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

~~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

~~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~~¨ ~~Accelerated Filer~~x ~~Non-Accelerated Filer~~¨ ~~Smaller Reporting Company~~¨

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)

Yes¨o Nox

The Registrant had ~~22,165,541~~22,208,105 shares of common stock, par value $0.01 per share, outstanding as of ~~May~~August 3, 2012.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

			Page
~~PART I.~~	~~FINANCIAL INFORMATION~~
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of
	~~March 31,~~ June 30, 2012and December 31, 2011	4

	Consolidated Statements of Income for the Three and Six Months
	Ended ~~March 31,~~June 30, 2012 and 2011	5

	Consolidated Statements of Comprehensive Income ~~- Unaudited~~
	for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2012 and 2011	6

	Consolidated Statements of Changes in Stockholders’ Equity
	for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2012 and 2011	7

	Consolidated Statements of Cash Flows for the
	~~Three~~ Six Months Ended ~~March 31,~~June 30, 2012 and 2011	8

	Notes to Consolidated Financial Statements		9
	Note 1	Basis of Presentation	9
	Note 2	Recent Accounting Pronouncements	9
	Note 3 ~~Correction of Immaterial Error~~	10 Acquisitions	11
	Note 4 ~~Discontinued Operations~~	11
	~~Note 5~~ Trading Account Security	12 15
	Note 6 5	Securities Available for Sale and Held to Maturity	13 16
	Note ~~7 Loans~~6	17 Loans	20
	Note ~~8 Deposits~~7	32 Deposits	36
	Note 9 8	Stockholders’ Equity	32 37
	Note 10 9	Earnings per Share	34 38
	Note 11 10	Stock-Based Compensation Plans	35 38
	Note 12 11	Operating Segments	35 39
	Note 13 12	Derivative Financial Instruments and Hedging Activities	36 40
	Note 14 13	Fair Value Measurements	40 44
	Note 15 14	Net Interest Income after Provision for Loan Losses	47 50
	Note 16 15	Subsequent Events	47 50

Item 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations	48 50

	Selected Financial Data		51 55

	Average Balances and Average Yields/Rates		53 57

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		59 65

Item 4.	Controls and Procedures		59 66

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		60 67

Table of Contents

Item 1A.	Risk Factors	67

~~Item 1A.~~	~~Risk Factors~~	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60 68


Item 3.	Defaults Upon Senior Securities	61 68

Item 4.	Mine Safety Disclosures	61 68

Item 5.	Other Information	61 68

Item 6.	Exhibits	61 68

Signatures		63 70

Table of Contents

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

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.

Table of Contents

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

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

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.

Table of Contents

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.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

															Accumulated																						Accumulated
						Additional			Unearned						other comp-													Additional									other
	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

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

Comprehensive income:
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.

Table of Contents
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 ~~three~~six 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.
8

Table of Contents

NOTE 1.                BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ~~(U.S. GAAP)~~(“U.S. GAAP”) and contain all adjustments, consisting solely of normal, recurring adjustments, necessary for a fair ~~presentation~~statement 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 in~~to 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.
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Table of Contents
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 its~~In 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 ~~test~~and interim impairment tests performed for ~~goodwill impairment in the fourth quarter, and~~fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance is not expected to have ana significant impact on ~~its~~the 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 ~~enhanced~~required disclosures required are incorporated in Note ~~9 to~~8 and do not have a significant impact on the Company’s financial statements.

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Table of Contents
NOTE 3.                ~~CORRECTION OF IMMATERIAL ERROR~~ACQUISITIONS
~~During the second quarter of 2011,~~
The Connecticut Bank and Trust Company
On April 20, 2012, the Company ~~corrected~~acquired 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 error~~extension 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 overstatement~~Company paid $8.25 per share for 30% of the ~~tax credit investment balance~~outstanding common shares. For 70% of the outstanding shares, the Company exchanged its stock in ~~this period was more than offset by an understatement~~a ratio of 0.381 shares of the Company’s ~~deferred tax asset balance. These balances~~common 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 assessed~~assets and liabilities in the ~~materiality~~CBT acquisition were recorded at their fair value based on management’s best estimate using information available at the date of ~~this error~~acquisition. 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
(Liabilities Assumed), At Fair Value:

As Acquired

Fair Value
Adjustments

As Recorded at
Acquisition

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

11

Table of Contents
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 ~~determined~~will 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 ~~error~~loans 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 immaterial~~assigned 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 ~~income~~by 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.
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Table of Contents
Direct merger and acquisition integration-related costs related to the CBT acquisition were expensed as incurred and totaled $2.7 million for the ~~full fiscal~~first 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 material~~period 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 trend~~year, management calculated an expected range of $0.2 million to $0.3 million in ~~earnings. Accordingly,~~annual payments using the ~~Company has revised its~~Black 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 ~~for~~from the ~~three month period ended March 31, 2011. The Company has evaluated the effects~~date 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 OPERATIONS~~13

Table of Contents
~~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 pursuant~~the cash consideration paid for premiums as described above, which adjusts the loans to fair value.
(b)Represents the ~~Legacy merger agreement. The sale resulted~~fair 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 gain~~fair 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 made~~The 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. In~~portion 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 branches~~cash 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 ~~provides~~presents 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 three~~six 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.
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Table of Contents
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 operations~~incurred $0.4 million of merger and acquisition expenses related to the Beacon Federal merger for the ~~three~~six 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.
15

Table of Contents

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
Unrealized
Gains

Gross
Unrealized
Losses

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
16

Table of Contents

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
17

Table of Contents

Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:

Less Than Twelve Months Over Twelve Months Total
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 ~~131~~128 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 ~~for~~until recovery. There were no material underlying credit downgrades during the past quarter. All securities are considered performing.

18

Table of Contents
AFS ~~and HTM~~ residential mortgage-backed securities

At ~~March 31,~~June 30, 2012, 918 out of a total of ~~157~~167 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 3~~all 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. ~~The~~2 of the securities ~~are~~were 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.

~~NOTE 7. LOANS~~19

~~Loans consist~~Table 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
NOTE 6. LOANS

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
Activities

Loans Acquired from
Business Combinations

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

20

Table of Contents

December 31, 2011

(In thousands)

Loans from Business Activities

Loans Acquired 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

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 ~~Transfer~~Transfer.

(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

21

Table of Contents

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
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
March 31, 2012
(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

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
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

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
22

Table of Contents
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

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
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

177,586

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

23

Table of Contents

Activity in the allowance for loan losses for the ~~three~~six 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
mortgages

Commercial
mortgages

Commercial
business

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
mortgages

Commercial
mortgages

Commercial
business

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

24

Table of Contents

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
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 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
mortgages

Commercial
mortgages

Commercial
business

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

25

Table of Contents

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
Balance

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
Balance

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

$
—

26

Table of Contents

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
Balance

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
Balance

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

$
—

27

Table of Contents

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
Investment

Cash Basis
Interest Income
Recognized

Average Recorded
Investment

Cash Basis
Interest Income
Recognized

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

28

Table of Contents

Loans Acquired from Business Combinations

Six Months Ended June 30, 2012

Six Months Ended June, 2011

(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

$
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

$
—

$
—

29
25

Table of Contents

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
Activities

Loans Acquired from
Business Combinations

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
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

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:

1 ~~Substantially Risk Free~~
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.

30
26

Table of Contents

2 ~~Minimal Risk~~
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.

3 ~~Moderate Risk~~
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.

4 ~~Better than Average Risk~~
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.

5 ~~Average Risk~~
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.

6 ~~Acceptable Risk~~
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~~
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~~
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.

31
27

Table of Contents

9 ~~Substandard – Non-Performing~~
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~~
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~~
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~~
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's~~Company’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.
32

Table of Contents
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.

33

Table of Contents
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

34

Table of Contents

Loans ~~Aquired~~Acquired 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.

35

Table of Contents
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
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

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 ~~three~~six 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.~~
(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.

NOTE 8.7.                DEPOSITS

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.
36

Table of Contents

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.

32
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-end~~December 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.
37

Table of Contents

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

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

Three Months Ended 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, ~~159~~181 thousand shares of restricted stock and ~~357~~373 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 ~~141~~127 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.
34

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

A combined summary of activity in the Company’s stock award and stock option plans for the ~~three~~six 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
38

Table of Contents

During the ~~three~~six months ended ~~March 31,~~June 30, 2012 and 2011, proceeds from stock option exercises totaled ~~$16~~$271 thousand and ~~$406~~$12 thousand, ~~respectively.During~~respectively. During the ~~three~~six months ended ~~March 31,~~June 30, 2012, there were 4650 thousand shares issued in connection with vested stock awards. During the ~~three~~six 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 ~~three~~six 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.

39

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

(In thousands) Banking Insurance Parent Eliminations Total Consolidated

Banking

Insurance

Parent

Eliminations

Total Consolidated

Three months ended 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 million~~swap 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
40

Table of Contents
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
)
41

Table of Contents

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 $85.0~~a $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 ~~ten~~fifteen 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 ~~ten~~fifteen forward starting swaps two are set to become effective in the ~~second~~third 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 duration~~four 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 durations~~of which have a duration of one year, one with a duration of four years, and the ~~final~~other 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 ~~remaining~~last two forward starting swaps ~~are set to~~will become effective in ~~2014~~2015, one of which has a duration of four years and ~~2015, each with durations~~the other which has a duration of ~~four~~seven 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
42

Table of Contents

Hedge ineffectiveness on interest rate swaps designated as cash flow hedges was immaterial to the Company’s financial statements during the ~~three~~six 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 agreement~~within a specified period of time. IRLCs that relate to ~~sell these fixed rate~~the origination of mortgage loans ~~to the Federal National Mortgage Association. These commitments~~that will be held for sale are considered derivative financial instruments ~~and~~under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are ~~recorded~~free-standing derivatives which are carried at fair value with ~~any~~changes recorded in noninterest income in the Company’s consolidated statements of income. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value ~~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.
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Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands) 2012 2011

2012

2011

2012

2011

Economic hedges

Interest rate swap on industrial revenue bond:

Net interest expense recognized in interest and dividend income on securities $ (158 ) $ (162 )

$
(157
)
$
(164
)
$
(315
)
$
(325
)

Unrealized gain recognized in other non-interest income 440 290

(654
)
(359
)
(1,094
)
(69
)

Interest rate swaps on loans with commercial loan customers:

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

Reverse interest rate swaps on loans with commercial loan customers:

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
)

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
)

Forward Commitments:

Unrealized gain recognized in other non-interest income

$
(2,131
)
$
—

$
(2,131
)
$
—

Non-hedging derivatives

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:

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's~~Company’s financial assets and financial liabilities that are carried at fair value.

40
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 ~~three~~six months ended ~~March 31,~~June 30, 2012.

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Table of Contents
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's~~bond’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.
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Table of Contents

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 ~~various~~interest rate lock commitments ~~to originate~~(IRLCs) for residential mortgage loans, ~~for sale~~which 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 resulting~~by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, IRLCs are classified as Level 3 ~~classification. As~~measurements.
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 from~~the IRLCs. The forward commitments ~~to originate residential mortgage loans~~are classified as Level 1 and consist of publicly-traded debt securities for ~~sale. Likewise, as~~which identical fair values can be obtained through quoted market prices in active exchange markets.
46

Table of ~~March 31, 2012 there were no assets derived from commitments to sell residential mortgages.~~Contents

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

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Table of Contents

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
June 30, 2012

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
48

Table of Contents
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.
45
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.
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Deposits.The fair value of demand, ~~non-interest~~non-interest bearing checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.

Borrowed funds.The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings. Such funds include all categories of debt and debentures in the table above.

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 15. SUBSEQUENT EVENTS

~~NOTE 16. SUBSEQUENT EVENTS~~
~~On April 20,~~The Company has evaluated subsequent events through August 9, 2012, the ~~Company acquired all of~~date 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 be~~were 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
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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~~
— ~~Solid capital, core funding and risk management culture~~
— ~~Experienced executive team focused on earnings and stockholder value~~
— ~~Distinctive brand and culture as America’s Most Exciting Bank~~^SM
— ~~Diversified integrated financial service revenues~~
— ~~Positioned to be regional consolidator in attractive markets~~
·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. ~~You~~One 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
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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 ~~included~~in this Form 10-Q and in the ~~2011~~most recent Form 10-K.   Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

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

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.
· ~~Goodwill and Identifiable Intangible Assets.~~

· ~~Determination of Other-Than-Temporary Impairment of Securities.~~
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

· ~~Fair Value of Financial Instruments.~~
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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
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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.

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SELECTED FINANCIAL DATA

The following summary data is based in part on the consolidated financial statements and accompanying notes, and other information appearing elsewhere in this 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

June 30,

June 30,

2012

2011

2012

2011

PER COMMON SHARE DATA

Net earnings, diluted

$
0.37

$
0.11

$
0.65

$
0.31

Total common book value

26.31

26.61

26.31

26.61

Dividends

0.17

0.16

0.34

0.32

Common stock price:

High

23.49

22.85

24.49

22.92

Low

20.15

20.45

20.15

20.45

Close

22.00

22.39

22.00

22.39

PERFORMANCE RATIOS (1)

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

ASSET QUALITY RATIOS

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

CAPITAL RATIOS

Stockholders’ equity to total assets

12.94
%
13.80
%
12.94
%
13.80
%

FINANCIAL DATA: (In millions)

Total assets

$
4,508

$
3,226

$
4,508

$
3,226

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

FOR THE PERIOD: (In thousands)

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.
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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.

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended March 31,

2012

2011

2012

2011

($ In millions) 2012 2011

Average
Balance

Yield/Rate
(FTE basis)

Average
Balance

Yield/Rate
(FTE basis)

Average
Balance

Yield/Rate
(FTE basis)

Average
Balance

Yield/Rate
(FTE basis)

Average Balance Yield/Rate
(FTE basis) Average Balance Yield/Rate
(FTE basis)
Assets

Loans:

Residential mortgages $ 1,058 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

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

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

Other assets 460 315

472

383

466

349

Total assets $ 3,990 $ 2,876

$
4,352

$
3,214

$
4,171

$
3,046

Liabilities and stockholders' equity
Liabilities and stockholders’ equity

Deposits:

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

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

Other liabilities 40 26

39

25

39

26

Total liabilities 3,437 2,484

3,779

2,764

3,608

2,625

Total stockholders' equity 553 392
Total liabilities and stockholders' equity $ 3,990 $ 2,876
Total stockholders’ equity

573

450

563

421

Total liabilities and stockholders’ equity

$
4,352

$
3,214

$
4,171

$
3,046

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

3.66

3.41

Cost of funds 0.89 1.28

0.82

1.15

0.86

1.22

Cost of deposits 0.71 1.04

0.66

0.94

0.68

0.99

Supplementary data

Total deposits (In millions) $ 3,140 $ 2,228

$
3,341

$
2,469

$
3,241

$
2,349

Fully taxable equivalent income adj. (In thousands) $ 669 $ 679

$
638

$
675

$
1,307

$
1,354

(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.

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SUMMARY

During the second quarter and first ~~quarter~~half 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:~~

· ~~10% annualized revenue growth, compared to linked quarter~~
· ~~11% annualized loan growth~~
· ~~11% annualized deposit growth~~
· ~~3.62% net interest margin~~
· ~~0.58% non-performing assets/total assets~~
· ~~0.24% annualized net loan charge-offs/average loans~~
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 its~~completed 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 acquire~~completed the ~~assets and~~acquisition of the operations of Greenpark Mortgage ~~Corporation, and this acquisition was completed~~ on April 30, 2012. The Greenpark acquisition has added ~~seven~~eight 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
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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 completed~~due 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 issued~~ratings 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, 2011~~large financial institutions.

~~Summary:~~Loans.Total ~~assets~~loans increased by ~~$38~~$409 million ~~at a 4% annualized rate during~~(14%) in the first ~~quarter, totaling 4.03 billion at quarter-end. Both~~half 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 $80~~basis. 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 impact~~half 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 services~~including servicing smaller relationships through its branch ~~network. These~~network, 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 relationship~~acquisition 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 originations~~hedges 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 estate~~loans, with a fair value of $187 million, and ~~home equity loans. As a result, these portfolios decreased~~consisting 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 first~~fourth quarter of ~~2011, the loan~~2011. This decline in yield ~~increased from 4.65% due to~~reflects the impact of ~~certain higher yielding~~the 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 ~~first~~most recent quarter ~~compared to $921 million~~included 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 to~~6.0% based on the ~~growth in residential mortgages.~~initial yield requirements as of the merger date.
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Asset Quality.~~Under accounting standards for business combinations, acquired~~Acquired loans are recorded at fair value and are ~~deemed~~categorized as performing regardless of their payment status. Therefore, some overall portfolio measures of asset ~~quality~~performance 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, with~~The level of non-performing assets ~~decreasing~~was $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-accruing~~Accruing loans ~~were 0.75%~~over 90 days past due increased to 0.51% of total loans at ~~quarter-end, while~~midyear 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 and~~which 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. ~~They~~The 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 ~~nonperforming~~non-accruing loans, ~~and~~which 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, which~~at 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 performing~~The 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 ~~loans~~for business combinations, acquired ~~in business combinations~~loans 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 combinations~~loans which were not impaired as of the acquisition date. Because of the accounting for acquired loans, some measures of the loan loss allowance are not comparable to periods prior to the acquisition date. The ratio of the allowance to non-performing loans was 126% at midyear, and ~~activity in~~the allowance measured 4.3X annualized first half net loan charge-offs.
The total amount of the loan loss allowance ~~are not comparable~~increased 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% of~~acquired loans and ~~143%~~primarily reflected the emergence of ~~non-performing~~new 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 ~~Borrowings~~Borrowings. . Total deposits increased by ~~$83~~$309 million ~~at an 11% annualized rate,~~(10%) to $3.41 billion during the first ~~quarter~~half of ~~2012. All~~the 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 ~~categories~~account categories. Berkshire continues to
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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 office~~roll off in ~~Colonie, New York. In January 2012,~~ the ~~Company completed~~second 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 to~~from 0.73% in the ~~prior quarter. Compared to the first~~fourth 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 of~~will decrease when they are renewed. The initial cost established for the ~~ongoing low rate environment and less demand for longer term~~CBT time ~~deposits. Overnight~~deposits based on the fair value analysis on the merger date was 0.63%.
Total borrowings increased by $230 million (97%) to ~~$14~~$468 million, ~~during~~including $39 million in acquired CBT borrowings, $59 million related to the ~~quarter~~Greenpark 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 ~~overnight~~lower cost funds, ~~brought down~~ the ~~total~~ cost of ~~borrowed money~~borrowings 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 book~~from 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 share~~of 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, 60~~first half of the year, 64 thousand ~~shares~~restricted stock grants were ~~issued from treasury in the form of stock grants~~recorded 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.

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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 the~~and 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 ~~first~~second quarter net income was ~~$5.8~~$8.0 million ($~~0.28~~0.37 per share) in 2012, compared to ~~$2.8~~$1.9 million ($~~0.20~~0.11 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 ~~both~~all periods included ~~nonrecurring~~merger and ~~merger~~conversion related charges. Most profitability measurements before these charges improved including the benefit of the business combinations and ~~results~~positive 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 merger~~charges 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 rate~~after-tax impact of ~~its core operating profits. The~~merger and conversion related items. In this quarter, the return on ~~average assets~~equity was ~~0.94% based on this adjusted measure. The GAAP~~5.6%, 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% during~~exceeding 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 growth~~maintained 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 carry~~absorbing 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 ~~Rome~~business combinations. Revenue per share increased by 11% for the second quarter and ~~Legacy acquisitions. Revenue~~by 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 to~~quarter. Most of the ~~fourth quarter of 2011, which demonstrates Berkshire’s ongoing focus on business volume and~~ revenue growth ~~after~~was recorded in net interest income, since the ~~bank acquisitions. This ongoing~~acquired 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 due~~quarter. 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 income~~revenue 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 ~~$20.1~~2011. 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
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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 interest~~business combinations.   Second quarter non-interest income ~~was stable~~included a $2.2 million increase in ~~the most recent quarter compared~~loan related revenue due to the ~~fourth~~contribution 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 margin~~deposit 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 2011~~year-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 in~~lower fee services offered by the ~~ongoing low rate environment, while the loan yield increased slightly~~acquired banks. Six month insurance fees decreased due to ~~the benefit of certain higher yielding loans acquired~~a 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 quarter~~Berkshire 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 recorded~~business lines.   Berkshire has also produced new business development in ~~2011. The higher~~its wealth management ~~income~~business at an annualized rate in ~~the most recent quarter included the benefit~~excess 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 by~~policies. Additionally, the Company records a ~~$0.4 million charge representing the~~ loss on investment tax credit limited partnership ~~interests. This loss~~interests 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 million~~increased in 2012 compared to ~~$1.6 million~~2011 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 million~~resulting in an increase in the ~~most recent quarter, which was~~total 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 merger~~costs related ~~expenses.~~to organic growth. Non-interest expense ~~increased by $0.7 million compared~~included 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 ~~conversion~~conversions 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 ~~first~~second quarter of 2011. Excluding ~~nonrecurring~~merger and ~~merger~~conversion 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% annualized~~0.12% of average assets in both of the ~~most recent quarter.~~above periods. Full time equivalent staff totaled ~~760~~904 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
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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% in~~identical 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 3~~result 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 results~~Results 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 higher~~included merger related ~~expenses recorded~~charges 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 measures~~Total 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, consisting~~the 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 ~~and~~securities were the ~~net gain (loss) on derivative instruments used as cash flow hedges, including a terminated hedge. The Company recorded~~primary contributor to other net comprehensive income ~~of $1.0~~totaling $1.7 million, ~~in the first quarter of 2012, bringing~~which brought total comprehensive income to ~~$6.8~~$6.4 million, compared to net income of $4.7 million. ~~In the first quarter~~Unrealized 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 prices~~decrease 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 ~~quarter~~half of ~~2012, and the~~2012. The primary use of funds was net loan growth. Deposit growth is expected to ~~continue to~~ be the primary source of funds ~~for~~in the ~~remainder~~second 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 are~~FHLBB 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 company~~Parent are expected to be dividends from Berkshire Bank and Berkshire Insurance Group, as well as cash from the exercise of stock options. ~~Additional discussion about~~The Parent also has a $10 million revolving line of credit provided by a correspondent bank. The primary uses of funds by the ~~Company’s liquidity~~parent 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 contained~~balance 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 ~~March~~June 30, 2012, Berkshire Bank continued to be classified as ~~“well capitalized.~~“Well Capitalized.” Additional

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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 reforms~~It cannot be determined at this time ~~some~~what 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. ~~With~~On May 30, 2012, Berkshire and Beacon entered into a merger agreement and Berkshire expects to complete the acquisition of ~~CBT~~Beacon 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 obligated~~backed 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 ~~payment~~sale 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 ~~nor~~during 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 and~~quarter. Due to continuing low interest rates, the fair value of ~~financial~~fixed 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, 2012~~midyear, 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 ~~quarter~~half 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.

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As discussed in Item 2, Berkshire has a targeted position to maintain a moderately asset ~~sensitivity~~sensitive 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 addition~~growth 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 ~~completed~~has 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 on~~the 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.

~~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.~~

(b) Changes in internal control over financial reporting.

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

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PART II

ITEM 1. LEGAL PROCEEDINGS

As of ~~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.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 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 materially~~could adversely affect our business, financial condition and/or operating results. Additionally, the Company has reported risk factors in the ~~Proxy Statement/Prospectus~~stock 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

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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 March 31, 2012.~~

~~(b)~~

~~Not applicable.~~

~~(c)~~

~~The following table provides certain information with regard to shares repurchased by the Company in the first quarter of 2012.~~

(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.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

~~2.1~~

~~Agreement and Plan of Merger, dated as of October 25, 2011, by and between Berkshire Hills Bancorp, Inc., Berkshire Bank and The Connecticut Bank and Trust Company.~~⁽¹⁾

~~3.1~~

~~Certificate of Incorporation of Berkshire Hills Bancorp, Inc.~~⁽²⁾

~~3.2~~

~~Bylaws of Berkshire Hills Bancorp, Inc.~~⁽³⁾

~~4.1~~

~~Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc.~~⁽²⁾

~~10.1~~

~~Amended and Restated Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Michael P. Daly~~⁽⁴⁾

~~10.2~~

~~Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Kevin P. Riley~~⁽⁴⁾

~~10.3~~

~~Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Sean A. Gray~~⁽⁶⁾

~~10.4~~

~~Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Richard M. Marotta~~⁽⁵⁾

~~10.5~~

~~Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Linda A. Johnston~~⁽⁶⁾

~~10.6~~

~~Amended and Restated Supplemental Executive Retirement Agreement between Berkshire Bank and Michael P. Daly~~⁽⁷⁾

~~10.7~~

~~Berkshire Hills Bancorp, Inc. 2011 Equity Incentive Plan~~⁽⁸⁾

~~10.8~~

~~Form of Berkshire Bank Employee Severance Compensation Plan~~⁽³⁾

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)

~~10.9~~

~~Three 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⁾

~~10.10~~

~~Settlement Agreement by and among Berkshire Hills Bancorp, Inc., Legacy Bancorp, Inc., Legacy Banks and Patrick J. Sullivan, dated as of December 21, 2010~~⁽⁹⁾

~~10.11~~

~~Severance Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Patrick J. Sullivan, dated as of December 21, 2010~~⁽⁹⁾

~~10.12~~

~~Amended 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⁾

~~10.13~~

~~Non-Competition and Consulting Agreement by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and J. Williar Dunlaevy, dated as of April 6, 2011~~⁽⁹⁾

~~10.14~~

~~Legacy Bancorp, Inc. Amended and Restated 2006 Equity Incentive Plan~~⁽¹⁰⁾

~~10.15~~

~~Form of Split Dollar Agreement entered into with Michael P. Daly, Kevin P. Riley, Sean A. Gray, Richard M. Marotta and Linda A. Johnston~~⁽¹¹⁾

~~11.0~~

~~Statement re: Computation of Per Share Earnings is incorporated herein by reference to Part I, Item I, “Consolidated Financial Statements (unaudited)”~~

~~31.1~~

~~Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~

~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~

~~Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~32.2~~

~~Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101~~

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail⁽¹²⁾

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)

Table of Contents

~~(1)~~

~~Incorporated by reference from the Exhibits to the Form 8-K filed on December 22, 2010.~~

~~(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 February 29, 2008.~~

~~(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.~~

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.~~

(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.

(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.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BERKSHIRE HILLS BANCORP, INC.

Dated: August 9, 2012	~~BERKSHIRE HILLS BANCORP, INC.~~
By:

~~Dated: May 10, 2012~~	~~By:~~ /s/ Michael P. Daly
		Michael P. Daly
		President and Chief Executive Officer


Dated: ~~May 10,~~August 9, 2012	By:	/s/ Kevin P. Riley
		Kevin P. Riley
		Executive Vice President and Chief Financial
	Officer

	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

	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

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 (Liabilities Assumed), At Fair Value:	As Acquired			Fair Value Adjustments			As Recorded at Acquisition
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

	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

	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

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

(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

	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

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			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

	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

	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

			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

	December 31, 2011
(In thousands)	Loans from Business Activities		Loans Acquired 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

(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

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

(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	$	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 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 mortgages		Commercial mortgages		Commercial business			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

	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 Balance		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 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 Balance		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

	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 Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
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

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