10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission File Number: 000-51584

BERKSHIRE HILLS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3510455
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
24 North Street, Pittsfield, Massachusetts	01201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (413) 443-5601

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)

Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o	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  No x

The Registrant had 24,912,031 shares of common stock, par value $0.01 per share, outstanding as of November 2, 2012.

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

				Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011			4
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011			5
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011			6
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2012 and 2011			7
	Consolidated Statements of Cash Flows for the Nine Months Ended September 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	Acquisitions	11
		Note 4	Trading Account Security	15
		Note 5	Securities Available for Sale and Held to Maturity	16
		Note 6	Loans	19
		Note 7	Deposits	35
		Note 8	Borrowed Funds	36
		Note 9	Stockholders’ Equity	37
		Note 10	Earnings per Share	39
		Note 11	Stock-Based Compensation Plans	40
		Note 12	Operating Segments	40
		Note 13	Derivative Financial Instruments and Hedging Activities	41
		Note 14	Fair Value Measurements	46
		Note 15	Net Interest Income after Provision for Loan Losses	52
		Note 16	Subsequent Events	52
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			53
	Selected Financial Data			56
	Average Balances and Average Yields/Rates			58
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			69
Item 4.	Controls and Procedures			69
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings			71

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Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
Signatures		74

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PART I

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
(In thousands, except share data)	2012			2011
Assets
Cash and due from banks	$	48,214		$	46,713
Short-term investments	33,834			28,646
Total cash and cash equivalents	82,048			75,359
Trading security	17,237			17,395
Securities available for sale, at fair value	467,444			419,756
Securities held to maturity (fair values of $52,892 and $60,395)	51,156			58,912
Federal Home Loan Bank stock and other restricted securities	37,135			37,118
Total securities	572,972			533,181
Loans held for sale	114,698			1,455
Residential mortgages	1,226,022			1,020,435
Commercial mortgages	1,255,172			1,156,241
Commercial business loans	568,781			410,292
Consumer loans	368,417			369,602
Total loans	3,418,392			2,956,570
Less: Allowance for loan losses	(33,090		)	(32,444		)
Net loans	3,385,302			2,924,126
Premises and equipment, net	70,707			60,139
Other real estate owned	1,399			1,900
Goodwill	220,688			202,391
Other intangible assets	17,991			20,973
Cash surrender value of bank-owned life insurance policies	76,904			75,009
Other assets	91,525			91,309
Assets from discontinued operations	—			5,362
Total assets	$	4,634,234		$	3,991,204
Liabilities
Demand deposits	$	560,452		$	447,414
NOW deposits	296,219			272,204
Money market deposits	1,183,247			1,055,306
Savings deposits	381,604			350,517
Time deposits	1,028,286			975,734
Total deposits	3,449,808			3,101,175
Short-term debt	311,866			10,000
Long-term Federal Home Loan Bank advances	133,357			211,938
Subordinated debentures	89,602			15,464
Other borrowings	2,023			—
Total borrowings	536,848			237,402
Other liabilities	56,657			43,758
Liabilities from discontinued operations	—			55,504
Total liabilities	4,043,313			3,437,839
Stockholders’ equity
Common stock ($.01 par value; 50,000,000 shares authorized and 23,824,972 shares issued and 22,212,764 shares outstanding in 2012; 22,860,368 shares issued and 21,147,736 shares outstanding in 2011)	238			229
Additional paid-in capital	516,056			494,304
Unearned compensation	(3,645		)	(2,790		)
Retained earnings	122,107			109,477
Accumulated other comprehensive loss	(3,462		)	(4,885		)
Treasury stock, at cost (1,612,208 shares in 2012 and 1,712,632 shares in 2011)	(40,373		)	(42,970		)
Total stockholders’ equity	590,921			553,365
Total liabilities and stockholders’ equity	$	4,634,234		$	3,991,204

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

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands, except per share data)	2012		2011			2012			2011
Interest and dividend income
Loans	$	39,497	$	35,719		$	113,335		$	88,932
Securities and other	3,626		3,547			11,116			10,300
Total interest and dividend income	43,123		39,266			124,451			99,232
Interest expense
Deposits	5,628		6,097			16,612			17,580
Borrowings and junior subordinated debentures	2,270		2,131			6,416			6,267
Total interest expense	7,898		8,228			23,028			23,847
Net interest income	35,225		31,038			101,423			75,385
Non-interest income
Loan related fees	5,646		934			10,543			2,305
Deposit related fees	3,775		3,885			11,238			9,792
Insurance commissions and fees	2,742		2,431			8,256			8,943
Wealth management fees	1,774		1,607			5,431			4,188
Total fee income	13,937		8,857			35,468			25,228
Other	375		(158		)	885			(355		)
Gain on sale of securities, net	1		1,975			50			2,105
Total non-interest income	14,313		10,674			36,403			26,978
Total net revenue	49,538		41,712			137,826			102,363
Provision for loan losses	2,500		2,200			6,750			5,300
Non-interest expense
Compensation and benefits	15,992		13,195			45,219			36,373
Occupancy and equipment	4,599		3,883			13,484			10,864
Technology and communications	2,302		1,996			6,518			4,993
Marketing and promotion	419		498			1,548			1,120
Professional services	1,327		1,375			4,185			3,523
FDIC premiums and assessments	907		923			2,458			2,691
Other real estate owned and foreclosures	42		541			215			1,850
Amortization of intangible assets	1,314		1,271			3,982			2,922
Merger, acquisition and conversion related expenses	2,214		9,091			10,522			16,250
Other	3,046		1,937			8,409			5,936
Total non-interest expense	32,162		34,710			96,540			86,522
Income from continuing operations before income taxes	14,876		4,802			34,536			10,541
Income tax expense	4,847		405			10,040			1,432
Net income from continuing operations	10,029		4,397			24,496			9,109
Loss from discontinued operations before income taxes (including gain on disposal of $63)	—		(8		)	(261		)	(8		)
Income tax expense	—		(3		)	376			(3		)
Net loss from discontinued operations	—		(5		)	(637		)	(5		)
Net income	$	10,029	$	4,392		$	23,859		$	9,104
Basic earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.14		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total basic earnings per share	$	0.46	$	0.22		$	1.11		$	0.54
Diluted earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.13		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total diluted earnings per share	$	0.46	$	0.22		$	1.10		$	0.54
Weighted average common shares outstanding:
Basic	21,921		20,009			21,541			16,863
Diluted	22,031		20,105			21,635			16,915

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

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2012			2011			2012			2011
Net income	$	10,029		$	4,392		$	23,859		$	9,104
Other comprehensive income
Changes in unrealized gainson securities available-for-sale	2,103			(538		)	4,790			1,355
Changes in unrealized losses gains on derivative hedges	(1,015		)	(1,042		)	(3,219		)	(606		)
Changes in unrealized gains on terminated swaps	235			235			706			706
Changes in unrealized losses on pension	—			—			(257		)	—
Income taxes related to other comprehensive income	(449		)	499			(597		)	(585		)
Total other comprehensive income (loss)	874			(846		)	1,423			870
Total comprehensive income	$	10,903		$	3,546		$	25,282		$	9,974

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

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

														Accumulated
					Additional									other
	Common stock				paid-in			Unearned			Retained			comprehensive			Treasury
(In thousands)	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
Comprehensive income:
Net income	—		—		—			—			9,104			—			—			9,104
Other net comprehensive income	—		—		—			—			—			870			—			870
Total comprehensive income																				9,974
Acquisition of Legacy Bancorp, Inc.	4,351		44		101,639			—			—			—			—			101,683
Acquisition of Rome Bancorp, Inc.	2,661		27		55,463			—			—			—			—			55,490
Rome ESOP loan repayment	(44	)	—		—			—			—			—			(943		)	(943		)
Cash dividends declared ($0.48 per share)	—		—		—			—			(8,313		)	—			—			(8,313		)
Forfeited shares	(23	)	—		40			463			—			—			(503		)	—
Exercise of stock options	13		—		—			—			(112		)	—			326			214
Restricted stock grants	125		—		(404		)	(2,730		)	—			—			3,134			—
Stock-based compensation	—		—		2			996			—			—			—			998
Net tax benefit related to stock-based compensation	—		—		68			—			—			—						68
Other, net	(25	)	—		(249		)	—			(364		)	—			(512		)	(1,125		)
Balance at September 30, 2011	21,134		$	229	$	494,096		$	(3,047	)	$	104,287		$	(5,540	)	$	(43,332	)	$	546,693
Balance at December 31, 2011	21,148		$	229	$	494,304		$	(2,790	)	$	109,477		$	(4,885	)	$	(42,970	)	$	553,365
Comprehensive income:
Net income	—		—		—			—			23,859			—			—			23,859
Other comprehensive income	—		—		—			—			—			1,423			—			1,423
Total comprehensive income																				25,282
Acquisition of The Connecticut Bank and Trust Company	965		9		21,981			—			—			—			—			21,990
Cash dividends declared ($0.51 per share)	—		—		—			—			(11,147		)	—			—			(11,147		)
Forfeited shares	(8	)	—		11			169			—			—			(180		)	—
Exercise of stock options	18		—		—			—			(82		)	—			458			376
Restricted stock grants	108		—		(280		)	(2,434		)	—			—			2,714			—
Stock-based compensation	—		—		—			1,410			—			—			—			1,410
Net tax benefit related to stock-based compensation	—		—		40			—			—			—			—			40
Other, net	(18	)	—		—			—			—			—			(395		)	(395		)
Balance at September 30, 2012	22,213		$	238	$	516,056		$	(3,645	)	$	122,107		$	(3,462	)	$	(40,373	)	$	590,921

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

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
(In thousands)	2012			2011
Cash flows from operating activities:
Net income	$	23,859		$	9,104
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	6,750			5,300
Net amortization of securities	1,496			893
Change in unamortized net loan costs and premiums	(849		)	519
Premises depreciation and amortization expense	4,553			3,498
Write down of other real estate owned	—			1,700
Stock-based compensation expense	1,410			998
(Accretion)/Amortization of purchase accounting entries	(5,303		)	(2,945		)
Amortization of other intangibles	4,182			2,922
Excess tax loss from stock-based payment arrangements	(40		)	—
Income from cash surrender value of bank-owned life insurance policies	(1,895		)	(1,492		)
Gain on sales of securities, net	(50		)	(2,229		)
Net (increase) decrease in loans held for sale	(64,979		)	568
Loss on disposition of assets	1,753			—
Loss on sale of other real estate	197			94
Net change in other	16,924			13,214
Net cash (used) provided by operating activities	(11,992		)	32,144
Cash flows from investing activities:
Net decrease in trading security	361			(1,346		)
Proceeds from sales of securities available for sale	32,473			12,521
Proceeds from maturities, calls and prepayments of securities available for sale	70,499			92,258
Purchases of securities available for sale	(108,281		)	(152,633		)
Proceeds from maturities, calls and prepayments of securities held to maturity	28,569			7,618
Purchases of securities held to maturity	(20,384		)	(9,444		)
Net change in loans	(255,657		)	(42,890		)
Net cash used for Divestiture	(48,890		)	—
Proceeds from sale of Federal Home Loan Bank stock	1,900			3,571
Purchase of Federal Home Loan Bank stock	—			(1,387		)
Proceeds from sale of other real estate	2,265			1,086
Acquisitions, net of cash paid	(58,150		)	179,458
Purchase of premises and equipment, net	(15,542		)	(4,542		)
Net cash (used) provided by investing activities	(370,837		)	84,270
Cash flows from financing activities:
Net increase in deposits	139,265			153,657
Proceeds from Federal Home Loan Bank advances and other borrowings	433,618			115,480
Repayments of Federal Home Loan Bank advances and other borrowings	(247,195		)	(286,190		)
Issuance of long-term debt, net	74,138			—
Net proceeds from reissuance of treasury stock	376			214
Excess tax loss from stock based payment arrangements	40			68
Common stock cash dividends paid	(11,147		)	(8,313		)
Net cash provided (used) by financing activities	389,095			(25,084		)
Net change in cash and cash equivalents	6,266			91,330
Cash and cash equivalents at beginning of period	75,782			44,140
Cash and cash equivalents at end of period	$	82,048		$	135,470
Supplemental cash flow information:
Interest paid on deposits	17,113			17,807
Interest paid on borrowed funds	5,664			6,202
Income taxes paid, net	4,761			138
Acquisition of non-cash assets and liabilities:
Assets acquired	343,114			1,241
Liabilities assumed	(253,155		)	(1,044		)
Rome stock owned by the Company	—			6,284
Other non-cash changes:
Other net comprehensive income	1,423			870
Real estate owned acquired in settlement of loans	(1,453		)	—

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

The Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and the cash and cash equivalents at beginning of period include the cash flows from activities associated with discontinued operations.

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NOTE 1.BASIS OF PRESENTATION

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

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

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for Berkshire Bancorp, Inc. (“the Company”) previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Recently Adopted Accounting Pronouncements

During the second quarter of 2012, and in connection with the Company’s purchase of the assets and business operations of Greenpark Mortgage Corporation (“Greenpark”) as described in Note 3, the Company adopted the applicable accounting guidance for the fair value option as it relates to held for sale loans (“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 change 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 September 30, 2012.  The Company’s results of operations during 2011 would not have been significantly impacted had the Company applied the fair value option to its HFS loans during that year.

Out of Period Adjustments

During the three months ended March 31, 2012 and June 30, 2012, the Company recorded corrections of immaterial errors that increased net income by $0.2 million and $0.5 million, respectively. The amounts represent corrections to tax-related over-accruals that occurred in prior years.  After evaluating the quantitative and qualitative aspects of these adjustments, the Company concluded that its prior year financial statements were not materially misstated and, therefore, no restatement was required.

NOTE 2.RECENT ACCOUNTING PRONOUNCEMENTS

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 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

9

the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The Company adopted the provisions of ASU No. 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU No. 2011-04 had no impact on the Company’s financial statements.  The required disclosures are incorporated in Note 14 to the Company’s financial statements.

ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all non-owner changes in 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’ 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 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.

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.

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “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 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 disclosures required are incorporated in Note 9 to the Company’s financial statements.

ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”.  In July 2012, the FASB issued ASU No. 2012-02, which permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test,.  ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

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NOTE 3.ACQUISITIONS

The Connecticut Bank and Trust Company

On April 20, 2012, the Company 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.  This business combination is an 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 cash.  On the acquisition date, CBT had 3.6 million outstanding common shares.  Through a cash/share election procedure, the Company paid $8.25 per share for 30% of the outstanding common shares and for 70% of the outstanding shares, the Company exchanged its stock in a ratio of 0.381 shares of the Company’s 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 the closing price of Berkshire posted 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 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.

The assets and liabilities in the CBT acquisition 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 CBT’s assets acquired and liabilities assumed are summarized in the following table (in thousands):

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	$	10,567		$	—		$	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	—			1,000		(c)	1,000
Other intangibles	—			(238)		(d)	(238		)
Other assets	3,081			7,668		(e)	10,749
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	$	24,692		$	(1,454	)	$	23,238
Goodwill							$	14,146

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

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loss inherent in the portfolio.  Loans that met the criteria and are being accounted for in accordance with ASC 310-30 had a carrying amount of $23.8 million.  Non-impaired loans not accounted for under 310-30 had a carrying value of $192.0 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 will be amortized over the average life of the deposit base.

(d)Represents an intangible liability related to assumed leases, which was recorded as an identifiable intangible and will be amortized over the remaining life of the leases.

(e)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)Adjusts borrowings to their estimated fair value calculated based on interest rates of similar borrowings available on the date of acquisition.

(h)Adjusts 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.  For collateral dependent loans with deteriorated credit quality, to estimate the fair value we analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral.  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 loans were initially recorded at fair value.

Information about the acquired loan portfolio subject to purchased credit impaired accounting guidance (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 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 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.

Direct merger, acquisition and integration costs of the CBT acquisition were expensed as incurred, and totaled $3.8 million for the first nine months of 2012, and $0.3 million in 2011.

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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, and $46.5 million was paid to retire outstanding bank loans financing 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 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 year, management calculated an expected range of $0.2 million to $0.3 million in annual payments using the 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 $0.5 million during the first nine months of 2012.  The results of Greenpark’s operations are included in the Consolidated Statements of Income from the date of acquisition.

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.

Consideration paid, and fair values of Greenpark’s assets acquired and liabilities assumed are summarized in the following table (in thousands):

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

Explanation of Certain Fair Values

(a)Includes a portion of the cash consideration paid for premiums as described above, which adjusts the loans to fair value.

(b)Represents the 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.

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(d)Consists of forward contracts acquired at fair value, which serves to hedge the movements in fair value of the interest rate lock commitments.

The following table 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 nine months ended September 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, acquisition and integration costs incurred by the Company during 2012 are reversed, as those expenses are assumed to have occurred during 2011. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities or anticipated cost savings.

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Information in the following table is shown in thousands, except earnings per share:

	Pro Forma
	Nine months ended September 30,
	2012		2011
Net interest income	$	105,183	$	84,869
Non-interest income	45,205		40,919
Net income	24,443		9,292
Pro forma earnings per share from continuing operations:
Basic	$	1.16	$	0.52
Diluted	$	1.16	$	0.52

NOTE 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 $13.7 million and $14.1 million, and a fair value of $17.2 million and $17.4 million, at September 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 purchase securities with the intent of selling them in the near term, and there are no other securities in the trading portfolio at September 30, 2012.

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NOTE 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
September 30, 2012
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	76,481	$	5,855	$	—		$	82,336
Government guaranteed residential mortgage-backed
securities	43,964		983		—			44,947
Government-sponsored residential mortgage-backed
securities	278,145		2,404		(537		)	280,012
Corporate bonds	9,997		22		(316		)	9,703
Trust preferred securities	19,979		1,101		(2,011		)	19,069
Other bonds and obligations	291		1		—			292
Total debt securities	428,857		10,366		(2,864		)	436,359
Equity securities:
Marketable equity securities	27,498		3,804		(217		)	31,085
Total securities available for sale	456,355		14,170		(3,081		)	467,444
Securities held to maturity
Municipal bonds and obligations	8,020		—		—			8,020
Government-sponsored residential mortgage-backed
securities	76		8		—			84
Tax advantaged economic development bonds	42,021		2,056		(328		)	43,749
Other bonds and obligations	1,039		—		—			1,039
Total securities held to maturity	51,156		2,064		(328		)	52,892
Total Securities	$	507,511	$	16,234	$	(3,409	)	$	520,336
December 31, 2011
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	73,436	$	4,418	$	—		$	77,854
Government guaranteed residential mortgage-backed securities	44,051		1,045		—			45,096
Government-sponsored residential mortgage-backed securities	245,033		2,990		(412		)	247,611
Corporate bonds	9,996		—		(269		)	9,727
Trust preferred securities	20,064		343		(2,592		)	17,815
Other bonds and obligations	642		2		—			644
Total debt securities	393,222		8,798		(3,273		)	398,747
Equity securities:
Marketable equity securities	20,236		1,555		(782		)	21,009
Total securities available for sale	413,458		10,353		(4,055		)	419,756
Securities held to maturity
Municipal bonds and obligations	10,349		—		—			10,349
Government-sponsored residential mortgage-backed securities	79		4		—			83
Tax advantaged economic development bonds	47,869		1,479		—			49,348
Other bonds and obligations	615		—		—			615
Total securities held to maturity	58,912		1,483		—			60,395
Total	$	472,370	$	11,836	$	(4,055	)	$	480,151

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at September 30, 2012 are presented below.  Expected maturities

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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	$	—	$	—	$	4,913	$	4,913
Over 1 year to 5 years	9,722		9,579		3,532		3,596
Over 5 years to 10 years	16,844		17,613		24,541		25,806
Over 10 years	80,182		84,208		18,094		18,493
Total bonds and obligations	106,748		111,400		51,080		52,808
Marketable equity securities	27,498		31,085		—		—
Residential mortgage-backed securities	322,109		324,959		76		84
Total	$	456,355	$	467,444	$	51,156	$	52,892

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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
September 30, 2012
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	421	$	79,986	$	116	$	17,196	$	537	$	97,182
Corporate bonds	—		—		316		6,684		316		6,684
Trust preferred securities	—		—		2,011		3,622		2,011		3,622
Total debt securities	421		79,986		2,443		27,502		2,864		107,488
Marketable equity securities	6		4,665		211		1,788		217		6,453
Total securities available for sale	427		84,651		2,654		29,290		3,081		113,941
Securities held to maturity
Tax advantaged economic development bonds	328		8,239		—		—		328		8,239
Total securities held to maturity	328		8,239		—		—		328		8,239
Total	$	755	$	92,890	$	2,654	$	29,290	$	3,409	$	122,180
December 31, 2011
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	376	$	76,326	$	36	$	5,766	$	412	$	82,092
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 September 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 September 30, 2012:

AFS residential mortgage-backed securities

At September 30, 2012, 18 out of a total of 166 securities in the Company’s portfolios of AFS residential mortgage-backed were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions within 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.

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AFS corporate bonds

At September 30, 2012, 2 out of a total of 3 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represented 4.5% of the amortized cost of the securities. All 3 securities remain investment grade rated and the market value of the securities supports the Company’s amortized value. The securities are considered performing.

AFS trust preferred securities

At September 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 36% 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.  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 September 30, 2012, $1.8 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 $0.8 million, for potential other-than-temporary-impairment (“OTTI”) at September 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 $46 million in excess subordination above current and projected losses. The security is considered performing.

HTM tax advantaged economic development bonds

At September 30, 2012, 1 of the 8 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 3.8% 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 September 30, 2012, 3 out of a total of 22 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented 3.3% 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 September 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 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:

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	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages
1-4 family	$	902,661	$	289,791	$	1,192,452
Construction	26,623		6,947		33,570
Total residential mortgages	929,284		296,738		1,226,022
Commercial mortgages:
Construction	145,494		10,378		155,872
Single and multi-family	77,470		13,508		90,978
Commercial real estate	737,492		270,830		1,008,322
Total commercial mortgages	960,456		294,716		1,255,172
Commercial business loans:
Asset based lending	243,126		2,565		245,691
Other commercial business loans	232,386		90,704		323,090
Total commercial business loans	475,512		93,269		568,781
Total commercial loans	1,435,968		387,985		1,823,953
Consumer loans:
Home equity	228,497		73,560		302,057
Other	38,334		28,026		66,360
Total consumer loans	266,831		101,586		368,417
Total loans	$	2,632,083	$	786,309	$	3,418,392

	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

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The carrying amount of the acquired loans at September 30, 2012 totaled $786.3 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 $26.4 million and loans that were considered not impaired at the acquisition date with a carrying amount of $759.9 million.

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

(In thousands)	2012
Three months ended September 30, 2012
Balance at beginning of period	$	2,554
Acquisitions	—
Sales	—
Reclassification from nonaccretable difference for loans with improved cash flows	—
Changes in expected cash flows that do not affect nonaccretable difference	—
Accretion	(806		)
Balance at end of period	$	1,748

(In thousands)	2012
Nine months ended September 30, 2012
Balance at beginning of period	$	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	(2,345		)
Balance at end of period	$	1,748

21

The following is a summary of past due loans at September 30, 2012 and December 31, 2011:

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
September 30, 2012
Residential mortgages:
1-4 family	$	2,435	$	471	$	8,764	$	11,670	$	890,991	$	902,661	$	1,746
Construction	41		513		—		554		26,069		26,623		—
Total	2,476		984		8,764		12,224		917,060		929,284		1,746
Commercial mortgages:
Construction	350		—		4,672		5,022		140,472		145,494		—
Single and multi-family	574		356		452		1,382		76,088		77,470		287
Commercial real estate	2,137		1,432		8,623		12,192		725,300		737,492		863
Total	3,061		1,788		13,747		18,596		941,860		960,456		1,150
Commercial business loans:
Asset based lending	—		—		—		—		243,126		243,126		—
Other commercial business loans	1,049		1,438		2,143		4,630		227,756		232,386		238
Total	1,049		1,438		2,143		4,630		470,882		475,512		238
Consumer loans:
Home equity	724		214		1,469		2,407		226,090		228,497		—
Other	542		100		240		882		37,452		38,334		65
Total	1,266		314		1,709		3,289		263,542		266,831		65
Total	$	7,852	$	4,524	$	26,363	$	38,739	$	2,593,344	$	2,632,083	$	3,199

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
September 30, 2012
Residential mortgages:
1-4 family	$	1,799	$	406	$	2,181	$	4,386	$	285,405	$	289,791	$	759
Construction	—		—		—		—		6,947		6,947		—
Total	1,799		406		2,181		4,386		292,352		296,738		759
Commercial mortgages:
Construction	196		70		1,479		1,745		8,633		10,378		1,479
Single and multi-family	99		—		276		375		13,133		13,508		276
Commercial real estate	1,529		296		5,862		7,687		263,143		270,830		4,906
Total	1,824		366		7,617		9,807		284,909		294,716		6,661
Commercial business loans:
Asset based lending	—		—		—		—		2,565		2,565		—
Other commercial business loans	412		3,047		2,313		5,772		84,932		90,704		2,194
Total	412		3,047		2,313		5,772		87,497		93,269		2,194
Consumer loans:
Home equity	609		127		83		819		72,741		73,560		46
Other	255		152		279		686		27,340		28,026		138
Total	864		279		362		1,505		100,081		101,586		184
Total	$	4,899	$	4,098	$	12,473	$	21,470	$	764,839	$	786,309	$	9,798

22

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

Activity in the allowance for loan losses for the nine months ended September 30, 2012 and the period ended December 31, 2011 was as follows:

Loans from Business Activities (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	3,150	$	22,095	$	4,540	$	2,203	$	(90	)	$	31,898
Charged-off loans	1,590		3,207		116		1,297		—			6,210
Recoveries on charged-off loans	87		8		42		132		—			269
Provision for loan losses	4,922		731		267		2		95			6,017
Balance at end of period	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Individually evaluated for impairment	663		1,653		342		107		—			2,765
Collectively evaluated	5,906		17,974		4,391		933		5			29,209
Total	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Loans receivable:
Balance at end of period
Individually evaluated for impairment	6,534		30,819		1,221		1,085		—			39,659
Collectively evaluated	922,750		929,637		474,291		265,746		—			2,592,424
Total	$	929,284	$	960,456	$	475,512	$	266,831	$	—		$	2,632,083

Loans Acquired from Business Combinations (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	281	$	158	$	38	$	87	$	(18	)	$	546
Charged-off loans	8		85		34		40		—			167
Recoveries on charged-off loans	—		—		4		—		—			4
Provision for loan losses	165		247		82		96		143			733
Balance at end of period	$	438	$	320	$	90	$	143	$	125		$	1,116
Individually evaluated for impairment	44		—		—		—		—			44
Collectively evaluated	394		320		90		143		125			1,072
Total	$	438	$	320	$	90	$	143	$	125		$	1,116
Loans receivable:
Balance at end of Period
Individually evaluated for impairment	612		891		—		—		—			1,503
Collectively evaluated	296,126		293,825		93,269		101,586		—			784,806
Total	$	296,738	$	294,716	$	93,269	$	101,586	$	—		$	786,309

24

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	2,701		20,373		4,424			1,715		(90		)	29,123
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	676,003		919,364		361,202			264,199					2,220,768
Total	$	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	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	338,777		202,803		48,526		104,213					694,319
Total	$	338,777	$	202,803	$	48,526	$	104,213				$	694,319

25

The following is a summary of impaired loans at September 30, 2012:

	At September 30, 2012
Loans from Business Activities (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	2,032	$	2,032	$	—
Commercial mortgages - single and multifamily	164		164		—
Commercial mortgages - real estate	4,134		4,134		—
Other commercial business loans	176		176		—
Consumer - home equity	809		809		—
With an allowance recorded:
Residential mortgages - 1-4 family	2,685		3,349		664
Commercial mortgages - construction	3,986		4,672		686
Commercial mortgages - real estate	2,124		3,090		966
Other commercial business loans	520		862		342
Consumer - home equity	168		275		107
Total
Residential mortgages	$	4,717	$	5,381	$	664
Commercial mortgages	10,408		12,060		1,652
Commercial business	696		1,038		342
Consumer	977		1,084		107
Total impaired loans	$	16,798	$	19,563	$	2,765

	At September 30, 2012
Loans Acquired from Business Combinations  (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	455	$	455	$	—
Commercial mortgages - real estate	891		891		—
With an allowance recorded:
Residential mortgages - 1-4 family	113		157		44
Total
Residential mortgages	$	568	$	612	$	44
Commercial mortgages	891		891		—
Total impaired loans	$	1,459	$	1,503	$	44

26

The following is a summary of impaired loans at December 31, 2011:

	At December 31, 2011
Loans from Business Activities (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

	At December 31, 2011
Loans Acquired from Business Combinations (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

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of September 30, 2012 and September 30, 2011:

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 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	$	1,623	$	22	$	1,487	$	39
Residential mortgages - construction	—		—		52		—
Commercial-construction	—		—		105		—
Commercial mortgages - single and multifamily	190		2		89		1
Commercial mortgages - real estate	2,644		48		7,470		248
Commercial business loans	15		—		31		1
Consumer-home equity	249		1		361		5
With an allowance recorded:
Residential mortgages - 1-4 family	$	2,567	$	27	$	568	$	20
Residential mortgages - construction	—		—		21		—
Commercial-construction	4,736		—		3,504		—
Commercial mortgages - single and multifamily	75		—		365		11
Commercial mortgages - real estate	2,013		23		2,077		20
Commercial business loans	169		5		429		3
Consumer-home equity	421		—		154		—
Total
Residential mortgages	$	4,190	$	49	$	2,129	$	59
Commercial mortgages	9,658		73		13,611		280
Commercial business loans	184		5		460		4
Consumer loans	670		1		515		5
Total impaired loans	$	14,702	$	128	$	16,715	$	348

28

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
Loans Acquired from Business Combinations (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	$	426	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer-home equity	25		—		—		—
With an allowance recorded:
Residential mortgages - 1-4 family	$	13	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	—		—		—		—
Commercial business loans	—		—		—		—
Consumer-home equity	—		—		—		—
Total
Residential mortgages	$	439	$	—	$	—	$	—
Commercial mortgages	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer loans	25		—		—		—
Total impaired loans	$	738	$	15	$	1,225	$	—

29

The following is summary information pertaining to non-accrual loans at September 30, 2012 and December 31, 2011:

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages:
1-4 family	$	7,018	$	1,422	$	8,440
Total	7,018		1,422		8,440
Commercial mortgages:
Construction	4,672		—		4,672
Single and multi-family	165		—		165
Other	7,760		956		8,716
Total	12,597		956		13,553
Commercial business loans:
Other commercial business loans	1,905		119		2,024
Total	1,905		119		2,024
Consumer loans:
Home equity	1,469		37		1,506
Other	175		141		316
Total	1,644		178		1,822
Total non-accrual loans	$	23,164	$	2,675	$	25,839

	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 an eleven grade internal loan rating system for each of its commercial real estate, construction and commercial loans as follows:

1Substantially Risk Free

Borrowers in this category are of unquestioned credit standing and are at the pinnacle of credit quality. Credits in this category are generally cash secured with strong management depth and experience and exhibit a superior track record.

30

2Minimal Risk

A relationship which provides an adequate return on investment to the Company, has been stable during the last three years and has a superior financial condition as determined by a comparison with the industry.  In addition, management must be of unquestionable character and have strong abilities as measured by its long-term financial performance.

3Moderate Risk

A relationship which does not appear to possess more than the normal degree of credit risk.  Overall, the borrower’s financial statements compare favorably with the industry.  A strong secondary repayment source exists and the loan is performing as agreed.

4Better than Average Risk

A relationship which possesses most of the characteristics found in the Moderate Risk category and ranges from definitely sound to those with minor risk characteristics. Operates in a reasonably stable industry that may be moderately affected by the business cycle and moderately open to changes. Has a satisfactory track record and the loan is performing as agreed.

5Average Risk

A relationship which possesses most of the characteristics found in the Better than Average Risk category but may have recently experienced a loss year often as a result of its operation in a cyclical industry. The relationship has smaller margins of debt service coverage with some elements of reduced strength. Good secondary repayment source exists and the loan is performing as agreed.  Start-up businesses and construction loans will generally be assigned to this category as well.

6Acceptable Risk

Borrowers in this category may be more highly leveraged than their industry peers and experience moderate losses relative to net worth.  Trends and performance, e.g. Sales and earnings, leverage, among other factors may be negative.  Management’s ability may be questionable, or perhaps untested.  The industry may be experiencing either temporary or long term pressures.  Collateral values are seen as more important in assessing risk than in higher quality loans.  Failure to meet required line clean-up periods or other terms and conditions, including some slow payments may also predicate this grade.

7              Special Mention

A classification assigned to all relationships for credits with potential weaknesses which present a higher than normal credit risk, but not to the point of requiring a Substandard loan classification.  No loss of principal or interest is anticipated. However, these credits are followed closely, and if necessary, remedial plans to reduce the Company’s risk exposure are established.

8              Substandard — Performing

A classification assigned to a credit that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation 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

9              Substandard — Non-Performing

A classification given to Substandard credits which have deteriorated to the point that management has placed the accounts on non-accrual status due to delinquency exceeding 90 days or where the Company has determined that collection of principal and interest in full is unlikely.

10           Doubtful

Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, highly questionable and improbable.  Collection in excess of 50% of the balance owed is not expected.

11           Loss

Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.  This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be possible in the future.

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

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

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

32

A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans. At September 30, 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 of historical loans and acquired loans in order to distinguish the credit performance of the newly acquired loans.

The following table presents the Company’s loans by risk rating at September 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)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass
Special mention	$	893,426	$	637,110	$	26,109	$	32,191	$	919,535	$	669,301
Substandard	471		877		514		—		985		877
Total	8,764		11,480		—		—		8,764		11,480
	$	902,661	$	649,467	$	26,623	$	32,191	$	929,284	$	681,658

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	130,658	$	91,452	$	74,438	$	85,153	$	664,683	$	674,814	$	869,779	$	851,419
Special mention	49		5,939		422		435		12,962		16,459		13,433		22,833
Substandard	14,787		17,262		2,610		3,813		59,742		55,156		77,139		76,231
Doubtful	—		2,839		—		—		105		116		105		2,955
Total	$	145,494	$	117,492	$	77,470	$	89,401	$	737,492	$	746,545	$	960,456	$	953,438

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	242,089	$	149,741	$	218,085	$	200,246	$	460,174	$	349,987
Special mention	—		—		4,921		607		4,921		607
Substandard	1,037		1,324		9,287		9,753		10,324		11,077
Doubtful	—		—		93		95		93		95
Total	$	243,126	$	151,065	$	232,386	$	210,701	$	475,512	$	361,766

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	227,028	$	224,677	$	38,159	$	38,972	$	265,187	$	263,649
Nonperforming	1,469		1,692		175		48		1,644		1,740
Total	$	228,497	$	226,369	$	38,334	$	39,020	$	266,831	$	265,389

33

Loans Acquired from Business Combinations

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	287,204	$	327,715	$	6,947	$	9,205	$	294,151	$	336,920
Special mention	406		242		—		—		406		242
Substandard	2,181		1,450		—		165		2,181		1,615
Total	$	289,791	$	329,407	$	6,947	$	9,370	$	296,738	$	338,777

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	8,703	$	3,548	$	9,691	$	14,802	$	235,441	$	161,218	$	253,835	$	179,568
Special mention	—		2,160		2,553		272		12,245		8,071		14,798		10,503
Substandard	1,675		1,018		1,264		1,324		23,144		10,390		26,083		12,732
Total	$	10,378	$	6,726	$	13,508	$	16,398	$	270,830	$	179,679	$	294,716	$	202,803

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	2,565	$	2,206	$	76,480	$	39,578	$	79,045	$	41,784
Special mention	—		—		8,394		3,810		8,394		3,810
Substandard	—		—		5,830		2,932		5,830		2,932
Total	$	2,565	$	2,206	$	90,704	$	46,320	$	93,269	$	48,526

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	73,523	$	71,752	$	27,885	$	32,248	$	101,408	$	104,000
Nonperforming	37		75		141		138		178		213
Total	$	73,560	$	71,827	$	28,026	$	32,386	$	101,586	$	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.

34

The following tables include the recorded investment and number of modifications identified during the nine months ended September 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
	Nine months ending September 30, 2012
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential- 1-4 Family	1	$	70	$	70

As of September 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 nine months ended September 30, 2012 and 2011:

	September 30,
(In thousands)	2012		2011
Balance at beginning of the period	$	1,264	$	7,829
Principal Payments	6		72
TDR Status Change (1)	1,125		7,041
Other Reductions (2)	—		189
Newly Identified TDRs	2,043		177
Balance at end of the period	$	2,176	$	704

(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 7.               DEPOSITS

A summary of time deposits is as follows:

(In thousands)	September 30, 2012		December 31, 2011 (1)
Time less than $100,000	$	503,316	$	511,592
Time $100,000 or more	524,970		491,046
Total time deposits	$	1,028,286	$	1,002,638

(1) Amounts include balances associated with discontinued operations.

35

NOTE 8.               BORROWED FUNDS

Borrowed funds at September 30, 2012 and December 31, 2011 are summarized, as follows:

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLB	$	311,866	0.35	%	$	10,000	49.00	%
Long-term borrowings:
Advances from the FHLB	133,357		1.61	%	211,938		1.37	%
Private placement subordinated notes	74,138		6.88	%	—		—
Junior subordinated debentures	15,464		2.28	%	15,464		2.35	%
Other borrowings	2,023		3.50	%	—		—
Total	$	536,848	1.63	%	$	237,402	1.27	%

Short-term debt includes Federal Home Loan Bank of Boston (“FHLBB”) advances with an original maturity of less than one year.  Total short-term debt was $311.9 million with a weighted average interest rate of 0.35% and $44.9 million with a weighted average interest rate of 0.49% at September 30, 2012 and December 31, 2011, respectively.  The Bank also maintains a $3.0 million secured line of credit with the FHLBB that bears a daily adjustable rate calculated by the FHLBB. There was no outstanding balance on the FHLBB line of credit for the period ended September 30, 2012 and December 31, 2011.

The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank of Boston took place for the period ended September 30, 2012 and December 31, 2011.

Long-term FHLBB advances consist of advances with an original maturity of more than one year.  The advances outstanding at September 30, 2012 include callable advances totaling $8.0 million, and amortizing advances totaling $5.7 million.  The advances outstanding at December 31, 2011 include callable advances totaling $8.0 million, and amortizing advances totaling $5.8 million. All FHLBB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

A summary of FHLBB advances as of September 30, 2012 and December 31, 2011 is as follows:

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Fixed rate advances maturing:
2012	$	261,800	0.28	%	$	10,000	0.16	%
2013	13,406		0.63	%	16,727		1.44	%
2014	20,346		2.98	%	20,543		3.01	%
2016 and beyond	7,179		3.16	%	10,579		4.10	%
Total fixed rate advances	$	302,731	0.54	%	$	57,849	2.26	%
Variable rate advances maturing:
2012	$	4,990	1.30	%	$	34,940	0.59	%
2013	62,502		1.55	%	59,149		1.37	%
2014	10,000		0.47	%	10,000		0.64	%
2015	20,000		0.51	%	20,000		0.42	%
2016 and beyond	45,000		0.94	%	40,000		0.42	%
Total variable rate advances	$	142,492	1.12	%	$	164,089	0.81	%
Total	$	445,223	0.73	%	$	221,938	1.19	%

36

On September 28, 2012, the Company issued $75.0 million principal amount of 6.875% fixed to floating rate subordinated notes (the “notes”) through a private placement at a discount of 1.15%.  The Company will pay interest on the subordinated notes each March 28 and September 28 through September 28, 2022, and thereafter on each March 28, June 28, September 28 and December 28.  The maturity date of the notes is September 28, 2027, although the Company may redeem some or all of the subordinated notes beginning on the interest payment date of September 28, 2022 and on any interest payment date thereafter.  From and including September 28, 2012 to but excluding September 28, 2022, the notes will bear interest at the rate of 6.875% per year and will be payable semi-annually in arrears on March 28 and September 28 of each year. From and including September 28, 2022, the notes will bear an interest rate per annum equal to the three-month LIBOR rate plus 511.3 basis points, payable quarterly on each March 28, June 28, September 28 and December 28, commencing on December 28, 2022, through the maturity date or the early redemption date of the notes.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million.  The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85% and had a rate of 2.28% and 2.35% at September 30, 2012 and December 31, 2011, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to stockholders while such interest payments on the debentures have been deferred.  The Company has not exercised this right to defer payments.  The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary.  Accordingly, Trust I is not consolidated into the Company’s financial statements.

NOTE 9.               STOCKHOLDERS’ EQUITY

The Bank’s actual and required capital ratios were as follows:

					FDIC Minimum
	Septemeber 30, 2012		December 31, 2011		to be Well Capitalized
Total capital to risk weighted assets	11.2	%	11.3	%	10.0	%
Tier 1 capital to risk weighted assets	10.1		10.2		6.0
Tier 1 capital to average assets	7.7		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.

37

Accumulated other comprehensive income

Components of accumulated other comprehensive loss are as follows:

(In thousands)	September 30, 2012			December 31, 2011
Net unrealized holding gain (loss) on AFS securities	$	11,089		$	6,298
Net loss on effective cash flow hedging derivatives	(12,102		)	(8,882		)
Net loss on terminated swap	(4,415		)	(5,121		)
Net unrealized holding gain (loss) on pension plans	(932		)	(676		)
Tax effects	2,898			3,496
Accumulated other comprehensive loss	$	(3,462	)	$	(4,885	)

The Company’s accumulated other comprehensive loss totaled $3.5 million at September 30, 2012.  Of this loss, $16.5 million was attributable to accumulated losses on cash flow hedges and terminated swaps, net of deferred tax benefits of $7.0 million; $11.1 million was attributable to accumulated gains on available-for-sale securities, net of deferred tax expenses of $4.1 million; and $0.9 million was attributable to accumulated losses on pensions.

The Company’s accumulated other comprehensive loss totaled $4.9 million at December 31, 2011.  Of this loss, $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.

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NOTE 10. 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 Sept. 30,					Nine Months Ended Sept. 30,
(In thousands, except per share data)	2012		2011			2012			2011
Net income from continuing operations	$	10,029	$	4,397		$	24,496		$	9,109
Loss from discontinued operations before income taxes (including gain on disposal of $63)	—		(8		)	(261		)	(8		)
Income tax expense	—		(3		)	376			(3		)
Net loss from discontinued operations	—		(5		)	(637		)	(5		)
Net income	$	10,029	$	4,392		$	23,859		$	9,104
Average number of common shares issued	23,825		21,929			23,438			18,784
Less: average number of treasury shares	1,614		1,728			1,653			1,750
Less: average number of unvested stock award shares	290		192			244			171
Average number of basic common shares outstanding	21,921		20,009			21,541			16,863
Plus: dilutive effect of unvested stock award shares	72		90			1			49
Plus: dilutive effect of stock options outstanding	38		6			93			3
Average number of diluted common shares outstanding	22,031		20,105			21,635			16,915
Basic earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.14		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total basic earnings per share	$	0.46	$	0.22		$	1.11		$	0.54
Diluted earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.13		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total diluted earnings per share	$	0.46	$	0.22		$	1.10		$	0.54

For the quarter ended September 30, 2012, 218 thousand shares of restricted stock and 350 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. For the quarter ended September 30, 2011, 102 thousand shares of restricted stock and 170 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.

39

NOTE 11. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the nine months ended September 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	108		23.76		—		—
Stock options exercised	—		—		(18	)	21.04
Stock awards vested	(68	)	19.44		—		—
Forfeited	(8	)	21.38		—		—
Expired	—		—		(19	)	22.83
Balance, September 30, 2012	248		$	21.67	372		$	25.93
Exercisable options, September 30, 2012					372		$	25.93

During the nine months ended September 30, 2012 and 2011, proceeds from stock option exercises totaled $376 thousand and $624 thousand, respectively. During the nine months ended September 30, 2012, there were 68 thousand shares issued in connection with vested stock awards.  During the nine months ended September 30, 2011, there were 66 thousand shares issued in connection with vested stock awards.  All of these shares were issued from available treasury stock.  Stock-based compensation expense totaled $1.4 million and $1.1 million during the nine months ended September 30, 2012 and 2011, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.

NOTE 12. 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.

40

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

(In thousands)	Banking			Insurance		Parent			Eliminations			Total Consolidated
Three months ended September 30, 2012
Net interest income (expense)	$	35,505		$	—	$	(280	)	$	—		$	35,225
Provision for loan losses	2,500			—		—			—			2,500
Non-interest income	11,571			2,742		10,294			(10,294		)	14,313
Non-interest expense	29,608			2,021		533			—			32,162
Income (loss) before income taxes	14,968			721		9,481			(10,294		)	14,876
Income tax expense (benefit)	5,105			290		(548		)	—			4,847
Net income	$	9,863		$	431	$	10,029		$	(10,294	)	$	10,029
Average assets (in millions)	$	4,409		$	29	$	501		$	(368	)	$	4,572
Three months ended September 30, 2011
Net interest income (expense)	$	31,253		$	—	$	(215	)	$	—		$	31,038
Provision for loan losses	2,200			—		—			—			2,200
Non-interest income	8,248			2,426		3,570			(3,570		)	10,674
Non-interest expense	34,163			2,148		(1,602		)	1			34,710
Income (loss) before income taxes	3,138			278		4,957			(3,571		)	4,802
Income tax expense (benefit)	(272		)	114		569			(1		)	410
Net income	$	3,410		$	164	$	4,388		$	(3,570	)	$	4,392
Average assets (in millions)	$	3,827		$	30	$	479		$	(475	)	$	3,861
Nine months ended September 30, 2012
Net interest income (expense)	$	102,095		$	—	$	(672	)	$	—		$	101,423
Provision for loan losses	6,750			—		—			—			6,750
Non-interest income	28,147			8,256		25,546			(25,546		)	36,403
Non-interest expense	88,061			6,329		2,150			—			96,540
Income (loss) before income taxes	35,431			1,927		22,724			(25,546		)	34,536
Income tax expense (benefit)	10,400			775		(1,135		)	—			10,040
Net income	$	25,031		$	1,152	$	23,859		$	(25,546	)	$	24,496
Income from discontinued operations berofre income taxes (including gain on disposal of $63)	(261		)	—		—			—			(261		)
Income tax expense	376			—		—			—			376
Net loss from discontinued operations	$	(637	)	$	—	$	—		$	—		$	(637	)
Net income	$	24,394		$	1,152	$	23,859		$	(25,546	)	$	23,859
Average assets (in millions)	$	4,185		$	30	$	492		$	(405	)	$	4,302
Nine months ended September 30, 2011
Net interest income (expense)	$	76,017		$	—	$	(631	)	$	(1	)	$	75,385
Provision for loan losses	5,300			—		—			—			5,300
Non-interest income	18,035			8,938		7,068			(7,068		)	26,973
Non-interest expense	76,893			6,598		3,031			—			86,522
Income before income taxes	11,859			2,340		3,406			(7,069		)	10,536
Income tax expense (benefit)	1,968			958		(1,494		)	—			1,432
Net income	9,891			1,382		4,900			(7,069		)	9,104
Average assets (in millions)	$	3,281		$	32	$	413		$	(411	)	$	3,315

NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, 2012, the Company held derivatives with a total notional amount of $1.3 billion.  That amount included $270.0 million in interest rate swap derivatives that were designated as cash flow hedges for accounting purposes.  The Company also had economic hedges and non-hedging derivatives totaling $741.6 million and $275.8 million, respectively, which are not designated as accounting hedges.  Economic hedges included interest rate swaps totaling $410.9 million, and $330.6 million in forward commitment contracts.

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and

41

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 September 30, 2012.

The Company pledged collateral to derivative counterparties in the form of cash totaling $5.3 million and securities with an amortized cost of $34.3 million and a fair value of $35.2 million as of September 30, 2012. The Company does not typically require its Commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the 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 September 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	$	115,000	1.8	0.44	%	3.47	%	$	(5,509	)
Forward-starting interest rate swaps on FHLBB borrowings	140,000		5.7	—	%	2.37	%	(5,920		)
Interest rate swaps on junior subordinated debentures	15,000		1.6	2.28	%	5.54	%	(829		)
Total cash flow hedges	270,000							(12,258		)
Economic hedges:
Interest rate swap on tax advantaged economic development bond	13,734		17.2	0.60	%	5.09	%	(3,719		)
Interest rate swaps on loans with commercial loan customers	198,600		5.2	2.58	%	5.35	%	(16,290		)
Reverse interest rate swaps on loans with commercial loan customers	198,600		5.2	5.35	%	2.58	%	15,747
Forward commitments	330,632		0.2					(4,669		)
Total economic hedges	741,566							(8,931		)
Non-hedging derivatives:
Interest rate lock commitments	275,756		0.2					7,833
Total non-hedging derivatives	275,756							7,833
Total	$	1,287,322						$	(13,356	)

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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	)

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 $115.0 million to convert the LIBOR based floating interest rates on a $115.0 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 thirteen forward-starting interest rate swaps with a combined notional value of $140.0 million. Of the thirteen forward starting swaps, four will become effective by the close of the second quarter in 2013, two of which have a duration of one year, one with a duration of four years, and the other with a duration of five years. In 2014, seven of the remaining nine forward starting swaps will become effective; 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 last two forward starting swaps will become effective in 2015, one of which has a duration of four years and the other of which has a duration of 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.

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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 September 30,						Nine Months Ended September 30,
(In thousands)	2012			2011			2012			2011
Interest rate swaps on FHLBB borrowings:
Unrealized (loss) gain recognized in accumulated other comprehensive loss	$	(1,086	)	$	(987	)	$	(3,446	)	$	(544	)
Reclassification of unrealized loss from accumulated other comprehensive loss to non-interest income for hedge ineffectiveness	11			11			31			31
Reclassification of realized gain from accumulated other comprehensive loss to other non-interest income for termination of swaps	235			235			706			706
Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps	(98		)	(98		)	(226		)	(293		)
Net tax benefit (expense) on items recognized in accumulated other comprehensive loss	441			407			1,448			210
Interest rate swaps on junior subordinated debentures:
Unrealized gain (loss) recognized in accumulated other comprehensive loss	71			(65		)	226			(62		)
Net tax (expense) benefit on items recognized in accumulated other comprehensive loss	(28		)	27			(89		)	24
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects	$	(454	)	$	(470	)	$	(1,350	)	$	72
Net interest expense recognized in interest expense on hedged FHLBB borrowings	$	1,121		$	1,239		$	3,327		$	3,663
Net interest expense recognized in interest expense on junior subordinated debentures	$	148		$	131		$	363		$	386

Hedge ineffectiveness on interest rate swaps designated as cash flow hedges was immaterial to the Company’s financial statements during the nine months ended September 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 $5.3 million will be reclassified as an increase to interest expense.

Economic hedges

The Company has an interest rate swap with a $13.7 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 $502 thousand as of September 30, 2012.  The interest income and expense on these mirror image swaps exactly offset each other.

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

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The company uses the following types of forward commitments contracts:

·              Best efforts loan sales,

·              Mandatory delivery loan sales, and

·              To be announced (TBA) mortgage-backed securities sales.

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

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

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

Non-hedging derivatives

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

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

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
(In thousands)	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	)	$	(1,812	)	$	(473	)	$	(2,137	)
Unrealized gain recognized in other non-interest income	(24		)	—			(1,118		)	(69		)
Interest rate swaps on loans with commercial loan customers:
Unrealized gain recognized in other non-interest income	859			6,133			4,119			7,073
Reverse interest rate swaps on loans with commercial loan customers:
Unrealized loss recognized in other non-interest income	(859		)	(6,133		)	(4,119		)	(7,073		)
Favorable (unfavorable) change in credit valuation adjustment recognized in other non-interest income	$	(31	)	$	(281	)	$	(22	)	$	(464	)
Forward commitments
Unrealized loss recognized in other non-interest income	$	(6,832	)	$	(182	)	$	(8,963	)	$	(292	)
Non-hedging derivatives
Interest rate lock commitments
Unrealized gain recognized in other non-interest income	$	10,858		$	182		$	15,195		$	256

NOTE 14. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring fair value measurements

The following table summarizes assets and financial liabilities measured at fair value on a recurring basis as of September 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 nine months ended September 30, 2012.

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	September 30, 2012
	Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading account security	$	—	$	—	$	17,237	$	17,237
Available-for-sale securities:
Municipal bonds and obligations	—		82,336		—		82,336
Governmentguaranteed residential mortgage-backed securities	—		44,947		—		44,947
Government-sponsored residential mortgage-backed securities	—		280,012		—		280,012
Corporate bonds	—		9,703		—		9,703
Trust preferred securities	—		18,252		817		19,069
Other bonds and obligations	—		292		—		292
Marketable equity securities	31,085		—		—		31,085
Loans held for sale	—		114,698		—		114,698
Derivative assets	—		15,747		7,833		23,580
Derivative liabilities	4,669		32,244		—		36,913

	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. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security.  The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.

Securities Available for Sale. AFS securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. The Company holds one pooled trust preferred security. 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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					Aggregate Fair Value
September 30, 2012	Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	114,698	$	109,746	$	4,952

Derivative Assets and Liabilities.

Interest Rate Swap.  The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  However, as of September 30, 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 IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time.  The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan.  The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment.  The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, IRLCs are classified as Level 3 measurements.

Forward Commitments. The Company utilizes forward commitments as economic hedges against the potential decreases in the values of the IRLCs.  The forward commitments are classified as Level 1 and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets.

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The table below presents the changes in Level 3 assets that were measured at fair value on a recurring basis at September 30, 2012 and 2011.

	Assets
	Trading			Securities			Interest Rate
	Account			Available			Lock
(In thousands)	Security			for Sale			Commitments
Balance as of December 31, 2011	$	17,395		$	544		$	—
Unrealized gain recognized in other non-interest income	(428		)	—			—
Unrealized loss included in accumulated other comprehensive loss	—			—			—
Paydown of trading account security	(120		)	—			—
Balance as of March 31, 2012	$	16,847		$	544		$	—
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 (loss) gain recognized in other non-interest income	(7		)	—			10,858
Unrealized loss included in accumulated other comprehensive loss	—			204			—
Paydown of trading account security	(121		)	—			—
Transfers to held for sale loans	—			—			(7,053		)
Balance as of September 30, 2012	$	17,237		$	817		$	7,833
Unrealized gains (losses) relating to instruments still held at September 30, 2012	$	3,502		$	(1,784	)	$	10,858

	Assets
	Trading			Securities
	Account			Available
(In thousands)	Security			for Sale
Balance as of December 31, 2010	$	16,155		$	1,695
Unrealized (loss) gain recognized in other non-interest income	(257		)	—
Unrealized loss included in accumulated other comprehensive loss	—			498
Paydown of trading account security	(117		)	—
Balance as of March 31, 2011	$	15,781		$	2,193
Unrealized (loss) gain recognized in other non-interest income	357			—
Unrealized loss included in accumulated other comprehensive loss	—			112
Paydown of trading account security	(114		)	—
Transfer out of Level 3	—			(1,624		)
Balance as of June 30, 2011	$	16,024		$	681
Unrealized (loss) gain recognized in other non-interest income	1,592			—
Unrealized loss included in accumulated other comprehensive loss	—			(218		)
Paydown of trading account security	(115		)	—
Balance as of September 30, 2011	$	17,501		$	463
Unrealized gains (losses) relating to instruments still held at September 30, 2011	$	3,287		$	(2,136	)

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Quantitative information about the significant unobservable inputs within Level 3 recurring assets are as follows:

	Fair Value				Significant Unobservable
(In thousands)	September 30, 2012		Valuation Techniques	Unobservable Inputs	Input Value
Assets
Trading Account Security	$	17,237	Discounted Cash Flow	Discount Rate	2.08	%
Interest Rate Lock Commitment	7,833		Historical Trend	Closing Ratio	88.55	%
			Pricing Model	Origination Costs	2,500
Total Assets	$	25,070

Non-recurring fair value measurements

The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.

	September 30, 2012		December 31, 2011		Nine Months Ended September 30, 2012
	Level 3		Level 3		Total
(In thousands)	Inputs		Inputs		Losses
Assets
Impaired loans	$	6,949	$	11,155	4,206
Capitalized mortgage servicing rights	2,494		3,067		573
Other real estate owned	1,399		1,900		—
Total Assets	$	10,842	$	16,122	$	4,779

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

	Fair Value				Range (Weighted
(in thousands)	Septemeber 30, 2012		Valuation Techniques	Unobservable Inputs	Average) (a)
Assets
Impaired loans	$	6,949	Fair value of collateral	Loss severity	12.36% to 32.1% (19.43%)
				Appraised value	$126.0 to $2,500.0 ($1,411.5)
Capitaized mortgage servicing rights	2,494		Discounted cash flow	Constant prepayment rate (CPR)	13.85% to 23.93% (17.25%)
				Discount rate	11.00% to 15.50% (11.21%)
Other real estate owned	1,399		Fair value of collateral	Appraised value	$590.0 ($288.8)
Total Assets	$	10,842

(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 September 30, 2012 and December 31, 2011.

Impaired Loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan.  Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace.  However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of

50

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 for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Capitalized mortgage loan servicing rights.   A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

Other real estate owned (“OREO”). OREO results from the foreclosure process on residential or commercial loans issued by the Bank. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.

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.

	September 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	$	48,214	$	48,214	$	48,214	$	—	$	—	$	75,359	$	75,359
Trading security	17,237		17,237		—		—		17,237		17,395		17,395
Securities available for sale	467,444		467,444		31,085		435,542		817		419,756		419,756
Securities held to maturity	51,156		52,892		—		—		52,892		58,912		60,395
Restricted equity securities	37,135		37,135		—		37,135		—		37,118		37,118
Net loans	3,385,302		3,411,331		—		—		3,411,331		2,924,126		2,990,173
Loans held for sale	114,698		114,698		—		114,698		—		1,455		1,455
Accrued interest receivable	13,640		13,640		—		13,640		—		11,350		11,350
Cash surrender value of bank-owned life insurance policies	76,904		76,904		—		76,904		—		75,009		75,009
Derivative assets	23,579		23,579		—		15,747		7,832		13,926		13,926
Financial Liabilities
Total deposits	$	3,453,363	$	3,464,962	$	—	$	3,464,962	$	—	$	3,101,175	$	3,104,204
Short-term debt	61,800		61,800		—		61,800		—		10,000		10,000
Long-term Federal Home Loan Bank advances	388,999		393,703		—		393,703		—		211,938		215,008
Junior subordinated debentures	89,602		87,901		—		87,901		—		15,464		11,436
Derivative liabilities	36,913		36,913		4,669		32,244		—		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.

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Restricted equity securities. Carrying value approximates fair value based on the redemption provisions of the issuers.

Cash surrender value of life insurance policies.Carrying value approximates fair value.

Loans, net. The carrying value of the loans in the loan portfolio is based on the cash flows of the loans discounted over their respective loan origination rates. The origination rates are adjusted for substandard and special mention loans to factor the impact of declines in the loan’s credit standing. The fair value of the loans is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality.

Accrued interest receivable.Carrying value approximates fair value.

Deposits. The fair value of demand, non-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. NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

Presented below is net interest income after provision for loan losses for the three and nine months ended September 30, 2012 and 2011, respectively.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
Net interest income	$	35,225	$	31,038	$	101,423	$	75,385
Provision for loan losses	2,500		2,200		6,750		5,300
Net interest income after provision for loan losses	$	32,725	$	28,838	$	94,673	$	70,085

NOTE 16. SUBSEQUENT EVENTS

On October 19, 2012, the Company acquired all of the outstanding common shares of Beacon Federal Bancorp, Inc. (“Beacon Federal”).  Beacon Federal had seven banking offices primarily serving eastern New York State and has merged with and into Berkshire Bank.

Beacon Federal shareholders received 2.7 million shares of the Company common stock and $60 million in cash. As of October 19, 2012, Beacon Federal had assets with a carrying value of approximately $822.7 million, including loans outstanding with a carrying value of approximately $697.6 million, as well as deposits with a carrying value of approximately $622.2 million. The results of Beacon Federal’s operations will be included in the Company’s Consolidated Statement of Income from the date of acquisition. The Company incurred $0.7 million of merger and acquisition expenses related to the Beacon Federal merger for the nine months ended September 30, 2012.

As a result of the proximity of the closing of the merger with Beacon Federal to the date these consolidated financial statements are available to be issued, the Company is still evaluating the estimated fair values of the

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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.

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

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.  In the discussion, references to earnings per share refer to diluted earnings per share unless otherwise specified.

Berkshire Hills Bancorp (the “Company” or “Berkshire”) is headquartered in Pittsfield, Massachusetts. It had $4.6 billion in assets at September 30, 2012 and is the parent of Berkshire Bank — America’s Most Exciting BankSM (the “Bank”).  On April 20, 2012, Berkshire completed the acquisition of CBT — The Connecticut Bank and Trust Company, headquartered in Hartford, Connecticut.  On April 30, 2012, Berkshire acquired the net assets and operations of Greenpark Mortgage, headquartered in Needham, Massachusetts.  Berkshire’s operations and financial condition in this report include the impacts of these acquisitions.  On October 19, 2012, Berkshire completed the acquisition of Beacon Federal Bancorp, headquartered in East Syracuse, New York.  The Beacon impact will be recorded in the fourth quarter and is not included in the operations and financial condition in this report.  Including Beacon, Berkshire has about $5.5 billion in assets. It provides personal and business banking, insurance, and wealth management services through 73 full service branch offices in Western Massachusetts, Central and Eastern New York, North Central Connecticut, and Southern Vermont.  Berkshire also operates 10 lending offices for commercial and residential mortgage originations in central and eastern Massachusetts.  The Company also has two former Beacon branch offices held for sale in Tennessee.  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, visit www.berkshirebank.com or call 800-773-5601.

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

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

·Positive operating leverage elevating long term profitability

·Solid capital, core funding and risk management culture

·Experienced executive team focused on earnings and stockholder value

·Distinctive brand and culture as America’s Most Exciting BankSM

·Diversified integrated financial service revenues

·Positioned to be regional consolidator in attractive markets

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  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.

Factors that could cause the results to differ materially from those described in the forward looking statements include, but are not limited to,  statements that can be found in the filings made by  Berkshire with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, the proxy statement/prospectus filed pursuant to Rule 424(b)(3) on August 6, 2012, and the Risk Factors in Item 1A of this report.    Because of these and other uncertainties, Berkshire’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire’s past results of operations do not necessarily indicate Berkshire’s combined future results.  You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made.  Berkshire is not undertaking an obligation to update 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 in this Form 10-Q and in the most recent Form 10-K.  Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

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

Allowance for Loan Losses. The allowance for loan losses is the Company’s estimate of probable credit losses 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.

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

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

Goodwill and Identifiable Intangible Assets. Goodwill and identifiable intangible assets are recorded as a result of business acquisitions and combinations. These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and 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.

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

For additional information regarding critical accounting policies, refer to Note 1 — Summary of Significant Accounting Policies in the notes to consolidated financial statements and the sections captioned “Critical Accounting Policies” and “Loan Loss Allowance” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2011 Form 10-K. There have been no significant changes in the Company’s application of critical accounting policies since year-end 2011. Please refer to the note on Recent Accounting Pronouncements in Note 2 to the consolidated financial statements of this report for a detailed discussion of new accounting pronouncements.  Please also see Note 1 in the consolidated financial statements for Election of the Use of the Fair Value Option.

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.

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	At or for the Three Months Ended						At or for the Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
PER COMMON SHARE DATA
Net earnings, diluted	$	0.46		$	0.22		$	1.10		$	0.54
Total common book value	26.60			25.87			26.60			25.87
Dividends	0.17			0.16			0.51			0.48
Common stock price:
High	23.66			24.14			24.49			24.14
Low	21.19			17.11			20.15			17.11
Close	22.88			18.47			22.88			18.47
PERFORMANCE RATIOS (1)
Return on average assets	0.88		%	0.45		%	0.73		%	0.36		%
Return on average common equity	6.89			3.31			5.57			2.62
Net interest margin, fully taxable equivalent	3.50			3.74			3.62			3.52
Fee income/Net interest and fee income	28.35			22.20			25.91			25.07
ASSET QUALITY RATIOS
Net charge-offs (current period annualized)/average loans	0.27		%	0.27		%	0.25		%	0.27		%
Allowance for loan losses/total loans	0.97			1.07			0.97			1.07
CAPITAL RATIO
Stockholders’ equity to total assets	12.75		%	13.38		%	12.75		%	13.38		%
FINANCIAL DATA: (In millions)
Total assets	$	4,634		$	4,087		$	4,634		$	4,087
Total loans	3,418			2,955			3,418			2,955
Allowance for loan losses	33			32			33			32
Other earning assets	722			603			722			603
Total intangible assets	239			233			239			233
Total deposits	3,450			3,038			3,450			3,038
Total borrowings and debentures	537			237			537			237
Total common stockholders’ equity	591			547			591			547
FOR THE PERIOD: (In thousands)
Net interest income	$	35,225		$	31,038		$	101,423		$	75,385
Non-interest income	14,313			10,674			36,403			26,978
Provision for loan losses	2,500			2,200			6,750			5,300
Non-interest expense	32,162			34,710			96,540			86,522
Net income	10,029			4,392			23,859			9,104

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

(2)Ratio calculations related to loans and deposits of discontinued operations have not been reclassified on the above schedule.

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

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES

The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2012				2011				2012				2011
($ In millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Assets
Loans:
Residential mortgages	$	1,208	4.28	%	$	1,005	4.82	%	$	1,154	4.47	%	$	819	4.95	%
Commercial loans	1,823		4.85		1,524		5.27		1,711		4.95		1,348		4.90
Consumer loans	368		3.97		377		4.17		370		3.98		323		3.92
Total loans	3,399		4.62		2,906		4.97		3,235		4.66		2,490		4.79
Securities	559		3.02		474		3.53		544		3.21		428		3.87
Short-term investments and loans held for sale	116		2.15		34		0.03		51		2.15		17		0.11
Total earning assets	4,074		4.27		3,414		4.72		3,830		4.38		2,935		4.63
Other assets	498				456				472				385
Total assets	$	4,572			$	3,870			$	4,302			$	3,320
Liabilities and stockholders’ equity
Deposits:
NOW	$	291	0.28	%	$	257	0.49	%	$	287	0.28	%	$	234	0.38	%
Money market	1,171		0.47		853		0.66		1,131		0.50		792		0.70
Savings	376		0.18		476		0.18		369		0.19		343		0.25
Time	1,039		1.48		1,030		1.67		1,020		1.48		859		1.95
Total interest-bearing deposits	2,877		0.78		2,616		0.95		2,807		0.79		2,228		1.08
Borrowings and debentures	531		1.70		253		3.34		397		2.17		251		3.35
Total interest-bearing liabilities	3,408		0.92		2,869		1.16		3,204		0.96		2,479		1.31
Non-interest-bearing demand deposits	538				432				493				353
Other liabilities	43				38				36				30
Total liabilities	3,989				3,339				3,733				2,862
Total stockholders’ equity	583				531				569				458
Total liabilities and stockholders’ equity	$	4,572			$	3,870			$	4,302			$	3,320
Net interest spread			3.35	%			3.56	%			3.42	%			3.32	%
Net interest margin			3.50				3.74				3.62				3.52
Cost of funds			0.80				1.01				0.84				1.15
Cost of deposits			0.66				0.82				0.68				0.93
Supplementary data
Total deposits (In millions)	$	3,416			$	3,048			$	3,300			$	2,582
Fully taxable equivalent income adj. (In thousands)	$	623			$	673			$	1,930			$	2,027

(1)The average balances of loans include nonaccrual loans and deferred fees and costs.

(2)The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.

(3)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 in loans and deposits.

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SUMMARY

During the third quarter and first nine months 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 liquidity remained favorable.  Improvement has been realized in areas where Berkshire has been investing for growth, including commercial banking and regional expansion in Central/Eastern New York, Northern Connecticut, and Central/Eastern Massachusetts.  Major third quarter business achievements included:

·Ongoing organic growth of loans and deposits, including 38% annualized growth in commercial business loans and 19% annualized growth in demand deposit balances.

·Record mortgage banking volume due to Berkshire’s recent expansion into Eastern Massachusetts and accelerated refinancing demand resulting from record low mortgage interest rates.

·Conversion of the Company’s core banking systems in September.  In this major initiative, Berkshire converted to the FIS IBS service bureau platform, including related item processing and electronic banking solutions.  FIS is the world’s largest global provider dedicated to banking and payments technologies.  The new platform is intended to provide strategic benefits contributing to future efficiency, product capabilities, service delivery, integration, and scalability.  The Company also converted to the Oracle PeopleSoft General Ledger Suite to provide a robust, distributed, and scalable platform for financial accounting and internal control.

·Beacon merger activities, culminating in the completion of this acquisition on October 19, 2012.  Beacon had approximately $0.8 billion in total assets, with locations including four branch offices in Central New York and one branch office in Eastern Massachusetts.  Merger consideration in October included the issuance of 2.7 million new common shares and the payment of approximately $60 million in cash to former Beacon shareowners.

·Issuance of $75 million of subordinated debt near the end of the third quarter, providing cash used for the October Beacon acquisition, locking in fifteen year Tier 2 regulatory capital financing at a rate of 6 7/8% fixed for the first ten years, and reducing the weighted average cost of regulatory capital.

During the third quarter, Berkshire announced the appointment of Sheryl McQuade as Senior Vice President and Regional Commercial leader for its growing Hartford/Springfield region.  Ms. McQuade previously served this market as a senior manager at Bank of America.  Berkshire’s strategy in its major operating regions is to recruit a strong and prominent commercial leader who can leverage Berkshire’s  strengths to develop a sound commercial banking portfolio.  Berkshire also announced the appointment of Kevin Inkley as Senior Vice President, Retail Lending.  Mr. Inkley manages all areas of consumer lending, including the expanded residential mortgage operations.  Mr. Inkley previously was a senior vice president and director of residential sales and operations at Rockland Trust Company, the banking subsidiary of Independent Bank Corp.

Third quarter financial highlights included the following

·109% increase in earnings per share, compared to third quarter of 2011

·24% increase in earnings per share compared to second quarter of 2012

·19% increase in net revenue, compared to third quarter of 2011

·5% increase in net revenue compared to second quarter of 2012

·6% annualized  growth in loans

·38% annualized  growth in commercial business loans

·5% annualized growth in deposits

·19% annualized growth in demand deposit balances

·10% annualized growth in non-maturity deposits

·0.59% non-performing assets/total assets

·0.27% annualized net loan charge-offs/average loans

·1.00% core return on assets before $2.2 million in systems conversion and merger related charges

·0.88% return on assets including $2.2 million in systems conversion and merger related charges

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Core return on assets is a non-GAAP financial measure of the profitability of normal operating activities.  This measure is widely used in the banking industry.  The $2.2 million in third quarter non-core charges consisted primarily of conversion costs related to the core systems conversion.  The core return on assets adjusts the return on assets to exclude these costs from earnings net of taxes ($1.4 million net adjustment in the third quarter).

The Company declared and paid a $0.17 per share common stock dividend in the third quarter.  Based on Berkshire’s performance and outlook, in October the Company declared an increase in the dividend to $0.18 per share, payable in November, which is a 6% increase over the prior level.  This dividend equates to a 3.2% yield based on the $22.40 average closing price of Berkshire’s common stock during the third quarter.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

Summary:  The annualized year-to-date rate of growth from business development before the CBT acquisition was 11% for loans and 6% for deposits due to Berkshire’s ongoing expansion in its regional markets.  The Company utilized additional borrowings to partially fund loan growth.  Overall measures of asset quality, capital, and liquidity remained strong through the first nine months of the year.  At period-end, 23% of total loans were recently acquired loans which were recorded at fair value in the last two years.

For the year-to-date, balance sheet growth included the impact of the CBT acquisition and the expanded mortgage banking operations.  Total assets increased by $0.6 million (16%), including approximately $0.3 billion related to CBT and $0.1 billion related to mortgage banking.   Most major categories of assets, liabilities, and equity increased as a result of the business combinations.  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.

Total equity increased by $38 million (7%), including retained earnings, together with $22 million in common stock issued for CBT merger consideration.  Total intangible assets increased by $15 million (7%) primarily due to merger related goodwill and core deposit intangibles.

Securities: During the first nine months of the year, total investment securities increased by $40 million (7%) to $573 million due to $41 million added from CBT.  The portfolio continues to be mainly comprised of liquid short-duration, high quality debt securities.  Berkshire continues to focus on loan growth as the primary use of funds from deposit growth and the primary source of interest income.

To conform to Berkshire’s investment objectives, a significant portion of the CBT investment portfolio was sold around the time of the merger.  Berkshire’s 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 in 2012 decreased to 3.02% in the third quarter compared to 3.20% for the first nine months of the year due to the continuing yield compression related to persistent low interest rates.  The average life of the available for sale debt securities portfolio was estimated at 2.8 years at the third quarter-end, compared to 4.2 years at the start of the year.

The unrealized gain on investment securities increased slightly to 3% from 2% during the first nine months of 2012 due to the continuing decline in interest rates, despite the impact on yield of accelerated runoff and lower replacement yields.  The Company did not record any material losses or write-downs of investment securities in the first nine months of the year and none of the Company’s investment securities was other-than-temporarily impaired.  Losses on securities with unrealized losses declined to $3 million from $4 million.  Included in this total was one pooled trust preferred security with a cost of $2.6 million and an unrealized loss of $1.8 million at quarter-end, which was improved from an unrealized loss of $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 2012, due primarily to changes in the ratings environment for large financial institutions.

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Loans.Total loans increased by $462 million (16%) in the first nine months of the year, including $210 million in acquired CBT loans.  Residential mortgage loans increased by $206 million and commercial loans increased by $257 million.  Excluding acquired CBT loans, all other loans from business development increased by $254 million, at an 11% annualized rate.

Berkshire has an ongoing focus on commercial lending in its footprint, particularly commercial middle market business loans where the Company believes it has the strongest competitive advantage and which are expected to result in strong relationships and the use of a variety of Berkshire’s products and services.  Commercial business loans increased by $158 million (39%) in the first nine months of the year.  This included a $92 million increase in asset based loan outstandings, together with expanded commercial lending in Eastern Massachusetts and New York, including loan participations with Beacon prior to its acquisition.  Commercial real estate loans increased by $99 million (9%) for the year-to-date, including a net $92 million increase in acquired commercial real estate loans due to the CBT acquisition.  Berkshire has reduced its originations of commercial real estate loans, as it pursues its strategy to rebalance its commercial portfolio with more emphasis on commercial business loans.

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, servicing smaller relationships through its branch network.  These relationships are expected to contribute more to future loan growth.

The $206 million increase in the residential mortgage portfolio included $7 million in acquired CBT mortgages, and a $199 million (19%) increase in balances from business development.  This increase consisted of fixed rate mortgages which were originated 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 acquisition date, together with increased originations by the expanded mortgage banking operation.  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’s mortgage division, originates conforming and jumbo residential mortgages.  The Company increased its secondary market sales of newly originated mortgages in the third quarter of the year, with slower portfolio growth as a consequence.  For mortgages targeted for sale, the Company 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.  Including net loan charge-offs since the merger announcement, CBT loans were acquired at a 4.2% net discount from their previous carrying value, which was within Berkshire’s original estimates at the time of the merger agreement.  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 loans, with a fair value of $187 million, and consisted primarily of real estate secured small business loans in the Greater Hartford area.

The loan yield was 4.62% in the third quarter and 4.70% for the first nine months of 2012.  The decline in yield generally reflects the impact of the lower interest rate environment on loan prepayments and originations.  This was primarily due to the impact of prepayments related to the surge in mortgage refinancing demand as a result of record low interest rates during the quarter.  This higher refinancing volume resulted in noncash writedowns of premiums on acquired and purchased loans.  The net income impact of these charges was more than offset by higher loan fee income related to mortgage originations, which reached record levels due to the refinancing volume.  The overall loan yield for the quarter and year-to-date 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 6.0% based on the initial yield requirements as of the merger date.

Asset Quality.   Acquired loans are recorded at fair value and are categorized as performing regardless of their payment status.  Therefore, some overall portfolio measures of asset performance are not comparable between periods or among institutions as a result of recent business combinations.

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The level of non-performing assets was $27 million at quarter-end, a slight increase compared to $26 million at the start of the year.  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 0.59% of total assets from 0.65% at year-end 2011.  The largest non-performing asset at quarter-end was approximately $2.4 million.  For loans from business activities, the ratio of non-performing loans to total loans was 0.88% at quarter-end, compared to 1.03% at the start of the year.

Accruing loans over 90 days past due increased  slightly to 0.38% of total loans at the third quarter-end, compared to 0.34% at the start of the year, including the addition of past due CBT loans which are classified as accruing under accounting principles for business combinations.  Loans delinquent 30-89 days increased slightly to 0.62% of total loans from 0.55%.  Foreclosed assets and troubled debt restructurings remained insignificant through the first nine months of the year.  Net loan charge-offs remained comparatively low at 0.25% of average loans in the first nine months of 2012.

Classified loans are loans rated substandard or lower in the Company’s internal risk rating system.  The ratio of classified loans/total loans decreased to 3.9% from 4.1% during the first nine months of 2012.   Classified loans include non-accruing loans, which were unchanged at 0.8% of total loans.  The remaining loans, measuring 3.1% 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 at acquisition date.  These loans were recorded at fair value at acquisition date and are generally being maintained as performing loans.  Including the CBT loans, the acquired classified loans increased to 1.0% of total loans at quarter-end, compared to 0.6% at the start of the year.  Classified accruing loans from business activities decreased to 2.2% of total loans from 2.7% due to ongoing problem asset resolution activities.

Loan Loss Allowance. The determination of the allowance for loan losses is a critical accounting estimate.  The Company considers the allowance for loan losses appropriate to cover probable losses which can be reasonably estimated in the loan portfolio as of the balance sheet date. Under accounting standards for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. A loan loss allowance is recorded by the Company for the emergence of new probable and estimable losses on acquired loans which were not impaired as of the acquisition date. Because of the accounting for acquired loans, some measures of the loan loss allowance are not comparable to periods prior to the acquisition date.  The ratio of the allowance to non-performing loans was 128% at the third quarter-end, and the allowance measured 4.1X annualized net loan charge-offs for the first nine months of the year.

The total amount of the loan loss allowance increased to $33.1 million from $32.4 million during the first nine months of the year.  The allowance related to loans from business activities was flat at $32 million, and the ratio of this allowance to loans from business activities decreased to 1.21% from 1.41%.  The majority of the growth in this portfolio was in residential mortgage loans, which have lower losses than other loan categories.  The allowance related to impaired loans from business activities was little changed, totaling $2.8 million at the third quarter-end.  The $0.7 million increase in the total allowance was primarily related to the allowance for acquired loans and reflected the emergence of new losses in non-impaired loans due to the passage of time for loans acquired in bank mergers in 2011.

Other Assets.  Loans held for sale increased from $1 million at the beginning of the year to $59 million at mid-year and then to $115 million at September 30, 2012.  This increase was due to the expansion of the mortgage banking operations and the record mortgage production due to heightened refinancing demand.  Mortgages are held for sale to longstanding secondary market relationships and are hedged in order to minimize interest rate risk from the time that interest rates are initially locked during the application process.  For loans held for sale, Berkshire enters into mandatory delivery or best efforts sale contracts with institutional secondary market purchasers.  For the first nine months of the year, 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 $40.3 million at the nine month-end, compared to $39.7 million at the beginning of the year

Deposits and Borrowings.  Deposits increased by $349 million (11%) to $3.45 billion during the first nine months of the year, including $210 million in acquired CBT balances.  Excluding the acquired CBT balances, total deposits from business development increased by $137 million at a 6% annualized rate.

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Non-maturity deposits from business development increased at a 10% annualized rate, with increases in all major account categories.  Berkshire continues to promote lower cost relationship oriented accounts in all of its markets, along with commercial deposits associated with its increased originations of commercial business loans and small business loans.  Berkshire has also benefited from ongoing de novo branch expansion in its Albany, New York region and has increased its commercial deposit acquisition in Eastern Massachusetts.  Excluding acquired CBT balances, time deposits decreased at a 3% annualized rate during the first nine months of the year, as the Company allowed higher cost maturing time accounts to run off.  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 Hartford region.

The cost of deposits was 0.66% in the most recent quarter, decreasing slightly from 0.68% for the year-to-date.  Deposit costs reflect Berkshire’s pricing disciplines in the current low interest rate environment, along with the impact of the acquired deposit balances.  The initial cost established for the CBT time deposits based on the fair value analysis on the merger date was 0.63%, which is lower than the 1.48% year-to-date average cost for time deposits.  In its pricing process, Berkshire seeks to maintain a flexible balance between supporting business volume growth in its regional markets while also supporting its net interest margin in light of ongoing yield compression for earning assets.  Based on its continued earnings growth through the third quarter, Berkshire delayed further adjustments in deposit costs; the Company believes it has further capacity to adjust funding costs in future quarters if appropriate based on market and interest rate conditions.

Total borrowings increased by $299 million (126%) to $537 million, including $39 million in acquired CBT borrowings and $113 million related to the increase in mortgage loans held for sale.  The $147 million balance of borrowings growth was combined with deposit growth to fund the increase in loans from business development.  For much of the year, the new borrowings consisted of low cost overnight FHLBB advances.  Including these lower cost funds, the cost of borrowings decreased to 1.70% in the most recent quarter from 2.33% for the year-to-date.  Berkshire had approximately $470 million in additional borrowing capacity with the FHLBB at quarter-end.  Despite the increase in borrowings, Berkshire’s loan/deposit ratio remained below 100%, measuring 99% at period-end.

On September 28, 2012, the Company received an investment by institutional investors of $75 million in fifteen year senior subordinated notes issued by the Company.  The coupon on these notes is 6 7/8% fixed for the first ten years.  Proceeds were held on deposit with Berkshire Bank at period-end, which used the proceeds to reduce overnight borrowings.  Cash proceeds were primarily used to fund the cash consideration required for the acquisition of Beacon Federal Bancorp on October 19.  The notes qualify for Tier 2 regulatory capital treatment for bank holding companies.  As a savings and loan holding company, Berkshire Hills Bancorp is not presently subject to bank holding company regulatory capital requirements, but it is expected to become subject to these requirements in the future based on proposed regulatory changes.  One of the Company’s objectives with this capital placement was to reduce the long term cost of regulatory capital by obtaining fixed rate regulatory capital with tax deductible interest at this time of record low interest rates.

Derivative Financial Instruments and Hedging Activities.  The total notional value of derivatives increased by $709 million (123%) to $1.29 billion at period-end from $578 million at the start of the year.  The increase primarily resulted from a $606 million increase in derivatives related to mortgage banking activities.  Additionally, Berkshire recorded a $70 million increase in cash flow hedges related to asset liability management and the increase in the residential mortgage portfolio.  Berkshire also recorded a $76 million increase in economic hedges related to the sale of commercial interest rate swaps to commercial customers.  Due to the expansion of mortgage banking activities, interest rate lock commitment derivatives for mortgage applications in process and intended for sale increased to $276 million.  Forward commitments totaled $331 million and were used to hedge interest rate risk in the mortgage pipeline.

As noted previously, the Company generally funded its $206 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 cash flow hedges, resulting in a net increase totaling $70 million.  Most of these hedges were forward starting interest rate swaps that were targeted to begin in 1.5 years and have an average life of 4.4 years once the cash flows are started.  The fair value unrealized loss on cash flow hedges increased by $3 million to $12 million during the year-to-date due to the decrease in interest rates.  This unrealized loss was generally

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offset by unrealized gains in the fair value of loans due to the interest rate environment.  The increase in economic hedges related to a net increase totaling $38 million in interest rate swaps with commercial loan customers, which were offset by a matching amount of interest rate swaps entered into with approved national correspondent banks.

Stockholders’ Equity.  Total stockholders’ equity increased by $38 million (7%), 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 nine months of 2012, net income of $24 million funded cash stock dividends to shareholders of $11 million and contributed to a $13 million increase in retained earnings.  During the first nine months of the year, 108 thousand restricted stock grants were recorded for $2.7 million, pursuant to the Company’s equity compensation plan, with most vesting on an annual step basis over three years based on time and performance criteria.

The ratio of tangible equity/ tangible assets decreased to 8.0% from 8.8% during the first nine months of the year.  Tangible equity is a non-GAAP financial measure commonly used by investors and it excludes goodwill and other intangible assets, which increased by $15 million to $239 million due to the CBT and Greenpark acquisitions.  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 16% increase in total assets as a result of growth in loans and loans held for sale.  Tangible book value per share increased to $15.86 from $15.60 as the benefit of retained earnings offset dilution from the business combinations.  Total book value per share increased to $26.60 from $26.17 as the benefit of retained earnings offset the dilution from the $22.80 market price recorded for the issuance of shares in the CBT acquisition.  Berkshire Bank’s risk based capital ratio measured 11.2% at the quarter-end, compared to 11.3% at the start of the year.  This reflected the business combinations, the growth in loans from business development, and adjustments to certain risk weighting factors.  The ratio of equity/assets decreased to 12.8% from 13.9% due to the asset growth.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Summary:  Berkshire’s third quarter and year-to-date operating results improved in 2012 compared to 2011.  Berkshire has benefited from positive operating leverage with revenue growth exceeding expense growth.  These benefits also contributed to an improvement in third quarter results compared to prior quarter results.  This has been due to the combination of organic growth, acquisitions, and improvements in efficiency.  The positive operating leverage has also been reflected in profitability measures including return on assets, return on equity, and return on tangible equity.  Berkshire believes that its results show good progress towards its objectives to produce a return on assets exceeding 1% and a return on equity exceeding 10%.  Including the benefit of the recent Beacon acquisition, Berkshire plans to make further progress towards achieving these profitability objectives.  The Company has maintained an asset sensitive net interest income profile, as management has chosen to sacrifice current yield to protect earnings in the event of future rate increases.  The Company is also absorbing the costs of ongoing branch and business expansion in its cost of operations.  Berkshire is balancing current period earnings growth with disciplines and investments to protect future earnings.  The Company believes that its expansion has provided it with a number of diversified levers that it can utilize to continue to generate earnings and market share growth.

Berkshire’s results included Rome operations acquired on April 1, 2011, Legacy operations acquired on July 21, 2011, CBT operations acquired on April 20, 2012, and Greenpark Mortgage operations acquired 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 additional Berkshire common shares related to these acquisitions.  All references to revenue and expense in this discussion exclude discontinued operations of Legacy branches, which were divested in the fourth quarter of 2011 and the first quarter of 2012.

Third quarter net income increased by $5.6 million (128%) to $10.0 million, and earnings per share increased by $0.24 (109%) to $0.46.  The Company had projected that the ongoing operations of the acquired entities would contribute approximately $0.07 per share to quarterly earnings.  The $0.24 increase in third quarter earnings per share includes the aforementioned combined benefits of positive operating leverage, in addition to the contribution from the acquired entities.  Nine month net income increased by $14.8 million (162%) to $23.9 million, and earnings per share increased by $0.56 (104%) to $1.10.

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Results in all periods included merger and conversion related charges.  In the most recent quarter, these charges totaled $2.2 million ($1.4 million after-tax), and earnings per share were $0.52 cents before these charges.  The Company views these adjusted earnings per share as reflective of its ongoing rate of earnings generation in the most recent quarter.  During this quarter, Berkshire’s return on assets was 0.88% and its return on equity was 6.9%.  Based on earnings before the merger and conversion related charges, the return on assets was 1.00% and the return on equity was 7.8%.  Berkshire’s generation of tangible equity includes the benefit of its net income before the amortization of intangible assets.  This amortization totaled $1.3 million ($0.06 per share) in the most recent quarter.

Revenue.   For the first nine months of the year, net revenue increased by 35% to $138 million.  This included the benefit of organic growth as well as the business combinations.  Third quarter net revenue increased by 19% to $50 million in 2012 compared to 2011.  Annualized third quarter revenue per share was $8.99 in 2012 compared to $8.30 in 2011.

Revenue growth includes growth in net interest income contributed from acquired bank operations and growth in non-interest income contributed from expanded mortgage operations.  Non-interest income measured 29% of total net revenue in the most recent quarter.  Berkshire targets to increase the ratio of fee income to total net revenue to 30% or higher as a result of additional cross sales in new markets along with further wallet share growth in existing markets.

Net Interest Income.Growth in net interest income has included the benefit of organic volume growth as well as the business combinations.  Berkshire’s goal is to generate ongoing growth in net interest income, driven by market share gains in loan volume.  Together with accompanying growth in fee income, this is intended to produce growth in net income and profitability metrics.

Third quarter net interest income increased by 13% to $35.2 million in 2012 compared to 2011.  Third quarter 2012 net interest income increased at a 2% annualized rate compared to the prior quarter.  For the first nine months of the year, net interest income increased by 35% to $101 million, including the benefit of the acquisitions.

The net interest margin was 3.50% in the third quarter of 2012, compared to 3.70% in the prior quarter and to 3.74% in the third quarter of 2011.  As discussed below, the decrease from the prior quarter reflected approximately 10 basis points in noncash adjustments related to volatility in loan prepayments.  Margin compression has also reflected the continuing effects of yield compression on earning assets in the ongoing low interest rate environment.

For the first nine months of the year, the net interest margin was 3.61% in 2012 compared to 3.52% in 2011.  Generally the impact of the bank acquisitions was favorable to the net interest margin.  Acquired bank loans and deposits are marked to fair value based on market interest rates at the time 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.

Another impact of the bank acquisitions has been to increase the volatility of the quarterly net interest margin.  The marking of loans to fair value results in the recordation of premiums and discounts at the loan level for acquired loans.  Loan prepayments result in the elimination of these premiums and discounts with an offset to net interest income.  Variability in prepayments results in variability in net interest income and the net interest margin from quarter to quarter.

Net interest income includes a non-cash credit related to the net accretion of purchase accounting adjustments.  This net credit to 2012 net interest income totaled $1.8 million in the third quarter and $5.3 million for the first nine months.  The benefit of this credit to net income was largely offset by the noncash amortization of intangible assets which totaled $1.3 million and $4.0 million for these periods, respectively.  The net loan credit was $0.8 million in the third quarter, compared to $2.3 million for the year-to-date.  Mortgage loan yields decreased, which was largely attributable to $0.5 million in quarterly charges as a result of higher prepayments related to increased mortgage refinancings, which was discussed previously in the discussion of changes in financial condition.  Second quarter net interest income included a $0.6 million noncash credit related

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to the prepayment of one acquired commercial loan.  The combined impact of this credit and the mortgage related charge was to reduce net interest income and the net interest margin in the most recent quarter.  The net income impact of the noncash charges to net interest income was more than offset by the increase in mortgage fee income also resulting from the higher demand for mortgage refinancings in the most recent quarter.

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.  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 $3.6 million (34%) to $14.3 million in the third quarter and by $9.4 million (35%) to $36.4 million in the first nine months of 2012 compared to 2011.  This included the benefit of organic growth as well as the business combinations.  Non-interest income increased by 16% in the most recent quarter compared to the prior quarter.

Most of the increase in non-interest income has resulted from the contribution of the expanded  mortgage operations to loan fee income.  Total net mortgage origination fee income was $4.3 million in the most recent quarter and $7.8 million for the first nine months of 2012, compared to $0.1 million and $0.2 million in the comparable periods of 2011.  Residential mortgage originations totaled $392 million for the quarter and $696 million for the year-to-date. Including its expanded eastern Massachusetts operations, Berkshire is an increasingly important supplier of consumer credit supporting the region’s housing market and helping individuals take advantage of the record low mortgage rates.

The third quarter ratio of annualized deposit fees to average deposits increased to 0.44% from 0.51% due primarily to the lower fee services offered by the acquired banks.  Nine month insurance fees decreased due to a change in Berkshire’s arrangements with its insurance 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.  Berkshire is experiencing some improvement in business volume and pricing conditions in its insurance business lines.  Berkshire has also produced new business development in its wealth management business at an annualized rate in excess of 10% in 2012.  Growth in wealth management fee income has also included the contribution from the wealth management operations acquired as part of the Legacy merger.

Non-interest income in 2011 included a 2.0 million non-recurring gain on the Legacy stock owned by Berkshire that was credited to income in the third quarter due to the accounting for business combinations as of the date of the acquisition.  Included in other non-interest income is income on bank owned life insurance policies which totaled $0.6 million and $1.9 million in the third quarter and first nine months of 2012, respectively.  Additionally, the Company records a loss on investment tax credit limited partnership interests which is offset by a 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 as an estimate of the probable and estimable loan losses in the portfolio as of period-end.  The level of the allowance is a critical accounting estimate, which is subject to uncertainty.  The level of the allowance was included in the discussion of financial condition.  The loan loss provision increased in 2012 compared to 2011 due primarily to the impact on the allowance of changes related to loans from business activities, along with general reserves recorded on acquired loans based on losses emerging after acquisition date.  The provision exceeded the level of net loan charge-offs, resulting in an increase in the total allowance for loan losses.

Non-Interest Expense.  Non-interest expense increased in 2012 primarily due to the impact of the business combinations, together with costs related to organic growth.  Non-interest expense included merger and conversion related expenses in both 2012 and 2011.  Non-interest expense in the most recent quarter decreased by

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6% from the prior quarter, and decreased by 1% excluding merger and conversion related costs.  Berkshire’s goal is to minimize expense growth in order to generate positive operating leverage of revenue growth.

Merger and conversion related expenses totaled $10.5 million for the first nine months of 2012 which was generally within the range of management’s expectations for the CBT merger and systems conversion costs.  Included in these costs were $2.3 million related to Legacy, $3.2 million related to CBT, $0.5 million related to Greenpark, $0.7 million related to Beacon, and the remaining $3.8 million was primarily systems conversion costs.  Total annualized non-interest expense was 2.81% of average assets in the most recent quarter, compared to 3.59% in the same quarter of 2011.  Excluding merger and conversion related expenses, the total improved slightly to 2.62% from 2.65% for these periods respectively.  The Company is focused on improving its ongoing efficiency as a result of its growth and disciplined expense management.  The Company utilizes Six Sigma process management techniques under the administration of its project management.  Berkshire expects to continue to engage in process re-engineering to obtain further benefits from its core systems conversion in the future.

Full time equivalent staff totaled 897 at September 30, 2012, including 51 positions added as a result of the CBT acquisition and 94 positions added as a result of the acquisition of the Greenpark operations.  The Company had 760 full time equivalent positions at the start of the year, before these acquisitions.  Excluding the CBT and Greenpark staff, the rest of the staff totaled 752 full-time equivalent positions at quarter-end decreasing by 8 positions despite the continuing organic and de novo expansion of the Company.

Income from Continuing and Discontinued Operations.  Income from continuing operations was not significantly different from net income for all periods except the first nine months of 2012 due to charges recorded in the first quarter in conjunction with the divestiture of four former Legacy branches.  The $0.6 million net loss from discontinued operations 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 income tax rate for this income was 33% in the most recent quarter, which was higher than the 29% rate for the first nine months of 2012 and the 14% rate for the first nine months of 2011.  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.

Results of Segment and Parent Operations.  Berkshire Hills Bancorp (“the Parent”) has two subsidiary operating segments — banking and insurance.  Results in the banking segment generally followed the levels and trends of consolidated results, which have been previously discussed.  In the insurance segment, nine month revenues decreased 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.  Parent non-interest expense included merger related charges in 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.  Total comprehensive income was within 10% of net income for all periods reported except for the third quarter of 2011.  In most periods, interest rate related increases in the fair value of securities were generally offset by decreases in the fair value of derivative hedges.  In the third quarter of 2011, unrealized losses on certain securities caused comprehensive income to be measured at $3.5 million compared to net income of $4.4 million.

Liquidity and Cash Flows. Net proceeds from borrowings and deposit growth were the primary source of funds in the first nine months of 2012.  The primary uses of funds were net loan growth and growth in mortgage loans held for sale.  Deposit growth is expected to be the primary source of funds in the future, and net loan growth is expected to continue to be the primary use of funds.  FHLBB borrowings will continue to be a significant source of liquidity for daily operations and borrowings targeted for specific asset/liability purposes.  The Company also uses interest rate swaps in managing its funds sources and uses.  At the end of the most recent quarter, the Company had approximately $470 million in borrowing availability with the Federal Home Loan Bank.  The Beacon acquisition on October 19, 2012 required the use of approximately $60 million to fund cash consideration

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for 50% of the Beacon shares.  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 $82 million as of September 30, 2012, which was on deposit with Berkshire Bank.  This includes approximately $73 million raised in the subordinated debt offering, net of issuance discount and placement fees.  The $60 million cash consideration for the Beacon acquisition was paid from these funds in October.  The primary long run routine sources of funds for the Parent are expected to be dividends from Berkshire Bank and Berkshire Insurance Group, as well as cash from the exercise of stock options.  The Parent also has a $10 million revolving line of credit provided by a correspondent bank.  The primary uses of funds by the parent include the payment of cash dividends on common stock and debt service,  The Parent had a $16 million cash balance at the start of the year, which was used to pay the $9 million in cash consideration for the 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 September 30, 2012, Berkshire Bank continued to be classified as “Well Capitalized.” Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in the 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.  It cannot be determined at this time 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 965 thousand shares of common stock as partial consideration for the shares of The Connecticut Bank and Trust Company on April 20, 2012.  On  October 19, 2012, the Company issued approximately 2.7 million shares of common stock as consideration for 50% of the Beacon  Federal  shares.  Additionally, on September 28, 2012, the Company issued $75 million of subordinated debt, with the proceeds primarily planned to be used as cash consideration for 50% of the Beacon Federal shares.

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.  The subordinated debt issued by the Company in the most recent quarter is intended to qualify as Tier 2 regulatory capital for bank holding companies, and the Company expects that these requirements will be extended to Savings and Loan Holding Companies 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.

Information about derivative financial instruments and hedging activities is reported in the related footnote to the consolidated financial statements, and was included in management’s discussion of changes in financial condition.  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 procedures for rate locking and committing to the origination of residential mortgages, the forward sale of mortgage 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 sale of the 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 during the first nine months of the year, except that the expansion of mortgage loans held for sale and derivatives expanded the scope of instruments requiring measurement.  Acquired CBT and

68

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 quarter.

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 nine months of 2012.  For further discussion about the Company’s Quantitative and Qualitative Aspects of Market Risk, please review Item 7A of the Report 10-K filed for the fiscal year ended December 31, 2011.

As discussed in Item 2, Berkshire has a targeted position to maintain a moderately asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes.  During the first nine months of the year, the primary balance sheet changes from business activities were growth in fixed rate residential mortgages and 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.  Growth in commercial business loans and mortgage loans held for sale increased the volume of short term variable rate assets, while the new subordinated debt provided additional long term fixed rate financing.  The net impact of these changes was a modest reduction in the Company’s asset sensitive net interest income sensitivity.  The Company estimates that its asset sensitivity has decreased by approximately half as a result of the changes in the first nine months 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 the acquisition of Beacon Federal Bancorp on October 19. 2012.  The assets and liabilities of Beacon will be recorded at fair value as of the acquisition date.  Berkshire has taken steps to adjust Beacon’s asset liability structure as of the merger date and it is expected that Berkshire will be able to maintain its targeted interest rate sensitivity profile including the acquired Beacon balance sheet with modifications.

ITEM 4. CONTROLS AND PROCEDURES

a)Disclosure controls and procedures.

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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.

In the third quarter of 2012, the Company completed the conversion of its core banking system to FIS and its general ledger and certain supporting systems to PeopleSoft. Except for those changes, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to have, a material effect on our internal controls over financial reporting.

70

PART II

ITEM 1.LEGAL PROCEEDINGS

As of September 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.

ITEM 1A.RISK FACTORS

In addition to the other information set forth in this report, careful consideration should be given to 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 the Company’s Annual Report on Form 10-K are not the only risks. Additional risks and uncertainties not currently known or that currently deemed to be immaterial, could adversely affect the Company’s business, financial condition and/or operating results. Additionally, the Company has reported risk factors in the stock registration and proxy/prospectus forms filed with the SEC related to the CBT and Beacon acquisitions.  While the CBT, Greenpark, and Beacon mergers have been completed, the Company continues to recognize the risks related to integration, regulation, and management of the acquired operations which were previously identified in the subject SEC filings. Similarly, the Company completed the conversion of its core processing system in the third quarter, but in the near term continues to recognize the risks related to the utilization, integration, and internal control of its new systems, and the risks related to the planned integration of the CBT and Beacon systems with the new core banking system.

Additional risk factors which have been identified in the first nine months of 2012 include the following:

Derivatives and Counterparty Risks Have Increased Due to the Expanded Mortgage Operations.

The total notional amount of derivative financial instruments approximately doubled to $1.2 billion in the first nine months of 2012, largely due to the expanded 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 responsible for managing the hedging position.  Additionally, Berkshire sells closed loans on a servicing released basis under mandatory and best efforts contracts to institutional secondary market purchasers which are new counterparties for Berkshire.  Berkshire could experience losses if there are failures in the controls or accounting for these activities or if there are performance failures by any of these new counterparties.  The risk of loss is increased if interest rates change suddenly and the intended hedging objectives are not achieved as a result of market or counterparty behaviors.

Proposed New Federal Bank Capital Rules May Affect the Company’s Future Condition and Performance.

On June 12, 2012, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) announced that they are seeking comment on three notices of proposed rulemaking (NPRs) that would revise and replace the agencies’ current capital rules as these federal agencies move forward with implementing capital requirements consistent with agreements reached by the Basel Committee on Banking Supervision (Basel III).  The agencies plan to issue final rules by the end of 2012.  The proposed rules are currently preliminary and the Company will be assessing the potential impact of the proposed and final rules.  Please see the further discussion of bank regulation and capital rules in Items I and IA in the Company’s most recent filing on Form 10-K.

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New Subordinated Debt May Affect the Company’s Future Profitability and Ability to Service Its Obligations and Provide Dividends to Shareholders.

The Company issued $75 million in subordinated debt at the parent level in the most recent quarter.  Proceeds from this debt were primarily used as partial consideration for the Beacon merger on October 19, 2012.  The merger of Beacon into Berkshire Bank is expected to produce earnings accretion which will provide additional cash flow to service the new subordinated debt.  The Company relies primarily on payments from Berkshire Bank which could be interrupted in the future due to economic or regulatory changes.  The additional leverage at the parent could affect its access to other sources of funds and the general adequacy of its liquidity.

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

(a)Information regarding the Company’s sale of $75 million in subordinated debt in a private placement offering was disclosed in the Company’s Form 8-K filed with the SEC on September 26, 2012.

(b)Not applicable.

(c)The following table provides certain information with regard to shares repurchased by the Company in the third 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
July 1-31, 2012 (1)	4,611	$	22.00	—	97,993
August 1-31, 2012	—	—		—	97,993
September 1-30, 2012	—	—		—	97,993
Total	4,611	$	22.00	—	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.

72

ITEM 6.EXHIBITS

2.1Agreement and Plan of Merger, dated as of May 31, 2012, by and between Berkshire Hills Bancorp, Inc. and Beacon Federal Bancorp, Inc. (1)

3.1Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (2)

3.2Bylaws of Berkshire Hills Bancorp, Inc., as amended and restated(3)

4.1Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (2)

10.1Amended and Restated Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Michael P. Daly (4)

10.2Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Kevin P. Riley (4)

10.3Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Sean A. Gray(6)

10.4Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Richard M. Marotta (5)

10.5Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Linda A. Johnston (6)

10.6Amended and Restated Supplemental Executive Retirement Agreement between Berkshire Bank and Michael P. Daly (7)

10.7Berkshire Hills Bancorp, Inc. 2011 Equity Incentive Plan (8)

10.8Form of Berkshire Bank Employee Severance Compensation Plan (3)

10.9Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Patrick J. Sullivan, dated as of December 21, 2010 (9)

10.10Settlement Agreement by and among Berkshire Hills Bancorp, Inc., Legacy Bancorp, Inc., Legacy Banks and Patrick J. Sullivan, dated as of December 21, 2010 (9)

10.11Severance Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Patrick J. Sullivan, dated as of December 21, 2010 (9)

10.12Amended and Restated Settlement Agreement by and among Berkshire Hills Bancorp, Inc., Legacy Bancorp, Inc., Legacy Banks and J. Williar Dunlaevy, dated as of April 6, 2011 (9)

10.13Non-Competition and Consulting Agreement by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and J. Williar Dunlaevy, dated as of April 6, 2011 (9)

10.14Legacy Bancorp, Inc. Amended and Restated 2006 Equity Incentive Plan (10)

10.15Form of Split Dollar Agreement entered into with Michael P. Daly, Kevin P. Riley, Sean A. Gray, Richard M. Marotta and Linda A. Johnston (11)

10.16Endorsement Agreement between Geno Auriemma and Berkshire Bank, dated as of May 17, 2012 (3)

10.17Form of Note Subscription Agreement (12)

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 (13)

(1)Incorporated by reference from the Exhibits to the Form 8-K filed on June 1, 2012.

(2)Incorporated herein by reference from the Exhibits to Form S-1, Registration Statement and amendments thereto, initially filed on March 10, 2000, Registration No. 333-32146.

(3)Incorporated herein by reference from the Exhibits to the Form 8-K as filed on May 16, 2012.

(4)Incorporated herein by reference from the Exhibits to the Form 8-K as filed on January 6, 2009.

(5)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2010.

(6)Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2011.

(7)Incorporated herein by reference from the Exhibits to Form 10-K as filed on March 16, 2009.

(8)Incorporated herein by reference from the Appendix to the Proxy Statement as filed on March 24, 2011.

(9)Incorporated herein by reference from the Exhibits to the Registration Statement on Form S-4 as filed on April 20, 2011, Registration No. 333-173404.

(10)Incorporated herein by reference from the Exhibits to the Form 8-K filed by Legacy Bancorp, Inc. on December 22, 2010.

(11)Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 19, 2011.

(12)Incorporated herein by reference from the Exhibit to the Form 8-K as filed on September 26, 2012.

(13)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.

73

SIGNATURES

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

	BERKSHIRE HILLS BANCORP, INC.
Dated: November 9, 2012		By:	/s/ Michael P. Daly
		Michael P. Daly
		President and Chief Executive Officer
Dated: November 9, 2012		By:	/s/ Kevin P. Riley
		Kevin P. Riley
		Executive Vice President and Chief Financial
		Officer

74

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael P. Daly, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Berkshire Hills Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,  to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 9, 2012	/s/ Michael P. Daly
	Michael P. Daly
	President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kevin P. Riley, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Berkshire Hills Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,  to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 9, 2012	/s/ Kevin P. Riley
	Kevin P. Riley
	Executive Vice President and Chief Financial Officer

1

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Berkshire Hills Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012, as filed with the Securities and Exchange Commission (the “Report”), I, Michael P. Daly, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

November 9, 2012	/s/ Michael P. Daly
	Michael P. Daly
	President and Chief Executive Officer

1

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Berkshire Hills Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012, as filed with the Securities and Exchange Commission (the “Report”), I, Kevin P. Riley, Executive Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

November 9, 2012	/s/ Kevin P. Riley
	Kevin P. Riley
	Executive Vice President and Chief Financial Officer

1

XML

BASIS OF PRESENTATION (Details) (Over-accrual of prior period tax, USD $) In Millions, unless otherwise specified	3 Months Ended
	Jun. 30, 2012	Mar. 31, 2012
Over-accrual of prior period tax
Out of Period Adjustments
Increase in net income due to out of period adjustments	$ 0.5	$ 0.2

XML

BORROWED FUNDS (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Borrowed Funds
Short-term borrowings	$ 311,866,000	$ 10,000,000
Total borrowings	536,848,000	237,402,000
Weighted average rate on short-term borrowings (as a percent)	0.35%	0.49%
Weighted Average Rate (as a percent)	1.63%	1.27%
Secured line of credit	3,000,000
Advances from the FHLB
Borrowed Funds
Short-term borrowings	311,866,000	10,000,000
Long-term borrowings	133,357,000	211,938,000
Weighted average rate on short-term borrowings (as a percent)	0.35%	49.00%
Weighted average rate on long-term borrowings (as a percent)	1.61%	1.37%
Callable advances
Borrowed Funds
Long-term borrowings	8,000,000	8,000,000
Amortizing advances
Borrowed Funds
Long-term borrowings	5,700,000	5,800,000
Private placement subordinated notes
Borrowed Funds
Long-term borrowings	74,138,000
Weighted average rate on long-term borrowings (as a percent)	6.88%
Junior subordinated debentures
Borrowed Funds
Long-term borrowings	15,464,000	15,464,000
Weighted average rate on long-term borrowings (as a percent)	2.28%	2.35%
Other borrowings
Borrowed Funds
Long-term borrowings	$ 2,023,000
Weighted average rate on long-term borrowings (as a percent)	3.50%

XML

LOANS (Details 3) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Activity in the allowance for loan losses
Balance at end of period	$ 33,090	$ 32,444
Allowance for loan losses
Total	33,090	32,444
Loans receivable: Balance at end of period
Total loans	3,418,392	2,956,570
Loans from Business Activities
Activity in the allowance for loan losses
Balance at beginning of period	31,898	31,898
Charged-off loans	6,210	7,696
Recoveries on charged-off loans	269	679
Provision for loan losses	6,017	7,017
Balance at end of period	31,974	31,898
Allowance for loan losses
Individually evaluated for impairment	2,765	2,775
Collectively evaluated	29,209	29,123
Total	31,974	31,898
Loans receivable: Balance at end of period
Individually evaluated for impairment	39,659	41,483
Collectively evaluated	2,592,424	2,220,768
Total loans	2,632,083	2,262,251
Loans Acquired from Business Combinations
Activity in the allowance for loan losses
Balance at beginning of period	546
Charged-off loans	167
Recoveries on charged-off loans	4
Provision for loan losses	733	546
Balance at end of period	1,116	546
Allowance for loan losses
Individually evaluated for impairment	44
Collectively evaluated	1,072	546
Total	1,116	546
Loans receivable: Balance at end of period
Individually evaluated for impairment	1,503
Collectively evaluated	784,806	694,319
Total loans	786,309	694,319
Residential mortgages
Loans receivable: Balance at end of period
Total loans	1,226,022	1,020,435
Residential mortgages | Loans from Business Activities
Activity in the allowance for loan losses
Balance at beginning of period	3,150	3,077
Charged-off loans	1,590	1,322
Recoveries on charged-off loans	87	231
Provision for loan losses	4,922	1,164
Balance at end of period	6,569	3,150
Allowance for loan losses
Individually evaluated for impairment	663	449
Collectively evaluated	5,906	2,701
Total	6,569	3,150
Loans receivable: Balance at end of period
Individually evaluated for impairment	6,534	5,655
Collectively evaluated	922,750	676,003
Total loans	929,284	681,658
Residential mortgages | Loans Acquired from Business Combinations
Activity in the allowance for loan losses
Balance at beginning of period	281
Charged-off loans	8
Provision for loan losses	165	281
Balance at end of period	438	281
Allowance for loan losses
Individually evaluated for impairment	44
Collectively evaluated	394	281
Total	438	281
Loans receivable: Balance at end of period
Individually evaluated for impairment	612
Collectively evaluated	296,126	338,777
Total loans	296,738	338,777
Commercial mortgages
Loans receivable: Balance at end of period
Total loans	1,255,172	1,156,241
Commercial mortgages | Loans from Business Activities
Activity in the allowance for loan losses
Balance at beginning of period	22,095	19,461
Charged-off loans	3,207	4,047
Recoveries on charged-off loans	8	189
Provision for loan losses	731	6,492
Balance at end of period	19,627	22,095
Allowance for loan losses
Individually evaluated for impairment	1,653	1,722
Collectively evaluated	17,974	20,373
Total	19,627	22,095
Loans receivable: Balance at end of period
Individually evaluated for impairment	30,819	34,074
Collectively evaluated	929,637	919,364
Total loans	960,456	953,438
Commercial mortgages | Loans Acquired from Business Combinations
Activity in the allowance for loan losses
Balance at beginning of period	158
Charged-off loans	85
Provision for loan losses	247	158
Balance at end of period	320	158
Allowance for loan losses
Collectively evaluated	320	158
Total	320	158
Loans receivable: Balance at end of period
Individually evaluated for impairment	891
Collectively evaluated	293,825	202,803
Total loans	294,716	202,803
Commercial business loans
Loans receivable: Balance at end of period
Total loans	568,781	410,292
Commercial business loans | Loans from Business Activities
Activity in the allowance for loan losses
Balance at beginning of period	4,540	6,038
Charged-off loans	116	1,443
Recoveries on charged-off loans	42	109
Provision for loan losses	267	(164)
Balance at end of period	4,733	4,540
Allowance for loan losses
Individually evaluated for impairment	342	116
Collectively evaluated	4,391	4,424
Total	4,733	4,540
Loans receivable: Balance at end of period
Individually evaluated for impairment	1,221	564
Collectively evaluated	474,291	361,202
Total loans	475,512	361,766
Commercial business loans | Loans Acquired from Business Combinations
Activity in the allowance for loan losses
Balance at beginning of period	38
Charged-off loans	34
Recoveries on charged-off loans	4
Provision for loan losses	82	38
Balance at end of period	90	38
Allowance for loan losses
Collectively evaluated	90	38
Total	90	38
Loans receivable: Balance at end of period
Collectively evaluated	93,269	48,526
Total loans	93,269	48,526
Consumer loans
Loans receivable: Balance at end of period
Total loans	368,417	369,602
Consumer loans | Loans from Business Activities
Activity in the allowance for loan losses
Balance at beginning of period	2,203	2,099
Charged-off loans	1,297	884
Recoveries on charged-off loans	132	150
Provision for loan losses	2	838
Balance at end of period	1,040	2,203
Allowance for loan losses
Individually evaluated for impairment	107	488
Collectively evaluated	933	1,715
Total	1,040	2,203
Loans receivable: Balance at end of period
Individually evaluated for impairment	1,085	1,190
Collectively evaluated	265,746	264,199
Total loans	266,831	265,389
Consumer loans | Loans Acquired from Business Combinations
Activity in the allowance for loan losses
Balance at beginning of period	87
Charged-off loans	40
Provision for loan losses	96	87
Balance at end of period	143	87
Allowance for loan losses
Collectively evaluated	143	87
Total	143	87
Loans receivable: Balance at end of period
Collectively evaluated	101,586	104,213
Total loans	101,586	104,213
Unallocated | Loans from Business Activities
Activity in the allowance for loan losses
Balance at beginning of period	(90)	1,223
Provision for loan losses	95	(1,313)
Balance at end of period	5	(90)
Allowance for loan losses
Collectively evaluated	5	(90)
Total	5	(90)
Unallocated | Loans Acquired from Business Combinations
Activity in the allowance for loan losses
Balance at beginning of period	(18)
Provision for loan losses	143	(18)
Balance at end of period	125	(18)
Allowance for loan losses
Collectively evaluated	125	(18)
Total	$ 125	$ (18)

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SUBSEQUENT EVENTS (Details) (USD $) Share data in Thousands, unless otherwise specified			0 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Oct. 19, 2012 Subsequent events Beacon Federal item	Sep. 30, 2012 Subsequent events Beacon Federal
Subsequent events
Number of banking offices operated			7
Number of shares of common stock issued to acquiree's shareholders			2,700
Cash consideration paid			$ 60,000,000
Carrying value of assets	4,634,234,000	3,991,204,000	822,700,000
Carrying value of loans outstanding	3,385,302,000	2,924,126,000	697,600,000
Carrying value of deposits	3,449,808,000	3,101,175,000	622,200,000
Merger and acquisition expenses incurred				$ 700,000

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BORROWED FUNDS (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Principal
Total	$ 445,223	$ 221,938
Weighted Average Rate (as a percent)
Total	0.73%	1.19%
Fixed rate advances
Principal
2012	261,800
2012		10,000
2013	13,406	16,727
2014	20,346	20,543
2016 and beyond	7,179	10,579
Total	302,731	57,849
Weighted Average Rate (as a percent)
2012	0.28%
2012		0.16%
2013	0.63%	1.44%
2014	2.98%	3.01%
2016 and beyond	3.16%	4.10%
Total	0.54%	2.26%
Variable rate advances
Principal
2012	4,990
2012		34,940
2013	62,502	59,149
2014	10,000	10,000
2015	20,000	20,000
2016 and beyond	45,000	40,000
Total	$ 142,492	$ 164,089
Weighted Average Rate (as a percent)
2012	1.30%
2012		0.59%
2013	1.55%	1.37%
2014	0.47%	0.64%
2015	0.51%	0.42%
2016 and beyond	0.94%	0.42%
Total	1.12%	0.81%

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LOANS (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2011
Loans
Loans	$ 3,418,392,000	$ 3,418,392,000	$ 2,956,570,000
Activity in the accretable yield for the acquired loan portfolio
Balance at beginning of period	2,554,000	1,277,000
Acquisitions		2,816,000
Accretion	(806,000)	(2,345,000)
Balance at end of period	1,748,000	1,748,000
Loans from Business Activities
Loans
Loans	2,632,083,000	2,632,083,000	2,262,251,000
Loans Acquired from Business Combinations
Loans
Loans	786,309,000	786,309,000	694,319,000
Carrying amount of loans considered impaired at the acquisition date	26,400,000	26,400,000
Carrying amount of loans not considered impaired at the acquisition date	759,900,000	759,900,000
Residential mortgages
Loans
Loans	1,226,022,000	1,226,022,000	1,020,435,000
Residential mortgages | Loans from Business Activities
Loans
Loans	929,284,000	929,284,000	681,658,000
Residential mortgages | Loans Acquired from Business Combinations
Loans
Loans	296,738,000	296,738,000	338,777,000
Commercial mortgages
Loans
Loans	1,255,172,000	1,255,172,000	1,156,241,000
Commercial mortgages | Loans from Business Activities
Loans
Loans	960,456,000	960,456,000	953,438,000
Commercial mortgages | Loans Acquired from Business Combinations
Loans
Loans	294,716,000	294,716,000	202,803,000
Commercial business loans
Loans
Loans	568,781,000	568,781,000	410,292,000
Commercial business loans | Loans from Business Activities
Loans
Loans	475,512,000	475,512,000	361,766,000
Commercial business loans | Loans Acquired from Business Combinations
Loans
Loans	93,269,000	93,269,000	48,526,000
Commercial loans
Loans
Loans	1,823,953,000	1,823,953,000	1,566,533,000
Commercial loans | Loans from Business Activities
Loans
Loans	1,435,968,000	1,435,968,000	1,315,204,000
Commercial loans | Loans Acquired from Business Combinations
Loans
Loans	387,985,000	387,985,000	251,329,000
Consumer loans
Loans
Loans	368,417,000	368,417,000	369,602,000
Consumer loans | Loans from Business Activities
Loans
Loans	266,831,000	266,831,000	265,389,000
Consumer loans | Loans Acquired from Business Combinations
Loans
Loans	101,586,000	101,586,000	104,213,000
1-4 family | Residential mortgages
Loans
Loans	1,192,452,000	1,192,452,000	978,874,000
1-4 family | Residential mortgages | Loans from Business Activities
Loans
Loans	902,661,000	902,661,000	649,467,000
1-4 family | Residential mortgages | Loans Acquired from Business Combinations
Loans
Loans	289,791,000	289,791,000	329,407,000
Construction | Residential mortgages
Loans
Loans	33,570,000	33,570,000	41,561,000
Construction | Residential mortgages | Loans from Business Activities
Loans
Loans	26,623,000	26,623,000	32,191,000
Construction | Residential mortgages | Loans Acquired from Business Combinations
Loans
Loans	6,947,000	6,947,000	9,370,000
Construction | Commercial mortgages
Loans
Loans	155,872,000	155,872,000	124,218,000
Construction | Commercial mortgages | Loans from Business Activities
Loans
Loans	145,494,000	145,494,000	117,492,000
Construction | Commercial mortgages | Loans Acquired from Business Combinations
Loans
Loans	10,378,000	10,378,000	6,726,000
Single and multi-family | Commercial mortgages
Loans
Loans	90,978,000	90,978,000	105,799,000
Single and multi-family | Commercial mortgages | Loans from Business Activities
Loans
Loans	77,470,000	77,470,000	89,401,000
Single and multi-family | Commercial mortgages | Loans Acquired from Business Combinations
Loans
Loans	13,508,000	13,508,000	16,398,000
Commercial real estate | Commercial mortgages
Loans
Loans	1,008,322,000	1,008,322,000	926,224,000
Commercial real estate | Commercial mortgages | Loans from Business Activities
Loans
Loans	737,492,000	737,492,000	746,545,000
Commercial real estate | Commercial mortgages | Loans Acquired from Business Combinations
Loans
Loans	270,830,000	270,830,000	179,679,000
Asset based lending | Commercial business loans
Loans
Loans	245,691,000	245,691,000	153,271,000
Asset based lending | Commercial business loans | Loans from Business Activities
Loans
Loans	243,126,000	243,126,000	151,065,000
Asset based lending | Commercial business loans | Loans Acquired from Business Combinations
Loans
Loans	2,565,000	2,565,000	2,206,000
Other commercial business loans | Commercial business loans
Loans
Loans	323,090,000	323,090,000	257,021,000
Other commercial business loans | Commercial business loans | Loans from Business Activities
Loans
Loans	232,386,000	232,386,000	210,701,000
Other commercial business loans | Commercial business loans | Loans Acquired from Business Combinations
Loans
Loans	90,704,000	90,704,000	46,320,000
Home equity | Consumer loans
Loans
Loans	302,057,000	302,057,000	298,196,000
Home equity | Consumer loans | Loans from Business Activities
Loans
Loans	228,497,000	228,497,000	226,369,000
Home equity | Consumer loans | Loans Acquired from Business Combinations
Loans
Loans	73,560,000	73,560,000	71,827,000
Other | Consumer loans
Loans
Loans	66,360,000	66,360,000	71,406,000
Other | Consumer loans | Loans from Business Activities
Loans
Loans	38,334,000	38,334,000	39,020,000
Other | Consumer loans | Loans Acquired from Business Combinations
Loans
Loans	$ 28,026,000	$ 28,026,000	$ 32,386,000

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2012

EARNINGS PER SHARE

Schedule of earnings per share

	Three Months Ended Sept. 30,					Nine Months Ended Sept. 30,
(In thousands, except per share data)	2012		2011			2012			2011
Net income from continuing operations	$	10,029	$	4,397		$	24,496		$	9,109
Loss from discontinued operations before income taxes (including gain on disposal of $63)	—		(8		)	(261		)	(8		)
Income tax expense	—		(3		)	376			(3		)
Net loss from discontinued operations	—		(5		)	(637		)	(5		)
Net income	$	10,029	$	4,392		$	23,859		$	9,104
Average number of common shares issued	23,825		21,929			23,438			18,784
Less: average number of treasury shares	1,614		1,728			1,653			1,750
Less: average number of unvested stock award shares	290		192			244			171
Average number of basic common shares outstanding	21,921		20,009			21,541			16,863
Plus: dilutive effect of unvested stock award shares	72		90			1			49
Plus: dilutive effect of stock options outstanding	38		6			93			3
Average number of diluted common shares outstanding	22,031		20,105			21,635			16,915
Basic earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.14		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total basic earnings per share	$	0.46	$	0.22		$	1.11		$	0.54
Diluted earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.13		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total diluted earnings per share	$	0.46	$	0.22		$	1.10		$	0.54

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STOCKHOLDERS' EQUITY (Details) (Bank)	Sep. 30, 2012	Dec. 31, 2011
Bank
Actual and required capital ratios
Total capital to risk weighted assets (as a percent)	11.20%	11.30%
Tier 1 capital to risk weighted assets (as a percent)	10.10%	10.20%
Tier 1 capital to average assets (as a percent)	7.70%	8.40%
FDIC Minimum to be Well Capitalized, Total capital to risk weighted assets (as a percent)	10.00%	10.00%
FDIC Minimum to be Well Capitalized, Tier 1 capital to risk weighted assets (as a percent)	6.00%	6.00%
FDIC Minimum to be Well Capitalized, Tier 1 capital to average assets (as a percent)	5.00%	5.00%

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2012

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 16. SUBSEQUENT EVENTS

On October 19, 2012, the Company acquired all of the outstanding common shares of Beacon Federal Bancorp, Inc. (“Beacon Federal”).  Beacon Federal had seven banking offices primarily serving eastern New York State and has merged with and into Berkshire Bank.

Beacon Federal shareholders received 2.7 million shares of the Company common stock and $60 million in cash. As of October 19, 2012, Beacon Federal had assets with a carrying value of approximately $822.7 million, including loans outstanding with a carrying value of approximately $697.6 million, as well as deposits with a carrying value of approximately $622.2 million. The results of Beacon Federal’s operations will be included in the Company’s Consolidated Statement of Income from the date of acquisition. The Company incurred $0.7 million of merger and acquisition expenses related to the Beacon Federal merger for the nine months ended September 30, 2012.

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

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

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LOANS (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Non-accrual loans
Non-accrual loans	$ 25,839	$ 24,234
Loans from Business Activities
Non-accrual loans
Non-accrual loans	23,164	23,344
Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	2,675	890
Residential mortgages
Non-accrual loans
Non-accrual loans	8,440	7,010
Residential mortgages | Loans from Business Activities
Non-accrual loans
Non-accrual loans	7,018	6,356
Residential mortgages | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	1,422	654
Commercial mortgages
Non-accrual loans
Non-accrual loans	13,553	14,280
Commercial mortgages | Loans from Business Activities
Non-accrual loans
Non-accrual loans	12,597	14,271
Commercial mortgages | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	956	9
Commercial business loans
Non-accrual loans
Non-accrual loans	2,024	990
Commercial business loans | Loans from Business Activities
Non-accrual loans
Non-accrual loans	1,905	977
Commercial business loans | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	119	13
Consumer loans
Non-accrual loans
Non-accrual loans	1,822	1,954
Consumer loans | Loans from Business Activities
Non-accrual loans
Non-accrual loans	1,644	1,740
Consumer loans | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	178	214
1-4 family | Residential mortgages
Non-accrual loans
Non-accrual loans	8,440	7,010
1-4 family | Residential mortgages | Loans from Business Activities
Non-accrual loans
Non-accrual loans	7,018	6,356
1-4 family | Residential mortgages | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	1,422	654
Construction | Commercial mortgages
Non-accrual loans
Non-accrual loans	4,672	8,650
Construction | Commercial mortgages | Loans from Business Activities
Non-accrual loans
Non-accrual loans	4,672	8,650
Single and multi-family | Commercial mortgages
Non-accrual loans
Non-accrual loans	165	362
Single and multi-family | Commercial mortgages | Loans from Business Activities
Non-accrual loans
Non-accrual loans	165	362
Other commercial business loans | Commercial business loans
Non-accrual loans
Non-accrual loans	2,024	990
Other commercial business loans | Commercial business loans | Loans from Business Activities
Non-accrual loans
Non-accrual loans	1,905	977
Other commercial business loans | Commercial business loans | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	119	13
Home equity | Consumer loans
Non-accrual loans
Non-accrual loans	1,506	1,767
Home equity | Consumer loans | Loans from Business Activities
Non-accrual loans
Non-accrual loans	1,469	1,692
Home equity | Consumer loans | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	37	75
Other | Commercial mortgages
Non-accrual loans
Non-accrual loans	8,716	5,268
Other | Commercial mortgages | Loans from Business Activities
Non-accrual loans
Non-accrual loans	7,760	5,259
Other | Commercial mortgages | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	956	9
Other | Consumer loans
Non-accrual loans
Non-accrual loans	316	187
Other | Consumer loans | Loans from Business Activities
Non-accrual loans
Non-accrual loans	175	48
Other | Consumer loans | Loans Acquired from Business Combinations
Non-accrual loans
Non-accrual loans	$ 141	$ 139

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TRADING ACCOUNT SECURITY (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
TRADING ACCOUNT SECURITY
Amortized cost	$ 13,700,000	$ 14,100,000
Fair value	$ 17,237,000	$ 17,395,000

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENTS

Summary of assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value

	September 30, 2012
	Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading account security	$	—	$	—	$	17,237	$	17,237
Available-for-sale securities:
Municipal bonds and obligations	—		82,336		—		82,336
Governmentguaranteed residential mortgage-backed securities	—		44,947		—		44,947
Government-sponsored residential mortgage-backed securities	—		280,012		—		280,012
Corporate bonds	—		9,703		—		9,703
Trust preferred securities	—		18,252		817		19,069
Other bonds and obligations	—		292		—		292
Marketable equity securities	31,085		—		—		31,085
Loans held for sale	—		114,698		—		114,698
Derivative assets	—		15,747		7,833		23,580
Derivative liabilities	4,669		32,244		—		36,913

	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

Schedule of loans held for sale

					Aggregate Fair Value
September 30, 2012	Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	114,698	$	109,746	$	4,952

Schedule of changes in level 3 assets that were measured at fair value on a recurring basis

	Assets
	Trading			Securities			Interest Rate
	Account			Available			Lock
(In thousands)	Security			for Sale			Commitments
Balance as of December 31, 2011	$	17,395		$	544		$	—
Unrealized gain recognized in other non-interest income	(428		)	—			—
Unrealized loss included in accumulated other comprehensive loss	—			—			—
Paydown of trading account security	(120		)	—			—
Balance as of March 31, 2012	$	16,847		$	544		$	—
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 (loss) gain recognized in other non-interest income	(7		)	—			10,858
Unrealized loss included in accumulated other comprehensive loss	—			204			—
Paydown of trading account security	(121		)	—			—
Transfers to held for sale loans	—			—			(7,053		)
Balance as of September 30, 2012	$	17,237		$	817		$	7,833
Unrealized gains (losses) relating to instruments still held at September 30, 2012	$	3,502		$	(1,784	)	$	10,858

	Assets
	Trading			Securities
	Account			Available
(In thousands)	Security			for Sale
Balance as of December 31, 2010	$	16,155		$	1,695
Unrealized (loss) gain recognized in other non-interest income	(257		)	—
Unrealized loss included in accumulated other comprehensive loss	—			498
Paydown of trading account security	(117		)	—
Balance as of March 31, 2011	$	15,781		$	2,193
Unrealized (loss) gain recognized in other non-interest income	357			—
Unrealized loss included in accumulated other comprehensive loss	—			112
Paydown of trading account security	(114		)	—
Transfer out of Level 3	—			(1,624		)
Balance as of June 30, 2011	$	16,024		$	681
Unrealized (loss) gain recognized in other non-interest income	1,592			—
Unrealized loss included in accumulated other comprehensive loss	—			(218		)
Paydown of trading account security	(115		)	—
Balance as of September 30, 2011	$	17,501		$	463
Unrealized gains (losses) relating to instruments still held at September 30, 2011	$	3,287		$	(2,136	)

Summary of applicable non-recurring fair value measurements

	September 30, 2012		December 31, 2011		Nine Months Ended September 30, 2012
	Level 3		Level 3		Total
(In thousands)	Inputs		Inputs		Losses
Assets
Impaired loans	$	6,949	$	11,155	4,206
Capitalized mortgage servicing rights	2,494		3,067		573
Other real estate owned	1,399		1,900		—
Total Assets	$	10,842	$	16,122	$	4,779

Summary of estimated fair values, and related carrying amounts, of financial instruments

	September 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	$	48,214	$	48,214	$	48,214	$	—	$	—	$	75,359	$	75,359
Trading security	17,237		17,237		—		—		17,237		17,395		17,395
Securities available for sale	467,444		467,444		31,085		435,542		817		419,756		419,756
Securities held to maturity	51,156		52,892		—		—		52,892		58,912		60,395
Restricted equity securities	37,135		37,135		—		37,135		—		37,118		37,118
Net loans	3,385,302		3,411,331		—		—		3,411,331		2,924,126		2,990,173
Loans held for sale	114,698		114,698		—		114,698		—		1,455		1,455
Accrued interest receivable	13,640		13,640		—		13,640		—		11,350		11,350
Cash surrender value of bank-owned life insurance policies	76,904		76,904		—		76,904		—		75,009		75,009
Derivative assets	23,579		23,579		—		15,747		7,832		13,926		13,926
Financial Liabilities
Total deposits	$	3,453,363	$	3,464,962	$	—	$	3,464,962	$	—	$	3,101,175	$	3,104,204
Short-term debt	61,800		61,800		—		61,800		—		10,000		10,000
Long-term Federal Home Loan Bank advances	388,999		393,703		—		393,703		—		211,938		215,008
Junior subordinated debentures	89,602		87,901		—		87,901		—		15,464		11,436
Derivative liabilities	36,913		36,913		4,669		32,244		—		26,930		26,930

Recurring

Quantitative information about the significant unobservable inputs within Level 3

Schedule of quantitative information about the significant unobservable inputs within Level 3

	Fair Value				Significant Unobservable
(In thousands)	September 30, 2012		Valuation Techniques	Unobservable Inputs	Input Value
Assets
Trading Account Security	$	17,237	Discounted Cash Flow	Discount Rate	2.08	%
Interest Rate Lock Commitment	7,833		Historical Trend	Closing Ratio	88.55	%
			Pricing Model	Origination Costs	2,500
Total Assets	$	25,070

Non-recurring

Quantitative information about the significant unobservable inputs within Level 3

Schedule of quantitative information about the significant unobservable inputs within Level 3

	Fair Value				Range (Weighted
(in thousands)	Septemeber 30, 2012		Valuation Techniques	Unobservable Inputs	Average) (a)
Assets
Impaired loans	$	6,949	Fair value of collateral	Loss severity	12.36% to 32.1% (19.43%)
				Appraised value	$126.0 to $2,500.0 ($1,411.5)
Capitaized mortgage servicing rights	2,494		Discounted cash flow	Constant prepayment rate (CPR)	13.85% to 23.93% (17.25%)
				Discount rate	11.00% to 15.50% (11.21%)
Other real estate owned	1,399		Fair value of collateral	Appraised value	$590.0 ($288.8)
Total Assets	$	10,842

(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.

XML

LOANS (Details 7) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
TDR activity
Balance at beginning of the period	$ 1,264	$ 7,829
Principal Payments	6	72
TDR Status Change	1,125	7,041
Other Reductions		189
Newly Identified TDRs	2,043	177
Balance at end of the period	2,176	704
1-4 family | Residential mortgages
Troubled Debt Restructuring
Number of Modifications	1
Pre-Modification Outstanding Recorded Investment	70
Post-Modification Outstanding Recorded Investment	$ 70

XML

FAIR VALUE MEASUREMENTS (Details 4) (USD $)					9 Months Ended					9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Non-recurring Total losses	Sep. 30, 2012 Level 3 Inputs Recurring	Sep. 30, 2012 Level 3 Inputs Recurring Pricing Model	Sep. 30, 2012 Level 3 Inputs Recurring Trading Account Security Discounted Cash Flow	Sep. 30, 2012 Level 3 Inputs Recurring Interest rate lock commitments Historical Trend	Sep. 30, 2012 Level 3 Inputs Non-recurring	Dec. 31, 2011 Level 3 Inputs Non-recurring	Sep. 30, 2012 Level 3 Inputs Non-recurring Minimum Impaired loans Fair value of collateral	Sep. 30, 2012 Level 3 Inputs Non-recurring Minimum Capitalized mortgage servicing rights Discounted Cash Flow	Sep. 30, 2012 Level 3 Inputs Non-recurring Maximum Impaired loans Fair value of collateral	Sep. 30, 2012 Level 3 Inputs Non-recurring Maximum Capitalized mortgage servicing rights Discounted Cash Flow	Sep. 30, 2012 Level 3 Inputs Non-recurring Maximum Other real estate owned Fair value of collateral	Sep. 30, 2012 Level 3 Inputs Non-recurring Weighted Average Impaired loans Fair value of collateral	Sep. 30, 2012 Level 3 Inputs Non-recurring Weighted Average Capitalized mortgage servicing rights Discounted Cash Flow	Sep. 30, 2012 Level 3 Inputs Non-recurring Weighted Average Other real estate owned Fair value of collateral
Quantitative information about the significant unobservable inputs within Level 3
Assets measured on recurring basis				$ 25,070,000		$ 17,237,000	$ 7,833,000
Discount Rate						2.08%					11.00%		15.50%			11.21%
Closing Ratio							88.55%
Origination Costs					2,500,000
Impaired loans			4,206,000					6,949,000	11,155,000
Capitalized mortgage servicing rights			573,000					2,494,000	3,067,000
Other real estate owned	1,399,000	1,900,000						1,399,000	1,900,000
Total Assets			4,779,000					10,842,000	16,122,000
Loss severity										12.36%		32.10%			19.43%
Appraised value										$ 126.0		$ 2,500.0		$ 590.0	$ 1,411.5		$ 288.8
Constant prepayment rate (CPR)											13.85%		23.93%			17.25%

XML

STOCK-BASED COMPENSATION PLANS (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Additional information
Stock-based compensation expense	$ 1,400,000	$ 1,100,000
Non-vested Stock Awards
Non-vested Stock Awards Outstanding, Number of Shares
Balance at the beginning of the period (in shares)	216
Granted (in shares)	108
Stock awards vested (in shares)	(68)	(66)
Forfeited (in shares)	(8)
Balance at the end of the period (in shares)	248
Non-vested Stock Awards Outstanding, Weighted-Average Grant Date Fair Value
Balance at the beginning of the period (in dollars per share)	$ 19.88
Granted (in dollars per share)	$ 23.76
Stock awards vested (in dollars per share)	$ 19.44
Forfeited (in dollars per share)	$ 21.38
Balance at the end of the period (in dollars per share)	$ 21.67
Stock Options
Stock Options Outstanding, Number of Shares
Balance at the beginning of the period (in shares)	409
Stock options exercised (in shares)	(18)
Expired (in shares)	(19)
Balance at the end of the period (in shares)	372
Exercisable options at the end of the period (in shares)	372
Stock Options Outstanding, Weighted-Average Exercise Price
Balance at the beginning of the period (in dollars per share)	$ 25.68
Stock options exercised (in dollars per share)	$ 21.04
Expired (in dollars per share)	$ 22.83
Balance at the end of the period (in dollars per share)	$ 25.93
Exercisable options at the end of the period (in dollars per share)	$ 25.93
Additional information
Proceeds from stock option exercises	$ 376,000	$ 624,000

XML

LOANS (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Past due loans
Total loans	$ 3,418,392	$ 2,956,570
Loans from Business Activities
Past due loans
30-59 Days Past Due	7,852	3,971
60-89 Days Past Due	4,524	10,082
Greater Than 90 Days Past Due	26,363	29,059
Total Past Due	38,739	43,112
Current	2,593,344	2,219,139
Total loans	2,632,083	2,262,251
Past Due > 90 days and Accruing	3,199	5,715
Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	4,899	1,603
60-89 Days Past Due	4,098	648
Greater Than 90 Days Past Due	12,473	5,359
Total Past Due	21,470	7,610
Current	764,839	686,709
Total loans	786,309	694,319
Past Due > 90 days and Accruing	9,798	4,469
Residential mortgages
Past due loans
Total loans	1,226,022	1,020,435
Residential mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	2,476	2,045
60-89 Days Past Due	984	877
Greater Than 90 Days Past Due	8,764	11,479
Total Past Due	12,224	14,401
Current	917,060	667,257
Total loans	929,284	681,658
Past Due > 90 days and Accruing	1,746	5,123
Residential mortgages | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	1,799	663
60-89 Days Past Due	406	242
Greater Than 90 Days Past Due	2,181	1,615
Total Past Due	4,386	2,520
Current	292,352	336,257
Total loans	296,738	338,777
Past Due > 90 days and Accruing	759	961
Commercial mortgages
Past due loans
Total loans	1,255,172	1,156,241
Commercial mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	3,061	816
60-89 Days Past Due	1,788	8,019
Greater Than 90 Days Past Due	13,747	14,584
Total Past Due	18,596	23,419
Current	941,860	930,019
Total loans	960,456	953,438
Past Due > 90 days and Accruing	1,150	314
Commercial mortgages | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	1,824	68
60-89 Days Past Due	366	102
Greater Than 90 Days Past Due	7,617	3,232
Total Past Due	9,807	3,402
Current	284,909	199,401
Total loans	294,716	202,803
Past Due > 90 days and Accruing	6,661	3,222
Commercial business loans
Past due loans
Total loans	568,781	410,292
Commercial business loans | Loans from Business Activities
Past due loans
30-59 Days Past Due	1,049	369
60-89 Days Past Due	1,438	781
Greater Than 90 Days Past Due	2,143	1,156
Total Past Due	4,630	2,306
Current	470,882	359,460
Total loans	475,512	361,766
Past Due > 90 days and Accruing	238	178
Commercial business loans | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	412	349
60-89 Days Past Due	3,047	235
Greater Than 90 Days Past Due	2,313	258
Total Past Due	5,772	842
Current	87,497	47,684
Total loans	93,269	48,526
Past Due > 90 days and Accruing	2,194	245
Consumer loans
Past due loans
Total loans	368,417	369,602
Consumer loans | Loans from Business Activities
Past due loans
30-59 Days Past Due	1,266	741
60-89 Days Past Due	314	405
Greater Than 90 Days Past Due	1,709	1,840
Total Past Due	3,289	2,986
Current	263,542	262,403
Total loans	266,831	265,389
Past Due > 90 days and Accruing	65	100
Consumer loans | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	864	523
60-89 Days Past Due	279	69
Greater Than 90 Days Past Due	362	254
Total Past Due	1,505	846
Current	100,081	103,367
Total loans	101,586	104,213
Past Due > 90 days and Accruing	184	41
1-4 family | Residential mortgages
Past due loans
Total loans	1,192,452	978,874
1-4 family | Residential mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	2,435	2,045
60-89 Days Past Due	471	877
Greater Than 90 Days Past Due	8,764	11,479
Total Past Due	11,670	14,401
Current	890,991	635,066
Total loans	902,661	649,467
Past Due > 90 days and Accruing	1,746	5,123
1-4 family | Residential mortgages | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	1,799	663
60-89 Days Past Due	406	242
Greater Than 90 Days Past Due	2,181	1,450
Total Past Due	4,386	2,355
Current	285,405	327,052
Total loans	289,791	329,407
Past Due > 90 days and Accruing	759	796
Construction | Residential mortgages
Past due loans
Total loans	33,570	41,561
Construction | Residential mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	41
60-89 Days Past Due	513
Total Past Due	554
Current	26,069	32,191
Total loans	26,623	32,191
Construction | Residential mortgages | Loans Acquired from Business Combinations
Past due loans
Greater Than 90 Days Past Due		165
Total Past Due		165
Current	6,947	9,205
Total loans	6,947	9,370
Past Due > 90 days and Accruing		165
Construction | Commercial mortgages
Past due loans
Total loans	155,872	124,218
Construction | Commercial mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	350
Greater Than 90 Days Past Due	4,672	8,650
Total Past Due	5,022	8,650
Current	140,472	108,842
Total loans	145,494	117,492
Construction | Commercial mortgages | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	196
60-89 Days Past Due	70
Greater Than 90 Days Past Due	1,479	606
Total Past Due	1,745	606
Current	8,633	6,120
Total loans	10,378	6,726
Past Due > 90 days and Accruing	1,479	606
Single and multi-family | Commercial mortgages
Past due loans
Total loans	90,978	105,799
Single and multi-family | Commercial mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	574	70
60-89 Days Past Due	356
Greater Than 90 Days Past Due	452	676
Total Past Due	1,382	746
Current	76,088	88,655
Total loans	77,470	89,401
Past Due > 90 days and Accruing	287	314
Single and multi-family | Commercial mortgages | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	99
Greater Than 90 Days Past Due	276	703
Total Past Due	375	703
Current	13,133	15,695
Total loans	13,508	16,398
Past Due > 90 days and Accruing	276	703
Commercial real estate | Commercial mortgages
Past due loans
Total loans	1,008,322	926,224
Commercial real estate | Commercial mortgages | Loans from Business Activities
Past due loans
30-59 Days Past Due	2,137	746
60-89 Days Past Due	1,432	8,019
Greater Than 90 Days Past Due	8,623	5,258
Total Past Due	12,192	14,023
Current	725,300	732,522
Total loans	737,492	746,545
Past Due > 90 days and Accruing	863
Commercial real estate | Commercial mortgages | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	1,529	68
60-89 Days Past Due	296	102
Greater Than 90 Days Past Due	5,862	1,923
Total Past Due	7,687	2,093
Current	263,143	177,586
Total loans	270,830	179,679
Past Due > 90 days and Accruing	4,906	1,913
Asset based lending | Commercial business loans
Past due loans
Total loans	245,691	153,271
Asset based lending | Commercial business loans | Loans from Business Activities
Past due loans
Current	243,126	151,065
Total loans	243,126	151,065
Asset based lending | Commercial business loans | Loans Acquired from Business Combinations
Past due loans
Current	2,565	2,206
Total loans	2,565	2,206
Other commercial business loans | Commercial business loans
Past due loans
Total loans	323,090	257,021
Other commercial business loans | Commercial business loans | Loans from Business Activities
Past due loans
30-59 Days Past Due	1,049	369
60-89 Days Past Due	1,438	781
Greater Than 90 Days Past Due	2,143	1,156
Total Past Due	4,630	2,306
Current	227,756	208,395
Total loans	232,386	210,701
Past Due > 90 days and Accruing	238	178
Other commercial business loans | Commercial business loans | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	412	349
60-89 Days Past Due	3,047	235
Greater Than 90 Days Past Due	2,313	258
Total Past Due	5,772	842
Current	84,932	45,478
Total loans	90,704	46,320
Past Due > 90 days and Accruing	2,194	245
Home equity | Consumer loans
Past due loans
Total loans	302,057	298,196
Home equity | Consumer loans | Loans from Business Activities
Past due loans
30-59 Days Past Due	724	430
60-89 Days Past Due	214	257
Greater Than 90 Days Past Due	1,469	1,692
Total Past Due	2,407	2,379
Current	226,090	223,990
Total loans	228,497	226,369
Home equity | Consumer loans | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	609	284
60-89 Days Past Due	127
Greater Than 90 Days Past Due	83	75
Total Past Due	819	359
Current	72,741	71,468
Total loans	73,560	71,827
Past Due > 90 days and Accruing	46
Other | Consumer loans
Past due loans
Total loans	66,360	71,406
Other | Consumer loans | Loans from Business Activities
Past due loans
30-59 Days Past Due	542	311
60-89 Days Past Due	100	148
Greater Than 90 Days Past Due	240	148
Total Past Due	882	607
Current	37,452	38,413
Total loans	38,334	39,020
Past Due > 90 days and Accruing	65	100
Other | Consumer loans | Loans Acquired from Business Combinations
Past due loans
30-59 Days Past Due	255	239
60-89 Days Past Due	152	69
Greater Than 90 Days Past Due	279	179
Total Past Due	686	487
Current	27,340	31,899
Total loans	28,026	32,386
Past Due > 90 days and Accruing	$ 138	$ 41

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income	$ 23,859	$ 9,104
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	6,750	5,300
Net amortization of securities	1,496	893
Change in unamortized net loan costs and premiums	(849)	519
Premises depreciation and amortization expense	4,553	3,498
Write down of other real estate owned		1,700
Stock-based compensation expense	1,410	998
(Accretion)/Amortization of purchase accounting entries	(5,303)	(2,945)
Amortization of other intangibles	4,182	2,922
Excess tax loss from stock-based payment arrangements	(40)
Income from cash surrender value of bank-owned life insurance policies	(1,895)	(1,492)
Gain on sales of securities, net	(50)	(2,229)
Net (increase) decrease in loans held for sale	(64,979)	568
Loss on disposition of assets	1,753
Loss on sale of other real estate	197	94
Net change in other	16,924	13,214
Net cash (used) provided by operating activities	(11,992)	32,144
Cash flows from investing activities:
Net decrease in trading security	361	(1,346)
Proceeds from sales of securities available for sale	32,473	12,521
Proceeds from maturities, calls and prepayments of securities available for sale	70,499	92,258
Purchases of securities available for sale	(108,281)	(152,633)
Proceeds from maturities, calls and prepayments of securities held to maturity	28,569	7,618
Purchases of securities held to maturity	(20,384)	(9,444)
Net change in loans	(255,657)	(42,890)
Net cash used for Divestiture	(48,890)
Proceeds from sale of Federal Home Loan Bank stock	1,900	3,571
Purchase of Federal Home Loan Bank stock		(1,387)
Proceeds from sale of other real estate	2,265	1,086
Acquisitions, net of cash paid	(58,150)	179,458
Purchase of premises and equipment, net	(15,542)	(4,542)
Net cash (used) provided by investing activities	(370,837)	84,270
Cash flows from financing activities:
Net increase in deposits	139,265	153,657
Proceeds from Federal Home Loan Bank advances and other borrowings	433,618	115,480
Repayments of Federal Home Loan Bank advances and other borrowings	(247,195)	(286,190)
Issuance of long-term debt, net	74,138
Net proceeds from reissuance of treasury stock	376	214
Excess tax loss from stock based payment arrangements	40	68
Common stock cash dividends paid	(11,147)	(8,313)
Net cash provided (used) by financing activities	389,095	(25,084)
Net change in cash and cash equivalents	6,266	91,330
Cash and cash equivalents at beginning of period	75,782	44,140
Cash and cash equivalents at end of period	82,048	135,470
Supplemental cash flow information:
Interest paid on deposits	17,113	17,807
Interest paid on borrowed funds	5,664	6,202
Income taxes paid, net	4,761	138
Acquisition of non-cash assets and liabilities:
Assets acquired	343,114	1,241
Liabilities assumed	(253,155)	(1,044)
Rome stock owned by the Company		6,284
Other non-cash changes:
Other net comprehensive income	1,423	870
Real estate owned acquired in settlement of loans	$ (1,453)

XML

OPERATING SEGMENTS (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 item	Sep. 30, 2011
OPERATING SEGMENTS
Number of reportable operating segments			2
Operating segments
Net interest income (expense)	$ 35,225,000	$ 31,038,000	$ 101,423,000	$ 75,385,000
Provision for loan losses	2,500,000	2,200,000	6,750,000	5,300,000
Non-interest income	14,313,000	10,674,000	36,403,000	26,978,000
Non-interest expense	32,162,000	34,710,000	96,540,000	86,522,000
Income from continuing operations before income taxes	14,876,000	4,802,000	34,536,000	10,541,000
Income tax expense (benefit)	4,847,000	405,000	10,040,000	1,432,000
Net income from continuing operations	10,029,000	4,397,000	24,496,000	9,109,000
Income from discontinued operations before income taxes (including gain on disposal of $63)		(8,000)	(261,000)	(8,000)
Income tax expense		(3,000)	376,000	(3,000)
Net loss from discontinued operations		(5,000)	(637,000)	(5,000)
Net income	10,029,000	4,392,000	23,859,000	9,104,000
Average assets	4,572,000,000	3,861,000,000	4,302,000,000	3,315,000,000
Banking
Operating segments
Net interest income (expense)	35,505,000	31,253,000	102,095,000	76,017,000
Provision for loan losses	2,500,000	2,200,000	6,750,000	5,300,000
Non-interest income	11,571,000	8,248,000	28,147,000	18,035,000
Non-interest expense	29,608,000	34,163,000	88,061,000	76,893,000
Income from continuing operations before income taxes	14,968,000	3,138,000	35,431,000	11,859,000
Income tax expense (benefit)	5,105,000	(272,000)	10,400,000	1,968,000
Net income from continuing operations			25,031,000
Income from discontinued operations before income taxes (including gain on disposal of $63)			(261,000)
Income tax expense			376,000
Net loss from discontinued operations			(637,000)
Net income	9,863,000	3,410,000	24,394,000	9,891,000
Average assets	4,409,000,000	3,827,000,000	4,185,000,000	3,281,000,000
Insurance
Operating segments
Non-interest income	2,742,000	2,426,000	8,256,000	8,938,000
Non-interest expense	2,021,000	2,148,000	6,329,000	6,598,000
Income from continuing operations before income taxes	721,000	278,000	1,927,000	2,340,000
Income tax expense (benefit)	290,000	114,000	775,000	958,000
Net income from continuing operations			1,152,000
Net income	431,000	164,000	1,152,000	1,382,000
Average assets	29,000,000	30,000,000	30,000,000	32,000,000
Parent
Operating segments
Net interest income (expense)	(280,000)	(215,000)	(672,000)	(631,000)
Non-interest income	10,294,000	3,570,000	25,546,000	7,068,000
Non-interest expense	533,000	(1,602,000)	2,150,000	3,031,000
Income from continuing operations before income taxes	9,481,000	4,957,000	22,724,000	3,406,000
Income tax expense (benefit)	(548,000)	569,000	(1,135,000)	(1,494,000)
Net income from continuing operations			23,859,000
Net income	10,029,000	4,388,000	23,859,000	4,900,000
Average assets	501,000,000	479,000,000	492,000,000	413,000,000
Eliminations
Operating segments
Net interest income (expense)				(1,000)
Non-interest income	(10,294,000)	(3,570,000)	(25,546,000)	(7,068,000)
Non-interest expense		1,000
Income from continuing operations before income taxes	(10,294,000)	(3,571,000)	(25,546,000)	(7,069,000)
Income tax expense (benefit)		(1,000)
Net income from continuing operations			(25,546,000)
Net income	(10,294,000)	(3,570,000)	(25,546,000)	(7,069,000)
Average assets	$ (368,000,000)	$ (475,000,000)	$ (405,000,000)	$ (411,000,000)

XML

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Securities available for sale
Amortized Cost	$ 456,355	$ 413,458
Gross Unrealized Gains	14,170	10,353
Gross Unrealized Losses	(3,081)	(4,055)
Fair Value	467,444	419,756
Securities held to maturity
Amortized Cost	51,156	58,912
Gross Unrealized Gains	2,064	1,483
Gross Unrealized Losses	(328)
Fair Value	52,892	60,395
Total Securities
Total Amortized Cost	507,511	472,370
Total Gross Unrealized Gains	16,234	11,836
Gross Unrealized Losses	(3,409)	(4,055)
Total Fair Value	520,336	480,151
Debt securities
Securities available for sale
Amortized Cost	428,857	393,222
Gross Unrealized Gains	10,366	8,798
Gross Unrealized Losses	(2,864)	(3,273)
Fair Value	436,359	398,747
Municipal bonds and obligations
Securities available for sale
Amortized Cost	76,481	73,436
Gross Unrealized Gains	5,855	4,418
Fair Value	82,336	77,854
Securities held to maturity
Amortized Cost	8,020	10,349
Fair Value	8,020	10,349
Government guaranteed residential mortgage-backed securities
Securities available for sale
Amortized Cost	43,964	44,051
Gross Unrealized Gains	983	1,045
Fair Value	44,947	45,096
Government-sponsored residential mortgage-backed securities
Securities available for sale
Amortized Cost	278,145	245,033
Gross Unrealized Gains	2,404	2,990
Gross Unrealized Losses	(537)	(412)
Fair Value	280,012	247,611
Securities held to maturity
Amortized Cost	76	79
Gross Unrealized Gains	8	4
Fair Value	84	83
Corporate bonds
Securities available for sale
Amortized Cost	9,997	9,996
Gross Unrealized Gains	22
Gross Unrealized Losses	(316)	(269)
Fair Value	9,703	9,727
Trust preferred securities
Securities available for sale
Amortized Cost	19,979	20,064
Gross Unrealized Gains	1,101	343
Gross Unrealized Losses	(2,011)	(2,592)
Fair Value	19,069	17,815
Tax advantaged economic development bonds
Securities held to maturity
Amortized Cost	42,021	47,869
Gross Unrealized Gains	2,056	1,479
Gross Unrealized Losses	(328)
Fair Value	43,749	49,348
Other bonds and obligations
Securities available for sale
Amortized Cost	291	642
Gross Unrealized Gains	1	2
Fair Value	292	644
Securities held to maturity
Amortized Cost	1,039	615
Fair Value	1,039	615
Equity securities, Marketable equity securities
Securities available for sale
Amortized Cost	27,498	20,236
Gross Unrealized Gains	3,804	1,555
Gross Unrealized Losses	(217)	(782)
Fair Value	$ 31,085	$ 21,009

XML

LOANS (Tables)

9 Months Ended

Sep. 30, 2012

LOANS

Schedule of loans

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages
1-4 family	$	902,661	$	289,791	$	1,192,452
Construction	26,623		6,947		33,570
Total residential mortgages	929,284		296,738		1,226,022
Commercial mortgages:
Construction	145,494		10,378		155,872
Single and multi-family	77,470		13,508		90,978
Commercial real estate	737,492		270,830		1,008,322
Total commercial mortgages	960,456		294,716		1,255,172
Commercial business loans:
Asset based lending	243,126		2,565		245,691
Other commercial business loans	232,386		90,704		323,090
Total commercial business loans	475,512		93,269		568,781
Total commercial loans	1,435,968		387,985		1,823,953
Consumer loans:
Home equity	228,497		73,560		302,057
Other	38,334		28,026		66,360
Total consumer loans	266,831		101,586		368,417
Total loans	$	2,632,083	$	786,309	$	3,418,392

	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

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

(In thousands)	2012
Three months ended September 30, 2012
Balance at beginning of period	$	2,554
Acquisitions	—
Sales	—
Reclassification from nonaccretable difference for loans with improved cash flows	—
Changes in expected cash flows that do not affect nonaccretable difference	—
Accretion	(806		)
Balance at end of period	$	1,748

(In thousands)	2012
Nine months ended September 30, 2012
Balance at beginning of period	$	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	(2,345		)
Balance at end of period	$	1,748

Summary of past due loans

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
September 30, 2012
Residential mortgages:
1-4 family	$	2,435	$	471	$	8,764	$	11,670	$	890,991	$	902,661	$	1,746
Construction	41		513		—		554		26,069		26,623		—
Total	2,476		984		8,764		12,224		917,060		929,284		1,746
Commercial mortgages:
Construction	350		—		4,672		5,022		140,472		145,494		—
Single and multi-family	574		356		452		1,382		76,088		77,470		287
Commercial real estate	2,137		1,432		8,623		12,192		725,300		737,492		863
Total	3,061		1,788		13,747		18,596		941,860		960,456		1,150
Commercial business loans:
Asset based lending	—		—		—		—		243,126		243,126		—
Other commercial business loans	1,049		1,438		2,143		4,630		227,756		232,386		238
Total	1,049		1,438		2,143		4,630		470,882		475,512		238
Consumer loans:
Home equity	724		214		1,469		2,407		226,090		228,497		—
Other	542		100		240		882		37,452		38,334		65
Total	1,266		314		1,709		3,289		263,542		266,831		65
Total	$	7,852	$	4,524	$	26,363	$	38,739	$	2,593,344	$	2,632,083	$	3,199

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
September 30, 2012
Residential mortgages:
1-4 family	$	1,799	$	406	$	2,181	$	4,386	$	285,405	$	289,791	$	759
Construction	—		—		—		—		6,947		6,947		—
Total	1,799		406		2,181		4,386		292,352		296,738		759
Commercial mortgages:
Construction	196		70		1,479		1,745		8,633		10,378		1,479
Single and multi-family	99		—		276		375		13,133		13,508		276
Commercial real estate	1,529		296		5,862		7,687		263,143		270,830		4,906
Total	1,824		366		7,617		9,807		284,909		294,716		6,661
Commercial business loans:
Asset based lending	—		—		—		—		2,565		2,565		—
Other commercial business loans	412		3,047		2,313		5,772		84,932		90,704		2,194
Total	412		3,047		2,313		5,772		87,497		93,269		2,194
Consumer loans:
Home equity	609		127		83		819		72,741		73,560		46
Other	255		152		279		686		27,340		28,026		138
Total	864		279		362		1,505		100,081		101,586		184
Total	$	4,899	$	4,098	$	12,473	$	21,470	$	764,839	$	786,309	$	9,798

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

Schedule of activity in the allowance for loan losses

Loans from Business Activities (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	3,150	$	22,095	$	4,540	$	2,203	$	(90	)	$	31,898
Charged-off loans	1,590		3,207		116		1,297		—			6,210
Recoveries on charged-off loans	87		8		42		132		—			269
Provision for loan losses	4,922		731		267		2		95			6,017
Balance at end of period	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Individually evaluated for impairment	663		1,653		342		107		—			2,765
Collectively evaluated	5,906		17,974		4,391		933		5			29,209
Total	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Loans receivable:
Balance at end of period
Individually evaluated for impairment	6,534		30,819		1,221		1,085		—			39,659
Collectively evaluated	922,750		929,637		474,291		265,746		—			2,592,424
Total	$	929,284	$	960,456	$	475,512	$	266,831	$	—		$	2,632,083

Loans Acquired from Business Combinations (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	281	$	158	$	38	$	87	$	(18	)	$	546
Charged-off loans	8		85		34		40		—			167
Recoveries on charged-off loans	—		—		4		—		—			4
Provision for loan losses	165		247		82		96		143			733
Balance at end of period	$	438	$	320	$	90	$	143	$	125		$	1,116
Individually evaluated for impairment	44		—		—		—		—			44
Collectively evaluated	394		320		90		143		125			1,072
Total	$	438	$	320	$	90	$	143	$	125		$	1,116
Loans receivable:
Balance at end of Period
Individually evaluated for impairment	612		891		—		—		—			1,503
Collectively evaluated	296,126		293,825		93,269		101,586		—			784,806
Total	$	296,738	$	294,716	$	93,269	$	101,586	$	—		$	786,309

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	2,701		20,373		4,424			1,715		(90		)	29,123
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	676,003		919,364		361,202			264,199					2,220,768
Total	$	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	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	338,777		202,803		48,526		104,213					694,319
Total	$	338,777	$	202,803	$	48,526	$	104,213				$	694,319

Summary of impaired loans

	At September 30, 2012
Loans from Business Activities (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	2,032	$	2,032	$	—
Commercial mortgages - single and multifamily	164		164		—
Commercial mortgages - real estate	4,134		4,134		—
Other commercial business loans	176		176		—
Consumer - home equity	809		809		—
With an allowance recorded:
Residential mortgages - 1-4 family	2,685		3,349		664
Commercial mortgages - construction	3,986		4,672		686
Commercial mortgages - real estate	2,124		3,090		966
Other commercial business loans	520		862		342
Consumer - home equity	168		275		107
Total
Residential mortgages	$	4,717	$	5,381	$	664
Commercial mortgages	10,408		12,060		1,652
Commercial business	696		1,038		342
Consumer	977		1,084		107
Total impaired loans	$	16,798	$	19,563	$	2,765

	At September 30, 2012
Loans Acquired from Business Combinations  (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	455	$	455	$	—
Commercial mortgages - real estate	891		891		—
With an allowance recorded:
Residential mortgages - 1-4 family	113		157		44
Total
Residential mortgages	$	568	$	612	$	44
Commercial mortgages	891		891		—
Total impaired loans	$	1,459	$	1,503	$	44

The following is a summary of impaired loans at December 31, 2011:

	At December 31, 2011
Loans from Business Activities (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

	At December 31, 2011
Loans Acquired from Business Combinations (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	$	—

Summary of the average recorded investment and interest income recognized on impaired loans

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 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	$	1,623	$	22	$	1,487	$	39
Residential mortgages - construction	—		—		52		—
Commercial-construction	—		—		105		—
Commercial mortgages - single and multifamily	190		2		89		1
Commercial mortgages - real estate	2,644		48		7,470		248
Commercial business loans	15		—		31		1
Consumer-home equity	249		1		361		5
With an allowance recorded:
Residential mortgages - 1-4 family	$	2,567	$	27	$	568	$	20
Residential mortgages - construction	—		—		21		—
Commercial-construction	4,736		—		3,504		—
Commercial mortgages - single and multifamily	75		—		365		11
Commercial mortgages - real estate	2,013		23		2,077		20
Commercial business loans	169		5		429		3
Consumer-home equity	421		—		154		—
Total
Residential mortgages	$	4,190	$	49	$	2,129	$	59
Commercial mortgages	9,658		73		13,611		280
Commercial business loans	184		5		460		4
Consumer loans	670		1		515		5
Total impaired loans	$	14,702	$	128	$	16,715	$	348

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
Loans Acquired from Business Combinations (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	$	426	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer-home equity	25		—		—		—
With an allowance recorded:
Residential mortgages - 1-4 family	$	13	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	—		—		—		—
Commercial business loans	—		—		—		—
Consumer-home equity	—		—		—		—
Total
Residential mortgages	$	439	$	—	$	—	$	—
Commercial mortgages	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer loans	25		—		—		—
Total impaired loans	$	738	$	15	$	1,225	$	—

Summary of information pertaining to non-accrual loans

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages:
1-4 family	$	7,018	$	1,422	$	8,440
Total	7,018		1,422		8,440
Commercial mortgages:
Construction	4,672		—		4,672
Single and multi-family	165		—		165
Other	7,760		956		8,716
Total	12,597		956		13,553
Commercial business loans:
Other commercial business loans	1,905		119		2,024
Total	1,905		119		2,024
Consumer loans:
Home equity	1,469		37		1,506
Other	175		141		316
Total	1,644		178		1,822
Total non-accrual loans	$	23,164	$	2,675	$	25,839

	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

Schedule of loans by risk rating

Loans from Business Activities

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass
Special mention	$	893,426	$	637,110	$	26,109	$	32,191	$	919,535	$	669,301
Substandard	471		877		514		—		985		877
Total	8,764		11,480		—		—		8,764		11,480
	$	902,661	$	649,467	$	26,623	$	32,191	$	929,284	$	681,658

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	130,658	$	91,452	$	74,438	$	85,153	$	664,683	$	674,814	$	869,779	$	851,419
Special mention	49		5,939		422		435		12,962		16,459		13,433		22,833
Substandard	14,787		17,262		2,610		3,813		59,742		55,156		77,139		76,231
Doubtful	—		2,839		—		—		105		116		105		2,955
Total	$	145,494	$	117,492	$	77,470	$	89,401	$	737,492	$	746,545	$	960,456	$	953,438

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	242,089	$	149,741	$	218,085	$	200,246	$	460,174	$	349,987
Special mention	—		—		4,921		607		4,921		607
Substandard	1,037		1,324		9,287		9,753		10,324		11,077
Doubtful	—		—		93		95		93		95
Total	$	243,126	$	151,065	$	232,386	$	210,701	$	475,512	$	361,766

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	227,028	$	224,677	$	38,159	$	38,972	$	265,187	$	263,649
Nonperforming	1,469		1,692		175		48		1,644		1,740
Total	$	228,497	$	226,369	$	38,334	$	39,020	$	266,831	$	265,389

Loans Acquired from Business Combinations

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	287,204	$	327,715	$	6,947	$	9,205	$	294,151	$	336,920
Special mention	406		242		—		—		406		242
Substandard	2,181		1,450		—		165		2,181		1,615
Total	$	289,791	$	329,407	$	6,947	$	9,370	$	296,738	$	338,777

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	8,703	$	3,548	$	9,691	$	14,802	$	235,441	$	161,218	$	253,835	$	179,568
Special mention	—		2,160		2,553		272		12,245		8,071		14,798		10,503
Substandard	1,675		1,018		1,264		1,324		23,144		10,390		26,083		12,732
Total	$	10,378	$	6,726	$	13,508	$	16,398	$	270,830	$	179,679	$	294,716	$	202,803

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	2,565	$	2,206	$	76,480	$	39,578	$	79,045	$	41,784
Special mention	—		—		8,394		3,810		8,394		3,810
Substandard	—		—		5,830		2,932		5,830		2,932
Total	$	2,565	$	2,206	$	90,704	$	46,320	$	93,269	$	48,526

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	73,523	$	71,752	$	27,885	$	32,248	$	101,408	$	104,000
Nonperforming	37		75		141		138		178		213
Total	$	73,560	$	71,827	$	28,026	$	32,386	$	101,586	$	104,213

Schedule of recorded investment and number of moodifications identified during the period

	Modifications by Class
	Nine months ending September 30, 2012
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential- 1-4 Family	1	$	70	$	70

Schedule of TDR activity

	September 30,
(In thousands)	2012		2011
Balance at beginning of the period	$	1,264	$	7,829
Principal Payments	6		72
TDR Status Change (1)	1,125		7,041
Other Reductions (2)	—		189
Newly Identified TDRs	2,043		177
Balance at end of the period	$	2,176	$	704

(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.

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SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY (Tables)

9 Months Ended

Sep. 30, 2012

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

Summary of securities available for sale and held to maturity

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2012
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	76,481	$	5,855	$	—		$	82,336
Government guaranteed residential mortgage-backed
securities	43,964		983		—			44,947
Government-sponsored residential mortgage-backed
securities	278,145		2,404		(537		)	280,012
Corporate bonds	9,997		22		(316		)	9,703
Trust preferred securities	19,979		1,101		(2,011		)	19,069
Other bonds and obligations	291		1		—			292
Total debt securities	428,857		10,366		(2,864		)	436,359
Equity securities:
Marketable equity securities	27,498		3,804		(217		)	31,085
Total securities available for sale	456,355		14,170		(3,081		)	467,444
Securities held to maturity
Municipal bonds and obligations	8,020		—		—			8,020
Government-sponsored residential mortgage-backed
securities	76		8		—			84
Tax advantaged economic development bonds	42,021		2,056		(328		)	43,749
Other bonds and obligations	1,039		—		—			1,039
Total securities held to maturity	51,156		2,064		(328		)	52,892
Total Securities	$	507,511	$	16,234	$	(3,409	)	$	520,336
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

Schedule of amortized cost and estimated fair value of available for sale (AFS) and held to maturity (HTM) securities, segregated by contractual maturity

	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Within 1 year	$	—	$	—	$	4,913	$	4,913
Over 1 year to 5 years	9,722		9,579		3,532		3,596
Over 5 years to 10 years	16,844		17,613		24,541		25,806
Over 10 years	80,182		84,208		18,094		18,493
Total bonds and obligations	106,748		111,400		51,080		52,808
Marketable equity securities	27,498		31,085		—		—
Residential mortgage-backed securities	322,109		324,959		76		84
Total	$	456,355	$	467,444	$	51,156	$	52,892

Schedule of securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions

	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
September 30, 2012
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	421	$	79,986	$	116	$	17,196	$	537	$	97,182
Corporate bonds	—		—		316		6,684		316		6,684
Trust preferred securities	—		—		2,011		3,622		2,011		3,622
Total debt securities	421		79,986		2,443		27,502		2,864		107,488
Marketable equity securities	6		4,665		211		1,788		217		6,453
Total securities available for sale	427		84,651		2,654		29,290		3,081		113,941
Securities held to maturity
Tax advantaged economic development bonds	328		8,239		—		—		328		8,239
Total securities held to maturity	328		8,239		—		—		328		8,239
Total	$	755	$	92,890	$	2,654	$	29,290	$	3,409	$	122,180
December 31, 2011
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	376	$	76,326	$	36	$	5,766	$	412	$	82,092
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

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BORROWED FUNDS (Details 3) (USD $) In Millions, unless otherwise specified	0 Months Ended		0 Months Ended			9 Months Ended
	Sep. 28, 2012 Notes	Sep. 28, 2012 Notes Period from and including September 28, 2012 to but excluding September 28, 2022	Sep. 28, 2012 Notes Period from and including September 28, 2022 Three-month LIBOR rate	Sep. 30, 2012 Junior subordinated debentures Trust I	Dec. 31, 2011 Junior subordinated debentures Trust I	Sep. 30, 2012 Junior subordinated debentures Trust I Maximum	Sep. 30, 2012 Junior subordinated debentures LIBOR Trust I
Borrowed Funds
Principal amount of debt issued	$ 75.0
Fixed interest rate (as a percent)	6.875%
Discount rate (as a percent)	1.15%
Interest rate per year (as a percent)		6.875%
Variable interest rate base			three-month LIBOR				LIBOR
Interest rate margin (as a percent)			5.113%				1.85%
Common stock of trust (as a percent)				100.00%
Common stock of trust included in other asset				0.5
Sole asset of trust in form of debt				$ 15.5
Variable interest rate (as a percent)				2.28%	2.35%
Period up to which interest payments can be deferred						5 years

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SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Available for sale, Amortized Cost
Over 1 year to 5 years	$ 9,722
Over 5 years to 10 years	16,844
Over 10 years	80,182
Total bonds and obligations	106,748
Marketable equity securities	27,498
Residential mortgage-backed securities	322,109
Amortized Cost	456,355	413,458
Available for sale, Fair Value
Over 1 year to 5 years	9,579
Over 5 years to 10 years	17,613
Over 10 years	84,208
Total bonds and obligations	111,400
Marketable equity securities	31,085
Residential mortgage-backed securities	324,959
Fair Value	467,444	419,756
Held to maturity, Amortized Cost
Within 1 year	4,913
Over 1 year to 5 years	3,532
Over 5 years to 10 years	24,541
Over 10 years	18,094
Total bonds and obligations	51,080
Residential mortgage-backed securities	76
Amortized Cost	51,156	58,912
Held to maturity, Fair Value
Within 1 year	4,913
Over 1 year to 5 years	3,596
Over 5 years to 10 years	25,806
Over 10 years	18,493
Total bonds and obligations	52,808
Residential mortgage-backed securities	84
Fair Value	$ 52,892	$ 60,395

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DEPOSITS (Tables)

9 Months Ended

Sep. 30, 2012

DEPOSITS.

Summary of time deposits

(In thousands)	September 30, 2012		December 31, 2011 (1)
Time less than $100,000	$	503,316	$	511,592
Time $100,000 or more	524,970		491,046
Total time deposits	$	1,028,286	$	1,002,638

(1) Amounts include balances associated with discontinued operations.

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BORROWED FUNDS (Tables)

9 Months Ended

Sep. 30, 2012

BORROWED FUNDS.

Schedule of borrowed funds

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLB	$	311,866	0.35	%	$	10,000	49.00	%
Long-term borrowings:
Advances from the FHLB	133,357		1.61	%	211,938		1.37	%
Private placement subordinated notes	74,138		6.88	%	—		—
Junior subordinated debentures	15,464		2.28	%	15,464		2.35	%
Other borrowings	2,023		3.50	%	—		—
Total	$	536,848	1.63	%	$	237,402	1.27	%

Summary of FHLBB advances

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Fixed rate advances maturing:
2012	$	261,800	0.28	%	$	10,000	0.16	%
2013	13,406		0.63	%	16,727		1.44	%
2014	20,346		2.98	%	20,543		3.01	%
2016 and beyond	7,179		3.16	%	10,579		4.10	%
Total fixed rate advances	$	302,731	0.54	%	$	57,849	2.26	%
Variable rate advances maturing:
2012	$	4,990	1.30	%	$	34,940	0.59	%
2013	62,502		1.55	%	59,149		1.37	%
2014	10,000		0.47	%	10,000		0.64	%
2015	20,000		0.51	%	20,000		0.42	%
2016 and beyond	45,000		0.94	%	40,000		0.42	%
Total variable rate advances	$	142,492	1.12	%	$	164,089	0.81	%
Total	$	445,223	0.73	%	$	221,938	1.19	%

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cash dividends declared, per share	$ 0.51	$ 0.48

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STOCKHOLDERS' EQUITY (Tables)

9 Months Ended

Sep. 30, 2012

STOCKHOLDERS' EQUITY

Schedule of actual and required capital ratios

					FDIC Minimum
	Septemeber 30, 2012		December 31, 2011		to be Well Capitalized
Total capital to risk weighted assets	11.2	%	11.3	%	10.0	%
Tier 1 capital to risk weighted assets	10.1		10.2		6.0
Tier 1 capital to average assets	7.7		8.4		5.0

Schedule of components of accumulated other comprehensive loss

(In thousands)	September 30, 2012			December 31, 2011
Net unrealized holding gain (loss) on AFS securities	$	11,089		$	6,298
Net loss on effective cash flow hedging derivatives	(12,102		)	(8,882		)
Net loss on terminated swap	(4,415		)	(5,121		)
Net unrealized holding gain (loss) on pension plans	(932		)	(676		)
Tax effects	2,898			3,496
Accumulated other comprehensive loss	$	(3,462	)	$	(4,885	)

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ACQUISITIONS (Details) (USD $)	1 Months Ended	9 Months Ended	12 Months Ended
	Apr. 30, 2012 item	Sep. 30, 2012	Dec. 31, 2011	Apr. 20, 2012	Apr. 19, 2012
ACQUISITIONS
Outstanding common shares		22,212,764	21,147,736
Carrying value of assets		$ 4,634,234,000	$ 3,991,204,000
Carrying value of loans outstanding		3,385,302,000	2,924,126,000
Carrying value of deposits		3,449,808,000	3,101,175,000
Recognized Amounts of Identifiable Assets and (Liabilities Assumed), At Fair Value:
Cash and short term investments				10,567,000
Investment securities				41,382,000
Loans				209,592,000
Premises and equipment				1,393,000
Core deposit intangibles				1,000,000
Other intangibles				(238,000)
Other assets				10,749,000
Deposits				(210,135,000)
Borrowings				(38,885,000)
Other Liabilities				(2,187,000)
Total identifiable net assets				23,238,000
Goodwill				14,146,000
Carrying amount of impaired loans		23,800,000
Carrying amount of nonimpaired loans		192,000,000
Deferred tax assets carryforwards recognized		4,800,000
Information about the acquired loan portfolio
Loans				209,592,000
As Acquired
Recognized Amounts of Identifiable Assets and (Liabilities Assumed), At Fair Value:
Cash and short term investments				10,567,000
Investment securities				41,428,000
Loans				215,773,000
Premises and equipment				1,393,000
Other assets				3,081,000
Deposits				(209,707,000)
Borrowings				(35,865,000)
Other Liabilities				(1,978,000)
Total identifiable net assets				24,692,000
Information about the acquired loan portfolio
Loans				215,773,000
Fair Value Adjustments
Recognized Amounts of Identifiable Assets and (Liabilities Assumed), At Fair Value:
Investment securities				(46,000)
Loans				(6,181,000)
Core deposit intangibles				1,000,000
Other intangibles				(238,000)
Other assets				7,668,000
Deposits				(428,000)
Borrowings				(3,020,000)
Other Liabilities				(209,000)
Total identifiable net assets				(1,454,000)
Information about the acquired loan portfolio
Loans				(6,181,000)
CBT
ACQUISITIONS
Number of banking offices operated	8
Number of shares of common stock issued to acquiree's shareholders	965,000
Outstanding common shares				3,600,000
Cash paid per share (in dollars per share)				$ 8.25
Percentage of the outstanding common stock paid in cash				30.00%
Percentage of the outstanding common stock exchanged for entity's stock				70.00%
Stock exchange ratio for each share of acquiree's stock				0.381
Share price per share (in dollars per share)					$ 22.80
Carrying value of assets				268,800,000
Carrying value of loans outstanding				215,800,000
Carrying value of deposits				209,700,000
Consideration Paid:
Berkshire Hills Bancorp common stock issued to CBT common stockholders				21,992,000
Cash consideration paid				8,952,000
Repurchase of CBT's preferred stock and warrant	6,290,000
Cash consideration paid for CBT employee stock options				150,000
Total consideration paid				37,384,000
Recognized Amounts of Identifiable Assets and (Liabilities Assumed), At Fair Value:
Loans				15,347,000
Information about the acquired loan portfolio
Contractually required principal and interest at acquisition				23,726,000
Contractually cash flows not expected to be collected (nonaccretable discount)				(5,563,000)
Expected cash flows at acquisition				18,163,000
Interest component of expected cash flows (accretable discount)				(2,816,000)
Loans				15,347,000
Estimated useful life of core deposits intangible asset	8 years
Acquisition related cost incurred		3,800,000	300,000
CBT | Non-Cumulative Perpetual Preferred Stock, Series A
Consideration Paid:
Repurchase of CBT's preferred stock and warrant	5,400,000
CBT | Warrants
Consideration Paid:
Repurchase of CBT's preferred stock and warrant	800,000
Greenpark
Consideration Paid:
Cash consideration paid	4,000,000
Cash paid for certain prepaid assets	58,000
Payoff of Greenpark's line of credit	46,496,000
Premiums paid for loans, and loan commitments	2,770,000
Contingent purchase price	1,087,000
Total consideration paid	54,411,000
Recognized Amounts of Identifiable Assets and (Liabilities Assumed), At Fair Value:
Loans	48,408,000
Premises and equipment	98,000
Other assets	2,621,000
Other Liabilities	(862,000)
Total identifiable net assets	50,265,000
Goodwill	4,146,000
Information about the acquired loan portfolio
Loans	48,408,000
Acquisition related cost incurred		500,000
Period over which earn out payments will be made to seller	5 years
Greenpark | Minimum
Information about the acquired loan portfolio
Expected annual earn out payments to estimate fair value of the contingent liability	200,000
Greenpark | Maximum
Information about the acquired loan portfolio
Expected annual earn out payments to estimate fair value of the contingent liability	$ 300,000

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DEPOSITS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Summary of time deposits
Total time deposits	$ 1,028,286	$ 975,734
Continuing and discontinuing operations
Summary of time deposits
Time less than $100,000	503,316	511,592
Time $100,000 or more	524,970	491,046
Total time deposits	$ 1,028,286	$ 1,002,638

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 48,214	$ 46,713
Short-term investments	33,834	28,646
Total cash and cash equivalents	82,048	75,359
Trading security	17,237	17,395
Securities available for sale, at fair value	467,444	419,756
Securities held to maturity (fair values of $52,892 and $60,395)	51,156	58,912
Federal Home Loan Bank stock and other restricted securities	37,135	37,118
Total securities	572,972	533,181
Loans held for sale	114,698	1,455
Residential mortgages	1,226,022	1,020,435
Commercial mortgages	1,255,172	1,156,241
Commercial business loans	568,781	410,292
Consumer loans	368,417	369,602
Total loans	3,418,392	2,956,570
Less: Allowance for loan losses	(33,090)	(32,444)
Net loans	3,385,302	2,924,126
Premises and equipment, net	70,707	60,139
Other real estate owned	1,399	1,900
Goodwill	220,688	202,391
Other intangible assets	17,991	20,973
Cash surrender value of bank-owned life insurance policies	76,904	75,009
Other assets	91,525	91,309
Assets from discontinued operations		5,362
Total assets	4,634,234	3,991,204
Liabilities
Demand deposits	560,452	447,414
NOW deposits	296,219	272,204
Money market deposits	1,183,247	1,055,306
Savings deposits	381,604	350,517
Time deposits	1,028,286	975,734
Total deposits	3,449,808	3,101,175
Short-term debt	311,866	10,000
Long-term Federal Home Loan Bank advances	133,357	211,938
Subordinated debentures	89,602	15,464
Other borrowings	2,023
Total borrowings	536,848	237,402
Other liabilities	56,657	43,758
Liabilities from discontinued operations		55,504
Total liabilities	4,043,313	3,437,839
Stockholders' equity
Common stock ($.01 par value; 50,000,000 shares authorized and 23,824,972 shares issued and 22,212,764 shares outstanding in 2012; 22,860,368 shares issued and 21,147,736 shares outstanding in 2011)	238	229
Additional paid-in capital	516,056	494,304
Unearned compensation	(3,645)	(2,790)
Retained earnings	122,107	109,477
Accumulated other comprehensive loss	(3,462)	(4,885)
Treasury stock, at cost (1,612,208 shares in 2012 and 1,712,632 shares in 2011)	(40,373)	(42,970)
Total stockholders' equity	590,921	553,365
Total liabilities and stockholders' equity	$ 4,634,234	$ 3,991,204

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SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY (Details 3) (USD $)	9 Months Ended
	Sep. 30, 2012 item	Dec. 31, 2011
Securities available for sale
Less Than Twelve Months, Gross Unrealized Losses	$ 427,000	$ 1,402,000
Less Than Twelve Months, Fair Value	84,651,000	91,872,000
Over Twelve Months, Gross Unrealized Losses	2,654,000	2,653,000
Over Twelve Months, Fair Value	29,290,000	11,782,000
Total Gross Unrealized Losses	3,081,000	4,055,000
Total Fair Value	113,941,000	103,654,000
Securities held to maturity
Less Than Twelve Months, Gross Unrealized Losses	328,000
Less Than Twelve Months, Fair Value	8,239,000
Total Gross Unrealized Losses	328,000
Total Fair Value	8,239,000
Securities available for sale and held to maturity
Less Than Twelve Months, Gross Unrealized Losses	755,000
Less Than Twelve Months, Fair Value	92,890,000
Over Twelve Months, Gross Unrealized Losses	2,654,000
Over Twelve Months, Fair Value	29,290,000
Total Gross Unrealized Losses	3,409,000
Total Fair Value	122,180,000
Debt Securities
Total unrealized losses	3,081,000	4,055,000
Fair value of investment	467,444,000	419,756,000
Level 3
Debt Securities
Fair value of investment	817,000
Debt securities
Securities available for sale
Less Than Twelve Months, Gross Unrealized Losses	421,000	620,000
Less Than Twelve Months, Fair Value	79,986,000	85,643,000
Over Twelve Months, Gross Unrealized Losses	2,443,000	2,653,000
Over Twelve Months, Fair Value	27,502,000	11,782,000
Total Gross Unrealized Losses	2,864,000	3,273,000
Total Fair Value	107,488,000	97,425,000
Debt Securities
Total unrealized losses	2,864,000	3,273,000
Fair value of investment	436,359,000	398,747,000
Residential mortgage-backed securities
Debt Securities
Number of AFS investment securities in an unrealized loss position	18
Number of securities in the portfolio of AFS	166
Aggregate unrealized losses as a percentage of the amortized cost of the securities in unrealized loss positions	1.00%
Government-sponsored residential mortgage-backed securities
Securities available for sale
Less Than Twelve Months, Gross Unrealized Losses	421,000	376,000
Less Than Twelve Months, Fair Value	79,986,000	76,326,000
Over Twelve Months, Gross Unrealized Losses	116,000	36,000
Over Twelve Months, Fair Value	17,196,000	5,766,000
Total Gross Unrealized Losses	537,000	412,000
Total Fair Value	97,182,000	82,092,000
Debt Securities
Total unrealized losses	537,000	412,000
Fair value of investment	280,012,000	247,611,000
Corporate bonds
Securities available for sale
Less Than Twelve Months, Gross Unrealized Losses		224,000
Less Than Twelve Months, Fair Value		6,776,000
Over Twelve Months, Gross Unrealized Losses	316,000	45,000
Over Twelve Months, Fair Value	6,684,000	2,951,000
Total Gross Unrealized Losses	316,000	269,000
Total Fair Value	6,684,000	9,727,000
Debt Securities
Number of AFS securities remains investment grade rated	3
Number of AFS investment securities in an unrealized loss position	2
Number of securities in the portfolio of AFS	3
Aggregate unrealized losses as a percentage of the amortized cost of the securities in unrealized loss positions	4.50%
Total unrealized losses	316,000	269,000
Fair value of investment	9,703,000	9,727,000
Trust preferred securities
Securities available for sale
Less Than Twelve Months, Gross Unrealized Losses		20,000
Less Than Twelve Months, Fair Value		2,541,000
Over Twelve Months, Gross Unrealized Losses	2,011,000	2,572,000
Over Twelve Months, Fair Value	3,622,000	3,065,000
Total Gross Unrealized Losses	2,011,000	2,592,000
Total Fair Value	3,622,000	5,606,000
Debt Securities
Number of AFS securities remains investment grade rated	6
Number of AFS securities graded atleast one below investment grade rating	4
Number of AFS investment securities in an unrealized loss position	3
Number of securities in the portfolio of AFS	6
Aggregate unrealized losses as a percentage of the amortized cost of the securities in unrealized loss positions	36.00%
Total unrealized losses	2,011,000	2,592,000
Fair value of investment	19,069,000	17,815,000
Amount of securities issued by banking and insurance entities	360,000,000
Protection from credit loss afforded in excess subordination above current and projected losses	46,000,000
Trust preferred securities | Level 3
Debt Securities
Fair value of investment	800,000
Tax advantaged economic development bonds
Securities held to maturity
Less Than Twelve Months, Gross Unrealized Losses	328,000
Less Than Twelve Months, Fair Value	8,239,000
Total Gross Unrealized Losses	328,000
Total Fair Value	8,239,000
Debt Securities
Aggregate unrealized losses as a percentage of the amortized cost of the securities in unrealized loss positions	3.80%
Number of HTM investment securities in an unrealized loss position	1
Number of securities in the portfolio of HTM	8
Equity securities, Marketable equity securities
Securities available for sale
Less Than Twelve Months, Gross Unrealized Losses	6,000	782,000
Less Than Twelve Months, Fair Value	4,665,000	6,229,000
Over Twelve Months, Gross Unrealized Losses	211,000
Over Twelve Months, Fair Value	1,788,000
Total Gross Unrealized Losses	217,000	782,000
Total Fair Value	6,453,000	6,229,000
Debt Securities
Number of AFS investment securities in an unrealized loss position	3
Number of securities in the portfolio of AFS	22
Aggregate unrealized losses as a percentage of the amortized cost of the securities in unrealized loss positions	3.30%
Total unrealized losses	217,000	782,000
Fair value of investment	31,085,000	21,009,000
Mezzanine Class B tranche
Debt Securities
Total unrealized losses	1,800,000
Fair value of investment	$ 2,600,000

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 10,029	$ 4,392	$ 23,859	$ 9,104
Other comprehensive income
Changes in unrealized gains on securities available-for-sale	2,103	(538)	4,790	1,355
Changes in unrealized losses gains on derivative hedges	(1,015)	(1,042)	(3,219)	(606)
Changes in unrealized gains on terminated swaps	235	235	706	706
Changes in unrealized losses on pension			(257)
Income taxes related to other comprehensive income	(449)	499	(597)	(585)
Total other comprehensive income (loss)	874	(846)	1,423	870
Total comprehensive income	$ 10,903	$ 3,546	$ 25,282	$ 9,974

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EARNINGS PER SHARE (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings per share
Net income from continuing operations	$ 10,029	$ 4,397	$ 24,496	$ 9,109
Loss from discontinued operations before income taxes (including gain on disposal)		(8)	(261)	(8)
Gain on disposal			63
Income tax expense		(3)	376	(3)
Net loss from discontinued operations		(5)	(637)	(5)
Net income	$ 10,029	$ 4,392	$ 23,859	$ 9,104
Average number of common shares issued	23,825	21,929	23,438	18,784
Less: average number of treasury shares	1,614	1,728	1,653	1,750
Less: average number of unvested stock award shares	290	192	244	171
Average number of basic common shares outstanding	21,921	20,009	21,541	16,863
Average number of diluted common shares outstanding	22,031	20,105	21,635	16,915
Basic earnings per share:
Continuing operations (in dollars per share)	$ 0.46	$ 0.22	$ 1.14	$ 0.54
Discontinued operations (in dollars per share)			$ (0.03)
Total basic earnings per share (in dollars per share)	$ 0.46	$ 0.22	$ 1.11	$ 0.54
Diluted earnings per share:
Continuing operations (in dollars per share)	$ 0.46	$ 0.22	$ 1.13	$ 0.54
Discontinued operations (in dollars per share)			$ (0.03)
Total diluted earnings per share (in dollars per share)	$ 0.46	$ 0.22	$ 1.10	$ 0.54
Unvested stock award shares
Earnings per share
Plus: dilutive effect of share-based payment arrangements (in shares)	72	90	1	49
Stock options
Earnings per share
Plus: dilutive effect of share-based payment arrangements (in shares)	38	6	93	3

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OPERATING SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2012

OPERATING SEGMENTS

Summary of the operating segments

(In thousands)	Banking			Insurance		Parent			Eliminations			Total Consolidated
Three months ended September 30, 2012
Net interest income (expense)	$	35,505		$	—	$	(280	)	$	—		$	35,225
Provision for loan losses	2,500			—		—			—			2,500
Non-interest income	11,571			2,742		10,294			(10,294		)	14,313
Non-interest expense	29,608			2,021		533			—			32,162
Income (loss) before income taxes	14,968			721		9,481			(10,294		)	14,876
Income tax expense (benefit)	5,105			290		(548		)	—			4,847
Net income	$	9,863		$	431	$	10,029		$	(10,294	)	$	10,029
Average assets (in millions)	$	4,409		$	29	$	501		$	(368	)	$	4,572
Three months ended September 30, 2011
Net interest income (expense)	$	31,253		$	—	$	(215	)	$	—		$	31,038
Provision for loan losses	2,200			—		—			—			2,200
Non-interest income	8,248			2,426		3,570			(3,570		)	10,674
Non-interest expense	34,163			2,148		(1,602		)	1			34,710
Income (loss) before income taxes	3,138			278		4,957			(3,571		)	4,802
Income tax expense (benefit)	(272		)	114		569			(1		)	410
Net income	$	3,410		$	164	$	4,388		$	(3,570	)	$	4,392
Average assets (in millions)	$	3,827		$	30	$	479		$	(475	)	$	3,861
Nine months ended September 30, 2012
Net interest income (expense)	$	102,095		$	—	$	(672	)	$	—		$	101,423
Provision for loan losses	6,750			—		—			—			6,750
Non-interest income	28,147			8,256		25,546			(25,546		)	36,403
Non-interest expense	88,061			6,329		2,150			—			96,540
Income (loss) before income taxes	35,431			1,927		22,724			(25,546		)	34,536
Income tax expense (benefit)	10,400			775		(1,135		)	—			10,040
Net income	$	25,031		$	1,152	$	23,859		$	(25,546	)	$	24,496
Income from discontinued operations berofre income taxes (including gain on disposal of $63)	(261		)	—		—			—			(261		)
Income tax expense	376			—		—			—			376
Net loss from discontinued operations	$	(637	)	$	—	$	—		$	—		$	(637	)
Net income	$	24,394		$	1,152	$	23,859		$	(25,546	)	$	23,859
Average assets (in millions)	$	4,185		$	30	$	492		$	(405	)	$	4,302
Nine months ended September 30, 2011
Net interest income (expense)	$	76,017		$	—	$	(631	)	$	(1	)	$	75,385
Provision for loan losses	5,300			—		—			—			5,300
Non-interest income	18,035			8,938		7,068			(7,068		)	26,973
Non-interest expense	76,893			6,598		3,031			—			86,522
Income before income taxes	11,859			2,340		3,406			(7,069		)	10,536
Income tax expense (benefit)	1,968			958		(1,494		)	—			1,432
Net income	9,891			1,382		4,900			(7,069		)	9,104
Average assets (in millions)	$	3,281		$	32	$	413		$	(411	)	$	3,315

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FAIR VALUE MEASUREMENTS (Details 2) (Level 2, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Loans Held for Sale
Aggregate Fair Value	$ 114,698
Loans held for sale
Loans Held for Sale
Aggregate Fair Value	114,698
Aggregate Unpaid Principal	109,746
Aggregate Fair Value Less Aggregate Unpaid Principal	$ 4,952

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2012

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, 2012, the Company held derivatives with a total notional amount of $1.3 billion.  That amount included $270.0 million in interest rate swap derivatives that were designated as cash flow hedges for accounting purposes.  The Company also had economic hedges and non-hedging derivatives totaling $741.6 million and $275.8 million, respectively, which are not designated as accounting hedges.  Economic hedges included interest rate swaps totaling $410.9 million, and $330.6 million in forward commitment contracts.

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at September 30, 2012.

The Company pledged collateral to derivative counterparties in the form of cash totaling $5.3 million and securities with an amortized cost of $34.3 million and a fair value of $35.2 million as of September 30, 2012. The Company does not typically require its Commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the 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 September 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	$	115,000	1.8	0.44	%	3.47	%	$	(5,509	)
Forward-starting interest rate swaps on FHLBB borrowings	140,000		5.7	—	%	2.37	%	(5,920		)
Interest rate swaps on junior subordinated debentures	15,000		1.6	2.28	%	5.54	%	(829		)
Total cash flow hedges	270,000							(12,258		)
Economic hedges:
Interest rate swap on tax advantaged economic development bond	13,734		17.2	0.60	%	5.09	%	(3,719		)
Interest rate swaps on loans with commercial loan customers	198,600		5.2	2.58	%	5.35	%	(16,290		)
Reverse interest rate swaps on loans with commercial loan customers	198,600		5.2	5.35	%	2.58	%	15,747
Forward commitments	330,632		0.2					(4,669		)
Total economic hedges	741,566							(8,931		)
Non-hedging derivatives:
Interest rate lock commitments	275,756		0.2					7,833
Total non-hedging derivatives	275,756							7,833
Total	$	1,287,322						$	(13,356	)

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	)

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 $115.0 million to convert the LIBOR based floating interest rates on a $115.0 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 thirteen forward-starting interest rate swaps with a combined notional value of $140.0 million. Of the thirteen forward starting swaps, four will become effective by the close of the second quarter in 2013, two of which have a duration of one year, one with a duration of four years, and the other with a duration of five years. In 2014, seven of the remaining nine forward starting swaps will become effective; 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 last two forward starting swaps will become effective in 2015, one of which has a duration of four years and the other of which has a duration of 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 September 30,						Nine Months Ended September 30,
(In thousands)	2012			2011			2012			2011
Interest rate swaps on FHLBB borrowings:
Unrealized (loss) gain recognized in accumulated other comprehensive loss	$	(1,086	)	$	(987	)	$	(3,446	)	$	(544	)
Reclassification of unrealized loss from accumulated other comprehensive loss to non-interest income for hedge ineffectiveness	11			11			31			31
Reclassification of realized gain from accumulated other comprehensive loss to other non-interest income for termination of swaps	235			235			706			706
Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps	(98		)	(98		)	(226		)	(293		)
Net tax benefit (expense) on items recognized in accumulated other comprehensive loss	441			407			1,448			210
Interest rate swaps on junior subordinated debentures:
Unrealized gain (loss) recognized in accumulated other comprehensive loss	71			(65		)	226			(62		)
Net tax (expense) benefit on items recognized in accumulated other comprehensive loss	(28		)	27			(89		)	24
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects	$	(454	)	$	(470	)	$	(1,350	)	$	72
Net interest expense recognized in interest expense on hedged FHLBB borrowings	$	1,121		$	1,239		$	3,327		$	3,663
Net interest expense recognized in interest expense on junior subordinated debentures	$	148		$	131		$	363		$	386

Hedge ineffectiveness on interest rate swaps designated as cash flow hedges was immaterial to the Company’s financial statements during the nine months ended September 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 $5.3 million will be reclassified as an increase to interest expense.

Economic hedges

The Company has an interest rate swap with a $13.7 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 $502 thousand as of September 30, 2012.  The interest income and expense on these mirror image swaps exactly offset each other.

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

The company uses the following types of forward commitments contracts:

·              Best efforts loan sales,

·              Mandatory delivery loan sales, and

·              To be announced (TBA) mortgage-backed securities sales.

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

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

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

Non-hedging derivatives

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

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

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
(In thousands)	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	)	$	(1,812	)	$	(473	)	$	(2,137	)
Unrealized gain recognized in other non-interest income	(24		)	—			(1,118		)	(69		)
Interest rate swaps on loans with commercial loan customers:
Unrealized gain recognized in other non-interest income	859			6,133			4,119			7,073
Reverse interest rate swaps on loans with commercial loan customers:
Unrealized loss recognized in other non-interest income	(859		)	(6,133		)	(4,119		)	(7,073		)
Favorable (unfavorable) change in credit valuation adjustment recognized in other non-interest income	$	(31	)	$	(281	)	$	(22	)	$	(464	)
Forward commitments
Unrealized loss recognized in other non-interest income	$	(6,832	)	$	(182	)	$	(8,963	)	$	(292	)
Non-hedging derivatives
Interest rate lock commitments
Unrealized gain recognized in other non-interest income	$	10,858		$	182		$	15,195		$	256

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

9 Months Ended

Sep. 30, 2012

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Schedule of interest rate swap agreements and non-hedging derivative assets and liabilities

Information about interest rate swap agreements and non-hedging derivative assets and liabilities at September 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	$	115,000	1.8	0.44	%	3.47	%	$	(5,509	)
Forward-starting interest rate swaps on FHLBB borrowings	140,000		5.7	—	%	2.37	%	(5,920		)
Interest rate swaps on junior subordinated debentures	15,000		1.6	2.28	%	5.54	%	(829		)
Total cash flow hedges	270,000							(12,258		)
Economic hedges:
Interest rate swap on tax advantaged economic development bond	13,734		17.2	0.60	%	5.09	%	(3,719		)
Interest rate swaps on loans with commercial loan customers	198,600		5.2	2.58	%	5.35	%	(16,290		)
Reverse interest rate swaps on loans with commercial loan customers	198,600		5.2	5.35	%	2.58	%	15,747
Forward commitments	330,632		0.2					(4,669		)
Total economic hedges	741,566							(8,931		)
Non-hedging derivatives:
Interest rate lock commitments	275,756		0.2					7,833
Total non-hedging derivatives	275,756							7,833
Total	$	1,287,322						$	(13,356	)

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	)

Schedule of amounts included in the consolidated statements of income and in the other comprehensive income section of the consolidated statements of changes in stockholders' equity

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2012			2011			2012			2011
Interest rate swaps on FHLBB borrowings:
Unrealized (loss) gain recognized in accumulated other comprehensive loss	$	(1,086	)	$	(987	)	$	(3,446	)	$	(544	)
Reclassification of unrealized loss from accumulated other comprehensive loss to non-interest income for hedge ineffectiveness	11			11			31			31
Reclassification of realized gain from accumulated other comprehensive loss to other non-interest income for termination of swaps	235			235			706			706
Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps	(98		)	(98		)	(226		)	(293		)
Net tax benefit (expense) on items recognized in accumulated other comprehensive loss	441			407			1,448			210
Interest rate swaps on junior subordinated debentures:
Unrealized gain (loss) recognized in accumulated other comprehensive loss	71			(65		)	226			(62		)
Net tax (expense) benefit on items recognized in accumulated other comprehensive loss	(28		)	27			(89		)	24
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects	$	(454	)	$	(470	)	$	(1,350	)	$	72
Net interest expense recognized in interest expense on hedged FHLBB borrowings	$	1,121		$	1,239		$	3,327		$	3,663
Net interest expense recognized in interest expense on junior subordinated debentures	$	148		$	131		$	363		$	386

Schedule of amounts included in the consolidated statements of income related to economic hedges and non-hedging derivatives

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,
(In thousands)	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	)	$	(1,812	)	$	(473	)	$	(2,137	)
Unrealized gain recognized in other non-interest income	(24		)	—			(1,118		)	(69		)
Interest rate swaps on loans with commercial loan customers:
Unrealized gain recognized in other non-interest income	859			6,133			4,119			7,073
Reverse interest rate swaps on loans with commercial loan customers:
Unrealized loss recognized in other non-interest income	(859		)	(6,133		)	(4,119		)	(7,073		)
Favorable (unfavorable) change in credit valuation adjustment recognized in other non-interest income	$	(31	)	$	(281	)	$	(22	)	$	(464	)
Forward commitments
Unrealized loss recognized in other non-interest income	$	(6,832	)	$	(182	)	$	(8,963	)	$	(292	)
Non-hedging derivatives
Interest rate lock commitments
Unrealized gain recognized in other non-interest income	$	10,858		$	182		$	15,195		$	256

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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2012

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

NOTE 15. NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

Presented below is net interest income after provision for loan losses for the three and nine months ended September 30, 2012 and 2011, respectively.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
Net interest income	$	35,225	$	31,038	$	101,423	$	75,385
Provision for loan losses	2,500		2,200		6,750		5,300
Net interest income after provision for loan losses	$	32,725	$	28,838	$	94,673	$	70,085

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FAIR VALUE MEASUREMENTS (Details 5) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Financial Assets
Securities available for sale	$ 467,444	$ 419,756
Methods and assumptions used to estimate the fair value of significant classes of financial instruments
Junior subordinated debentures re-price period	90 days
Level 1
Financial Assets
Cash and cash equivalents	48,214
Securities available for sale	31,085
Financial Liabilities
Derivative liabilities	4,669
Level 2
Financial Assets
Securities available for sale	435,542
Restricted equity securities	37,135
Loans held for sale	114,698
Accrued interest receivable	13,640
Cash surrender value of bank-owned life insurance policies	76,904
Derivative assets	15,747
Financial Liabilities
Total deposits	3,464,962
Short-term debt	61,800
Long-term Federal Home Loan Bank advances	393,703
Junior subordinated debentures	87,901
Derivative liabilities	32,244
Level 3
Financial Assets
Trading security	17,237
Securities available for sale	817
Securities held to maturity	52,892
Net loans	3,411,331
Derivative assets	7,832
Carrying Amount
Financial Assets
Cash and cash equivalents	48,214	75,359
Trading security	17,237	17,395
Securities available for sale	467,444	419,756
Securities held to maturity	51,156	58,912
Restricted equity securities	37,135	37,118
Net loans	3,385,302	2,924,126
Loans held for sale	114,698	1,455
Accrued interest receivable	13,640	11,350
Cash surrender value of bank-owned life insurance policies	76,904	75,009
Derivative assets	23,579	13,926
Financial Liabilities
Total deposits	3,453,363	3,101,175
Short-term debt	61,800	10,000
Long-term Federal Home Loan Bank advances	388,999	211,938
Junior subordinated debentures	89,602	15,464
Derivative liabilities	36,913	26,930
Fair Value
Financial Assets
Cash and cash equivalents	48,214	75,359
Trading security	17,237	17,395
Securities available for sale	467,444	419,756
Securities held to maturity	52,892	60,395
Restricted equity securities	37,135	37,118
Net loans	3,411,331	2,990,173
Loans held for sale	114,698	1,455
Accrued interest receivable	13,640	11,350
Cash surrender value of bank-owned life insurance policies	76,904	75,009
Derivative assets	23,579	13,926
Financial Liabilities
Total deposits	3,464,962	3,104,204
Short-term debt	61,800	10,000
Long-term Federal Home Loan Bank advances	393,703	215,008
Junior subordinated debentures	87,901	11,436
Derivative liabilities	$ 36,913	$ 26,930

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Acquisition of Legacy Bancorp, Inc.	Acquisition of Rome Bancorp, Inc.	Acquisition of The Connecticut Bank and Trust Company	Common stock	Common stock Acquisition of Legacy Bancorp, Inc.	Common stock Acquisition of Rome Bancorp, Inc.	Common stock Acquisition of The Connecticut Bank and Trust Company	Additional paid-in capital	Additional paid-in capital Acquisition of Legacy Bancorp, Inc.	Additional paid-in capital Acquisition of Rome Bancorp, Inc.	Additional paid-in capital Acquisition of The Connecticut Bank and Trust Company	Unearned compensation	Retained earnings	Accumulated other comprehensive loss	Treasury stock	Comprehensive income
Balance at Dec. 31, 2010	$ 388,647				$ 158				$ 337,537				$ (1,776)	$ 103,972	$ (6,410)	$ (44,834)
Balance (in shares) at Dec. 31, 2010					14,076
Comprehensive income:
Net income	9,104													9,104			9,104
Other net comprehensive income	870														870		870
Total comprehensive income	9,974																9,974
Acquisitions		101,683	55,490			44	27			101,639	55,463
Acquisitions (in shares)						4,351	2,661
Rome ESOP loan repayment	(943)															(943)
Rome ESOP loan repayment (in shares)					(44)
Cash dividends declared $0.51 and $0.48 for nine months ended September 30, 2012 and 2011, respectively	(8,313)													(8,313)
Forfeited shares									40				463			(503)
Forfeited shares (in shares)					(23)
Exercise of stock options	214													(112)		326
Exercise of stock options (in shares)					13
Restricted stock grants									(404)				(2,730)			3,134
Restricted stock grants (in shares)					125
Stock-based compensation	998								2				996
Net tax benefit related to stock-based compensation	68								68
Other, net	(1,125)								(249)					(364)		(512)
Other, net (in shares)					(25)
Balance at Sep. 30, 2011	546,693				229				494,096				(3,047)	104,287	(5,540)	(43,332)
Balance (in shares) at Sep. 30, 2011					21,134
Balance at Dec. 31, 2011	553,365				229				494,304				(2,790)	109,477	(4,885)	(42,970)
Balance (in shares) at Dec. 31, 2011					21,148
Comprehensive income:
Net income	23,859													23,859			23,859
Other net comprehensive income	1,423														1,423		1,423
Total comprehensive income	25,282																25,282
Acquisitions				21,990				9				21,981
Acquisitions (in shares)								965
Cash dividends declared $0.51 and $0.48 for nine months ended September 30, 2012 and 2011, respectively	(11,147)													(11,147)
Forfeited shares									11				169			(180)
Forfeited shares (in shares)					(8)
Exercise of stock options	376													(82)		458
Exercise of stock options (in shares)					18
Restricted stock grants									(280)				(2,434)			2,714
Restricted stock grants (in shares)					108
Stock-based compensation	1,410												1,410
Net tax benefit related to stock-based compensation	40								40
Other, net	(395)															(395)
Other, net (in shares)					(18)
Balance at Sep. 30, 2012	$ 590,921				$ 238				$ 516,056				$ (3,645)	$ 122,107	$ (3,462)	$ (40,373)
Balance (in shares) at Sep. 30, 2012					22,213

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CONSOLIDATED BALANCE SHEETS
Securities held to maturity, fair values (in dollars)	$ 52,892	$ 60,395
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	23,824,972	22,860,368
Common stock, shares outstanding	22,212,764	21,147,736
Treasury stock, shares	1,612,208	1,712,632

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BORROWED FUNDS

9 Months Ended

Sep. 30, 2012

BORROWED FUNDS.

BORROWED FUNDS

NOTE 8.               BORROWED FUNDS

Borrowed funds at September 30, 2012 and December 31, 2011 are summarized, as follows:

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLB	$	311,866	0.35	%	$	10,000	49.00	%
Long-term borrowings:
Advances from the FHLB	133,357		1.61	%	211,938		1.37	%
Private placement subordinated notes	74,138		6.88	%	—		—
Junior subordinated debentures	15,464		2.28	%	15,464		2.35	%
Other borrowings	2,023		3.50	%	—		—
Total	$	536,848	1.63	%	$	237,402	1.27	%

Short-term debt includes Federal Home Loan Bank of Boston (“FHLBB”) advances with an original maturity of less than one year.  Total short-term debt was $311.9 million with a weighted average interest rate of 0.35% and $44.9 million with a weighted average interest rate of 0.49% at September 30, 2012 and December 31, 2011, respectively.  The Bank also maintains a $3.0 million secured line of credit with the FHLBB that bears a daily adjustable rate calculated by the FHLBB. There was no outstanding balance on the FHLBB line of credit for the period ended September 30, 2012 and December 31, 2011.

The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank of Boston took place for the period ended September 30, 2012 and December 31, 2011.

Long-term FHLBB advances consist of advances with an original maturity of more than one year.  The advances outstanding at September 30, 2012 include callable advances totaling $8.0 million, and amortizing advances totaling $5.7 million.  The advances outstanding at December 31, 2011 include callable advances totaling $8.0 million, and amortizing advances totaling $5.8 million. All FHLBB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

A summary of FHLBB advances as of September 30, 2012 and December 31, 2011 is as follows:

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Fixed rate advances maturing:
2012	$	261,800	0.28	%	$	10,000	0.16	%
2013	13,406		0.63	%	16,727		1.44	%
2014	20,346		2.98	%	20,543		3.01	%
2016 and beyond	7,179		3.16	%	10,579		4.10	%
Total fixed rate advances	$	302,731	0.54	%	$	57,849	2.26	%
Variable rate advances maturing:
2012	$	4,990	1.30	%	$	34,940	0.59	%
2013	62,502		1.55	%	59,149		1.37	%
2014	10,000		0.47	%	10,000		0.64	%
2015	20,000		0.51	%	20,000		0.42	%
2016 and beyond	45,000		0.94	%	40,000		0.42	%
Total variable rate advances	$	142,492	1.12	%	$	164,089	0.81	%
Total	$	445,223	0.73	%	$	221,938	1.19	%

On September 28, 2012, the Company issued $75.0 million principal amount of 6.875% fixed to floating rate subordinated notes (the “notes”) through a private placement at a discount of 1.15%.  The Company will pay interest on the subordinated notes each March 28 and September 28 through September 28, 2022, and thereafter on each March 28, June 28, September 28 and December 28.  The maturity date of the notes is September 28, 2027, although the Company may redeem some or all of the subordinated notes beginning on the interest payment date of September 28, 2022 and on any interest payment date thereafter.  From and including September 28, 2012 to but excluding September 28, 2022, the notes will bear interest at the rate of 6.875% per year and will be payable semi-annually in arrears on March 28 and September 28 of each year. From and including September 28, 2022, the notes will bear an interest rate per annum equal to the three-month LIBOR rate plus 511.3 basis points, payable quarterly on each March 28, June 28, September 28 and December 28, commencing on December 28, 2022, through the maturity date or the early redemption date of the notes.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million.  The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85% and had a rate of 2.28% and 2.35% at September 30, 2012 and December 31, 2011, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to stockholders while such interest payments on the debentures have been deferred.  The Company has not exercised this right to defer payments.  The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary.  Accordingly, Trust I is not consolidated into the Company’s financial statements.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 02, 2012
Document and Entity Information
Entity Registrant Name	BERKSHIRE HILLS BANCORP INC
Entity Central Index Key	0001108134
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		24,912,031
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2012

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 9.               STOCKHOLDERS’ EQUITY

The Bank’s actual and required capital ratios were as follows:

					FDIC Minimum
	Septemeber 30, 2012		December 31, 2011		to be Well Capitalized
Total capital to risk weighted assets	11.2	%	11.3	%	10.0	%
Tier 1 capital to risk weighted assets	10.1		10.2		6.0
Tier 1 capital to average assets	7.7		8.4		5.0

At each date shown, Berkshire Bank met the conditions to be classified as “well capitalized” under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.

Accumulated other comprehensive income

Components of accumulated other comprehensive loss are as follows:

(In thousands)	September 30, 2012			December 31, 2011
Net unrealized holding gain (loss) on AFS securities	$	11,089		$	6,298
Net loss on effective cash flow hedging derivatives	(12,102		)	(8,882		)
Net loss on terminated swap	(4,415		)	(5,121		)
Net unrealized holding gain (loss) on pension plans	(932		)	(676		)
Tax effects	2,898			3,496
Accumulated other comprehensive loss	$	(3,462	)	$	(4,885	)

The Company’s accumulated other comprehensive loss totaled $3.5 million at September 30, 2012.  Of this loss, $16.5 million was attributable to accumulated losses on cash flow hedges and terminated swaps, net of deferred tax benefits of $7.0 million; $11.1 million was attributable to accumulated gains on available-for-sale securities, net of deferred tax expenses of $4.1 million; and $0.9 million was attributable to accumulated losses on pensions.

The Company’s accumulated other comprehensive loss totaled $4.9 million at December 31, 2011.  Of this loss, $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.

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest and dividend income
Loans	$ 39,497	$ 35,719	$ 113,335	$ 88,932
Securities and other	3,626	3,547	11,116	10,300
Total interest and dividend income	43,123	39,266	124,451	99,232
Interest expense
Deposits	5,628	6,097	16,612	17,580
Borrowings and junior subordinated debentures	2,270	2,131	6,416	6,267
Total interest expense	7,898	8,228	23,028	23,847
Net interest income	35,225	31,038	101,423	75,385
Non-interest income
Loan related fees	5,646	934	10,543	2,305
Deposit related fees	3,775	3,885	11,238	9,792
Insurance commissions and fees	2,742	2,431	8,256	8,943
Wealth management fees	1,774	1,607	5,431	4,188
Total fee income	13,937	8,857	35,468	25,228
Other	375	(158)	885	(355)
Gain on sale of securities, net	1	1,975	50	2,105
Total non-interest income	14,313	10,674	36,403	26,978
Total net revenue	49,538	41,712	137,826	102,363
Provision for loan losses	2,500	2,200	6,750	5,300
Non-interest expense
Compensation and benefits	15,992	13,195	45,219	36,373
Occupancy and equipment	4,599	3,883	13,484	10,864
Technology and communications	2,302	1,996	6,518	4,993
Marketing and promotion	419	498	1,548	1,120
Professional services	1,327	1,375	4,185	3,523
FDIC premiums and assessments	907	923	2,458	2,691
Other real estate owned and foreclosures	42	541	215	1,850
Amortization of intangible assets	1,314	1,271	3,982	2,922
Merger, acquisition and conversion related expenses	2,214	9,091	10,522	16,250
Other	3,046	1,937	8,409	5,936
Total non-interest expense	32,162	34,710	96,540	86,522
Income from continuing operations before income taxes	14,876	4,802	34,536	10,541
Income tax expense	4,847	405	10,040	1,432
Net income from continuing operations	10,029	4,397	24,496	9,109
Loss from discontinued operations before income taxes (including gain on disposal of $63)		(8)	(261)	(8)
Income tax expense		(3)	376	(3)
Net loss from discontinued operations		(5)	(637)	(5)
Net income	$ 10,029	$ 4,392	$ 23,859	$ 9,104
Basic earnings per share:
Continuing operations (in dollars per share)	$ 0.46	$ 0.22	$ 1.14	$ 0.54
Discontinued operations (in dollars per share)			$ (0.03)
Total basic earnings per share (in dollars per share)	$ 0.46	$ 0.22	$ 1.11	$ 0.54
Diluted earnings per share:
Continuing operations (in dollars per share)	$ 0.46	$ 0.22	$ 1.13	$ 0.54
Discontinued operations (in dollars per share)			$ (0.03)
Total diluted earnings per share (in dollars per share)	$ 0.46	$ 0.22	$ 1.10	$ 0.54
Weighted average common shares outstanding:
Basic (in shares)	21,921	20,009	21,541	16,863
Diluted (in shares)	22,031	20,105	21,635	16,915

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ACQUISITIONS

9 Months Ended

Sep. 30, 2012

ACQUISITIONS

ACQUISITIONS

NOTE 3.ACQUISITIONS

The Connecticut Bank and Trust Company

On April 20, 2012, the Company 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.  This business combination is an 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 cash.  On the acquisition date, CBT had 3.6 million outstanding common shares.  Through a cash/share election procedure, the Company paid $8.25 per share for 30% of the outstanding common shares and for 70% of the outstanding shares, the Company exchanged its stock in a ratio of 0.381 shares of the Company’s 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 the closing price of Berkshire posted 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 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.

The assets and liabilities in the CBT acquisition 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 CBT’s assets acquired and liabilities assumed are summarized in the following table (in thousands):

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	$	10,567		$	—		$	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	—			1,000		(c)	1,000
Other intangibles	—			(238)		(d)	(238		)
Other assets	3,081			7,668		(e)	10,749
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	$	24,692		$	(1,454	)	$	23,238
Goodwill							$	14,146

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 in accordance with ASC 310-30 had a carrying amount of $23.8 million.  Non-impaired loans not accounted for under 310-30 had a carrying value of $192.0 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 will be amortized over the average life of the deposit base.

(d)Represents an intangible liability related to assumed leases, which was recorded as an identifiable intangible and will be amortized over the remaining life of the leases.

(e)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)Adjusts borrowings to their estimated fair value calculated based on interest rates of similar borrowings available on the date of acquisition.

(h)Adjusts 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.  For collateral dependent loans with deteriorated credit quality, to estimate the fair value we analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral.  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 loans were initially recorded at fair value.

Information about the acquired loan portfolio subject to purchased credit impaired accounting guidance (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 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 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.

Direct merger, acquisition and integration costs of the CBT acquisition were expensed as incurred, and totaled $3.8 million for the first nine months of 2012, and $0.3 million 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, and $46.5 million was paid to retire outstanding bank loans financing 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 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 year, management calculated an expected range of $0.2 million to $0.3 million in annual payments using the 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 $0.5 million during the first nine months of 2012.  The results of Greenpark’s operations are included in the Consolidated Statements of Income from the date of acquisition.

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.

Consideration paid, and fair values of Greenpark’s assets acquired and liabilities assumed are summarized in the following table (in thousands):

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

Explanation of Certain Fair Values

(a)Includes a portion of the cash consideration paid for premiums as described above, which adjusts the loans to fair value.

(b)Represents the 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 fair value of the interest rate lock commitments.

The following table 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 nine months ended September 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, acquisition and integration costs incurred by the Company during 2012 are reversed, as those expenses are assumed to have occurred during 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:

	Pro Forma
	Nine months ended September 30,
	2012		2011
Net interest income	$	105,183	$	84,869
Non-interest income	45,205		40,919
Net income	24,443		9,292
Pro forma earnings per share from continuing operations:
Basic	$	1.16	$	0.52
Diluted	$	1.16	$	0.52

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RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2012

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 2.RECENT ACCOUNTING PRONOUNCEMENTS

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 a consistent definition of fair value and common requirements for the measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets; (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU No. 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) The fair value measurement of instruments classified within an entity’s shareholders’ equity is aligned with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to qualitatively describe the sensitivity of fair value measurements to changes in unobservable inputs and the interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The Company adopted the provisions of ASU No. 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU No. 2011-04 had no impact on the Company’s financial statements.  The required disclosures are incorporated in Note 14 to the Company’s financial statements.

ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all non-owner changes in 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’ 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 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.

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.

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “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 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 disclosures required are incorporated in Note 9 to the Company’s financial statements.

ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”.  In July 2012, the FASB issued ASU No. 2012-02, which permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test,.  ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2012

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 14. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring fair value measurements

The following table summarizes assets and financial liabilities measured at fair value on a recurring basis as of September 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 nine months ended September 30, 2012.

	September 30, 2012
	Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading account security	$	—	$	—	$	17,237	$	17,237
Available-for-sale securities:
Municipal bonds and obligations	—		82,336		—		82,336
Governmentguaranteed residential mortgage-backed securities	—		44,947		—		44,947
Government-sponsored residential mortgage-backed securities	—		280,012		—		280,012
Corporate bonds	—		9,703		—		9,703
Trust preferred securities	—		18,252		817		19,069
Other bonds and obligations	—		292		—		292
Marketable equity securities	31,085		—		—		31,085
Loans held for sale	—		114,698		—		114,698
Derivative assets	—		15,747		7,833		23,580
Derivative liabilities	4,669		32,244		—		36,913

	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. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security.  The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.

Securities Available for Sale. AFS securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. The Company holds one pooled trust preferred security. The security’s fair value is based on unobservable issuer-provided financial information and discounted cash flow models derived from the underlying structured pool and therefore is classified as Level 3.

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

					Aggregate Fair Value
September 30, 2012	Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	114,698	$	109,746	$	4,952

Derivative Assets and Liabilities.

Interest Rate Swap.  The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  However, as of September 30, 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 IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time.  The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan.  The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment.  The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, IRLCs are classified as Level 3 measurements.

Forward Commitments. The Company utilizes forward commitments as economic hedges against the potential decreases in the values of the IRLCs.  The forward commitments are classified as Level 1 and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets.

The table below presents the changes in Level 3 assets that were measured at fair value on a recurring basis at September 30, 2012 and 2011.

	Assets
	Trading			Securities			Interest Rate
	Account			Available			Lock
(In thousands)	Security			for Sale			Commitments
Balance as of December 31, 2011	$	17,395		$	544		$	—
Unrealized gain recognized in other non-interest income	(428		)	—			—
Unrealized loss included in accumulated other comprehensive loss	—			—			—
Paydown of trading account security	(120		)	—			—
Balance as of March 31, 2012	$	16,847		$	544		$	—
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 (loss) gain recognized in other non-interest income	(7		)	—			10,858
Unrealized loss included in accumulated other comprehensive loss	—			204			—
Paydown of trading account security	(121		)	—			—
Transfers to held for sale loans	—			—			(7,053		)
Balance as of September 30, 2012	$	17,237		$	817		$	7,833
Unrealized gains (losses) relating to instruments still held at September 30, 2012	$	3,502		$	(1,784	)	$	10,858

	Assets
	Trading			Securities
	Account			Available
(In thousands)	Security			for Sale
Balance as of December 31, 2010	$	16,155		$	1,695
Unrealized (loss) gain recognized in other non-interest income	(257		)	—
Unrealized loss included in accumulated other comprehensive loss	—			498
Paydown of trading account security	(117		)	—
Balance as of March 31, 2011	$	15,781		$	2,193
Unrealized (loss) gain recognized in other non-interest income	357			—
Unrealized loss included in accumulated other comprehensive loss	—			112
Paydown of trading account security	(114		)	—
Transfer out of Level 3	—			(1,624		)
Balance as of June 30, 2011	$	16,024		$	681
Unrealized (loss) gain recognized in other non-interest income	1,592			—
Unrealized loss included in accumulated other comprehensive loss	—			(218		)
Paydown of trading account security	(115		)	—
Balance as of September 30, 2011	$	17,501		$	463
Unrealized gains (losses) relating to instruments still held at September 30, 2011	$	3,287		$	(2,136	)

Quantitative information about the significant unobservable inputs within Level 3 recurring assets are as follows:

	Fair Value				Significant Unobservable
(In thousands)	September 30, 2012		Valuation Techniques	Unobservable Inputs	Input Value
Assets
Trading Account Security	$	17,237	Discounted Cash Flow	Discount Rate	2.08	%
Interest Rate Lock Commitment	7,833		Historical Trend	Closing Ratio	88.55	%
			Pricing Model	Origination Costs	2,500
Total Assets	$	25,070

Non-recurring fair value measurements

The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.

	September 30, 2012		December 31, 2011		Nine Months Ended September 30, 2012
	Level 3		Level 3		Total
(In thousands)	Inputs		Inputs		Losses
Assets
Impaired loans	$	6,949	$	11,155	4,206
Capitalized mortgage servicing rights	2,494		3,067		573
Other real estate owned	1,399		1,900		—
Total Assets	$	10,842	$	16,122	$	4,779

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

	Fair Value				Range (Weighted
(in thousands)	Septemeber 30, 2012		Valuation Techniques	Unobservable Inputs	Average) (a)
Assets
Impaired loans	$	6,949	Fair value of collateral	Loss severity	12.36% to 32.1% (19.43%)
				Appraised value	$126.0 to $2,500.0 ($1,411.5)
Capitaized mortgage servicing rights	2,494		Discounted cash flow	Constant prepayment rate (CPR)	13.85% to 23.93% (17.25%)
				Discount rate	11.00% to 15.50% (11.21%)
Other real estate owned	1,399		Fair value of collateral	Appraised value	$590.0 ($288.8)
Total Assets	$	10,842

(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 September 30, 2012 and December 31, 2011.

Impaired Loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan.  Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace.  However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values.  Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data.  Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Capitalized mortgage loan servicing rights.   A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

Other real estate owned (“OREO”). OREO results from the foreclosure process on residential or commercial loans issued by the Bank. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.

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.

	September 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	$	48,214	$	48,214	$	48,214	$	—	$	—	$	75,359	$	75,359
Trading security	17,237		17,237		—		—		17,237		17,395		17,395
Securities available for sale	467,444		467,444		31,085		435,542		817		419,756		419,756
Securities held to maturity	51,156		52,892		—		—		52,892		58,912		60,395
Restricted equity securities	37,135		37,135		—		37,135		—		37,118		37,118
Net loans	3,385,302		3,411,331		—		—		3,411,331		2,924,126		2,990,173
Loans held for sale	114,698		114,698		—		114,698		—		1,455		1,455
Accrued interest receivable	13,640		13,640		—		13,640		—		11,350		11,350
Cash surrender value of bank-owned life insurance policies	76,904		76,904		—		76,904		—		75,009		75,009
Derivative assets	23,579		23,579		—		15,747		7,832		13,926		13,926
Financial Liabilities
Total deposits	$	3,453,363	$	3,464,962	$	—	$	3,464,962	$	—	$	3,101,175	$	3,104,204
Short-term debt	61,800		61,800		—		61,800		—		10,000		10,000
Long-term Federal Home Loan Bank advances	388,999		393,703		—		393,703		—		211,938		215,008
Junior subordinated debentures	89,602		87,901		—		87,901		—		15,464		11,436
Derivative liabilities	36,913		36,913		4,669		32,244		—		26,930		26,930

Other than as discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value.

Cash and cash equivalents. Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety days or less.

Restricted equity securities. Carrying value approximates fair value based on the redemption provisions of the issuers.

Cash surrender value of life insurance policies.Carrying value approximates fair value.

Loans, net. The carrying value of the loans in the loan portfolio is based on the cash flows of the loans discounted over their respective loan origination rates. The origination rates are adjusted for substandard and special mention loans to factor the impact of declines in the loan’s credit standing. The fair value of the loans is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality.

Accrued interest receivable.Carrying value approximates fair value.

Deposits. The fair value of demand, non-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.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2012

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 10. 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 Sept. 30,					Nine Months Ended Sept. 30,
(In thousands, except per share data)	2012		2011			2012			2011
Net income from continuing operations	$	10,029	$	4,397		$	24,496		$	9,109
Loss from discontinued operations before income taxes (including gain on disposal of $63)	—		(8		)	(261		)	(8		)
Income tax expense	—		(3		)	376			(3		)
Net loss from discontinued operations	—		(5		)	(637		)	(5		)
Net income	$	10,029	$	4,392		$	23,859		$	9,104
Average number of common shares issued	23,825		21,929			23,438			18,784
Less: average number of treasury shares	1,614		1,728			1,653			1,750
Less: average number of unvested stock award shares	290		192			244			171
Average number of basic common shares outstanding	21,921		20,009			21,541			16,863
Plus: dilutive effect of unvested stock award shares	72		90			1			49
Plus: dilutive effect of stock options outstanding	38		6			93			3
Average number of diluted common shares outstanding	22,031		20,105			21,635			16,915
Basic earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.14		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total basic earnings per share	$	0.46	$	0.22		$	1.11		$	0.54
Diluted earnings per share:
Continuing operations	$	0.46	$	0.22		$	1.13		$	0.54
Discontinued operations	—		—			(0.03		)	—
Total diluted earnings per share	$	0.46	$	0.22		$	1.10		$	0.54

For the quarter ended September 30, 2012, 218 thousand shares of restricted stock and 350 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. For the quarter ended September 30, 2011, 102 thousand shares of restricted stock and 170 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.

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LOANS

9 Months Ended

Sep. 30, 2012

LOANS

LOANS

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:

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages
1-4 family	$	902,661	$	289,791	$	1,192,452
Construction	26,623		6,947		33,570
Total residential mortgages	929,284		296,738		1,226,022
Commercial mortgages:
Construction	145,494		10,378		155,872
Single and multi-family	77,470		13,508		90,978
Commercial real estate	737,492		270,830		1,008,322
Total commercial mortgages	960,456		294,716		1,255,172
Commercial business loans:
Asset based lending	243,126		2,565		245,691
Other commercial business loans	232,386		90,704		323,090
Total commercial business loans	475,512		93,269		568,781
Total commercial loans	1,435,968		387,985		1,823,953
Consumer loans:
Home equity	228,497		73,560		302,057
Other	38,334		28,026		66,360
Total consumer loans	266,831		101,586		368,417
Total loans	$	2,632,083	$	786,309	$	3,418,392

	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 September 30, 2012 totaled $786.3 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 $26.4 million and loans that were considered not impaired at the acquisition date with a carrying amount of $759.9 million.

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

(In thousands)	2012
Three months ended September 30, 2012
Balance at beginning of period	$	2,554
Acquisitions	—
Sales	—
Reclassification from nonaccretable difference for loans with improved cash flows	—
Changes in expected cash flows that do not affect nonaccretable difference	—
Accretion	(806		)
Balance at end of period	$	1,748

(In thousands)	2012
Nine months ended September 30, 2012
Balance at beginning of period	$	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	(2,345		)
Balance at end of period	$	1,748

The following is a summary of past due loans at September 30, 2012 and December 31, 2011:

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
September 30, 2012
Residential mortgages:
1-4 family	$	2,435	$	471	$	8,764	$	11,670	$	890,991	$	902,661	$	1,746
Construction	41		513		—		554		26,069		26,623		—
Total	2,476		984		8,764		12,224		917,060		929,284		1,746
Commercial mortgages:
Construction	350		—		4,672		5,022		140,472		145,494		—
Single and multi-family	574		356		452		1,382		76,088		77,470		287
Commercial real estate	2,137		1,432		8,623		12,192		725,300		737,492		863
Total	3,061		1,788		13,747		18,596		941,860		960,456		1,150
Commercial business loans:
Asset based lending	—		—		—		—		243,126		243,126		—
Other commercial business loans	1,049		1,438		2,143		4,630		227,756		232,386		238
Total	1,049		1,438		2,143		4,630		470,882		475,512		238
Consumer loans:
Home equity	724		214		1,469		2,407		226,090		228,497		—
Other	542		100		240		882		37,452		38,334		65
Total	1,266		314		1,709		3,289		263,542		266,831		65
Total	$	7,852	$	4,524	$	26,363	$	38,739	$	2,593,344	$	2,632,083	$	3,199

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
September 30, 2012
Residential mortgages:
1-4 family	$	1,799	$	406	$	2,181	$	4,386	$	285,405	$	289,791	$	759
Construction	—		—		—		—		6,947		6,947		—
Total	1,799		406		2,181		4,386		292,352		296,738		759
Commercial mortgages:
Construction	196		70		1,479		1,745		8,633		10,378		1,479
Single and multi-family	99		—		276		375		13,133		13,508		276
Commercial real estate	1,529		296		5,862		7,687		263,143		270,830		4,906
Total	1,824		366		7,617		9,807		284,909		294,716		6,661
Commercial business loans:
Asset based lending	—		—		—		—		2,565		2,565		—
Other commercial business loans	412		3,047		2,313		5,772		84,932		90,704		2,194
Total	412		3,047		2,313		5,772		87,497		93,269		2,194
Consumer loans:
Home equity	609		127		83		819		72,741		73,560		46
Other	255		152		279		686		27,340		28,026		138
Total	864		279		362		1,505		100,081		101,586		184
Total	$	4,899	$	4,098	$	12,473	$	21,470	$	764,839	$	786,309	$	9,798

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

Activity in the allowance for loan losses for the nine months ended September 30, 2012 and the period ended December 31, 2011 was as follows:

Loans from Business Activities (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	3,150	$	22,095	$	4,540	$	2,203	$	(90	)	$	31,898
Charged-off loans	1,590		3,207		116		1,297		—			6,210
Recoveries on charged-off loans	87		8		42		132		—			269
Provision for loan losses	4,922		731		267		2		95			6,017
Balance at end of period	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Individually evaluated for impairment	663		1,653		342		107		—			2,765
Collectively evaluated	5,906		17,974		4,391		933		5			29,209
Total	$	6,569	$	19,627	$	4,733	$	1,040	$	5		$	31,974
Loans receivable:
Balance at end of period
Individually evaluated for impairment	6,534		30,819		1,221		1,085		—			39,659
Collectively evaluated	922,750		929,637		474,291		265,746		—			2,592,424
Total	$	929,284	$	960,456	$	475,512	$	266,831	$	—		$	2,632,083

Loans Acquired from Business Combinations (In thousands)	Residential mortgages		Commercial mortgages		Commercial business		Consumer		Unallocated			Total
September 30, 2012
Balance at beginning of year	$	281	$	158	$	38	$	87	$	(18	)	$	546
Charged-off loans	8		85		34		40		—			167
Recoveries on charged-off loans	—		—		4		—		—			4
Provision for loan losses	165		247		82		96		143			733
Balance at end of period	$	438	$	320	$	90	$	143	$	125		$	1,116
Individually evaluated for impairment	44		—		—		—		—			44
Collectively evaluated	394		320		90		143		125			1,072
Total	$	438	$	320	$	90	$	143	$	125		$	1,116
Loans receivable:
Balance at end of Period
Individually evaluated for impairment	612		891		—		—		—			1,503
Collectively evaluated	296,126		293,825		93,269		101,586		—			784,806
Total	$	296,738	$	294,716	$	93,269	$	101,586	$	—		$	786,309

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	2,701		20,373		4,424			1,715		(90		)	29,123
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	676,003		919,364		361,202			264,199					2,220,768
Total	$	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	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	338,777		202,803		48,526		104,213					694,319
Total	$	338,777	$	202,803	$	48,526	$	104,213				$	694,319

The following is a summary of impaired loans at September 30, 2012:

	At September 30, 2012
Loans from Business Activities (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	2,032	$	2,032	$	—
Commercial mortgages - single and multifamily	164		164		—
Commercial mortgages - real estate	4,134		4,134		—
Other commercial business loans	176		176		—
Consumer - home equity	809		809		—
With an allowance recorded:
Residential mortgages - 1-4 family	2,685		3,349		664
Commercial mortgages - construction	3,986		4,672		686
Commercial mortgages - real estate	2,124		3,090		966
Other commercial business loans	520		862		342
Consumer - home equity	168		275		107
Total
Residential mortgages	$	4,717	$	5,381	$	664
Commercial mortgages	10,408		12,060		1,652
Commercial business	696		1,038		342
Consumer	977		1,084		107
Total impaired loans	$	16,798	$	19,563	$	2,765

	At September 30, 2012
Loans Acquired from Business Combinations  (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	455	$	455	$	—
Commercial mortgages - real estate	891		891		—
With an allowance recorded:
Residential mortgages - 1-4 family	113		157		44
Total
Residential mortgages	$	568	$	612	$	44
Commercial mortgages	891		891		—
Total impaired loans	$	1,459	$	1,503	$	44

The following is a summary of impaired loans at December 31, 2011:

	At December 31, 2011
Loans from Business Activities (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

	At December 31, 2011
Loans Acquired from Business Combinations (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	$	—

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of September 30, 2012 and September 30, 2011:

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 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	$	1,623	$	22	$	1,487	$	39
Residential mortgages - construction	—		—		52		—
Commercial-construction	—		—		105		—
Commercial mortgages - single and multifamily	190		2		89		1
Commercial mortgages - real estate	2,644		48		7,470		248
Commercial business loans	15		—		31		1
Consumer-home equity	249		1		361		5
With an allowance recorded:
Residential mortgages - 1-4 family	$	2,567	$	27	$	568	$	20
Residential mortgages - construction	—		—		21		—
Commercial-construction	4,736		—		3,504		—
Commercial mortgages - single and multifamily	75		—		365		11
Commercial mortgages - real estate	2,013		23		2,077		20
Commercial business loans	169		5		429		3
Consumer-home equity	421		—		154		—
Total
Residential mortgages	$	4,190	$	49	$	2,129	$	59
Commercial mortgages	9,658		73		13,611		280
Commercial business loans	184		5		460		4
Consumer loans	670		1		515		5
Total impaired loans	$	14,702	$	128	$	16,715	$	348

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
Loans Acquired from Business Combinations (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	$	426	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer-home equity	25		—		—		—
With an allowance recorded:
Residential mortgages - 1-4 family	$	13	$	—	$	—	$	—
Residential mortgages - construction	—		—		—		—
Commercial-construction	—		—		—		—
Commercial mortgages - single and multifamily	—		—		—		—
Commercial mortgages - real estate	—		—		—		—
Commercial business loans	—		—		—		—
Consumer-home equity	—		—		—		—
Total
Residential mortgages	$	439	$	—	$	—	$	—
Commercial mortgages	274		15		1,064		—
Commercial business loans	—		—		161		—
Consumer loans	25		—		—		—
Total impaired loans	$	738	$	15	$	1,225	$	—

The following is summary information pertaining to non-accrual loans at September 30, 2012 and December 31, 2011:

	September 30, 2012
(In thousands)	Loans from Business Activities		Loans Acquired from Business Combinations		Total
Residential mortgages:
1-4 family	$	7,018	$	1,422	$	8,440
Total	7,018		1,422		8,440
Commercial mortgages:
Construction	4,672		—		4,672
Single and multi-family	165		—		165
Other	7,760		956		8,716
Total	12,597		956		13,553
Commercial business loans:
Other commercial business loans	1,905		119		2,024
Total	1,905		119		2,024
Consumer loans:
Home equity	1,469		37		1,506
Other	175		141		316
Total	1,644		178		1,822
Total non-accrual loans	$	23,164	$	2,675	$	25,839

	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 an eleven grade internal loan rating system for each of its commercial real estate, construction and commercial loans as follows:

1Substantially Risk Free

Borrowers in this category are of unquestioned credit standing and are at the pinnacle of credit quality. Credits in this category are generally cash secured with strong management depth and experience and exhibit a superior track record.

2Minimal Risk

A relationship which provides an adequate return on investment to the Company, has been stable during the last three years and has a superior financial condition as determined by a comparison with the industry.  In addition, management must be of unquestionable character and have strong abilities as measured by its long-term financial performance.

3Moderate Risk

A relationship which does not appear to possess more than the normal degree of credit risk.  Overall, the borrower’s financial statements compare favorably with the industry.  A strong secondary repayment source exists and the loan is performing as agreed.

4Better than Average Risk

A relationship which possesses most of the characteristics found in the Moderate Risk category and ranges from definitely sound to those with minor risk characteristics. Operates in a reasonably stable industry that may be moderately affected by the business cycle and moderately open to changes. Has a satisfactory track record and the loan is performing as agreed.

5Average Risk

A relationship which possesses most of the characteristics found in the Better than Average Risk category but may have recently experienced a loss year often as a result of its operation in a cyclical industry. The relationship has smaller margins of debt service coverage with some elements of reduced strength. Good secondary repayment source exists and the loan is performing as agreed.  Start-up businesses and construction loans will generally be assigned to this category as well.

6Acceptable Risk

Borrowers in this category may be more highly leveraged than their industry peers and experience moderate losses relative to net worth.  Trends and performance, e.g. Sales and earnings, leverage, among other factors may be negative.  Management’s ability may be questionable, or perhaps untested.  The industry may be experiencing either temporary or long term pressures.  Collateral values are seen as more important in assessing risk than in higher quality loans.  Failure to meet required line clean-up periods or other terms and conditions, including some slow payments may also predicate this grade.

7              Special Mention

A classification assigned to all relationships for credits with potential weaknesses which present a higher than normal credit risk, but not to the point of requiring a Substandard loan classification.  No loss of principal or interest is anticipated. However, these credits are followed closely, and if necessary, remedial plans to reduce the Company’s risk exposure are established.

8              Substandard — Performing

A classification assigned to a credit that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  Substandard loans will be evaluated on at least a quarterly basis to determine if an additional allocation of the Company’s allowance for loan loss is warranted.

9              Substandard — Non-Performing

A classification given to Substandard credits which have deteriorated to the point that management has placed the accounts on non-accrual status due to delinquency exceeding 90 days or where the Company has determined that collection of principal and interest in full is unlikely.

10           Doubtful

Loans classified as doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, highly questionable and improbable.  Collection in excess of 50% of the balance owed is not expected.

11           Loss

Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.  This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be possible in the future.

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

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

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

A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans. At September 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 of historical loans and acquired loans in order to distinguish the credit performance of the newly acquired loans.

The following table presents the Company’s loans by risk rating at September 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)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass
Special mention	$	893,426	$	637,110	$	26,109	$	32,191	$	919,535	$	669,301
Substandard	471		877		514		—		985		877
Total	8,764		11,480		—		—		8,764		11,480
	$	902,661	$	649,467	$	26,623	$	32,191	$	929,284	$	681,658

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	130,658	$	91,452	$	74,438	$	85,153	$	664,683	$	674,814	$	869,779	$	851,419
Special mention	49		5,939		422		435		12,962		16,459		13,433		22,833
Substandard	14,787		17,262		2,610		3,813		59,742		55,156		77,139		76,231
Doubtful	—		2,839		—		—		105		116		105		2,955
Total	$	145,494	$	117,492	$	77,470	$	89,401	$	737,492	$	746,545	$	960,456	$	953,438

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	242,089	$	149,741	$	218,085	$	200,246	$	460,174	$	349,987
Special mention	—		—		4,921		607		4,921		607
Substandard	1,037		1,324		9,287		9,753		10,324		11,077
Doubtful	—		—		93		95		93		95
Total	$	243,126	$	151,065	$	232,386	$	210,701	$	475,512	$	361,766

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	227,028	$	224,677	$	38,159	$	38,972	$	265,187	$	263,649
Nonperforming	1,469		1,692		175		48		1,644		1,740
Total	$	228,497	$	226,369	$	38,334	$	39,020	$	266,831	$	265,389

Loans Acquired from Business Combinations

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	287,204	$	327,715	$	6,947	$	9,205	$	294,151	$	336,920
Special mention	406		242		—		—		406		242
Substandard	2,181		1,450		—		165		2,181		1,615
Total	$	289,791	$	329,407	$	6,947	$	9,370	$	296,738	$	338,777

Commercial Mortgages

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Real estate				Total commercial mortgages
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	8,703	$	3,548	$	9,691	$	14,802	$	235,441	$	161,218	$	253,835	$	179,568
Special mention	—		2,160		2,553		272		12,245		8,071		14,798		10,503
Substandard	1,675		1,018		1,264		1,324		23,144		10,390		26,083		12,732
Total	$	10,378	$	6,726	$	13,508	$	16,398	$	270,830	$	179,679	$	294,716	$	202,803

Commercial Business Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total commercial business loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Grade:
Pass	$	2,565	$	2,206	$	76,480	$	39,578	$	79,045	$	41,784
Special mention	—		—		8,394		3,810		8,394		3,810
Substandard	—		—		5,830		2,932		5,830		2,932
Total	$	2,565	$	2,206	$	90,704	$	46,320	$	93,269	$	48,526

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Other				Total consumer loans
(In thousands)	Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011		Sept. 30, 2012		Dec. 31, 2011
Performing	$	73,523	$	71,752	$	27,885	$	32,248	$	101,408	$	104,000
Nonperforming	37		75		141		138		178		213
Total	$	73,560	$	71,827	$	28,026	$	32,386	$	101,586	$	104,213

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

The following tables include the recorded investment and number of modifications identified during the nine months ended September 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
	Nine months ending September 30, 2012
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential- 1-4 Family	1	$	70	$	70

As of September 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 nine months ended September 30, 2012 and 2011:

	September 30,
(In thousands)	2012		2011
Balance at beginning of the period	$	1,264	$	7,829
Principal Payments	6		72
TDR Status Change (1)	1,125		7,041
Other Reductions (2)	—		189
Newly Identified TDRs	2,043		177
Balance at end of the period	$	2,176	$	704

(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.

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EARNINGS PER SHARE (Details 2) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Restricted stock
Anti-dilutive securities
Securities excluded from the earnings per share calculations (in shares)	218	102
Options
Anti-dilutive securities
Securities excluded from the earnings per share calculations (in shares)	350	170

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TRADING ACCOUNT SECURITY

9 Months Ended

Sep. 30, 2012

TRADING ACCOUNT SECURITY

TRADING ACCOUNT SECURITY

NOTE 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 $13.7 million and $14.1 million, and a fair value of $17.2 million and $17.4 million, at September 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 purchase securities with the intent of selling them in the near term, and there are no other securities in the trading portfolio at September 30, 2012.

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SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

9 Months Ended

Sep. 30, 2012

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

NOTE 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
September 30, 2012
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	76,481	$	5,855	$	—		$	82,336
Government guaranteed residential mortgage-backed
securities	43,964		983		—			44,947
Government-sponsored residential mortgage-backed
securities	278,145		2,404		(537		)	280,012
Corporate bonds	9,997		22		(316		)	9,703
Trust preferred securities	19,979		1,101		(2,011		)	19,069
Other bonds and obligations	291		1		—			292
Total debt securities	428,857		10,366		(2,864		)	436,359
Equity securities:
Marketable equity securities	27,498		3,804		(217		)	31,085
Total securities available for sale	456,355		14,170		(3,081		)	467,444
Securities held to maturity
Municipal bonds and obligations	8,020		—		—			8,020
Government-sponsored residential mortgage-backed
securities	76		8		—			84
Tax advantaged economic development bonds	42,021		2,056		(328		)	43,749
Other bonds and obligations	1,039		—		—			1,039
Total securities held to maturity	51,156		2,064		(328		)	52,892
Total Securities	$	507,511	$	16,234	$	(3,409	)	$	520,336
December 31, 2011
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	73,436	$	4,418	$	—		$	77,854
Government guaranteed residential mortgage-backed securities	44,051		1,045		—			45,096
Government-sponsored residential mortgage-backed securities	245,033		2,990		(412		)	247,611
Corporate bonds	9,996		—		(269		)	9,727
Trust preferred securities	20,064		343		(2,592		)	17,815
Other bonds and obligations	642		2		—			644
Total debt securities	393,222		8,798		(3,273		)	398,747
Equity securities:
Marketable equity securities	20,236		1,555		(782		)	21,009
Total securities available for sale	413,458		10,353		(4,055		)	419,756
Securities held to maturity
Municipal bonds and obligations	10,349		—		—			10,349
Government-sponsored residential mortgage-backed securities	79		4		—			83
Tax advantaged economic development bonds	47,869		1,479		—			49,348
Other bonds and obligations	615		—		—			615
Total securities held to maturity	58,912		1,483		—			60,395
Total	$	472,370	$	11,836	$	(4,055	)	$	480,151

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at September 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	$	—	$	—	$	4,913	$	4,913
Over 1 year to 5 years	9,722		9,579		3,532		3,596
Over 5 years to 10 years	16,844		17,613		24,541		25,806
Over 10 years	80,182		84,208		18,094		18,493
Total bonds and obligations	106,748		111,400		51,080		52,808
Marketable equity securities	27,498		31,085		—		—
Residential mortgage-backed securities	322,109		324,959		76		84
Total	$	456,355	$	467,444	$	51,156	$	52,892

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
September 30, 2012
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	421	$	79,986	$	116	$	17,196	$	537	$	97,182
Corporate bonds	—		—		316		6,684		316		6,684
Trust preferred securities	—		—		2,011		3,622		2,011		3,622
Total debt securities	421		79,986		2,443		27,502		2,864		107,488
Marketable equity securities	6		4,665		211		1,788		217		6,453
Total securities available for sale	427		84,651		2,654		29,290		3,081		113,941
Securities held to maturity
Tax advantaged economic development bonds	328		8,239		—		—		328		8,239
Total securities held to maturity	328		8,239		—		—		328		8,239
Total	$	755	$	92,890	$	2,654	$	29,290	$	3,409	$	122,180
December 31, 2011
Securities available for sale
Debt securities:
Government-sponsored residential mortgage-backed securities	$	376	$	76,326	$	36	$	5,766	$	412	$	82,092
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 September 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 September 30, 2012:

AFS residential mortgage-backed securities

At September 30, 2012, 18 out of a total of 166 securities in the Company’s portfolios of AFS residential mortgage-backed were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions within 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 September 30, 2012, 2 out of a total of 3 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represented 4.5% of the amortized cost of the securities. All 3 securities remain investment grade rated and the market value of the securities supports the Company’s amortized value. The securities are considered performing.

AFS trust preferred securities

At September 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 36% 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.  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 September 30, 2012, $1.8 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 $0.8 million, for potential other-than-temporary-impairment (“OTTI”) at September 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 $46 million in excess subordination above current and projected losses. The security is considered performing.

HTM tax advantaged economic development bonds

At September 30, 2012, 1 of the 8 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 3.8% 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 September 30, 2012, 3 out of a total of 22 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented 3.3% 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 September 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.

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DEPOSITS

9 Months Ended

Sep. 30, 2012

DEPOSITS.

DEPOSITS

NOTE 7.               DEPOSITS

A summary of time deposits is as follows:

(In thousands)	September 30, 2012		December 31, 2011 (1)
Time less than $100,000	$	503,316	$	511,592
Time $100,000 or more	524,970		491,046
Total time deposits	$	1,028,286	$	1,002,638

(1) Amounts include balances associated with discontinued operations.

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FAIR VALUE MEASUREMENTS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	$ 467,444	$ 419,756
Municipal bonds and obligations
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	82,336	77,854
Government guaranteed residential mortgage-backed securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	44,947	45,096
Government-sponsored residential mortgage-backed securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	280,012	247,611
Corporate bonds
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	9,703	9,727
Trust preferred securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	19,069	17,815
Other bonds and obligations
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	292	644
Marketable equity securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	31,085	21,009
Level 1 Inputs
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	31,085
Derivative liabilities	4,669
Level 2 Inputs
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	435,542
Loans held for sale, fair value	114,698
Derivative assets	15,747
Derivative liabilities	32,244
Level 3 Inputs
Assets and financial liabilities measured at fair value on a recurring basis
Trading account security	17,237
Available-for-sale securities:	817
Derivative assets	7,832
Level 3 Inputs | Trust preferred securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	800
Recurring basis | Level 1 Inputs
Assets and financial liabilities measured at fair value on a recurring basis
Derivative liabilities	4,669
Recurring basis | Level 1 Inputs | Marketable equity securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	31,085	21,009
Recurring basis | Level 2 Inputs
Assets and financial liabilities measured at fair value on a recurring basis
Loans held for sale, fair value	114,698
Derivative assets	15,747	13,926
Derivative liabilities	32,244	26,864
Recurring basis | Level 2 Inputs | Municipal bonds and obligations
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	82,336	77,854
Recurring basis | Level 2 Inputs | Government guaranteed residential mortgage-backed securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	44,947	45,096
Recurring basis | Level 2 Inputs | Government-sponsored residential mortgage-backed securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	280,012	247,611
Recurring basis | Level 2 Inputs | Corporate bonds
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	9,703	9,727
Recurring basis | Level 2 Inputs | Trust preferred securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	18,252	17,271
Recurring basis | Level 2 Inputs | Other bonds and obligations
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	292	644
Recurring basis | Level 3 Inputs
Assets and financial liabilities measured at fair value on a recurring basis
Trading account security	17,237	17,395
Derivative assets	7,833
Derivative liabilities		66
Recurring basis | Level 3 Inputs | Trust preferred securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	817	544
Recurring basis | Total Fair Value
Assets and financial liabilities measured at fair value on a recurring basis
Trading account security	17,237	17,395
Loans held for sale, fair value	114,698
Derivative assets	23,580	13,926
Derivative liabilities	36,913	26,930
Recurring basis | Total Fair Value | Municipal bonds and obligations
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	82,336	77,854
Recurring basis | Total Fair Value | Government guaranteed residential mortgage-backed securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	44,947	45,096
Recurring basis | Total Fair Value | Government-sponsored residential mortgage-backed securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	280,012	247,611
Recurring basis | Total Fair Value | Corporate bonds
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	9,703	9,727
Recurring basis | Total Fair Value | Trust preferred securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	19,069	17,815
Recurring basis | Total Fair Value | Other bonds and obligations
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	292	644
Recurring basis | Total Fair Value | Marketable equity securities
Assets and financial liabilities measured at fair value on a recurring basis
Available-for-sale securities:	$ 31,085	$ 21,009

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FAIR VALUE MEASUREMENTS (Details 3) (USD $) In Thousands, unless otherwise specified	9 Months Ended		3 Months Ended						9 Months Ended	3 Months Ended						9 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Trading Account Security	Jun. 30, 2012 Trading Account Security	Mar. 31, 2012 Trading Account Security	Sep. 30, 2011 Trading Account Security	Jun. 30, 2011 Trading Account Security	Mar. 31, 2011 Trading Account Security	Sep. 30, 2012 Trading Account Security item	Sep. 30, 2012 Securities Available for Sale	Jun. 30, 2012 Securities Available for Sale	Sep. 30, 2011 Securities Available for Sale	Jun. 30, 2011 Securities Available for Sale	Mar. 31, 2011 Securities Available for Sale	Dec. 31, 2011 Securities Available for Sale	Sep. 30, 2012 Securities Available for Sale Pooled trust preferred security item	Sep. 30, 2012 Interest rate lock commitments	Jun. 30, 2012 Interest rate lock commitments
Recurring fair value measurements
Number of securities in the portfolio									1							1
Changes in Level 3 assets that were measured at fair value on a recurring basis
Balance at the beginning of the period			$ 17,365	$ 16,847	$ 17,395	$ 16,024	$ 15,781	$ 16,155	$ 17,395	$ 613	$ 544	$ 681	$ 2,193	$ 1,695	$ 544		$ 4,028
Greenpark Acquisition																		2,126
Unrealized (loss) gain recognized in other non-interest income			(7)	638	(428)	1,592	357	(257)									10,858	4,337
Unrealized loss included in accumulated other comprehensive loss										204	69	(218)	112	498
Paydown of trading account security	1,496	893	121	(120)	(120)	(115)	(114)	(117)
Transfers to held for sale loans																	(7,053)	(2,435)
Transfer out of Level 3													(1,624)
Balance at the end of the period			17,237	17,365	16,847	17,501	16,024	15,781	17,237	817	613	463	681	2,193	544		7,833	4,028
Unrealized gains (losses) relating to instruments still held at the end of the period			$ 3,502			$ 3,287			$ 3,502	$ (1,784)		$ (2,136)					$ 10,858

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Derivative financial instruments and hedging activities
Cash pledged as collateral to derivative counterparties	$ 5,300,000		$ 5,300,000
Amortized cost of securities pledged as collateral to derivative counterparties	34,300,000		34,300,000
Fair value of securities as pledged collateral to derivative counterparties	35,200,000		35,200,000
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	1,287,322,000		1,287,322,000		577,950,000
Estimated Fair Value Asset (Liability)	(13,356,000)		(13,356,000)		(13,003,000)
Interest rate derivatives designated as hedges of cash flows
Net interest expense recognized in interest expense	2,270,000	2,131,000	6,416,000	6,267,000
Economic hedges and non-hedging derivatives
Net interest expense recognized in interest and dividend income on securities	2,270,000	2,131,000	6,416,000	6,267,000
FHLBB borrowings
Cash flow hedges
Amount of borrowings	13,700,000		13,700,000
Cash flow hedges
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	270,000,000		270,000,000		200,000,000
Estimated Fair Value Asset (Liability)	(12,258,000)		(12,258,000)		(9,007,000)
Interest rate derivatives designated as hedges of cash flows
Amount reclassified as an increase to interest expense during the next twelve months	5,300,000		5,300,000
Economic hedges
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	741,566,000		741,566,000		356,412,000
Estimated Fair Value Asset (Liability)	(8,931,000)		(8,931,000)		(3,930,000)
Interest rate derivatives designated as hedges of cash flows
Credit valuation adjustments	502,000		502,000
Economic hedges | Tax advantaged economic development bonds
Interest rate derivatives designated as hedges of cash flows
Fixed rate of interest (as a percent)	5.09%		5.09%
Life of the bond			21 years
Non-hedging derivatives
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	275,756,000		275,756,000		21,538,000
Estimated Fair Value Asset (Liability)	7,833,000		7,833,000		(66,000)
Interest rate swaps | Cash flow hedges
Interest rate derivatives designated as hedges of cash flows
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects	(454,000)	(470,000)	(1,350,000)	72,000
Interest rate swaps | Cash flow hedges | FHLBB borrowings
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	115,000,000		115,000,000		105,000,000
Weighted Average Maturity			1 year 9 months 18 days		1 year 8 months 12 days
Weighted Average Rate, Received (as a percent)	0.44%		0.44%		0.49%
Weighted Average Rate, Paid (as a percent)	3.47%		3.47%		4.00%
Estimated Fair Value Asset (Liability)	(5,509,000)		(5,509,000)		(5,888,000)
Interest rate derivatives designated as hedges of cash flows
Unrealized (loss) gain recognized in accumulated other comprehensive loss	(1,086,000)	(987,000)	(3,446,000)	(544,000)
Reclassification of unrealized loss from accumulated other comprehensive loss to non-interest income for hedge ineffectiveness	11,000	11,000	31,000	31,000
Reclassification of realized gain from accumulated other comprehensive loss to other non-interest income for termination of swaps	235,000	235,000	706,000	706,000
Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps	(98,000)	(98,000)	(226,000)	(293,000)
Net tax benefit (expense) on items recognized in accumulated other	441,000	407,000	1,448,000	210,000
Net interest expense recognized in interest expense	1,121,000	1,239,000	3,327,000	3,663,000
Economic hedges and non-hedging derivatives
Net interest expense recognized in interest and dividend income on securities	1,121,000	1,239,000	3,327,000	3,663,000
Interest rate swaps | Cash flow hedges | Junior subordinated debentures
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	15,000,000		15,000,000		15,000,000
Weighted Average Maturity			1 year 7 months 6 days		2 years 4 months 24 days
Weighted Average Rate, Received (as a percent)	2.28%		2.28%		2.35%
Weighted Average Rate, Paid (as a percent)	5.54%		5.54%		5.54%
Estimated Fair Value Asset (Liability)	(829,000)		(829,000)		(1,055,000)
Interest rate derivatives designated as hedges of cash flows
Unrealized (loss) gain recognized in accumulated other comprehensive loss	71,000	(65,000)	226,000	(62,000)
Net tax benefit (expense) on items recognized in accumulated other	(28,000)	27,000	(89,000)	24,000
Net interest expense recognized in interest expense	148,000	131,000	363,000	386,000
Economic hedges and non-hedging derivatives
Net interest expense recognized in interest and dividend income on securities	148,000	131,000	363,000	386,000
Interest rate swaps | Economic hedges
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	410,900,000		410,900,000
Interest rate swaps | Economic hedges | Industrial revenue bond
Interest rate derivatives designated as hedges of cash flows
Net interest expense recognized in interest expense	(158,000)	(1,812,000)	(473,000)	(2,137,000)
Economic hedges and non-hedging derivatives
Net interest expense recognized in interest and dividend income on securities	(158,000)	(1,812,000)	(473,000)	(2,137,000)
Unrealized gain (loss) recognized in other non-interest income	(24,000)		(1,118,000)	(69,000)
Interest rate swaps | Economic hedges | Loans with commercial loan customers
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	198,600,000		198,600,000		160,389,000
Weighted Average Maturity			5 years 2 months 12 days		5 years 7 months 6 days
Weighted Average Rate, Received (as a percent)	2.58%		2.58%		2.73%
Weighted Average Rate, Paid (as a percent)	5.35%		5.35%		5.77%
Estimated Fair Value Asset (Liability)	(16,290,000)		(16,290,000)		(14,351,000)
Economic hedges and non-hedging derivatives
Unrealized gain (loss) recognized in other non-interest income	859,000	6,133,000	4,119,000	7,073,000
Interest rate swaps | Economic hedges | Tax advantaged economic development bonds
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	13,734,000		13,734,000		14,096,000
Weighted Average Maturity			17 years 2 months 12 days		17 years 10 months 24 days
Weighted Average Rate, Received (as a percent)	0.60%		0.60%		0.64%
Weighted Average Rate, Paid (as a percent)	5.09%		5.09%		5.09%
Estimated Fair Value Asset (Liability)	(3,719,000)		(3,719,000)		(3,505,000)
Forward-starting interest rate swaps | Cash flow hedges
Cash flow hedges
Number of instruments	13		13
Forward-starting interest rate swaps | Cash flow hedges | 2013
Cash flow hedges
Number of instruments	2		2
Forward-starting interest rate swaps | Cash flow hedges | 2014
Cash flow hedges
Number of instruments	7		7
Forward-starting interest rate swaps | Cash flow hedges | 2015
Cash flow hedges
Number of instruments	2		2
Forward-starting interest rate swaps | Cash flow hedges | FHLBB borrowings
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	140,000,000		140,000,000		80,000,000
Weighted Average Maturity			5 years 8 months 12 days		3 years 6 months
Weighted Average Rate, Paid (as a percent)	2.37%		2.37%		2.56%
Estimated Fair Value Asset (Liability)	(5,920,000)		(5,920,000)		(2,064,000)
Forward-starting interest rate swaps 1 | Cash flow hedges | 2013
Cash flow hedges
Number of instruments	2		2
Durations of derivative instruments			4 years
Forward-starting interest rate swaps 1 | Cash flow hedges | 2014
Cash flow hedges
Number of instruments	1		1
Durations of derivative instruments			3 years
Forward-starting interest rate swaps 1 | Cash flow hedges | 2015
Cash flow hedges
Number of instruments	1		1
Durations of derivative instruments			4 years
Forward-starting interest rate swaps 2 | Cash flow hedges | 2013
Cash flow hedges
Number of instruments	1		1
Durations of derivative instruments			5 years
Forward-starting interest rate swaps 2 | Cash flow hedges | 2014
Cash flow hedges
Number of instruments	4		4
Durations of derivative instruments			4 years
Forward-starting interest rate swaps 2 | Cash flow hedges | 2015
Cash flow hedges
Number of instruments	1		1
Durations of derivative instruments			7 years
Forward-starting interest rate swaps 3 | Cash flow hedges | 2014
Cash flow hedges
Number of instruments	2		2
Durations of derivative instruments			5 years
Reverse interest rate swaps | Economic hedges | Loans with commercial loan customers
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	198,600,000		198,600,000		160,389,000
Weighted Average Maturity			5 years 2 months 12 days		5 years 7 months 6 days
Weighted Average Rate, Received (as a percent)	5.35%		5.35%		5.77%
Weighted Average Rate, Paid (as a percent)	2.58%		2.58%		2.73%
Estimated Fair Value Asset (Liability)	15,747,000		15,747,000		13,871,000
Economic hedges and non-hedging derivatives
Unrealized gain (loss) recognized in other non-interest income	(859,000)	(6,133,000)	(4,119,000)	(7,073,000)
Favorable (unfavorable) change in credit valuation adjustment recognized in other non-interest income	(31,000)	(281,000)	(22,000)	(464,000)
Interest rate lock commitments | Non-hedging derivatives
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	275,756,000		275,756,000		21,538,000
Weighted Average Maturity			2 months 12 days		2 months 12 days
Estimated Fair Value Asset (Liability)	7,833,000		7,833,000		(66,000)
Economic hedges and non-hedging derivatives
Unrealized gain (loss) recognized in other non-interest income	10,858,000	182,000	15,195,000	256,000
Forward commitments | Economic hedges
Interest rate swap agreements and non-hedging derivative assets and liabilities
Notional amount	330,632,000		330,632,000		21,538,000
Weighted Average Maturity			2 months 12 days		2 months 12 days
Estimated Fair Value Asset (Liability)	(4,669,000)		(4,669,000)		55,000
Economic hedges and non-hedging derivatives
Unrealized gain (loss) recognized in other non-interest income	$ (6,832,000)	$ (182,000)	$ (8,963,000)	$ (292,000)

XML

STOCK-BASED COMPENSATION PLANS (Tables)

9 Months Ended

Sep. 30, 2012

STOCK-BASED COMPENSATION PLANS

Summary of activity in the stock award and stock option plans

	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	108		23.76		—		—
Stock options exercised	—		—		(18	)	21.04
Stock awards vested	(68	)	19.44		—		—
Forfeited	(8	)	21.38		—		—
Expired	—		—		(19	)	22.83
Balance, September 30, 2012	248		$	21.67	372		$	25.93
Exercisable options, September 30, 2012					372		$	25.93

XML

LOANS (Details 6) (USD $) In Thousands, unless otherwise specified																																																																																					9 Months Ended						9 Months Ended																																					9 Months Ended						9 Months Ended																														9 Months Ended						9 Months Ended																																9 Months Ended																		9 Months Ended					9 Months Ended									9 Months Ended					9 Months Ended
	Sep. 30, 2012 item	Dec. 31, 2011	Sep. 30, 2012 Loans from Business Activities	Dec. 31, 2011 Loans from Business Activities	Sep. 30, 2012 Loans Acquired from Business Combinations item	Dec. 31, 2011 Loans Acquired from Business Combinations	Sep. 30, 2012 Residential mortgages item	Dec. 31, 2011 Residential mortgages	Sep. 30, 2012 Residential mortgages Loans from Business Activities	Dec. 31, 2011 Residential mortgages Loans from Business Activities	Sep. 30, 2012 Residential mortgages Loans Acquired from Business Combinations item	Dec. 31, 2011 Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Commercial mortgages	Dec. 31, 2011 Commercial mortgages	Sep. 30, 2012 Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Commercial business loans	Dec. 31, 2011 Commercial business loans	Sep. 30, 2012 Commercial business loans Loans from Business Activities	Dec. 31, 2011 Commercial business loans Loans from Business Activities	Sep. 30, 2012 Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Consumer loans	Dec. 31, 2011 Consumer loans	Sep. 30, 2012 Consumer loans Loans from Business Activities	Dec. 31, 2011 Consumer loans Loans from Business Activities	Sep. 30, 2012 Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 1-4 family Residential mortgages	Dec. 31, 2011 1-4 family Residential mortgages	Sep. 30, 2012 1-4 family Residential mortgages Loans from Business Activities	Dec. 31, 2011 1-4 family Residential mortgages Loans from Business Activities	Sep. 30, 2012 1-4 family Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 1-4 family Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Construction Residential mortgages	Dec. 31, 2011 Construction Residential mortgages	Sep. 30, 2012 Construction Residential mortgages Loans from Business Activities	Dec. 31, 2011 Construction Residential mortgages Loans from Business Activities	Sep. 30, 2012 Construction Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Construction Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Construction Commercial mortgages	Dec. 31, 2011 Construction Commercial mortgages	Sep. 30, 2012 Construction Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Construction Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Construction Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Construction Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Single and multi-family Commercial mortgages	Dec. 31, 2011 Single and multi-family Commercial mortgages	Sep. 30, 2012 Single and multi-family Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Single and multi-family Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Real estate Commercial mortgages	Dec. 31, 2011 Real estate Commercial mortgages	Sep. 30, 2012 Real estate Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Real estate Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Real estate Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Real estate Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Asset based lending Commercial business loans	Dec. 31, 2011 Asset based lending Commercial business loans	Sep. 30, 2012 Asset based lending Commercial business loans Loans from Business Activities	Dec. 31, 2011 Asset based lending Commercial business loans Loans from Business Activities	Sep. 30, 2012 Asset based lending Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Asset based lending Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Other Commercial business loans	Dec. 31, 2011 Other Commercial business loans	Sep. 30, 2012 Other Commercial business loans Loans from Business Activities	Dec. 31, 2011 Other Commercial business loans Loans from Business Activities	Sep. 30, 2012 Other Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Other Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Home equity Consumer loans	Dec. 31, 2011 Home equity Consumer loans	Sep. 30, 2012 Home equity Consumer loans Loans from Business Activities	Dec. 31, 2011 Home equity Consumer loans Loans from Business Activities	Sep. 30, 2012 Home equity Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Home equity Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Other Consumer loans item	Dec. 31, 2011 Other Consumer loans	Sep. 30, 2012 Other Consumer loans Loans from Business Activities	Dec. 31, 2011 Other Consumer loans Loans from Business Activities	Sep. 30, 2012 Other Consumer loans Loans Acquired from Business Combinations item	Dec. 31, 2011 Other Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Minimal Risk	Sep. 30, 2012 Pass Residential mortgages Maximum	Sep. 30, 2012 Pass Residential mortgages Loans from Business Activities	Dec. 31, 2011 Pass Residential mortgages Loans from Business Activities	Sep. 30, 2012 Pass Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Residential mortgages Loans Acquired from Business Combinations Maximum	Sep. 30, 2012 Pass Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Pass Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Pass Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Commercial business loans Loans from Business Activities	Dec. 31, 2011 Pass Commercial business loans Loans from Business Activities	Sep. 30, 2012 Pass Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Pass 1-4 family Residential mortgages Loans from Business Activities	Dec. 31, 2011 Pass 1-4 family Residential mortgages Loans from Business Activities	Sep. 30, 2012 Pass 1-4 family Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass 1-4 family Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Construction Residential mortgages Loans from Business Activities	Dec. 31, 2011 Pass Construction Residential mortgages Loans from Business Activities	Sep. 30, 2012 Pass Construction Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Construction Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Construction Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Pass Construction Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Pass Construction Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Construction Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Single and multi-family Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Pass Single and multi-family Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Pass Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Real estate Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Pass Real estate Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Pass Real estate Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Real estate Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Asset based lending Commercial business loans Loans from Business Activities	Dec. 31, 2011 Pass Asset based lending Commercial business loans Loans from Business Activities	Sep. 30, 2012 Pass Asset based lending Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Asset based lending Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Pass Other Commercial business loans Loans from Business Activities	Dec. 31, 2011 Pass Other Commercial business loans Loans from Business Activities	Sep. 30, 2012 Pass Other Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Pass Other Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Residential mortgages Minimum	Sep. 30, 2012 Special mention Residential mortgages Maximum	Sep. 30, 2012 Special mention Residential mortgages Loans from Business Activities	Dec. 31, 2011 Special mention Residential mortgages Loans from Business Activities	Sep. 30, 2012 Special mention Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Residential mortgages Loans Acquired from Business Combinations Minimum	Sep. 30, 2012 Special mention Residential mortgages Loans Acquired from Business Combinations Maximum	Sep. 30, 2012 Special mention Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Special mention Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Special mention Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Commercial business loans Loans from Business Activities	Dec. 31, 2011 Special mention Commercial business loans Loans from Business Activities	Sep. 30, 2012 Special mention Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention 1-4 family Residential mortgages Loans from Business Activities	Dec. 31, 2011 Special mention 1-4 family Residential mortgages Loans from Business Activities	Sep. 30, 2012 Special mention 1-4 family Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention 1-4 family Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Construction Residential mortgages Loans from Business Activities	Sep. 30, 2012 Special mention Construction Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Special mention Construction Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Special mention Construction Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Single and multi-family Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Special mention Single and multi-family Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Special mention Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Real estate Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Special mention Real estate Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Special mention Real estate Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention Real estate Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Special mention Other Commercial business loans Loans from Business Activities	Dec. 31, 2011 Special mention Other Commercial business loans Loans from Business Activities	Sep. 30, 2012 Special mention Other Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Special mention Other Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Minimum	Sep. 30, 2012 Substandard Residential mortgages Minimum	Sep. 30, 2012 Substandard Residential mortgages Loans from Business Activities	Dec. 31, 2011 Substandard Residential mortgages Loans from Business Activities	Sep. 30, 2012 Substandard Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Residential mortgages Loans Acquired from Business Combinations Minimum	Sep. 30, 2012 Substandard Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Substandard Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Substandard Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Commercial business loans Loans from Business Activities	Dec. 31, 2011 Substandard Commercial business loans Loans from Business Activities	Sep. 30, 2012 Substandard Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard 1-4 family Residential mortgages Loans from Business Activities	Dec. 31, 2011 Substandard 1-4 family Residential mortgages Loans from Business Activities	Sep. 30, 2012 Substandard 1-4 family Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard 1-4 family Residential mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Construction Residential mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Construction Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Substandard Construction Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Substandard Construction Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Construction Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Single and multi-family Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Substandard Single and multi-family Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Substandard Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Single and multi-family Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Real estate Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Substandard Real estate Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Substandard Real estate Commercial mortgages Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Real estate Commercial mortgages Loans Acquired from Business Combinations	Sep. 30, 2012 Substandard Asset based lending Commercial business loans Loans from Business Activities	Dec. 31, 2011 Substandard Asset based lending Commercial business loans Loans from Business Activities	Sep. 30, 2012 Substandard Other Commercial business loans Loans from Business Activities	Dec. 31, 2011 Substandard Other Commercial business loans Loans from Business Activities	Sep. 30, 2012 Substandard Other Commercial business loans Loans Acquired from Business Combinations	Dec. 31, 2011 Substandard Other Commercial business loans Loans Acquired from Business Combinations	Sep. 30, 2012 Doubtful Maximum	Sep. 30, 2012 Doubtful Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Doubtful Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Doubtful Commercial business loans Loans from Business Activities	Dec. 31, 2011 Doubtful Commercial business loans Loans from Business Activities	Dec. 31, 2011 Doubtful Construction Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Doubtful Real estate Commercial mortgages Loans from Business Activities	Dec. 31, 2011 Doubtful Real estate Commercial mortgages Loans from Business Activities	Sep. 30, 2012 Doubtful Other Commercial business loans Loans from Business Activities	Dec. 31, 2011 Doubtful Other Commercial business loans Loans from Business Activities	Sep. 30, 2012 Performing Consumer loans Loans from Business Activities	Dec. 31, 2011 Performing Consumer loans Loans from Business Activities	Sep. 30, 2012 Performing Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Performing Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Performing Home equity Consumer loans Loans from Business Activities	Dec. 31, 2011 Performing Home equity Consumer loans Loans from Business Activities	Sep. 30, 2012 Performing Home equity Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Performing Home equity Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Performing Other Consumer loans Maximum	Sep. 30, 2012 Performing Other Consumer loans Loans from Business Activities	Dec. 31, 2011 Performing Other Consumer loans Loans from Business Activities	Sep. 30, 2012 Performing Other Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Performing Other Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Performing Other Consumer loans Loans Acquired from Business Combinations Maximum	Sep. 30, 2012 Nonperforming Consumer loans Loans from Business Activities	Dec. 31, 2011 Nonperforming Consumer loans Loans from Business Activities	Sep. 30, 2012 Nonperforming Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Nonperforming Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Nonperforming Home equity Consumer loans Loans from Business Activities	Dec. 31, 2011 Nonperforming Home equity Consumer loans Loans from Business Activities	Sep. 30, 2012 Nonperforming Home equity Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Nonperforming Home equity Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Nonperforming Other Consumer loans Minimum	Sep. 30, 2012 Nonperforming Other Consumer loans Loans from Business Activities	Dec. 31, 2011 Nonperforming Other Consumer loans Loans from Business Activities	Sep. 30, 2012 Nonperforming Other Consumer loans Loans Acquired from Business Combinations	Dec. 31, 2011 Nonperforming Other Consumer loans Loans Acquired from Business Combinations	Sep. 30, 2012 Nonperforming Other Consumer loans Loans Acquired from Business Combinations Minimum
Credit quality information
Number of grades in internal loan rating system	11				11		3				3																																																																				2				2
Stable period of relationship which provides an adequate return on investment																																																																																					3 years
Delinquency period of loans based on which risk rating is assigned to loans																																																																																																																																60 days	89 days					60 days	89 days																													90 days	90 days					90 days																																																																120 days					120 days
Percentage of balance owed expected to be collected																																																																																																																																																																																																										50.00%
Current period of loans based on which risk rating is assigned to loans																																																																																						59 days					59 days																																																																																																																																	119 days					119 days
Loans	$ 3,418,392	$ 2,956,570	$ 2,632,083	$ 2,262,251	$ 786,309	$ 694,319	$ 1,226,022	$ 1,020,435	$ 929,284	$ 681,658	$ 296,738	$ 338,777	$ 1,255,172	$ 1,156,241	$ 960,456	$ 953,438	$ 294,716	$ 202,803	$ 568,781	$ 410,292	$ 475,512	$ 361,766	$ 93,269	$ 48,526	$ 368,417	$ 369,602	$ 266,831	$ 265,389	$ 101,586	$ 104,213	$ 1,192,452	$ 978,874	$ 902,661	$ 649,467	$ 289,791	$ 329,407	$ 33,570	$ 41,561	$ 26,623	$ 32,191	$ 6,947	$ 9,370	$ 155,872	$ 124,218	$ 145,494	$ 117,492	$ 10,378	$ 6,726	$ 90,978	$ 105,799	$ 77,470	$ 89,401	$ 13,508	$ 16,398	$ 1,008,322	$ 926,224	$ 737,492	$ 746,545	$ 270,830	$ 179,679	$ 245,691	$ 153,271	$ 243,126	$ 151,065	$ 2,565	$ 2,206	$ 323,090	$ 257,021	$ 232,386	$ 210,701	$ 90,704	$ 46,320	$ 302,057	$ 298,196	$ 228,497	$ 226,369	$ 73,560	$ 71,827	$ 66,360	$ 71,406	$ 38,334	$ 39,020	$ 28,026	$ 32,386			$ 919,535	$ 669,301	$ 294,151	$ 336,920		$ 869,779	$ 851,419	$ 253,835	$ 179,568	$ 460,174	$ 349,987	$ 79,045	$ 41,784	$ 893,426	$ 637,110	$ 287,204	$ 327,715	$ 26,109	$ 32,191	$ 6,947	$ 9,205	$ 130,658	$ 91,452	$ 8,703	$ 3,548	$ 74,438	$ 85,153	$ 9,691	$ 14,802	$ 664,683	$ 674,814	$ 235,441	$ 161,218	$ 242,089	$ 149,741	$ 2,565	$ 2,206	$ 218,085	$ 200,246	$ 76,480	$ 39,578			$ 985	$ 877	$ 406	$ 242			$ 13,433	$ 22,833	$ 14,798	$ 10,503	$ 4,921	$ 607	$ 8,394	$ 3,810	$ 471	$ 877	$ 406	$ 242	$ 514	$ 49	$ 5,939	$ 2,160	$ 422	$ 435	$ 2,553	$ 272	$ 12,962	$ 16,459	$ 12,245	$ 8,071	$ 4,921	$ 607	$ 8,394	$ 3,810			$ 8,764	$ 11,480	$ 2,181	$ 1,615		$ 77,139	$ 76,231	$ 26,083	$ 12,732	$ 10,324	$ 11,077	$ 5,830	$ 2,932	$ 8,764	$ 11,480	$ 2,181	$ 1,450	$ 165	$ 14,787	$ 17,262	$ 1,675	$ 1,018	$ 2,610	$ 3,813	$ 1,264	$ 1,324	$ 59,742	$ 55,156	$ 23,144	$ 10,390	$ 1,037	$ 1,324	$ 9,287	$ 9,753	$ 5,830	$ 2,932		$ 105	$ 2,955	$ 93	$ 95	$ 2,839	$ 105	$ 116	$ 93	$ 95	$ 265,187	$ 263,649	$ 101,408	$ 104,000	$ 227,028	$ 224,677	$ 73,523	$ 71,752		$ 38,159	$ 38,972	$ 27,885	$ 32,248		$ 1,644	$ 1,740	$ 178	$ 213	$ 1,469	$ 1,692	$ 37	$ 75		$ 175	$ 48	$ 141	$ 138

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OPERATING SEGMENTS

9 Months Ended

Sep. 30, 2012

OPERATING SEGMENTS

OPERATING SEGMENTS

NOTE 12. OPERATING SEGMENTS

The Company has two reportable operating segments, Banking and Insurance, which are delineated by the consolidated subsidiaries of Berkshire Hills Bancorp, Inc.  Banking includes the activities of the Bank and its subsidiaries, which provide retail and commercial banking, along with wealth management and investment services.  Insurance includes the activities of BIG, which provides retail and commercial insurance services.  The only other consolidated financial activity of the Company is the Parent, which consists of the transactions of Berkshire Hills Bancorp, Inc. Management fees for corporate services provided by the Bank to BIG and the Parent are eliminated.

The accounting policies of each reportable segment are the same as those of the Company.  The Insurance segment and the Parent reimburse the Bank for administrative services provided to them.  Income tax expense for the individual segments is calculated based on the activity of the segments, and the Parent records the tax expense or benefit necessary to reconcile to the consolidated total.  The Parent does not allocate capital costs.  Average assets include securities available-for-sale based on amortized cost.

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

(In thousands)	Banking			Insurance		Parent			Eliminations			Total Consolidated
Three months ended September 30, 2012
Net interest income (expense)	$	35,505		$	—	$	(280	)	$	—		$	35,225
Provision for loan losses	2,500			—		—			—			2,500
Non-interest income	11,571			2,742		10,294			(10,294		)	14,313
Non-interest expense	29,608			2,021		533			—			32,162
Income (loss) before income taxes	14,968			721		9,481			(10,294		)	14,876
Income tax expense (benefit)	5,105			290		(548		)	—			4,847
Net income	$	9,863		$	431	$	10,029		$	(10,294	)	$	10,029
Average assets (in millions)	$	4,409		$	29	$	501		$	(368	)	$	4,572
Three months ended September 30, 2011
Net interest income (expense)	$	31,253		$	—	$	(215	)	$	—		$	31,038
Provision for loan losses	2,200			—		—			—			2,200
Non-interest income	8,248			2,426		3,570			(3,570		)	10,674
Non-interest expense	34,163			2,148		(1,602		)	1			34,710
Income (loss) before income taxes	3,138			278		4,957			(3,571		)	4,802
Income tax expense (benefit)	(272		)	114		569			(1		)	410
Net income	$	3,410		$	164	$	4,388		$	(3,570	)	$	4,392
Average assets (in millions)	$	3,827		$	30	$	479		$	(475	)	$	3,861
Nine months ended September 30, 2012
Net interest income (expense)	$	102,095		$	—	$	(672	)	$	—		$	101,423
Provision for loan losses	6,750			—		—			—			6,750
Non-interest income	28,147			8,256		25,546			(25,546		)	36,403
Non-interest expense	88,061			6,329		2,150			—			96,540
Income (loss) before income taxes	35,431			1,927		22,724			(25,546		)	34,536
Income tax expense (benefit)	10,400			775		(1,135		)	—			10,040
Net income	$	25,031		$	1,152	$	23,859		$	(25,546	)	$	24,496
Income from discontinued operations berofre income taxes (including gain on disposal of $63)	(261		)	—		—			—			(261		)
Income tax expense	376			—		—			—			376
Net loss from discontinued operations	$	(637	)	$	—	$	—		$	—		$	(637	)
Net income	$	24,394		$	1,152	$	23,859		$	(25,546	)	$	23,859
Average assets (in millions)	$	4,185		$	30	$	492		$	(405	)	$	4,302
Nine months ended September 30, 2011
Net interest income (expense)	$	76,017		$	—	$	(631	)	$	(1	)	$	75,385
Provision for loan losses	5,300			—		—			—			5,300
Non-interest income	18,035			8,938		7,068			(7,068		)	26,973
Non-interest expense	76,893			6,598		3,031			—			86,522
Income before income taxes	11,859			2,340		3,406			(7,069		)	10,536
Income tax expense (benefit)	1,968			958		(1,494		)	—			1,432
Net income	9,891			1,382		4,900			(7,069		)	9,104
Average assets (in millions)	$	3,281		$	32	$	413		$	(411	)	$	3,315

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BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2012

BASIS OF PRESENTATION

Basis of presentation

BASIS OF PRESENTATION

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

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

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for Berkshire Bancorp, Inc. (“the Company”) previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the second quarter of 2012, and in connection with the Company’s purchase of the assets and business operations of Greenpark Mortgage Corporation (“Greenpark”) as described in Note 3, the Company adopted the applicable accounting guidance for the fair value option as it relates to held for sale loans (“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 change 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 September 30, 2012.  The Company’s results of operations during 2011 would not have been significantly impacted had the Company applied the fair value option to its HFS loans during that year.

Out of Period Adjustment

Out of Period Adjustments

During the three months ended March 31, 2012 and June 30, 2012, the Company recorded corrections of immaterial errors that increased net income by $0.2 million and $0.5 million, respectively. The amounts represent corrections to tax-related over-accruals that occurred in prior years.  After evaluating the quantitative and qualitative aspects of these adjustments, the Company concluded that its prior year financial statements were not materially misstated and, therefore, no restatement was required.

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LOANS (Details 4) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Recorded Investment
Total	$ 23,800
Loans from Business Activities
Recorded Investment
Total	16,798		17,086
Unpaid Principal Balance
Total	19,563		19,861
Related Allowance
With an allowance recorded	2,765		2,775
Average Recorded Investment
Total	14,702	16,715
Cash Basis Interest Income Recognized
Total	128	348
Loans Acquired from Business Combinations
Recorded Investment
Total	1,459		284
Unpaid Principal Balance
Total	1,503		284
Related Allowance
With an allowance recorded	44
Average Recorded Investment
Total	738	1,225
Cash Basis Interest Income Recognized
Total	15
Residential mortgages | Loans from Business Activities
Recorded Investment
Total	4,717		4,399
Unpaid Principal Balance
Total	5,381		4,848
Related Allowance
With an allowance recorded	664		449
Average Recorded Investment
Total	4,190	2,129
Cash Basis Interest Income Recognized
Total	49	59
Residential mortgages | Loans Acquired from Business Combinations
Recorded Investment
Total	568		247
Unpaid Principal Balance
Total	612		247
Related Allowance
With an allowance recorded	44
Average Recorded Investment
Total	439
Commercial mortgages | Loans from Business Activities
Recorded Investment
Total	10,408		12,009
Unpaid Principal Balance
Total	12,060		13,731
Related Allowance
With an allowance recorded	1,652		1,722
Average Recorded Investment
Total	9,658	13,611
Cash Basis Interest Income Recognized
Total	73	280
Commercial mortgages | Loans Acquired from Business Combinations
Recorded Investment
Total	891
Unpaid Principal Balance
Total	891
Average Recorded Investment
Total	274	1,064
Cash Basis Interest Income Recognized
Total	15
Commercial business loans | Loans from Business Activities
Recorded Investment
Total	696		13
Unpaid Principal Balance
Total	1,038		129
Related Allowance
With an allowance recorded	342		116
Average Recorded Investment
With no related allowance	15	31
With an allowance recorded	169	429
Total	184	460
Cash Basis Interest Income Recognized
With no related allowance		1
With an allowance recorded	5	3
Total	5	4
Commercial business loans | Loans Acquired from Business Combinations
Average Recorded Investment
With no related allowance		161
Total		161
Consumer | Loans from Business Activities
Recorded Investment
Total	977		665
Unpaid Principal Balance
Total	1,084		1,153
Related Allowance
With an allowance recorded	107		488
Average Recorded Investment
Total	670	515
Cash Basis Interest Income Recognized
Total	1	5
Consumer | Loans Acquired from Business Combinations
Recorded Investment
Total			37
Unpaid Principal Balance
Total			37
Average Recorded Investment
Total	25
1-4 family | Residential mortgages | Loans from Business Activities
Recorded Investment
With no related allowance	2,032		2,546
With an allowance recorded	2,685		1,853
Unpaid Principal Balance
With no related allowance	2,032		2,546
With an allowance recorded	3,349		2,302
Related Allowance
With an allowance recorded	664		449
Average Recorded Investment
With no related allowance	1,623	1,487
With an allowance recorded	2,567	568
Cash Basis Interest Income Recognized
With no related allowance	22	39
With an allowance recorded	27	20
1-4 family | Residential mortgages | Loans Acquired from Business Combinations
Recorded Investment
With no related allowance	455		247
With an allowance recorded	113
Unpaid Principal Balance
With no related allowance	455		247
With an allowance recorded	157
Related Allowance
With an allowance recorded	44
Average Recorded Investment
With no related allowance	426
With an allowance recorded	13
Construction | Residential mortgages | Loans from Business Activities
Average Recorded Investment
With no related allowance		52
With an allowance recorded		21
Construction | Commercial mortgages | Loans from Business Activities
Recorded Investment
With an allowance recorded	3,986		7,559
Unpaid Principal Balance
With an allowance recorded	4,672		8,650
Related Allowance
With an allowance recorded	686		1,091
Construction | Commercial business loans | Loans from Business Activities
Average Recorded Investment
With no related allowance		105
With an allowance recorded	4,736	3,504
Single and multifamily | Commercial mortgages | Loans from Business Activities
Recorded Investment
With no related allowance	164		326
Unpaid Principal Balance
With no related allowance	164		326
Average Recorded Investment
With no related allowance	190	89
With an allowance recorded	75	365
Cash Basis Interest Income Recognized
With no related allowance	2	1
With an allowance recorded		11
Real estate | Commercial mortgages | Loans from Business Activities
Recorded Investment
With no related allowance	4,134		2,751
With an allowance recorded	2,124		1,373
Unpaid Principal Balance
With no related allowance	4,134		2,751
With an allowance recorded	3,090		2,004
Related Allowance
With an allowance recorded	966		631
Average Recorded Investment
With no related allowance	2,644	7,470
With an allowance recorded	2,013	2,077
Cash Basis Interest Income Recognized
With no related allowance	48	248
With an allowance recorded	23	20
Real estate | Commercial mortgages | Loans Acquired from Business Combinations
Recorded Investment
With no related allowance	891
Unpaid Principal Balance
With no related allowance	891
Average Recorded Investment
With no related allowance	274	1,064
Cash Basis Interest Income Recognized
With no related allowance	15
Other commercial business loans | Loans from Business Activities
Recorded Investment
With no related allowance	176
With an allowance recorded	520		13
Unpaid Principal Balance
With no related allowance	176
With an allowance recorded	862		129
Related Allowance
With an allowance recorded	342		116
Home equity | Consumer | Loans from Business Activities
Recorded Investment
With no related allowance	809		308
With an allowance recorded	168		357
Unpaid Principal Balance
With no related allowance	809		308
With an allowance recorded	275		845
Related Allowance
With an allowance recorded	107		488
Average Recorded Investment
With no related allowance	249	361
With an allowance recorded	421	154
Cash Basis Interest Income Recognized
With no related allowance	1	5
Home equity | Consumer | Loans Acquired from Business Combinations
Recorded Investment
With no related allowance			37
Unpaid Principal Balance
With no related allowance			37
Average Recorded Investment
With no related allowance	$ 25

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ACQUISITIONS (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Unaudited pro forma information
Pro forma net interest income	$ 105,183	$ 84,869
Pro forma non-interest income	45,205	40,919
Pro forma net income	$ 24,443	$ 9,292
Pro forma earnings per share from continuing operations
Basic (in dollars per share)	$ 1.16	$ 0.52
Diluted (in dollars per share)	$ 1.16	$ 0.52

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CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
CONSOLIDATED STATEMENTS OF INCOME
Loss from discontinued operations before income taxes, gain on disposal	$ 63

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2012

BASIS OF PRESENTATION

BASIS OF PRESENTATION

NOTE 1.BASIS OF PRESENTATION

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

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

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for Berkshire Bancorp, Inc. (“the Company”) previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Recently Adopted Accounting Pronouncements

During the second quarter of 2012, and in connection with the Company’s purchase of the assets and business operations of Greenpark Mortgage Corporation (“Greenpark”) as described in Note 3, the Company adopted the applicable accounting guidance for the fair value option as it relates to held for sale loans (“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 change 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 September 30, 2012.  The Company’s results of operations during 2011 would not have been significantly impacted had the Company applied the fair value option to its HFS loans during that year.

Out of Period Adjustments

During the three months ended March 31, 2012 and June 30, 2012, the Company recorded corrections of immaterial errors that increased net income by $0.2 million and $0.5 million, respectively. The amounts represent corrections to tax-related over-accruals that occurred in prior years.  After evaluating the quantitative and qualitative aspects of these adjustments, the Company concluded that its prior year financial statements were not materially misstated and, therefore, no restatement was required.

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STOCKHOLDERS' EQUITY (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Tax effects	$ 2,898	$ 3,496
Accumulated other comprehensive loss	(3,462)	(4,885)
Net unrealized holding gain (loss) on AFS securities
Accumulated other comprehensive loss before tax	11,089	6,298
Tax effects	4,100	2,300
Net loss on effective cash flow hedging derivatives and terminated swap
Accumulated other comprehensive loss before tax	16,500	14,000
Tax effects	7,000	5,800
Net loss on effective cash flow hedging derivatives
Accumulated other comprehensive loss before tax	(12,102)	(8,882)
Net loss on terminated swap
Accumulated other comprehensive loss before tax	(4,415)	(5,121)
Net unrealized holding gain (loss) on pension plans
Accumulated other comprehensive loss before tax	$ (932)	$ (676)

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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
Net interest income	$ 35,225	$ 31,038	$ 101,423	$ 75,385
Provision for loan losses	2,500	2,200	6,750	5,300
Net interest income after provision for loan losses	$ 32,725	$ 28,838	$ 94,673	$ 70,085

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ACQUISITIONS (Tables)

9 Months Ended

Sep. 30, 2012

ACQUISITIONS

Schedule of unaudited pro forma information

	Pro Forma
	Nine months ended September 30,
	2012		2011
Net interest income	$	105,183	$	84,869
Non-interest income	45,205		40,919
Net income	24,443		9,292
Pro forma earnings per share from continuing operations:
Basic	$	1.16	$	0.52
Diluted	$	1.16	$	0.52

CBT

ACQUISITIONS

Summary of consideration paid, and fair values of entity's assets acquired and liabilities assumed

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	$	10,567		$	—		$	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	—			1,000		(c)	1,000
Other intangibles	—			(238)		(d)	(238		)
Other assets	3,081			7,668		(e)	10,749
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	$	24,692		$	(1,454	)	$	23,238
Goodwill							$	14,146

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 in accordance with ASC 310-30 had a carrying amount of $23.8 million.  Non-impaired loans not accounted for under 310-30 had a carrying value of $192.0 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 will be amortized over the average life of the deposit base.

(d)Represents an intangible liability related to assumed leases, which was recorded as an identifiable intangible and will be amortized over the remaining life of the leases.

(e)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)Adjusts borrowings to their estimated fair value calculated based on interest rates of similar borrowings available on the date of acquisition.

(h)Adjusts the book value of other liabilities to their estimated fair value at the acquisition date.

Schedule of acquired loan portfolio

	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

Greenpark

ACQUISITIONS

Summary of consideration paid, and fair values of entity's assets acquired and liabilities assumed

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

Explanation of Certain Fair Values

(a)Includes a portion of the cash consideration paid for premiums as described above, which adjusts the loans to fair value.

(b)Represents the 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 fair value of the interest rate lock commitments.

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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2012

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

Schedule of net interest income after provision for loan losses

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
Net interest income	$	35,225	$	31,038	$	101,423	$	75,385
Provision for loan losses	2,500		2,200		6,750		5,300
Net interest income after provision for loan losses	$	32,725	$	28,838	$	94,673	$	70,085

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STOCK-BASED COMPENSATION PLANS

9 Months Ended

Sep. 30, 2012

STOCK-BASED COMPENSATION PLANS

STOCK-BASED COMPENSATION PLANS

NOTE 11. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the nine months ended September 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	108		23.76		—		—
Stock options exercised	—		—		(18	)	21.04
Stock awards vested	(68	)	19.44		—		—
Forfeited	(8	)	21.38		—		—
Expired	—		—		(19	)	22.83
Balance, September 30, 2012	248		$	21.67	372		$	25.93
Exercisable options, September 30, 2012					372		$	25.93

During the nine months ended September 30, 2012 and 2011, proceeds from stock option exercises totaled $376 thousand and $624 thousand, respectively. During the nine months ended September 30, 2012, there were 68 thousand shares issued in connection with vested stock awards.  During the nine months ended September 30, 2011, there were 66 thousand shares issued in connection with vested stock awards.  All of these shares were issued from available treasury stock.  Stock-based compensation expense totaled $1.4 million and $1.1 million during the nine months ended September 30, 2012 and 2011, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.