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.