectives. As of the end of the third quarter, brokered deposits totaled $370 million including $40 million in certificates of deposit through the Certificate of Deposit Account Registry Service (CDARS) network which provides FDIC insurance on larger balance deposits.

~~Due to the deposit~~ growth, the ~~loans/deposits ratio decreased to 100% at quarter-end from 109% at the start of the year. The average~~ cost of deposits decreased to 0.43% in the most recent quarter compared to ~~0.53%~~0.44% in the ~~fourth quarter~~linked quarter. New federal regulatory liquidity coverage ratios for the largest banks became effective in 2015, with the potential of ~~2013. This reduction included the benefit~~increasing competition for retail deposits and reducing competition for large corporate deposits. Additionally, some institutions have offered higher time deposit account rates in anticipation of the ~~acquired deposits, which had a cost below 0.20%.~~

~~On July 11, 2014,~~initiation of interest rate increases by the Federal Reserve Bank ~~terminated its participation~~after several years of near-zero short term rates. The Company believes that it may have competitive advantage in the Massachusetts Depositors Insurance Fund (“DIF”). This termination had no impact on the Bank’s FDIC insurance and existing deposits continue to be insured by DIF for a transition period. Due to its growth, the Bank would have been required to provide third party reinsurance to DIF, which was determined to be uneconomic and which ledevent of interest rate increases due to the ~~decision~~comparative stability of some of its more rural deposit markets. The ratio of loans/deposits was 100% at quarter-end, compared to terminate participation in this program. The Company’s goal is to grow its total deposits organically through business activities in 2014 and 2015 while it completes this transition from DIF insurance.101% at the start of the quarter.

Borrowings, Derivative Financial Instruments and Hedging Activities. ~~. The~~ There were no significant changes in the Company’s borrowing and hedging activities in the first quarter of 2015. Total borrowings were unchanged at $1.05 billion. In the second half of 2014, the Company ~~has used acquired and brokered deposits to fund asset growth in 2014. Brokered deposits have been used as an alternative wholesale source~~removed some of ~~funds, sometimes offering more attractive short term fixed rate funding compared to borrowings~~its securities from the Federal Home Loan ~~Bank. Total~~Bank collateral pool, but it resumed pledging these securities to the collateral pool in 2015. The Company generally pledges most of its eligible collateral to the FHLBB to maximize its borrowings decreased by $23 million (2%) to $1.04 billion in the first nine months of 2014. The $440 million in funds received for acquired deposits was initially utilized to reduce FHLBB borrowings, including $235 million in three month revolving advances thatavailability, and the Company ~~elected~~is also expecting to ~~extinguish. With~~improve its collateral data in 2015 to increase the eligibility and liquidity of the related assets. Berkshire’s unused borrowing capacity with the FHLBB was $587 million at quarter-end, compared to $246 million at the start of the quarter. The notional amount of derivatives increased by $58 million to $1.09 billion during the quarter primarily due to a $76 million increase related to mortgage banking as a result of the higher market demand for mortgage originations following the decrease in long term rates. As a result of this ~~extinguishment,~~decrease, the ~~Company terminated all~~unrealized fair value liability of ~~its cash flow~~derivatives increased to $9.5 million from $5.8 million due to the higher unrealized loss on outstanding fixed payment interest rate ~~swaps which were related~~swaps. The amount of this loss has varied significantly due to ~~these three month revolving advances~~the unusually high volatility of long term interest rates in recent periods reflecting uncertainty about domestic and which had a total notional balance of $410 million including both currently effective and forward starting swaps. During the first quarter, the Company borrowed new short term advances to fund growth in earning assets, and short term advances and brokered deposits were further utilized in the second quarter to fund loan growth. Including the benefit of the borrowings and hedges restructuring, interest expense for borrowings in the most recent quarterforeign monetary policy.

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decreased by $1.4 million compared to the fourth quarter of 2013 and by $1.1 million compared to the third quarter of 2013. The cost of borrowings decreased to 0.89% from 1.69% and 1.85% for the above periods, respectively.

~~Derivative Financial Instruments and Hedging Activities.~~ The notional value of derivatives totaled $999 million at September 30, 2014, which was increased from $905 million at the start of the year. Cash flow hedges decreased by $125 million as a result of the hedge restructuring that was implemented in the first quarter of the year. At the start of the year, the Company had $410 million in FHLBB borrowings hedges averaging a 3.8 year maturity, a 1.4 year forward start, and a 2.15% forward pay rate. At the end of the third quarter, the Company had $300 million in forward starting FHLBB borrowings hedges averaging a 4.5 year maturity, a 1.5 year forward start, and a 2.29% forward pay rate. These swaps lock-in higher future borrowing costs and they provide protection in the event that interest rates rise more than anticipated. The $2.1 million fair value liability on FHLBB borrowings swaps at year-end was a component of the loss recorded in the first quarter for the termination of hedges. At September 30, 2014, the $42 thousand fair value liability on FHLBB borrowings swaps indicated that these instruments were essentially at break-even in value at that time, and that market expectations were that the swaps would have no significant impact if interest rates developed in accordance with market expectations. Changes in economic hedges related to commercial loan interest rate swaps and in hedges related to mortgage banking operations reflected increased business volumes during the year. Total commercial loan interest rate swaps increased by 40% to $291million during the first nine months of the year and were a component that contributed to the strong commercial loan growth during the year.

Stockholders’ Equity. Stockholders’ equity increased by ~~$19~~$7 million ~~or 3%, to $697~~including the contribution of $9 million ~~at September 30, 2014 from $678~~in earnings and $2 million ~~at the start~~ of ~~the year. The charge to first quarter income for the swap terminations was offset by an equivalent credit to~~ other comprehensive income ~~and therefore resulted~~less $5 million in ~~no net impact~~dividends. Total shares outstanding increased to ~~stockholders’ equity. The increase~~25.3 million including 92 thousand shares issued in ~~equity included~~ the ~~benefit~~annual grant of ~~retained earnings~~restricted stock in January. Including the new shares issued for Hampden Bancorp merger consideration, total shares outstanding increased to approximately 29.5 million as ~~well as other comprehensive income resulting from unrealized securities gains due to the decrease in medium term interest rates during the year to date.~~of April 17, 2015.

~~Due to the deposit acquisition and loan growth, the ratio of equity to assets decreased to 11.0% at the end of the third quarter from 12.0% at the beginning of the year.~~ The ratio of tangible ~~equity~~equity/assets increased to ~~assets decreased to 6.9%~~7.00% from ~~7.5%. Tangible equity~~6.96% during the quarter. This ratio is a non-GAAP financial measure commonly used by investors and it excludes goodwill and other intangible assets from equity and assets. The Company ~~viewed itself as near the~~generally targets to maintain this measurement within a range of ~~7 — 8% that it generally targets for this measure~~7-8% and also considers its return on tangible equity as a source of capital strength for improving its condition and supporting its growth. The ratio of equity/assets was little changed at 10.90% at quarter-end.

Berkshire Bank’s total risk based capital ratio decreased to 11.0% from 11.6% and its Tier 1 risk based capital ratio decreased to 9.5% from 10.0% during the first nine months of the year. The Company converted its holding company status to a bank holding company after midyear and is reporting consolidated holding company capital measures for the first time as of September 30, 2014. The Company’s ~~consolidated total~~ risk based capital ratio measured ~~11.6%~~11.4% at quarter-end and was little changed from the start of the quarter. New regulatory capital calculations came into effect during the quarter and as previously discussed, the Company reduced its investment in bank capital instruments, which carry a higher risk allocation. At quarter-end, the regulatory capital metrics for the Company and the Bank were not significantly changed from year-end 2014. Tier 1 capital for the Company measured 9.2% of risk ~~based~~weighted assets and 7.1% of average assets. The new measure of Common Equity Tier 1 capital ~~ratio~~to risk weighted assets measured ~~9.3%. For both the Bank~~9.1% and the Company ~~the regulatory capital ratios exceeded the regulatory minimums~~and Bank continued to meet all requirements for the ~~Well-Capitalized~~Well Capitalized designation. The merger with Hampden Bancorp is expected to be accretive to most of the Company’s capital measures.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND ~~NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013~~2014.

~~Summary:~~Summary. Berkshire’s results in 2014 included the New York branch operations acquired on January 17, 2014. As a result, many measures of revenue, expense, income, and average balances increased compared to prior periods. As noted previously, Berkshire uses certain non-GAAP measures related to core income and core expenses in order to supplement its evaluation of its operating results.

Last year, changes in market conditions resulted in a downturn in mortgage banking revenue and accelerated runoff of acquired impaired and non-relationship loans. Quarterly earnings per share decreased to $0.33 in the thirdFirst quarter of 2013 from $0.48 in the second quarter of 2013. Management restructured its expenses in the second half of the 2013, and quarterly earnings improved to $0.42 per share in the fourth quarter. Quarterly net income has further improved to $0.48 per share in the third quarter of 2014.

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~~Quarterly core earnings have~~2015 adjusted EPS increased by $0.02 per share, ~~in each of~~or 4%, over the ~~last three quarters. Quarterly core earnings have increased~~linked quarter and by ~~15% from the low of $0.40 recorded in the fourth quarter of 2013, despite a $0.03~~$0.08 per share, ~~after-tax reduction~~or 19%, on a year-over-year basis due to growth in ~~the contribution from purchased loan accretion. This increase reflected the benefit of expense restructuring initiatives, the branch acquisition,~~loans and ~~business development in the Company’s larger footprint as a result of its expansion. Excluding net non-core~~fee revenues. Net non-operating charges ~~the Company’s third quarter core earnings~~totaled $0.15 per share ~~were $0.46 in 2014, increasing by 7% compared to $0.43 per share in 2013.~~

Including the loss recorded in the first quarter of 2014 as a result of branch acquisition related charges, the Company recorded nine month net income of $22.3 million, or $0.90 per share, in 2014 compared to $30.6 million, or $1.22 per share, in 2013.

Induring the most recent quarter, including $0.11 related primarily to the ~~Company recorded a 0.77% return on assets~~Hampden merger and $0.04 in restructuring charges. First quarter adjusted earnings totaled $12.4 million in 2015 and $10.4 million in 2014. First quarter GAAP earnings were $8.8 million in 2015 and a ~~7.0% return on equity. This~~loss of $1.1 million in 2014. Results last year included net non-operating charges related primarily to the acquisition of the New York branches.

The first quarter 2015 adjusted return on equity improved to 7.1% and the adjusted return on tangible equity improved to 12.1%. The Hampden acquisition is ~~the highest result since the 7.2%~~targeted to be accretive to earnings per share and to most profitability measures, as well as to most capital measures, when merger integration is fully completed. The GAAP return on equity ~~recorded~~measured 5.0% during the most recent quarter including the impact of net non-operating charges.

Due to the seasoning of acquired impaired loans, the contribution to first quarter earnings from purchased loan accretion decreased by approximately $2.5 million, or $1.5 million on an after-tax basis in 2015 compared to 2014. This decrease was partially offset by a $1.0 million increase in the ~~second quarter~~net after-tax benefit of ~~2013.~~income from tax-advantaged commercial development projects, which resulted in a lower effective tax rate in 2015. As a result of volume growth in loans and fee revenues, Berkshire produced growth in adjusted earnings despite the negative impact of accretion and the continuing pressure on the net interest margin resulting from the ongoing low interest rate environment.

Revenue. Total first quarter net revenue increased by ~~$1.6~~23% to $58 million ~~or 3%,~~ in ~~the third quarter and decreased by $5.8 million, or 3%, for the first nine months of 2014~~2015 compared to ~~2013. Third quarter~~2014. On an operating basis, net revenue increased by 1% ~~compared~~and the increase measured 10% before the aforementioned impacts of purchased loan accretion and tax advantaged-investments. In the first quarter of 2015, Hampden recorded $6 million in revenue and these acquired operations will be included in Berkshire’s results subsequent to the ~~linked quarter in 2014.~~merger date on April 17, 2015. Berkshire’s goal is to produce positive operating leverage from revenue growth as it develops revenue synergies in its expanded footprint and from integrated product sales that improve wallet share. Annualized ~~third~~first quarter revenue totaled $9.31 per share ~~increased by 3% to $9.59~~ in ~~2014 compared to $9.32 in 2013.~~the most recent quarter.

Net Interest Income. ~~Third quarter net interest income decreased by $0.9 million, or 2%, in 2014 compared to 2013. Nine month net interest income increased by $3.1 million, or 2%, in 2014 compared to 2013.~~

Net interest income has been significantly affected by purchased loan accretion, consisting primarily of recoveries on the collection of purchased impaired loans. Purchased loan accretion totaled $8.5 million and $15.7 million for the third quarter and first nine months of 2013, respectively. In comparison, these amounts totaled $1.2 million and $5.0 million in the same periods of 2014. Recoveries have varied from quarter to quarter and have trended down since the third quarter of 2013 as the balance of impaired loans has been reduced. Measured before accretion, thirdFirst quarter net interest income increased by ~~$6.4~~$2.7 million, or 6%, in ~~2014~~2015 compared to ~~2013 due to volume growth resulting from business expansion. Nine month~~2014. Measured before the aforementioned decrease in purchased loan accretion, net interest income increased by ~~$13.8 million on this basis.~~

~~The net interest margin decreased to 3.20% in~~12% for these periods. This included the ~~most recent quarter. The margin has decreased over the last year, due in part to the decrease in purchased loan accretion described above. The margin has also decreased due to the ongoing impact~~benefit of low interest rates causing decreases in earning asset yields as loans and securities amortize and prepay. Deposit rates are comparatively low, with less room for further reductions. The Company measures its net interest margin before accretion. This measure has been declining for a ~~number of quarters, and decreased by 7 basis points to 3.12% in the most recent quarter compared to the prior quarter. Due to a 2%~~13% increase in average earning assets ~~for these periods, total net interest income increased by 1%.~~

The yield on loans averaged 3.91% during the most recent quarter, and measured 3.81% excluding purchased loan accretion. The weighted average interest rate on loans originated in the third quarter was approximately 3.25%, compared to 3.50% in the linked quarter. The Company’s focus on adjustable rate loans and credit quality have contributed to loan yield compression as the Company has accepted near term margin compression in order to protect future interest income. Berkshire maintainsincluding a close focus on its loan and deposit pricing disciplines to lessen the impact of market yield compression and regularly evaluates balance sheet management strategies to support growth and profitability. The Company is targeting to lower the growth in low rate auto loans and increase commercial loans to minimize further asset yield compression and to produce net interest income growth even while purchased loan accretion is expected to decrease further.

~~Non-Interest Income.~~ Third quarter non-interest income increased by $2.5 million, or 21%, in 2014 compared to 2013. Total fee income increased by $3.0 million, or 27%, including growth in all fee income categories. This growth included $1.9 million in higher deposit fees, including the projected $1.0 million benefit of the acquired New York deposits. Deposit fees measured 0.57% (annualized) of average deposits in the most recent quarter, compared to 0.62% in the prior quarter and to 0.47% in the third quarter of 2013. Mortgage banking revenue increased by $0.6 million, or 124%, as mortgage origination volumes have partially recovered from the trough in the middle of last year that resulted from a spike in mortgage interest rates. Third quarter non-interest income in12%

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~~both years~~increase in average loans. Measured on this basis, first quarter 2015 net interest income increased by 0.2% compared to the linked quarter.

The net interest margin in the most recent quarter decreased to 3.18% from 3.23% in the linked quarter and from 3.35% in the first quarter of 2014. Measured before accretion, the margin increased to 3.15% from 3.12% in the linked quarter and decreased from 3.24% in the prior year first quarter. The year-over-year decrease was due to the ongoing compression related to the continuing low interest rate environment. The increase compared to the linked quarter included the benefit of a 0.03% increase in the commercial loan yield before accretion. This reflected the strategy initiated in the second half of 2014 to replace lower yielding relationships with higher yielding loans. The Company has also reduced its originations of lower yielding super prime auto loans while maintaining the double digit annualized growth rate of commercial loans. The improvement over the linked quarter also included the benefit of a 0.01% reduction in the cost of deposits including the benefit of growth in demand deposit balances.

Non-Interest Income. Total fee income increased by $1.1 million, or 9% year-over-year, with increases in most major categories. Fee income was up $0.8 million, or 6%, compared to the linked quarter. Seasonal increases in insurance and wealth management revenues mostly offset seasonal and weather related decreases in loan and deposit fees. Mortgage banking fees increased due to increased refinancing demand spurred by lower interest rates.

Loan fee income was down from recent quarters primarily due to lower commercial interest rate swap fees. The annualized ratio of deposit fees to average deposits decreased to 0.49% in the most recent quarter compared to 0.53% in the linked quarter and 0.52% in the first quarter of 2014. The increase in mortgage banking fees was primarily due to higher origination volume as well as higher gain on sale margins as a result of strong refinancing demand. The seasonal increase in insurance income was due to annual contingency revenues which are received in the first quarter of each year based on policy performance in the prior year; this revenue decreased from year to year. The seasonal increase in wealth management fees was due to annual tax preparation fees.

Other non-interest income includes income on bank owned life insurance as well as capital gains distributions from investments in the two most recent quarters. Non-interest income is stated net of charges to reduce the carrying value of tax-advantaged investments in commercial redevelopment projects. These charges are further discussed in the following section on income tax expense. Income in the most recent quarter included $1.4 million in gains on the sale of ~~investment securities consisting primarily of sales of~~ equity securities ~~to realize~~which offset $1.4 million in losses on the ~~strong market price appreciation.~~

~~Nine month non-interest income decreased by $8.9 million due~~sale of bonds which was related to the ~~$8.8 million non-core charge~~reduction of investments in bank capital securities instruments which was previously discussed. In the first quarter ~~resulting from the loss on~~of 2014, non-interest income also included charges for the termination of hedges ~~related to the branch acquisition. Fee income increased by $1.0 million, or 3%. Deposit fees increased by $4.9 million, including the $3.0 million projected benefit of~~following the New York branch purchase. This increase was mostly offset by a $2.1 million decrease in loan fees and a $2.7 million reduction in mortgage banking fees. These decreases primarily reflected lower volumes of loan sales due to changes in interest rate and market conditions.acquisition.

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 as an estimate of the probable and estimable loan losses in the portfolio as of period-end. 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. ~~Due primarily to loan growth, the~~The first quarter provision increased by $0.5 million ~~and $2.8 million for~~year over year due primarily to an increase in the ~~third quarter and first nine months~~allowance coverage of ~~2014 compared to 2013.~~loans acquired in business combinations.

Non-Interest ~~Expense~~Expense. Including seasonal and ~~Income Tax Expense.~~weather related factors, first quarter operating non-interest expense increased to $40.7 million from $39.9 million in the linked quarter and $39.1 million in the prior year first quarter. In comparison to average assets, operating non-interest expense measured 2.51%, 2.49%, and 2.67% in these periods respectively. The increase over the linked quarter included seasonal factors. The year-to-year decrease reflected the benefit of business expansion and restructuring activities to reduce branch costs and other overhead. Seasonal factors in the most recent quarter included a $0.9 million increase in payroll tax expense over the prior quarter and higher occupancy costs including the impacts of the severe winter weather. Full-time equivalent staff was not significantly changed and totaled 1,091 at quarter-end. The efficiency ratio increased to 63.3% in the most recent quarter due to seasonality and lower revenue from purchased loan accretion. This ratio is expected to improve due to planned revenue growth and efficiencies related to the Hampden acquisition and the branch restructuring.

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Total ~~third~~first quarter non-interest expense decreased ~~by $3.1~~slightly to $45.1 million in ~~2014~~2015 compared to ~~2013. Results~~$45.4 million in the ~~third quarter of 2013~~prior year. This expense included ~~$6.5 million of non-core~~ merger, restructuring, and conversion ~~expenses. Following the revenue decline that emerged earlier in 2013,~~expense which the Company ~~initiated a~~views as non-operating. This expense totaled $4.4 million in 2015 and $6.3 million in 2014. The expense in 2015 included $3.3 million related to the Hampden Bancorp merger and $1.1 million for restructuring ~~program~~expense. The Company is consolidating three of the ten Hampden Bank branches. This will be completed when the systems integration is completed in the latter part of June 2015. The costs for these branch consolidations are being included in the Hampden merger charges. The Company expects the bulk of the merger charges to be recorded in the second ~~half~~quarter of ~~2013 to reduce expenses and improve profitability. Excluding non-core~~2015. Restructuring charges ~~total third quarter core non-interest expense increased by $3.7~~of $1.1 million ~~from year to year. This increase~~ included ~~the expenses~~costs related to two existing branch consolidations which were announced in the ~~20 branch acquisition~~most recent quarter and which are expected to be completed in the second quarter of this year. Berkshire continues to evaluate additional branches for consolidation or sale and expects to record additional non-operating charges in the second quarter related to these consolidations.

Income Tax Expense. Berkshire’s increased financing of tax-advantaged commercial development projects contributed $0.05 in EPS in the first quarter of ~~2014,~~2015, which ~~were projected to add $3.5 million to~~was a $0.04 increase over the ~~quarterly non-interest expense. When compared to average assets, total third~~linked quarter ~~annualized core non-interest expense decreased to 2.52% of average assets from 2.71% from year to year. This demonstrated~~and over the ~~operating results~~first quarter of the ~~restructuring program that was initiated during~~prior year. As previously noted, there were decreases in EPS related to purchased loan accretion which the ~~third quarter of 2013.~~Company viewed in part as offsetting factors in evaluating overall changes in EPS.

~~For~~Due to its regional reach and resources, the Company has expanded its tax-advantaged investments in redevelopment projects with commercial relationship partners in its communities. This financing resulted in a charge to non-interest income which was more than offset by the tax benefits which are a component of income tax expense. The charges to non-interest income represent a reduction in the carrying value of the Company’s project investments; these charges are recorded as tax benefits are recognized and totaled $2.9 million in 2015 and $0.4 million in the linked quarter and in the first ~~nine months~~quarter of the ~~year,~~prior year. The tax benefits include tax credits which are approximately equal to the amount of the non-interest income charges, along with a tax deduction on the amount of the charge. The charge itself is deductible in arriving at taxable income and therefore provides a benefit which was approximately $1.1 million in the most recent quarter. The total ~~non-interest expense increased by $4.1 million.~~ tax benefit recognized for these projects was $4.0 million in the most recent quarter and $0.6 million in the linked quarter and in the first quarter of the prior year.

The ~~Company recorded non-core acquisition, restructuring, and conversion related expenses~~Company’s effective income tax rate was 3% in ~~all periods~~the first quarter of 2015, compared to 26% in the fiscal year 2014 and 2013. These expenses in 2014 were primarily related to the branch acquisition and in 2013 were primarily related to the restructuring program together with the integration and systems conversion of the operations of Beacon Federal Bancorp which was acquired in the fourth quarter of 2012. Total core non-interest expense increased by $10.2 million. This increase included the projected $10.5 million operating costs related to the New York branches acquireda 29% benefit in the first quarter of 2014.

~~Full time equivalent staff totaled 1,084 positions as of September 30, 2014. Following~~ The low rate in 2015 primarily reflects the 2013 expense reduction initiatives, the FTE staff count stood at 939 positions at year-end 2013. In addition to positions added as a result of the branch purchase, staff growth in 2014 has also been related to business growth and expansion, including targeted investment inhigher tax credit benefit from tax-advantaged commercial ~~and retail market teams. During the first quarter of 2014, the Company consolidated two of the 20 acquired branches along with two existing branches, and it opened a new branch in Loudonville, N.Y.~~

projects. The ~~effective income~~ tax rate ~~was 26%~~on the Company’s adjusted earnings in the ~~third~~most recent quarter was approximately 8% and ~~first nine months of 2014. The core income tax~~this rate was ~~30% for~~approximately 29% before these ~~periods, and~~tax credits. For fiscal 2014, the lower GAAP tax rate was due to the impact of the net non-core charges in reducing pretax GAAP income. The effective income tax rate was 29% in 2013. The lower GAAP tax rate in 2014 reflects the lower earnings and the higher proportional benefit of tax advantaged income. The effective tax rate on operating income was ~~33%~~approximately 30% and measured approximately 32% before the $1.7 million tax credit benefit recognized in ~~the third quarter of 2013 and 29% for the first nine months of 2013.~~that year.

Results of Segment and Parent Operations. Berkshire Hills Bancorp (“the Parent”) has two subsidiary operating segments — banking and insurance. Results in the banking segment generally followed the levels and trends of consolidated results, which have been previously discussed. In the insurance segment, first quarter income ~~for~~increased to $0.6 million in 2015 from $0.4 million in the ~~first nine months increased by 14% to $1.2 million~~prior year due to ~~revenue growth.~~reductions in operating expenses. For the Parent, operating results primarily reflected changes in the operations of its bank subsidiary.

Total Comprehensive Income. Total comprehensive income includes net income together with other comprehensive ~~income/(loss).~~income. For the first ~~nine months of the year,~~quarter, total comprehensive income increased to

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~~$33.6~~ $11.2 million in ~~2014~~2015 compared to ~~$26.6~~$7.3 million ~~in 2013. Nine month net income decreased by $8.3 million primarily related to the branch acquisition~~ in 2014. This ~~decrease was more than offset by an~~reflected the improvement in operating income along with the increase in unrealized securities gains ~~due~~in 2015 as a result of the drop in interest rates. Other comprehensive income totaled $2.5 million and $8.4 million in these respective periods. For 2014, this amount included the benefit of the hedge termination which was recorded as a charge to ~~improved prices resulting from interest rate changes.~~net income and resulted in a credit to the net unrealized fair value of derivative hedges.

Liquidity and Cash Flows. During the first ~~nine months~~quarter of ~~2014, acquired deposits and brokered~~2015, increased deposits were the primary source of funds and net loan growth ~~in loans and investment securities were~~was the primary ~~use of funds. Targeted deposit reductions were also a~~ use of funds. Berkshire generally plans that over the medium term, deposit growth will be the primary source of funds and loan growth will be the primary use of funds. The Bank is diversifying its deposit sources including institutional and wholesale sources as part of the expansion of its liquidity management program and to provide additional options for managing its funds costs and asset/liability objectives. In select cases for large institutional accounts, the Bank may offer collateralized deposits or insured

~~In 2014, the Bank has begun actively utilizing brokered~~66

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reciprocal deposits ~~as an alternative funding source~~ to ~~FHLBB borrowings. These are primarily time deposits solicited through established brokerage services. The Bank monitors the total amount of these deposits as a component~~supplement its deposit insurance protection in place of its ~~funding strategies. One element of~~previous participation in the brokered deposits includes balances raised through the Certificate of Deposit Account Registry Service (CDARS). This registry allows the Bank’s customers to utilize a bank network to obtain FDIC insurance on large balances deposited through an account at the Bank.Depositors Insurance Program.

The Bank is also expanding its use of short term institutional borrowings and FHLBB borrowings will continue to be a significant source of liquidity for daily operations and borrowings targeted for specific asset/liability purposes. The Company also uses interest rate swaps in managing its funds sources and uses. As of ~~September 30, 2014,~~March 31, 2015, the ~~Company~~Bank had approximately ~~$234~~$587 million in borrowing availability with the Federal Home Loan Bank. This was ~~decreased~~increased from ~~$416~~$246 million at the start of the year ~~as the Bank chose~~due to ~~reduce the amount of the securities portfolio specifically~~additional collateral that was pledged to ~~support FHLBB borrowings.~~the FHLBB.

Berkshire Hills Bancorp had a cash balance totaling $31 million as of ~~September 30, 2014,~~March 31, 2015 which was on deposit with Berkshire Bank. The primary long run routine sources of funds for the Parent are expected to be dividends from Berkshire Bank and Berkshire Insurance Group, as well as cash from the exercise of stock options. The Bank paid a $6 million dividend to the Parent in the most recent ~~quarter; there were no dividends paid from subsidiaries in the half of 2014.~~quarter. The Parent also has a $10 million revolving line of credit provided by a correspondent bank. The primary long run uses of funds by the Parent include the payment of cash dividends on common stock and debt service.

Capital Resources. Please see the “Stockholders’ Equity” section of the Comparison of Financial Condition for a discussion of stockholders’ equity together with the “Stockholders’ Equity” note to the consolidated financial statements. At ~~September 30, 2014, Berkshire~~March 31, 2015, the Bank and the Company 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 ~~2013~~2014 Form 10-K.

As previously noted, the Company changed its holding company status from a savings and loan holding company to a bank holding company as of July 11, 2014. With this change, the Company has become subject to bank holding company regulatory capital requirements. For the third quarter regulatory reports, the Company is beginning to report capital ratios in accordance with bank holding company reporting requirements. The Company conforms to requirements for the Well Capitalized designation for a bank holding company.

Berkshire views its earnings and related internal capital generation as a primary source of capital to support dividends and growth of the franchise. Additionally, the Company generally uses the issuance of common stock as the primary source of consideration for bank acquisitions, and such acquisitions may result in net increases or decreases in its capital ratios. Berkshire’s long term objective is to generate ~~an attractive~~a double digit annual return on equity, and the Company evaluates lending, investment, and acquisition decisions with this objective as a benchmark. The ~~Capital~~Capital/Risk Management Committee of Berkshire’s Board of Directors is responsible for assisting the Board in planning for future capital needs and for ensuring compliance with regulations pertaining to capital structure and levels. The Company believes that the market for its stock is an additional capital resource over the long run. Additionally, the Company continues to monitor market conditions for other forms of regulatory capital such as preferred stock or subordinated debt, which are additional potential future capital resources to the Company and/or the Bank.

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~~As noted in the consolidated financial statement, the~~The Company ~~will issue stock~~issued approximately 4.2 million net shares as ~~the~~merger consideration for ~~its planned~~the acquisition of Hampden Bancorp on April 17, 2015 in accordance with the terms of the ~~pending~~ merger agreement. The Company expects that most of its measures of capital will improve as a result of this acquisition.

Off-Balance Sheet Arrangements and Contractual Obligations.In the normal course of operations, Berkshire 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. Further information about the Company’s off-balance sheet arrangements is contained in the Company’s ~~2013~~2014 Form 10-K and information relating to payments due under contractual obligations is presented in the ~~2013 Form~~2014 form 10-K. Changes in the fair value of derivative financial instruments and hedging activities are included on the balance sheet and information related to these matters is reported in the related footnote to the consolidated financial statements, and was included in management’s discussion of changes in financial condition. Aside from the completion of the ~~branch~~Hampden Bancorp acquisition ~~in January,~~on April 17, 2015, there ~~were~~have been no significant changes in off-balance sheet arrangements and contractual obligations ~~during~~since year-end 2014. Berkshire expects to modify certain Hampden off-balance sheet arrangements and contractual obligations as a result of the first nine months of 2014. In November 2014, Berkshire entered into a definitive merger agreement with Hampden Bancorp, Inc. The impact of this acquisition is discussed further in the Company’s SEC filings related to this transaction.merger.

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 significant changes in the fair value measurement methodologies at ~~September 30, 2014~~March 31, 2015 compared to December 31, ~~2013.~~2014. The Company compares the

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carrying value to fair value for major categories of financial assets and liabilities. The biggest difference relates to loans, ~~and normally varies inversely to the direction of longer term interest rates during the subject period. During the first nine months of 2014, the~~which had an estimated fair ~~market~~ value premium ~~related to loans increased to $43~~of $44 million ~~(1.0%~~(0.9% of loans) ~~from $7 million (0.2%)~~ at the start of the year due to the impact of lower medium term interest rates as well as continuing improvements in the quality of the portfolio, which offset the impact of loan yield compression. This increase contributed to an increase in the net economic value of equity related to financial assets and liabilities based solely on the measures used for the purpose of this analysis.quarter-end.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There ~~have been~~were no material changes to the way that the Company measures market risk ~~during~~in the first ~~nine months~~quarter of ~~2014.~~2015. 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, ~~2013. Berkshire has a targeted position~~2014. Berkshire’s objective is to maintain an asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes. The Company measures this sensitivity primarily by evaluating the impact of ramped interest rate changes on net interest income in the 12 month and 24 month time ~~horizons, compared to modeled net interest income if rates remain unchanged.~~horizons. The ~~primary~~main focus is on a two year scenario where interest rates ramp up by 200 basis points in the first year. The Bank also evaluates its equity at risk from interest rate changes through discounted cash flow analysis. This measure assesses the present value changes to equity based on long term impacts of rate changes beyond the time horizons evaluated for net interest income at risk.

InAs of March 31, 2015, there were no significant changes in the ~~first~~Company’s methodologies for measuring the sensitivity of net interest income to changes in market interest rates. The Company’s sensitivity in a ramped 200 basis point change continues to be close to neutral until around mid-year 2016. The Company’s position tends to be more asset sensitive if the ramp is shorter and steeper than the modeled scenario as prime and LIBOR indexed loans are expected to react quickly to rate changes while modeled deposit rate changes are expected to react less quickly. After the Company’s interest rate swaps become effective by the third quarter of 2016, the Company is expected to be significantly more asset sensitive. Including preliminary estimates for Hampden, the Company believes that net interest income would increase approximately 5% in the second year of a 200 basis point upward ramp in interest rates after the swaps are effective. The benefit of this sensitivity is expected to more than offset the increased interest cost associated with the fixed payment interest rate ~~ramp, modeled~~swaps when they become effective. If interest rates remain unchanged or if the yield curve flattens due to higher short term rates, the Company’s net interest income ~~sensitivity is slightly positive at 0.6%. In~~could be negatively impacted in the ~~second year~~initial effective period of ~~this scenario, sensitivity is neutral to an unchanged rate environment. In~~ the ~~third year, this sensitivity is modeled as a positive 7%, improving~~swaps due to ~~continued upward repricing~~the contracted fixed payments, together with the ongoing effects of ~~assets. The third year benefit compared~~asset yield compression which have pressured industry margins in recent years. Through its pricing disciplines and mix of business, Berkshire’s goal is to manage its balance sheet to support the ~~current level~~net interest margin in the event that interest rates do not rise as anticipated by management during the effective period of the swaps.

In addition to modeling market risk in relation to net interest income, ~~would be approximately half of~~ the ~~modeled amount due to the higher forward interest cost of the swaps. The swaps provide additional benefit if interest rates increase by more than 200 basis points.~~

~~At the end of the third quarter, the forward~~Company also models net income at risk in various interest rate ~~curve anticipated that future short term~~scenarios. Various sources of fee income, including interest ~~rates would increase~~rate swap income and ~~that~~mortgage banking revenue, are sensitive to interest rates. Other components of revenue and expense are also considered and net income estimates include the ~~yield curve would flatten. The Company models various scenarios~~impact of ~~yield curve twists. In~~income taxes on modeled changes. Management considers the ~~event of a 100 basis increase~~risks to net income in ~~the short end of the yield curve, interest sensitivity compared to an unchanged rate environment is approximately 1% negative in each of the first two years~~evaluating its overall asset liability management and ~~then moves to approximately 1% positive in the third year.~~strategies.

The Company also estimates the sensitivity of the economic value of its equity to interest rate shocks. The Company seeks to avoid having excess long term earnings at risk when interest rates rise in the future, as anticipated. At March 31, 2015, the Company estimated that the economic value of equity, including estimates related to Hampden, would decrease by approximately 7%8% in the event of a 200 basis point upward interest rate ~~shock.~~shock, which was within the Company’s policy limits. This ~~reflects~~reflected the impact of fixed rate assets on medium and long term modeled net interest income if interest rates increase. This estimate is subject to numerous assumptions and uncertainties and is not intended as a projection of future operating results.

The Company’s standard interest rate risk models assume a parallel shift in the yield curve and are based on the composition of the balance sheet as of the estimation date. The models are based on a static balance sheet and rely on assumptions on how customer behaviors will impact market pricing spreads and the durations of assets and liabilities. Due to the unusual monetary policy and interest rate conditions that prevail, these assumptions involve significant subjective assumptions. Overall, the Company assumes that deposit costs would adjust by 40% of the modeled interest rate changes over the course of the modeling period. This ~~is the projected change in total deposit interest expense necessary to retain existing deposits in the modeled scenario. Management believes that its actual deposit cost~~ sensitivity ~~might be~~was approximately 2% lower than the modeled ~~assumption, based on~~sensitivity at the ~~stable characteristics~~end of 2014 due to the increase in modeled asset prepayment speeds resulting from the recent dip in interest rates.

In a prolonged low rate environment, Berkshire has a number of business strategies to support its net interest income and margin objectives. These include changes in volumes and mix of interest bearing assets and liabilities, some of which are discussed above. The Company also evaluates its ~~less dense markets~~pricing strategies on an ongoing basis, and considers its market position in those markets. Also, the Company would expect to adjust its balance sheet composition to adjust to changing interest rate conditions as they emerge. Please see the additional discussion in Item 7A of the Report 10-K filed for the fiscal year ended December 31, 2013 for further discussion of the Company’s asset liability managementinvestment, borrowings, and derivatives strategies in ~~various interest rate environments.~~managing its income and risk profile. Due to the limitations and uncertainties relating to model assumptions, the modeled computations should not be relied on

In addition to modeling market risk in relation to net interest income, the Company also evaluates net income at risk in various interest rate scenarios. Various sources of fee income, including interest rate swap income and mortgage banking revenue, are sensitive to interest rates. Other components of revenue and expense are also considered and net income estimates include the impact of income taxes on modeled changes. Management considers the risks to net income in evaluating its overall asset liability management and strategies.

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as projections of income. Further, the computations do not reflect any actions that management may undertake in response to changes in interest rates.

ITEM 4. CONTROLS AND PROCEDURES

a) Disclosure controls and procedures.

The principal executive officers, including the principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures were effective.

b) Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

As of ~~September 30, 2014,~~March 31, 2015, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations. Periodically, there have been various claims and lawsuits involving the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business. However, neither the Company nor the Bank is a party to any pending legal proceedings that it believes, in the aggregate, would have a material adverse effect on the financial condition or operations of the Company.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2013,~~2014, which could materially affect our business, financial condition or future ~~results, as well as the Risk Factors discussed below.~~results. The risks described in these forms are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Berkshire may be unable to successfully integrate Hampden’s operations and retain Hampden’s employees.~~

~~The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations~~ As a result of the two companies include: integrating personnel with diverse business backgrounds; combining different corporate cultures; and retaining key employees. The process of integrating operations could cause an interruption of, or loss of momentum in, the activitiesclosing of the ~~business and~~Hampden Bancorp acquisition on April 17, 2015, the loss of key personnel. The integration of the two companies will require the experience and expertise of certain key employees of Hampden who are expected to be retained by Berkshire. Berkshire may not be successful in retaining these employees for the time period necessary to successfully integrate Hampden’s operations with those of Berkshire. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operation of Berkshire following the merger.

~~Failure to complete the merger could negatively impact the stock prices and future businesses and financial results of Berkshire and Hampden.~~

~~If the merger is not completed, the ongoing businesses of Berkshire and Hampden may be adversely affected and Berkshire and Hampden will be subject to several~~ risks ~~including the following:~~

·~~Berkshire and Hampden will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor and printing fees;~~

·under the merger agreement, Hampden is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies; and

·matters relating to the merger may require substantial commitments of time and resources by Berkshire and Hampden management, which could otherwise have been devoted to other opportunities that may have been beneficial to Berkshire and Hampden as independent companies, as the case may be.

In addition, if the merger is not completed, Berkshire and/or Hampden may experience negative reactions from the financial markets and from their respective customers and employees. Berkshire and/or Hampden also could be subject to litigation related to ~~any~~the failure to complete that acquisition are no longer relevant. There have been no other material changes in the ~~merger or to enforcement proceedings commenced against Berkshire or Hampden to perform their respective obligations under~~Company’s Risk Factors during the merger agreement. If the merger is not completed, Berkshire and Hampden cannot assure their shareholders that the risks described above will not materialize and will not materially affect the business, financial results and stock pricesfirst quarter of ~~Berkshire and/or Hampden.~~2015.

~~The availability of brokered deposits as a funding source to the Bank is subject to market conditions and the Bank’s financial condition.~~

Beginning in 2014, the Bank has begun actively utilizing brokered deposits as a funding source. The Bank is allowed to solicit such deposits without regulatory preapproval as long as it maintains a “Well Capitalized” status. These deposits are generally time deposits with maturities up to three years. If the Bank became unable to utilize this funding source, it would have to find other funding sources as these deposits mature or are withdrawn. The availability of brokered deposits can be affected by market conditions and the Bank’s financial condition. The Bank monitors its reliance on this funding source in order to manage these amounts within appropriate concentration limits. In the event that brokered deposits are unavailable, the Bank may need to replace brokered deposits that have matured with higher cost funding sources, which would impact the Bank’s net income.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) No Company unregistered securities were sold during the quarter ended ~~September 30, 2014.~~March 31, 2015.

(b) Not applicable.

(c) The following table provides certain information with regard to shares repurchased by the Company in the ~~third~~first quarter of ~~2014.~~

~~Table of Contents~~2015

				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
~~July~~January 1-31, ~~2014~~2015	—	$	—	—	18,113
~~August 1-31, 2014~~February 1-28, 2015	—	—		—	18,113
~~September 1-30, 2014~~March 1-31, 2015	—	—		—	18,113
Total	—	$	—	—	18,113

On March 26, 2013, the Company announced that its Board of Directors authorized a new stock repurchase program, pursuant to which the Company may repurchase up to 500,000 shares of the Company’s common stock, which represents approximately 2.0% of the Company’s issued and outstanding shares. The timing of the purchases will depend on certain factors, including but not limited to, market conditions and prices, available funds, and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will be recorded as treasury shares. The program will continue until it is completed or terminated by the Board of Directors. The Company has no intentions to terminate this program or to cease any future potential purchases.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

2.1		Agreement and Plan of Merger, dated as of November 3, 2014, by and between Berkshire Hills Bancorp, Inc. and Hampden Bancorp, Inc. (1)
3.1		Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (2)
3.2		Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc.(3)
4.1		Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (2)
4.2		Note Subscription Agreement by and among Berkshire Hills Bancorp, Inc. and certain subscribers dated September 20, 2012 (4)
10.1		Amended and Restated Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Michael P. Daly (5)
10.2		Amended and Restated Supplemental Executive Retirement Agreement between Berkshire Bank and Michael P. Daly (6)
10.3		Three Year Executive Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and George F. Bacigalupo (7)
10.4		Three-Year Executive Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Josephine Iannelli (7)
10.5		Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Richard M. Marotta (8)
10.6		Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Sean A. Gray (9)
10.7		Form of Split Dollar Agreement entered into with Michael P. Daly, Sean A. Gray, and Richard M.

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Marotta (10)		~~Marotta (10)~~
10.8		Berkshire Hills Bancorp, Inc. 2011 Equity Incentive Plan (11)
10.9		Berkshire Hills Bancorp, Inc. 2013 Equity Incentive Plan (12)
10.10		Legacy Bancorp, Inc. Amended and Restated 2006 Equity Incentive Plan (13)
10.11		Berkshire Bank ~~2013~~2014 Executive Short Term Incentive Plan ~~(7)~~(14)
10.12		Form of Amended and Restated Director Retirement Agreement between Berkshire Bank (as successor to Hampden Bank) and Richard Suski
11.0		Statement re: Computation of Per Share Earnings is incorporated herein by reference to Part II, Item 8, “Financial Statements and Supplementary Data”
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v)

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the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail

(1)Incorporated by reference from the Exhibits to the Form 8-K filed on November 4, 2014. (2)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. (3)Incorporated herein by reference from the Exhibits to the Form 8-K as filed on April 28, 2015. (4)Incorporated by reference from the Exhibits to the Form 8-K as filed on September 26, 2012. (5)Incorporated herein by reference from the Exhibits to the Form 8-K as filed on January 6, 2009. (6)Incorporated herein by reference from the Exhibits to Form 10-K as filed on March 16, 2009. (7)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 17, 2014. (8)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2010. (9)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2011. (10)Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 19, 2011. (11)Incorporated herein by reference from the Appendix to the Proxy Statement as filed on March 24, 2011. (12)Incorporated herein by reference from the Appendix to the Proxy Statement as filed on April 2, 2013. (13)Incorporated herein by reference from the Exhibits to the Form 8-K filed by Legacy Bancorp, Inc. on December 22, 2010. (14)Incorporated herein by reference from Exhibits to the Form 10-K as filed on March 16, 2015.		~~Incorporated by reference from the Exhibits to the Form 8-K filed on November 4, 2014.~~
~~(2)~~		~~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.~~
~~(3)~~		~~Incorporated herein by reference from the Exhibits to the Form 8-K as filed on December 18, 2012.~~
~~(4)~~		~~Incorporated by reference from the Exhibits to the Form 8-K as filed on September 26, 2012.~~
~~(5)~~		~~Incorporated herein by reference from the Exhibits to the Form 8-K as filed on January 6, 2009.~~
~~(6)~~		~~Incorporated herein by reference from the Exhibits to Form 10-K as filed on March 16, 2009.~~
~~(7)~~		~~Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 17, 2014.~~
~~(8)~~		~~Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2010.~~
~~(9)~~		~~Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2011.~~
~~(10)~~		~~Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 19, 2011.~~
~~(11)~~		~~Incorporated herein by reference from the Appendix to the Proxy Statement as filed on March 24, 2011.~~
~~(12)~~		~~Incorporated herein by reference from the Appendix to the Proxy Statement as filed on April 2, 2013.~~
~~(13)~~		~~Incorporated herein by reference from the Exhibits to the Form 8-K filed by Legacy Bancorp, Inc. on December 22, 2010.~~

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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: ~~November 10, 2014~~May 11, 2015	By:	/s/ Michael P. Daly
	Michael P. Daly
	President and Chief Executive Officer


Dated: ~~November 10, 2014~~May 11, 2015	By:	/s/ Josephine Iannelli
	Josephine Iannelli
	Executive Vice President, Chief Financial Officer

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				Fair Value			As Recorded at
(in thousands)	As Acquired			Adjustments			Acquisition
Consideration paid:
Cash consideration paid to Bank of Amercia							$	17,105
Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value:
Cash and short-term investments	$	440,521		$	—		$	440,521
Loans	4,541			(533		)(a)	4,008
Premises and equipment	4,381			(710		)(b)	3,671
Core deposit intangibles	—			2,550		(c)	2,550
Other intangibles	—			(79		)(d)	(79		)
Deposits	(440,507		)	(15		)(e)	(440,522		)
Other liabilities	—			(944		)(f)	(944		)
Total identifiable net assets	$	8,936		$	269		$	9,205

Goodwill							$	7,900

	ASC 310-30 Loans
Contractually required principal and interest at acquisition	$	201
Contractual cash flows not expected to be collected (nonaccretable discount)	(100		)
Expected cash flows at acquisition	101
Interest component of expected cash flows (accretable premium)	20
Fair value of acquired loans	$	121

	Pro Forma (unaudited)
	Nine months ended September 30,
	2014		2013

Net interest income	$	133,170	$	133,991
Non-interest income	33,779		46,283
Net income	24,971		30,561

Pro forma earnings per share:
Basic	$	1.01	$	1.23
Diluted	$	1.01	$	1.22

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2014
March 31, 2015
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	129,981	$	5,781	$	(238	)	$	135,524	$	149,454	$	6,391	$	(395	)	$	155,450
Government-guaranteed residential mortgage-backed securities	74,127		490		(335		)	74,282		64,456		696		(113		)	65,039
Government-sponsored residential mortgage-backed securities	780,475		3,401		(6,305		)	777,571		750,730		13,157		(1,466		)	762,421
Corporate bonds	2,556		—		—			2,556		55,560		411		(614		)	55,357
Trust preferred securities	15,620		874		(1,096		)	15,398		12,773		736		(82		)	13,427
Other bonds and obligations	3,232		—		(78		)	3,154		3,203		—		(7		)	3,196
Total debt securities	1,005,991		10,546		(8,052		)	1,008,485		1,036,176		21,391		(2,677		)	1,054,890
Marketable equity securities	48,993		3,684		(2,197		)	50,480		38,150		7,536		(920		)	44,766
Total securities available for sale	1,054,984		14,230		(10,249		)	1,058,965		1,074,326		28,927		(3,597		)	1,099,656

Securities held to maturity
Municipal bonds and obligations	4,004		—		—			4,004		4,847		—		—			4,847
Government-sponsored residential mortgage-backed securities	71		3		—			74		70		5		—			75
Tax advantaged economic development bonds	38,189		1,385		(213		)	39,361		37,570		1,921		—			39,491
Other bonds and obligations	332		—		—			332		331		—		—			331
Total securities held to maturity	42,596		1,388		(213		)	43,771		42,818		1,926		—			44,744

Total	$	1,097,580	$	15,618	$	(10,462	)	$	1,102,736	$	1,117,144	$	30,853	$	(3,597	)	$	1,144,400

December 31, 2013
December 31, 2014
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	77,852	$	1,789	$	(1,970	)	$	77,671	$	127,014	$	6,859	$	(174	)	$	133,699
Government-guaranteed residential mortgage-backed securities	78,885		544		(658		)	78,771		68,972		702		(206		)	69,468
Government-sponsored residential mortgage-backed securities	531,441		2,000		(10,783		)	522,658		755,893		7,421		(3,130		)	760,184
Corporate bonds	40,945		157		(1,822		)	39,280		55,134		120		(1,103		)	54,151
Trust preferred securities	16,927		1,249		(1,565		)	16,611		16,607		820		(1,212		)	16,215
Other bonds and obligations	3,250		—		(166		)	3,084		3,211		—		(52		)	3,159
Total debt securities	749,300		5,739		(16,964		)	738,075		1,026,831		15,922		(5,877		)	1,036,876
Marketable equity securities	20,042		2,266		(335		)	21,973		48,993		7,322		(1,373		)	54,942
Total securities available for sale	769,342		8,005		(17,299		)	760,048		1,075,824		23,244		(7,250		)	1,091,818

Securities held to maturity
Municipal bonds and obligations	4,244		—		—			4,244		4,997		—		—			4,997
Government-sponsored residential mortgage-backed securities	73		2		—			75		70		4		—			74
Tax advantaged economic development bonds	40,260		1,255		(414		)	41,101		37,948		1,680		(34		)	39,594
Other bonds and obligations	344		—		—			344		332		—		—			332
Total securities held to maturity	44,921		1,257		(414		)	45,764		43,347		1,684		(34		)	44,997

Total	$	814,263	$	9,262	$	(17,713	)	$	805,812	$	1,119,171	$	24,928	$	(7,284	)	$	1,136,815

	Available for sale				Held to maturity				Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value

Within 1 year	$	2,556	$	2,556	$	1,356	$	1,356	$	31,062	$	30,557	$	1,214	$	1,214
Over 1 year to 5 years	1,257		1,268		16,980		17,860		1,256		1,264		16,802		17,774
Over 5 years to 10 years	15,586		15,879		11,446		11,410		17,319		17,698		12,232		12,532
Over 10 years	131,990		136,929		12,743		13,071		171,353		177,911		12,500		13,149
Total bonds and obligations	151,389		156,632		42,525		43,697		220,990		227,430		42,748		44,669

Marketable equity securities	48,993		50,480		—		—		38,150		44,766		—		—
Residential mortgage-backed securities	854,602		851,853		71		74		815,186		827,460		70		75

Total	$	1,054,984	$	1,058,965	$	42,596	$	43,771	$	1,074,326	$	1,099,656	$	42,818	$	44,744

	Less Than Twelve Months				Over Twelve Months				Total				Less Than Twelve Months				Over Twelve Months				Total
	Gross				Gross				Gross				Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value
September 30, 2014
March 31, 2015

Securities available for sale
Debt securities:
Municipal bonds and obligations	$	6	$	995	$	232	$	9,971	$	238	$	10,966	$	62	$	19,756	$	333	$	11,796	$	395	$	31,552
Government-guaranteed residential mortgage-backed securities	163		29,109		172		7,520		335		36,629		11		5,638		102		6,701		113		12,339
Government-sponsored residential mortgage-backed securities	1,373		222,117		4,932		158,167		6,305		380,284		—		—		1,466		142,786		1,466		142,786
Corporate bonds													614		33,680		—		—		614		33,680
Trust preferred securities	—		—		1,096		2,458		1,096		2,458		82		2,192		—		—		82		2,192
Other bonds and obligations	—		—		78		2,983		78		2,983		—		—		7		2,057		7		2,057
Total debt securities	1,542		252,221		6,510		181,099		8,052		433,320		769		61,266		1,908		163,340		2,677		224,606

Marketable equity securities	1,694		20,165		503		4,587		2,197		24,752		636		7,364		284		4,576		920		11,940
Total securities available for sale	3,236		272,386		7,013		185,686		10,249		458,072		1,405		68,630		2,192		167,916		3,597		236,546

Securities held to maturity
Tax advantaged economic development bonds	—		—		213		7,856		213		7,856		—		—		—		—		—		—
Total securities held to maturity	—		—		213		7,856		213		7,856		—		—		—		—		—		—

Total	$	3,236	$	272,386	$	7,226	$	193,542	$	10,462	$	465,928	$	1,405	$	68,630	$	2,192	$	167,916	$	3,597	$	236,546

December 31, 2013
December 31, 2014

Securities available for sale
Debt securities:
Municipal bonds and obligations	$	1,657	$	17,776	$	313	$	1,854	$	1,970	$	19,630	$	8	$	1,001	$	166	$	7,206	$	174	$	8,207
Government guaranteed residential mortgage-backed securities	658		35,631		—		—		658		35,631		46		7,122		160		16,727		206		23,849
Government-sponsored residential mortgage-backed securities	10,783		423,203		—		—		10,783		423,203		236		30,672		2,894		167,473		3,130		198,145
Corporate bonds	1,822		29,124		—		—		1,822		29,124		1,103		39,571		—		—		1,103		39,571
Trust preferred securities	—		—		1,565		2,039		1,565		2,039		65		935		1,147		2,408		1,212		3,343
Other bonds and obligations	166		3,082		—		—		166		3,082		—				52		3,035		52		3,035
Total debt securities	15,086		508,816		1,878		3,893		16,964		512,709		1,458		79,301		4,419		196,849		5,877		276,150

Marketable equity securities	117		1,653		218		1,782		335		3,435		1,039		9,902		334		4,755		1,373		14,657
Total securities available for sale	15,203		510,469		2,096		5,675		17,299		516,144		2,497		89,203		4,753		201,604		7,250		290,807

Securities held to maturity
Tax advantaged economic development bonds	57		9,429		357		7,901		414		17,330		—		—		34		7,972		34		7,972
Total securities held to maturity	57		9,429		357		7,901		414		17,330		—		—		34		7,972		34		7,972

Total	$	15,260	$	519,898	$	2,453	$	13,576	$	17,713	$	533,474	$	2,497	$	89,203	$	4,787	$	209,576	$	7,284	$	298,779

(in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
September 30, 2014
Residential mortgages:
1-4 family	$	2,290	$	347	$	4,720	$	7,357	$	1,128,994	$	1,136,351	$	1,524
Construction	—		—		—		—		23,512		23,512		—
Total	2,290		347		4,720		7,357		1,152,506		1,159,863		1,524
Commercial real estate:
Construction	—		—		621		621		151,439		152,060		—
Single and multi-family	201		160		668		1,029		121,210		122,239		121
Other commercial real estate	2,610		340		10,084		13,034		1,019,578		1,032,612		867
Total	2,811		500		11,373		14,684		1,292,227		1,306,911		988
Commercial and industrial loans:
Asset based lending	—		661		—		661		340,923		341,584		—
Other commercial and industrial loans	390		180		1,190		1,760		336,694		338,454		6
Total	390		841		1,190		2,421		677,617		680,038		6
Consumer loans:
Home equity	431		81		1,821		2,333		246,167		248,500		424
Auto and other	707		75		364		1,146		337,290		338,436		27
Total	1,138		156		2,185		3,479		583,457		586,936		451
Total	$	6,629	$	1,844	$	19,468	$	27,941	$	3,705,807	$	3,733,748	$	2,969

	At September 30, 2014						At March 31, 2015
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	3,453	$	3,453	$	—	$	3,028	$	3,028	$	—
Commercial real estate - single and multifamily							180		180		—
Other commercial real estate loans	15,047		15,047		—		14,380		14,380		—
Commercial real esate - construction	621		621		—		2,632		2,632		—
Other commercial and industrial loans	552		552		—		262		262		—
Consumer - home equity	630		630		—		334		334		—
Consumer - other	119		119		—		114		114		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	325	$	355	$	30
Other commercial real estate loans	3,941		6,350		2,409		$	4,064	$	5,150	$	1,086
Other commercial and industrial loans	249		561		312

Total
Residential mortgages	$	3,778	$	3,808	$	30	$	3,028	$	3,028	$	—
Commercial real estate	19,609		22,018		2,409		21,256		22,342		1,086
Commercial and industrial loans	801		1,113		312		262		262		—
Consumer	749		749		—		448		448		—
Total impaired loans	$	24,937	$	27,688	$	2,751	$	24,994	$	26,080	$	1,086

	At December 31, 2013						At December 31, 2014
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	3,406	$	3,406	$	—	$	2,528	$	2,528	$	—
Commercial real estate - construction	3,176		3,176		—		16,990		16,990		—
Commercial real estate - single and multifamily	—		—		—		—		—		—
Other commercial real estate loans	18,909		18,909		—		102		102		—
Other commercial and industrial loans	811		811		—		743		743		—
Consumer - home equity	270		270		—		87		87		—
Consumer - other							—		—		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	1,926	$	2,831	$	905	$	555	$	710	$	155
Commercial real estate - construction	—		—		—		3,511		4,431		920
Commercial real estate - single and multifamily	—		—		—		490		492		2
Other commercial real estate loans	125		344		219		—		—		—
Other commercial and industrial loans	514		569		55		—		—		—
Consumer - home equity	142		245		103		194		248		54
Consumer - other							105		117		12

Total
Residential mortgages	$	5,332	$	6,237	$	905	$	3,083	$	3,238	$	155
Commercial real estate	22,210		22,429		219		21,093		22,015		922
Commercial and industrial loans	1,325		1,380		55		743		743		—
Consumer	412		515		103		386		452		66
Total impaired loans	$	29,279	$	30,561	$	1,282	$	25,305	$	26,448	$	1,143

	Modifications by Class					Modifications by Class
	Three months ending September 30, 2014					Three months ending March 31, 2015
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential - 1-4 Family	2	$	231	$	232
Commercial - Single and multifamily	—	—		—
Commercial - Construction						1	$	123	$	123
Commercial - Other	1	1,596		1,596		1	2,000		2,000
	3	$	1,827	$	1,828

	Modifications by Class
	Nine months ending September 30, 2014
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential - 1-4 Family	5	$	600	$	598
Commercial - Single and multifamily	1	623		623
Commercial - Other	7	6,400		6,400
	13	$	7,623	$	7,621

	Modifications by Class
	Nine months ending September 30, 2013
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential - 1-4 Family	5	$	941	$	941
Residential - Construction	1	320		320
Commercial - Single and multifamily	2	2,366		2,406
Commercial - Other	10	3,882		3,450
Commercial business - Other	4	100		100
	22	$	7,609	$	7,217
Commercial and industrial - Other						1	33		33
Total						3	$	2,156	$	2,156

	Modifications by Class
	Three months ending March 31, 2014
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential - 1-4 Family	1	$	122	$	119

	Modifications that Subsequently Defaulted			Modifications that Subsequently Defaulted
	Three months ending September 30, 2014			Three months ending March 31, 2015
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Troubled Debt Restructurings
Commercial and industrial - Other	—	$	—
Commercial - Other				1	$	668

	Modifications that Subsequently Defaulted
	Nine months ending September 30, 2014
	Number of Contracts	Recorded Investment
Troubled Debt Restructurings
Commercial and industrial - Other	2	$	158

	Modifications that Subsequently Defaulted
	Three months ending September 30, 2013
	Number of Contracts	Recorded Investment
Troubled Debt Restructurings
Commercial - Single and multifamily	1	$	37
Commercial - Other	5	929
Commercial and industrial - Other	1	—
	7	$	966

	Modifications that Subsequently Defaulted
	Nine months ending September 30, 2013
	Number of Contracts	Recorded Investment
Troubled Debt Restructurings
Commercial - Single and multifamily	5	$	261
Commercial - Other	5	929
Commercial and industrial - Other	1	—
	11	$	1,190

	Three months ending
	September 30,
(In thousands)	2014			2013
Balance at beginning of the period	$	15,113		$	10,160
Principal Payments	(339		)	(55		)
TDR Status Change (1)	(245		)	—
Other Reductions (2)	—			156
Newly Identified TDRs	1,828			—
Balance at end of the period	$	16,357		$	10,261

	Nine months ending
	September 30,
(In thousands)	2014			2013
Balance at beginning of the period	$	10,822		$	4,626
Principal Payments	(1,299		)	(92		)
TDR Status Change (1)	(886		)	(1,164		)
Other Reductions (2)	99			(326		)
Newly Identified TDRs	7,621			7,217
Balance at end of the period	$	16,357		$	10,261

					Regulatory Minimum
	September 30, 2014		December 31, 2013		to be Well Capitalized

Company (consolidated)
Total capital to risk weighted assets	11.6	%	N/A	%	10.0	%

Tier 1 capital to risk weighted assets	9.3		N/A		6.0

Tier 1 capital to average assets	7.1		N/A		5.0

Bank
Total capital to risk weighted assets	11.0	%	11.6	%	10.0	%

Tier 1 capital to risk weighted assets	9.5		10.0		6.0

Tier 1 capital to average assets	7.3		8.0		5.0

		At or for the Quarters Ended						At or for the Nine Months Ended
		Sept. 30,			Sept. 30,			Sept. 30,			Sept. 30,
(Dollars in thousands)		2014			2013			2014			2013
Net income (GAAP)		$	11,988		$	8,104		$	22,347		$	30,606

Non-GAAP measures
Adj: Gain on sale of securities, net		(245		)	(361		)	(482		)	(1,366		)
Adj: Loss on termination of hedges		—			—			8,792			—
Adj: Acquisition, restructuring and conversion related expenses (1)		238			7,016			6,730			12,855
Adj: Out-of-period adjustment (2)		—			(2,222		)	1,381			(1,287		)
Adj: Income taxes		(612		)	(1,788		)	(6,071		)	(4,116		)

Net non-core (charges) credits		(619		)	2,645			10,350			6,086
Total core income (non-GAAP)	(A)	$	11,369		$	10,749		$	32,697		$	36,692
Total revenue		$	59,590		$	57,983		$	165,614		$	171,428
Adj: Gain on sale of securities and other non-recurring gain, net		(245		)	(361		)	(482		)	(1,366		)
Adj: Loss on termination of hedges		—			—			8,792			—
Adj: Out-of-period adjustment (2)		—			(2,222		)	1,381			(1,287		)
Total core revenue		$	59,345		$	55,400		$	175,305		$	168,775

Total non-interest expense		$	39,687		$	42,784		$	124,310		$	120,202
Less: Total non-core expense (see above)		(238		)	(7,016		)	(6,730		)	(12,855		)
Core non-interest expense		$	39,449		$	35,768		$	117,580		$	107,347

Net earnings per share, diluted (GAAP)		$	0.48		$	0.33		$	0.90		$	1.22
Non-core earnings per share, diluted		(0.02		)	0.10			0.42			0.25
Core earnings per share, diluted	(A/G)	0.46			0.43			1.32			1.47

Average diluted shares outstanding (thousands) (GAAP)		24,861			24,873			24,835			25,001
Adj: dilutive potential common shares outstanding (thousands)		—			—			—			—
Average core diluted shares outstanding (thousands)	(G)	24,861			24,873			24,835			25,001

(Dollars in millions, except per share data)
Total assets, period-end (GAAP)		6,352			5,450			6,352			5,450
Less: intangible assets, period-end		277			272			277			272
Total tangible assets, period-end		6,075			5,178			6,075			5,178

Total stockholders’ equity, period-end (GAAP)		697			673			697			673
Less: intangible assets, period-end		277			272			277			272
Total tangible stockholders’ equity, period-end		420			401			420			401