UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended:March 31, June 30, 2012
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:000-51584
BERKSHIRE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 04-3510455 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
24 North Street, Pittsfield, Massachusetts | 01201 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(413) 443-5601
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesxNo¨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).
YesxNo¨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 Smaller Reporting Company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YesLarge Accelerated Filer¨ Accelerated Filerx Non-Accelerated Filer¨ Smaller Reporting Company¨¨o Nox
The Registrant had 22,165,54122,208,105 shares of common stock, par value $0.01 per share, outstanding as of MayAugust 3, 2012.
BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q
Page | |||
4 | |||
Consolidated Statements of Income for the Three and Six Months | |||
Ended | 5 | ||
for the | 6 | ||
for the | 7 | ||
8 | |||
Notes to Consolidated Financial Statements | 9 | ||
9 | |||
9 | |||
11 | |||
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20 | |||
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37 | |||
38 | |||
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39 | |||
40 | |||
44 | |||
50 | |||
50 | |||
Condition and Results of Operations | 50 | ||
55 | |||
57 | |||
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70 |
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE HILLS BANCORP, INC.
March 31, | December 31, | |||||||
(In thousands, except share data) | 2012 | 2011 | ||||||
Assets | ||||||||
Cash and due from banks | $ | 34,117 | $ | 46,713 | ||||
Short-term investments | 11,186 | 28,646 | ||||||
Total cash and cash equivalents | 45,303 | 75,359 | ||||||
Trading security | 16,847 | 17,395 | ||||||
Securities available for sale, at fair value | 423,580 | 419,756 | ||||||
Securities held to maturity (fair values of $60,332 and $60,395) | 59,533 | 58,912 | ||||||
Federal Home Loan Bank stock and other restricted securities | 35,282 | 37,118 | ||||||
Total securities | 535,242 | 533,181 | ||||||
Loans held for sale | - | 1,455 | ||||||
Residential mortgages | 1,100,663 | 1,020,435 | ||||||
Commercial mortgages | 1,147,455 | 1,156,241 | ||||||
Commercial business loans | 429,627 | 410,292 | ||||||
Consumer loans | 361,255 | 369,602 | ||||||
Total loans | 3,039,000 | 2,956,570 | ||||||
Less: Allowance for loan losses | (32,657 | ) | (32,444 | ) | ||||
Net loans | 3,006,343 | 2,924,126 | ||||||
Premises and equipment, net | 61,661 | 60,139 | ||||||
Other real estate owned | 439 | 1,900 | ||||||
Goodwill | 202,397 | 202,391 | ||||||
Other intangible assets | 19,662 | 20,973 | ||||||
Cash surrender value of bank-owned life insurance policies | 75,652 | 75,009 | ||||||
Other assets | 82,628 | 91,309 | ||||||
Assets from discontinued operations | - | 5,362 | ||||||
Total assets | $ | 4,029,327 | $ | 3,991,204 | ||||
Liabilities | ||||||||
Demand deposits | $ | 450,497 | $ | 447,414 | ||||
NOW deposits | 294,411 | 272,204 | ||||||
Money market deposits | 1,089,742 | 1,055,306 | ||||||
Savings deposits | 365,289 | 350,517 | ||||||
Time deposits | 984,228 | 975,734 | ||||||
Total deposits | 3,184,167 | 3,101,175 | ||||||
Short-term debt | 14,360 | 10,000 | ||||||
Long-term Federal Home Loan Bank advances | 221,880 | 211,938 | ||||||
Junior subordinated debentures | 15,464 | 15,464 | ||||||
Total borrowings | 251,704 | 237,402 | ||||||
Other liabilities | 36,622 | 43,759 | ||||||
Liabilities from discontinued operations | - | 55,504 | ||||||
Total liabilities | 3,472,493 | 3,437,839 | ||||||
Stockholders’ equity | ||||||||
Common stock ($.01 par value; 50,000,000 shares authorized and 22,860,368 shares issued; 21,191,594 shares outstanding in 2012; 21,147,736 shares outstanding in 2011) | 229 | 229 | ||||||
Additional paid-in capital | 494,199 | 494,304 | ||||||
Unearned compensation | (3,585 | ) | (2,790 | ) | ||||
Retained earnings | 111,712 | 109,477 | ||||||
Accumulated other comprehensive loss | (3,892 | ) | (4,885 | ) | ||||
Treasury stock, at cost (1,668,774 shares in 2012 and 1,712,632 shares in 2011) | (41,829 | ) | (42,970 | ) | ||||
Total stockholders' equity | 556,834 | 553,365 | ||||||
Total liabilities and stockholders' equity | $ | 4,029,327 | $ | 3,991,204 |
|
| June 30, |
| December 31, |
| ||
(In thousands, except share data) |
| 2012 |
| 2011 |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 44,696 |
| $ | 46,713 |
|
Short-term investments |
| 21,790 |
| 28,646 |
| ||
Total cash and cash equivalents |
| 66,486 |
| 75,359 |
| ||
|
|
|
|
|
| ||
Trading security |
| 17,365 |
| 17,395 |
| ||
Securities available for sale, at fair value |
| 471,368 |
| 419,756 |
| ||
Securities held to maturity (fair values of $43,285 and $60,395) |
| 41,822 |
| 58,912 |
| ||
Federal Home Loan Bank stock and other restricted securities |
| 37,174 |
| 37,118 |
| ||
Total securities |
| 567,729 |
| 533,181 |
| ||
|
|
|
|
|
| ||
Loans held for sale |
| 59,280 |
| 1,455 |
| ||
|
|
|
|
|
| ||
Residential mortgages |
| 1,193,447 |
| 1,020,435 |
| ||
Commercial mortgages |
| 1,281,058 |
| 1,156,241 |
| ||
Commercial business loans |
| 519,684 |
| 410,292 |
| ||
Consumer loans |
| 371,430 |
| 369,602 |
| ||
Total loans |
| 3,365,619 |
| 2,956,570 |
| ||
Less: Allowance for loan losses |
| (32,868 | ) | (32,444 | ) | ||
Net loans |
| 3,332,751 |
| 2,924,126 |
| ||
|
|
|
|
|
| ||
Premises and equipment, net |
| 68,569 |
| 60,139 |
| ||
Other real estate owned |
| 827 |
| 1,900 |
| ||
Goodwill |
| 220,360 |
| 202,391 |
| ||
Other intangible assets |
| 19,505 |
| 20,973 |
| ||
Cash surrender value of bank-owned life insurance policies |
| 76,290 |
| 75,009 |
| ||
Other assets |
| 95,926 |
| 91,309 |
| ||
Assets from discontinued operations |
| — |
| 5,362 |
| ||
Total assets |
| $ | 4,507,723 |
| $ | 3,991,204 |
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Demand deposits |
| $ | 535,472 |
| $ | 447,414 |
|
NOW deposits |
| 298,236 |
| 272,204 |
| ||
Money market deposits |
| 1,158,562 |
| 1,055,306 |
| ||
Savings deposits |
| 371,668 |
| 350,517 |
| ||
Time deposits |
| 1,045,767 |
| 975,734 |
| ||
Total deposits |
| 3,409,705 |
| 3,101,175 |
| ||
Short-term debt |
| 239,030 |
| 10,000 |
| ||
Long-term Federal Home Loan Bank advances |
| 213,497 |
| 211,938 |
| ||
Junior subordinated debentures |
| 15,464 |
| 15,464 |
| ||
Total borrowings |
| 467,991 |
| 237,402 |
| ||
Other liabilities |
| 46,757 |
| 43,758 |
| ||
Liabilities from discontinued operations |
| — |
| 55,504 |
| ||
Total liabilities |
| 3,924,453 |
| 3,437,839 |
| ||
|
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
| ||
Common stock ($.01 par value; 50,000,000 shares authorized and 23,824,972 shares issued and 22,169,157 shares outstanding in 2012; 22,860,368 shares issued and 21,147,736 shares outstanding in 2011) |
| 238 |
| 229 |
| ||
Additional paid-in capital |
| 516,183 |
| 494,304 |
| ||
Unearned compensation |
| (3,200 | ) | (2,790 | ) | ||
Retained earnings |
| 115,871 |
| 109,477 |
| ||
Accumulated other comprehensive loss |
| (4,336 | ) | (4,885 | ) | ||
Treasury stock, at cost (1,655,815 shares in 2012 and 1,712,632 shares in 2011) |
| (41,486 | ) | (42,970 | ) | ||
Total stockholders’ equity |
| 583,270 |
| 553,365 |
| ||
Total liabilities and stockholders’ equity |
| $ | 4,507,723 |
| $ | 3,991,204 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
March 31, |
| June 30, |
| June 30, |
| ||||||||||||||||
(In thousands, except per share data) | 2012 | 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||||||
Interest and dividend income |
|
|
|
|
|
|
|
|
| ||||||||||||
Loans | $ | 35,051 | $ | 24,606 |
| $ | 38,787 |
| $ | 28,607 |
| $ | 73,838 |
| $ | 53,213 |
| ||||
Securities and other | 3,621 | 3,307 |
| 3,869 |
| 3,446 |
| 7,490 |
| 6,753 |
| ||||||||||
Total interest and dividend income | 38,672 | 27,913 |
| 42,656 |
| 32,053 |
| 81,328 |
| 59,966 |
| ||||||||||
Interest expense |
|
|
|
|
|
|
|
|
| ||||||||||||
Deposits | 5,502 | 5,715 |
| 5,482 |
| 5,768 |
| 10,984 |
| 11,483 |
| ||||||||||
Borrowings and junior subordinated debentures | 2,025 | 2,052 |
| 2,121 |
| 2,084 |
| 4,146 |
| 4,136 |
| ||||||||||
Total interest expense | 7,527 | 7,767 |
| 7,603 |
| 7,852 |
| 15,130 |
| 15,619 |
| ||||||||||
Net interest income | 31,145 | 20,146 |
| 35,053 |
| 24,201 |
| 66,198 |
| 44,347 |
| ||||||||||
Non-interest income |
|
|
|
|
|
|
|
|
| ||||||||||||
Loan related fees | 1,373 | 591 |
| 3,524 |
| 780 |
| 4,897 |
| 1,371 |
| ||||||||||
Deposit related fees | 3,500 | 2,541 |
| 3,963 |
| 3,366 |
| 7,463 |
| 5,907 |
| ||||||||||
Insurance commissions and fees | 2,746 | 3,730 |
| 2,768 |
| 2,782 |
| 5,514 |
| 6,512 |
| ||||||||||
Wealth management fees | 1,900 | 1,192 |
| 1,757 |
| 1,389 |
| 3,657 |
| 2,581 |
| ||||||||||
Total fee income | 9,519 | 8,054 |
| 12,012 |
| 8,317 |
| 21,531 |
| 16,371 |
| ||||||||||
Other | 241 | 80 |
| 269 |
| (277 | ) | 510 |
| (197 | ) | ||||||||||
Non-recurring gain | 42 | - | |||||||||||||||||||
Gain on borrowings |
| — |
| 124 |
| 42 |
| 124 |
| ||||||||||||
Gain on sale of securities, net |
| 7 |
| 6 |
| 7 |
| 6 |
| ||||||||||||
Total non-interest income | 9,802 | 8,134 |
| 12,288 |
| 8,170 |
| 22,090 |
| 16,304 |
| ||||||||||
Total net revenue | 40,947 | 28,280 |
| 47,341 |
| 32,371 |
| 88,288 |
| 60,651 |
| ||||||||||
Provision for loan losses | 2,000 | 1,600 |
| 2,250 |
| 1,500 |
| 4,250 |
| 3,100 |
| ||||||||||
Non-interest expense |
|
|
|
|
|
|
|
|
| ||||||||||||
Compensation and benefits | 13,589 | 11,151 |
| 15,638 |
| 12,027 |
| 29,227 |
| 23,178 |
| ||||||||||
Occupancy and equipment | 4,395 | 3,435 |
| 4,490 |
| 3,546 |
| 8,885 |
| 6,981 |
| ||||||||||
Technology and communications | 1,958 | 1,466 |
| 2,258 |
| 1,531 |
| 4,216 |
| 2,997 |
| ||||||||||
Marketing and professional services | 1,716 | 1,213 | |||||||||||||||||||
Supplies, postage and delivery | 562 | 454 | |||||||||||||||||||
Marketing and promotion |
| 778 |
| 341 |
| 1,129 |
| 622 |
| ||||||||||||
Professional services |
| 1,493 |
| 1,216 |
| 2,858 |
| 2,148 |
| ||||||||||||
FDIC premiums and assessments | 681 | 1,027 |
| 870 |
| 741 |
| 1,551 |
| 1,768 |
| ||||||||||
Other real estate owned | 179 | 609 | |||||||||||||||||||
Other real estate owned and foreclosures |
| (6 | ) | 700 |
| 173 |
| 1,309 |
| ||||||||||||
Amortization of intangible assets | 1,311 | 716 |
| 1,357 |
| 935 |
| 2,668 |
| 1,651 |
| ||||||||||
Nonrecurring and merger related expenses | 4,223 | 1,708 | |||||||||||||||||||
Merger, acquisition and conversion related expenses |
| 4,085 |
| 5,451 |
| 8,308 |
| 7,159 |
| ||||||||||||
Other | 1,580 | 1,410 |
| 3,221 |
| 2,135 |
| 5,363 |
| 3,999 |
| ||||||||||
Total non-interest expense | 30,194 | 23,189 |
| 34,184 |
| 28,623 |
| 64,378 |
| 51,812 |
| ||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||
Income from continuing operations before income taxes | 8,753 | 3,491 |
| 10,907 |
| 2,248 |
| 19,660 |
| 5,739 |
| ||||||||||
Income tax expense | 2,272 | 656 |
| 2,921 |
| 371 |
| 5,193 |
| 1,027 |
| ||||||||||
Net income from continuing operations | 6,481 | 2,835 |
| 7,986 |
| 1,877 |
| 14,467 |
| 4,712 |
| ||||||||||
Loss from discontinued operations before income taxes (including gain on disposal of $63) | (261 | ) | - |
| — |
| — |
| (261 | ) | — |
| |||||||||
Income tax expense | 376 | - |
| — |
| — |
| 376 |
| — |
| ||||||||||
Net loss from discontinued operations | (637 | ) |
| — |
| — |
| (637 | ) | — |
| ||||||||||
Net income | $ | 5,844 | $ | 2,835 |
| $ | 7,986 |
| $ | 1,877 |
| $ | 13,830 |
| $ | 4,712 |
| ||||
|
|
|
|
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|
|
| |||||||||||||
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||||||||||
Continuing operations | $ | 0.31 | $ | 0.20 |
| $ | 0.37 |
| $ | 0.11 |
| $ | 0.68 |
| $ | 0.31 |
| ||||
Discontinued operations | (0.03 | ) | - |
| — |
| — |
| (0.03 | ) | — |
| |||||||||
Total basic and diluted earnings per share | $ | 0.28 | $ | 0.20 |
| $ | 0.37 |
| $ | 0.11 |
| $ | 0.65 |
| $ | 0.31 |
| ||||
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Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
| ||||||||||||
Basic | 20,956 | 13,943 |
| 21,742 |
| 16,580 |
| 21,349 |
| 15,269 |
| ||||||||||
Diluted | 21,063 | 13,981 |
| 21,806 |
| 16,601 |
| 21,434 |
| 15,299 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands) | 2012 | 2011 | ||||||
Net income | $ | 5,844 | $ | 2,835 | ||||
Other comprehensive income | ||||||||
Changes in unrealized gains and losses on securities available-for-sale | 1,293 | 1,015 | ||||||
Changes in unrealized gains and losses on derivative hedges | 284 | 1,253 | ||||||
Changes in unrealized gains and losses on terminated swaps | 235 | 235 | ||||||
Income taxes related to other comprehensive income | (819 | ) | (981 | ) | ||||
Total other comprehensive income | 993 | 1,522 | ||||||
Comprehensive income attributable to Berkshire Hills Bancorp, Inc. | $ | 6,837 | $ | 4,357 |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
(In thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 7,986 |
| $ | 1,877 |
| $ | 13,830 |
| $ | 4,712 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
| ||||
Changes in unrealized gainson securities available-for-sale |
| 1,394 |
| 878 |
| 2,687 |
| 1,894 |
| ||||
Changes in unrealized (losses) gains on derivative hedges |
| (2,488 | ) | (816 | ) | (2,204 | ) | 436 |
| ||||
Changes in unrealized gains on terminated swaps |
| 235 |
| 235 |
| 471 |
| 471 |
| ||||
Changes in unrealized losses on pension |
| (257 | ) | — |
| (257 | ) | — |
| ||||
Income taxes related to other comprehensive income |
| 672 |
| (103 | ) | (148 | ) | (1,085 | ) | ||||
Total other comprehensive (loss) income |
| (444 | ) | 194 |
| 549 |
| 1,716 |
| ||||
Total comprehensive income |
| $ | 7,542 |
| $ | 2,071 |
| $ | 14,379 |
| $ | 6,428 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY
Accumulated |
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| Accumulated |
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Additional | Unearned | other comp- |
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| Additional |
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| other |
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| |||||||||||||||||||||||||||||||||||||
Common stock | paid-in | compen- | Retained | rehensive | Treasury |
| Common stock |
| paid-in |
| Unearned |
| Retained |
| comprehensive |
| Treasury |
|
|
| ||||||||||||||||||||||||||||||||||||
(In thousands) | Shares | Amount | capital | sation | earnings | loss | stock | Total |
| Shares |
| Amount |
| capital |
| compensation |
| earnings |
| loss |
| stock |
| Total |
| |||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2010 | 14,076 | $ | 158 | $ | 337,537 | $ | (1,776 | ) | $ | 103,972 | $ | (6,410 | ) | $ | (44,834 | ) | $ | 388,647 |
| 14,076 |
| $ | 158 |
| $ | 337,537 |
| $ | (1,776 | ) | $ | 103,972 |
| $ | (6,410 | ) | $ | (44,834 | ) | $ | 388,647 |
| ||||||||||||||
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Comprehensive income: |
|
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| |||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 2,835 | - | - | 2,835 |
| — |
| — |
| — |
| — |
| 4,712 |
| — |
| — |
| 4,712 |
| |||||||||||||||||||||||||||||||
Other net comprehensive income | - | - | - | - | - | 1,522 | - | 1,522 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 1,716 |
| — |
| 1,716 |
| |||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 4,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,428 |
| ||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.16 per share) | - | - | - | - | (2,251 | ) | - | - | (2,251 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of Rome Bancorp, Inc. |
| 2,661 |
| 27 |
| 55,463 |
| — |
| — |
| — |
| — |
| 55,490 |
| |||||||||||||||||||||||||||||||||||||||
Rome ESOP loan repayment |
| (44 | ) | — |
| — |
| — |
| — |
| — |
| (943 | ) | (943 | ) | |||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.32 per share) |
| — |
| — |
| — |
| — |
| (4,930 | ) | — |
| — |
| (4,930 | ) | |||||||||||||||||||||||||||||||||||||||
Forfeited shares | (7 | ) | - | 3 | 167 | - | - | (170 | ) | - |
| (21 | ) | — |
| 33 |
| 426 |
| — |
| — |
| (459 | ) | — |
| |||||||||||||||||||||||||||||
Exercise of stock options | 13 | - | - | - | (112 | ) | - | 326 | 214 |
| 13 |
| — |
| — |
| — |
| (112 | ) | — |
| 326 |
| 214 |
| ||||||||||||||||||||||||||||||
Restricted stock grants | 55 | - | (226 | ) | (1,159 | ) | - | - | 1,385 | - |
| 59 |
| — |
| (242 | ) | (1,261 | ) | — |
| — |
| 1,503 |
| — |
| |||||||||||||||||||||||||||||
Stock-based compensation | - | - | 1 | 207 | - | - | - | 208 |
| — |
| — |
| 2 |
| 471 |
| — |
| — |
| — |
| 473 |
| |||||||||||||||||||||||||||||||
Net tax expense related to stock-based compensation |
| — |
| — |
| 66 |
| — |
| — |
| — |
| — |
| 66 |
| |||||||||||||||||||||||||||||||||||||||
Other, net | (22 | ) | - | - | - | - | - | (453 | ) | (453 | ) |
| (23 | ) | — |
| — |
| — |
| — |
| — |
| (475 | ) | (475 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2011 | 14,115 | $ | 158 | $ | 337,315 | $ | (2,561 | ) | $ | 104,444 | $ | (4,888 | ) | $ | (43,746 | ) | $ | 390,722 | ||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2011 |
| 16,721 |
| $ | 185 |
| $ | 392,859 |
| $ | (2,140 | ) | $ | 103,642 |
| $ | (4,694 | ) | $ | (44,882 | ) | $ | 444,970 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 | 21,148 | $ | 229 | $ | 494,304 | $ | (2,790 | ) | $ | 109,477 | $ | (4,885 | ) | $ | (42,970 | ) | $ | 553,365 |
| 21,148 |
| $ | 229 |
| $ | 494,304 |
| $ | (2,790 | ) | $ | 109,477 |
| $ | (4,885 | ) | $ | (42,970 | ) | $ | 553,365 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 5,844 | - | - | 5,844 |
| — |
| — |
| — |
| — |
| 13,830 |
| — |
| — |
| 13,830 |
| |||||||||||||||||||||||||||||||
Other net comprehensive income | - | - | - | - | - | 993 | - | 993 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 549 |
| — |
| 549 |
| |||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 6,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14,379 |
| ||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.17 per share) | - | - | - | - | (3,603 | ) | - | - | (3,603 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of The Connecticut Bank and Trust Company |
| 965 |
| 9 |
| 21,981 |
| — |
| — |
| — |
| — |
| 21,990 |
| |||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.34 per share) |
| — |
| — |
| — |
| — |
| (7,372 | ) | — |
| — |
| (7,372 | ) | |||||||||||||||||||||||||||||||||||||||
Forfeited shares | (6 | ) | - | 11 | 119 | - | - | (130 | ) | - |
| (8 | ) | — |
| 11 |
| 169 |
| — |
| — |
| (180 | ) | — |
| |||||||||||||||||||||||||||||
Exercise of stock options | 1 | - | - | - | (6 | ) | - | 22 | 16 |
| 13 |
| — |
| — |
| — |
| (64 | ) | — |
| 335 |
| 271 |
| ||||||||||||||||||||||||||||||
Restricted stock grants | 60 | - | (134 | ) | (1,380 | ) | - | - | 1,514 | - |
| 64 |
| — |
| (148 | ) | (1,476 | ) | — |
| — |
| 1,624 |
| — |
| |||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | 466 | - | - | - | 466 |
| — |
| — |
| — |
| 897 |
| — |
| — |
| — |
| 897 |
| |||||||||||||||||||||||||||||||
Net tax benefit related to stock-based compensation | - | - | 18 | - | - | - | - | 18 |
| — |
| — |
| 35 |
| — |
| — |
| — |
| — |
| 35 |
| |||||||||||||||||||||||||||||||
Other, net | (11 | ) | - | - | - | - | - | (265 | ) | (265 | ) |
| (13 | ) | — |
| — |
| — |
| — |
| — |
| (295 | ) | (295 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2012 | 21,192 | $ | 229 | $ | 494,199 | $ | (3,585 | ) | $ | 111,712 | $ | (3,892 | ) | $ | (41,829 | ) | $ | 556,834 | ||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2012 |
| 22,169 |
| $ | 238 |
| $ | 516,183 |
| $ | (3,200 | ) | $ | 115,871 |
| $ | (4,336 | ) | $ | (41,486 | ) | $ | 583,270 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, |
| Six Months Ended June 30, |
| ||||||||||||
(In thousands) | 2012 | 2011 |
| 2012 |
| 2011 |
| ||||||||
Cash flows from operating activities: |
|
|
|
|
| ||||||||||
Net income | $ | 5,844 | $ | 2,835 |
| $ | 13,830 |
| $ | 4,712 |
| ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||||||||||
Provision for loan losses | 2,000 | 1,600 |
| 4,250 |
| 3,100 |
| ||||||||
Net amortization of securities | 488 | 340 |
| 986 |
| 595 |
| ||||||||
Change in unamortized net loan costs and premiums | (3,669 | ) | 390 |
| (461 | ) | 475 |
| |||||||
Premises depreciation and amortization expense | 1,441 | 1,062 |
| 2,921 |
| 2,159 |
| ||||||||
Write down of other real estate owned |
| — |
| 1,200 |
| ||||||||||
Stock-based compensation expense | 466 | 208 |
| 895 |
| 473 |
| ||||||||
(Accretion)/Amortization of purchase accounting entries | (1,248 | ) | (155 | ) |
| (3,541 | ) | (468 | ) | ||||||
Amortization of other intangibles | 1,311 | 716 |
| 2,668 |
| 1,651 |
| ||||||||
Excess tax loss from stock-based payment arrangements | (18 | ) | - |
| (35 | ) | — |
| |||||||
Income from cash surrender value of bank-owned life insurance policies | (643 | ) | (380 | ) |
| (1,281 | ) | (872 | ) | ||||||
(Gain) Loss on sales of securities, net | (41 | ) | - | ||||||||||||
Net decrease in loans held for sale | 1,455 | 901 | |||||||||||||
Gain on sales of securities, net |
| (48 | ) | (253 | ) | ||||||||||
Net (increase) decrease in loans held for sale |
| (9,561 | ) | 1,043 |
| ||||||||||
Loss on disposition of assets | 1,527 | - |
| 1,527 |
| — |
| ||||||||
Loss on sale of other real estate | 40 | - |
| 28 |
| 104 |
| ||||||||
Net change in other | 792 | 1,399 |
| 3,925 |
| 2,792 |
| ||||||||
Net cash provided by operating activities | 9,745 | 8,916 |
| 16,103 |
| 16,711 |
| ||||||||
|
|
|
|
| |||||||||||
Cash flows from investing activities: |
|
|
|
|
| ||||||||||
Net decrease in trading security | 120 | 116 |
| 240 |
| 130 |
| ||||||||
Proceeds from sales of securities available for sale | 3,040 | - |
| 32,440 |
| 3,525 |
| ||||||||
Proceeds from maturities, calls and prepayments of securities available for sale | 23,190 | 40,355 |
| 47,006 |
| 70,196 |
| ||||||||
Purchases of securities available for sale | (29,208 | ) | (44,772 | ) |
| (89,843 | ) | (68,360 | ) | ||||||
Proceeds from maturities, calls and prepayments of securities held to maturity | 1,436 | 2,105 |
| 25,775 |
| 6,058 |
| ||||||||
Purchases of securities held to maturity | (2,057 | ) | (2,296 | ) |
| (8,685 | ) | (4,683 | ) | ||||||
Net investment in limited partnership tax credits | - | (4,166 | ) | ||||||||||||
Net change in loans | (80,102 | ) | (5,044 | ) |
| (200,668 | ) | (55,391 | ) | ||||||
Net cash used for Divestiture | (48,890 | ) | - |
| (48,890 | ) | — |
| |||||||
Proceeds from sale of Federal Home Loan Bank stock | 1,836 | - |
| 1,861 |
| 3,571 |
| ||||||||
Proceeds from sale of other real estate | 1,671 | 382 |
| 1,872 |
| 382 |
| ||||||||
Acquisitions, net of cash paid |
| (58,150 | ) | 10,849 |
| ||||||||||
Purchase of premises and equipment, net | (4,468 | ) | (1,647 | ) |
| (11,604 | ) | (2,907 | ) | ||||||
Net cash (used) by investing activities | (133,432 | ) | (14,967 | ) |
| (308,646 | ) | (36,630 | ) | ||||||
|
|
|
|
| |||||||||||
Cash flows from financing activities: |
|
|
|
|
| ||||||||||
Net increase in deposits | 82,475 | 36,608 |
| 98,609 |
| 51,984 |
| ||||||||
Proceeds from Federal Home Loan Bank advances and other borrowings | 44,360 | 15,480 |
| 231,595 |
| 105,480 |
| ||||||||
Repayments of Federal Home Loan Bank advances and other borrowings | (30,058 | ) | (46,915 | ) |
| (39,891 | ) | (135,118 | ) | ||||||
Net proceeds from reissuance of treasury stock | 16 | 214 |
| 271 |
| 214 |
| ||||||||
Excess tax loss from stock based payment arrangements | 18 | - |
| 35 |
| 66 |
| ||||||||
Common stock cash dividends paid | (3,603 | ) | (2,251 | ) |
| (7,372 | ) | (4,930 | ) | ||||||
Net impact of preferred stock and warrant including repurchase and dividends | - | 55 | |||||||||||||
Net cash provided by financing activities | 93,208 | 3,136 |
| 283,247 |
| 17,696 |
| ||||||||
|
|
|
|
| |||||||||||
Net change in cash and cash equivalents | (30,479 | ) | (2,915 | ) |
| (9,296 | ) | (2,223 | ) | ||||||
Cash and cash equivalents at beginning of period | 75,782 | 44,140 |
| 75,782 |
| 44,140 |
| ||||||||
Cash and cash equivalents at end of period | $ | 45,303 | $ | 41,225 |
| $ | 66,486 |
| $ | 41,917 |
| ||||
|
|
|
|
| |||||||||||
Supplemental cash flow information: |
|
|
|
|
| ||||||||||
Interest paid on deposits | 5,539 | 5,753 |
| 10,984 |
| 11,536 |
| ||||||||
Interest paid on borrowed funds | 2,025 | 2,052 |
| 4,146 |
| 4,045 |
| ||||||||
Income taxes paid, net | 1,233 | 55 | |||||||||||||
Income taxes (refunded) paid, net |
| (965 | ) | 55 |
| ||||||||||
Acquisition of non-cash assets and liabilities: |
|
|
|
|
| ||||||||||
Assets acquired |
| 342,786 |
| 322,305 |
| ||||||||||
Liabilities assumed |
| (253,155 | ) | (259,524 | ) | ||||||||||
Rome stock owned by the Company |
| — |
| 668 |
| ||||||||||
Other non-cash changes: |
|
|
|
|
| ||||||||||
Other net comprehensive income |
| 549 |
| 1,716 |
| ||||||||||
Real estate owned acquired in settlement of loans | (250 | ) | - |
| (320 | ) | — |
| |||||||
Other net comprehensive loss | (993 | ) | 1,522 |
The accompanying notes are an integral part of these consolidated financial statements.
Note: The Consolidated Statements of Cash Flows for the threesix months ended March,June 30, 2012 and the cash and cash equivalents at beginning of period includes the cash flows from activities associated with discontinued operations.
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)(“U.S. GAAP”) and contain all adjustments, consisting solely of normal, recurring adjustments, necessary for a fair presentationstatement 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”(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, 2011.
Election of the use of the Fair Value Option
In connection with the Company’s purchase of Greenpark Mortgage Corporation (“Greenpark”) as described in Note 3, the Company elected the applicable accounting guidance for the fair value option as it relates to loans held for sale (“HFS”). This election allows for a more effective matching of the fair value changes that flow through earnings from the interest rate lock commitment (“IRLC”) stage to the funded HFS loan stage, and forward commitments used to economically hedge the changes in fair value of the IRLC and HFS loans. The election was applied on a prospective basis starting with all HFS loans originated after April 30, 2012. See Note 13 for the HFS loans fair value recorded in the Company’s Consolidated Balance Sheet and unrealized gain recorded in the Company’s Consolidated Statement of Income as of and for the period ended June 30, 2012.
Out of Period Adjustments
For the three months and six months ended June 30, 2012, the Company recorded a correction of an immaterial error relating to prior years that increased net income by $0.5 million and $0.7 million, respectively. The correction represents a prior period tax related over-accrual. While these adjustments were noteworthy for the quarter, after evaluating the quantitative and qualitative aspects of these adjustments, the Company concluded that its prior period financial statements were not materially misstated and, therefore, no restatement was required.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
ASU No. 2011-01, “Receivables (Topic 310) - Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” In January 2011, the FASB issued ASU 2011-01 to temporarily delay the effective date of the disclosures about troubled debt restructurings (“TDRs”) that are included in ASU No. 2010-20. The TDR disclosure guidance was effective beginning with the Company’s interim period ended September 30, 2011. The required disclosures are incorporated in Note 7 to the Company’s financial statements.
ASU No. 2011-02, “A Creditor’s Determination of Whether Restructuring Is a Troubled Debt Restructuring”. In April 2011, the FASB issued ASU 2011-02 clarifying when a loan modification or restructuring is considered a troubled debt restructuring. The guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. The adoption of this guidance did not have a significant impact on the Company’s financial statements.
ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” In May 2011, the FASB issued ASU 2011-04 result into provide a consistent definition of fair value and common requirements for the measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets; (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU No. 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) The fair value measurement of instruments classified within an entity’s shareholders’ equity is aligned with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to qualitatively describe the sensitivity of fair value measurements to changes in unobservable inputs and the interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The Company adopted the provisions of ASU No. 2011-04 effective January 1, 2012.
The fair value measurement provisions of ASU No. 2011-04 had no impact on the Company’s financial statements. The required disclosures are incorporated in Note 14 to the Company’s financial statements.
ASU 2011-05, "Comprehensive“Comprehensive Income (Topic 220) - Presentation of Comprehensive Income."” ASU 2011-05 amends Topic 220, "Comprehensive���Comprehensive Income,"” to require that all non-owner changes in stockholders'stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders'stockholders’ equity was eliminated. ASU 2011-05 is effective for annual and interim periods beginning after December 15, 2011; however, certain provisions related to the presentation of reclassification adjustments have been deferred by ASU 2011-12 "Comprehensive“Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,"” as further discussed below. The Company adopted the new guidance by reporting the components of comprehensive income in two separate but consecutive statements.
ASU No. 2011-08, “Testing Goodwill for Impairment”. In September 2011, the FASB issued ASU 2011-08 which will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount . The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company performs itsIn July 2012, the FASB issued ASU 2012-02 that amends ASU 2011-08 to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. After an assessment of certain qualitative factors, if it is determined to be more likely than not that an indefinite-lived asset is impaired, entities must perform the quantitative impairment test. Otherwise, the quantitative test is optional. ASU 2012-02 is effective for annual testand interim impairment tests performed for goodwill impairment in the fourth quarter, andfiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance is not expected to have ana significant impact on itsthe Company’s financial statements.
ASU 2011-11, "Balance“Balance Sheet (Topic 210) - "Disclosures“Disclosures about Offsetting Assets and Liabilities."” ASU 2011-11 amends Topic 210, "Balance“Balance Sheet,"” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is limited to matters of presentation with no impact expected on the Company’s financial statements.
ASU 2011-12 "Comprehensive“Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05."” ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after December 15, 2011. The enhancedrequired disclosures required are incorporated in Note 9 to8 and do not have a significant impact on the Company’s financial statements.
NOTE 3. CORRECTION OF IMMATERIAL ERRORACQUISITIONS
During the second quarter of 2011,
The Connecticut Bank and Trust Company
On April 20, 2012, the Company correctedacquired all of the outstanding common shares of The Connecticut Bank and Trust Company (“CBT”). CBT operated eight banking offices serving the Greater Hartford area and was merged with and into Berkshire Bank, a wholly owned subsidiary of the Company. This business combination is an immaterial errorextension of the Berkshire franchise and the goodwill recognized results from the expected synergies and earnings accretion from this combination, including future cost savings related to CBT’s operations. The combination was negotiated between the companies and was approved unanimously by their boards of directors.
CBT shareholders received 965 thousand shares of the Company common stock and $9.0 million in its prior period accounting treatment for certain tax credit investment limited partnership interests. These interests primarily relate to low income housing, community development, and solar energy related investments. As a result of this error, the Company’s non-interest income and income tax expense were overstated in the first quarter of 2011.cash. On the corresponding balance sheet,acquisition date, CBT had 3.617 million outstanding common shares. Through a cash/share election procedure, the Company’s tax credit investment limited partnership interests were overstated in the first quarter of 2011. The overstatementCompany paid $8.25 per share for 30% of the tax credit investment balanceoutstanding common shares. For 70% of the outstanding shares, the Company exchanged its stock in this period was more than offset by an understatementa ratio of 0.381 shares of the Company’s deferred tax asset balance. These balancescommon stock for each share of CBT stock. The 965 thousand shares of Company common stock issued in this exchange were valued at $22.80 per share based on its closing price on April 19, 2012. Berkshire paid $0.2 million in cash consideration to settle all outstanding CBT options. The Company issued no new Berkshire options in connection with the merger.
As of April 20, 2012, CBT had assets with a carrying value of approximately $268.8 million, including loans outstanding with a carrying value of approximately $215.8 million, as well as deposits with a carrying value of approximately $209.7 million. The results of CBT’s operations are included as components of other assets in the accompanying consolidated balance sheets.Consolidated Statement of Income from the date of acquisition. As part of the acquisition, the Company repurchased and retired from the United States Department of Treasury (“Treasury”) each share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of CBT stock issued and outstanding for $5.4 million and the outstanding warrant issued to the Treasury to purchase CBT common stock for $0.8 million.
The Company assessedassets and liabilities in the materialityCBT acquisition were recorded at their fair value based on management’s best estimate using information available at the date of this erroracquisition. Consideration paid, and fair values of CBT’s assets acquired and liabilities assumed as of April 20, 2012 are summarized in the following table:
Consideration Paid: |
|
|
| |
Berkshire Hills Bancorp common stock issued to CBT common stockholders |
| $ | 21,992 |
|
Cash consideration paid to CBT common shareholders |
| 8,952 |
| |
Repurchase of CBT’s preferred stock and warrant |
| 6,290 |
| |
Cash consideration paid for CBT employee stock options |
| 150 |
| |
Total consideration paid |
| $ | 37,384 |
|
Recognized Amounts of Identifiable Assets Aquired and |
| As Acquired |
| Fair Value |
| As Recorded at |
| |||
Cash and short term investments |
| $ | 10,568 |
| $ | — |
| $ | 10,567 |
|
Investment securities |
| 41,428 |
| (46 | )(a) | 41,382 |
| |||
Loans |
| 215,773 |
| (6,181 | )(b) | 209,592 |
| |||
Premises and equipment |
| 1,393 |
| — |
| 1,393 |
| |||
Core deposit intangibles |
|
|
| 1,200 | (c) | 1,200 |
| |||
Other intangibles |
| — |
| (238 | )(d) | (238 | ) | |||
Other assets |
| 3,081 |
| 7,795 | (e) | 10,877 |
| |||
Deposits |
| (209,707 | ) | (428 | )(f) | (210,135 | ) | |||
Borrowings |
| (35,865 | ) | (3,020 | )(g) | (38,885 | ) | |||
Other liabilities |
| (1,978 | ) | (209 | )(h) | (2,187 | ) | |||
Total identifiable net assets |
| $ | 24,693 |
| $ | (1,127 | ) | $ | 23,566 |
|
|
|
|
|
|
|
|
| |||
Goodwill |
|
|
|
|
| $ | 13,818 |
|
Explanation of Certain Fair Value Adjustments
(a)The adjustment represents the write down of the book value of investments to their estimated fair value based on fair values on the date of acquisition.
(b)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 each previously issued quarterly and annual period that was effected in accordance with generally accepted accounting principles,ASC 310-30 had a carrying amount of $15.3 million. Non-impaired loans not accounted for under 310-30 had a carrying value of $194.2 million.
(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 determinedwill be amortized over the average life of the deposit base.
(d)The adjustment 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)This amount primarily consists of adjustments in the net deferred tax assets resulting from the fair value adjustments related to the acquired assets and liabilities, identifiable intangibles, and other deferred tax items including recognition of a $4.8 million deferred tax asset related to operating losses, which CBT had a full valuation allowance against.
(f)The adjustment is necessary because the weighted average interest rate of deposits exceeded the cost of similar funding at the time of acquisition.
(g)The adjustment represents a write up of the book value of borrowings to their estimated fair value calculated based on interest rates of similar borrowings available on the date of acquisition.
(h)The adjustment represents a write up of the book value of other liabilities to their estimated fair value at the acquisition date.
Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired from CBT 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. To estimate the fair value of collateral dependent loans with deteriorated credit quality, 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. We discounted those values 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 CBT’s allowance for credit losses associated with the loans that were acquired as the errorloans were initially recorded at fair value.
Information about the acquired loan portfolio subject to ASC 310-30 as of April 20, 2012 is as follows (in thousands):
|
| ASC 310-30 Loans |
| |
Contractually required principal and interest at acquisition |
| $ | 23,726 |
|
Contractual cash flows not expected to be collected (nonaccretable discount) |
| (5,563 | ) | |
Expected cash flows at acquisition |
| 18,163 |
| |
Interest component of expected cash flows (accretable discount) |
| (2,816 | ) | |
Fair value of acquired loans |
| $ | 15,347 |
|
The core deposit intangible asset recognized as part of the CBT merger is being amortized over its estimated useful life of approximately eight years utilizing an accelerated method. Other intangibles consist of leasehold intangible liabilities, which are amortized over the life of each respective lease using a straight-line method.
The goodwill, which is not amortized for book purposes, was immaterial. The Company determined that the cumulative error is immaterialassigned to our banking segment and is not deductible for tax purposes.
The fair value of savings and transaction deposit accounts acquired from CBT 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 incomeby discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowed funds was estimated by discounting the future cash flows using market rates for similar borrowings.
Direct merger and acquisition integration-related costs related to the CBT acquisition were expensed as incurred and totaled $2.7 million for the full fiscalfirst six months of 2012, and none in 2011.
Greenpark Mortgage Corporation
On April 30, 2012, Berkshire Bank acquired the operations, and purchased certain assets and assumed certain limited liabilities of Greenpark Mortgage Corporation (“Greenpark”), as contemplated by the Asset Purchase Agreement dated February 2, 2012, by and between Berkshire Bank and Greenpark. The purchase of Greenpark’s operations increases the Company’s consumer lending capabilities, and expands the Company’s geographical footprint into eastern Massachusetts along with broadening its sources of fee-based income.
The purchase price for Greenpark’s operations was $4.0 million, but additional consideration of $0.1 million was paid for certain prepaid assets. $46.5 million was paid to retire outstanding bank loans, recently originated loans, along with $2.8 million in premiums on those loans representing the sellers’ income on those loans had they been sold prior to April 30, 2012. Additionally, a $1.1 million liability was recorded for contingent consideration representing the fair value of earn-out payments to the sellers of Greenpark over a five year ending December 31, 2011 but was materialperiod of time after the purchase date. While the earn-out payments are based on production of loan originations, which can vary from year to our trendyear, management calculated an expected range of $0.2 million to $0.3 million in earnings. Accordingly,annual payments using the Company has revised itsBlack Scholes model to estimate the fair value of the contingent liability. Direct acquisition and integration costs of Greenpark’s operations were expensed as incurred, and totaled $0.3 million during the first six months of 2012. The results of Greenpark’s operations are included in the Consolidated Statements of Income forfrom the three month period ended March 31, 2011. The Company has evaluated the effectsdate of these errors and concluded that they are immaterial to any of the Company’s previously issued quarterly or annual financial statements. The effect of correcting this immaterial error in the consolidated statement of income for the first quarter of 2011 to be reported in subsequent periodic filings is as follows:acquisition.
For the Quarter Ended | ||||||||
March 31, 2011 | ||||||||
(in thousands, except per share data) | As Reported | As Revised | ||||||
Consolidated statement of operations information: | ||||||||
Non-interest income | $ | 8,502 | $ | 8,134 | ||||
Income tax expense | 1,061 | 656 | ||||||
Net income | 2,798 | 2,835 | ||||||
Basic earnings per share | 0.20 | 0.20 | ||||||
Diluted earnings per share | 0.20 | 0.20 | ||||||
Consolidated balance sheet information: | ||||||||
Other assets | 59,122 | 59,846 | ||||||
Retained earnings | 103,720 | 104,444 |
The assets and liabilities in the Greenpark transaction were recorded at their fair value based on management’s best estimate using information available at the date of purchase. The Greenpark transaction is an asset purchase for legal purposes, which limits the Company’s exposure to the assumption of liabilities as defined in the purchase agreement, and to any potential unknown liabilities that result from operations that occur subsequent to the purchase date. The transaction is also considered an asset purchase for tax purposes, which results in a step-up in tax basis of assets acquired and liabilities assumed along with tax deductible goodwill. For book purposes, the Company will account for the transaction as a business combination in accordance with applicable accounting guidance, as it represents an acquisition of a business with a distinct set of inputs and processes to produce outputs. The goodwill, representing the excess of consideration paid over the net fair value of assets and liabilities acquired, is not amortized for book purposes, and is assigned to our banking segment.
The assets and liabilities in the Greenpark transaction were recorded at their fair value based on management’s best estimate using information available at the date of acquisition. Consideration paid, and fair values of Greenpark’s assets acquired and liabilities assumed, are summarized in the following table:
Consideration Paid: |
|
|
| |
Cash purchase price |
| $ | 4,000 |
|
Cash paid for certain prepaid assets |
| 58 |
| |
Payoff of Greenpark’s lines of credit |
| 46,496 |
| |
Premiums paid for loans, and loan commitments |
| 2,770 |
| |
Contingent purchase price |
| 1,087 |
| |
Total consideration paid |
| 54,411 |
| |
|
|
|
| |
Recognized Amounts of Identifiable Assets Aquired and (Liabilities Assumed), At Fair Value: |
|
|
| |
Loans held for sale |
| 48,408 | (a) | |
Other assets |
| 2,621 | (b) | |
Premises and equipment |
| 98 | (c) | |
Other liabilities |
| (862 | )(d) | |
Total identifiable net assets |
| 50,265 |
| |
|
|
|
| |
Goodwill |
| $ | 4,146 |
|
NOTE 4. DISCONTINUED OPERATIONS13
In order to minimize potential anti-competitive effects
Explanation of the Legacy acquisition, the Company agreed to sell four Legacy Berkshire branches in conjunction with the Legacy merger agreement dated July 21, 2011. On October 21, 2011, the Company completed the divestiture of four Massachusetts bank branches in Berkshire County to NBT Bank, NA (“NBT”), a subsidiary of NBT Bancorp Inc. The Company continued to operate these branches until the divestiture was completed on October 21, 2011. Berkshire received a 6% deposit premium on these branches and paid a related divestiture dividend to former Legacy shareholders forCertain Fair Values
(a)Includes a portion of these proceeds pursuantthe cash consideration paid for premiums as described above, which adjusts the loans to fair value.
(b)Represents the Legacy merger agreement. The sale resultedfair value of the acquired derivative associated with commitments to originate loans at a specified locked-rate (“interest rate lock commitments”).
(c)Represents the fair value of certain acquired office equipment.
(d)Consists of forward contracts acquired at fair value, which serves to hedge the movements in a pre-tax gainfair value of $5.0 million and tax expense of $3.9 million resulting in a gain on discontinued operations of $1.1 million, net of tax, for the fiscal year 2011. The above actions and subsequent divestiture have resulted in the discontinuance of these operations in the third quarter of 2011.interest rate lock commitments.
Additionally, Berkshire madeThe adjustment of loans from Greenpark’s carrying value of $46.5 million to fair value of $48.4 million represents a separate determination to sell four former Legacy New York branches that were not within its financial performance objectives. Inportion of the third quarter of 2011, management committed to a plan to sell the four branches and initiated the process to locate a buyer. Berkshire entered into an agreement to divest these branchescash consideration paid for a 2.5% deposit premium, and continued to operate these branches until the divestiture was completed on January 20, 2012. The sale resulted in a pre-tax gain of $63 thousand and tax expense of $507 thousand resulting in a loss on sale of discontinued operations, net of tax of $443 thousand at March 31, 2012. The tax expense from discontinued operations included a tax charge of $481 thousand,premiums as the removal of $1.2 million of goodwill associated with these branches is not deductible for determining taxable income. These branches were also designated as discontinued operations in Berkshire’s financial statements in the third quarter of 2011.
As of March 31, 2012 the Bank has not reclassified any assets or liabilities to discontinued operations. As of December 31, 2011, the Bank reclassified $5.4 million of assets and $55.5 million of liabilities to discontinued operations. Assets and liabilities of discontinued operations, all of which were classified as held-for-sale, were estimated as follows as of December 31, 2011, in thousands:
(In thousand) | 2011 | |||
Assets | ||||
Loans | $ | 2,465 | ||
Cash | 423 | |||
Premises and equipment, net | 690 | |||
Goodwill | 1,197 | |||
Intangibles | 574 | |||
Other | 13 | |||
Total assets | 5,362 | |||
Liabilities | ||||
Deposits | 55,504 | |||
Total liabilities | 55,504 | |||
Net liabilities | $ | 50,142 |
described above.
The following table providespresents selected unaudited pro forma financial information reflecting the CBT and Greenpark transactions assuming they were completed as of January 1, 2011. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had these acquisitions 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, plus the incremental shares issued, assuming the CBT and Greenpark transactions occurred at the beginning of the periods presented. The unaudited pro forma information is based on the actual financial statements of Berkshire for the periods shown, and on the actual financial statements of CBT and Greenpark for the 2011 period shown and in 2012 until the date of acquisition, at which time their operations became included in Berkshire’s financial statements.
The unaudited pro forma information, for the discontinued operations for the threesix months ended March 31, 2012.June 30, 2012 and 2011, 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 investment sales and additional borrowings as a result of the CBT and Greenpark transactions. Direct merger and acquisition integration-related costs incurred by the Company during 2012 are reversed, as those expenses are assumed to have occurred prior to 2011. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities or anticipated cost savings.
Information in the following table is shown in thousands, except earnings per share:
(In thousands) | 2012 | |||
Net Interest Income | $ | 8 | ||
Non-interest Income | 13 | |||
Total Net Revenue | 21 | |||
Non-Interest Expense | 345 | |||
(Loss) on disposal of discontinued operations | (324 | ) | ||
Gain on disposal of discontinued operations | 63 | |||
(Loss) Gain on discontiued operations | (261 | ) | ||
Income tax expense | 376 | |||
(Loss) Gain from discontinued operations, net of tax | $ | (637 | ) |
|
| Pro Forma |
| ||||
|
| Six months ended June 30, |
| ||||
|
| 2012 |
| 2011 |
| ||
|
|
|
|
|
| ||
Net interest income |
| $ | 69,958 |
| $ | 50,753 |
|
Non-interest income |
| 30,892 |
| 25,421 |
| ||
Net income |
| 13,984 |
| 6,451 |
| ||
|
|
|
|
|
| ||
Pro forma earnings per share from continuing operations: |
|
|
|
|
| ||
Basic |
| $ | 0.68 |
| $ | 0.40 |
|
Diluted |
| $ | 0.68 |
| $ | 0.40 |
|
On May 31, 2012, the Company entered into a merger agreement with Beacon Federal Bancorp, Inc. (“Beacon Federal”), the parent company of Beacon Federal (“Beacon Bank”), pursuant to which Beacon Federal will merge with and into the Company in a transaction to be accounted for as a business combination. It is expected that Beacon Bank will also merge with and into Berkshire Bank. Located in East Syracuse, New York, Beacon Federal had $1 billion in total assets at March 31, 2012 (unaudited) and, through Beacon Bank, operates 7 banking offices providing a range of banking services in New York, Massachusetts, and Tennessee.
Under the terms of this merger agreement, 50% of the outstanding shares of Beacon Federal common stock will be converted into the right to receive 0.9200 of a share of Company common stock and the remaining 50% of outstanding shares of Beacon Federal common stock will be exchanged for $20.50 in cash.
The transaction is subject to closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Beacon Federal. The merger is currently expected to be completed in the fourth quarter of 2012. If the merger is not consummated under specified circumstances, Beacon Federal has agreed to pay the Company a termination fee of $5.28 million.
The Company did not have any discontinued operationsincurred $0.4 million of merger and acquisition expenses related to the Beacon Federal merger for the threesix months ended March 31, 2011.June 30, 2012.
NOTE 5.4. TRADING ACCOUNT SECURITY
The Company holds a tax advantaged economic development bond that is being accounted for at fair value. The security had an amortized cost of $14.0$13.9 million and $14.1 million, and a fair value of $16.8$17.4 million and $17.4 million, at March 31,June 30, 2012 and December 31, 2011, respectively. As discussed further in Note 13 - 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 purchasesecurities with the intent of selling them in the near term, and there are no other securities in the trading portfolio at March 31,June 30, 2012.
NOTE 6.5. 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 |
| Gross |
| Fair Value |
| ||||
June 30, 2012 |
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
Municipal bonds and obligations |
| $ | 73,801 |
| $ | 5,136 |
| $ | (29 | ) | $ | 78,908 |
|
Government guaranteed residential mortgage-backed securities |
| 43,225 |
| 826 |
| — |
| 44,051 |
| ||||
Government-sponsored residential mortgage-backed securities |
| 287,191 |
| 2,773 |
| (329 | ) | 289,635 |
| ||||
Corporate bonds |
| 9,997 |
| — |
| (431 | ) | 9,566 |
| ||||
Trust preferred securities |
| 20,008 |
| 701 |
| (2,239 | ) | 18,470 |
| ||||
Other bonds and obligations |
| 738 |
| 1 |
| — |
| 739 |
| ||||
Total debt securities |
| 434,960 |
| 9,437 |
| (3,028 | ) | 441,369 |
| ||||
Equity securities: |
|
|
|
|
|
|
|
|
| ||||
Marketable equity securities |
| 27,422 |
| 2,954 |
| (377 | ) | 29,999 |
| ||||
Total securities available for sale |
| 462,382 |
| 12,391 |
| (3,405 | ) | 471,368 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities held to maturity |
|
|
|
|
|
|
|
|
| ||||
Municipal bonds and obligations |
| 7,400 |
| — |
| — |
| 7,400 |
| ||||
Government-sponsored residential mortgage-backed securities |
| 77 |
| 7 |
| — |
| 84 |
| ||||
Tax advantaged economic development bonds |
| 33,732 |
| 1,456 |
| — |
| 35,188 |
| ||||
Other bonds and obligations |
| 613 |
| — |
| — |
| 613 |
| ||||
Total securities held to maturity |
| 41,822 |
| 1,463 |
| — |
| 43,285 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Securities |
| $ | 504,204 |
| $ | 13,854 |
| $ | (3,405 | ) | $ | 514,653 |
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2011 |
|
|
|
|
|
|
|
|
| ||||
Securities available for sale |
|
|
|
|
|
|
|
|
| ||||
Debt securities: |
|
|
|
|
|
|
|
|
| ||||
Municipal bonds and obligations |
| $ | 73,436 |
| $ | 4,418 |
| $ | — |
| $ | 77,854 |
|
Government guaranteed residential mortgage-backed securities |
| 44,051 |
| 1,045 |
| — |
| 45,096 |
| ||||
Government-sponsored residential mortgage-backed securities |
| 245,033 |
| 2,990 |
| (412 | ) | 247,611 |
| ||||
Corporate bonds |
| 9,996 |
| — |
| (269 | ) | 9,727 |
| ||||
Trust preferred securities |
| 20,064 |
| 343 |
| (2,592 | ) | 17,815 |
| ||||
Other bonds and obligations |
| 642 |
| 2 |
| — |
| 644 |
| ||||
Total debt securities |
| 393,222 |
| 8,798 |
| (3,273 | ) | 398,747 |
| ||||
Equity securities: |
|
|
|
|
|
|
|
|
| ||||
Marketable equity securities |
| 20,236 |
| 1,555 |
| (782 | ) | 21,009 |
| ||||
Total securities available for sale |
| 413,458 |
| 10,353 |
| (4,055 | ) | 419,756 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities held to maturity |
|
|
|
|
|
|
|
|
| ||||
Municipal bonds and obligations |
| 10,349 |
| — |
| — |
| 10,349 |
| ||||
Government-sponsored residential mortgage-backed securities |
| 79 |
| 4 |
| — |
| 83 |
| ||||
Tax advantaged economic development bonds |
| 47,869 |
| 1,479 |
| — |
| 49,348 |
| ||||
Other bonds and obligations |
| 615 |
| — |
| — |
| 615 |
| ||||
Total securities held to maturity |
| 58,912 |
| 1,483 |
| — |
| 60,395 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ | 472,370 |
| $ | 11,836 |
| $ | (4,055 | ) | $ | 480,151 |
|
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
March 31, 2012 | ||||||||||||||||
Securities available for sale | ||||||||||||||||
Debt securities: | ||||||||||||||||
Municipal bonds and obligations | $ | 75,067 | $ | 4,641 | $ | (52 | ) | $ | 79,656 | |||||||
Government guaranteed residential mortgage-backed securities | 40,212 | 890 | - | 41,102 | ||||||||||||
Government-sponsored residential mortgage-backed securities | 251,626 | 3,117 | (133 | ) | 254,610 | |||||||||||
Corporate bonds | 9,997 | - | (358 | ) | 9,639 | |||||||||||
Trust preferred securities | 20,036 | 686 | (2,350 | ) | 18,372 | |||||||||||
Other bonds and obligations | 624 | 2 | - | 626 | ||||||||||||
Total debt securities | 397,562 | 9,336 | (2,893 | ) | 404,005 | |||||||||||
Equity securities: | ||||||||||||||||
Marketable equity securities | 18,427 | 1,258 | (110 | ) | 19,575 | |||||||||||
Total securities available for sale | 415,989 | 10,594 | (3,003 | ) | 423,580 | |||||||||||
Securities held to maturity | ||||||||||||||||
Municipal bonds and obligations | 11,353 | - | - | 11,353 | ||||||||||||
Government-sponsored residential mortgage-backed securities | 78 | 9 | - | 87 | ||||||||||||
Tax advantaged economic development bonds | 47,488 | 1,184 | (394 | ) | 48,278 | |||||||||||
Other bonds and obligations | 614 | - | - | 614 | ||||||||||||
Total securities held to maturity | 59,533 | 1,193 | (394 | ) | 60,332 | |||||||||||
Total | $ | 475,522 | $ | 11,787 | $ | (3,397 | ) | $ | 483,912 | |||||||
December 31, 2011 | ||||||||||||||||
Securities available for sale | ||||||||||||||||
Debt securities: | ||||||||||||||||
Municipal bonds and obligations | $ | 73,436 | $ | 4,418 | $ | - | $ | 77,854 | ||||||||
Government guaranteed residential mortgage-backed securities | 44,051 | 1,045 | - | 45,096 | ||||||||||||
Government-sponsored residential mortgage-backed securities | 245,033 | 2,990 | (412 | ) | 247,611 | |||||||||||
Corporate bonds | 9,996 | - | (269 | ) | 9,727 | |||||||||||
Trust preferred securities | 20,064 | 343 | (2,592 | ) | 17,815 | |||||||||||
Other bonds and obligations | 642 | 2 | - | 644 | ||||||||||||
Total debt securities | 393,222 | 8,798 | (3,273 | ) | 398,747 | |||||||||||
Equity securities: | ||||||||||||||||
Marketable equity securities | 20,236 | 1,555 | (782 | ) | 21,009 | |||||||||||
Total securities available for sale | 413,458 | 10,353 | (4,055 | ) | 419,756 | |||||||||||
Securities held to maturity | ||||||||||||||||
Municipal bonds and obligations | 10,349 | - | - | 10,349 | ||||||||||||
Government-sponsored residential mortgage-backed securities | 79 | 4 | - | 83 | ||||||||||||
Tax advantaged economic development bonds | 47,869 | 1,479 | - | 49,348 | ||||||||||||
Other bonds and obligations | 615 | - | - | 615 | ||||||||||||
Total securities held to maturity | 58,912 | 1,483 | - | 60,395 | ||||||||||||
Total | $ | 472,370 | $ | 11,836 | $ | (4,055 | ) | $ | 480,151 |
The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at March 31,June 30, 2012 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable. Equity securities have no maturity and are also shown in total.
|
| Available for sale |
| Held to maturity |
| ||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
| ||||
(In thousands) |
| Cost |
| Value |
| Cost |
| Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Within 1 year |
| $ | — |
| $ | — |
| $ | 3,677 |
| $ | 3,677 |
|
Over 1 year to 5 years |
| 9,949 |
| 9,733 |
| 3,725 |
| 3,790 |
| ||||
Over 5 years to 10 years |
| 15,518 |
| 16,087 |
| 16,033 |
| 17,103 |
| ||||
Over 10 years |
| 79,077 |
| 81,863 |
| 18,310 |
| 18,631 |
| ||||
Total bonds and obligations |
| 104,544 |
| 107,683 |
| 41,745 |
| 43,201 |
| ||||
Marketable equity securities |
| 27,422 |
| 29,999 |
| — |
| — |
| ||||
Residential mortgage-backed securities |
| 330,416 |
| 333,686 |
| 77 |
| 84 |
| ||||
Total |
| $ | 462,382 |
| $ | 471,368 |
| $ | 41,822 |
| $ | 43,285 |
|
Available for sale | Held to maturity | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
(In thousands) | Cost | Value | Cost | Value | ||||||||||||
Within 1 year | $ | 301 | $ | 301 | $ | 7,613 | $ | 7,613 | ||||||||
Over 1 year to 5 years | 8,499 | 8,261 | 2,612 | 2,612 | ||||||||||||
Over 5 years to 10 years | 16,553 | 17,199 | 30,701 | 31,254 | ||||||||||||
Over 10 years | 80,371 | 82,532 | 18,529 | 18,766 | ||||||||||||
Total bonds and obligations | 105,724 | 108,293 | 59,455 | 60,245 | ||||||||||||
Marketable equity securities | 18,427 | 19,575 | - | - | ||||||||||||
Residential mortgage-backed securities | 291,838 | 295,712 | 78 | 87 | ||||||||||||
Total | $ | 415,989 | $ | 423,580 | $ | 59,533 | $ | 60,332 |
Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
Less Than Twelve Months | Over Twelve Months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
(In thousands) | Losses | Value | Losses | Value | Losses | Value | ||||||||||||||||||
March 31, 2012 | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Municipal bonds and obligations | $ | 52 | $ | 2,309 | $ | - | $ | - | $ | 52 | $ | 2,309 | ||||||||||||
Government-sponsored residential mortgage-backed securities | 124 | 32,879 | 9 | 3,434 | 133 | 36,313 | ||||||||||||||||||
Corporate bonds | 321 | 6,679 | 37 | 2,960 | 358 | 9,639 | ||||||||||||||||||
Trust preferred securities | - | - | 2,350 | 3,285 | 2,350 | 3,285 | ||||||||||||||||||
Total debt securities | 497 | 41,867 | 2,396 | 9,679 | 2,893 | 51,546 | ||||||||||||||||||
Marketable equity securities | 110 | 2,903 | - | - | 110 | 2,903 | ||||||||||||||||||
Total securities available for sale | 607 | 44,770 | 2,396 | 9,679 | 3,003 | 54,449 | ||||||||||||||||||
Securities held to maturity | ||||||||||||||||||||||||
Tax advantaged economic development bonds | 394 | 13,083 | - | - | 394 | 13,083 | ||||||||||||||||||
Total securities held to maturity | 394 | 13,083 | - | - | 394 | 13,083 | ||||||||||||||||||
Total | $ | 1,001 | $ | 57,853 | $ | 2,396 | $ | 9,679 | $ | 3,397 | $ | 67,532 | ||||||||||||
December 31, 2011 | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Government guaranteed residential mortgage-backed securities | $ | 1 | $ | 48 | $ | - | $ | - | $ | 1 | $ | 48 | ||||||||||||
Government-sponsored residential mortgage-backed securities | 375 | 76,278 | 36 | 5,766 | 411 | 82,044 | ||||||||||||||||||
Corporate bonds | 224 | 6,776 | 45 | 2,951 | 269 | 9,727 | ||||||||||||||||||
Trust preferred securities | 20 | 2,541 | 2,572 | 3,065 | 2,592 | 5,606 | ||||||||||||||||||
Total debt securities | 620 | 85,643 | 2,653 | 11,782 | 3,273 | 97,425 | ||||||||||||||||||
Marketable equity securities | 782 | 6,229 | - | - | 782 | 6,229 | ||||||||||||||||||
Total securities available for sale | $ | 1,402 | $ | 91,872 | $ | 2,653 | $ | 11,782 | $ | 4,055 | $ | 103,654 |
|
| Less Than Twelve Months |
| Over Twelve Months |
| Total |
| ||||||||||||
|
| Gross |
|
|
| Gross |
|
|
| Gross |
|
|
| ||||||
|
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| ||||||
(In thousands) |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| ||||||
June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Municipal bonds and obligations |
| $ | 29 |
| $ | 2,325 |
| $ | — |
| $ | — |
| $ | 29 |
| $ | 2,325 |
|
Government-guaranteed residential mortgage-backed securities |
| 24 |
| 10,165 |
| — |
| — |
| 24 |
| 10,165 |
| ||||||
Government-sponsored residential mortgage-backed securities |
| 274 |
| 88,650 |
| 31 |
| 5,866 |
| 305 |
| 94,516 |
| ||||||
Corporate bonds |
| — |
| — |
| 431 |
| 9,566 |
| 431 |
| 9,566 |
| ||||||
Trust preferred securities |
| — |
| — |
| 2,239 |
| 3,395 |
| 2,239 |
| 3,395 |
| ||||||
Total debt securities |
| 327 |
| 101,140 |
| 2,701 |
| 18,827 |
| 3,028 |
| 119,967 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Marketable equity securities |
| 143 |
| 7,484 |
| 234 |
| 1,765 |
| 377 |
| 9,249 |
| ||||||
Total securities available for sale |
| 470 |
| 108,624 |
| 2,935 |
| 20,592 |
| 3,405 |
| 129,216 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Tax advantaged economic development bonds |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Total securities held to maturity |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ | 470 |
| $ | 108,624 |
| $ | 2,935 |
| $ | 20,592 |
| $ | 3,405 |
| $ | 129,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Government guaranteed residential mortgage-backed securities |
| $ | 1 |
| $ | 48 |
| $ | — |
| $ | — |
| $ | 1 |
| $ | 48 |
|
Government-sponsored residential mortgage-backed securities |
| 375 | �� | 76,278 |
| 36 |
| 5,766 |
| 411 |
| 82,044 |
| ||||||
Corporate bonds |
| 224 |
| 6,776 |
| 45 |
| 2,951 |
| 269 |
| 9,727 |
| ||||||
Trust preferred securities |
| 20 |
| 2,541 |
| 2,572 |
| 3,065 |
| 2,592 |
| 5,606 |
| ||||||
Total debt securities |
| 620 |
| 85,643 |
| 2,653 |
| 11,782 |
| 3,273 |
| 97,425 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Marketable equity securities |
| 782 |
| 6,229 |
| — |
| — |
| 782 |
| 6,229 |
| ||||||
Total securities available for sale |
| $ | 1,402 |
| $ | 91,872 |
| $ | 2,653 |
| $ | 11,782 |
| $ | 4,055 |
| $ | 103,654 |
|
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 March 31,June 30, 2012, 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 March 31,June 30, 2012:
AFS municipal bonds and obligations
At March 31,June 30, 2012, 3 out of a total of 131128 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. The aggregate unrealized losses represented 2%1% of the amortized cost of the securities in unrealized loss positions. The Company has the intent to hold these securities foruntil recovery. There were no material underlying credit downgrades during the past quarter. All securities are considered performing.
AFS and HTM residential mortgage-backed securities
At March 31,June 30, 2012, 918 out of a total of 157167 securities in the Company’s portfolios of AFS residential mortgage-backed and none of the 4 securities in the Company’s portfolios of HTM residential mortgage-backed were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions within the AFS portfolio. 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 considered performing.
AFS corporate bonds
At March 31,June 30, 2012, 3 out of a total of 3all securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represented 4% of the amortized cost of the securities. The2 of the securities arewere downgraded by Moody’s in the past quarter, but all 3 remain investment grade rated and there was no material underlying credit downgrade during the past quarter.market value of the securities supports the Company’s amortized value. The securities are considered performing.
AFS trust preferred securities
At March 31,June 30, 2012, 3 out of a total of 6 securities in the Company’s portfolio of AFS trust preferred securities were in unrealized loss positions. Aggregate unrealized losses represented 42%40% of the amortized cost of securities in unrealized loss positions. The Company’s evaluation of the present value of expected cash flows on these securities supports its conclusions about the recoverability of the securities’ amortized cost bases. 3 of the securities in the AFS trust preferred portfolio were downgraded by Moody’s during the past quarter and 4 of the 6 securities contain at least one below investment grade ratings. Berkshire 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 considered performing.
At March 31,June 30, 2012, $2.1$2.0 million of the total unrealized losses was attributable to a $2.6 million investment in a Mezzanine Class B tranche of a $360 million pooled trust preferred security issued by banking and insurance entities. The Company evaluated the security, with a Level 3 fair value of $0.5$0.6 million, for potential other-than-temporary-impairment (“OTTI”) at March 31,June 30, 2012 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 $33 million in excess subordination above current and projected losses. The security is considered performing.
AFS other bonds and obligations
At March 31, 2012, none of the 8 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. The securities are investment grade rated and there were no material underlying credit downgrades during the last quarter. All securities are considered performing.
HTM tax advantaged economic development bonds
At March 31, 2012, 3 of the 10 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 3% of the amortized cost of securities in unrealized loss positions. The Company has the intent of maintaining these positions to the recovery of these securities. All securities are considered performing.
Marketable Equity Securities
In evaluating its marketable equity securities portfolio for OTTI, the Company considers its ability and intent to hold an equity security to recovery of its cost basis. In addition, various other factors are considered, including the length of time and the extent to which the fair value has been less than cost, and the financial condition and near term prospects of the issuer. Any OTTI is recognized immediately through earnings.
At March 31,June 30, 2012, 26 out of a total of 1922 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented 4% of the amortized cost of the securities. The Company has the ability and intent to hold the securities until a recovery of their cost bases and does not consider the securities other-than-temporarily impaired at March 31,June 30, 2012. As new information becomes available in future periods, changes to the Company’s assumptions may be warranted and could lead to a different conclusion regarding the OTTI of these securities.
Loans consistTable of the following:Contents
March 31, 2012 | ||||||||||||
(In thousands) | Loans from Business Activities | Loans Aquired from Business Combinations | Total | |||||||||
Residential mortgages | ||||||||||||
1-4 family | $ | 749,036 | $ | 313,073 | $ | 1,062,109 | ||||||
Construction | 30,010 | 8,544 | 38,554 | |||||||||
Total residential mortgages | 779,046 | 321,617 | 1,100,663 | |||||||||
Commercial mortgages: | ||||||||||||
Construction | 128,194 | 4,134 | 132,328 | |||||||||
Single and multi-family | 86,986 | 15,922 | 102,908 | |||||||||
Commercial real estate | 734,574 | 177,645 | 912,219 | |||||||||
Total commercial mortgages | 949,754 | 197,701 | 1,147,455 | |||||||||
Commercial business loans: | ||||||||||||
Asset based lending | 173,365 | - | 173,365 | |||||||||
Other commercial business loans | 210,026 | 46,236 | 256,262 | |||||||||
Total commercial business loans | 383,391 | 46,236 | 429,627 | |||||||||
Total commercial loans | 1,333,145 | 243,937 | 1,577,082 | |||||||||
Consumer loans: | ||||||||||||
Home equity | 223,910 | 69,587 | 293,497 | |||||||||
Other | 38,777 | 28,981 | 67,758 | |||||||||
Total consumer loans | 262,687 | 98,568 | 361,255 | |||||||||
Total loans | $ | 2,374,878 | $ | 664,122 | $ | 3,039,000 |
Total loans include loans from business activities and loans acquired from business combinations. Loans from business combinations are those loans acquired from the acquisitions of The Connecticut Bank and Trust Company, Legacy Bancorp, Inc., and Rome Bancorp, Inc. The following is a summary of total loans:
December 31, 2011 | ||||||||||||
(In thousands) | Loans from Business Activities | Loans Aquired from Business Combinations | Total | |||||||||
Residential mortgages: | ||||||||||||
1-4 family | $ | 649,467 | $ | 329,407 | $ | 978,874 | ||||||
Construction | 32,191 | 9,370 | 41,561 | |||||||||
Total residential mortgages | 681,658 | 338,777 | 1,020,435 | |||||||||
Commercial mortgages: | ||||||||||||
Construction | 117,492 | 6,726 | 124,218 | |||||||||
Single and multi-family | 89,401 | 16,398 | 105,799 | |||||||||
Commercial real estate | 746,545 | 179,679 | 926,224 | |||||||||
Total commercial mortgages | 953,438 | 202,803 | 1,156,241 | |||||||||
Commercial business loans: | ||||||||||||
Asset based lending | 151,065 | 2,206 | 153,271 | |||||||||
Other commercial business loans | 210,701 | 46,320 | 257,021 | |||||||||
Total commercial business loans | 361,766 | 48,526 | 410,292 | |||||||||
Total commercial loans | 1,315,204 | 251,329 | 1,566,533 | |||||||||
Consumer loans: | ||||||||||||
Home equity | 226,369 | 71,827 | 298,196 | |||||||||
Other | 39,020 | 32,386 | 71,406 | |||||||||
Total consumer loans | 265,389 | 104,213 | 369,602 | |||||||||
Total loans | $ | 2,262,251 | $ | 694,319 | $ | 2,956,570 |
|
| June 30, 2012 |
| |||||||
(In thousands) |
| Loans from Business |
| Loans Acquired from |
| Total |
| |||
|
|
|
|
|
|
|
| |||
Residential mortgages |
|
|
|
|
|
|
| |||
1-4 family |
| $ | 850,734 |
| $ | 306,554 |
| $ | 1,157,288 |
|
Construction |
| 28,059 |
| 8,100 |
| 36,159 |
| |||
Total residential mortgages |
| 878,793 |
| 314,654 |
| 1,193,447 |
| |||
|
|
|
|
|
|
|
| |||
Commercial mortgages: |
|
|
|
|
|
|
| |||
Construction |
| 146,649 |
| 14,155 |
| 160,804 |
| |||
Single and multi-family |
| 71,861 |
| 32,475 |
| 104,336 |
| |||
Commercial real estate |
| 747,877 |
| 268,041 |
| 1,015,918 |
| |||
Total commercial mortgages |
| 966,387 |
| 314,671 |
| 1,281,058 |
| |||
|
|
|
|
|
|
|
| |||
Commercial business loans: |
|
|
|
|
|
|
| |||
Asset based lending |
| 177,763 |
| 2,495 |
| 180,258 |
| |||
Other commercial business loans |
| 244,176 |
| 95,250 |
| 339,426 |
| |||
Total commercial business loans |
| 421,939 |
| 97,745 |
| 519,684 |
| |||
|
|
|
|
|
|
|
| |||
Total commercial loans |
| 1,388,326 |
| 412,416 |
| 1,800,742 |
| |||
|
|
|
|
|
|
|
| |||
Consumer loans: |
|
|
|
|
|
|
| |||
Home equity |
| 226,680 |
| 75,840 |
| 302,520 |
| |||
Other |
| 37,712 |
| 31,198 |
| 68,910 |
| |||
Total consumer loans |
| 264,392 |
| 107,038 |
| 371,430 |
| |||
|
|
|
|
|
|
|
| |||
Total loans |
| $ | 2,531,511 |
| $ | 834,108 |
| $ | 3,365,619 |
|
|
| December 31, 2011 |
| |||||||
(In thousands) |
| Loans from Business Activities |
| Loans Acquired from |
| Total |
| |||
|
|
|
|
|
|
|
| |||
Residential mortgages: |
|
|
|
|
|
|
| |||
1-4 family |
| $ | 649,467 |
| $ | 329,407 |
| $ | 978,874 |
|
Construction |
| 32,191 |
| 9,370 |
| 41,561 |
| |||
Total residential mortgages |
| 681,658 |
| 338,777 |
| 1,020,435 |
| |||
|
|
|
|
|
|
|
| |||
Commercial mortgages: |
|
|
|
|
|
|
| |||
Construction |
| 117,492 |
| 6,726 |
| 124,218 |
| |||
Single and multi-family |
| 89,401 |
| 16,398 |
| 105,799 |
| |||
Commercial real estate |
| 746,545 |
| 179,679 |
| 926,224 |
| |||
Total commercial mortgages |
| 953,438 |
| 202,803 |
| 1,156,241 |
| |||
|
|
|
|
|
|
|
| |||
Commercial business loans: |
|
|
|
|
|
|
| |||
Asset based lending |
| 151,065 |
| 2,206 |
| 153,271 |
| |||
Other commercial business loans |
| 210,701 |
| 46,320 |
| 257,021 |
| |||
Total commercial business loans |
| 361,766 |
| 48,526 |
| 410,292 |
| |||
|
|
|
|
|
|
|
| |||
Total commercial loans |
| 1,315,204 |
| 251,329 |
| 1,566,533 |
| |||
|
|
|
|
|
|
|
| |||
Consumer loans: |
|
|
|
|
|
|
| |||
Home equity |
| 226,369 |
| 71,827 |
| 298,196 |
| |||
Other |
| 39,020 |
| 32,386 |
| 71,406 |
| |||
Total consumer loans |
| 265,389 |
| 104,213 |
| 369,602 |
| |||
|
|
|
|
|
|
|
| |||
Total loans |
| $ | 2,262,251 |
| $ | 694,319 |
| $ | 2,956,570 |
|
The carrying amount of the acquired loans at March 31,June 30, 2012 totaled $664.1$834.1 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 a carrying amount of $15.9$30.5 million and loans that were considered not impaired at the acquisition date with a carrying amount of $648.3$803.6 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 TransferTransfer.
(In thousands) |
| 2012 |
| |
Three months ended June 30, 2012 |
|
|
| |
Balance at beginning of period |
| $ | 668 |
|
Acquisitions |
| 2,816 |
| |
Sales |
| — |
| |
Reclassification from nonaccretable difference for loans with improved cash flows |
| — |
| |
Changes in expected cash flows that do not affect nonaccretable difference |
| — |
| |
Accretion |
| (930 | ) | |
Balance at end of period |
| $ | 2,554 |
|
(In thousands) | 2012 |
| 2012 |
| ||||
Three months ended March 31, 2012 | ||||||||
Six months ended June 30, 2012 |
|
|
| |||||
Balance at beginning of period | $ | 1,277 |
| $ | 1,277 |
| ||
Acquisitions | - |
| 2,816 |
| ||||
Sales | - |
| — |
| ||||
Reclassification from nonaccretable difference for loans with improved cash flows | - |
| — |
| ||||
Changes in expected cash flows that do not affect nonaccretable difference | - |
| — |
| ||||
Accretion | (609 | ) |
| (1,539 | ) | |||
Balance at end of period | $ | 668 |
| $ | 2,554 |
|
The following is a summary of past due loans at March 31,June 30, 2012 and December 31, 2011:
Loans from Business Activities
Loans from Business Activities
(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 | |||||||||||||||||||||
March 31, 2012 | ||||||||||||||||||||||||||||
Residential mortgages: | ||||||||||||||||||||||||||||
1-4 family | $ | 763 | $ | 652 | $ | 13,731 | $ | 15,146 | $ | 733,890 | $ | 749,036 | $ | 6,177 | ||||||||||||||
Construction | 521 | 18 | - | 539 | 29,471 | 30,010 | - | |||||||||||||||||||||
Total | 1,284 | 670 | 13,731 | 15,685 | 763,361 | 779,046 | 6,177 | |||||||||||||||||||||
Commercial mortgages: | ||||||||||||||||||||||||||||
Construction | - | - | 5,811 | 5,811 | 122,383 | 128,194 | - | |||||||||||||||||||||
Single and multi-family | 185 | 8 | 700 | 893 | 86,093 | 86,986 | 305 | |||||||||||||||||||||
Commercial real estate | 8,041 | 2,618 | 5,534 | 16,193 | 718,381 | 734,574 | - | |||||||||||||||||||||
Total | 8,226 | 2,626 | 12,045 | 22,897 | 926,857 | 949,754 | 305 | |||||||||||||||||||||
Commercial business loans: | ||||||||||||||||||||||||||||
Asset based lending | - | - | - | - | 173,365 | 173,365 | - | |||||||||||||||||||||
Other commercial business loans | 103 | 15 | 1,194 | 1,312 | 208,714 | 210,026 | 178 | |||||||||||||||||||||
Total | 103 | 15 | 1,194 | 1,312 | 382,079 | 383,391 | 178 | |||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Home equity | 601 | - | 1,674 | 2,275 | 221,635 | 223,910 | 509 | |||||||||||||||||||||
Other | 314 | 34 | 98 | 446 | 38,331 | 38,777 | 39 | |||||||||||||||||||||
Total | 915 | 34 | 1,772 | 2,721 | 259,966 | 262,687 | 548 | |||||||||||||||||||||
Total | $ | 10,528 | $ | 3,345 | $ | 28,742 | $ | 42,615 | $ | 2,332,263 | $ | 2,374,878 | $ | 7,208 |
Loans Aquired from
(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 | |||||||||||||||||||||||||||||||||||||||||||
March 31, 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) |
| 30-59 Days |
| 60-89 Days |
| Greater |
| Total Past |
| Current |
| Total Loans |
| Past Due > |
| |||||||||||||||||||||||||||||||||||
June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
1-4 family | $ | 1,091 | $ | 313 | $ | 2,183 | $ | 3,587 | $ | 309,486 | $ | 313,073 | $ | 1,456 |
| $ | 2,340 |
| $ | 465 |
| $ | 11,599 |
| $ | 14,404 |
| $ | 836,330 |
| $ | 850,734 |
| $ | 4,622 |
| ||||||||||||||
Construction | - | - | 173 | 173 | 8,371 | 8,544 | 173 |
| 465 |
| — |
| — |
| 465 |
| 27,594 |
| 28,059 |
| — |
| ||||||||||||||||||||||||||||
Total | 1,091 | 313 | 2,356 | 3,760 | 317,857 | 321,617 | 1,629 |
| 2,805 |
| 465 |
| 11,599 |
| 14,869 |
| 863,924 |
| 878,793 |
| 4,622 |
| ||||||||||||||||||||||||||||
Commercial mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Construction | - | - | 630 | 630 | 3,504 | 4,134 | 630 |
| 350 |
| — |
| 5,811 |
| 6,161 |
| 140,488 |
| 146,649 |
| — |
| ||||||||||||||||||||||||||||
Single and multi-family | 158 | - | 484 | 642 | 15,280 | 15,922 | 484 |
| 251 |
| 66 |
| 704 |
| 1,021 |
| 70,840 |
| 71,861 |
| 309 |
| ||||||||||||||||||||||||||||
Commercial real estate | 14 | 585 | 2,330 | 2,929 | 174,716 | 177,645 | 1,919 |
| 1,097 |
| 504 |
| 8,704 |
| 10,305 |
| 737,572 |
| 747,877 |
| — |
| ||||||||||||||||||||||||||||
Total | 172 | 585 | 3,444 | 4,201 | 193,500 | 197,701 | 3,033 |
| 1,698 |
| 570 |
| 15,219 |
| 17,487 |
| 948,900 |
| 966,387 |
| 309 |
| ||||||||||||||||||||||||||||
Commercial business loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Asset based lending | - | - | - | - | - | - | - |
| — |
| — |
| — |
| — |
| 177,763 |
| 177,763 |
| — |
| ||||||||||||||||||||||||||||
Other commercial business loans | 101 | 56 | 177 | 334 | 45,902 | 46,236 | 164 |
| 487 |
| 26 |
| 1,986 |
| 2,499 |
| 241,677 |
| 244,176 |
| 969 |
| ||||||||||||||||||||||||||||
Total | 101 | 56 | 177 | 334 | 45,902 | 46,236 | 164 |
| 487 |
| 26 |
| 1,986 |
| 2,499 |
| 419,440 |
| 421,939 |
| 969 |
| ||||||||||||||||||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Home equity | 193 | 11 | 77 | 281 | 69,306 | 69,587 | - |
| 760 |
| 81 |
| 1,318 |
| 2,159 |
| 224,521 |
| 226,680 |
| 376 |
| ||||||||||||||||||||||||||||
Other | 217 | 138 | 152 | 507 | 28,474 | 28,981 | 42 |
| 445 |
| 160 |
| 76 |
| 681 |
| 37,031 |
| 37,712 |
| 28 |
| ||||||||||||||||||||||||||||
Total | 410 | 149 | 229 | 788 | 97,780 | 98,568 | 42 |
| 1,205 |
| 241 |
| 1,394 |
| 2,840 |
| 261,552 |
| 264,392 |
| 404 |
| ||||||||||||||||||||||||||||
Total | $ | 1,774 | $ | 1,103 | $ | 6,206 | $ | 9,083 | $ | 655,039 | $ | 664,122 | $ | 4,868 |
| $ | 6,195 |
| $ | 1,302 |
| $ | 30,198 |
| $ | 37,695 |
| $ | 2,493,816 |
| $ | 2,531,511 |
| $ | 6,304 |
|
Loans Acquired from Business Combinations
Loans from Business Activities
(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, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) |
| 30-59 Days |
| 60-89 Days |
| Greater |
| Total Past |
| Current |
| Total Loans |
| Past Due > |
| |||||||||||||||||||||||||||||||||||
June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
1-4 family | $ | 2,045 | $ | 877 | $ | 11,479 | $ | 14,401 | $ | 635,066 | $ | 649,467 | $ | 5,123 |
| $ | 1,895 |
| $ | 115 |
| $ | 2,373 |
| $ | 4,383 |
| $ | 302,171 |
| $ | 306,554 |
| $ | 825 |
| ||||||||||||||
Construction | - | - | - | - | 32,191 | 32,191 | - |
| — |
| — |
| — |
| — |
| 8,100 |
| 8,100 |
| — |
| ||||||||||||||||||||||||||||
Total | 2,045 | 877 | 11,479 | 14,401 | 667,257 | 681,658 | 5,123 |
| 1,895 |
| 115 |
| 2,373 |
| 4,383 |
| 310,271 |
| 314,654 |
| 825 |
| ||||||||||||||||||||||||||||
Commercial mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Construction | - | - | 8,650 | 8,650 | 108,842 | 117,492 | - |
| — |
| 199 |
| 1,616 |
| 1,815 |
| 12,340 |
| 14,155 |
| 1,616 |
| ||||||||||||||||||||||||||||
Single and multi-family | 70 | - | 676 | 746 | 88,655 | 89,401 | 314 |
| 571 |
| 593 |
| 322 |
| 1,486 |
| 30,989 |
| 32,475 |
| 322 |
| ||||||||||||||||||||||||||||
Commercial real estate | 746 | 8,019 | 5,258 | 14,023 | 732,522 | 746,545 | - |
| 747 |
| 1,120 |
| 4,483 |
| 6,350 |
| 261,691 |
| 268,041 |
| 4,057 |
| ||||||||||||||||||||||||||||
Total | 816 | 8,019 | 14,584 | 23,419 | 930,019 | 953,438 | 314 |
| 1,318 |
| 1,912 |
| 6,421 |
| 9,651 |
| 305,020 |
| 314,671 |
| 5,995 |
| ||||||||||||||||||||||||||||
Commercial business loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Commercial business loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Asset based lending | - | - | - | - | 151,065 | 151,065 | - |
| — |
| — |
| — |
| — |
| 2,495 |
| 2,495 |
| — |
| ||||||||||||||||||||||||||||
Other commercial business loans | 369 | 781 | 1,156 | 2,306 | 208,395 | 210,701 | 178 |
| 503 |
| 112 |
| 3,804 |
| 4,419 |
| 90,831 |
| 95,250 |
| 3,774 |
| ||||||||||||||||||||||||||||
Total | 369 | 781 | 1,156 | 2,306 | 359,460 | 361,766 | 178 |
| 503 |
| 112 |
| 3,804 |
| 4,419 |
| 93,326 |
| 97,745 |
| 3,774 |
| ||||||||||||||||||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Home equity | 430 | 257 | 1,692 | 2,379 | 223,990 | 226,369 | - |
| 95 |
| — |
| 78 |
| 173 |
| 75,667 |
| 75,840 |
| — |
| ||||||||||||||||||||||||||||
Other | 311 | 148 | 148 | 607 | 38,413 | 39,020 | 100 |
| 242 |
| 38 |
| 298 |
| 578 |
| 30,620 |
| 31,198 |
| 157 |
| ||||||||||||||||||||||||||||
Total | 741 | 405 | 1,840 | 2,986 | 262,403 | 265,389 | 100 |
| 337 |
| 38 |
| 376 |
| 751 |
| 106,287 |
| 107,038 |
| 157 |
| ||||||||||||||||||||||||||||
Total | $ | 3,971 | $ | 10,082 | $ | 29,059 | $ | 43,112 | $ | 2,219,139 | $ | 2,262,251 | $ | 5,715 |
| $ | 4,053 |
| $ | 2,177 |
| $ | 12,974 |
| $ | 19,204 |
| $ | 814,904 |
| $ | 834,108 |
| $ | 10,751 |
|
Loans Aquired from Business Combinations
(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, 2011 | ||||||||||||||||||||||||||||
Residential mortgages: | ||||||||||||||||||||||||||||
1-4 family | $ | 663 | $ | 242 | $ | 1,450 | $ | 2,355 | $ | 327,052 | $ | 329,407 | $ | 796 | ||||||||||||||
Construction | - | - | 165 | 165 | 9,205 | 9,370 | 165 | |||||||||||||||||||||
Total | 663 | 242 | 1,615 | 2,520 | 336,257 | 338,777 | 961 | |||||||||||||||||||||
Commercial mortgages: | ||||||||||||||||||||||||||||
Construction | - | - | 606 | 606 | 6,120 | 6,726 | 606 | |||||||||||||||||||||
Single and multi-family | - | - | 703 | 703 | 15,695 | 16,398 | 703 | |||||||||||||||||||||
Commercial real estate | 68 | 102 | 1,923 | 2,093 | 177,756 | 179,679 | 1,913 | |||||||||||||||||||||
Total | 68 | 102 | 3,232 | 3,402 | 199,571 | 202,803 | 3,222 | |||||||||||||||||||||
Commercial business loans: | ||||||||||||||||||||||||||||
Asset based lending | - | - | - | - | 2,206 | 2,206 | - | |||||||||||||||||||||
Other commercial business loans | 349 | 235 | 258 | 842 | 44,636 | 46,320 | 245 | |||||||||||||||||||||
Total | 349 | 235 | 258 | 842 | 47,684 | 48,526 | 245 | |||||||||||||||||||||
Consumer loans: | ||||||||||||||||||||||||||||
Home equity | 284 | - | 75 | 359 | 71,468 | 71,827 | - | |||||||||||||||||||||
Other | 239 | 69 | 179 | 487 | 31,899 | 32,386 | 41 | |||||||||||||||||||||
Total | 523 | 69 | 254 | 846 | 103,367 | 104,213 | 41 | |||||||||||||||||||||
Total | $ | 1,603 | $ | 648 | $ | 5,359 | $ | 7,610 | $ | 686,879 | $ | 694,319 | $ | 4,469 |
Loans from Business Activities
(in thousands) |
| 30-59 Days Past |
| 60-89 Days |
| Greater |
| Total Past |
| Current |
| Total Loans |
| Past Due > |
| |||||||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
1-4 family |
| $ | 2,045 |
| $ | 877 |
| $ | 11,479 |
| $ | 14,401 |
| $ | 635,066 |
| $ | 649,467 |
| $ | 5,123 |
|
Construction |
| — |
| — |
| — |
| — |
| 32,191 |
| 32,191 |
| — |
| |||||||
Total |
| 2,045 |
| 877 |
| 11,479 |
| 14,401 |
| 667,257 |
| 681,658 |
| 5,123 |
| |||||||
Commercial mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction |
| — |
| — |
| 8,650 |
| 8,650 |
| 108,842 |
| 117,492 |
| — |
| |||||||
Single and multi-family |
| 70 |
| — |
| 676 |
| 746 |
| 88,655 |
| 89,401 |
| 314 |
| |||||||
Commercial real estate |
| 746 |
| 8,019 |
| 5,258 |
| 14,023 |
| 732,522 |
| 746,545 |
| — |
| |||||||
Total |
| 816 |
| 8,019 |
| 14,584 |
| 23,419 |
| 930,019 |
| 953,438 |
| 314 |
| |||||||
Commercial business loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Asset based lending |
| — |
| — |
| — |
| — |
| 151,065 |
| 151,065 |
| — |
| |||||||
Other commercial business loans |
| 369 |
| 781 |
| 1,156 |
| 2,306 |
| 208,395 |
| 210,701 |
| 178 |
| |||||||
Total |
| 369 |
| 781 |
| 1,156 |
| 2,306 |
| 359,460 |
| 361,766 |
| 178 |
| |||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home equity |
| 430 |
| 257 |
| 1,692 |
| 2,379 |
| 223,990 |
| 226,369 |
| — |
| |||||||
Other |
| 311 |
| 148 |
| 148 |
| 607 |
| 38,413 |
| 39,020 |
| 100 |
| |||||||
Total |
| 741 |
| 405 |
| 1,840 |
| 2,986 |
| 262,403 |
| 265,389 |
| 100 |
| |||||||
Total |
| $ | 3,971 |
| $ | 10,082 |
| $ | 29,059 |
| $ | 43,112 |
| $ | 2,219,139 |
| $ | 2,262,251 |
| $ | 5,715 |
|
Loans Acquired from Business Combinations
(in thousands) |
| 30-59 Days Past |
| 60-89 Days |
| Greater |
| Total Past |
| Current |
| Total Loans |
| Past Due > |
| |||||||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
1-4 family |
| $ | 663 |
| $ | 242 |
| $ | 1,450 |
| $ | 2,355 |
| $ | 327,052 |
| $ | 329,407 |
| $ | 796 |
|
Construction |
| — |
| — |
| 165 |
| 165 |
| 9,205 |
| 9,370 |
| 165 |
| |||||||
Total |
| 663 |
| 242 |
| 1,615 |
| 2,520 |
| 336,257 |
| 338,777 |
| 961 |
| |||||||
Commercial mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Construction |
| — |
| — |
| 606 |
| 606 |
| 6,120 |
| 6,726 |
| 606 |
| |||||||
Single and multi-family |
| — |
| — |
| 703 |
| 703 |
| 15,695 |
| 16,398 |
| 703 |
| |||||||
Commercial real estate |
| 68 |
| 102 |
| 1,923 |
| 2,093 |
| 177,586 |
| 179,679 |
| 1,913 |
| |||||||
Total |
| 68 |
| 102 |
| 3,232 |
| 3,402 |
| 199,401 |
| 202,803 |
| 3,222 |
| |||||||
Commercial business loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Asset based lending |
| — |
| — |
| — |
| — |
| 2,206 |
| 2,206 |
| — |
| |||||||
Other commercial business loans |
| 349 |
| 235 |
| 258 |
| 842 |
| 45,478 |
| 46,320 |
| 245 |
| |||||||
Total |
| 349 |
| 235 |
| 258 |
| 842 |
| 47,684 |
| 48,526 |
| 245 |
| |||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home equity |
| 284 |
| — |
| 75 |
| 359 |
| 71,468 |
| 71,827 |
| — |
| |||||||
Other |
| 239 |
| 69 |
| 179 |
| 487 |
| 31,899 |
| 32,386 |
| 41 |
| |||||||
Total |
| 523 |
| 69 |
| 254 |
| 846 |
| 103,367 |
| 104,213 |
| 41 |
| |||||||
Total |
| $ | 1,603 |
| $ | 648 |
| $ | 5,359 |
| $ | 7,610 |
| $ | 686,709 |
| $ | 694,319 |
| $ | 4,469 |
|
Activity in the allowance for loan losses for the threesix months ended March 31,June 30, 2012 and December 31, 2011 was as follows:
Loans from Business Activities
Loans from Business Activities (In thousands) | Residential mortgages | Commercial mortgages | Commercial business | Consumer | Unallocated | Total | ||||||||||||||||||
March 31, 2012 | ||||||||||||||||||||||||
Balance at beginning of year | $ | 3,150 | $ | 22,095 | $ | 4,540 | $ | 2,203 | $ | (90 | ) | $ | 31,898 | |||||||||||
Charged-off loans | 447 | 1,118 | 15 | 343 | - | 1,923 | ||||||||||||||||||
Recoveries on charged-off loans | 66 | 2 | 12 | 56 | - | 136 | ||||||||||||||||||
Provision for loan losses | 1,313 | 561 | 369 | (540 | ) | 147 | 1,850 | |||||||||||||||||
Balance at end of year | $ | 4,082 | $ | 21,540 | $ | 4,906 | $ | 1,376 | $ | 57 | $ | 31,961 | ||||||||||||
Individually evaluated for impairment | 569 | 1,238 | 132 | 462 | - | 2,401 | ||||||||||||||||||
Collectively evaluated for impairment | 3,513 | 20,302 | 4,774 | 914 | 57 | 29,560 | ||||||||||||||||||
Loans acquired with deteriorated credit quality | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | 4,082 | $ | 21,540 | $ | 4,906 | $ | 1,376 | $ | 57 | $ | 31,961 | ||||||||||||
Loans receivable: | ||||||||||||||||||||||||
Balance at end of year | ||||||||||||||||||||||||
Individually evaluated for impairment | 6,331 | 30,681 | 501 | 883 | 38,396 | |||||||||||||||||||
Collectively evaluated for impairment | 772,715 | 919,073 | 382,890 | 261,804 | 2,336,482 | |||||||||||||||||||
Total | $ | 779,046 | $ | 949,754 | $ | 383,391 | $ | 262,687 | $ | 2,374,878 |
Loans Aquired from Business Combinations (In thousands) | Residential mortgages | Commercial mortgages | Commercial business | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||
March 31, 2012 | |||||||||||||||||||||||||||||||||||||||||||
(In thousands) |
| Residential |
| Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total |
| ||||||||||||||||||||||||||||||
June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at beginning of year | $ | 281 | $ | 158 | $ | 38 | $ | 87 | $ | (18 | ) | $ | 546 |
| $ | 3,150 |
| $ | 22,095 |
| $ | 4,540 |
| $ | 2,203 |
| $ | (90 | ) | $ | 31,898 |
| |||||||||||
Charged-off loans | - | - | - | - | - | - |
| 1,340 |
| 1,499 |
| 27 |
| 1,158 |
| — |
| 4,024 |
| ||||||||||||||||||||||||
Recoveries on charged-off loans | - | - | - | - | - | - |
| 72 |
| 5 |
| 23 |
| 99 |
| — |
| 199 |
| ||||||||||||||||||||||||
Provision for loan losses | 66 | 42 | 10 | 20 | 12 | 150 |
| 4,237 |
| 236 |
| (217 | ) | (285 | ) | (92 | ) | 3,879 |
| ||||||||||||||||||||||||
Balance at end of year | $ | 347 | $ | 200 | $ | 48 | $ | 107 | $ | (6 | ) | $ | 696 | ||||||||||||||||||||||||||||||
Balance at end of period |
| $ | 6,119 |
| $ | 20,837 |
| $ | 4,319 |
| $ | 859 |
| $ | (182 | ) | $ | 31,952 |
| ||||||||||||||||||||||||
Individually evaluated for impairment | - | - | - | - | - | - |
| 692 |
| 2,114 |
| 142 |
| — |
| — |
| 2,948 |
| ||||||||||||||||||||||||
Collectively evaluated for impairment | 347 | 200 | 48 | 107 | (6 | ) | 696 |
| 5,427 |
| 18,723 |
| 4,177 |
| 859 |
| (182 | ) | 29,004 |
| |||||||||||||||||||||||
Total | $ | 347 | $ | 200 | $ | 48 | $ | 107 | $ | (6 | ) | $ | 696 |
| $ | 6,119 |
| $ | 20,837 |
| $ | 4,319 |
| $ | 859 |
| $ | (182 | ) | $ | 31,952 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at end of year | |||||||||||||||||||||||||||||||||||||||||||
Balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Individually evaluated for impairment | - | - | - | - | - |
| 6,536 |
| 33,205 |
| 492 |
| 577 |
|
|
| 40,810 |
| |||||||||||||||||||||||||
Collectively evaluated for impairment | 321,617 | 197,701 | 46,236 | 98,568 | 664,122 |
| 872,257 |
| 933,182 |
| 421,447 |
| 263,815 |
|
|
| 2,490,701 |
| |||||||||||||||||||||||||
Total | $ | 321,617 | $ | 197,701 | $ | 46,236 | $ | 98,568 | $ | 664,122 |
| $ | 878,793 |
| $ | 966,387 |
| $ | 421,939 |
| $ | 264,392 |
|
|
| $ | 2,531,511 |
|
Loans Acquired from Business Combinations
(In thousands) |
| Residential |
| Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total |
| ||||||
June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at beginning of year |
| $ | 281 |
| $ | 158 |
| $ | 38 |
| $ | 87 |
| $ | (18 | ) | $ | 546 |
|
Charged-off loans |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Recoveries on charged-off loans |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Provision for loan losses |
| 58 |
| 158 |
| 61 |
| 29 |
| 64 |
| 370 |
| ||||||
Balance at end of period |
| $ | 339 |
| $ | 316 |
| $ | 99 |
| $ | 116 |
| $ | 46 |
| $ | 916 |
|
Individually evaluated for impairment |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Collectively evaluated for impairment |
| 339 |
| 316 |
| 99 |
| 116 |
| 46 |
| 916 |
| ||||||
Total |
| $ | 339 |
| $ | 316 |
| $ | 99 |
| $ | 116 |
| $ | 46 |
| $ | 916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at end of Period |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment |
| 859 |
| 410 |
| — |
| 38 |
|
|
| 1,307 |
| ||||||
Collectively evaluated for impairment |
| 313,795 |
| 314,261 |
| 97,745 |
| 107,000 |
|
|
| 832,801 |
| ||||||
Total |
| $ | 314,654 |
| $ | 314,671 |
| $ | 97,745 |
| $ | 107,038 |
|
|
| $ | 834,108 |
|
Loans from Business Activities
Loans from Business Activities (In thousands) | Residential mortgages | Commercial mortgages | Commercial business | Consumer | Unallocated | Total | ||||||||||||||||||
December 31, 2011 | ||||||||||||||||||||||||
Balance at beginning of year | $ | 3,077 | $ | 19,461 | $ | 6,038 | $ | 2,099 | $ | 1,223 | $ | 31,898 | ||||||||||||
Charged-off loans | 1,322 | 4,047 | 1,443 | 884 | - | 7,696 | ||||||||||||||||||
Recoveries on charged-off loans | 231 | 189 | 109 | 150 | - | 679 | ||||||||||||||||||
Provision for loan losses | 1,164 | 6,492 | (164 | ) | 838 | (1,313 | ) | 7,017 | ||||||||||||||||
Balance at end of year | $ | 3,150 | $ | 22,095 | $ | 4,540 | $ | 2,203 | $ | (90 | ) | $ | 31,898 | |||||||||||
Individually evaluated for impairment | 449 | 1,722 | 116 | 488 | - | 2,775 | ||||||||||||||||||
Collectively evaluated for impairment | 2,701 | 20,373 | 4,424 | 1,715 | (90 | ) | 29,123 | |||||||||||||||||
Loans acquired with deteriorated credit quality | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | 3,150 | $ | 22,095 | $ | 4,540 | $ | 2,203 | $ | (90 | ) | $ | 31,898 | |||||||||||
Loans receivable: | ||||||||||||||||||||||||
Balance at end of year | ||||||||||||||||||||||||
Individually evaluated for impairment | 5,655 | 34,074 | 564 | 1,190 | 41,483 | |||||||||||||||||||
Collectively evaluated for impairment | 676,003 | 919,364 | 361,202 | 264,199 | 2,220,768 | |||||||||||||||||||
Total | $ | 681,658 | $ | 953,438 | $ | 361,766 | $ | 265,389 | $ | 2,262,251 |
Loans Aquired from Business Combinations (In thousands) | Residential mortgages | Commercial mortgages | Commercial business | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||
(In thousands) |
| Residential |
| Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total |
| ||||||||||||||||||||||||||||||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at beginning of year | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
| $ | 3,077 |
| $ | 19,461 |
| $ | 6,038 |
| $ | 2,099 |
| $ | 1,223 |
| $ | 31,898 |
| ||||||||||||
Charged-off loans | - | - | - | - | - | - |
| 1,322 |
| 4,047 |
| 1,443 |
| 884 |
| — |
| 7,696 |
| ||||||||||||||||||||||||
Recoveries on charged-off loans | - | - | - | - | - | - |
| 231 |
| 189 |
| 109 |
| 150 |
| — |
| 679 |
| ||||||||||||||||||||||||
Provision for loan losses | 281 | 158 | 38 | 87 | (18 | ) | 546 |
| 1,164 |
| 6,492 |
| (164 | ) | 838 |
| (1,313 | ) | 7,017 |
| |||||||||||||||||||||||
Balance at end of year | $ | 281 | $ | 158 | $ | 38 | $ | 87 | $ | (18 | ) | $ | 546 |
| $ | 3,150 |
| $ | 22,095 |
| $ | 4,540 |
| $ | 2,203 |
| $ | (90 | ) | $ | 31,898 |
| |||||||||||
Individually evaluated for impairment | - | - | - | - | - | - |
| 449 |
| 1,722 |
| 116 |
| 488 |
| — |
| 2,775 |
| ||||||||||||||||||||||||
Collectively evaluated for impairment | 281 | 158 | 38 | 87 | (18 | ) | 546 |
| 2,701 |
| 20,373 |
| 4,424 |
| 1,715 |
| (90 | ) | 29,123 |
| |||||||||||||||||||||||
Total | $ | 281 | $ | 158 | $ | 38 | $ | 87 | $ | (18 | ) | $ | 546 |
| $ | 3,150 |
| $ | 22,095 |
| $ | 4,540 |
| $ | 2,203 |
| $ | (90 | ) | $ | 31,898 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Individually evaluated for impairment | - | - | - | - | - |
| 5,655 |
| 34,074 |
| 564 |
| 1,190 |
|
|
| 41,483 |
| |||||||||||||||||||||||||
Collectively evaluated for impairment | 338,777 | 202,803 | 48,526 | 104,213 | 694,319 |
| 676,003 |
| 919,364 |
| 361,202 |
| 264,199 |
|
|
| 2,220,768 |
| |||||||||||||||||||||||||
Total | $ | 338,777 | $ | 202,803 | $ | 48,526 | $ | 104,213 | $ | 694,319 |
| $ | 681,658 |
| $ | 953,438 |
| $ | 361,766 |
| $ | 265,389 |
|
|
| $ | 2,262,251 |
|
Loans Acquired from Business Combinations
(In thousands) |
| Residential |
| Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total |
| ||||||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at beginning of year |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Charged-off loans |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Recoveries on charged-off loans |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Provision for loan losses |
| 281 |
| 158 |
| 38 |
| 87 |
| (18 | ) | 546 |
| ||||||
Balance at end of year |
| $ | 281 |
| $ | 158 |
| $ | 38 |
| $ | 87 |
| $ | (18 | ) | $ | 546 |
|
Individually evaluated for impairment |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Collectively evaluated for impairment |
| 281 |
| 158 |
| 38 |
| 87 |
| (18 | ) | 546 |
| ||||||
Total |
| $ | 281 |
| $ | 158 |
| $ | 38 |
| $ | 87 |
| $ | (18 | ) | $ | 546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment |
| — |
| — |
| — |
| — |
|
|
| — |
| ||||||
Collectively evaluated for impairment |
| 338,777 |
| 202,803 |
| 48,526 |
| 104,213 |
|
|
| 694,319 |
| ||||||
Total |
| $ | 338,777 |
| $ | 202,803 |
| $ | 48,526 |
| $ | 104,213 |
|
|
| $ | 694,319 |
|
The following is a summary of impaired loans at March 31,June 30, 2012:
Loans from Business Activities
At March 31, 2012 | ||||||||||||
Loans from Business Activities (in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Residential mortgages - 1-4 family | $ | 1,867 | $ | 1,867 | $ | - | ||||||
Commercial mortgages - single and multifamily | 326 | 326 | - | |||||||||
Commercial mortgages - real estate | 2,638 | 2,638 | - | |||||||||
With an allowance recorded: | ||||||||||||
Residential mortgages - 1-4 family | $ | 3,089 | $ | 3,658 | $ | 569 | ||||||
Commercial business loans | 21 | 153 | 132 | |||||||||
Commercial-construction | 5,185 | 5,811 | 626 | |||||||||
Commercial mortgages - single and multifamily | 67 | 70 | 2 | |||||||||
Commercial mortgages - real estate | 1,691 | 2,301 | 610 | |||||||||
Consumer-home equity | 383 | 845 | 462 | |||||||||
Total | ||||||||||||
Residential mortgages | $ | 4,956 | $ | 5,525 | $ | 569 | ||||||
Commercial mortgages | 9,907 | 11,146 | 1,238 | |||||||||
Commercial business loans | 21 | 153 | 132 | |||||||||
Consumer loans | 383 | 845 | 462 | |||||||||
Total impaired loans | $ | 15,267 | $ | 17,669 | $ | 2,401 |
At March 31, 2012 |
| At June 30, 2012 |
| |||||||||||||||||||
Loans Aquired from Business Combinations (in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
(In thousands) |
| Recorded Investment |
| Unpaid Principal |
| Related Allowance |
| |||||||||||||||
With no related allowance: |
|
|
|
|
|
|
| |||||||||||||||
Residential mortgages - 1-4 family | $ | 232 | $ | 232 | $ | - |
| $ | 2,102 |
| $ | 2,102 |
| $ | — |
| ||||||
Commercial mortgages - single and multifamily |
| 164 |
| 164 |
| — |
| |||||||||||||||
Commercial mortgages - real estate | 388 | 388 | - |
| 4,748 |
| 4,748 |
| — |
| ||||||||||||
Consumer-home equity | 38 | 38 | - | |||||||||||||||||||
Consumer - home equity |
| 578 |
| 578 |
| — |
| |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
With an allowance recorded: |
|
|
|
|
|
|
| |||||||||||||||
Residential mortgages - 1-4 family |
| $ | 2,586 |
| $ | 3,278 |
| $ | 692 |
| ||||||||||||
Commercial mortgages - construction |
| 4,673 |
| 5,812 |
| 1,139 |
| |||||||||||||||
Commercial mortgages - single and multifamily |
| 124 |
| 231 |
| 107 |
| |||||||||||||||
Commercial mortgages - real estate |
| 2,524 |
| 3,392 |
| 868 |
| |||||||||||||||
Other commercial business loans |
| 11 |
| 153 |
| 142 |
| |||||||||||||||
Consumer - home equity |
| — |
| — |
| — |
| |||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Total |
|
|
|
|
|
|
| |||||||||||||||
Residential mortgages | $ | 232 | $ | 232 | $ | - |
| $ | 4,688 |
| $ | 5,380 |
| $ | 692 |
| ||||||
Commercial mortgages | 388 | 388 | - |
| 12,233 |
| 14,347 |
| 2,114 |
| ||||||||||||
Consumer loans | 38 | 38 | - | |||||||||||||||||||
Commercial business |
| 11 |
| 153 |
| 142 |
| |||||||||||||||
Consumer |
| 578 |
| 578 |
| — |
| |||||||||||||||
Total impaired loans | $ | 658 | $ | 658 | $ | - |
| $ | 17,510 |
| $ | 20,458 |
| $ | 2,948 |
|
Loans Acquired from Business Combinations
|
| At June 30, 2012 |
| |||||||
(In thousands) |
| Recorded Investment |
| Unpaid Principal |
| Related Allowance |
| |||
With no related allowance: |
|
|
|
|
|
|
| |||
Residential mortgages - 1-4 family |
| $ | 859 |
| $ | 859 |
| $ | — |
|
Commercial mortgages - real estate |
| 410 |
| 410 |
| — |
| |||
Consumer - home equity |
| 38 |
| 38 |
| — |
| |||
|
|
|
|
|
|
|
| |||
Total |
|
|
|
|
|
|
| |||
Residential mortgages |
| $ | 859 |
| $ | 859 |
| $ | — |
|
Commercial mortgages |
| 410 |
| 410 |
| — |
| |||
Consumer |
| 38 |
| 38 |
| — |
| |||
Total impaired loans |
| $ | 1,307 |
| $ | 1,307 |
| $ | — |
|
The following is a summary of impaired loans at December 31, 2011:
Loans from Business Activities
Loans from Business Activities | At December 31, 2011 | |||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Residential mortgages - 1-4 family | $ | 2,546 | $ | 2,546 | $ | - | ||||||
Commercial mortgages - single and multifamily | 326 | 326 | - | |||||||||
Commercial mortgages - real estate | 2,751 | 2,751 | - | |||||||||
Consumer - home equity | 308 | 308 | - | |||||||||
With an allowance recorded: | ||||||||||||
Residential mortgages - 1-4 family | $ | 1,853 | $ | 2,302 | $ | 449 | ||||||
Commercial mortgages - construction | 7,559 | 8,650 | 1,091 | |||||||||
Commercial mortgages - real estate | 1,373 | 2,004 | 631 | |||||||||
Other commercial business loans | 13 | 129 | 116 | |||||||||
Consumer - home equity | 357 | 845 | 488 | |||||||||
Total | ||||||||||||
Residential mortgages | $ | 4,399 | $ | 4,848 | $ | 449 | ||||||
Commercial mortgages | 12,009 | 13,731 | 1,722 | |||||||||
Commercial business | 13 | 129 | 116 | |||||||||
Consumer | 665 | 1,153 | 488 | |||||||||
Total impaired loans | $ | 17,086 | $ | 19,861 | $ | 2,775 |
Loans Aquired from Business Combinations | At December 31, 2011 | |||||||||||||||||||||
|
| At December 31, 2011 |
| |||||||||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance |
| Recorded Investment |
| Unpaid Principal |
| Related Allowance |
| ||||||||||||
With no related allowance: |
|
|
|
|
|
|
| |||||||||||||||
Residential mortgages - 1-4 family | $ | 247 | $ | 247 | $ | - |
| $ | 2,546 |
| $ | 2,546 |
| $ | — |
| ||||||
Commercial mortgages - single and multifamily |
| 326 |
| 326 |
| — |
| |||||||||||||||
Commercial mortgages - real estate |
| 2,751 |
| 2,751 |
| — |
| |||||||||||||||
Consumer - home equity |
| 308 |
| 308 |
| — |
| |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
With an allowance recorded: |
|
|
|
|
|
|
| |||||||||||||||
Residential mortgages - 1-4 family |
| $ | 1,853 |
| $ | 2,302 |
| $ | 449 |
| ||||||||||||
Commercial mortgages - construction |
| 7,559 |
| 8,650 |
| 1,091 |
| |||||||||||||||
Commercial mortgages - real estate |
| 1,373 |
| 2,004 |
| 631 |
| |||||||||||||||
Other commercial business loans |
| 13 |
| 129 |
| 116 |
| |||||||||||||||
Consumer - home equity | 37 | 37 | - |
| 357 |
| 845 |
| 488 |
| ||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Total |
|
|
|
|
|
|
| |||||||||||||||
Residential mortgages | $ | 247 | $ | 247 | $ | - |
| $ | 4,399 |
| $ | 4,848 |
| $ | 449 |
| ||||||
Commercial mortgages |
| 12,009 |
| 13,731 |
| 1,722 |
| |||||||||||||||
Commercial business |
| 13 |
| 129 |
| 116 |
| |||||||||||||||
Consumer | 37 | 37 | - |
| 665 |
| 1,153 |
| 488 |
| ||||||||||||
Total impaired loans | $ | 284 | $ | 284 | $ | - |
| $ | 17,086 |
| $ | 19,861 |
| $ | 2,775 |
|
Loans Acquired from Business Combinations
|
| At December 31, 2011 |
| |||||||
(In thousands) |
| Recorded Investment |
| Unpaid Principal |
| Related Allowance |
| |||
With no related allowance: |
|
|
|
|
|
|
| |||
Residential mortgages - 1-4 family |
| $ | 247 |
| $ | 247 |
| $ | — |
|
Consumer - home equity |
| 37 |
| 37 |
| — |
| |||
|
|
|
|
|
|
|
| |||
Total |
|
|
|
|
|
|
| |||
Residential mortgages |
| $ | 247 |
| $ | 247 |
| $ | — |
|
Consumer |
| 37 |
| 37 |
| — |
| |||
Total impaired loans |
| $ | 284 |
| $ | 284 |
| $ | — |
|
The following is a summary of the average recorded investment and interest income recognized on impaired loans as of March 31,June 30, 2012 and March 31,June 30, 2011:
Loans from Business Activities
Three Months Ended March 31, 2012 | Three Months Ended March 31, 2011 | |||||||||||||||
Loans from Business Activities (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 | $ | 583 | $ | 15 | $ | 304 | $ | 8 | ||||||||
Residential mortgages - construction | - | - | 57 | - | ||||||||||||
Commercial-construction | - | - | 189 | - | ||||||||||||
Commercial mortgages - single and multifamily | 81 | - | 214 | 1 | ||||||||||||
Commercial mortgages - real estate | 677 | 15 | 7,895 | 97 | ||||||||||||
Commercial business loans | - | - | 75 | 1 | ||||||||||||
Consumer-home equity | 35 | 1 | 394 | 2 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Residential mortgages - 1-4 family | $ | 914 | $ | 14 | $ | 847 | $ | 10 | ||||||||
Residential mortgages - construction | - | - | 64 | - | ||||||||||||
Commercial business loans | 34 | 2 | 216 | 1 | ||||||||||||
Commercial-construction | 1,926 | - | 1,658 | - | ||||||||||||
Commercial mortgages - single and multifamily | 6 | - | 921 | 8 | ||||||||||||
Commercial mortgages - real estate | 526 | 9 | 2,954 | 10 | ||||||||||||
Consumer-home equity | 211 | - | - | - | ||||||||||||
Total | ||||||||||||||||
Residential mortgages | $ | 1,497 | $ | 29 | $ | 1,272 | $ | 18 | ||||||||
Commercial mortgages | 3,216 | 24 | 13,831 | 116 | ||||||||||||
Commercial business loans | 34 | 2 | 291 | 2 | ||||||||||||
Consumer loans | 246 | 1 | 394 | 2 | ||||||||||||
Total impaired loans | $ | 4,993 | $ | 56 | $ | 15,788 | $ | 138 |
|
| Six Months Ended June 30, 2012 |
| Six Months Ended June, 2011 |
| ||||||||
(in thousands) |
| Average Recorded |
| Cash Basis |
| Average Recorded |
| Cash Basis |
| ||||
With no related allowance: |
|
|
|
|
|
|
|
|
| ||||
Residential mortgages - 1-4 family |
| $ | 2,098 |
| $ | 21 |
| $ | 930 |
| $ | 11 |
|
Residential mortgages - construction |
| — |
| — |
| 53 |
| — |
| ||||
Commercial-construction |
| — |
| — |
| 157 |
| — |
| ||||
Commercial mortgages - single and multifamily |
| 299 |
| — |
| 107 |
| — |
| ||||
Commercial mortgages - real estate |
| 3,022 |
| 26 |
| 7,994 |
| 84 |
| ||||
Commercial business loans |
| — |
| — |
| 46 |
| — |
| ||||
Consumer-home equity |
| 166 |
| 1 |
| 361 |
| 2 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
| ||||
Residential mortgages - 1-4 family |
| $ | 3,569 |
| $ | 22 |
| $ | 633 |
| $ | 3 |
|
Residential mortgages - construction |
| — |
| — |
| 32 |
| — |
| ||||
Commercial-construction |
| 6,757 |
| — |
| 2,335 |
| — |
| ||||
Commercial mortgages - single and multifamily |
| 73 |
| — |
| 548 |
| 3 |
| ||||
Commercial mortgages - real estate |
| 2,381 |
| 22 |
| 2,484 |
| 8 |
| ||||
Commercial business loans |
| 145 |
| 3 |
| 357 |
| 1 |
| ||||
Consumer-home equity |
| 704 |
| — |
| 30 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
|
|
|
|
|
|
|
| ||||
Residential mortgages |
| $ | 5,667 |
| $ | 43 |
| $ | 1,648 |
| $ | 14 |
|
Commercial mortgages |
| 12,532 |
| 48 |
| 13,625 |
| 95 |
| ||||
Commercial business loans |
| 145 |
| 3 |
| 403 |
| 1 |
| ||||
Consumer loans |
| 870 |
| 1 |
| 391 |
| 2 |
| ||||
Total impaired loans |
| $ | 19,214 |
| $ | 95 |
| $ | 16,067 |
| $ | 112 |
|
Loans Acquired from Business Combinations
|
| Six Months Ended June 30, 2012 |
| Six Months Ended June, 2011 |
| ||||||||
(in thousands) |
| Average Recorded |
| Cash Basis |
| Average Recorded |
| Cash Basis |
| ||||
With no related allowance: |
|
|
|
|
|
|
|
|
| ||||
Residential mortgages - 1-4 family |
| $ | 526 |
| $ | — |
| $ | — |
| $ | — |
|
Residential mortgages - construction |
| — |
| — |
| — |
| — |
| ||||
Commercial-construction |
| — |
| — |
| — |
| — |
| ||||
Commercial mortgages - single and multifamily |
| — |
| — |
| — |
| — |
| ||||
Commercial mortgages - real estate |
| 274 |
| 10 |
| — |
| — |
| ||||
Commercial business loans |
| — |
| — |
| — |
| — |
| ||||
Consumer-home equity |
| 38 |
| — |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
| ||||
Residential mortgages - 1-4 family |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Residential mortgages - construction |
| — |
| — |
| — |
| — |
| ||||
Commercial-construction |
| — |
| — |
| — |
| — |
| ||||
Commercial mortgages - single and multifamily |
| — |
| — |
| — |
| — |
| ||||
Commercial mortgages - real estate |
| — |
| — |
| — |
| — |
| ||||
Commercial business loans |
| — |
| — |
| — |
| — |
| ||||
Consumer-home equity |
| — |
| — |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
|
|
|
|
|
|
|
| ||||
Residential mortgages |
| $ | 526 |
| $ | — |
| $ | — |
| $ | — |
|
Commercial mortgages |
| 274 |
| 10 |
| — |
| — |
| ||||
Commercial business loans |
| — |
| — |
| — |
| — |
| ||||
Consumer loans |
| 38 |
| — |
| — |
| — |
| ||||
Total impaired loans |
| $ | 838 |
| $ | 10 |
| $ | — |
| $ | — |
|
The following is summary information pertaining to non-accrual loans at March 31,June 30, 2012 and December 31, 2011:
|
| June 30, 2012 |
| |||||||
(In thousands) |
| Loans from Business |
| Loans Acquired from |
| Total |
| |||
Residential mortgages: |
|
|
|
|
|
|
| |||
1-4 family |
| $ | 6,977 |
| $ | 1,548 |
| $ | 8,525 |
|
Total |
| 6,977 |
| 1,548 |
| 8,525 |
| |||
|
|
|
|
|
|
|
| |||
Commercial mortgages: |
|
|
|
|
|
|
| |||
Construction |
| 5,811 |
| — |
| 5,811 |
| |||
Single and multi-family |
| 395 |
| — |
| 395 |
| |||
Other |
| 8,704 |
| 426 |
| 9,130 |
| |||
Total |
| 14,910 |
| 426 |
| 15,336 |
| |||
|
|
|
|
|
|
|
| |||
Commercial business loans: |
|
|
|
|
|
|
| |||
Other commercial business loans |
| 1,017 |
| 30 |
| 1,047 |
| |||
Total |
| 1,017 |
| 30 |
| 1,047 |
| |||
|
|
|
|
|
|
|
| |||
Consumer loans: |
|
|
|
|
|
|
| |||
Home equity |
| 942 |
| 78 |
| 1,020 |
| |||
Other |
| 48 |
| 141 |
| 189 |
| |||
Total |
| 990 |
| 219 |
| 1,209 |
| |||
|
|
|
|
|
|
|
| |||
Total non-accrual loans |
| $ | 23,894 |
| $ | 2,223 |
| $ | 26,117 |
|
(In thousands) | March 31, 2012 | |||||||||||
Loans from Business Activities | Loans Aquired from Business Combinations | Total | ||||||||||
Residential mortgages: | ||||||||||||
1-4 family | $ | 7,554 | $ | 727 | $ | 8,281 | ||||||
Total | 7,554 | 727 | 8,281 | |||||||||
Commercial mortgages: | ||||||||||||
Construction | 5,811 | - | 5,811 | |||||||||
Single and multi-family | 395 | - | 395 | |||||||||
Other | 5,534 | 411 | 5,945 | |||||||||
Total | 11,740 | 411 | 12,151 | |||||||||
Commercial business loans: | ||||||||||||
Other commercial business loans | 1,016 | 13 | 1,029 | |||||||||
Total | 1,016 | 13 | 1,029 | |||||||||
Consumer loans: | ||||||||||||
Home equity | 1,165 | 77 | 1,242 | |||||||||
Other | 59 | 110 | 169 | |||||||||
Total | 1,224 | 187 | 1,411 | |||||||||
Total non-accrual loans | $ | 21,534 | $ | 1,338 | $ | 22,872 |
(In thousands) | December 31, 2011 | |||||||||||
Loans from Business Activities | Loans Aquired from Business Combinations | Total | ||||||||||
Residential mortgages: | ||||||||||||
1-4 family | $ | 6,356 | $ | 654 | $ | 7,010 | ||||||
Total | 6,356 | 654 | 7,010 | |||||||||
Commercial mortgages: | ||||||||||||
Construction | 8,650 | - | 8,650 | |||||||||
Single and multi-family | 362 | - | 362 | |||||||||
Other | 5,259 | 9 | 5,268 | |||||||||
Total | 14,271 | 9 | 14,280 | |||||||||
Commercial business loans: | ||||||||||||
Other commercial business loans | 977 | 13 | 990 | |||||||||
Total | 977 | 13 | 990 | |||||||||
Consumer loans: | ||||||||||||
Home equity | 1,692 | 75 | 1,767 | |||||||||
Other | 48 | 139 | 187 | |||||||||
Total | 1,740 | 214 | 1,954 | |||||||||
Total non-accrual loans | $ | 23,344 | $ | 890 | $ | 24,234 |
|
| December 31, 2011 |
| |||||||
(In thousands) |
| Loans from Business Activities |
| Loans Acquired from |
| Total |
| |||
Residential mortgages: |
|
|
|
|
|
|
| |||
1-4 family |
| $ | 6,356 |
| $ | 654 |
| $ | 7,010 |
|
Total |
| 6,356 |
| 654 |
| 7,010 |
| |||
|
|
|
|
|
|
|
| |||
Commercial mortgages: |
|
|
|
|
|
|
| |||
Construction |
| 8,650 |
| — |
| 8,650 |
| |||
Single and multi-family |
| 362 |
| — |
| 362 |
| |||
Other |
| 5,259 |
| 9 |
| 5,268 |
| |||
Total |
| 14,271 |
| 9 |
| 14,280 |
| |||
|
|
|
|
|
|
|
| |||
Commercial business loans: |
|
|
|
|
|
|
| |||
Other commercial business loans |
| 977 |
| 13 |
| 990 |
| |||
Total |
| 977 |
| 13 |
| 990 |
| |||
|
|
|
|
|
|
|
| |||
Consumer loans: |
|
|
|
|
|
|
| |||
Home equity |
| 1,692 |
| 75 |
| 1,767 |
| |||
Other |
| 48 |
| 139 |
| 187 |
| |||
Total |
| 1,740 |
| 214 |
| 1,954 |
| |||
|
|
|
|
|
|
|
| |||
Total non-accrual loans |
| $ | 23,344 |
| $ | 890 |
| $ | 24,234 |
|
Credit Quality Information
The Bank utilizes a twelve grade internal loan rating system for each of its commercial real estate, construction and commercial loans as follows:
1Substantially Risk Free
Borrowers in this category are of unquestioned credit standing and are at the pinnacle of credit quality. Credits in this category are generally cash secured with strong management depth and experience and exhibit a superior track record.
2Minimal Risk
A relationship which provides an adequate return on investment to the Company, has been stable during the last three years and has a superior financial condition as determined by a comparison with the industry. In addition, management must be of unquestionable character and have strong abilities as measured by its long-term financial performance.
3Moderate Risk
A relationship which does not appear to possess more than the normal degree of credit risk. Overall, the borrower’s financial statements compare favorably with the industry. A strong secondary repayment source exists and the loan is performing as agreed.
4Better than Average Risk
A relationship which possesses most of the characteristics found in the Moderate Risk category and ranges from definitely sound to those with minor risk characteristics. Operates in a reasonably stable industry that may be moderately affected by the business cycle and moderately open to changes. Has a satisfactory track record and the loan is performing as agreed.
5Average Risk
A relationship which possesses most of the characteristics found in the Better than Average Risk category but may have recently experienced a loss year often as a result of its operation in a cyclical industry. The relationship has smaller margins of debt service coverage with some elements of reduced strength. Good secondary repayment source exists and the loan is performing as agreed. Start-up businesses and construction loans will generally be assigned to this category as well.
6Acceptable Risk
Borrowers in this category may be more highly leveraged than their industry peers and experience moderate losses relative to net worth. Trends and performance, e.g. Sales and earnings, leverage, among other factors may be negative. Management’s ability may be questionable, or perhaps untested. The industry may be experiencing either temporary or long term pressures. Collateral values are seen as more important in assessing risk than in higher quality loans. Failure to meet required line clean-up periods or other terms and conditions, including some slow payments may also predicate this grade.
7 Special Mention
A classification assigned to all relationships for credits with potential weaknesses which present a higher than normal credit risk, but not to the point of requiring a Substandard loan classification. No loss of principal or interest is anticipated. However, these credits are followed closely, and if necessary, remedial plans to reduce the Company’s risk exposure are established.
8 Substandard — Performing
A classification assigned to a credit that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans will be evaluated on at least a quarterly basis to determine if an additional allocation of the Company’s allowance for loan loss is warranted.
9 Substandard — Non-Performing
A classification given to Substandard credits which have deteriorated to the point that management has placed the accounts on non-accrual status due to delinquency exceeding 90 days or where the Company has determined that collection of principal and interest in full is unlikely.
10 Doubtful
Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, highly questionable and improbable. Collection in excess of 50% of the balance owed is not expected.
11 Loss
Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be possible in the future.
100 Small Business Express
Grade established for all small business credits deemed pass rated or better.
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'sCompany’s residential mortgages.
Ratings for other consumer loans, including auto loans, are rated 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 undertakes the same process of assigning risk ratings as historical loans, which may differ from the risk rating policy of the predecessor company. 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.
The Bank utilizes a twelve 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 originated 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.
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 March 31,June 30, 2012, there had not been such a decrease and therefore there was no allowance for losses on acquired loans under Subtopic ASC 310-30.
The Company presented several tables within this footnote byof historical loans and acquired loans in order to distinguish the credit performance of the newly acquired loans.
The following table presents the Company’s loans by risk rating at March 31,June 30, 2012 and December 31, 2011:
Loans from Business Activities
Residential Mortgages | ||||||||||||||||||||||||||||||||
Credit Risk Profile by Internally Assigned Grade | ||||||||||||||||||||||||||||||||
1-4 family | Construction | Total residential mortgages | ||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 734,654 | $ | 637,110 | $ | 29,992 | $ | 32,191 | $ | 764,646 | $ | 669,301 | ||||||||||||||||||||
Special mention | 652 | 877 | 18 | - | 670 | 877 | ||||||||||||||||||||||||||
Substandard | 13,730 | 11,480 | - | - | 13,730 | 11,480 | ||||||||||||||||||||||||||
Total | $ | 749,036 | $ | 649,467 | $ | 30,010 | $ | 32,191 | $ | 779,046 | $ | 681,658 |
Commercial Mortgages | ||||||||||||||||||||||||||||||||
Credit Risk Profile by Creditworthiness Category | ||||||||||||||||||||||||||||||||
Construction | Single and multi-family | Real estate | Total commercial mortgages | |||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 110,150 | $ | 91,452 | $ | 84,173 | $ | 85,153 | $ | 658,000 | $ | 674,814 | $ | 852,323 | $ | 851,419 | ||||||||||||||||
Special mention | 800 | 5,939 | 430 | 435 | 17,126 | 16,459 | 18,356 | 22,833 | ||||||||||||||||||||||||
Substandard | 17,244 | 17,262 | 2,383 | 3,813 | 59,343 | 55,156 | 78,970 | 76,231 | ||||||||||||||||||||||||
Doubtful | - | 2,839 | - | - | 105 | 116 | 105 | 2,955 | ||||||||||||||||||||||||
Total | $ | 128,194 | $ | 117,492 | $ | 86,986 | $ | 89,401 | $ | 734,574 | $ | 746,545 | $ | 949,754 | $ | 953,438 |
Commercial Business Loans | ||||||||||||||||||||||||||||||||
Credit Risk Profile by Creditworthiness Category | ||||||||||||||||||||||||||||||||
Asset based lending | Other | Total commercial business loans | ||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 171,922 | $ | 149,741 | $ | 195,530 | $ | 200,246 | $ | 367,452 | $ | 349,987 | ||||||||||||||||||||
Special mention | - | - | 4,850 | 607 | 4,850 | 607 | ||||||||||||||||||||||||||
Substandard | 1,443 | 1,324 | 9,552 | 9,753 | 10,995 | 11,077 | ||||||||||||||||||||||||||
Doubtful | - | - | 94 | 95 | 94 | 95 | ||||||||||||||||||||||||||
Total | $ | 173,365 | $ | 151,065 | $ | 210,026 | $ | 210,701 | $ | 383,391 | $ | 361,766 |
Consumer Loans | ||||||||||||||||||||||||||||||||
Credit Risk Profile Based on Payment Activity | ||||||||||||||||||||||||||||||||
Home equity | Other | Total consumer loans | ||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||||
Performing | $ | 222,745 | $ | 224,677 | $ | 38,718 | $ | 38,972 | $ | 261,463 | $ | 263,649 | ||||||||||||||||||||
Nonperforming | 1,165 | 1,692 | 59 | 48 | 1,224 | 1,740 | ||||||||||||||||||||||||||
Total | $ | 223,910 | $ | 226,369 | $ | 38,777 | $ | 39,020 | $ | 262,687 | $ | 265,389 |
Residential Mortgages
Credit Risk Profile by Internally Assigned Grade
|
| 1-4 family |
| Construction |
| Total residential mortgages |
| ||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pass |
| $ | 838,669 |
| $ | 637,110 |
| $ | 28,059 |
| $ | 32,191 |
| $ | 866,728 |
| $ | 669,301 |
|
Special mention |
| 465 |
| 877 |
| — |
| — |
| 465 |
| 877 |
| ||||||
Substandard |
| 11,600 |
| 11,480 |
| — |
| — |
| 11,600 |
| 11,480 |
| ||||||
Total |
| $ | 850,734 |
| $ | 649,467 |
| $ | 28,059 |
| $ | 32,191 |
| $ | 878,793 |
| $ | 681,658 |
|
Commercial Mortgages
Credit Risk Profile by Creditworthiness Category
|
| Construction |
| Single and multi-family |
| Real estate |
| Total commercial mortgages |
| ||||||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pass |
| $ | 130,149 |
| $ | 91,452 |
| $ | 68,591 |
| $ | 85,153 |
| $ | 671,189 |
| $ | 674,814 |
| $ | 869,929 |
| $ | 851,419 |
|
Special mention |
| 850 |
| 5,939 |
| 427 |
| 435 |
| 18,124 |
| 16,459 |
| 19,401 |
| 22,833 |
| ||||||||
Substandard |
| 15,650 |
| 17,262 |
| 2,843 |
| 3,813 |
| 58,459 |
| 55,156 |
| 76,952 |
| 76,231 |
| ||||||||
Doubtful |
| — |
| 2,839 |
| — |
| — |
| 105 |
| 116 |
| 105 |
| 2,955 |
| ||||||||
Total |
| $ | 146,649 |
| $ | 117,492 |
| $ | 71,861 |
| $ | 89,401 |
| $ | 747,877 |
| $ | 746,545 |
| $ | 966,387 |
| $ | 953,438 |
|
Commercial Business Loans
Credit Risk Profile by Creditworthiness Category
|
| Asset based lending |
| Other |
| Total commercial business loans |
| ||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pass |
| $ | 176,460 |
| $ | 149,741 |
| $ | 229,728 |
| $ | 200,246 |
| $ | 406,188 |
| $ | 349,987 |
|
Special mention |
| — |
| — |
| 4,815 |
| 607 |
| 4,815 |
| 607 |
| ||||||
Substandard |
| 1,303 |
| 1,324 |
| 9,539 |
| 9,753 |
| 10,842 |
| 11,077 |
| ||||||
Doubtful |
| — |
| — |
| 94 |
| 95 |
| 94 |
| 95 |
| ||||||
Total |
| $ | 177,763 |
| $ | 151,065 |
| $ | 244,176 |
| $ | 210,701 |
| $ | 421,939 |
| $ | 361,766 |
|
Consumer Loans
Credit Risk Profile Based on Payment Activity
|
| Home equity |
| Other |
| Total consumer loans |
| ||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||
Performing |
| $ | 225,738 |
| $ | 224,677 |
| $ | 37,663 |
| $ | 38,972 |
| $ | 263,401 |
| $ | 263,649 |
|
Nonperforming |
| 942 |
| 1,692 |
| 49 |
| 48 |
| 991 |
| 1,740 |
| ||||||
Total |
| $ | 226,680 |
| $ | 226,369 |
| $ | 37,712 |
| $ | 39,020 |
| $ | 264,392 |
| $ | 265,389 |
|
Loans AquiredAcquired from Business Combinations
Residential Mortgages
Credit Risk Profile by Internally Assigned Grade
Residential Mortgages | ||||||||||||||||||||||||||||||||
Credit Risk Profile by Internally Assigned Grade | ||||||||||||||||||||||||||||||||
1-4 family | Construction | Total residential mortgages | ||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 310,577 | $ | 327,715 | $ | 8,371 | $ | 9,205 | $ | 318,948 | $ | 336,920 | ||||||||||||||||||||
Special mention | 313 | 242 | - | - | 313 | 242 | ||||||||||||||||||||||||||
Substandard | 2,183 | 1,450 | 173 | 165 | 2,356 | 1,615 | ||||||||||||||||||||||||||
Total | $ | 313,073 | $ | 329,407 | $ | 8,544 | $ | 9,370 | $ | 321,617 | $ | 338,777 |
Commercial Mortgages | |||||||||||||||||||||||||||||||||||||||||||||||||||
Credit Risk Profile by Creditworthiness Category | |||||||||||||||||||||||||||||||||||||||||||||||||||
Construction | Single and multi-family | Real estate | Total commercial mortgages |
| 1-4 family |
| Construction |
| Total residential mortgages |
| |||||||||||||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||||||||||||||||||||||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
Pass | $ | 2,750 | $ | 3,548 | $ | 14,563 | $ | 14,802 | $ | 152,856 | $ | 161,218 | $ | 170,169 | $ | 179,568 |
| $ | 304,066 |
| $ | 327,715 |
| $ | 8,100 |
| $ | 9,205 |
| $ | 312,166 |
| $ | 336,920 |
| ||||||||||||||||
Special mention | 753 | 2,160 | 271 | 272 | 9,286 | 8,071 | 10,310 | 10,503 |
| 115 |
| 242 |
| — |
| — |
| 115 |
| 242 |
| ||||||||||||||||||||||||||||||
Substandard | 631 | 1,018 | 1,088 | 1,324 | 15,503 | 10,390 | 17,222 | 12,732 |
| 2,373 |
| 1,450 |
| — |
| 165 |
| 2,373 |
| 1,615 |
| ||||||||||||||||||||||||||||||
Total | $ | 4,134 | $ | 6,726 | $ | 15,922 | $ | 16,398 | $ | 177,645 | $ | 179,679 | $ | 197,701 | $ | 202,803 |
| $ | 306,554 |
| $ | 329,407 |
| $ | 8,100 |
| $ | 9,370 |
| $ | 314,654 |
| $ | 338,777 |
|
Commercial Mortgages
Commercial Business Loans | ||||||||||||||||||||||||||||||||
Credit Risk Profile by Creditworthiness Category | ||||||||||||||||||||||||||||||||
Asset based lending | Other | Total commercial business loans | ||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | - | $ | 2,206 | $ | 38,848 | $ | 39,578 | $ | 38,848 | $ | 41,784 | ||||||||||||||||||||
Special mention | - | - | 3,797 | 3,810 | 3,797 | 3,810 | ||||||||||||||||||||||||||
Substandard | - | - | 3,591 | 2,932 | 3,591 | 2,932 | ||||||||||||||||||||||||||
Total | $ | - | $ | 2,206 | $ | 46,236 | $ | 46,320 | $ | 46,236 | $ | 48,526 |
Credit Risk Profile by Creditworthiness Category
Consumer Loans | ||||||||||||||||||||||||||||||||
Credit Risk Profile Based on Payment Activity | ||||||||||||||||||||||||||||||||
Home equity | Other | Total consumer loans | ||||||||||||||||||||||||||||||
(In thousands) | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | Mar. 31, 2012 | Dec. 31, 2011 | ||||||||||||||||||||||||||
Performing | $ | 69,510 | $ | 71,752 | $ | 28,871 | $ | 32,248 | $ | 98,381 | $ | 104,000 | ||||||||||||||||||||
Nonperforming | 77 | 75 | 110 | 138 | 187 | 213 | ||||||||||||||||||||||||||
Total | $ | 69,587 | $ | 71,827 | $ | 28,981 | $ | 32,386 | $ | 98,568 | $ | 104,213 |
|
| Construction |
| Single and multi-family |
| Real estate |
| Total commercial mortgages |
| ||||||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pass |
| $ | 12,212 |
| $ | 3,548 |
| $ | 24,706 |
| $ | 14,802 |
| $ | 230,625 |
| $ | 161,218 |
| $ | 267,543 |
| $ | 179,568 |
|
Special mention |
| 256 |
| 2,160 |
| 4,356 |
| 272 |
| 14,671 |
| 8,071 |
| 19,283 |
| 10,503 |
| ||||||||
Substandard |
| 1,687 |
| 1,018 |
| 3,413 |
| 1,324 |
| 22,745 |
| 10,390 |
| 27,845 |
| 12,732 |
| ||||||||
Total |
| $ | 14,155 |
| $ | 6,726 |
| $ | 32,475 |
| $ | 16,398 |
| $ | 268,041 |
| $ | 179,679 |
| $ | 314,671 |
| $ | 202,803 |
|
Commercial Business Loans
Credit Risk Profile by Creditworthiness Category
|
| Asset based lending |
| Other |
| Total commercial business loans |
| ||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pass |
| $ | 2,495 |
| $ | 2,206 |
| $ | 80,560 |
| $ | 39,578 |
| $ | 83,055 |
| $ | 41,784 |
|
Special mention |
| — |
| — |
| 9,061 |
| 3,810 |
| 9,061 |
| 3,810 |
| ||||||
Substandard |
| — |
| — |
| 5,629 |
| 2,932 |
| 5,629 |
| 2,932 |
| ||||||
Total |
| $ | 2,495 |
| $ | 2,206 |
| $ | 95,250 |
| $ | 46,320 |
| $ | 97,745 |
| $ | 48,526 |
|
Consumer Loans
Credit Risk Profile Based on Payment Activity
|
| Home equity |
| Other |
| Total consumer loans |
| ||||||||||||
(In thousands) |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| June 30, 2012 |
| Dec. 31, 2011 |
| ||||||
Performing |
| $ | 75,762 |
| $ | 71,752 |
| $ | 31,057 |
| $ | 32,248 |
| $ | 106,819 |
| $ | 104,000 |
|
Nonperforming |
| 78 |
| 75 |
| 141 |
| 138 |
| 219 |
| 213 |
| ||||||
Total |
| $ | 75,840 |
| $ | 71,827 |
| $ | 31,198 |
| $ | 32,386 |
| $ | 107,038 |
| $ | 104,213 |
|
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.
The following tables include the recorded investment and number of modifications identified during the six months ended June 30, 2012. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured.
|
| Modifications by Class |
| ||||||
|
| Six months ending June 30, 2012 |
| ||||||
|
| Number of |
| Pre-Modification |
| Post-Modification |
| ||
Troubled Debt Restructurings |
|
|
|
|
|
|
| ||
Commercial - Other |
| 2 |
| $ | 1,923 |
| $ | 1,923 |
|
Commercial business- Other |
| 1 |
| 50 |
| 50 |
| ||
|
| 3 |
| $ | 1,973 |
| $ | 1,973 |
|
As of March 31,June 30, 2012, there were no loans that were restructured within the last twelve months that have subsequently defaulted.
The following table presents the Company’s TDR activity for the threesix months ended March 31,June 30, 2012 and 2011:
March 31, | ||||||||
(In thousands) | 2012 | 2011 | ||||||
Balance at beginning of the period | $ | 1,263 | $ | 7,829 | ||||
Principal Payments | (2 | ) | (68 | ) | ||||
TDR Status Change (1) | (522 | ) | (5,283 | ) | ||||
Other Reductions (2) | - | - | ||||||
Newly Identified TDRs | - | - | ||||||
Balance at end of the period | $ | 739 | $ | 2,478 |
|
| June 30, |
| ||||
(In thousands) |
| 2012 |
| 2011 |
| ||
Balance at beginning of the period |
| $ | 1,263 |
| $ | 7,829 |
|
Principal Payments |
| (4 | ) | (71 | ) | ||
TDR Status Change (1) |
| (1,125 | ) | (7,041 | ) | ||
Other Reductions (2) |
| — |
| (189 | ) | ||
Newly Identified TDRs |
| 1,973 |
| — |
| ||
Balance at end of the period |
| $ | 2,107 |
| $ | 528 |
|
(1)TDR 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 classification consists of transfer to other real estate owned and charge-offs 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.
A summary of time deposits is as follows:
(In thousands) | March 31, 2012 | December 31, 2011 (1) | ||||||
Time less than $100,000 | $ | 479,025 | $ | 511,592 | ||||
Time $100,000 or more | 505,203 | 491,046 | ||||||
Total time deposits | $ | 984,228 | $ | 1,002,638 |
(In thousands) |
| June 30, 2012 |
| December 31, 2011 (1) |
| ||
Time less than $100,000 |
| $ | 511,155 |
| $ | 511,592 |
|
Time $100,000 or more |
| 534,612 |
| 491,046 |
| ||
Total time deposits |
| $ | 1,045,767 |
| $ | 1,002,638 |
|
(1) Amounts include balances associated with discontinued operations.
NOTE 9. STOCKHOLDERS'8. STOCKHOLDERS’ EQUITY
The Bank’s actual and required capital ratios were as follows:
FDIC Minimum | ||||||||||||
March 31, 2012 | December 31, 2011 | to be Well Capitalized | ||||||||||
Total capital to risk weighted assets | 11.6 | % | 11.3 | % | 10.0 | % | ||||||
Tier 1 capital to risk weighted assets | 10.5 | 10.2 | 6.0 | |||||||||
Tier 1 capital to average assets | 8.6 | 8.4 | 5.0 |
|
|
|
|
|
| FDIC Minimum |
|
|
| June 30, 2012 |
| December 31, 2011 |
| to be Well Capitalized |
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets |
| 10.3 | % | 11.3 | % | 10.0 | % |
|
|
|
|
|
|
|
|
Tier 1 capital to risk weighted assets |
| 9.3 |
| 10.2 |
| 6.0 |
|
|
|
|
|
|
|
|
|
Tier 1 capital to average assets |
| 8.0 |
| 8.4 |
| 5.0 |
|
At each date shown, Berkshire Bank met the conditions to be classified as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.
Accumulated other comprehensive income
Components of accumulated other comprehensive loss are as follows:
(In thousands) | March 31, 2012 | December 31, 2011 | ||||||
Net unrealized holding gain (loss) on AFS securities | $ | 7,591 | $ | 6,298 | ||||
Net loss on effective cash flow hedging derivatives | (8,599 | ) | (8,882 | ) | ||||
Net loss on terminated swap | (4,886 | ) | (5,121 | ) | ||||
Net unrealized holding gain (loss) on pension plans | (676 | ) | (676 | ) | ||||
Tax effects | 2,678 | 3,496 | ||||||
Accumulated other comprehensive loss | $ | (3,892 | ) | $ | (4,885 | ) |
(In thousands) |
| June 30, 2012 |
| December 31, 2011 |
| ||
Net unrealized holding gain (loss) on AFS securities |
| $ | 8,985 |
| $ | 6,298 |
|
Net loss on effective cash flow hedging derivatives |
| (11,087 | ) | (8,882 | ) | ||
Net loss on terminated swap |
| (4,650 | ) | (5,121 | ) | ||
Net unrealized holding gain (loss) on pension plans |
| (932 | ) | (676 | ) | ||
Tax effects |
| 3,348 |
| 3,496 |
| ||
Accumulated other comprehensive loss |
| $ | (4,336 | ) | $ | (4,885 | ) |
The Company’s accumulated other comprehensive loss totaled $3.9$4.3 million at March 31,June 30, 2012. Of this loss, $13.5$15.7 million was attributable to accumulated losses on cash flow hedges, and terminated swaps, net of deferred tax benefits of $5.5$6.6 million, $7.6$9.0 million was attributable to accumulated gains on available-for-sale securities, net of deferred tax expenses of $2.9$3.3 million, and $0.7$0.9 million was attributable to accumulated losses on pensions.
The Company’s accumulated other comprehensive loss totaled $4.9 million at year-endDecember 31, 2011. Of this loss, $14$14.0 million was attributable to accumulated losses on cash flow hedges, and terminated swaps, net of deferred tax benefits of $5.8 million, $6.3 million was attributable to accumulated gains on available-for-sale securities, net of deferred tax expenses of $2.3 million, and $0.7 million was attributable to accumulated losses on pensions.
Earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
Three Months Ended March 31, | ||||||||
(In thousands, except per share data) | 2012 | 2011 | ||||||
Net income from continuing operations | $ | 6,481 | $ | 2,835 | ||||
Loss from discontinued operations before income taxes (including gain on disposal of $63) | (261 | ) | - | |||||
Income tax expense | 376 | - | ||||||
Net loss from discontinued operations | (637 | ) | - | |||||
Net income | $ | 5,844 | $ | 2,835 | ||||
Average number of common shares issued | 22,860 | 15,849 | ||||||
Less: average number of treasury shares | 1,685 | 1,744 | ||||||
Less: average number of unvested stock award shares | 220 | 162 | ||||||
Average number of basic common shares outstanding | 20,955 | 13,943 | ||||||
Plus: dilutive effect of unvested stock award shares | 62 | 34 | ||||||
Plus: dilutive effect of stock options outstanding | 45 | 4 | ||||||
Average number of diluted common shares outstanding | 21,062 | 13,981 | ||||||
Basic and diluted earnings per share: | ||||||||
Continuing operations | $ | 0.31 | $ | 0.20 | ||||
Discontinued operations | (0.03 | ) | - | |||||
Total basic and diluted earnings per share | $ | 0.28 | $ | 0.20 |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
(In thousands, except per share data) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income from continuing operations |
| $ | 7,986 |
| $ | 1,877 |
| $ | 14,467 |
| $ | 4,712 |
|
Loss from discontinued operations before income taxes (including gain on disposal of $63) |
| — |
| — |
| (261 | ) | — |
| ||||
Income tax expense |
| — |
| — |
| 376 |
| — |
| ||||
Net loss from discontinued operations |
| — |
| — |
| (637 | ) | — |
| ||||
Net income |
| $ | 7,986 |
| $ | 1,877 |
| $ | 13,830 |
| $ | 4,712 |
|
|
|
|
|
|
|
|
|
|
| ||||
Average number of common shares issued |
| 23,623 |
| 18,509 |
| 23,242 |
| 17,187 |
| ||||
Less: average number of treasury shares |
| 1,660 |
| 1,779 |
| 1,672 |
| 1,762 |
| ||||
Less: average number of unvested stock award shares |
| 221 |
| 150 |
| 221 |
| 156 |
| ||||
Average number of basic common shares outstanding |
| 21,742 |
| 16,580 |
| 21,349 |
| 15,269 |
| ||||
Plus: dilutive effect of unvested stock award shares |
| 41 |
| 21 |
| 51 |
| (126 | ) | ||||
Plus: dilutive effect of stock options outstanding |
| 23 |
| — |
| 34 |
| 156 |
| ||||
Average number of diluted common shares outstanding |
| 21,806 |
| 16,601 |
| 21,434 |
| 15,299 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | 0.37 |
| $ | 0.11 |
| $ | 0.68 |
| $ | 0.31 |
|
Discontinued operations |
| — |
| — |
| (0.03 | ) | — |
| ||||
Total basic and diluted earnings per share |
| $ | 0.37 |
| $ | 0.11 |
| $ | 0.65 |
| $ | 0.31 |
|
For the quarter ended March 31,June 30, 2012, 159181 thousand shares of restricted stock and 357373 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. For the quarter ended March 31,June 30, 2011, 129 thousand shares of restricted stock and 141127 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 threesix months ended March 31,June 30, 2012 is presented in the following table:
|
| Non-vested Stock |
|
|
|
|
| ||||
|
| Awards Outstanding |
| Stock Options Outstanding |
| ||||||
|
|
|
| Weighted- |
|
|
| Weighted- |
| ||
|
|
|
| Average |
|
|
| Average |
| ||
|
| Number of |
| Grant Date |
| Number of |
| Exercise |
| ||
(Shares in thousands) |
| Shares |
| Fair Value |
| Shares |
| Price |
| ||
Balance, December 31, 2011 |
| 216 |
| $ | 19.88 |
| 409 |
| $ | 25.68 |
|
Granted |
| 64 |
| 24.95 |
| — |
| — |
| ||
Stock options exercised |
| — |
| — |
| (13 | ) | 20.88 |
| ||
Stock awards vested |
| (50 | ) | 18.51 |
| — |
| — |
| ||
Forfeited |
| (8 | ) | 21.38 |
| — |
| — |
| ||
Expired |
| — |
| — |
| (10 | ) | 23.44 |
| ||
Balance, June 30, 2012 |
| 222 |
| $ | 21.61 |
| 386 |
| $ | 25.79 |
|
Exercisable options, June 30, 2012 |
|
|
|
|
| 386 |
| $ | 25.79 |
|
Non-vested Stock | ||||||||||||||||
Awards Outstanding | Stock Options Outstanding | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Number of | Grant Date | Number of | Exercise | |||||||||||||
(Shares in thousands) | Shares | Fair Value | Shares | Price | ||||||||||||
Balance, December 31, 2011 | 216 | $ | 19.88 | 409 | $ | 25.68 | ||||||||||
Granted | 60 | 25.14 | - | - | ||||||||||||
Stock options exercised | - | - | (1 | ) | 17.90 | |||||||||||
Stock awards vested | (46 | ) | 18.34 | - | - | |||||||||||
Forfeited | (6 | ) | 20.94 | - | - | |||||||||||
Expired | - | - | (2 | ) | 35.86 | |||||||||||
Balance, March 31, 2012 | 224 | $ | 19.88 | 406 | $ | 25.39 | ||||||||||
Exercisable options, March 31, 2012 | 406 | $ | 25.39 |
During the threesix months ended March 31,June 30, 2012 and 2011, proceeds from stock option exercises totaled $16$271 thousand and $406$12 thousand, respectively.Duringrespectively. During the threesix months ended March 31,June 30, 2012, there were 4650 thousand shares issued in connection with vested stock awards. During the threesix months ended March 31,June 30, 2011, there were 4261 thousand shares issued in connection with vested stock awards. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $466 thousand$1.6 million and $410$473 thousand during the threesix months ended March 31,June 30, 2012 and 2011, 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 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.
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 March 31, 2012 | ||||||||||||||||||||||||||||||||||||
Three months ended June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net interest income (expense) |
| $ | 35,239 |
| $ | — |
| $ | (186 | ) | $ | — |
| $ | 35,053 |
| ||||||||||||||||||||
Provision for loan losses |
| 2,250 |
| — |
| — |
| — |
| 2,250 |
| |||||||||||||||||||||||||
Non-interest income |
| 9,520 |
| 2,768 |
| 8968 |
| (8968 | ) | 12,288 |
| |||||||||||||||||||||||||
Non-interest expense |
| 30,835 |
| 2,094 |
| 1,254 |
| 1 |
| 34,184 |
| |||||||||||||||||||||||||
Income (loss) before income taxes |
| 11,674 |
| 674 |
| 7528 |
| (8969 | ) | 10,907 |
| |||||||||||||||||||||||||
Income tax expense (benefit) |
| 3,108 |
| 271 |
| (458 | ) | — |
| 2,921 |
| |||||||||||||||||||||||||
Net income |
| $ | 8,566 |
| $ | 403 |
| $ | 7986 |
| $ | (8969 | ) | $ | 7,986 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Average assets (in millions) |
| $ | 4,319 |
| $ | 30 |
| $ | 508 |
| $ | (506 | ) | $ | 4,351 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Three months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net interest income (expense) |
| $ | 24,410 |
| $ | — |
| $ | (209 | ) | $ | — |
| $ | 24,201 |
| ||||||||||||||||||||
Provision for loan losses |
| 1,500 |
| — |
| — |
| — |
| 1,500 |
| |||||||||||||||||||||||||
Non-interest income |
| 5,389 |
| 2,781 |
| (629 | ) | 629 |
| 8,170 |
| |||||||||||||||||||||||||
Non-interest expense |
| 23,778 |
| 2,194 |
| 2,650 |
| 1 |
| 28,623 |
| |||||||||||||||||||||||||
Income (loss) before income taxes |
| 4,521 |
| 587 |
| (3,488 | ) | 628 |
| 2,248 |
| |||||||||||||||||||||||||
Income tax expense (benefit) |
| 1,296 |
| 240 |
| (1,165 | ) | — |
| 371 |
| |||||||||||||||||||||||||
Net income |
| $ | 3,225 |
| $ | 347 |
| $ | (2,323 | ) | $ | 628 |
| $ | 1,877 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Average assets (in millions) |
| $ | 3,167 |
| $ | 34 |
| $ | 405 |
| $ | (392 | ) | $ | 3,214 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Six months ended June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net interest income (expense) | $ | 31,352 | $ | - | $ | (207 | ) | $ | - | $ | 31,145 |
| $ | 66,590 |
| $ | — |
| $ | (392 | ) | $ | — |
| $ | 66,198 |
| |||||||||
Provision for loan losses | 2,000 | - | - | - | 2,000 |
| 4,250 |
| — |
| — |
| — |
| 4,250 |
| ||||||||||||||||||||
Non-interest income | 7,056 | 2,746 | 6,284 | (6,284 | ) | 9,802 |
| 16,577 |
| 5,513 |
| 15,253 |
| (15,253 | ) | 22,090 |
| |||||||||||||||||||
Non-interest expense | 27,617 | 2,214 | 363 | - | 30,194 |
| 58,452 |
| 4,307 |
| 1,618 |
| 1 |
| 64,378 |
| ||||||||||||||||||||
Income (loss) before income taxes | 8,791 | 532 | 5,714 | (6,284 | ) | 8,753 |
| 20,465 |
| 1,206 |
| 13,243 |
| (15,254 | ) | 19,660 |
| |||||||||||||||||||
Income tax expense (benefit) | 2,188 | 214 | (130 | ) | - | 2,272 |
| 5,296 |
| 485 |
| (587 | ) | (1 | ) | 5,193 |
| |||||||||||||||||||
Net income from continuing operations | 6,603 | 318 | 5,844 | (6,284 | ) | 6,481 |
| 15,169 |
| 721 |
| 13,830 |
| (15,253 | ) | 14,467 |
| |||||||||||||||||||
Income from discontinued operations berofre income taxes (including gain on disposal of $63) | (261 | ) | - | - | - | (261 | ) |
| (261 | ) | — |
| — |
| — |
| (261 | ) | ||||||||||||||||||
Income tax expense | 376 | - | - | - | 376 |
| 376 |
| — |
| — |
| — |
| 376 |
| ||||||||||||||||||||
Net loss from discontinued operations | (637 | ) | - | - | - | (637 | ) |
| (637 | ) | — |
| — |
| — |
| (637 | ) | ||||||||||||||||||
Net income | $ | 5,966 | $ | 318 | $ | 5,844 | $ | (6,284 | ) | $ | 5,844 |
| $ | 14,532 |
| $ | 721 |
| $ | 13,830 |
| $ | (15,253 | ) | $ | 13,830 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Average assets (in millions) | $ | 3,954 | $ | 30 | $ | 494 | $ | (481 | ) | $ | 3,997 |
| $ | 4,137 |
| $ | 30 |
| $ | 501 |
| $ | (498 | ) | $ | 4,170 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Three months ended March 31, 2011 | ||||||||||||||||||||||||||||||||||||
Six months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net interest income (expense) | $ | 20,353 | $ | - | $ | (207 | ) | $ | - | $ | 20,146 |
| $ | 44,764 |
| $ | — |
| $ | (416 | ) | $ | (1 | ) | $ | 44,347 |
| |||||||||
Provision for loan losses | 1,600 | - | - | - | 1,600 |
| 3,100 |
| — |
| — |
| — |
| 3,100 |
| ||||||||||||||||||||
Non-interest income | 4,404 | 3,730 | 4,089 | (4,089 | ) | 8,134 |
| 9,792 |
| 6,512 |
| 3,515 |
| (3,515 | ) | 16,304 |
| |||||||||||||||||||
Non-interest expense | 18,951 | 2,256 | 1,981 | 1 | 23,189 |
| 42,731 |
| 4,449 |
| 4,632 |
| — |
| 51,812 |
| ||||||||||||||||||||
Income (loss) before income taxes | 4,206 | 1,474 | 1,901 | (4,090 | ) | 3,491 |
| 8,725 |
| 2,063 |
| (1,533 | ) | (3,516 | ) | 5,739 |
| |||||||||||||||||||
Income tax expense (benefit) | 949 | 605 | (897 | ) | (1 | ) | 656 |
| 2,246 |
| 844 |
| (2,063 | ) | — |
| 1,027 |
| ||||||||||||||||||
Net income | $ | 3,257 | $ | 869 | $ | 2,798 | $ | (4,089 | ) | $ | 2,835 |
| 6,479 |
| 1,219 |
| 530 |
| (3,516 | ) | 4,712 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Average assets (in millions) | $ | 2,838 | $ | 33 | $ | 355 | $ | (350 | ) | $ | 2,876 |
| $ | 3,005 |
| $ | 33 |
| $ | 380 |
| $ | (372 | ) | $ | 3,046 |
|
NOTE 13.12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As of March 31,June 30, 2012, the Company held derivatives with a total notional amount of $558.2 million. Of this total,$1 billion. That amount included $280.0 million in interest rate swaps with a combined notional amount of $210 millionswap derivatives that were designated as cash flow hedges for accounting purposes. The Company also had economic hedges and non-hedging derivatives totaling $515.6 million and $215.3 million, respectively, which are not designated as accounting hedges. Economic hedges included interest rate swaps totaling $348.2 million, have been designated as economic hedges. As of March 31, 2012, there were no commitments to originate residential mortgage loans for sale or commitments to sell residential mortgage loans, which are also accounted for as derivative financial instruments. At March 31, 2012, no derivatives were designated as hedges of net investmentsand $170.5 million in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes.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 agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and
their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at March 31,June 30, 2012.
The Company pledged collateral to derivative counterparties in the form of cash totaling $1.6$6.2 million and securities with an amortized cost of $32.0$30.6 million and a fair value of $33.0$31.3 million as of March 31,June 30, 2012. The Company does not typically require its Commercial customers to post cash or securities collateral on its program of back-to-back economic hedges. However certain language is written into the 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 interest rate swap agreements and non-hedging derivative assets and liabilities at March 31,June 30, 2012, follows:
Weighted | Estimated | |||||||||||||||||||
Notional | Average | Weighted Average Rate | Fair Value | |||||||||||||||||
Amount | Maturity | Received | Paid | Asset (Liability) | ||||||||||||||||
(In thousands) | (In years) | (In thousands) | ||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||
Interest rate swaps on FHLBB borrowings | $ | 85,000 | 1.8 | 0.49 | % | 4.14 | % | $ | (5,312 | ) | ||||||||||
Forward-starting interest rate swaps on FHLBB borrowings | 110,000 | 4.3 | - | 2.55 | % | (2,426 | ) | |||||||||||||
Interest rate swaps on junior subordinated debentures | 15,000 | 2.1 | 2.34 | % | 5.54 | % | (996 | ) | ||||||||||||
Total cash flow hedges | 210,000 | (8,734 | ) | |||||||||||||||||
Economic hedges: | ||||||||||||||||||||
Interest rate swap on industrial revenue bond | 13,975 | 17.7 | 0.61 | % | 5.09 | % | (3,065 | ) | ||||||||||||
Interest rate swaps on loans with commercial loan customers | 167,105 | 5.6 | 2.58 | % | 5.73 | % | (13,240 | ) | ||||||||||||
Reverse interest rate swaps on loans with commercial loan customers | 167,105 | 5.6 | 5.73 | % | 2.58 | % | 12,883 | |||||||||||||
Total economic hedges | 348,185 | (3,423 | ) | |||||||||||||||||
Total | $ | 558,185 | $ | (12,157 | ) |
|
|
|
| Weighted |
|
|
|
|
| Estimated |
| ||
|
| Notional |
| Average |
| Weighted Average Rate |
| Fair Value |
| ||||
|
| Amount |
| Maturity |
| Received |
| Paid |
| Asset (Liability) |
| ||
|
| (In thousands) |
| (In years) |
|
|
|
|
| (In thousands) |
| ||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate swaps on FHLBB borrowings |
| $ | 105,000 |
| 1.3 |
| 0.38 | % | 3.20 | % | $ | (5,020 | ) |
Forward-starting interest rate swaps on FHLBB borrowings |
| 160,000 |
| 4.4 |
| — |
| 2.56 | % | (5,313 | ) | ||
Interest rate swaps on junior subordinated debentures |
| 15,000 |
| 1.9 |
| 2.32 | % | 5.54 | % | (899 | ) | ||
Total cash flow hedges |
| 280,000 |
|
|
|
|
|
|
| (11,232 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Economic hedges: |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate swap on tax advantaged economic development bond |
| 13,856 |
| 17.4 |
| 0.61 | % | 5.09 | % | (3,719 | ) | ||
Interest rate swaps on loans with commercial loan customers |
| 165,602 |
| 5.3 |
| 2.56 | % | 5.73 | % | (15,429 | ) | ||
Reverse interest rate swaps on loans with commercial loan customers |
| 165,602 |
| 5.3 |
| 5.73 | % | 2.56 | % | 14,919 |
| ||
Forward commitments |
| 170,500 |
| 0.2 |
|
|
|
|
| (1,446 | ) | ||
Total economic hedges |
| 515,560 |
|
|
|
|
|
|
| (5,675 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-hedging derivatives: |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate lock commitments |
| 215,330 |
| 0.2 |
|
|
|
|
| 4,028 |
| ||
Total non-hedging derivatives |
| 215,330 |
|
|
|
|
|
|
| 4,028 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 1,010,890 |
|
|
|
|
|
|
| $ | (12,879 | ) |
Information about interest rate swap agreements and non-hedging derivative assets and liabilities at December 31, 2011, follows:
|
|
|
| Weighted |
|
|
|
|
| Estimated |
| ||
|
| Notional |
| Average |
| Weighted Average Rate |
| Fair Value |
| ||||
|
| Amount |
| Maturity |
| Received |
| Paid |
| Asset (Liability) |
| ||
|
| (In thousands) |
| (In years) |
|
|
|
|
| (In thousands) |
| ||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate swaps on FHLBB borrowings |
| $ | 105,000 |
| 1.7 |
| 0.49 | % | 4.00 | % | $ | (5,888 | ) |
Forward-starting interest rate swaps on FHLBB borrowings |
| 80,000 |
| 3.5 |
| — |
| 2.56 | % | (2,064 | ) | ||
Interest rate swaps on junior subordinated debentures |
| 15,000 |
| 2.4 |
| 2.35 | % | 5.54 | % | (1,055 | ) | ||
Total cash flow hedges |
| 200,000 |
|
|
|
|
|
|
| (9,007 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Economic hedges: |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate swap on tax advantaged economic development bond |
| 14,096 |
| 17.9 |
| 0.64 | % | 5.09 | % | (3,505 | ) | ||
Interest rate swaps on loans with commercial loan customers |
| 160,389 |
| 5.6 |
| 2.73 | % | 5.77 | % | (14,351 | ) | ||
Reverse interest rate swaps on loans with commercial loan customers |
| 160,389 |
| 5.6 |
| 5.77 | % | 2.73 | % | 13,871 |
| ||
Forward commitments |
| 21,538 |
| 0.2 |
|
|
|
|
| 55 |
| ||
Total economic hedges |
| 356,412 |
|
|
|
|
|
|
| (3,930 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-hedging derivatives: |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate lock commitments |
| 21,538 |
| 0.2 |
|
|
|
|
| (66 | ) | ||
Total non-hedging derivatives |
| 21,538 |
|
|
|
|
|
|
| (66 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 577,950 |
|
|
|
|
|
|
| $ | (13,003 | ) |
Weighted | Estimated | |||||||||||||||||||
Notional | Average | Weighted Average Rate | Fair Value | |||||||||||||||||
Amount | Maturity | Received | Paid | Asset (Liability) | ||||||||||||||||
(In thousands) | (In years) | (In thousands) | ||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||
Interest rate swaps on FHLBB borrowings | $ | 105,000 | 1.7 | 0.49 | % | 4.00 | % | $ | (5,888 | ) | ||||||||||
Forward-starting interest rate swaps on FHLBB borrowings | 80,000 | 3.5 | - | 2.56 | % | (2,064 | ) | |||||||||||||
Interest rate swaps on junior subordinated debentures | 15,000 | 2.4 | 2.35 | % | 5.54 | % | (1,055 | ) | ||||||||||||
Total cash flow hedges | 200,000 | (9,007 | ) | |||||||||||||||||
Economic hedges: | ||||||||||||||||||||
Interest rate swap on tax advantaged economic development bond | 14,096 | 17.9 | 0.64 | % | 5.09 | % | (3,505 | ) | ||||||||||||
Interest rate swaps on loans with commercial loan customers | 160,389 | 5.6 | 2.73 | % | 5.77 | % | (14,351 | ) | ||||||||||||
Reverse interest rate swaps on loans with commercial loan customers | 160,389 | 5.6 | 5.77 | % | 2.73 | % | 13,871 | |||||||||||||
Total economic hedges | 334,874 | (3,985 | ) | |||||||||||||||||
Non-hedging derivatives: | ||||||||||||||||||||
Commitments to originate residential mortgage loans | 21,538 | 0.2 | (66 | ) | ||||||||||||||||
Commitments to sell residential mortgage loans | 21,538 | 0.2 | 55 | |||||||||||||||||
Total non-hedging derivatives | 43,076 | (11 | ) | |||||||||||||||||
Total | $ | 577,950 | $ | (13,003 | ) |
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 forecasted transaction affects 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 several interest rate swaps with an aggregate notional amount of $85.0$105.0 million to convert the LIBOR based floating interest rates on an $85.0a $105.0 million portfolio of FHLBB advances to fixed rates, with the objective of fixing the Company’s monthly interest expense on these borrowings.
The Company has also entered into tenfifteen forward-starting interest rate swaps with a combined notional value of $110.0$160.0 million, including $30.0$70.0 million of swaps which were entered into in the first quarter of 2012 and which have durations exceeding one year. Of the tenfifteen forward starting swaps two are set to become effective in the secondthird quarter of 2012, with durations of a year each, and two will become effective in the third quarter of 2012, one with a duration of five years and the other with a durationfour years, respectively. In 2013 four of four years. Four of the remaining six forward starting swaps will become effective in 2013,take effect, two with durationsof which have a duration of one year, one with a duration of four years, and the finalother with a duration of five years. 2014 will bring on seven of the remaining nine forward starting swaps; of these one has a duration of three years, four have durations of four years, and the final two have durations of five years. The remaininglast two forward starting swaps are set towill become effective in 20142015, one of which has a duration of four years and 2015, each with durationsthe other which has a duration of fourseven years. This hedge strategy converts the LIBOR based rate of interest on certain FHLB advances to fixed interest rates, thereby protecting the Company from floating interest rate variability.
The Company has entered into an interest rate swap with a notional value of $15.0 million to convert the floating rate of interest on its junior subordinated debentures to a fixed rate of interest. The purpose of the hedge was to protect the Company from the risk of variability arising from the floating rate interest on the debentures.
Amounts included in the Consolidated Statements of Income and in the other comprehensive income section of the Consolidated Statements of Changes in Stockholders’ Equity related to interest rate derivatives designated as hedges of cash flows, were as follows:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
(In thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps on FHLBB borrowings: |
|
|
|
|
|
|
|
|
| ||||
Unrealized (loss) gain recognized in accumulated other comprehensive loss |
| $ | (2,585 | ) | $ | (666 | ) | $ | (2,360 | ) | $ | 433 |
|
|
|
|
|
|
|
|
|
|
| ||||
Reclassification of unrealized loss from accumulated other comprehensive loss to non-interest income for hedge ineffectiveness |
| 10 |
| 10 |
| 20 |
| 20 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Reclassification of realized gain from accumulated other comprehensive loss to other non-interest income for termination of swaps |
| 235 |
| 235 |
| 471 |
| 470 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps |
| (31 | ) | (98 | ) | (129 | ) | (196 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net tax benefit (expense) on items recognized in accumulated other |
| 1,171 |
| 255 |
| 1,007 |
| (196 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps on junior subordinated debentures: |
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) recognized in accumulated other comprehensive loss |
| 97 |
| (151 | ) | 156 |
| 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net tax (expense) benefit on items recognized in accumulated other |
| (19 | ) | 62 |
| (61 | ) | (2 | ) | ||||
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects |
| $ | (1,122 | ) | $ | (353 | ) | $ | (896 | ) | $ | 532 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest expense recognized in interest expense on hedged FHLBB borrowings |
| $ | 1,123 |
| $ | 1,218 |
| $ | 2,206 |
| $ | 2,424 |
|
Net interest expense recognized in interest expense on junior subordinated debentures |
| $ | 97 |
| $ | 129 |
| $ | 215 |
| $ | 256 |
|
Three Months Ended March 31, | ||||||||
(In thousands) | 2012 | 2011 | ||||||
Interest rate swaps on FHLBB borrowings: | ||||||||
Unrealized (loss) gain recognized in accumulated other comprehensive loss | $ | (225 | ) | $ | 1,099 | |||
Reclassification of unrealized loss from accumulated other comprehensive loss to non-interest income for hedge ineffectiveness | 10 | 10 | ||||||
Reclassification of realized gain from accumulated other comprehensive loss to other non-interest income for termination of swaps | 235 | 235 | ||||||
Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps | (98 | ) | (98 | ) | ||||
Net tax benefit (expense) on items recognized in accumulated other comprehensive loss | 164 | (451 | ) | |||||
Interest rate swaps on junior subordinated debentures: | ||||||||
Unrealized (loss) gain recognized in accumulated other comprehensive loss | (59 | ) | 154 | |||||
Net tax benefit (expense) on items recognized in accumulated other comprehensive loss | 43 | (64 | ) | |||||
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects | $ | 70 | $ | 885 | ||||
Net interest expense recognized in interest expense on hedged FHLBB borrowings | $ | 1,083 | $ | 1,206 | ||||
Net interest expense recognized in interest expense on junior subordinated debentures | $ | 118 | $ | 127 |
Hedge ineffectiveness on interest rate swaps designated as cash flow hedges was immaterial to the Company’s financial statements during the threesix months ended March 31,June 30, 2012 and 2011. The Company does not anticipate material events or transactions within the next twelve months that are likely to result in a reclassification of unrealized gains or losses from accumulated other comprehensive loss to earnings.
Amounts reported in accumulated other comprehensive loss 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 estimates that $5.0$5.1 million will be reclassified as an increase to interest expense.
Economic hedges and non-hedging derivatives
The Company has an interest rate swap with a $14$13.9 million notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of 5.09%, currently within the Company’s trading portfolio under the fair value option, in exchange for a LIBOR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the 21-year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.
The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. Credit valuation adjustments arising from the difference in credit worthiness of the commercial loan and financial institution counterparties totaled $358$471 thousand as of March 31, 2012 and were not material to the financial statements.June 30, 2012. The interest income and expense on these mirror image swaps exactly offset each other.
The Company utilizes forward commitments to sell mortgage backed bonds as economic hedges against the potential decreases in the values of the interest rate lock commitments which are discussed below under Non-hedging derivatives. The forward commitments are free-standing derivatives, which are carried at fair value with changes recorded in non-interest income in the Company’s Consolidated Statements of Income.
Non-hedging derivatives
The Company enters into interest rate lock commitments with certain of its retail customers to originate fixed rate(IRLCs) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and simultaneously enters into an agreementwithin a specified period of time. IRLCs that relate to sell these fixed ratethe origination of mortgage loans to the Federal National Mortgage Association. These commitmentsthat will be held for sale are considered derivative financial instruments andunder 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 recordedfree-standing derivatives which are carried at fair value with anychanges 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 recorded through earnings.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.
Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:
Three Months Ended March 31, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||
(In thousands) | 2012 | 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||||||
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| |||||||||||||
Economic hedges |
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| ||||||||||||
Interest rate swap on industrial revenue bond: |
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|
|
|
|
|
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| ||||||||||||
Net interest expense recognized in interest and dividend income on securities | $ | (158 | ) | $ | (162 | ) |
| $ | (157 | ) | $ | (164 | ) | $ | (315 | ) | $ | (325 | ) | ||
|
|
|
|
|
|
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| |||||||||||||
Unrealized gain recognized in other non-interest income | 440 | 290 |
| (654 | ) | (359 | ) | (1,094 | ) | (69 | ) | ||||||||||
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Interest rate swaps on loans with commercial loan customers: |
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|
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| ||||||||||||
Unrealized gain (loss) recognized in other non-interest income | 1,111 | (1,571 | ) | ||||||||||||||||||
Unrealized gain recognized in other non-interest income |
| 2,149 |
| 2,511 |
| 3,260 |
| 940 |
| ||||||||||||
|
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| |||||||||||||
Reverse interest rate swaps on loans with commercial loan customers: |
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|
|
|
|
| ||||||||||||
Unrealized (loss) gain recognized in other non-interest income | (1,111 | ) | 1,571 | ||||||||||||||||||
Unrealized loss recognized in other non-interest income |
| (2,149 | ) | (2,511 | ) | (3,260 | ) | (940 | ) | ||||||||||||
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| |||||||||||||
Favorable change in credit valuation adjustment recognized in other non-interest income | $ | 122 | $ | 41 | |||||||||||||||||
Favorable (unfavorable) change in credit valuation adjustment recognized in other non-interest income |
| $ | (113 | ) | $ | (225 | ) | $ | 9 |
| $ | (183 | ) | ||||||||
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|
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| ||||||||||||
Forward Commitments: |
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|
|
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| ||||||||||||
Unrealized gain recognized in other non-interest income |
| $ | (2,131 | ) | $ | — |
| $ | (2,131 | ) | $ | — |
| ||||||||
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| |||||||||||||
Non-hedging derivatives |
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| ||||||||||||
Commitments to originate residential mortgage loans to be sold: | |||||||||||||||||||||
Unrealized loss recognized in other non-interest income | $ | - | $ | (39 | ) | ||||||||||||||||
Commitments to sell residential mortgage loans: | |||||||||||||||||||||
Unrealized gain recognized in other non-interest income | $ | - | $ | 26 | |||||||||||||||||
Interest rate lock commitments: |
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|
|
|
|
|
|
|
| ||||||||||||
Unrealized gain (loss) recognized in other non-interest income |
| $ | 4,337 |
| $ | (23 | ) | $ | 4,337 |
| $ | (36 | ) |
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'sCompany’s financial assets and financial liabilities that are carried at fair value.
Recurring fair value measurements
The following table summarizes assets and financial liabilities measured at fair value on a recurring basis as of March 31,June 30, 2012 and December 31, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. There were no transfers between levels during the threesix months ended March 31,June 30, 2012.
March 31, 2012 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | Inputs | Inputs | Inputs | Fair Value | ||||||||||||
Trading account security | $ | - | $ | - | $ | 16,847 | $ | 16,847 | ||||||||
Available-for-sale securities: | ||||||||||||||||
Municipal bonds and obligations | - | 79,656 | - | 79,656 | ||||||||||||
Governmentguaranteed residential mortgage-backed securities | - | 41,102 | - | 41,102 | ||||||||||||
Government-sponsored residential mortgage-backed securities | - | 254,610 | - | 254,610 | ||||||||||||
Corporate bonds | - | 9,639 | - | 9,639 | ||||||||||||
Trust preferred securities | - | 17,828 | 544 | 18,372 | ||||||||||||
Other bonds and obligations | - | 626 | - | 626 | ||||||||||||
Marketable equity securities | 19,575 | - | - | 19,575 | ||||||||||||
Derivative assets | - | 12,883 | - | 12,883 | ||||||||||||
Derivative liabilities | - | 25,040 | - | 25,040 |
December 31, 2011 |
| June 30, 2012 |
| ||||||||||||||||||||||||||
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 account security | $ | - | $ | - | $ | 17,395 | $ | 17,395 |
| $ | — |
| $ | — |
| $ | 17,365 |
| $ | 17,365 |
| ||||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Municipal bonds and obligations | - | 77,854 | - | 77,854 |
| — |
| 78,908 |
| — |
| 78,908 |
| ||||||||||||||||
Government guaranteed residential mortgage-backed securities | - | 45,096 | - | 45,096 | |||||||||||||||||||||||||
Governmentguaranteed residential mortgage-backed securities |
| — |
| 44,051 |
| — |
| 44,051 |
| ||||||||||||||||||||
Government-sponsored residential mortgage-backed securities | - | 247,611 | - | 247,611 |
| — |
| 289,635 |
| — |
| 289,635 |
| ||||||||||||||||
Corporate bonds | - | 9,727 | - | 9,727 |
| — |
| 9,566 |
| — |
| 9,566 |
| ||||||||||||||||
Trust preferred securities | - | 17,271 | 544 | 17,815 |
| — |
| 17,857 |
| 613 |
| 18,470 |
| ||||||||||||||||
Other bonds and obligations | - | 644 | - | 644 |
| — |
| 739 |
| — |
| 739 |
| ||||||||||||||||
Marketable equity securities | 21,009 | - | - | 21,009 |
| 29,999 |
| — |
| — |
| 29,999 |
| ||||||||||||||||
Loans held for sale |
| — |
| 59,280 |
| — |
| 59,280 |
| ||||||||||||||||||||
Derivative assets | - | 13,926 | - | 13,926 |
| — |
| 14,919 |
| 4,028 |
| 18,947 |
| ||||||||||||||||
Derivative liabilities | - | 26,864 | 66 | 26,930 |
| 1,446 |
| 30,380 |
| — |
| 31,826 |
|
|
| December 31, 2011 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
(In thousands) |
| Inputs |
| Inputs |
| Inputs |
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Trading account security |
| $ | — |
| $ | — |
| $ | 17,395 |
| $ | 17,395 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
| ||||
Municipal bonds and obligations |
| — |
| 77,854 |
| — |
| 77,854 |
| ||||
Government guaranteed residential mortgage-backed securities |
| — |
| 45,096 |
| — |
| 45,096 |
| ||||
Government-sponsored residential mortgage-backed securities |
| — |
| 247,611 |
| — |
| 247,611 |
| ||||
Corporate bonds |
| — |
| 9,727 |
| — |
| 9,727 |
| ||||
Trust preferred securities |
| — |
| 17,271 |
| 544 |
| 17,815 |
| ||||
Other bonds and obligations |
| — |
| 644 |
| — |
| 644 |
| ||||
Marketable equity securities |
| 21,009 |
| — |
| — |
| 21,009 |
| ||||
Derivative assets |
| — |
| 13,926 |
| — |
| 13,926 |
| ||||
Derivative liabilities |
| — |
| 26,864 |
| 66 |
| 26,930 |
| ||||
Trading Security at Fair Value.Value. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued byto the Company toby a local nonprofit organization which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security,security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is only sensitive to the extent that there are 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'sbond’s terms and condition, among other things. The Company holds one pooled trust preferred security. The security’s fair value is based on unobservable issuer-provided financial information and discounted cash flow models derived from the underlying structured pool and therefore is classified as Level 3.
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.
|
|
|
|
|
| Aggregate Fair Value |
| |||
June 30, 2012 |
| Aggregate |
| Aggregate |
| Less Aggregate |
| |||
(In thousands) |
| Fair Value |
| Unpaid Principal |
| Unpaid Principal |
| |||
Loans Held for Sale |
| $ | 59,280 |
| $ | 57,973 |
| $ | 1,307 |
|
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 March 31,June 30, 2012, 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 variousinterest rate lock commitments to originate(IRLCs) for residential mortgage loans, for salewhich commit the Company to lend funds to a potential borrower at a specific interest rate and commitments to sell residential mortgage loans. Such commitments are considered to be derivative financial instruments and are carried at estimated fair value on the consolidated balance sheets.
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 to reflect estimates for fall-out rates, associated servicing and origination costs. These assumptions are considered significant unobservable inputs resultingby 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 classification. Asmeasurements.
Forward Commitments. The Company utilizes forward commitments as economic hedges against the potential decreases in the values of March 31, 2012, there were no liabilities derived fromthe IRLCs. The forward commitments to originate residential mortgage loansare classified as Level 1 and consist of publicly-traded debt securities for sale. Likewise, aswhich identical fair values can be obtained through quoted market prices in active exchange markets.
The table below presents the changes in Level 3 assets that were measured at fair value on a recurring basis at March 31,June 30, 2012 and 2011.
Assets |
| Assets |
| |||||||||||||||
Trading | Securities |
| Trading |
| Securities |
| Interest Rate |
| ||||||||||
Account | Available |
| Account |
| Available |
| Lock |
| ||||||||||
(In thousands) | Security | for Sale |
| Security |
| for Sale |
| Commitments |
| |||||||||
|
|
|
|
|
|
| ||||||||||||
Balance as of December 31, 2011 | $ | 17,395 | $ | 544 |
| $ | 17,395 |
| $ | 544 |
| $ | — |
| ||||
|
|
|
|
|
|
| ||||||||||||
Unrealized gain recognized in other non-interest income | (428 | ) | - |
| (428 | ) | — |
| — |
| ||||||||
Amortization of trading account security | (120 | ) | ||||||||||||||||
Unrealized loss included in accumulated other comprehensive loss |
| — |
|
|
| — |
| |||||||||||
Paydown of trading account security |
| (120 | ) | — |
| — |
| |||||||||||
Balance as of March 31, 2012 | $ | 16,847 | $ | 544 |
| $ | 16,847 |
| $ | 544 |
| $ | — |
| ||||
|
|
|
|
|
|
| ||||||||||||
Unrealized gains (losses) relating to instruments still held at March 31, 2012 | $ | 2,871 | $ | (2,055 | ) | |||||||||||||
Greenpark Acquisition |
| — |
| — |
| 2,126 |
| |||||||||||
Unrealized (loss) gain recognized in other non-interest income |
| 638 |
| — |
| 4,337 |
| |||||||||||
Unrealized loss included in accumulated other comprehensive loss |
| — |
| 69 |
| — |
| |||||||||||
Paydown of trading account security |
| (120 | ) | — |
| — |
| |||||||||||
Transfers to held for sale loans |
| — |
| — |
| (2,435 | ) | |||||||||||
Balance as of June 30, 2012 |
| $ | 17,365 |
| $ | 613 |
| $ | 4,028 |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||
Unrealized gains (losses) relating to instruments still held at June 30, 2012 |
| $ | 3,509 |
| $ | (1,988 | ) | $ | 4,337 |
|
Assets |
| Assets |
| ||||||||||||
Trading | Securities |
| Trading |
| Securities |
| |||||||||
Account | Available |
| Account |
| Available |
| |||||||||
(In thousands) | Security | for Sale |
| Security |
| for Sale |
| ||||||||
|
|
|
|
| |||||||||||
Balance as of December 31, 2010 | $ | 16,155 | $ | 1,695 |
| $ | 16,155 |
| $ | 1,695 |
| ||||
|
|
|
|
| |||||||||||
Unrealized (loss) gain recognized in other non-interest income | (257 | ) | - |
| (257 | ) | — |
| |||||||
Unrealized loss included in accumulated other comprehensive loss | - | 498 |
| — |
| 498 |
| ||||||||
Amortization of trading account security | (117 | ) | - | ||||||||||||
Paydown of trading account security |
| (117 | ) | — |
| ||||||||||
Balance as of March 31, 2011 | $ | 15,781 | $ | 2,193 |
| $ | 15,781 |
| $ | 2,193 |
| ||||
|
|
|
|
| |||||||||||
Unrealized gains (losses) relating to instruments still held at March 31, 2011 | $ | 1,338 | $ | (1,950 | ) | ||||||||||
Unrealized (loss) gain recognized in other non-interest income |
| 357 |
| — |
| ||||||||||
Unrealized loss included in accumulated other comprehensive loss |
| — |
| 112 |
| ||||||||||
Paydown of trading account security |
| (113 | ) | — |
| ||||||||||
Transfer out of Level 3 |
| — |
| (1,624 | ) | ||||||||||
Balance as of June 30, 2011 |
| $ | 16,025 |
| $ | 681 |
| ||||||||
|
|
|
|
|
| ||||||||||
Unrealized gains (losses) relating to instruments still held at June 30, 2011 |
| $ | 1,694 |
| $ | (1,918 | ) |
Quantitative information about the significant unobservable inputs within Level 3 recurring assets are as follows:
|
| Fair Value |
|
|
|
|
| Significant Unobservable |
| |
(In thousands) |
| June 30, 2012 |
| Valuation Techniques |
| Unobservable Inputs |
| Input Value |
| |
Assets |
|
|
|
|
|
|
|
|
| |
Trading Account Security |
| $ | 17,365 |
| Discounted Cash Flow |
| Discount Rate |
| 2.08 | % |
|
|
|
|
|
|
|
|
|
| |
Interest Rate Lock Commitment |
| 4,028 |
| Historical Trend |
| Closing Ratio |
| 10.00 | % | |
|
|
|
| Pricing Model |
| Origination Costs |
| 34.00 | % | |
|
|
|
|
|
|
|
|
|
| |
Total Assets |
| $ | 21,393 |
|
|
|
|
|
|
|
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.
|
| June 30, 2012 |
| December 31, 2011 |
| Six months ended |
| |||
|
| Level 3 |
| Level 3 |
| Total |
| |||
(In thousands) |
| Inputs |
| Inputs |
| Losses |
| |||
Assets |
|
|
|
|
|
|
| |||
Impaired loans |
| $ | 9,918 |
| $ | 11,155 |
| $ | 2,531 |
|
Capitalized mortgage servicing rights |
| 2,786 |
| 3,067 |
| 290 |
| |||
Other real estate owned |
| 827 |
| 1,900 |
| — |
| |||
|
|
|
|
|
|
|
| |||
Total Assets |
| $ | 13,531 |
| $ | 16,122 |
| $ | 2,821 |
|
March 31, 2012 | December 31, 2011 | |||||||
Level 3 | Level 3 | |||||||
(In thousands) | Inputs | Inputs | ||||||
Assets | ||||||||
Securities held to maturity | $ | 60,332 | $ | 60,395 | ||||
Resticted equity securities | 35,282 | 37,118 | ||||||
Impaired loans | 10,436 | 11,155 | ||||||
Loans held for sale | - | 1,455 | ||||||
Capitalized mortgage servicing rights | 2,917 | 3,067 | ||||||
Other real estate owned | 439 | 1,900 | ||||||
Other intangibles | 19,662 | 20,973 | ||||||
Goodwill | 202,397 | 202,391 | ||||||
Total Assets | $ | 331,465 | $ | 338,454 |
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets are, as follows:
|
| Fair Value |
|
|
|
|
| Range (Weighted |
| |
(in thousands) |
| June 30, 2012 |
| Valuation Techniques |
| Unobservable Inputs |
| Average) (a) |
| |
Assets |
|
|
|
|
|
|
|
|
| |
Impaired loans |
| $ | 9,918 |
| Fair value of collateral |
| Loss severity |
| 3.26% to 56.08% (20.8%) |
|
|
|
|
|
|
| Appraised value |
| $71.0 to $3,450.0 $(2,279.8) |
| |
|
|
|
|
|
|
|
|
|
| |
Capitaized mortgage servicing rights |
| 2,786 |
| Discounted cash flow |
| Constant prepayment rate (CPR) |
| 13.58% to 22.49% (16.25%) |
| |
|
|
|
|
|
| Discount rate |
| 11.00% to 15.50% (11.21%) |
| |
|
|
|
|
|
|
|
|
|
| |
Other real estate owned |
| 827 |
| Fair value of collateral |
| Appraised value |
| $0 to $320.0 $(218.9) |
| |
|
|
|
|
|
|
|
|
|
| |
Total Assets |
| $ | 13,531 |
|
|
|
|
|
|
|
(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.
There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended March 31,June 30, 2012 and December 31, 2011.
Securities held to maturity.Impaired Loans.Held to maturity securities are recorded at amortized cost and are evaluated periodically for impairment. No impairments were recorded on securities held to maturity for the three months ended March 31, 2012 and 2011, respectively. Held for maturity securities are fair valued using the same methodologies applied to the available for sales securities portfolio. Most securities in the held to maturity portfolio consist of economic development bonds and issues to local municipalities that are not actively traded and are priced using a discounted cash flows model. The Company views these as Level 3 pricing.
Restricted equity securities. The Company’s restricted equity securities balance is primarily composed of Feral Home Loan Bank of Boston (“FHLBB”) stock having a carrying value of $30.2 million as of March 31, 2012. The additional $5.7 million of securities in this section include Savings Bank Life Insurance stock and stock in the Federal Home Loan Bank of New York. Restricted equity securities are recorded at par and periodically evaluated for impairment. The FHLBB is a cooperative that provides services to its member banking institutions. The primary reason for joining the FHLBB was to obtain funding from the FHLBB and the purchase of stock in the FHLBB is a requirement for a member to gain access to funding. The Company purchases FHLBB stock proportional to the volume of funding received and views the purchases as a necessary long-term investment for the purposes of balance sheet liquidity and not for investment return.
Loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace.�� However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Loans held for sale.Loans originated and held for sale are carried at the lower of aggregate cost or market value. No fair value adjustments were recorded on loans held for sale during the three months ended March 31, 2012 and 2011, respectively. The Company holds loans in the held for sale category for a period generally less than 3 months and as a result fair value approximates carrying value.
Capitalized mortgage loan servicing rights.A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted
cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Other real estate owned (“OREO”). OREO results from the foreclosure process on residential or commercial loans issued by the Bank. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.
Intangibles and Goodwill.The Company’s other intangible assets totaled $19.7 million and $21.0 million as of March 31, 2012 and December 31, 2011, respectively. Other intangibles include core deposit intangibles, insurance customer relationships, and non-compete agreements assumed by the Company as part of historical acquisitions. Other intangibles are initially recorded at fair value based on Level 3 data, such as internal appraisals and customized discounted criteria, and are amortized over their estimated lives on a straight-line or accelerated basis ranging from five to ten years. No impairment was recorded on other intangible assets during the three months ended March 31, 2012 and 2011.
The Company’s Goodwill balance as of March 31, 2012 and December 31, 2011 was $202.4 million. The Company tests goodwill impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that impairment is possible. No impairment was recorded by the Company during the three months ended March 31, 2012 and 2011.
Summary of estimated fair values of 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.
March 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
(In thousands) | Amount | Value | Amount | Value | ||||||||||||
Financial Assets | ||||||||||||||||
Cash and cash equivalents | $ | 45,303 | $ | 45,303 | $ | 75,359 | $ | 75,359 | ||||||||
Trading security | 16,847 | 16,847 | 17,395 | 17,395 | ||||||||||||
Securities available for sale | 423,580 | 423,580 | 419,756 | 419,756 | ||||||||||||
Securities held to maturity | 59,533 | 60,332 | 58,912 | 60,395 | ||||||||||||
Restricted equity securities | 35,282 | 35,282 | 37,118 | 37,118 | ||||||||||||
Net loans | 3,006,343 | 3,059,700 | 2,924,126 | 2,990,173 | ||||||||||||
Loans held for sale | - | - | 1,455 | 1,455 | ||||||||||||
Accrued interest receivable | 11,672 | 11,672 | 11,350 | 11,350 | ||||||||||||
Cash surrender value of bank-owned life insurance policies | 75,652 | 75,652 | 75,009 | 75,009 | ||||||||||||
Derivative assets | 12,883 | 12,883 | 13,926 | 13,926 | ||||||||||||
Financial Liabilities | ||||||||||||||||
Total deposits | $ | 3,184,167 | $ | 3,194,272 | $ | 3,101,175 | $ | 3,104,204 | ||||||||
Short-term debt | 14,360 | 14,360 | 10,000 | 10,000 | ||||||||||||
Long-term Federal Home Loan Bank advances | 221,880 | 226,572 | 211,938 | 215,008 | ||||||||||||
Junior subordinated debentures | 15,464 | 12,769 | 15,464 | 11,436 | ||||||||||||
Derivative liabilities | 25,040 | 25,040 | 26,930 | 26,930 |
|
| June 30, 2012 |
| December 31, 2011 |
| |||||||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
|
| Carrying |
| Fair |
| |||||||
(In thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Amount |
| Value |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Cash and cash equivalents |
| $ | 66,486 |
| $ | 66,486 |
| $ | 66,486 |
| $ | — |
| $ | — |
| $ | 75,359 |
| $ | 75,359 |
|
Trading security |
| 17,365 |
| 17,365 |
| — |
| — |
| 17,365 |
| 17,395 |
| 17,395 |
| |||||||
Securities available for sale |
| 471,368 |
| 471,368 |
| 29,999 |
| 440,756 |
| 613 |
| 419,756 |
| 419,756 |
| |||||||
Securities held to maturity |
| 41,822 |
| 43,285 |
| — |
| — |
| 43,285 |
| 58,912 |
| 60,395 |
| |||||||
Restricted equity securities |
| 37,174 |
| 37,174 |
| — |
| 37,174 |
| — |
| 37,118 |
| 37,118 |
| |||||||
Net loans |
| 3,332,751 |
| 3,425,000 |
| — |
| — |
| 3,425,000 |
| 2,924,126 |
| 2,990,173 |
| |||||||
Loans held for sale |
| 59,280 |
| 59,280 |
| — |
| 59,280 |
| — |
| 1,455 |
| 1,455 |
| |||||||
Accrued interest receivable |
| 12,462 |
| 12,462 |
| — |
| 12,462 |
| — |
| 11,350 |
| 11,350 |
| |||||||
Cash surrender value of bank-owned life insurance policies |
| 76,290 |
| 76,290 |
| — |
| 76,290 |
| — |
| 75,009 |
| 75,009 |
| |||||||
Derivative assets |
| 18,947 |
| 18,947 |
| — |
| 14,919 |
| 4,028 |
| 13,926 |
| 13,926 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total deposits |
| $ | 3,409,705 |
| $ | 3,419,918 |
| $ | — |
| $ | 3,419,918 |
| $ | — |
| $ | 3,101,175 |
| $ | 3,104,204 |
|
Short-term debt |
| 239,030 |
| 239,030 |
| — |
| 239,030 |
| — |
| 10,000 |
| 10,000 |
| |||||||
Long-term Federal Home Loan Bank advances |
| 213,479 |
| 221,879 |
| — |
| 221,879 |
| — |
| 211,938 |
| 215,008 |
| |||||||
Junior subordinated debentures |
| 15,464 |
| 12,934 |
| — |
| 12,934 |
| — |
| 15,464 |
| 11,436 |
| |||||||
Derivative liabilities |
| 31,826 |
| 31,826 |
| 1,446 |
| 30,380 |
| — |
| 26,930 |
| 26,930 |
|
Other than as discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value.
Cash and cash equivalents. Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety days or less.
Restricted equity securities.Carrying value approximates fair value based on the redemption provisions of the issuers.
Cash surrender value of life insurance policies.Carrying value approximates fair value.
Loans, net.The carrying value of the loans in the loan portfolio is based on the cash flows of the loans discounted over their respective loan 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-interestnon-interest bearing checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.
Borrowed funds.The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings. Such funds include all categories of debt and debentures in the table above.
Junior subordinated debentures. The Company utilizes a pricing service along with internal models to estimate the valuation of its junior subordinated debentures. The junior subordinated debentures re-price every ninety days.
Off-balance-sheet financial instruments. Off-balance-sheet financial instruments include standby letters of credit and other financial guarantees and commitments considered immaterial to the Company’s financial statements.
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 six months ended March 31,June 30, 2012 and 2011, respectively.
Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
March 31, |
| June 30, |
| June 30, |
| ||||||||||||||||
(In thousands) | 2012 | 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||||||
Net interest income | $ | 31,145 | $ | 20,146 |
| $ | 35,053 |
| $ | 24,201 |
| $ | 66,198 |
| $ | 44,347 |
| ||||
Provision for loan losses | 2,000 | 1,600 |
| 2,250 |
| 1,500 |
| 4,250 |
| 3,100 |
| ||||||||||
Net interest income after provision for loan losses | $ | 29,145 | $ | 18,546 |
| $ | 32,803 |
| $ | 22,701 |
| $ | 61,948 |
| $ | 41,247 |
|
NOTE 16. SUBSEQUENT EVENTS
On April 20,The Company has evaluated subsequent events through August 9, 2012, the Company acquired all ofdate the outstanding common shares of The Connecticut Bank and Trust Company ("CBT"). CBT operated eight banking offices serving the Greater Hartford area and was merged with and into Berkshire Bank.
CBT shareholders received 1.0 million shares of the Company common stock and $9 million in cash. As of April 20, 2012, CBT had assets with a carrying value of approximately $269 million, including loans outstanding with a carrying value of approximately $214 million, as well as deposits with a carrying value of approximately $210 million. The results of CBT’s operations will be included in our Consolidated Statement of Income from the date of acquisition. As part of the acquisition, the Company repurchased and retired from the United States Department of Treasury (“Treasury”) each share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of CBT issued and outstanding for $5.4 million and the outstanding warrant issued to the Treasury to purchase CBT common stock for $0.8 million.
As a result of the proximity of the closing of the merger with CBT to the date these consolidated financial statements are available to bewere 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.noting no events requiring disclosure.
On April 30, 2012, Berkshire Bank purchased certain assets and assumed certain limited liabilities of Greenpark Mortgage Corporation ("Greenpark"), as contemplated by the Asset Purchase Agreement dated February 2, 2012 (“Purchase Agreement”), by and between Berkshire Bank and Greenpark for a purchase price that is insignificant to the overall operations of the Company. As a result of the proximity of the closing of the asset purchase agreement with Greenpark to the date these consolidated financial statements are available to be issued, the Company is still evaluating the estimated fair values of the assets and liabilities acquired.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with 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 2011 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 2012 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 40.2% marginal effective income tax rate.
Berkshire Hills Bancorp (“the Company”(the “Company” or “Berkshire”) is headquartered in Pittsfield, Massachusetts. It had $4.0$4.5 billion in assets at March 31,June 30, 2012 and is the parent of Berkshire Bank — America’s Most Exciting BankSM (“the Bank” (the “Bank”). Berkshire completed the acquisition of CBT –— The Connecticut Bank and Trust Company on April
20, 2012. Including the CBT operations, Berkshire provides personal and business banking, insurance, and wealth management services through 68 full service branch offices in western Massachusetts, northeastern New York, north central Connecticut, and southern Vermont. Berkshire also operates 910 additional lending offices for commercial and residential mortgage originations in central and eastern Massachusetts. Berkshire Bank provides 100% deposit insurance protection on all deposit accounts, regardless of amount, based on a combination of FDIC insurance and membership in the Depositors Insurance Fund (DIF). For more information, visitwww.berkshirebank.com or call 800-773-5601.
Berkshire is a regional financial services company that seeks to distinguish itself based on the following attributes:
·Strong growth from organic, de novo, product and acquisition strategies
·Positive operating leverage elevating long term profitability
·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 BankSM
·Diversified integrated financial service revenues
·Positioned to be regional consolidator in attractive markets
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. YouOne 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.
Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the Registration Statement on Form S-4 that includes a Proxy Statement/Prospectus filed by Berkshire Hills Bancorp with the SEC on July 3, 2012 related to the acquisition of Beacon Federal Bancorp. This document contains forward-looking statements about the merger of Berkshire Hills Bancorp and Beacon. Certain factors that could cause actual results to differ materially from expected results include difficulties in achieving cost savings from the merger or in achieving such cost savings within the expected time frame, difficulties in integrating Berkshire Hills Bancorp and Beacon, increased competitive pressures, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business in which Berkshire Hills Bancorp and Beacon are engaged, changes in the securities markets and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission.
Other factors that could cause results to differ materially from those described in the forward-looking statements can be found in the definitive Proxy Statement/Prospectus filed by Berkshire Hills Bancorp with the SEC on February 27, 2012 for the acquisition of The Connecticut Bank and Trust Company (“CBT”). This document contains forward-looking statements about the merger of Berkshire Hills Bancorp and CBT. Certain factors that could cause actual results to differ materially from expected results include difficulties in achieving cost savings from the merger or in achieving such cost savings within the expected time frame, difficulties in integrating Berkshire Hills Bancorp and CBT, increased competitive pressures, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business in which Berkshire Hills Bancorp and CBT are engaged, changes in the securities markets and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission.
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 these 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.
GENERAL
This discussion is intended to assist in understanding the financial condition and results of operations of the Company. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes contained in this report.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND NEW ACCOUNTING PRONOUNCEMENTS
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements includedin this Form 10-Q and in the 2011most 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.
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. The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements. Please see those policies in conjunction with this discussion. Management believes that the following policies would be considered critical under the SEC’s definition:
Allowance for Loan Losses |
Acquired Loans. Due to recent bank acquisitions, the Company added a significant accounting policy related to acquired loans. Loans that the Company acquired 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 was 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 market multiples analyses. 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 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 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 depreciation 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.
For additional information regarding critical accounting policies, refer to Note 1 — Summary of Significant Accounting Policies in the notes to consolidated financial statements and the sections captioned “Critical Accounting Policies” and “Loan Loss Allowance” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2011 Form 10-K. There have been no significant changes in the Company’s application of critical accounting policies since year-end 2011. Please refer to the note on Recent Accounting Pronouncements in Note 2 to the consolidated financial statements of this report for a detailed
discussion of new accounting pronouncements. Please also see Note 1 in the consolidated financial statements for Election of the Use of the Fair Value Option.
The following summary data is based in part on the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this Form 10-Q.
At or for the Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
PERFORMANCE RATIOS (1) | ||||||||
Return on average assets | 0.59 | % | 0.39 | % | ||||
Return on average common equity | 4.23 | 2.89 | ||||||
Net interest margin, fully taxable equivalent | 3.62 | 3.30 | ||||||
Fee income/Net interest and fee income | 23.44 | 28.56 | ||||||
ASSET QUALITY RATIOS | ||||||||
Net charge-offs (current quarter annualized)/average loans | 0.24 | % | 0.30 | % | ||||
Non-performing assets/total assets | 0.58 | 0.54 | ||||||
Allowance for loan losses/total loans | 1.07 | 1.49 | ||||||
Allowance for loan losses/non-accruing loans | 143 | 240 | ||||||
CAPITAL RATIOS | ||||||||
Stockholders' equity to total assets | 13.82 | % | 13.54 | % | ||||
PER COMMON SHARE DATA | ||||||||
Net earnings, diluted | $ | 0.28 | $ | 0.20 | ||||
Total common book value | 26.28 | 27.69 | ||||||
Dividends | 0.17 | 0.16 | ||||||
Common stock price: | ||||||||
High | 24.49 | 22.92 | ||||||
Low | 21.03 | 20.68 | ||||||
Close | 22.92 | 20.83 | ||||||
FINANCIAL DATA:(In millions) | ||||||||
Total assets | $ | 4,029 | $ | 2,886 | ||||
Total loans | 3,039 | 2,145 | ||||||
Allowance for loan losses | 33 | 32 | ||||||
Other earning assets | 546 | 421 | ||||||
Total intangible assets | 222 | 172 | ||||||
Total deposits | 3,184 | 2,241 | ||||||
Total borrowings and debentures | 252 | 229 | ||||||
Total common stockholders' equity | 557 | 391 | ||||||
FOR THE PERIOD:(In thousands) | ||||||||
Net interest income | $ | 31,145 | $ | 20,146 | ||||
Provision for loan losses | 2,000 | 1,600 | ||||||
Non-interest income | 9,802 | 8,134 | ||||||
Non-interest expense | 30,194 | 23,189 | ||||||
Net income | 5,844 | 2,835 |
|
| At or for the Three Months Ended |
| At or for the Six Months Ended |
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| June 30, |
| June 30, |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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PER COMMON SHARE DATA |
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Net earnings, diluted |
| $ | 0.37 |
| $ | 0.11 |
| $ | 0.65 |
| $ | 0.31 |
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Total common book value |
| 26.31 |
| 26.61 |
| 26.31 |
| 26.61 |
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Dividends |
| 0.17 |
| 0.16 |
| 0.34 |
| 0.32 |
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Common stock price: |
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High |
| 23.49 |
| 22.85 |
| 24.49 |
| 22.92 |
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Low |
| 20.15 |
| 20.45 |
| 20.15 |
| 20.45 |
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Close |
| 22.00 |
| 22.39 |
| 22.00 |
| 22.39 |
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PERFORMANCE RATIOS (1) |
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Return on average assets |
| 0.73 | % | 0.23 | % | 0.66 | % | 0.31 | % | ||||
Return on average common equity |
| 5.58 |
| 1.67 |
| 4.90 |
| 2.28 |
| ||||
Net interest margin, fully taxable equivalent |
| 3.70 |
| 3.52 |
| 3.66 |
| 3.41 |
| ||||
Fee income/Net interest and fee income |
| 25.52 |
| 25.58 |
| 24.54 |
| 26.96 |
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ASSET QUALITY RATIOS |
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Net charge-offs (current period annualized)/average loans |
| 0.25 | % | 0.24 | % | 0.24 | % | 0.27 | % | ||||
Allowance for loan losses/total loans |
| 0.98 |
| 1.30 |
| 0.98 |
| 1.30 |
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CAPITAL RATIOS |
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Stockholders’ equity to total assets |
| 12.94 | % | 13.80 | % | 12.94 | % | 13.80 | % | ||||
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FINANCIAL DATA: (In millions) |
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Total assets |
| $ | 4,508 |
| $ | 3,226 |
| $ | 4,508 |
| $ | 3,226 |
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Total loans |
| 3,366 |
| 2,452 |
| 3,366 |
| 2,452 |
| ||||
Allowance for loan losses |
| 33 |
| 32 |
| 33 |
| 32 |
| ||||
Other earning assets |
| 649 |
| 411 |
| 649 |
| 411 |
| ||||
Total intangible assets |
| 240 |
| 193 |
| 240 |
| 193 |
| ||||
Total deposits |
| 3,410 |
| 2,486 |
| 3,410 |
| 2,486 |
| ||||
Total borrowings and debentures |
| 468 |
| 261 |
| 468 |
| 261 |
| ||||
Total common stockholders’ equity |
| 583 |
| 445 |
| 583 |
| 445 |
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FOR THE PERIOD: (In thousands) |
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Net interest income |
| $ | 35,053 |
| $ | 24,201 |
| $ | 66,198 |
| $ | 44,347 |
|
Provision for loan losses |
| 2,250 |
| 1,500 |
| 4,250 |
| 3,100 |
| ||||
Non-interest income |
| 12,288 |
| 8,170 |
| 22,090 |
| 16,304 |
| ||||
Non-interest expense |
| 34,184 |
| 28,623 |
| 64,378 |
| 51,812 |
| ||||
Net income |
| 7,986 |
| 1,877 |
| 13,830 |
| 4,712 |
|
(1) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
Note: 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. In 2011, Berkshire Bank acquired loans as a result of the acquisitions of Rome Bancorp and Legacy Bancorp. 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.
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included.
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
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Three Months Ended March 31, |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
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($ In millions) | 2012 | 2011 |
| Average |
| Yield/Rate |
| Average |
| Yield/Rate |
| Average |
| Yield/Rate |
| Average |
| Yield/Rate |
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Average Balance | Yield/Rate (FTE basis) | Average Balance | Yield/Rate (FTE basis) | ||||||||||||||||||||||||||||||||||
Assets |
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Loans: |
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Residential mortgages | $ | 1,058 | 4.63 | % | $ | 651 | 5.04 | % |
| $ | 1,167 |
| 4.64 | % | $ | 802 |
| 4.97 | % | $ | 1,112 |
| 4.64 | % | $ | 727 |
| 5.01 | % | ||||||||
Commercial mortgages | 1,154 | 5.01 | 929 | 4.68 | |||||||||||||||||||||||||||||||||
Commercial business loans | 412 | 4.76 | 284 | 4.69 | |||||||||||||||||||||||||||||||||
Commercial loans |
| 1,742 |
| 5.00 |
| 1,308 |
| 4.78 |
| 1654 |
| 4.95 |
| 1,261 |
| 4.71 |
| ||||||||||||||||||||
Consumer loans | 366 | 3.98 | 281 | 3.63 |
| 375 |
| 3.93 |
| 311 |
| 3.97 |
| 371 |
| 3.96 |
| 296 |
| 3.80 |
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Total loans | 2,990 | 4.72 | 2,145 | 4.65 |
| 3,284 |
| 4.75 |
| 2,421 |
| 4.74 |
| 3,137 |
| 4.73 |
| 2,284 |
| 4.70 |
| ||||||||||||||||
Securities | 525 | 3.29 | 404 | 4.01 |
| 549 |
| 3.30 |
| 406 |
| 4.07 |
| 537 |
| 3.29 |
| 405 |
| 4.04 |
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Fed funds sold & short-term investments | 15 | 0.07 | 12 | 0.13 | |||||||||||||||||||||||||||||||||
Short-term investments and loans held for sale |
| 47 |
| 0.06 |
| 5 |
| 0.19 |
| 31 |
| 0.06 |
| 8 |
| 0.16 |
| ||||||||||||||||||||
Total earning assets | 3,530 | 4.48 | 2,561 | 4.53 |
| 3,880 |
| 4.49 |
| 2,831 |
| 4.64 |
| 3,705 |
| 4.49 |
| 2,697 |
| 4.58 |
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Other assets | 460 | 315 |
| 472 |
|
|
| 383 |
|
|
| 466 |
|
|
| 349 |
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Total assets | $ | 3,990 | $ | 2,876 |
| $ | 4,352 |
|
|
| $ | 3,214 |
|
|
| $ | 4,171 |
|
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| $ | 3,046 |
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Liabilities and stockholders' equity | |||||||||||||||||||||||||||||||||||||
Liabilities and stockholders’ equity |
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Deposits: |
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NOW | $ | 272 | 0.26 | % | $ | 215 | 0.33 | % |
| $ | 297 |
| 0.30 | % | $ | 230 |
| 0.31 | % | $ | 285 |
| 0.28 | % | $ | 223 |
| 0.32 | % | ||||||||
Money market | 1,085 | 0.55 | 746 | 0.75 |
| 1,136 |
| 0.49 |
| 778 |
| 0.69 |
| 1,111 |
| 0.52 |
| 762 |
| 0.72 |
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Savings | 360 | 0.20 | 235 | 0.31 |
| 370 |
| 0.18 |
| 317 |
| 0.26 |
| 365 |
| 0.19 |
| 276 |
| 0.28 |
| ||||||||||||||||
Time | 984 | 1.51 | 738 | 2.19 |
| 1,039 |
| 1.44 |
| 810 |
| 2.00 |
| 1,011 |
| 1.47 |
| 774 |
| 2.09 |
| ||||||||||||||||
Total interest-bearing deposits | 2,701 | 0.82 | 1,934 | 1.20 |
| 2,842 |
| 0.78 |
| 2,135 |
| 1.08 |
| 2,772 |
| 0.80 |
| 2,035 |
| 1.14 |
| ||||||||||||||||
Borrowings and debentures | 257 | 3.16 | 230 | 3.62 |
| 399 |
| 2.14 |
| 270 |
| 3.10 |
| 328 |
| 2.65 |
| 250 |
| 3.36 |
| ||||||||||||||||
Total interest-bearing liabilities | 2,958 | 1.02 | 2,164 | 1.46 |
| 3,241 |
| 0.95 |
| 2,405 |
| 1.31 |
| 3,100 |
| 0.98 |
| 2,285 |
| 1.38 |
| ||||||||||||||||
Non-interest-bearing demand deposits | 439 | 294 |
| 499 |
|
|
| 334 |
|
|
| 469 |
|
|
| 314 |
|
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Other liabilities | 40 | 26 |
| 39 |
|
|
| 25 |
|
|
| 39 |
|
|
| 26 |
|
|
| ||||||||||||||||||
Total liabilities | 3,437 | 2,484 |
| 3,779 |
|
|
| 2,764 |
|
|
| 3,608 |
|
|
| 2,625 |
|
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Total stockholders' equity | 553 | 392 | |||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 3,990 | $ | 2,876 | |||||||||||||||||||||||||||||||||
Total stockholders’ equity |
| 573 |
|
|
| 450 |
|
|
| 563 |
|
|
| 421 |
|
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Total liabilities and stockholders’ equity |
| $ | 4,352 |
|
|
| $ | 3,214 |
|
|
| $ | 4,171 |
|
|
| $ | 3,046 |
|
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Net interest spread | 3.46 | % | 3.07 | % |
|
|
| 3.54 | % |
|
| 3.33 | % |
|
| 3.50 | % |
|
| 3.20 | % | ||||||||||||||||
Net interest margin | 3.62 | 3.30 |
|
|
| 3.70 |
|
|
| 3.52 |
|
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| 3.66 |
|
|
| 3.41 |
| ||||||||||||||||||
Cost of funds | 0.89 | 1.28 |
|
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| 0.82 |
|
|
| 1.15 |
|
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| 0.86 |
|
|
| 1.22 |
| ||||||||||||||||||
Cost of deposits | 0.71 | 1.04 |
|
|
| 0.66 |
|
|
| 0.94 |
|
|
| 0.68 |
|
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| 0.99 |
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Supplementary data |
|
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Total deposits (In millions) | $ | 3,140 | $ | 2,228 |
| $ | 3,341 |
|
|
| $ | 2,469 |
|
|
| $ | 3,241 |
|
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| $ | 2,349 |
|
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Fully taxable equivalent income adj. (In thousands) | $ | 669 | $ | 679 |
| $ | 638 |
|
|
| $ | 675 |
|
|
| $ | 1,307 |
|
|
| $ | 1,354 |
|
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|
(1)The average balances of loans include nonaccrual loans, loans held for sale, and deferred fees and costs.
(2)The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.
(3)The above schedule includes yields associated with discontinued operations, although the related income is excluded from income from continuing operations on the income statement. The above schedule includes balances associated with discontinued operations.
SUMMARY
During the second quarter and first quarterhalf of 2012, Berkshire recorded significant growth in loans, deposits, revenues, and earnings as a result of its initiatives to build its franchise. There was general improvement of profitability, and measures of capital, asset quality, and capital measures.liquidity remained favorable. Most lines of business produced larger business volumes and improved pricing spreads. Improvement has been focused in areas where the Berkshire has been investing for growth, including commercial banking and regional expansion in Central/Eastern New York and Central/Eastern Massachusetts. First quarter 2012 financial highlights included the following:
First half 2012 highlights were as follows (revenue and earnings growth is compared to the first half of 2011; loan and deposit growth is compared to year-end 2011):
·46% revenue growth,
·194% increase in net income
·110% increase in earnings per share
·14% loan growth
·10% deposit growth
·3.66% net interest margin
·0.60% non-performing assets/total assets
·0.24% annualized net loan charge-offs/average loans
During the most recent quarter, Berkshire also was finalizing itscompleted the acquisition of CBT - The Connecticut Bank and Trust Company which was completed on April 20, 2012. Berkshire has added 8 Connecticut branch offices, increasing its full service banking offices to 68, including two new offices opened in the New York region in 2012. Berkshire also announced an agreement to acquirecompleted the assets andacquisition of the operations of Greenpark Mortgage Corporation, and this acquisition was completed on April 30, 2012. The Greenpark acquisition has added seveneight new lending offices in Central/Eastern Massachusetts. These acquisitions were completed on time and on plan. They increase Berkshire’s footprint, add new opportunities for cross sales across Berkshire’s business lines, and improve the diversity of revenue sources. Additionally,
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2012 AND DECEMBER 31, 2011
Summary:Berkshire maintained positive growth momentum from business development in targeted business lines, while managing other balances in connection with the acquisitions of CBT and Greenpark. Total assets increased by 13% to $4.5 billion from $4.0 billion, including approximately $0.3 billion related to CBT and $0.1 billion related to Greenpark. Total equity increased by $30 million, primarily due to $22 million in common stock issued for CBT merger consideration. Total intangible assets increased by $17 million primarily due to merger related goodwill and core deposit intangibles. Most major categories of assets, liabilities, and equity increased as a result of the business combinations. Including the acquired balances, overall measures of asset quality, capital, and liquidity remained favorable. Assets and liabilities from discontinued operations at year-end 2011 were related to four former Legacy New York branches which were divested in January 2012.
Securities: Total investment securities increased by $35 million (6%) to $568 million due to $41 million added from CBT. To conform with Berkshire’s investment objectives, a significant portion of the CBT investment portfolio was sold around the time of the merger. Held to maturity securities decreased due to runoff related to refinancing by a limited number of issuers. Securities purchases consisted mainly of structured U.S. agency collateralized mortgage obligations with targeted average lives in the 2 — 5 year range. Berkshire also continues to invest in dividend yielding equity securities of local financial institutions. The yield on investment securities improved to 3.30% in the second quarter of 2012 compared to 3.26% in the final quarter of 2011. Berkshire continues to maintain a high quality, relatively short duration investment portfolio, and to focus on loan growth as the primary use of funds from deposit growth and the primary source of interest income. The average life of the available for sale debt securities portfolio was estimated at 3.7 years at midyear, compared to 4.2 years at the start of the year.
The unrealized gain on investment securities remained unchanged at 2% of amortized cost. The Company did not record any material losses or write-downs of investment securities in the first half of the year and none of the Company’s investment securities was other-than-temporarily impaired at mid-year. Losses on securities with unrealized
losses declined to $3 million from $4 million. Included in this total was one pooled trust preferred security with a cost of $2.6 million and an unrealized loss of $2.0 million at midyear, which was down slightly from $2.1 million at year-end 2011. Interest payments have been suspended on this security, but it is classified as performing based on the Company’s financial analysis, and the impairment is viewed as temporary. This security is described more fully in the notes to the consolidated financial statements. There were several downgrades of corporate bonds and single issuer trust preferred securities during the most recent quarter, Berkshire completeddue primarily to changes in the divestiture of four former Legacy New York branch offices which were identified as discontinued operations at the start of the year. These offices had been identified as not within the scope of the Company’s strategic objectives and the divestiture was completed on time and on plan.
Per share measures of earnings, book value, and tangible book value all improved during the quarter. Including the additional shares issuedratings environment for the CBT acquisition, Berkshire now has approximately 22.2 million shares outstanding. Based on the $22.92 closing price of Berkshire’s stock at the end of the first quarter, the total market capitalization of the Company’s stock now exceeds $500 million.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2012 AND DECEMBER 31, 2011large financial institutions.
Summary:Loans.Total assetsloans increased by $38$409 million at a 4% annualized rate during(14%) in the first quarter, totaling 4.03 billion at quarter-end. Bothhalf of the year, including $210 million in acquired CBT loans and deposits increased at$173 million in residential mortgage portfolio growth. An ongoing focus of Berkshire’s lending program is the growth of commercial loans, with an 11%emphasis on commercial business loans where the Company believes it has the strongest competitive advantage and which are expected to result in strong relationships and use of a variety of Berkshire’s products and services. The total increase in commercial loans was $234 million, including $187 million in balances acquired with CBT. Excluding these CBT loans, the net increase in commercial loans from business activities was $47 million, or 6% on an annualized rate during the quarter, reflecting Berkshire’s focus on building its business volumes in its regional markets. An $80basis. This growth included a $27 million increase in residential mortgages was partially offset by a $30 million decrease in cash and short term investments. Deposits increased by $83 million, with proceeds being used in part to fund the divestiture of $56 million in liabilities of discontinued operations, as well as to support asset growth. Asset quality and capital metrics remained favorable and improving.based lending portfolio.
Securities.The portfolio of investment securities increased by $2 million at a 2% annualized rate during the first quarter, totaling $535 million at quarter-end. There were no significant changes in the portfolio and portfolio values during the quarter. The yield on securities was little changed at 3.29% in the most recent quarter, compared to 3.26% in the prior quarter. The yield has declined from 4.01%Commercial loan growth in the first quarter of 2011 due to the impacthalf of the low rate environment. Throughout 2011, maturing securities were replaced and new securities from bank acquisitions were recorded at current market yields.
Loans.The loan portfolio increased by $82 million at an 11% annualized rate during the first quarter, totaling $3.04 billion at quarter-end. The increase was primarily due to the $80 million increase in residential mortgages. During the first quarter, the Company entered into an agreement to acquire certain assets and operations of Greenpark Mortgage Corporation, an established mortgage company headquartered in Needham, Massachusetts. This acquisition was completed on April 30, 2012. The Company developed an operating relationship with Greenpark in the first quarter and the growth in residential mortgage loans primarily resulted from conforming and jumbo15-30 year fixed rate residential mortgages originated by Greenpark. The recruitment of the Greenpark mortgage team is part of Berkshire’s objective for recruiting teams in Central/Eastern Massachusetts to increase the Company’s footprint, to provide new opportunities for relationship development, and to diversify the loan portfolio and revenue sources. Commercial business loans increased by $19 million (19% annualized) in the first quarter of 2012. This reflected Berkshire’s ongoing focus on increasing these loans as part of its commercial banking and risk management strategies, and included contributions from Berkshire’s new Central/Eastern Massachusetts commercial banking team located in Westborough, together with the contributions of its asset based lending team located in Woburn and its New York commercial lending team based in Albany. Berkshire has emphasized commercial business loan originations in order to diversify its portfolio and to utilize the expertise of its lending teams to build more profitable relationships utilizing its service and product capabilities. In conjunction with its second quarter acquisition of The Connecticut Bank & Trust Company, Berkshire expects to develop its commercial lending footprint in the Worcester/Springfield/Worcester, Springfield, Hartford triangle, as well as continuing to enhance its commercial presence in eastern Massachusetts. Berkshire continues to take commercial market share from national competitors as a result of the capabilities and responsiveness of the commercial banking teams that it has recruited in recent years. Berkshire is adhering to strong underwriting and pricing disciplines as it captures larger market share with high grade loan originations in all of its commercial lending areas. Berkshire has also enhanced its small business lending program, and servicesincluding servicing smaller relationships through its branch network. Thesenetwork, and these relationships are expected to contribute more to future loan growth. Based on
The $173 million increase in the residential mortgage portfolio included $7 million in acquired CBT mortgages, and a $166 million (16%) increase in balances from business activities. This increase consisted of fixed rate mortgages which were originated in the first half of the year in the strong refinancing market that developed due to low interest rates and some firming of local real estate markets. The increase included mortgages which were purchased from Greenpark Mortgage prior to its customer relationshipacquisition date, together with mortgage originations by Greenpark mortgage after the acquisition date. The increase was net of certain mortgages sold in the first half of the year. Berkshire utilized forward starting interest rate swaps to maintain an overall asset sensitive interest rate risk profile as measured by the sensitivity of net interest income. Berkshire, and risk management strategies,its new Greenpark Mortgage division, originates conforming and jumbo residential mortgages. The Company expects to increase secondary market sales of newly originated mortgages in the second half of the year, with less portfolio growth as a consequence. For mortgages targeted for sale, the Company has not emphasized originationshedges its interest rate risk on rate locked mortgage applications through the use of derivatives contracts, supplemented by best efforts forward mortgage sales.
The acquired CBT loans had a carrying value $215.8 million and a fair value of $209.6 million. The resulting $6.2 million fair value discount equated to 2.9% of the carrying value. In the two calendar quarters prior to the acquisition, CBT’s net loan charge-offs totaled $2.9 million (1.3% of the carrying value at acquisition date). The nonaccretable portion of the $6.2 million discount totaled $5.6 million, which equated to 23% of the $23.7 million carrying value of the related loans. The acquired CBT loans were concentrated in commercial real estateloans, with a fair value of $187 million, and home equity loans. As a result, these portfolios decreasedconsisting primarily of small business loans in the most recent quarter.Greater Hartford area.
The loan yield decreased slightly to 4.72%was 4.75% in the most recent quarter, and included the 0.07% benefit of yield accretion on a loan prepayment. Excluding this benefit, the yield was 4.68% in the most recent quarter, compared to 4.74% in the prior quarter. When compared to the yield in the firstfourth quarter of 2011, the loan2011. This decline in yield increased from 4.65% due toreflects the impact of certain higher yieldingthe lower interest rate environment on loan prepayments and originations. The yield on loans acquired in bank acquisitions in 2011. Total loans repricing over five years increased to $1.00 billion in the firstmost recent quarter compared to $921 millionincluded the benefit of acquired CBT commercial loans with higher than normal credit risk, which are assigned higher yields reflecting market yield requirements for these assets. The overall yield on the CBT loan portfolio was established at year-end 2011, due to6.0% based on the growth in residential mortgages.initial yield requirements as of the merger date.
Asset Quality.Under accounting standards for business combinations, acquiredAcquired loans are recorded at fair value and are deemedcategorized as performing regardless of their payment status. Therefore, some overall portfolio measures of asset qualityperformance are not comparable between periods or among institutions as a result of recent business combinations.
Asset performance remained favorable and improving in the most recent quarter, withThe level of non-performing assets decreasingwas $27 million at midyear, a slight increase compared to 0.58%$26 million at the start of the year. The write-down and resolution of a commercial foreclosed property and a commercial real estate loan were offset by a new non-performing commercial real estate loan and an increase in non-accruing residential mortgages. As noted above, all acquired CBT loans were classified as performing. As a result, the ratio of non-performing assets to total assets decreased to 0.60% of total assets and the annualized ratio of net loan charge-offs/average loans decreasing to 0.24%.from 0.65% at year-end 2011. The largest nonperforming asset at midyear was approximately $3 million.
There were no significant changes in past-due loan ratios during the most recent quarter. Non-accruingAccruing loans were 0.75%over 90 days past due increased to 0.51% of total loans at quarter-end, whilemidyear compared to 0.34% at the start of the year, primarily due to the addition of past due CBT loans over 90 days past-due andwhich are classified as accruing were 0.40% of total loans.under accounting principles for business combinations. Loans delinquent 30-89 days measured 0.55%decreased to 0.41% of total loans. loans from 0.55%. Foreclosed assets and troubled debt restructurings remained insignificant through midyear. Net loan charge-offs remained comparatively low at 0.24% of average loans in the first half of 2012.
Classified loans are loans rated substandard or lower in the Company’s internal risk rating system. TheyThe ratio of classified loans/total loans remained unchanged at 4.1%, and the increase in classified loans was primarily related to acquired CBT commercial loans. Classified loans include nonperformingnon-accruing loans, andwhich were unchanged at 0.8% of total loans. The remaining loans, measuring 3.3% of total loans, represent potential problem loans which could become non-performing based on known risks. Included in these loans are acquired loans with credit impairment acquired in business combinations, whichat acquisition date. These loans were recorded at fair value at acquisition date and are generally being maintained as performing loans. Excluding these loans, the Company views performingThe acquired classified loans from business activities as potential problem loans with a possibility of loss if know weaknesses are not corrected. These loans totaled 2.75%were 1.1% of total loans at March 31, 2012.
midyear, compared to 0.6% at the start of the year. Special mention loans are loans with higher than normal credit risk which do not warrant classification. These loans increased to 1.6% of total loans from 1.3%, primarily due to acquired CBT commercial loans.
Loan Loss Allowance.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 and which are inherent in the loan portfolio as of the balance sheet date. Under accounting standards loansfor business combinations, acquired in business combinationsloans are recorded at fair value with no loan loss allowance on the date of acquisition. These loans consist of loans acquired with the Rome and Legacy acquisitions in 2011. A loan loss allowance is recorded by the Company for the emergence of new probable and estimable losses relating to loans acquired in business combinationsloans 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 ratio of the allowance to non-performing loans was 126% at midyear, and activity inthe allowance measured 4.3X annualized first half net loan charge-offs.
The total amount of the loan loss allowance are not comparableincreased to prior periods. During$32.9 million from $32.4 million. The allowance related to loans from business activities was flat at $32 million, and the most recent quarter,ratio of this allowance to loans from business activities decreased to 1.26% from 1.41%. The majority of the growth in this portfolio was in residential mortgage loans, which have lower inherent losses than other loan categories. The allowance related to impaired loans from business activities was little changed, totaling $2.9 million at midyear. The $0.5 million increase in the total allowance was related to the allowance for loan losses increased slightly to $32.7 million, measuring 1.07% ofacquired loans and 143%primarily reflected the emergence of non-performingnew inherent losses in non-impaired loans at the end of the quarter. The allowance decreased from 1.10% of loans at year-end 2011, including the impact of growth in residential mortgages, which are reserved at a comparatively low 0.30% of outstanding balances due to the lower loan losses associated with these loans.passage of time for loans acquired in bank mergers in 2011.
Other Assets.Loans held for sale increased to $59 million from $1 million due to the acquisition of the Greenpark Mortgage operations. For loans held for sale, Berkshire enters into mandatory delivery or best efforts sale contracts with institutional secondary market purchasers. Total goodwill increased by $18 million including $14 million recorded for the CBT acquisition and $4 million recorded for the Greenpark acquisition. The net deferred tax asset totaled $40.7 million at midyear, compared to $39.7 million at year end 2011.
Deposits and BorrowingsBorrowings. . Total deposits increased by $83$309 million at an 11% annualized rate,(10%) to $3.41 billion during the first quarterhalf of 2012. Allthe year, including $210 million in acquired CBT balances. Excluding the acquired balances, total deposits from business activities increased by $98 million at a 6% annualized rate. Non-maturity deposits from business activities increased at a 9% annualized rate, with increases in all major categoriesaccount categories. Berkshire continues to
promote lower cost relationship oriented accounts in all of its markets, along with commercial deposits associated with its increased originations of commercial business loans and small business loans. Berkshire has also benefited from ongoing de novo branch expansion in its Albany, New York region. Time deposits from business activities were flat during the first half of the year, as the Company allowed higher cost maturing time account balances increased, with growth continuing to come primarily from Berkshire’s expanding New York region, including a new officeroll off in Colonie, New York. In January 2012, the Company completedsecond quarter. The acquired CBT deposits included non-maturity accounts totaling $139 million and time deposits totaling $72 million serviced by CBT’s eight branches in the divestiture of the deposits of four former Legacy New York offices which comprised most of the $56 million balance of liabilities from discontinued operations as of the end of 2011. Hartford region.
The total cost of deposits decreased slightly to 0.71%0.66% in the most recent quarter compared tofrom 0.73% in the prior quarter. Compared to the firstfourth quarter of 2011, reflecting reductions in all major categories of interest bearing accounts. Deposit costs reflect Berkshire’s pricing disciplines in the current low interest rate environment, along with the impact of the acquired deposit balances. The cost of time deposits was 1.44% in the most recent quarter., compared to 1.52% in the fourth quarter of 2011. Time accounts maturing in the second half of 2012 total approximately $335 million and have an average cost of approximately 1%. Berkshire anticipates that the cost of these deposits decreased from 1.04% as a result ofwill decrease when they are renewed. The initial cost established for the ongoing low rate environment and less demand for longer termCBT time deposits. Overnightdeposits based on the fair value analysis on the merger date was 0.63%.
Total borrowings increased by $230 million (97%) to $14$468 million, duringincluding $39 million in acquired CBT borrowings, $59 million related to the quarterGreenpark mortgage loans held for sale, and $132 million which was combined with deposit growth to partially fund the deposit divestiture, and the$199 million increase in loans from business activities. The new borrowings all consisted of low cost overnight FHLBB advances as of June 30, 2012. Including these overnightlower cost funds, brought down the total cost of borrowed moneyborrowings decreased to 3.16% for the quarter. Additionally, during this period, the Company increased the notional amount of interest rate swaps accounted for as cash flow hedges to $210 million from $200 million. These hedges are used to achieve short and medium term fixed rate protection for most of the Company’s borrowings, which totaled $252 million at quarter-end.
Stockholders’ Equity.Equity increased at a 3% annualized rate to $557 million during the quarter due primarily to retained earnings. Excluding goodwill and intangible assets (which totaled $222 million at the end of the quarter and $223 million at its beginning), tangible equity increased at a 6% annualized rate to $335 million from $330 million. This is a non-GAAP measure often used by investors2.14% in analyzing the Company. Equity/assets was little changed at 13.8% during the quarter, as was the ratio of tangible equity/tangible assets, which ended the quarter at 8.8%. Berkshire Bank’s total risk based capital ratio improved to 11.6% from 11.3% since most asset growth was concentrated in lower risk residential mortgages. Tangible book value per share increased at a 5% annualized rate to $15.81 during the most recent quarter while bookfrom 3.35% in the fourth quarter of 2011. Berkshire had approximately $440 million in additional borrowing capacity with the FHLBB at midyear. Despite the increase in borrowings, Berkshire’s loan/deposit ratio remained below 100%, measuring 99% at midyear.
Derivative Financial Instruments and Hedging Activities. The total notional value per shareof derivatives increased by $433 million (75%) to $1.011 billion at midyear from $578 million at the start of the year. The increase was primarily related to a 2% annualized$343 million increase in derivatives related to mortgage banking activities, together with an $80 million increase in forward starting cash flow hedges related to asset liability management and the increase in the residential mortgage portfolio.
Due to the acquisition of the Greenpark Mortgage operations, Berkshire significantly increased its residential mortgage originations and hedging activities. As a result, interest rate lock commitments for applications in process and intended for sale increased to $26.28.$215 million and were 79% hedged by derivative financial instruments consisting of forward sales of mortgage backed securities totaling $170 million. For these loans, at the loan closing the Bank expects to enter into mandatory sales commitments to established institutional non-government secondary market purchasers and to terminate the offsetting financial derivative hedge at that time. The remaining $45 million balance of rate locked commitments included an estimated amount related to expected fallout, with the balance covered by best efforts forward mortgage sales to secondary market purchasers. The sale contracts to secondary market purchasers are not recorded as derivatives.
As noted above, the Company funded its $173 million net increase in residential mortgages with deposits and overnight borrowings. In order to hedge some of the interest rate risk related to the borrowings, the Company entered into forward starting hedges totaling $80 million. On average, the forward starting interest rate swaps begin in 1.5 years and have an average life of 4.4 years once swaps are started. The fair value unrealized loss on cash flow hedges increased by $2 million to $11 million during the first half of the year due to the decrease in interest rates. This unrealized loss was offset by unrealized gains in the fair value of loans due to the interest rate environment.
Stockholders’ Equity. Total stockholders’ equity increased by $30 million (5%), including $22 million in common stock issued as CBT merger consideration. Berkshire issued 965 thousand shares for the CBT acquisition at an average value of $22.80 based on the closing price of Berkshire’s stock prior to the acquisition. For the first half of 2012, net income of $14 million funded cash stock dividends to our shareholders of $7 million and contributed to a $6 million increase in retained earnings. During the quarter, 60first half of the year, 64 thousand sharesrestricted stock grants were issued from treasury in the form of stock grantsrecorded for $1.5 million, primarily pursuant to the Company’s equity compensation plan, with most vesting on an annual step basis over three years based on time and performance criteria.
The ratio of tangible equity/ tangible assets decreased to 8.0% from 8.8% during the first half of the year. Tangible equity is a non-GAAP financial measure commonly used by investors and it excludes goodwill and intangible assets, which increased by $17 million to $240 million due to the CBT and Greenpark goodwill. The increase in intangibles mostly offset the increase in equity from the CBT merger consideration, and the ratio of tangible equity/tangible assets decreased due to the 13% increase in total assets. Tangible book value per share was $15.49 at midyear compared to $15.60 at the start of the year. Retained earnings mostly offset the estimated dilutive impact of business combinations for CBT and Greenpark. Total book value per share was $26.31 at midyear, compared to $26.17 at the start of the year. Berkshire Bank’s risk based capital ratio measured 10.3% at midyear, compared to 11.3% at the start of the year. This reflected the business combinations, the growth in loans from business activities, and adjustments to certain risk weighting factors. The ratio of equity/assets decreased to 12.9% from 13.9% due to the asset growth.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2012 AND 2011
Summary.Summary:Berkshire’s results inincluded Rome operations acquired on April 1, 2011, Legacy operations acquired on July 21, 2011, CBT operations acquired on April 20, 2012, include theand Greenpark Mortgage operations of Rome Bancorp and Legacy Bancorp, which were acquired after the first quarter of 2011.on April 30, 2012. As a result, most categories of revenue and expense increased due to these acquisitions. Earnings per share were affected by the issuance of 7.0 million additional Berkshire common shares related to these acquisitions. All references to revenue and expense in this discussion exclude discontinued operations of Legacy branches.branches, which were divested in the fourth quarter of 2011 and the first quarter of 2012.
Berkshire’s firstsecond quarter net income was $5.8$8.0 million ($0.280.37 per share) in 2012, compared to $2.8$1.9 million ($0.200.11 per share) in 2011. For the first half of the year, net income totaled $13.8 million ($0.65 per share) in 2012, compared to $4.7 million ($0.31 per share) in 2011. Results in bothall periods included nonrecurringmerger and mergerconversion related charges. Most profitability measurements before these charges improved including the benefit of the business combinations and resultspositive operating leverage related to higher revenues from business activities and disciplined expense management. The return on assets increased to 0.73% in the most recent quarter, included a loss on discontinued operations. In the most recent quarter,after 0.20% in net nonrecurring and mergercharges related charges totaled $4.2 million, with a related tax benefit of $1.3 million, and the net after-tax loss on discontinued operations was $0.6 million. Excluding these items, adjusted net income was $9.4 million ($0.45 per share) in the most recent quarter. This is a non-GAAP measure which the Company views as equivalent to the run rateafter-tax impact of its core operating profits. Themerger and conversion related items. In this quarter, the return on average assetsequity was 0.94% based on this adjusted measure. The GAAP5.6%, after the 1.6% impact of the above-mentioned net charges. Berkshire believes that its results show good progress towards its objectives to produce a return on assets was 0.59% duringexceeding 1% and a return on equity exceeding 10%. Including the quarter.
benefit of the pending Beacon acquisition before year-end 2012, Berkshire plans to make further progress towards achieving these profitability objectives. The Company has produced positive operating leverage, with revenue growth exceeding growthmaintained an asset sensitive net interest income profile, as management has chosen to sacrifice current yield to protect earnings in non-interest expenses before nonrecurring and merger related charges. This positive operating leverage has resulted in higher earnings and improved profitability. The higher earnings allowed Berkshire to increase its quarterly cash dividend by 6% to $0.17 per share in November, 2011 and also to increase capital through internally generated capital formation at athe event of future rate sufficient to support the current growth rate in business volume.increases. The Company is also producing these results while continuing to carryabsorbing the costs of ongoing branch and business expansion including a new commercial lending office opened in Westborough, Massachusetts in December 2011 and a new branch office located in Colonie, New York in the most recent quarter. Additionally, the Company is maintaining an asset sensitive interest rate risk profile. This strategy results in a lower net interest income, but is expected to support future earnings growth when interest rates increase.its cost of operations.
Revenue. Total first Second quarter total net revenue increased by $12.7 million (45%)46% to $40.9$47 million in 2012 compared to $28.3 million in 2011. For the first half of the year, net revenue increased by 46% to $88 million. This included the benefit of organic growth as well as the Romebusiness combinations. Revenue per share increased by 11% for the second quarter and Legacy acquisitions. Revenueby 4% for the first half of the year. Annualized revenue per share reached $8.68 in the most recent quarter increased by $1.0 million (10% annualized) compared toquarter. Most of the fourth quarter of 2011, which demonstrates Berkshire’s ongoing focus on business volume and revenue growth afterwas recorded in net interest income, since the bank acquisitions. This ongoingacquired banks had a lower proportion of fee income sources. Non-interest income measured 26% of total net revenue growth in the most recent quarter was primarily duequarter. Berkshire targets to growth in non-interest income. The ratio of fee income to total net interest and fee income was 23% in the most recent quarter compared to 29% in the first quarter of 2011, which reflects the lower proportionate contribution of fee income in the acquired banks. As a result, first quarter annualized revenue per share decreased to $7.78 in 2012 compared to $8.09 in 2011. Berkshire anticipates increasingincrease the ratio of fee income to total net interest and fee incomerevenue to 30% or higher as a result of additional cross sales in new markets along with further wallet share growth in existing markets. Additionally, the acquisition of Greenpark is targeted to increase the percentage of total annual revenue provided by fee income.
Net Interest Income. First Second quarter net interest income increased by $11.0 million (55%)45% to $31.1$35 million in 2012 compared to $20.12011. For the first half of the year, net interest income increased by 49% to $66 million. This included the benefit of organic growth as well as the business combinations. Average earning assets increased by 37% in the second quarter and first half of 2012 compared to 2011. The net interest margin improved to 3.70% from 3.52% in the second quarter and to 3.66% from 3.41% in the first half of 2012 compared to 2011. The improvement in the margin resulted from slight increases in loan yields together with significant reductions in funding costs. Acquired bank loans and deposits are marked to fair value based on market interest rates at the time of the completion of the merger. Additionally, acquired loans with higher than normal credit risk are assigned higher asset yields based on market expectations for such loans, and all non-performing acquired loans are classified as accruing based on the imputed asset yields. The benefit of these loan yields has offset the loan
yield compression generally being experienced in the industry due to the low interest rate environment. This environment has also contributed to the reduction in funding costs. Berkshire maintains a close focus on its loan and deposit pricing disciplines to lessen the potential for margin compression. Berkshire has also balanced its portfolio growth and funding sources to support the net interest margin and to support the ongoing organic growth in market share as it continues to pursue strategic growth in its regional markets. Of note, the acquired loan portfolios are recorded at a net discount to the contractual loan balance due to the impact of loans with higher than normal risk, and this discount is accreted into interest income over the expected lives of the related loans. Net interest income from accretion on acquired loans was $0.5 million in the first quarter of 2012 and was net of charges related to accelerated prepayments of premium residential mortgages. Net interest income from accretion on acquired loans in the second quarter of 2012 was $1.2 million and included a $0.6 million credit related to the early prepayment of one discounted acquired commercial mortgage. Volatility in prepayment patterns and in the workout of acquired problem assets can introduce up to five or more basis points of volatility in the net interest margin from quarter to quarter. Berkshire maintains an asset sensitive interest rate risk profile so that any future rate increases from the current low rate environment are expected to benefit net interest income.
Non-Interest Income. Non-interest income increased by 50% to $12.3 million in the second quarter and by 35% to $22.1 million in the second half of 2012 compared to 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions. Net interestbusiness combinations. Second quarter non-interest income was stableincluded a $2.2 million increase in the most recent quarter comparedloan related revenue due to the fourthcontribution of the new Greenpark operations, which are stated net of direct costs of loan originations. Loan fees also included higher secondary market income related to other residential mortgage sales. Second quarter of 2011. The net interest margindeposit related fees increased slightly to 3.62%by 18% from 3.61% for these periods, respectively. The net interest margin increased from 3.30% in the first quarter of 2011year-to-year, primarily due to a 35% increase in average balances. The second quarter ratio of annualized deposit fees to average deposits decreased to 0.47% from 0.55% due primarily to the 0.39% reduction in funding costs inlower fee services offered by the ongoing low rate environment, while the loan yield increased slightlyacquired banks. Six month insurance fees decreased due to the benefit of certain higher yielding loans acquireda change in Berkshire’s arrangements with the Rome and Legacy business combinations. While loan balances increased at an 11% annualized rate in the most recent quarter, much of this growth was recorded in the second half of the quarter. As a result, the average balance of earning assets only increased by 1% compared to the prior quarter. The contribution of this volume growth is expected to provide more benefit to net interest income beginning in the second quarter of 2012.
Non-Interest Income. First quarter non-interest income increased by $1.7 million (21%) to $9.8 million in 2012 compared to $8.1 million in 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions. Non-interest income increased by $1.0 million (11%) compared to the fourth quarter of 2011, which demonstrates Berkshire’s continuing non-interest income growth after the bank acquisitions. This growth was due to an increase in fee income, including the benefit of increases related to secondary market mortgage sales,its insurance and wealth management. These increases included increased business volume in these areas, along with some seasonal and pricing related factors. A seasonal reduction in deposit related fees was generally offset by a seasonal increase in insurance commissions and fees.carriers. Beginning in 2012, Berkshire has renegotiated its compensation arrangements with insurance carriers to substantially reduce the reliance on seasonal contingency income without reducing expected total yearly income. In previous years, Berkshire has had significant seasonality in its insurance revenues in the first two quarters of the year. As a result of this change, first quarterBerkshire is experiencing some improvement in business volume and pricing conditions in its insurance related revenues decreased by $1.0 million year-to-year due to the higher contingency income recordedbusiness lines. Berkshire has also produced new business development in 2011. The higherits wealth management incomebusiness at an annualized rate in the most recent quarter included the benefitexcess of increased assets under management. Total wealth and investment assets under management increased during the most recent quarter by 7% to $1.03 billion as of March 31,10% in 2012. Included in other non-interest income for the first half of 2012 is a $0.6$1.3 million credit for income on bank owned life insurance policies, which is partially offset bypolicies. Additionally, the Company records a $0.4 million charge representing the loss on investment tax credit limited partnership interests. This lossinterests which is offset by a $0.5 million credit to income tax expense representing the net tax benefit of these investments in renewable energy, low income housing, and other tax credit partnerships.
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.Company as an estimate of the probable and estimable loan losses inherent 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. The first quarter loan loss provision was $2.0 millionincreased in 2012 compared to $1.6 million2011 due primarily to the impact on the allowance of growth in 2011.the balance of loans from business activities, along with general reserves recorded on acquired loans based on inherent losses emerging after acquisition date. The provision in 2012 exceeded the level of net loan charge-offs, totaling $1.8 million. As a result, the allowance increased by $0.2 millionresulting in an increase in the most recent quarter, which wastotal allowance for loan losses.
Non-Interest Expense. Non-interest expense increased in 2012 primarily due to the growth in the total portfolio during the quarter.
Non-Interest Expense. First quarter non-interest expense increased by $7.0 million (30%) to $30.2 million in 2012 from $23.2 million in 2011. This included the impact of organic growth as well as the Rome and Legacy acquisitions,business combinations, together with nonrecurring and mergercosts related expenses.to organic growth. Non-interest expense increased by $0.7 million comparedincluded merger and conversion related expenses in both 2012 and 2011. These charges included costs related to the fourth quarter of 2011, including a $0.5 million increase in nonrecurring and merger related expenses. Excluding this amount, the annualized rate of increase in the most recent quarter was 2% compared to the prior quarter, and included the impact of office expansion in retail and commercial banking. Net nonrecurring and merger related expense totaled $4.2 million ($2.9 million after-tax) in the most recent quarter. This included merger related expenses for the Legacy and CBT acquisitions, disposition costs of excess premises in Pittsfield following the Legacy integration,business combinations and systems conversionconversions costs related to the core systems conversion planned for later in 2012. Total annualized non-interest expense measured 3.03%3.14% of average assets in the most recent quarter, compared to 3.22%3.56% in the firstsecond quarter of 2011. Excluding nonrecurringmerger and mergerconversion related expenses, the total measured 2.60%2.77% compared to 2.99%2.88% for these periods, respectively. The Company believes that this demonstrates the improvement in its ongoing efficiency as a result of its growth and disciplined expense management. Of note, non-interest expense also includes noncash charges for the amortization of intangible assets, which increased as a result of the bank acquisitions, and which measured 0.13% annualized0.12% of average assets in both of the most recent quarter.above periods. Full time equivalent staff totaled 760904 at March 31,June 30, 2012, which was unchanged from year-end 2011. As of May 1, 2012, total full time equivalent staff was 906, including 5551 positions added as a result of the CBT acquisition and 8994 positions added as a result of the acquisition of the Greenpark operations. The Company had 760 full time equivalent positions at the start of the year, before these acquisitions. Excluding the CBT and Greenpark staff, the
rest of the staff totaled 759 positions at midyear, decreasing by one position despite the continuing organic and de novo expansion of the Company.
Income from Continuing Operations. First quarter income from continuing operations increased by $3.7 million (129%) to $6.5 million in 2012 compared to $2.8 million in 2011. This included the benefit of organic growth as well as the Rome and Legacy acquisitions.Discontinued Operations. Income in the most recent quarter included a noncash credit totaling $1.2 million representing the net accretion of purchase accounting entries, including $0.5 million related to loans and $0.7 million related to deposits. Income in the quarter also included a noncash charge of $1.3 million for the amortization of intangible assets, which also is primarily related to the Rome and Legacy acquisitions. The first quarter tax rate on income from continuing operations was 26% inidentical to net income for all periods except the first half of 2012 compared to 19% in 2011. This significantly reflects the higher income expected in 2012, and the lower benefit of tax advantaged revenues as a percentage of pretax income. Income tax expense in the first quarter of 2011 reflects the impacts of adjustments as described in Note 3result of the consolidated financial statements.
Loss from Discontinued Operations.sale of four former Legacy branches in January. The $0.6 million net loss from discontinued operations was $0.6 million in the most recent quarter. Berkshire originally designated certain Legacy branches as held for sale and as discontinued operations in the third quarter of 2011, and Berkshire continued to operate these branches until sold. The loss in the most recent quarter related to the sale of the final four branches in January 2012 and included the costs of completing the sale, and a $0.4 million charge to income tax expense due to the non-deductibility of the goodwill associated with these branches.
Income from continuing operations was net of income tax expense. The effective tax rate for this income in the second quarter was 27% in 2012 and 17% in 2011. For the first half of the year, the rate was 26% in 2012 and 18% in 2011. The tax rate for the year 2011 was 25% and is expected to be approximately 32% for the remainder of 2012. The increase in rate is primarily due to the higher level of pretax income and the lower proportionate benefit of tax advantaged income from investments and bank owned life insurance. The lower rates in the first half of 2011 were calculated before the effects of the Legacy merger, which had the impact of increasing pretax income and reducing the proportionate benefit of tax advantaged items.
Results of Segment and Parent Operations. Berkshire Hills Bancorp (“the Parent”) has two subsidiary operating segments –— banking and insurance. First quarter resultsResults in the banking segment generally followed the levels and trends of consolidated results, which have been previously discussed. In the insurance segment, first half revenues decreased from year-to-year as a result of the reduction in seasonal contingency income resulting from the renegotiation of contracts with insurance carriers. Seasonal insurance earnings were similarly reduced in the first quarter of the year. The Parent’s non-interest income included undistributed earnings of subsidiaries.reduced. Parent non-interest expense decreased due to higherincluded merger related expenses recordedcharges in the first quarter of 2011.both years. Most of the parent’s revenues are non-taxable revenues from subsidiaries, and the Parent therefore receives a tax benefit related to the taxable loss generated by its expenses.
Total Comprehensive Income. Total comprehensive income includes net income together with other net comprehensive income. The latter measuresTotal comprehensive income was within 10% of net income for all periods reported except for the first half of 2011. In most periods, interest rate related changes in accumulated other comprehensive income, consistingthe fair value of securities were generally offset by changes (after-tax) in the fair value of derivative hedges. In the first half of 2011, due to changes in the first quarter, unrealized market gains and losses on securities available for sale andsecurities were the net gain (loss) on derivative instruments used as cash flow hedges, including a terminated hedge. The Company recordedprimary contributor to other net comprehensive income of $1.0totaling $1.7 million, in the first quarter of 2012, bringingwhich brought total comprehensive income to $6.8$6.4 million, compared to net income of $4.7 million. In the first quarterUnrealized gains were recorded on several categories of 2011, other net comprehensive income totaled $1.5 million, and as a result, total comprehensive income was $4.4 million. The other net comprehensive income in both years included an increase in the unrealized gain on securitiesinstruments, including available for sale assecurities, due to a result of improved pricesdecrease in the debt securities markets related to improved pricing spreads in those periods. In 2011, other comprehensive income also included a net gain on cash flow hedges.interest rates during that period.
Liquidity and Cash Flows.The Company’s Net proceeds from FHLBB borrowings were the primary source of funds was deposit growth in the first quarterhalf of 2012, and the2012. The primary use of funds was net loan growth. Deposit growth is expected to continue to be the primary source of funds forin the remaindersecond half of the year, and net loan growth is expected to continue to be the primary use of funds. Borrowings from the Federal Home Loan Bank areFHLBB borrowings will continue to be a significant source of liquidity for daily operations and for borrowings targeted for specific asset/liability purposes. The Company also uses interest rate swaps in managing its funds sources and uses of funds.uses. At the end of the most recent quarter, the Company had approximately $740$440 million in borrowing availability with the Federal Home Loan Bank. Berkshire plans to acquire Beacon Federal Bancorp in the fourth quarter, and plans to issue at least $50 million in debt in conjunction with this merger. Additionally, Berkshire plans to divest two Tennessee branches to be acquired as part of the Beacon business combination, and to receive cash proceeds from this divestiture.
Berkshire Hills Bancorp had a cash balance totaling $13$9 million as of March 31,June 30, 2012. These funds were used primarily to pay $9.0 million in cash merger consideration and other merger costs related to the CBT acquisition at April 20, 2012. Additionally, the Bank paid a $10 million cash dividend to the Parent shortly after the beginning of the second quarter of 2012 which funds are expected to be used for shareholder dividends, debt service, and operating costs. The Parent has previously maintained a line of credit for working capital purposes and may arrange such a line of credit in the future. The primary long run routine sources of funds for the holding companyParent are expected to be dividends from Berkshire Bank and Berkshire Insurance Group, as well as cash from the exercise of stock options. Additional discussion aboutThe Parent also has a $10 million revolving line of credit provided by a correspondent bank. The primary uses of funds by the Company’s liquidityparent include the payment of cash dividends on common stock and debt service, including debt service related to the planned debt financing for the Beacon acquisition. The Parent had a $16 million cash flows is containedbalance at the start of the year, which was used to pay the $9 million in cash consideration for the Company’s 2011 Form 10-K in Item 7.CBT acquisition.
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 MarchJune 30, 2012, Berkshire Bank continued to be classified as “well capitalized.“Well Capitalized.” Additional
information about regulatory capital is contained in the notes to the consolidated financial statements and in the 2011 Form 10-K.
As discussed in the 2011 Form 10-K and in Item 1A of this Form, there are financial system reforms which became federal law in July 2010 and which constitute the most significant regulatory and systemic reform since the 1930s. Although the full impacts of the reformsIt cannot be determined at this time somewhat the full effects of the reforms will be. Some of the reforms are intended to increase required capital levels in the banking system.
The Company issued approximately 965 thousand shares of common stock as partial consideration for the shares of The Connecticut Bank and Trust Company on April 20, 2012. The Company plans to issue common stock as consideration for 50% of the Beacon shares. Additionally, the debt that the Company plans to issue for 40% of the Beacon shares is expected to qualify as Tier 2 capital in accordance with regulatory guidelines.
As a Savings and Loan Holding Company, the Company is not required to meet specific required capital ratio requirements under current federal regulations, although such requirements will become effective in the future.
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. A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s 2011 Form 10-K and information relating to payments due under contractual obligations is presented in the 2011 Form 10-K. WithOn May 30, 2012, Berkshire and Beacon entered into a merger agreement and Berkshire expects to complete the acquisition of CBTBeacon before the end of the year and to merge Beacon Federal bank into Berkshire Bank.
In acquiring the operations of Greenpark Mortgage, Berkshire established these operations as a division of the bank and continued to operate this business line with the same management, team, and procedures. These include the Greenpark procedures for rate locking and committing to the origination of residential mortgages, the forward sale of mortgage Berkshire became obligatedbacked securities through approved brokers to hedge interest rate risk in the mortgage pipeline, and the use of mandatory and best efforts contracts with established institutional buyers for the paymentsale of merger consideration, the assumption of various contractual liabilities as disclosed in its previous SEC filings, and changes related to change in control and the early termination of certain vendor contacts. These obligations, and payments made in the second quarter of 2012 to satisfy them will be reflected in Berkshire’s financial records for the second quarter.originated mortgages on a servicing released basis.
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 norduring the first half of the year, except that the introduction of Greenpark related loans held for sale and derivatives expanded the scope of instruments requiring measurement. Acquired CBT and Greenpark assets and liabilities were recorded at fair value as of the acquisition dates and there were no significant changes in these values during the difference between carrying value andquarter. Due to continuing low interest rates, the fair value of financialfixed rate assets and liabilities generally increased in the first half of the year, as did prepayment rates of instruments with prepayment options. The fair value of Berkshire’s loans included a $92 million premium to carrying value at March 31, 2012midyear, compared to December 31, 2011. a $66 million premium at the start of the year. This improvement reflected the improved credit profile of the loan portfolio, along with the impact of lower medium term interest rates and market pricing spreads for loans. Of note, loans acquired in bank acquisitions were recorded at fair value at the time of acquisition, whereas the carrying value of historical loans is based on cost. Due primarily to the premium value of loans, the combined impact of the fair value estimates reflected an overall improvement in the economic value of equity related to these instruments, based solely on the measures utilized for the purpose of this analysis.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the way that the Company measures market risk nor in the Company’s net market risk position during the first quarterhalf of 2012. 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, 2011.
As discussed in Item 2, Berkshire has a targeted position to maintain a moderately asset sensitivitysensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes. During the first quarter,half of the year, the primary balance sheet changes from business activities were growth in fixed rate residential mortgages and deposits, along with the additiongrowth in overnight FHLBB borrowings. The Company also increased its use of forward starting interest rate swaps on FHLBB borrowings. The acquisitions of CBT and the Greenpark operations also affected the balance sheet but did not significantly change the overall measures of interest rate sensitivity. The net impact of these changes was a modest reduction in the Company’s asset sensitive profile. For example, the sensitivity of net interest income sensitivity. The Company estimates that its asset sensitivity has decreased by approximately a third as a result of the changes in the second year to a 300 basis point ramped increase in interest rates was estimated at 12.4% at year-end 2011, and this sensitivity decreased to an estimated 10.2% at March 31, 2012.first half of the year.
Berkshire maintains a discipline to avoid undue risks to net interest income and to the economic value of equity which would result from taking on excessive fixed rate assets in the current environment. The Company’s interest rate risk modeling indicates that the net interest margin could decline in the future based on the existing balance sheet and if interest rates do not change. The Company strives to seek a balance in protecting against the risks of upward interest rate movements, while also attempting to minimize margin erosion in the current low rate environment. Management believes that net interest income might increase by more than the modeled amount in the possible situation of rising interest rates. Management might decide to retain more, longer duration assets, after interest rates increase, and this would contribute additional income in the case of a parallel shift in the yield curve. Also, the Company has experienced certain market floors on deposit pricing in the current near zero short-term interest rate environment. In the case of rising rates, deposits might not increase in rate as quickly as they are modeled since they are presently above other comparable market rates in some cases. Additionally, in some scenarios, the Company’s fee income might also increase as a result of improved economic and market conditions that might be related to higher market interest rates.
Berkshire completedhas entered into an agreement to acquire Beacon Federal Bancorp and plans to issue equity and debt instruments to finance this acquisition. The assets and liabilities of Beacon will be recorded at fair value as of the acquisition of the CBT - Connecticut Bank and Trust Company on April 20,date, which is expected to be prior to year-end 2012. Berkshire expects to restructure certain CBT investments and borrowings, and the Company does not expect that this acquisition will have a material impact onthe ability to adjust Beacon’s asset liability structure as of that date and it is expected that Berkshire will be able to maintain its measures of interest rate sensitivity. Berkshire completed the acquisition of the assets and operations of Greenpark Mortgage on April 30, 2012. Greenpark sells the majority of its residential mortgage originations to established secondary market investors, and this acquisition is not expected to have a material impact on Berkshire’s measures oftargeted interest rate sensitivity. to maintain its targeted profile.
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 are effective for ensuring that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures, include, without limitation, controls and procedures designed to ensure that information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
(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.
As of March 31,June 30, 2012, 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.
Following the public announcement of the execution of the Agreement and Plan of Merger, dated October 25, 2011 (the "Merger Agreement"), by and among the Company, the Bank and The Connecticut Bank and Trust Company (“CBT”), on January 18, 2012, Jean-Pierre Van Rooy, Marie-Claire Van Rooy and Eric Van Rooy filed a shareholder class action lawsuit in the Superior Court of the State of Connecticut, Judicial District of Hartford (the “Court”), against CBT, the Directors of CBT, the Company and the Bank (the “CBT shareholder litigation”). The CBT shareholder litigation was purportedly brought on behalf of all of CBT's public stockholders and alleged that the directors of CBT breached their fiduciary duties to CBT's stockholders by failing to take steps necessary to obtain a fair and adequate price for CBT's common stock and that CBT, the Company and the Bank knowingly aided and abetted CBT’s directors' breach of fiduciary duty.
CBT, its Directors, the Company and the Bank denied and vigorously defended all of the allegations asserted in the CBT shareholder litigation. Following court hearings on March 26 and 29, 2012, the Court struck all claims against CBT, the Company and the Bank and denied the plaintiffs request for preliminary injunction. Subsequently, the plaintiffs decided to also withdraw their remaining claims against the Directors of CBT, and the Court has been advised that the case is settled, pending filing of a final Stipulation of Withdrawal signed by all parties. No liability has been found against any of the defendants in the case and the CBT shareholder litigation has not had any material adverse effect on the financial condition or operations of the Company or the Bank.
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, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial, also may materiallycould adversely affect our business, financial condition and/or operating results. Additionally, the Company has reported risk factors in the Proxy Statement/Prospectusstock registration and proxy/prospectus forms filed with the SEC related to the CBT acquisition, including risks related to merger integration and expected cost savings.Beacon acquisitions. While the CBT and Greenpark mergers have been completed, the Company continues to recognize the risks related to integration and management of the acquired operations which were previously identified in the subject SEC filings. Additionally, the Company continues to be engaged in a process for the conversion of its core processing system in 2012. The planned changes expose the Bank to new risks with new systems and new vendors. The Bank is working closely with third parties to manage the related operating and financial risks.
Additional risk factors which have been identified in the first half of 2012 include the following:
Failure to Complete the Pending Merger with Beacon Federal Bancorp Could Negatively Impact Our Stock Price and Future Business and Financial Results.
If this merger is not completed, our ongoing business may be adversely affected. In addition, we may experience negative reactions from the financial markets and from customers and employees. We also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against us to perform certain obligations under the merger agreement. If the merger is not completed, we cannot assure our stockholders that the risks described above will not materialize and will not materially affect our business, financial results and stock price. The Beacon merger is expected to be financed with the issuance of subordinated debt. If this issuance is not completed due to market conditions or regulatory factors or changes in Berkshire’s condition, there could be an impact on Berkshire’s ability to achieve the financial and other targets related to the merger agreement. Please see the additional discussion of Beacon merger related risk factors in the Form S-4 filed with the SEC July 3, 2012.
Derivatives and Counterparty Risks Have Increased Due to the acquired Greenpark Mortgage Operations.
The total notional amount of derivative financial instruments increased 75% to $1.0 billion in the first half of 2012, largely due to the acquisition of the Greenpark Mortgage operations. The increase includes customer interest rate lock commitments on applications for mortgages that Berkshire intends to sell, and forward sales of securities intended to hedge the interest rate risk of these rate lock commitments until the loans are closed and sold. These activities involve new derivative instruments and new broker/dealer counterparties, as well as the utilization of a new vendor which manages the hedging position. Additionally, the Greenpark division sells closed loans on a servicing released basis under mandatory and best efforts contracts to institutional secondary market purchasers, which are new counterparties for Berkshire. Berkshire could experience losses if there are
failures in the controls or accounting for these activities or if there are performance failures by any of these new counterparties. The risk of loss is increased if interest rates change suddenly and the intended hedging objectives are not achieved as a result of market or counterparty behaviors.
Proposed New Federal Bank Capital Rules May Affect the Company’s Future Condition and Performance.
On June 12, 2012, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) announced that they are seeking comment on three notices of proposed rulemaking (NPRs) that would revise and replace the agencies’ current capital rules as these federal agencies move forward with implementing capital requirements consistent with agreements reached by the Basel Committee on Banking Supervision (Basel III). The agencies plan to issue final rules by the end of 2012. The proposed rules are currently preliminary and the Company will be assessing the potential impact of the proposed and final rules. Please see the further discussion of bank regulation and capital rules in Items I and IA in the Company’s most recent filing on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)No Company unregistered securities were sold by the Company during the quarter ended June 30, 2012.
(b)Not applicable.
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 | ||||||||||||
January 1-31, 2012 (1) | 11,576 | $ | 22.91 | - | 97,993 | |||||||||||
February 1-29, 2012 | - | - | - | 97,993 | ||||||||||||
March 1-31, 2012 | - | - | - | 97,993 | ||||||||||||
Total | 11,576 | $ | 22.91 | - | 97,993 |
(c)The following table provides certain information with regard to shares repurchased by the Company in the second quarter of 2012.
|
|
|
|
|
| Total number of shares |
| Maximum number of |
| |
|
|
|
|
|
| purchased as part of |
| shares that may yet |
| |
|
| Total number of |
| Average price |
| publicly announced |
| be purchased under |
| |
Period |
| shares purchased |
| paid per share |
| plans or programs |
| the plans or programs |
| |
April 1-30, 2012 (1) |
| 1,213 |
| $ | 22.92 |
| — |
| 97,993 |
|
May 1-31, 2012 |
| — |
| — |
| — |
| 97,993 |
| |
June 1-30, 2012 |
| — |
| — |
| — |
| 97,993 |
| |
Total |
| 1,213 |
| $ | 22.92 |
| — |
| 97,993 |
|
(1) Shares represent common stock withheld by the Company to satisfy tax withholding requirements on the vesting of shares under the Company’s benefit plans.
On December 14, 2007, the Company authorized the purchase of up to 300,000 additional shares, from time to time, subject to market conditions. The repurchase plan will continue until it is completed or terminated by the Board of Directors. The Company has no plans that it has elected to terminate prior to expiration or under which it does not intend to make further purchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
2.1Agreement and Plan of Merger, dated as of May 31, 2012, by and between Berkshire Hills Bancorp, Inc. and Beacon Federal Bancorp, Inc. (1)
3.1 Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (2)
3.2 Bylaws of Berkshire Hills Bancorp, Inc., as amended and restated(3)
4.1Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (2)
10.1Amended and Restated Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Michael P. Daly (4)
10.2Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Kevin P. Riley (4)
10.3Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Sean A. Gray(6)
10.4Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Richard M. Marotta (5)
10.5Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Linda A. Johnston (6)
10.6Amended and Restated Supplemental Executive Retirement Agreement between Berkshire Bank and Michael P. Daly (7)
10.7Berkshire Hills Bancorp, Inc. 2011 Equity Incentive Plan (8)
10.8Form of Berkshire Bank Employee Severance Compensation Plan (3)
10.9Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Patrick J. Sullivan, dated as of December 21, 2010 (9)
10.10Settlement Agreement by and among Berkshire Hills Bancorp, Inc., Legacy Bancorp, Inc., Legacy Banks and Patrick J. Sullivan, dated as of December 21, 2010 (9)
10.11Severance Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Patrick J. Sullivan, dated as of December 21, 2010 (9)
10.12Amended and Restated Settlement Agreement by and among Berkshire Hills Bancorp, Inc., Legacy Bancorp, Inc., Legacy Banks and J. Williar Dunlaevy, dated as of April 6, 2011 (9)
10.13Non-Competition and Consulting Agreement by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and J. Williar Dunlaevy, dated as of April 6, 2011 (9)
10.14Legacy Bancorp, Inc. Amended and Restated 2006 Equity Incentive Plan (10)
10.15Form of Split Dollar Agreement entered into with Michael P. Daly, Kevin P. Riley, Sean A. Gray, Richard M. Marotta and Linda A. Johnston (11)
10.16Endorsement Agreement between Geno Auriemma and Berkshire Bank, dated as of May 17, 2012
11.0Statement re: Computation of Per Share Earnings is incorporated herein by reference to Part I, Item I, “Consolidated Financial Statements (unaudited)”
31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101Interactive 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) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements (12)
(1)Incorporated by reference from the Exhibits to the Form 8-K filed on June 1, 2012.
(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 May 16, 2012.
(4)Incorporated herein by reference from the Exhibits to the Form 8-K as filed on January 6, 2009.
(5)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2010.
(6)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2011.
(7)Incorporated herein by reference from the Exhibits to Form 10-K as filed on March 16, 2009.
(8) Incorporated herein by reference from the Appendix to the Proxy Statement as filed on March 24, 2011.
(9)Incorporated herein by reference from the Exhibits to the Registration Statement on Form S-4 as filed on April 20, 2011, Registration No. 333-173404.
(10) Incorporated herein by reference from the Exhibits to the Form 8-K filed by Legacy Bancorp, Inc. on December 22, 2010.
(11)Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 19, 2011.
(12)As provided in Rule 406T of Regulation S-T, this information is furnished and not field for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BERKSHIRE HILLS BANCORP, INC.
Dated: August 9, 2012 | ||
By: | ||
/s/ Michael P. Daly | ||
Michael P. Daly | ||
President and Chief Executive Officer | ||
Dated: | By: | /s/ Kevin P. Riley |
Kevin P. Riley | ||
Executive Vice President and Chief Financial | ||
Officer |