BBT 10-Q Quarterly Report March 31, 2014

BERKSHIRE HILLS BANCORP INC

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10-Q 1 a14-9726_110q.htm 10-Q

Table of Contents

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: March 31, 2014

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

For the transition period from to

Commission File Number: 001-15781

BERKSHIRE HILLS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-3510455
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

24 North Street, Pittsfield, Massachusetts		01201
(Address of principal executive offices)		(Zip Code)

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

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

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

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

Large Accelerated Filer o		Accelerated Filer x

Non-Accelerated Filer o		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 25,108,296 shares of common stock, par value $0.01 per share, outstanding as of May 6, 2014.

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

			Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013		4

	Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013		5

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014 and 2013		6

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

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013		8

	Notes to Consolidated Financial Statements
	Note 1	Basis of Presentation	10
	Note 2	Acquisition	10
	Note 3	Trading Account Security	12
	Note 4	Securities Available for Sale and Held to Maturity	13
	Note 5	Loans	17
	Note 6	Loan Loss Allowance	27
	Note 7	Deposits	32
	Note 8	Borrowed Funds	32
	Note 9	Stockholders’ Equity	33
	Note 10	Earnings per Share	36
	Note 11	Stock-Based Compensation Plans	36
	Note 12	Operating Segments	37
	Note 13	Derivative Financial Instruments and Hedging Activities	37
	Note 14	Fair Value Measurements	43
	Note 15	Net Interest Income after Provision for Loan Losses	50
	Note 16	Subsequent Events	50

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		51

	Selected Financial Data		55

	Average Balances and Average Yields/Rates		56

	Non-GAAP Financial Measures		58

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		66

Item 4.	Controls and Procedures		66

Table of Contents

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults Upon Senior Securities	68

Item 4.	Mine Safety Disclosures	68

Item 5.	Other Information	68

Item 6.	Exhibits	68

Signatures		70

Table of Contents

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(In thousands, except share data)	2014			2013
Assets
Cash and due from banks	$	60,023		$	56,841
Short-term investments	12,650			18,698
Total cash and cash equivalents	72,673			75,539

Trading security	14,923			14,840
Securities available for sale, at fair value	1,033,637			760,048
Securities held to maturity (fair values of $44,191 and $45,764)	43,159			44,921
Federal Home Loan Bank stock and other restricted securities	53,124			50,282
Total securities	1,144,843			870,091

Loans held for sale, at fair value	7,669			15,840

Residential mortgages	1,377,771			1,384,274
Commercial real estate	1,456,976			1,417,120
Commercial and industrial loans	696,895			687,293
Consumer loans	710,985			691,836
Total loans	4,242,627			4,180,523
Less: Allowance for loan losses	(33,602		)	(33,323		)
Net loans	4,209,025			4,147,200

Premises and equipment, net	87,805			84,459
Other real estate owned	2,418			2,758
Goodwill	264,770			256,871
Other intangible assets	15,035			13,791
Cash surrender value of bank-owned life insurance policies	102,343			101,530
Deferred tax assets, net	40,202			50,711
Other assets	63,548			54,009
Total assets	$	6,010,331		$	5,672,799

Liabilities
Demand deposits	$	770,841		$	677,917
NOW deposits	434,833			353,612
Money market deposits	1,459,062			1,383,856
Savings deposits	478,107			431,496
Time deposits	1,075,740			1,001,648
Total deposits	4,218,583			3,848,529
Short-term debt	914,950			872,510
Long-term Federal Home Loan Bank advances	21,797			101,918
Subordinated borrowings	89,696			89,679
Total borrowings	1,026,443			1,064,107
Other liabilities	87,715			82,101
Total liabilities	5,332,741			4,994,737

Stockholders’ equity
Common stock ($.01 par value; 50,000,000 shares authorized and 26,525,466 shares issued and 25,105,207 shares outstanding in 2014; 26,525,466 shares issued and 25,036,169 shares outstanding in 2013)	265			265
Additional paid-in capital	585,342			587,247
Unearned compensation	(7,811		)	(5,563		)
Retained earnings	135,498			141,958
Accumulated other comprehensive loss	(631		)	(9,057		)
Treasury stock, at cost (1,420,259 shares in 2014 and 1,489,297 shares in 2013)	(35,073		)	(36,788		)
Total stockholders’ equity	677,590			678,062
Total liabilities and stockholders’ equity	$	6,010,331		$	5,672,799

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

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended
	March 31,
(In thousands, except per share data)	2014			2013
Interest and dividend income
Loans	$	42,494		$	47,081
Securities and other	7,301			3,800
Total interest and dividend income	49,795			50,881
Interest expense
Deposits	4,721			5,363
Borrowings	2,308			3,581
Total interest expense	7,029			8,944
Net interest income	42,766			41,937
Non-interest income
Loan related income	1,248			2,717
Mortgage banking income	372			2,217
Deposit related fees	5,439			4,259
Insurance commissions and fees	3,049			2,997
Wealth management fees	2,549			2,264
Total fee income	12,657			14,454
Other	524			344
Gain on sale of securities, net	34			—
Loss on termination of hedges	(8,792		)	—
Total non-interest income	4,423			14,798
Total net revenue	47,189			56,735
Provision for loan losses	3,396			2,400
Non-interest expense
Compensation and benefits	19,859			17,741
Occupancy and equipment	6,814			5,768
Technology and communications	3,778			2,991
Marketing and promotion	521			638
Professional services	1,152			1,490
FDIC premiums and assessments	1,009			828
Other real estate owned and foreclosures	523			23
Amortization of intangible assets	1,306			1,377
Acquisition, restructuring and conversion related expenses	6,301			5,064
Other	4,097			3,563
Total non-interest expense	45,360			39,483

(Loss) income before income taxes	(1,567		)	14,852
Income tax (benefit) expense	(461		)	4,387
Net (loss) income	$	(1,106	)	$	10,465

(Loss) earnings per share:
Basic	$	(0.04	)	$	0.42
Diluted	$	(0.04	)	$	0.42

Weighted average common shares outstanding:
Basic	24,698			24,948
Diluted	24,698			25,143

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended
	March 31,
(In thousands)	2014			2013

Net (loss) income	$	(1,106	)	$	10,465
Other comprehensive income, before tax:
Changes in unrealized gains on securities available-for-sale	6,021			733
Changes in unrealized gains on derivative hedges	4,533			1,443
Changes in unrealized gains on terminated swaps	3,237			236
Income taxes related to other comprehensive income:
Changes in unrealized gains on securities available-for-sale	(2,221		)	(321		)
Changes in unrealized gains on derivative hedges	(1,832		)	(575		)
Changes in unrealized gains on terminated swaps	(1,312		)	(208		)
Total other comprehensive income	8,426			1,308
Total comprehensive income	$	7,320		$	11,773

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, 2012	25,148		$	265	$	585,360		$	(3,035	)	$	122,014		$	(2,979	)	$	(34,360	)	$	667,265

Comprehensive income:
Net income	—		—		—			—			10,465			—			—			10,465
Other comprehensive income	—		—		—			—			—			1,308			—			1,308
Total comprehensive income																				11,773
Cash dividends declared ($0.18 per share)	—		—		—			—			(4,561		)	—			—			(4,561		)
Treasury stock purchased	(98	)	—		—			—			—			—			(2,434		)	(2,434		)
Forfeited shares	(4	)	—		8			90			—			—			(98		)	—
Exercise of stock options	118		—		—			—			(1,488		)	—			3,315			1,827
Restricted stock grants	146		—		(691		)	(3,485		)	—			—			4,176			—
Stock-based compensation	—		—		296			585			—			—			—			881
Net tax benefit related to stock-based compensation	—		—		479			—			—			—			—			479
Other, net	(56	)	—		—			—			—			—			(1,348		)	(1,348		)
Balance at March 31, 2013	25,254		$	265	$	585,452		$	(5,845	)	$	126,430		$	(1,671	)	$	(30,749	)	$	673,882

Balance at December 31, 2013	25,036		$	265	$	587,247		$	(5,563	)	$	141,958		$	(9,057	)	$	(36,788	)	$	678,062

Comprehensive income:
Net loss	—		—		—			—			(1,106		)	—			—			(1,106		)
Other comprehensive income	—		—		—			—			—			8,426			—			8,426
Total comprehensive income																				7,320
Cash dividends declared ($0.18 per share)	—		—		—			—			(4,561		)	—			—			(4,561		)
Treasury stock purchased	(100	)	—		—			—			—			—			(2,467		)	(2,467		)
Forfeited shares	(1	)	—		1			5			—			—			(6		)	—
Exercise of stock options	61		—		—			—			(793		)	—			1,512			719
Restricted stock grants	126		—		37			(3,144		)	—			—			3,107			—
Stock-based compensation	—		—		41			891			—			—			—			932
Net tax benefit related to stock-based compensation	—		—		(1,984		)	—			—			—			—			(1,984		)
Other, net	(17	)	—		—			—			—			—			(431		)	(431		)
Balance at March 31, 2014	25,105		$	265	$	585,342		$	(7,811	)	$	135,498		$	(631	)	$	(35,073	)	$	677,590

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

	Three Months Ended March 31,
(In thousands)	2014			2013
Cash flows from operating activities:
Net (loss) income	$	(1,106	)	$	10,465
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	3,396			2,400
Net amortization of securities	604			354
Change in unamortized net loan costs and premiums	64			(511		)
Premises and equipment depreciation and amortization expense	1,944			1,725
Stock-based compensation expense	932			881
Accretion of purchase accounting entries, net	(1,999		)	(4,659		)
Amortization of other intangibles	1,306			1,377
Write down of other real estate owned	125			—
Excess tax loss from stock-based payment arrangements	(89		)	(479		)
Income from cash surrender value of bank-owned life insurance policies	(813		)	(695		)
Gain on sales of securities, net	(34		)	(1		)
Net decrease in loans held for sale	8,171			13,020
Loss on disposition of assets	834			1,596
Loss (gain) on sale of real estate	208			(115		)
Loss on termination of hedges	3,237			—
Net change in other	238			(3,072		)
Net cash provided by operating activities	17,018			22,286

Cash flows from investing activities:
Net decrease in trading security	135			128
Proceeds from sales of securities available for sale	3,171			—
Proceeds from maturities, calls and prepayments of securities available for sale	25,440			37,481
Purchases of securities available for sale	(291,662		)	(129,806		)
Proceeds from maturities, calls and prepayments of securities held to maturity	1,762			882
Purchases of securities held to maturity	—			(329		)
Net change in loans	(59,851		)	100,676
Proceeds from sale of Federal Home Loan Bank stock	78			1,915
Purchase of Federal Home Loan Bank stock	(2,920		)	—
Net investment in limited partnership tax credits	(2,500		)	—
Purchase of premises and equipment, net	(3,130		)	(5,094		)
Acquisitions, net of cash paid	423,416			—
Proceeds from sale of other real estate	483			449
Net cash provided by in investing activities	94,422			6,302

(continued)

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 (CONCLUDED)

	Three Months Ended March 31,
(In thousands)	2014			2013

Cash flows from financing activities:
Net (decrease) increase in deposits	(70,422		)	1,049
Proceeds from Federal Home Loan Bank advances and other borrowings	900,018			90,015
Repayments of Federal Home Loan Bank advances and other borrowings	(937,682		)	(138,873		)
Purchase of treasury stock	(2,467		)	(2,434		)
Exercise of stock options	719			1,827
Excess tax (gain) loss from stock-based payment arrangements	89			479
Common stock cash dividends paid	(4,561		)	(4,564		)
Net cash used in financing activities	(114,306		)	(52,501		)

Net change in cash and cash equivalents	(2,866		)	(23,913		)

Cash and cash equivalents at beginning of year	75,539			98,244

Cash and cash equivalents at end of year	$	72,673		$	74,331

Supplemental cash flow information:
Interest paid on deposits	$	4,718		$	5,330
Interest paid on borrowed funds	3,145			3,440
Income taxes paid, net	146			638

Acquisition of non-cash assets and liabilities:
Assets acquired	18,064			—
Liabilities assumed	(441,550		)	(330		)

Other non-cash changes:
Other net comprehensive loss	5,189			—
Real estate owned acquired in settlement of loans	476			918

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

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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 Hills Bancorp, Inc. (the “Company”) previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Reclassifications

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

Out of Period Adjustments

For the quarter ended March 31, 2014, the Company recorded a correction of an error to adjust ($1.4) million in prior period interest income earned on loans acquired in bank acquisitions all of which relates to prior periods. After evaluating the quantitative and qualitative aspects of these adjustments, the Company concluded that its prior period financial statements were not materially misstated.

Recently Adopted Accounting Principles

On January 1, 2014 we adopted Accounting Standards Update (“ASU”) ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” to eliminate diversity in practice. This ASU requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. The adoption of this ASU did not have a material effect on our consolidated financial statements.

NOTE 2. ACQUISITION

New York Branch Acquisition

On January 17, 2014, Berkshire Bank purchased twenty branch banking offices located in central and eastern New York State, from Bank of America, National Association. Berkshire Bank received $423.1 million in cash, which was net of $17.4 million cash consideration paid and acquisition costs, and assumed certain related deposit liabilities associated with these branches (the “branch acquisition”). Consideration paid included a 2.25% premium on deposits received. The branch acquisition increased the Bank’s customer base and lending opportunities, and enhanced the Bank’s geographical market presence between Albany and Syracuse, New York. In addition, the acquired deposits augmented the Bank’s sources of liquidity.

On the acquisition date, the acquired branches had assets with a carrying value of approximately $8.9 million, including loans outstanding with a carrying value of approximately $4.5 million, as well as deposits with a carrying value of approximately $440.5 million. The results from the acquired branch operations are included in the Company’s Consolidated Statement of Operations from the date of acquisition.

The assets and liabilities obtained and assumed in the branch acquisition were recorded at fair value based on management’s best estimate using information available at the date of acquisition. Consideration paid, and fair values of the assets acquired and liabilities assumed are summarized in the following table:

Table of Contents

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

Goodwill							$	7,900

Explanation of Certain Fair Value Adjustments

(a)	The adjustment represents the write down of the book value of loans to their estimated fair value based on current interest rates and expected cash flows, which includes an estimate of expected loan loss inherent in the portfolio. Loans that met the criteria and are being accounted for in accordance with ASC 310-30 had a carrying amount of $201 thousand. Non-impaired loans not accounted for under 310-30 had a carrying value of $4.3 million.
(b)	The amount represents the adjustment of the book value of buildings, and furniture and equipment, to their estimated fair value based on appraisals and other methods. The adjustments will be depreciated over the estimated economic lives of the assets.
(c)	The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized over the estimated useful life of the deposit base.
(d)	Represents an intangible liability related to assumed leases, which was recorded as an identifiable intangible and will be amortized over the remaining life of the leases.
(e)	The adjustment is necessary because the weighted average interest rate of deposits exceeded the cost of similar funding at the time of acquisition.
(f)	Represents an establishment of a reserve on certain acquired lines of credit, which were determined to have specific credit risk at the time of acquisition.

Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. For collateral dependent loans with deteriorated credit quality, to estimate the fair value we analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral. Those values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of the seller’s allowance for credit losses associated with the loans that were acquired in the branch acquisition as the loans were initially recorded at fair value.

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

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

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately nine years utilizing a straight-line method. Other intangibles consist of leasehold intangible liability, which is amortized over the remaining life of three years using a straight-line method.

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The goodwill, which is not amortized for book purposes, was assigned to our banking segment and is not deductible for tax purposes.

The fair value of savings and transaction deposit accounts acquired in the branch acquisition was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.

Direct acquisition and integration costs of the branch acquisition were expensed as incurred, and totaled $3.6 million during the three months ending March 31, 2014, and none during the same period of 2013.

The following table presents selected unaudited pro forma financial information reflecting the branch acquisition assuming it was completed as of January 1, 2013. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the combined financial results of the Company and acquired branches had the transaction actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period. Pro forma basic and diluted earnings per common share were calculated using Berkshire’s actual weighted-average shares outstanding for the periods presented. The unaudited pro forma information is based on the actual financial statements of Berkshire for the periods shown, and on the calculated results of the acquired branches for the 2013 period shown and in 2014 until the date of acquisition, at which time their operations became included in Berkshire’s financial statements.

The unaudited pro forma information, for the three months ended March 31, 2014 and 2013, set forth below reflects adjustments related to (a) purchase accounting fair value adjustments; (b) amortization of core deposit and other intangibles; and (c) adjustments to interest income and expense due to additional investments and borrowing reductions as a result of the branch acquisition. Direct acquisition and integration-related costs incurred by the Company during 2014 are reversed; as those expenses are assumed to have occurred prior to 2013. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities beyond investment of cash received from deposits, or anticipated cost-savings.

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

	Pro Forma (unaudited)
	Three ended March 31,
	2014		2013

Net interest income	$	43,892	$	43,631
Non-interest income	4,632		16,053
Net income	1,487		10,229

Pro forma earnings per share:
Basic	$	0.06	$	0.41
Diluted	$	0.06	$	0.41

NOTE 3. TRADING SECURITY

The Company holds a tax advantaged economic development bond that is accounted for at fair value. The security had an amortized cost of $13.0 million and $13.1 million, and a fair value of $14.9 million and $14.8 million, at March 31, 2014 and December 31, 2013, respectively. As discussed further in Note 14 - 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 March 31, 2014.

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NOTE 4. 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
March 31, 2014
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	135,382	$	2,949	$	(1,139	)	$	137,192
Government-guaranteed residential mortgage-backed securities	83,299		704		(317		)	83,686
Government-sponsored residential mortgage-backed securities	726,195		2,217		(9,514		)	718,898
Corporate bonds	40,917		116		(912		)	40,121
Trust preferred securities	15,799		1,320		(1,361		)	15,758
Other bonds and obligations	3,244		1		(116		)	3,129
Total debt securities	1,004,836		7,307		(13,359		)	998,784
Marketable equity securities	32,073		3,136		(356		)	34,853
Total securities available for sale	1,036,909		10,443		(13,715		)	1,033,637

Securities held to maturity
Municipal bonds and obligations	3,881		—		—			3,881
Government-sponsored residential mortgage-backed securities	72		3		—			75
Tax advantaged economic development bonds	38,865		1,310		(281		)	39,894
Other bonds and obligations	341		—		—			341
Total securities held to maturity	43,159		1,313		(281		)	44,191

Total	$	1,080,068	$	11,756	$	(13,996	)	$	1,077,828

December 31, 2013
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	77,852	$	1,789	$	(1,970	)	$	77,671
Government-guaranteed residential mortgage-backed securities	78,885		544		(658		)	78,771
Government-sponsored residential mortgage-backed securities	531,441		2,000		(10,783		)	522,658
Corporate bonds	40,945		157		(1,822		)	39,280
Trust preferred securities	16,927		1,249		(1,565		)	16,611
Other bonds and obligations	3,250		—		(166		)	3,084
Total debt securities	749,300		5,739		(16,964		)	738,075
Marketable equity securities	20,042		2,266		(335		)	21,973
Total securities available for sale	769,342		8,005		(17,299		)	760,048

Securities held to maturity
Municipal bonds and obligations	4,244		—		—			4,244
Government-sponsored residential mortgage-backed securities	73		2		—			75
Tax advantaged economic development bonds	40,260		1,255		(414		)	41,101
Other bonds and obligations	344		—		—			344
Total securities held to maturity	44,921		1,257		(414		)	45,764

Total	$	814,263	$	9,262	$	(17,713	)	$	805,812

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The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at March 31, 2014 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	$	8,070	$	8,072	$	1,047	$	1,047
Over 1 year to 5 years	7,279		7,382		17,482		18,323
Over 5 years to 10 years	54,031		53,397		11,389		11,292
Over 10 years	125,962		127,349		13,169		13,454
Total bonds and obligations	195,342		196,200		43,087		44,116
Marketable equity securities	32,073		34,853		—		—
Residential mortgage-backed securities	809,494		802,584		72		75
Total	$	1,036,909	$	1,033,637	$	43,159	$	44,191

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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
March 31, 2014

Securities available for sale
Debt securities:
Municipal bonds and obligations	$	433	$	17,198	$	706	$	8,798	$	1,139	$	25,996
Government-guaranteed residential mortgage-backed securities	130		27,758		187		4,752		317		32,510
Government-sponsored residential mortgage-backed securities	6,890		446,031		2,624		72,307		9,514		518,338
Corporate bonds	535		14,552		377		15,453		912		30,005
Trust preferred securities	—		—		1,361		2,203		1,361		2,203
Other bonds and obligations	44		1,209		72		1,916		116		3,125
Total debt securities	8,032		506,748		5,327		105,429		13,359		612,177

Marketable equity securities	136		3,459		220		1,779		356		5,238
Total securities available for sale	8,168		510,207		5,547		107,208		13,715		617,415

Securities held to maturity
Tax advantaged economic development bonds	—		—		281		7,916		281		7,916
Total securities held to maturity	—		—		281		7,916		281		7,916

Total	$	8,168	$	510,207	$	5,828	$	115,124	$	13,996	$	625,331

December 31, 2013

Securities available for sale
Debt securities:
Municipal bonds and obligations	$	1,657	$	17,776	$	313	$	1,854	$	1,970	$	19,630
Government guaranteed residential mortgage-backed securities	658		35,631		—		—		658		35,631
Government-sponsored residential mortgage-backed securities	10,783		423,203		—		—		10,783		423,203
Corporate bonds	1,822		29,124		—		—		1,822		29,124
Trust preferred securities	—		—		1,565		2,039		1,565		2,039
Other bonds and obligations	166		3,082		—		—		166		3,082
Total debt securities	15,086		508,816		1,878		3,893		16,964		512,709

Marketable equity securities	117		1,653		218		1,782		335		3,435
Total securities available for sale	15,203		510,469		2,096		5,675		17,299		516,144

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

Total	$	15,260	$	519,898	$	2,453	$	13,576	$	17,713	$	533,474

Debt Securities

The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2014, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover. The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at March 31, 2014:

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AFS municipal bonds and obligations

At March 31, 2014, 38 out of the total 198 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 4.2% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the first quarter of 2014. All securities are investment grade rated and are performing.

AFS residential mortgage-backed securities

At March 31, 2014, 87 out of the total 236 securities in the Company’s portfolios of AFS residential mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 1.75% 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 first quarter of 2014. All securities are performing.

AFS corporate bonds

At March 31, 2014, 6 out of the total 9 bonds in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represented 2.95% of the amortized cost of the bonds in unrealized loss positions. The bonds are investment grade rated, and there are no material underlying credit downgrades during the first quarter of 2014. All bonds are performing.

AFS trust preferred securities

At March 31, 2014, 2 out of the total 5 securities in the Company’s portfolio of AFS trust preferred securities were in unrealized loss positions. Aggregate unrealized losses represented 38.19% of the amortized cost of securities in unrealized loss positions. The Company’s evaluation of the present value of expected cash flows on these securities supports its conclusions about the recoverability of the securities’ amortized cost basis. Except for the security discussed below, the aggregated unrealized loss on the other securities in unrealized loss positions represented 9% of their amortized cost. Again, excluding the security below, all trust preferred securities carry at least one investment grade, and had no material downgrades in the first quarter of 2014 and all are performing.

At March 31, 2014, $1.2 million of the total unrealized losses were attributable to a $2.8 million investment in a Mezzanine Class B tranche of a $360 million pooled trust preferred security collateralized by banking and insurance entities. The Company evaluated the security, with a Level 3 fair value of $1.3 million, for potential other-than-temporary-impairment (“OTTI”) at March 31, 2014 and determined that OTTI was not evident based on both the Company’s ability and intent to hold the security until the recovery of its remaining amortized cost and the protection from credit loss afforded by $51 million in excess subordination above current and projected losses. The security is performing.

AFS other bonds and obligations

At March 31, 2014, 6 out of the total 8 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 3.62% of the amortized cost of securities in unrealized loss positions. The securities are investment grade rated, except one security with a book value of less than $1,000, and there were no material underlying credit downgrades during the first quarter of 2014. All securities are performing.

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HTM tax advantaged economic development bonds

At March 31, 2014, 1 out of the total 7 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 3.41% of the amortized cost of securities in unrealized loss positions. The Company has the intent of maintaining these bonds to recovery. All securities are considered performing.

Marketable Equity Securities

In evaluating its marketable equity securities portfolio for OTTI, the Company considers its ability to more likely than not hold an equity security to recovery. The Company additionally considers other various factors including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI is recognized immediately through earnings.

At March 31, 2014, 4 out of the total 24 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented 6.37% of the amortized cost of the securities. The Company has the ability and intent to hold the securities until a recovery of their cost basis and does not consider the securities other-than-temporarily impaired at March 31, 2014. As new information becomes available in future periods, changes to the Company’s assumptions may be warranted and could lead to a different conclusion regarding the OTTI of these securities.

NOTE 5. LOANS

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

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

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

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	March 31, 2014						December 31, 2013
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total

Residential mortgages:
1-4 family	$	1,032,170	$	320,848	$	1,353,018	$	1,027,737	$	333,367	$	1,361,104
Construction	19,599		5,154		24,753		18,158		5,012		23,170
Total residential mortgages	1,051,769		326,002		1,377,771		1,045,895		338,379		1,384,274

Commercial real estate:
Construction	137,687		7,262		144,949		125,247		13,770		139,017
Single and multi-family	62,429		63,801		126,230		63,493		64,827		128,320
Other commercial real estate	925,513		260,284		1,185,797		871,271		278,512		1,149,783
Total commercial real estate	1,125,629		331,347		1,456,976		1,060,011		357,109		1,417,120

Commercial and industrial loans:
Asset based lending	309,699		4,374		314,073		294,241		3,130		297,371
Other commercial and industrial loans	316,451		66,371		382,822		323,196		66,726		389,922
Total commercial and industrial loans	626,150		70,745		696,895		617,437		69,856		687,293

Total commercial loans	1,751,779		402,092		2,153,871		1,677,448		426,965		2,104,413

Consumer loans:
Home equity	233,521		71,499		305,020		232,677		74,154		306,831
Auto and other	249,776		156,189		405,965		213,171		171,834		385,005
Total consumer loans	483,297		227,688		710,985		445,848		245,988		691,836

Total loans	$	3,286,845	$	955,782	$	4,242,627	$	3,169,191	$	1,011,332	$	4,180,523

The carrying amount of the acquired loans at March 31, 2014 totaled $956 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 $24.5 million and loans that were considered not impaired at the acquisition date with a carrying amount of $931 million.

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

	Three Months Ended March 31,
(In thousands)	2014			2013
Balance at beginning of period	$	2,559		$	8,247
Reclassification from nonaccretable difference for loans with improved cash flows	1,540			—
Accretion	(945		)	(2,581		)
Balance at end of period	$	3,154		$	5,666

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The following is a summary of past due loans at March 31, 2014 and December 31, 2013:

Business Activities Loans (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
March 31, 2014
Residential mortgages:
1-4 family	$	2,882	$	101	$	6,240	$	9,223	$	1,022,947	$	1,032,170	$	1,452
Construction	127		—		—		127		19,472		19,599		—
Total	3,009		101		6,240		9,350		1,042,419		1,051,769		1,452
Commercial real estate:
Construction	—		174		2,558		2,732		134,955		137,687		—
Single and multi-family	—		134		1,304		1,438		60,991		62,429		685
Other commercial real estate	999		2,226		7,036		10,261		915,252		925,513		639
Total	999		2,534		10,898		14,431		1,111,198		1,125,629		1,324
Commercial and industrial loans:
Asset based lending	—		—		—		—		309,699		309,699		—
Other commercial and industrial loans	903		317		1,302		2,522		313,929		316,451		62
Total	903		317		1,302		2,522		623,628		626,150		62
Consumer loans:
Home equity	80		502		1,646		2,228		231,293		233,521		258
Auto and other	487		67		379		933		248,843		249,776		16
Total	567		569		2,025		3,161		480,136		483,297		274
Total	$	5,478	$	3,521	$	20,465	$	29,464	$	3,257,381	$	3,286,845	$	3,112

Business Activities Loans (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
December 31, 2013
Residential mortgages:
1-4 family	$	2,500	$	623	$	7,382	$	10,505	$	1,017,232	$	1,027,737	$	1,451
Construction	—		—		41		41		18,117		18,158		—
Total	2,500		623		7,423		10,546		1,035,349		1,045,895		1,451
Commercial real estate:
Construction	174		—		3,176		3,350		121,897		125,247		—
Single and multi-family	139		654		679		1,472		62,021		63,493		168
Other commercial real estate	622		4,801		6,912		12,335		858,936		871,271		865
Total	935		5,455		10,767		17,157		1,042,854		1,060,011		1,033
Commercial and industrial loans:
Asset based lending	—		—		—		—		294,241		294,241		—
Other commercial and industrial loans	1,136		386		1,477		2,999		320,197		323,196		42
Total	1,136		386		1,477		2,999		614,438		617,437		42
Consumer loans:
Home equity	732		54		1,655		2,441		230,236		232,677		572
Auto and other	524		231		390		1,145		212,026		213,171		142
Total	1,256		285		2,045		3,586		442,262		445,848		714
Total	$	5,827	$	6,749	$	21,712	$	34,288	$	3,134,903	$	3,169,191	$	3,240

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Acquired Loans (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
March 31, 2014
Residential mortgages:
1-4 family	$	1,877	$	733	$	2,308	$	4,918	$	315,930	$	320,848	$	1,025
Construction	36		16		462		514		4,640		5,154		462
Total	1,913		749		2,770		5,432		320,570		326,002		1,487
Commercial real estate:
Construction	—		—		805		805		6,457		7,262		805
Single and multi-family	580		193		1,227		2,000		61,801		63,801		508
Other commercial real estate	763		—		5,349		6,112		254,172		260,284		2,606
Total	1,343		193		7,381		8,917		322,430		331,347		3,919
Commercial and industrial loans:
Asset based lending	—		—		—		—		4,374		4,374		—
Other commercial and industrial loans	71		239		1,649		1,959		64,412		66,371		478
Total	71		239		1,649		1,959		68,786		70,745		478
Consumer loans:
Home equity	155		450		635		1,240		70,259		71,499		240
Auto and other	1,400		169		1,769		3,338		152,851		156,189		69
Total	1,555		619		2,404		4,578		223,110		227,688		309
Total	$	4,882	$	1,800	$	14,204	$	20,886	$	934,896	$	955,782	$	6,193

Acquired Loans (in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
December 31, 2013
Residential mortgages:
1-4 family	$	1,891	$	437	$	2,577	$	4,905	$	328,462	$	333,367	$	805
Construction	134		32		625		791		4,221		5,012		501
Total	2,025		469		3,202		5,696		332,683		338,379		1,306
Commercial real estate:
Construction	—		—		805		805		12,965		13,770		805
Single and multi-family	350		188		1,335		1,873		62,954		64,827		512
Other commercial real estate	537		518		6,108		7,163		271,349		278,512		2,925
Total	887		706		8,248		9,841		347,268		357,109		4,242
Commercial and industrial loans:
Asset based lending	—		—		—		—		3,130		3,130		—
Other commercial and industrial loans	440		135		1,239		1,814		64,912		66,726		318
Total	440		135		1,239		1,814		68,042		69,856		318
Consumer loans:
Home equity	425		545		636		1,606		72,548		74,154		35
Auto and other	2,606		641		1,641		4,888		166,946		171,834		82
Total	3,031		1,186		2,277		6,494		239,494		245,988		117
Total	$	6,383	$	2,496	$	14,966	$	23,845	$	987,487	$	1,011,332	$	5,983

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

	March 31, 2014						December 31, 2013
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Residential mortgages:
1-4 family	$	4,788	$	1,283	$	6,071	$	5,931	$	1,772	$	7,703
Construction	—		—		—		41		123		164
Total	4,788		1,283		6,071		5,972		1,895		7,867

Commercial real estate:
Construction	2,558		—		2,558		3,176		—		3,176
Single and multi-family	619		719		1,338		511		823		1,334
Other commercial real estate	6,397		2,743		9,140		6,047		3,183		9,230
Total	9,574		3,462		13,036		9,734		4,006		13,740

Commercial and industrial loans:
Other commercial and industrial loans	1,240		1,171		2,411		1,434		921		2,355
Total	1,240		1,171		2,411		1,434		921		2,355

Consumer loans:
Home equity	1,388		395		1,783		1,083		602		1,685
Auto and other	363		1,700		2,063		249		1,559		1,808
Total	1,751		2,095		3,846		1,332		2,161		3,493

Total non-accrual loans	$	17,353	$	8,011	$	25,364	$	18,472	$	8,983	$	27,455

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

Business Activities Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
March 31, 2014
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	5,116	$	22,148	$	1,148	$	402	$	28,814
Collectively evaluated	1,046,653		1,103,481		625,002		482,895		3,258,031
Total	$	1,051,769	$	1,125,629	$	626,150	$	483,297	$	3,286,845

Business Activities Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
December 31, 2013
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	6,237	$	22,429	$	1,380	$	515	$	30,561
Collectively evaluated for impairment	1,039,658		1,037,582		616,057		445,333		3,138,630
Total	$	1,045,895	$	1,060,011	$	617,437	$	445,848	$	3,169,191

Acquired Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
March 31, 2014
Loans receivable:
Balance at end of Period
Individually evaluated for impairment	$	1,032	$	5,800	$	478	$	—	$	7,310
Collectively evaluated	324,970		325,547		70,267		227,668		948,472
Total	$	326,002	$	331,347	$	70,745	$	227,668	$	955,782

Acquired Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Total
December 31, 2013
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	1,568	$	6,295	$	367	$	154	$	8,384
Collectively evaluated for impairment	336,811		350,814		69,489		245,834		1,002,948
Total	$	338,379	$	357,109	$	69,856	$	245,988	$	1,011,332

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The following is a summary of impaired loans at March 31, 2014:

	At March 31, 2014
Business Activities Loans (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	3,435	$	3,435	$	—
Other commercial real estate loans	16,141		16,141		—
Commercial real esate - construction	1,545		1,545		—
Other commercial and industrial loans	1,094		1,094		—
Consumer - home equity	238		238		—
Consumer - other	123		123		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	1,283	$	1,680	$	397
Other commercial real estate loans	2,200		3,450		1,250
Commercial real esate - construction	705		1,013		308
Other commercial and industrial loans	—		54		54
Consumer - home equity	32		41		9

Total
Residential mortgages	$	4,718	$	5,115	$	397
Commercial real estate	20,591		22,149		1,558
Commercial and industrial loans	1,094		1,148		54
Consumer	393		402		9
Total impaired loans	$	26,796	$	28,814	$	2,018

	At March 31, 2014
Acquired Loans (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	871	$	871	$	—
Other commercial real estate loans	4,391		4,391		—
Other commercial and industrial loans	410		410		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	131	$	161	$	30
Other commercial real estate loans	1,159		1,409		250
Other commercial and industrial loans	47		68		21

Total
Residential mortgages	$	1,002	$	1,032	$	30
Commercial real estate	5,550		5,800		250
Commercial and industrial loans	457		478		21
Total impaired loans	$	7,009	$	7,310	$	301

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

	At December 31, 2013
Business Activities Loans (In thousands)	Recorded Investment			Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	1,575		$	1,575	$	—
Commercial real estate - construction	3,176			3,176		—
Commercial real estate - single and multifamily	—			—		—
Other commercial real estate loans	5,587			5,587		—
Other commercial and industrial loans	8			8		—
Consumer - home equity	50			50		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	1,926		$	2,831	$	905
Commercial real estate - construction	—			—		—
Commercial real estate - single and multifamily	—			—		—
Other commercial real estate loans	(66		)	153		219
Other commercial and industrial loans	514			569		55
Consumer - home equity	142			245		103

Total
Residential mortgages	$	3,501		$	4,406	$	905
Commercial real estate	8,697			8,916		219
Commercial and industrial loans	522			577		55
Consumer	192			295		103
Total impaired loans	$	12,912		$	14,194	$	1,282

	At December 31, 2013
Acquired Loans (In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Residential mortgages - 1-4 family	$	20	$	20	$	—
Other commercial real estate loans	1,462		1,462		—
Other commercial and industrial loans	367		367		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	958	$	1,188	$	230
Other commercial real estate loans	1,954		2,442		488
Consumer - home equity	114		153		39

Total
Residential mortgages	$	978	$	1,208	$	230
Other commercial real estate loans	3,416		3,904		488
Other commercial and industrial loans	367		367		—
Consumer - home equity	114		153		39
Total impaired loans	$	4,875	$	5,632	$	757

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

	Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
Business Activities Loans (in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Residential mortgages - 1-4 family	$	4,142	$	23	$	2,141	$	20
Commercial real estate - construction	1,957		—		2,380		—
Other commercial real estate loans	16,180		154		3,295		10
Commercial and industrial loans	1,337		7		70		—
Consumer - home equity	348		1		455		4
Consumer - other	124		1		—		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	1,774	$	16	$	2,234	$	1
Commercial real estate - construction	1,013		—		1,938		—
Other commercial real estate loans	3,450		—		2,765		—
Commercial and industrial loans	55		1		1,721		14
Consumer - home equity	41		—		558		—

Total
Residential mortgages	$	5,916	$	39	$	4,375	$	21
Commercial real estate	22,600		154		10,378		10
Commercial and industrial loans	1,392		8		1,791		14
Consumer loans	513		2		1,013		4
Total impaired loans	$	30,421	$	203	$	17,557	$	49

	Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
Acquired Loans (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	$	1,303	$	5	$	—	$	—
Other commercial real estate loans	4,821		25		803		2
Commercial and industrial loans	562		1		181		—
Consumer - home equity	154		—		—		—

With an allowance recorded:
Residential mortgages - 1-4 family	$	162	$	—	$	861	$	—
Other commercial real estate loans	1,577		46		—		—
Commercial and industrial loans	70		2		—		—

Total
Residential mortgages	$	1,465	$	5	$	861	$	—
Other commercial real estate loans	6,398		71		803		2
Commercial and industrial loans	632		3		181		—
Consumer loans	154		—		—		—
Total impaired loans	$	8,649	$	79	$	1,845	$	2

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Troubled Debt Restructuring Loans

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

The following tables include the recorded investment and number of modifications identified during the three months ended March 31, 2014 and for the three months ended March 31, 2013, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modification for the three months ending March 31, 2014 were attributable to concessions granted as ordered by bankruptcy court. The modifications for the three months ending March 31, 2013 were attributable to maturity date extensions.

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

	Modifications by Class
	Three months ending March 31, 2013
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Residential- 1-4 Family	5	$	941	$	941
Commercial - Single and multifamily	1	—		40
Commercial - Other	5	2,022		1,590
	11	$	2,963	$	2,571

For the three months ended March 31, 2014 and 2013, there were no loans that were restructured within the last twelve months that have subsequently defaulted during the period.

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

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	Three Months Ending
	March 31,
(In thousands)	2014			2013
Balance at beginning of the period	$	10,822		$	4,626
Principal Payments	(872		)	(22		)
TDR Status Change (1)	(52		)	—
Other Reductions (2)	95			(485		)
Newly Identified TDRs	119			2,571
Balance at end of the period	$	10,112		$	6,690

(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 and advances to loans.

The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.

NOTE 6. LOAN LOSS ALLOWANCE

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

Business Activities Loans (In thousands)	Residential mortgages			Commercial real estate		Commercial and industrial loans			Consumer		Unallocated			Total
March 31, 2014
Balance at beginning of period	$	6,937		$	13,705	$	5,173		$	3,644	$	68		$	29,527
Charged-off loans	706			660		189			429		—			1,984
Recoveries on charged-off loans	7			1		20			79		—			107
Provision for loan losses	(575		)	1,900		(185		)	836		(248		)	1,728
Balance at end of period	$	5,663		$	14,946	$	4,819		$	4,130	$	(180	)	$	29,378
Individually evaluated for impairment	397			1,558		54			9		—			2,018
Collectively evaluated	5,266			13,388		4,765			4,121		(180		)	27,360
Total	$	5,663		$	14,946	$	4,819		$	4,130	$	(180	)	$	29,378

Business Activities Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Unallocated		Total
March 31, 2013
Balance at beginning of period	$	5,928	$	18,863	$	5,605	$	1,466	$	29	$	31,891
Charged-off loans	190		720		679		250		—		1,839
Recoveries on charged-off loans	16		3		71		36		—		126
Provision for loan losses	244		402		194		874		148		1,862
Balance at end of period	$	5,998	$	18,548	$	5,191	$	2,126	$	177	$	32,040
Individually evaluated for impairment	765		1,374		824		272		—		3,235
Collectively evaluated	5,233		17,174		4,367		1,854		177		28,805
Total	$	5,998	$	18,548	$	5,191	$	2,126	$	177	$	32,040

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

Acquired Loans (In thousands)	Residential mortgages		Commercial real estate		Commercial and industrial loans		Consumer		Unallocated			Total
March 31, 2013
Balance at beginning of period	$	509	$	390	$	96	$	314	$	8		$	1,317
Charged-off loans	86		235		25		316		—			662
Recoveries on charged-off loans	—		—		2		28		—			30
Provision for loan losses	95		265		27		307		(156		)	538
Balance at end of period	$	518	$	420	$	100	$	333	$	(148	)	$	1,223
Individually evaluated for impairment	113		—		—		—		—			113
Collectively evaluated	405		420		100		333		(148		)	1,110
Total	518		420		100		333		(148		)	1,223

Credit Quality Information

Business Activities Loans Credit Quality Analysis

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

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

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

Acquired Loans Credit Quality Analysis

Upon acquiring a loan portfolio, our internal loan review function assigns risk ratings to the acquired loans, utilizing the same methodology as it does with business activities loans. This may differ from the risk rating policy of the predecessor bank. Loans which are rated Substandard or worse according to the rating process

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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 business activities loans, which includes the application of environmental factors to each category of loans. The methodology to collectively evaluate the acquired loans outside the scope of ASC 310-30 includes the application of a number of environmental factors that reflect management’s best estimate of the level of incremental credit losses that might be recognized given current conditions. This is reviewed as part of the allowance for loan loss adequacy analysis. As the loan portfolio matures and environmental factors change, the loan portfolio will be reassessed each quarter to determine an appropriate reserve allowance.

A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans. At March 31, 2014, the allowance for loan losses related to acquired loans was $4.2 million using the above mentioned criteria.

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

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

Business Activities Loans

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Grade:
Pass	$	1,025,829	$	1, 019,732	$	19,599	$	18,117	$	1,045,428	$	1,037,849
Special mention	101		623		—		—		101		623
Substandard	6,240		7,382		—		41		6,240		7,423
Total	$	1,032,170	$	1,027,737	$	19,599	$	18,158	$	1,051,769	$	1,045,895

Commercial Real Estate

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Other				Total commercial real estate
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Grade:
Pass	$	132,955	$	120,071	$	58,499	$	59,636	$	857,236	$	800,672	$	1,048,690	$	980,379
Special mention	—		—		138		140		6,164		8,150		6,302		8,290
Substandard	4,732		5,176		3,792		3,717		62,040		61,807		70,564		70,700
Doubtful	—		—		—		—		73		642		73		642
Total	$	137,687	$	125,247	$	62,429	$	63,493	$	925,513	$	871,271	$	1,125,629	$	1,060,011

Commercial and Industrial Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total comm. and industrial loans
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Grade:
Pass	$	309,699	$	294, 241	$	302,755	$	313,984	$	612,454	$	608,225
Special mention	—		—		2,751		884		2,751		884
Substandard	—		—		10,857		7,725		10,857		7,725
Doubtful	—		—		88		603		88		603
Total	$	309,699	$	294,241	$	316,451	$	323,196	$	626,150	$	617,437

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Auto and other				Total consumer loans
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Performing	$	232,133	$	231,594	$	249,413	$	212,922	$	481,546	$	444,516
Nonperforming	1,388		1,083		363		249		1,751		1,332
Total	$	233,521	$	232,677	$	249,776	$	213,171	$	483,297	$	445,848

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Acquired Loans

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade

	1-4 family				Construction				Total residential mortgages
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Grade:
Pass	$	317,806	$	330, 353	$	1,056	$	1,081	$	318,862	$	331,434
Special mention	734		437		—		—		734		437
Substandard	2,308		2,577		4,098		3,931		6,406		6,508
Total	$	320,848	$	333,367	$	5,154	$	5,012	$	326,002	$	338,379

Commercial Real Estate

Credit Risk Profile by Creditworthiness Category

	Construction				Single and multi-family				Other				Total commercial real estate
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Grade:
Pass	$	4,589	$	7,154	$	46 ,361	$	46,961	$	237,533	$	254,787	$	288,483	$	308,902
Special mention	347		—		4,719		4,799		8,169		9,034		13,235		13,833
Substandard	2,326		6,616		12,721		13,067		14,582		14,691		29,629		34,374
Total	$	7,262	$	13,770	$	63,801	$	64,827	$	260,284	$	278,512	$	331,347	$	357,109

Commercial and Industrial Loans

Credit Risk Profile by Creditworthiness Category

	Asset based lending				Other				Total comm. and industrial loans
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Grade:
Pass	$	4,374	$	3,130	$	58,361	$	59,615	$	62,735	$	62,745
Special mention	—		—		3,467		2,396		3,467		2,396
Substandard	—		—		4,543		4,715		4,543		4,715
Total	$	4,374	$	3,130	$	66,371	$	66,726	$	70,745	$	69,856

Consumer Loans

Credit Risk Profile Based on Payment Activity

	Home equity				Auto and other				Total consumer loans
(In thousands)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Performing	$	71,104	$	73,552	$	154,490	$	170,275	$	225,594	$	243,827
Nonperforming	395		602		1,699		1,559		2,094		2,161
Total	$	71,499	$	74,154	$	156,189	$	171,834	$	227,688	$	245,988

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

	March 31, 2014						December 31, 2013
(In thousands)	Business Activities Loans		Acquired Loans		Total		Business Activities Loans		Acquired Loans		Total
Non-Accrual	$	17,353	$	8,011	$	25,364	$	18,472	$	8,983	$	27,455
Substandard Accruing	72,494		34,971		107,465		70,667		38,891		109,558
Total Classified	89,847		42,982		132,829		89,139		47,874		137,013
Special Mention	9,724		18,054		27,778		10,081		17,853		27,934
Total Criticized	$	99,571	$	61,036	$	160,607	$	99,220	$	65,727	$	164,947

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NOTE 7. DEPOSITS

A summary of time deposits is as follows:

(In thousands)	March 31, 2014		December 31, 2013
Time less than $100,000	$	535,983	$	490,902
Time $100,000 or more	539,757		510,746
Total time deposits	$	1,075,740	$	1,001,648

NOTE 8. BORROWED FUNDS

Borrowed funds at March 31, 2014 and December 31, 2013 are summarized, as follows:

	March 31, 2014				December 31, 2013
			Weighted				Weighted
			Average				Average
(dollars in thousands)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLBB	$	914,950	0.21	%	$	862,510	0.22	%
Other Borrowings	—		—		10,000		1.92
Total short-term borrowings:	914,950		0.21		872,510		0.24
Long-term borrowings:
Advances from the FHLBB	21,797		2.44		101,918		1.23
Subordinated borrowings	74,232		7.00		74,215		7.00
Junior subordinated borrowings	15,464		2.09		15,464		2.09
Total long-term borrowings:	111,493		5.43		191,597		3.53
Total	$	1,026,443	0.78	%	$	1,064,107	0.83	%

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

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

Long-term FHLBB advances consist of advances with an original maturity of more than one year. The advances outstanding at March 31, 2014 include callable advances totaling $5.0 million, and amortizing advances totaling $5.4 million. The advances outstanding at December 31, 2013 include callable advances totaling $5.0 million, and amortizing advances totaling $5.5 million. All FHLBB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

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

	March 31, 2014				December 31, 2013
			Weighted				Weighted
			Average				Average
(in thousands, except rates)	Principal		Rate		Principal		Rate
Fixed rate advances maturing:
2014	$	924,900	0.22	%	$	882,525	0.28	%
2015	—		—		—		—
2016	1,567		0.88		1,583		0.79
2017	5,000		4.33		5,000		4.33
2018 and beyond	5,280		3.83		5,320		3.83
Total fixed rate advances	$	936,747	0.27	%	$	894,428	0.35	%

Variable rate advances maturing:
2014	$	—	—	%	$	10,000	0.32	%
2015	—		—		20,000		0.30
2016	—		—		10,000		0.30
2017	—		—		—		—
2018 and beyond	—		—		30,000		0.30
Total variable rate advances	$	—	—	%	$	70,000	0.30	%
Total FHLBB advances	$	936,747	0.27	%	$	964,428	0.32	%

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

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 2.09% and 2.09% at March 31, 2014 and December 31, 2013, 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
	March 31, 2014		December 31, 2013		to be Well Capitalized

Total capital to risk weighted assets	11.2	%	11.6	%	10.0	%

Tier 1 capital to risk weighted assets	9.5		10.0		6.0

Tier 1 capital to average assets	7.4		8.0		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.

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Accumulated other comprehensive loss

Components of accumulated other comprehensive loss are as follows:

(In thousands)	March 31, 2014			December 31, 2013
Other accumulated comprehensive income (loss), before tax:
Net unrealized holding loss on AFS securities	$	(3,274	)	$	(9,294	)
Net gain (loss) on effective cash flow hedging derivatives	2,244			(2,289		)
Net loss on terminated swap	—			(3,237		)
Net unrealized holding loss on pension plans	17			17

Income taxes related to items of accumulated other comprehensive (loss) income:
Net unrealized holding loss on AFS securities	1,298			3,518
Net gain (loss) on effective cash flow hedging derivatives	(909		)	923
Net loss on terminated swap	—			1,312
Net unrealized holding loss on pension plans	(7		)	(7		)
Accumulated other comprehensive loss	$	(631	)	$	(9,057	)

The following table presents the components of other comprehensive loss for the three months ended March 31, 2014 and March 31, 2013:

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

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

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

Three Months Ended March 31, 2013
Net unrealized holding gain on AFS securities:
Net unrealized gain arising during the period	$	733		$	(321	)	$	412
Less: reclassification adjustment for losses realized in net income	—			—			—
Net unrealized holding gain on AFS securities	733			(321		)	412

Net gain on cash flow hedging derivatives:
Net unrealized gain arising during the period	431			(167		)	264
Less: reclassification adjustment for losses realized in net income	1,012			(408		)	604
Net gain on cash flow hedging derivatives	1,443			(575		)	868

Net gain on terminated swap:
Net unrealized loss arising during the period	—			—			—
Less: reclassification adjustment for losses realized in net income	236			(208		)	28
Net gain on terminated swap	236			(208		)	28

Other Comprehensive Loss	$	2,412		$	(1,104	)	$	1,308

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The following table presents the changes in each component of accumulated other comprehensive income, for the three months ended March 31, 2014 and March 31, 2013:

	Net unrealized			Net loss on			Net loss			Net unrealized
	holding (loss) gain			effective cash			on			holding loss
	on AFS			flow hedging			terminated			on
(in thousands)	Securities			derivatives			swap			pension plans			Total
Three Months Ended March 31, 2014
Balance at Beginning of Period	$	(5,776	)	$	(1,366	)	$	(1,925	)	$	10		$	(9,057	)
Other Comprehensive Loss Before reclassifications	3,822			(492		)	—			—			3,330
Amounts Reclassified from Accumulated other comprehensive income	(22		)	3,193			1,925			—			5,096
Total Other Comprehensive Income	3,800			2,701			1,925			—			8,426
Balance at End of Period	$	(1,976	)	$	1,335		$	—		$	10		$	(631	)

Three Months Ended March 31, 2013
Balance at Beginning of Period	$	6,712		$	(6,558	)	$	(2,378	)	$	(755	)	$	(2,979	)
Other Comprehensive Loss Before reclassifications	412			264			—			—			676
Amounts Reclassified from Accumulated other comprehensive income	—			604			28			—			632
Total Other Comprehensive Income	412			868			28			—			1,308
Balance at End of Period	$	7,124		$	(5,690	)	$	(2,350	)	$	(755	)	$	(1,671	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income for the three months ended March 31, 2014 and March 31, 2013:

							Affected Line Item in the
	Three Months Ended March 31,						Statement where Net Income
(in thousands)	2014			2013			is Presented
Realized (gains) on AFS securities:
	$	(34	)	$	—		Non-interest income
	12			—			Tax expense
	(22		)	—			Net of tax

Realized losses on cash flow hedging derivatives:
	5,393			1,012			Non-interest income
	(2,200		)	(408		)	Tax expense
	3,193			604			Net of tax

Realized losses on terminated swap:
	3,237			236			Non-interest income
	(1,312		)	(208		)	Tax expense
	1,925			28			Net of tax
Total reclassifications for the period	$	5,096		$	632		Net of tax

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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 March 31,
(In thousands, except per share data)	2014			2013

Net (loss) income	$	(1,106	)	$	10,465

Average number of common shares issued	26,525			26,525
Less: average number of treasury shares	1,425			1,260
Less: average number of unvested stock award shares	402			317
Average number of basic common shares outstanding	24,698			24,948
Plus: dilutive effect of unvested stock award shares	—			73
Plus: dilutive effect of stock options outstanding	—			122
Average number of diluted common shares outstanding	24,698			25,143

(Loss) earnings per share:
Basic	$	(0.04	)	$	0.42
Diluted	$	(0.04	)	$	0.42

For the three months ended March 31, 2014, 335 thousand shares of restricted stock and 321 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. For the three months ended March 31, 2013, 251 thousand shares of restricted stock and 499 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.

NOTE 11. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the three months ended March 31, 2014 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, 2013	334		$	23.26	442		$	20.41
Granted	126		25.00		—		—
Stock options exercised	—		—		(61	)	11.83
Stock awards vested	(62	)	22.75		—		—
Forfeited	(1	)	21.22		—		—
Expired	—		—		(60	)	37.41
Balance, March 31, 2014	397		$	24.31	321		$	20.16
Exercisable options, March 31, 2014					321		$	20.17

During the three months ended March 31, 2014 and 2013, proceeds from stock option exercises totaled $718 thousand and totaled $1.8 million, respectively. During the three months ended March 31, 2014, there were 62 thousand shares issued in connection with vested stock awards. During the three months ended March 31, 2013,

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there were 69 thousand shares issued in connection with vested stock awards. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $932 thousand and $881 thousand during the three months ended March 31, 2014 and 2013, 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.

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

(In thousands)	Banking			Insurance		Parent			Eliminations			Total Consolidated
Three months ended March 31, 2014
Net interest income (expense)	$	43,712		$	—	$	(946	)	$	—		$	42,766
Provision for loan losses	3,396			—		—			—			3,396
Non-interest income (expense)	1,374			3,049		(252		)	252			4,423
Non-interest expense	42,574			2,322		464			—			45,360
(Loss) income before income taxes	(884		)	727		(1,662		)	252			(1,567		)
Income tax (benefit) expense	(192		)	287		(556		)	—			(461		)
Net (loss) income	$	(692	)	$	440	$	(1,106	)	$	252		$	(1,106	)

Average assets (in millions)	$	5,829		$	26	$	722		$	(726	)	$	5,851

Three months ended March 31, 2013
Net interest income	$	42,901		$	—	$	6,036		$	(7,000	)	$	41,937
Provision for loan losses	2,400			—		—			—			2,400
Non-interest income	11,801			2,997		4,463			(4,463		)	14,798
Non-interest expense	36,670			2,151		662			—			39,483
Income before income taxes	15,632			846		9,837			(11,463		)	14,852
Income tax expense (benefit)	4,705			310		(628		)	—			4,387
Net income	$	10,927		$	536	$	10,465		$	(11,463	)	$	10,465

Average assets (in millions)	$	5,203		$	27	$	755		$	(745	)	$	5,240

NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of March 31, 2014, the Company held derivatives with a total notional amount of $805.4 million. That amount included $315.0 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 $468.3 million and $22.1 million, respectively, which are not designated as hedges for accounting purposes and are therefore recorded at fair value. Economic hedges included interest rate swaps totaling $438.0 million, and $30.3 million in forward commitment contracts.

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As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at March 31, 2014.

The Company pledged collateral to derivative counterparties in the form of cash totaling $1.8 million and securities with an amortized cost of $26.6 million and a fair value of $26.9 million as of March 31, 2014. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

Information about derivative assets and liabilities at March 31, 2014, follows:

			Weighted	Weighted Average Rate				Estimated
	Notional		Average			Contract		Fair Value
	Amount		Maturity	Received		pay rate		Asset (Liability)
	(In thousands)		(In years)					(In thousands)
Cash flow hedges:
Forward-starting interest rate swaps on FHLBB borrowings	$	300,000	5.0	—		2.29	%	$	2,319
Interest rate swaps on junior subordinated notes	15,000		0.1	2.09	%	5.54	%	(75		)
Total cash flow hedges	315,000							2,244

Economic hedges:
Interest rate swap on tax advantaged economic development bond	12,960		15.7	0.52	%	5.09	%	(2,121		)
Interest rate swaps on loans with commercial loan customers	212,530		5.3	2.37	%	4.61	%	(6,714		)
Reverse interest rate swaps on loans with commercial loan customers	212,530		5.3	4.61	%	2.37	%	6,717
Forward sale commitments	30,270		0.2					(108		)
Total economic hedges	468,290							(2,226		)

Non-hedging derivatives:
Interest rate lock commitments	22,075		0.2					377
Total non-hedging derivatives	22,075							377

Total	$	805,365						$	395

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

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

Economic hedges:
Interest rate swap on tax advantaged economic development bond	13,095		15.9	0.54	%	5.09	%	(1,889		)
Interest rate swaps on loans with commercial loan customers	206,933		5.4	2.44	%	4.68	%	(6,278		)
Reverse interest rate swaps on loans with commercial loan customers	206,933		5.4	4.68	%	2.44	%	6,286
Forward sale commitments	32,911		0.2					261
Total economic hedges	459,872							(1,620		)

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

Total	$	905,071						$	(3,652	)

Cash flow hedges

The effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges is reported in other comprehensive income and subsequently reclassified to earnings in the same period or periods during which the hedged transaction is forecasted to affect earnings. Each quarter, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The ineffective portion of changes in the fair value of the derivatives is recognized directly in earnings.

The Company has entered into six forward-starting interest rate swap contracts with a combined notional value of $300.0 million as of March 31, 2014. The six forward starting swaps will become effective in 2016, all have durations of three years. This hedge strategy converts the one month rolling FHLBB borrowings based on the FHLBB’s one month fixed interest rate to fixed interest rates, thereby protecting the Company from floating interest rate variability.

The Company has entered into an interest rate swap with a notional value of $15 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 Comprehensive Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:

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	Three Months Ended March 31,
(In thousands)	2014			2013

Interest rate swaps on FHLBB borrowings:
Unrealized (loss) gain recognized in accumulated other comprehensive loss	$	(785	)	$	306

Reclassification of unrealized (loss) gain from accumulated other comprehensive loss to interest expense	—			1,011

Reclassification of unrealized loss from accumulated other comprehensive loss to other non-interest income for termination of swaps	8,630			236

Reclassification of unrealized deferred tax benefit from accumulated other comprehensive loss to tax expense for terminated swaps	(3,611		)	(208		)

Net tax benefit (expense) on items recognized in accumulated other comprehensive loss	314			(522		)

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

Reclassification of unrealized loss from accumulated other comprehensive loss to interest expense	129			127

Net tax expense on items recognized in accumulated other comprehensive loss	(51		)	(54		)
Other comprehensive income recorded in accumulated other comprehensive loss, net of reclassification adjustments and tax effects	$	4,625		$	895

Net interest expense recognized in interest expense on hedged FHLBB borrowings	$	—		$	1,243
Net interest expense recognized in interest expense on junior subordinated notes	$	129		$	127

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

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 $0.1 million will be reclassified as an increase to interest expense.

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

Economic hedges

As of March 31, 2014, the Company has an interest rate swap with a $13.0 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

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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 $24.5 thousand as of March 31, 2014. The interest income and expense on these mirror image swaps exactly offset each other.

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

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

· Best efforts loan sales,

· Mandatory delivery loan sales, and

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

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

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

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

Non-hedging derivatives

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

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

	Three Months Ended March 31,
(In thousands)	2014			2013

Economic hedges
Interest rate swap on industrial revenue bond:
Unrealized (loss) gain recognized in other non-interest income	$	(381	)	$	107

Interest rate swaps on loans with commercial loan customers:
Unrealized gain recognized in other non-interest income	187			1,554

Reverse interest rate swaps on loans with commercial loan customers:
Unrealized loss recognized in other non-interest income	(187		)	(1,554		)

Favorable change in credit valuation adjustment recognized in other non-interest income	7			78

Forward Commitments:
Unrealized loss recognized in other non-interest income	(108		)	(550		)
Realized gain in other non-interest income	(164		)	1,055

Non-hedging derivatives
Interest rate lock commitments
Unrealized gain recognized in other non-interest income	377			2,758
Realized gain in other non-interest income	$	469		$	1,240

Assets and Liabilities Subject to Enforceable Master Netting Arrangements

Interest Rate Swap Agreements (“Swap Agreements”)

The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. The Company had net asset positions with its commercial banking counterparties totaling $7.1 million and $7.8 million as of March 31, 2014 and December 31, 2013, respectively. The Company had net liability positions with its financial institution counterparties totaling $6.6 million and $11.2 million as of March 31, 2014 and December 31, 2013, respectively. At March 31, 2014, the Company also had a net liability position of $0.4 million with its commercial banking counterparties as compared to a $0.7 million liability at December 31, 2013. The collateral posted by the Company that covered liability positions was $6.6 million and $11.2 million as of March 31, 2014 and December 31, 2013, respectively.

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

Offsetting of Financial Assets and Derivative Assets

					Net Amounts
	Gross		Gross Amounts		of Assets		Gross Amounts Not Offset in
	Amounts of		Offset in the		Presented in the		the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(in thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
As of March 31, 2014
Interest Rate Swap Agreements:
Institutional counterparties	$	—	$	—	$	—	$	—	$	—	$	—
Commercial counterparties	7,140		—		7,140		—		—		7,140
Total	$	7,140	$	—	$	7,140	$	—	$	—	$	7,140

Offsetting of Financial Liabilities and Derivative Liabilities

						Net Amounts
	Gross			Gross Amounts		of Liabilities			Gross Amounts Not Offset in
	Amounts of			Offset in the		Presented in the			the Statements of Condition
	Recognized			Statements of		Statements of			Financial		Cash
(in thousands)	Liabilities			Condition		Condition			Instruments		Collateral Pledged		Net Amount
As of March 31, 2014
Interest Rate Swap Agreements:
Institutional counterparties	$	(9,396	)	$	2,794	$	(6,602	)	$	4,902	$	1,700	$	—
Commercial counterparties	(423		)	—		(423		)	—		—		(423		)
Total	$	(9,819	)	$	2,794	$	(7,025	)	$	4,902	$	1,700	$	(423	)

Offsetting of Financial Assets and Derivative Assets

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

Offsetting of Financial Liabilities and Derivative Liabilities

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

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

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

Trading security	$	—	$	—	$	14,923	$	14,923
Available-for-sale securities:
Municipal bonds and obligations	—		137,192		—		137,192
Governmentguaranteed residential mortgage-backed securities	—		83,686		—		83,686
Government-sponsored residential mortgage-backed securities	—		718,898		—		718,898
Corporate bonds	—		40,121		—		40,121
Trust preferred securities	—		14,418		1,340		15,758
Other bonds and obligations	—		3,129		—		3,129
Marketable equity securities	33,790		357		706		34,853
Loans held for sale	—		7,669		—		7,669
Derivative assets	—		9,934		377		10,311
Derivative liabilities	13		9,710		96		9,819

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

Trading security	$	—	$	—	$	14,840	$	14,840
Available-for-sale securities:
Municipal bonds and obligations	—		77,671		—		77,671
Government guaranteed residential mortgage-backed securities	—		78,771		—		78,771
Government-sponsored residential mortgage-backed securities	—		522,658		—		522,658
Corporate bonds	—		39,280		—		39,280
Trust preferred securities	—		15,372		1,239		16,611
Other bonds and obligations	—		3,084		—		3,084
Marketable equity securities	20,891		357		725		21,973
Loans Held for Sale	—		15,840		—		15,840
Derivative assets	242		7,799		277		8,318
Derivative liabilities	—		11,964		—		11,964

There were no transfers between levels during the three months ended March 31, 2014 or 2013.

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

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

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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March 31, 2014

					Aggregate Fair Value
	Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	7,669	$	7,430	$	239

December 31, 2013

					Aggregate Fair Value
	Aggregate		Aggregate		Less Aggregate
(In thousands)	Fair Value		Unpaid Principal		Unpaid Principal
Loans Held for Sale	$	15,840	$	15,641	$	199

The changes in fair value of loans held for sale for the three months ended March 31, 2014, were gains of $40 thousand. The changes in fair value of loans held for sale were losses of $1.0 million for the three months ended March 31, 2013. The changes in fair value are included in mortgage banking income in the Consolidated Statements of Income.

Derivative Assets and Liabilities.

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

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

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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

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

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

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

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

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

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

Three Months Ended March 31, 2013
Balance as of December 31, 2012	$	16,893		$	885		$	6,258		$	(1,055	)
Greenpark Acquisition	—			770			—			—
Unrealized (loss) gain recognized in other non-interest income	(280		)	—			3,998			538
Unrealized loss included in accumulated other comprehensive loss	—			13			—			—
Paydown of trading security	(128		)	—			—			—
Transfers to held for sale loans	—			—			(7,498		)	—
Balance as of March 31, 2013	$	16,485		$	1,668		$	2,758		$	(517	)

Unrealized gains (losses) relating to instruments still held at March 31, 2013	$	3,004		$	(1,704	)	$	2,758		$	(517	)

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

	Fair Value					Significant Unobservable
(In thousands)	March 31, 2014			Valuation Techniques	Unobservable Inputs	Input Value
Assets (Liabilities)
Trading Security	$	14,923		Discounted Cash Flow	Discount Rate	3.14		%

Forward Commitments	(96		)	Historical Trend	Closing Ratio	93.06		%
				Pricing Model	Origination Costs, per loan	$	2,500

Interest Rate Lock Commitment	377			Historical Trend	Closing Ratio	93.06		%
				Pricing Model	Origination Costs, per loan	$	2,500

Total	$	15,204

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

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

Interest Rate Lock Commitment	258		Historical Trend	Closing Ratio	94.83		%
			Pricing Model	Origination Costs, per loan	$	2,500
Total	$	15,117

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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.

	March 31, 2014		December 31, 2013		Three months ended March 31, 2014
	Level 3		Level 3		Total
(In thousands)	Inputs		Inputs		Gains (Losses)
Assets
Impaired loans	$	5,557	$	5,542	$	15
Capitalized mortgage servicing rights	3,922		4,112		—
Other real estate owned	2,418		2,995		(208		)

Total	$	11,897	$	12,649	$	(193	)

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

	Fair Value
(in thousands)	March 31, 2014		Valuation Techniques	Unobservable Inputs	Range (Weighted Average) (a)
Assets
Impaired loans	$	5,557	Fair value of collateral	Loss severity	5.28% to 100.0% (80.34%)
				Appraised value	$0 to $690.0 $(389.5)

Capitalized mortgage servicing rights	3,922		Discounted cash flow	Constant prepayment rate (CPR)	6.7% to 17.45% (8.45%)
				Discount rate	10.00% to 13.00% (10.36%)

Other real estate owned	2,418		Fair value of collateral	Appraised value	$0 to $774.0 $(449.5)

Total	$	11,897

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

	Fair Value
(in thousands)	December 31, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Average) (a)
Assets
Impaired loans	$	5,542	Fair value of collateral	Loss severity	4.2% to 100.0% (57.41%)
				Appraised value	$0 to $900.0 $(505.4)

Capitalized mortgage servicing rights	4,112		Discounted cash flow	Constant prepayment rate (CPR)	6.96% to 15.97% (8.58%)
				Discount rate	10.00% to 13.00% (10.34%)

Other real estate owned	2,995		Fair value of collateral	Appraised value	$0 to $774.0 $(413.4)

Total	$	12,649

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

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

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value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

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

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

Summary of estimated fair values 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.

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

Financial Assets

Cash and cash equivalents	$	72,673	$	72,673	$	72,673	$	—	$	—
Trading security	14,923		14,923		—		—		14,923
Securities available for sale	1,033,637		1,033,637		33,790		997,801		2,046
Securities held to maturity	43,159		44,191		—		—		44,191
Restricted equity securities	53,124		53,124		—		53,124		—
Net loans	4,209,025		4,274,758		—		—		4,274,758
Loans held for sale	7,669		7,669		—		7,669		—
Accrued interest receivable	15,938		15,938		—		15,938		—
Cash surrender value of bank-owned life insurance policies	102,343		102,343		—		102,343		—
Derivative assets	10,311		10,311		—		9,934		377
Assets held for sale	4,018		4,018		—		4,018		—


Financial Liabilities

Total deposits	$	4,218,583	$	4,219,546	—		$	4,219,546	$	—
Short-term debt	914,950		915,066		—		915,066		—
Long-term Federal Home Loan Bank advances	21,797		23,472		—		23,472		—
Subordinated borrowings	89,696		88,210		—		88,210		—
Derivative liabilities	9,819		9,819		13		9,710		96
Liabilities held for sale	25,093		25,093		—		25,093		—

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

Financial Assets

Cash and cash equivalents	$	75,539	$	75,539	$	75,539	$	—	$	—
Trading security	14,840		14,840		—		—		14,840
Securities available for sale	760,048		760,048		20,891		737,193		1,964
Securities held to maturity	44,921		45,764		—		—		45,764
Restricted equity securities	50,282		50,282		—		50,282		—
Net loans	4,147,200		4,154,663		—		—		4,154,663
Loans held for sale	15,840		15,840		—		15,840		—
Accrued interest receivable	15,072		15,072		—		15,072		—
Cash surrender value of bank-owned life insurance policies	101,530		101,530		—		101,530		—
Derivative assets	8,318		8,318		242		7,799		277
Assets held for sale	3,969		3,969		—		3,969		—

Financial Liabilities

Total deposits	$	3,848,529	$	3,848,926	$	—	$	3,848,926	$	—
Short-term debt	872,510		872,545		—		872,545		—
Long-term Federal Home Loan Bank advances	101,918		103,660		—		103,660		—
Subordinated borrowings	89,679		87,882		—		87,882		—
Derivative liabilities	11,964		11,964		—		11,964		—
Liabilities held for sale	24,834		24,834		—		24,834		—

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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.

Subordinated borrowings. The Company utilizes a pricing service along with internal models to estimate the valuation of its junior subordinated debentures. The junior subordinated debentures re-price every ninety days.

Off-balance-sheet financial instruments. Off-balance-sheet financial instruments include standby letters of credit and other financial guarantees and commitments considered immaterial to the Company’s financial statements.

NOTE 15. NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

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

	Three Months Ended
	March 31,
(In thousands)	2014		2013
Net interest income	$	42,766	$	41,937
Provision for loan losses	3,396		2,400
Net interest income after provision for loan losses	$	39,370	$	39,537

NOTE 16. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through May 12, 2014, the date the financial statements were issued, noting no events requiring disclosure.

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

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2013 Annual Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2014 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 40.5% marginal income tax rate. In the discussion, references to earnings per share refer to diluted earnings per share unless otherwise specified.

Berkshire Hills Bancorp (“Berkshire” or “the Company”) is headquartered in Pittsfield, Massachusetts. Berkshire Hills Bancorp, Inc. is a Delaware corporation and the holding company for Berkshire Bank (“the Bank”) and Berkshire Insurance Group. Established in 1846, the Bank is a state chartered Massachusetts savings bank. The Bank is one of Massachusetts’ oldest and largest independent banks and is the largest banking institution based in Western Massachusetts. Berkshire Bank operates under the brand America’s Most Exciting Bank ® . For more information, visit www.berkshirebank.com or call 800-773-5601.

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

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

· History of positive operating leverage contributing to historic growth in operating earnings

· Solid capital, core funding and risk management culture

· Experienced executive team focused on earnings and stockholder value

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

· Diversified integrated financial service revenues

· Positioned to be regional consolidator in attractive markets

The Company’s profile is as follows:

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FORWARD-LOOKING STATEMENTS

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

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

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent Form 10-K. Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial

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

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

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

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

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the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.

Determination of Other-Than-Temporary Impairment of Securities. The Company evaluates debt and equity securities within the Company’s available for sale and held to maturity portfolios for other-than-temporary impairment (“OTTI”), at least quarterly. If the fair value of a debt security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met: (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Noncredit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes. In evaluating its marketable equity securities portfolios for OTTI, the Company considers its intent and ability to hold an equity security to recovery of its cost basis in addition to various other factors, including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI on marketable equity securities is recognized immediately through earnings. Should actual factors and conditions differ materially from those expected by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

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

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SELECTED FINANCIAL DATA

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

	At or for the Three Months Ended
	March 31,
	2014			2013

PER COMMON SHARE DATA
Net earnings, diluted	$	(0.04	)	$	0.42
Total common book value	26.99			26.68
Dividends	0.18			0.18
Common stock price:
High	27.28			26.01
Low	23.95			23.38
Close	25.88			25.54

PERFORMANCE RATIOS
Return on average assets	(0.08		)%	0.80		%
Return on average common equity	(0.64		)	6.28
Net interest margin, fully taxable equivalent	3.35			3.73
Fee income/Net interest and fee income	22.84			25.63

ASSET QUALITY RATIOS
Net charge-offs (current quarter annualized)/average loans	0.30		%	0.23		%
Allowance for loan losses/total loans	0.79			0.86

CONDITION RATIOS
Stockholders’ equity to total assets	11.27		%	12.85		%
Investments to total assets	19.05			12.65
Loans/deposits	101			95

FINANCIAL DATA: (In millions)
Total assets	$	6,010		$	5,245
Total earning assets	5,408			4,646
Total loans	4,243			3,889
Allowance for loan losses	34			33
Total intangible assets	280			273
Total deposits	4,219			4,101
Total borrowings	1,026			399
Total common stockholders’ equity	678			674

FOR THE PERIOD: (In thousands)
Net interest income	$	42,766		$	41,937
Non-interest income	4,423			14,798
Provision for loan losses	3,396			2,400
Non-interest expense	45,360			39,483
Net (loss) income	(1,106		)	10,465

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

(2) Tangible common stockholders’ equity to tangible assets excludes goodwill and other intangibles. This is a non-GAAP financial measure that the Company believes provide investors with additional information that is useful in understanding our financial performance and condition.

(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 March 31,
	2014				2013
($ In millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Assets
Loans:
Residential mortgages	$	1,379	4.12	%	$	1,291	4.04	%
Commercial real estate	1,420		4.44		1,407		5.45
Commercial and industrial loans	685		3.97		601		4.40
Consumer loans	700		3.56		645		4.94
Total loans	4,184		4.13		3,944		4.75
Investment securities (2)	1,048		3.04		591		3.04
Short term investments and loans held for sale	28		1.51		98		1.83
Total interest-earning assets	5,260		3.89		4,633		4.51
Intangible assets	278				273
Other non-interest earning assets	313				334
Total assets	$	5,851			$	5,240

Liabilities and stockholders’ equity
Deposits: (5)
NOW	$	410	0.15	%	$	369	0.29	%
Money market	1,490		0.37		1,477		0.39
Savings	464		0.16		442		0.18
Time	1,070		1.15		1,148		1.23
Total interest-bearing deposits	3,434		0.56		3,436		0.63
Borrowings and notes (4)	912		1.03		424		3.43
Total interest-bearing liabilities	4,346		0.66		3,860		0.94
Non-interest-bearing demand deposits	750				646
Other non-interest earning liabilities	63				68
Total liabilities	5,159				4,574

Total stockholders’ equity	692				666
Total liabilities and stockholders’ equity	$	5,851			$	5,240

Net interest spread			3.23	%			3.57	%
Net interest margin			3.35				3.73
Cost of funds			0.56				0.81
Cost of deposits			0.46				0.53

Supplementary data
Total deposits (In millions)	$	4,184			$	4,082
Fully taxable equivalent income adj. (In thousands)	718				$	629

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

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

(3) Interest income on loans held for sale is included in loan interest income on the income statement.

(4) The average balances of borrowings includes the capital lease obligation presented under other liabilities on the consolidated balance sheet.

(5) The average balances of deposits include the deposits held for sale presented under other liabilities on the consolidated balance sheet.

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SUMMARY

Summary : On January 17, 2014, Berkshire completed the acquisition of 20 branches in Central New York and assumed $440 million in deposits. Berkshire had 90 branch offices at the conclusion of the quarter. Following the acquisition, Berkshire extinguished certain borrowings and terminated the related cash flow hedges. Additionally, acquired funds were used to purchase investment securities and to support loan growth.

First quarter financial highlights are shown below. References to linked quarter refer to fourth quarter, 2013.

· 7% increase in net interest income, compared to linked quarter

· 14% increase in fee income, compared to linked quarter

· 9% annualized increase in commercial loans

· 11% annualized increase in consumer loans

· 10% increase in deposits, including acquired branches

· 3.35% net interest margin, increased from 3.26% in the linked quarter

· 0.46% non-performing assets/total assets

· 0.30% net loan charge-offs/average loans

Due to the branch acquisition, the Company recorded a number of charges including transaction costs, integration costs, and costs for the termination of interest rate swaps. The Company also recorded charges for restructuring activities, systems conversions, and an out-of-period accounting adjustment. The Company views these charges as non-core and not representative of ongoing operating activities. The total amount of these net non-core charges was $16.4 million, or $11.5 million on an after-tax basis ($0.46 per share) in the most recent quarter. The $8.8 million charge ($0.25 per share after tax) realized due to the swap termination charges had no material impact on shareholders’ equity, since the unrealized fair market value losses were already recorded in equity. Net non-core charges in the first quarter of 2013 totaled $5.1 million ($0.12 per share after tax) due to acquisition charges related to the integration of the operations of Beacon Federal Bancorp which was acquired in October, 2012.

Excluding all net non-core charges, the Company recorded core earnings of $10.4 million ($0.42 per share) in the most recent quarter, compared to $13.5 million ($0.54 per share) in the first quarter of 2013. The Company’s measures of net non-core charges, core earnings, and core earnings per share are non-GAAP financial measures that the Company uses to assess its ongoing operating activities. They are further explained and reconciled below. Compared to the first quarter of 2013, the Company’s core earnings decreased due primarily to lower income on real estate related loans resulting from interest rate related market shifts in 2013. This included decreases in interest income on commercial real estate loans, loan fee income, and mortgage banking income.

In the most recent quarter, the Company promoted Josephine Iannelli to the position of Executive Vice President, Chief Financial Officer. Ms. Iannelli joined the Company in March 2013 as Senior Vice President, Chief Accounting Officer. In July 2013 she was promoted to Principal Accounting Officer and had been providing interim financial leadership since that time. During the quarter, the Company also appointed Richard Thevenet as Senior Vice President and Treasurer. Mr. Thevenet joined the Company from M&T Bank and previously served as Treasurer of Mastercard International and of MBIA, Inc. Additionally, the Company recruited Scott Houghtaling as Senior Vice President and New York Commercial Leader. He joined Berkshire from RBS Citizens, where he was Senior Vice President, Team Leader managing a $950 million portfolio focused on Not-for-Profit and Healthcare customers in New York. He joined Citizens Bank in 2003 in their middle market banking group and previously worked for JPMorgan Chase and Fleet Bank in relationship management and credit roles based in Albany.

On March 31, 2014, the Company filed an application to become a bank holding company with the Federal Reserve Board in order to change its federal charter from a savings and loan holding company to a bank holding company in preparation for a prospective change of Berkshire Bank’s state charter from a savings bank to a trust company which is the charter commonly used by commercial banks chartered in Massachusetts. The Company’s federal regulator as a bank holding company would continue to be the Federal Reserve Board. Additional information about these charter changes was provided in the Company’s 2013 Form 10-K filed with the SEC. The Company expects to complete these changes in 2014, subject to regulatory approval.

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NON-GAAP FINANCIAL MEASURES

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

The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends. This measure excludes amounts designated as non-core which the Company views as unrelated to its normalized operations, including securities gains/losses, losses recorded for hedge terminations, acquisition costs, restructuring costs, systems conversion costs, and out-of-period adjustments. Non-core adjustments are presented net of estimated income tax expense or benefit. The Company also calculates core earnings per share based on its measure of core earnings. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s operating performance. Management also believes that the computation of non-GAAP core earnings and core earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.

Charges related to merger and acquisition activity consist primarily of severance/benefit related expenses, contract termination costs, and professional fees. The hedge termination costs were as a result of the branch acquisition in the first quarter of 2014 and were therefore designated as non-core. Systems conversion costs relate primarily to the Company’s core systems conversion and systems conversions costs in conjunction with this which have been recorded in recent periods. Restructuring costs primarily consist of employee severance costs, and costs and losses associated with the disposition of assets which were undertaken as a project to right-size expenses following a decline in revenue in 2013. Out-of-period accounting adjustments for interest income on acquired loans were recorded following systems conversions and acquisition related accounting activity and were deemed non-core. Non-core expenses include variable rate compensation related to non-core items. The Company evaluates GAAP, core, and non-core items to analyze its effective tax rate and to arrive at core income that is net of an effective core tax rate which is consistent with its analysis of expected core tax items for the year.

The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community. The Company assesses tangible book value per share which is commonly evaluated as a component of the analysis of stock price. The ratio of tangible equity/tangible assets is regularly considered as a measure of balance sheet leverage.

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

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		For the Three Months Ended March 31,
(Dollars in thousands)		2014				2013
Net income (GAAP)		$	(1,106		)	$	10,465

Non-GAAP measures
Adj: Gain on sale of securities, net		(34			)	—
Adj: Loss on termination of hedges		8,792				—
Adj: Acquisition, restructuring and conversion related expenses (1)		6,302				5,064
Adj: Out-of-period adjustment (2)		1,381				—
Adj: Income taxes (3)		(4,923			)	(2,042			)

Net non-core charges		11,518				3,022
Total core income (non-GAAP)	(A)	$	10,412			$	13,487

Net earnings per share, diluted (GAAP)		$	(0.04		)	$	0.42
Non-core earnings per share, diluted		0.46				0.12
Core earnings per share, diluted (non-GAAP)	(A/G)	$		0.42		$		0.54

Average diluted shares outstanding (thousands) (GAAP)		24,698				25,143
Adj: dilutive potential common shares outstanding (thousands) (4)		135				—
Average core diluted shares outstanding (thousands) (5) (non-GAAP)	(G)	24,833				25,143

(Dollars in millions, except per share data)
Total assets, period-end (GAAP)		$		6,010		$		5,245
Less: intangible assets, period-end		280				273
Total tangible assets, period-end (non-GAAP)		$		5,730		$		4,972

Total stockholders’ equity, period-end (GAAP)		$		678		$		674
Less: intangible assets, period-end		280				273
Total tangible stockholders’ equity, period-end (non-GAAP)		$		398		$		401

(1) Acquisition, restructuring, conversion and other related expenses in 2014 includes $3.6 million in acquisition expenses and $2.7 million of restructuring, conversion and other expenses. Expenses in 2013 were due to the integration of operations following the Beacon Federal acquisition in October 2012.

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

(3) The Company evaluates its non-core items to arrive at an effective non-core tax rate which is consistent with the Company’s overall tax rate analysis.

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

(5) Average diluted shares computed for core earnings per share differ from GAAP average diluted shares due to the GAAP net loss compared to core net income for the period.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2014 AND DECEMBER 31, 2013

Summary : Berkshire increased its total assets by $338 million (6%) in the most recent quarter due to growth in loans and investment securities. Acquired deposits were used to repay borrowings and to fund asset growth. At quarter-end, measures of asset quality, liquidity, interest rate sensitivity, and capital remained within targets.

Securities: Total securities increased by $275 million to $1.145 billion during the first quarter. Growth consisted primarily of available for sale medium term U.S. agency collateralized mortgage-backed securities, along with municipal bonds and corporate equities. Due to the decrease in medium term interest rates during the quarter, the net unrealized loss on marketable investment securities decreased to $2.2 million (0.2% of the total) compared to $8.5 million (1.0% of the total) at year-end 2013. Securities purchased in the most recent quarter had an average yield of approximately 3.4% and the debt securities had an average life of approximately 7.3 years. Including the benefit of these higher yielding securities purchased during the quarter, the overall portfolio yield increased to

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3.04% from 2.72% in the linked quarter and equaling the 3.04% yield in the first quarter of 2013. This included the benefit of a $0.4 million recovery on the prepayment of a discounted security acquired in a bank acquisition. At quarter-end, the average yield of the bond portfolio was 2.83% compared to 2.68% at the start of the quarter. During the quarter, the effective duration decreased slightly to 4.5 years from 4.7 years, while the average life extension risk in an up 300 interest rate change scenario was modeled at 1.8 years compared to 1.4 years at the start of the quarter. During the most recent quarter, the Company did not record any write-downs of investment securities and none of the Company’s investment securities were classified as other-than-temporarily impaired. Securities with unrealized losses decreased to $14 million from $18 million. Detail on these securities, including one security with a $1.2 million unrealized loss, is included in the Securities note in the consolidated financial statements. At period-end, all material available for sale debt securities carried at least one investment grade rating by a major rating agency except for the above security. The Company’s held to maturity securities are generally unrated local securities, all of which are performing and none of which is deemed criticized according to the Company’s internal ratings systems.

Loans. Total loans increased by $62 million (6% annualized) to $4.24 billion, including 9% annualized commercial loan growth and 11% annualized consumer loan growth. This follows the trend of double digit annualized growth in these loans reported in prior quarters. Most of the total loan growth was recorded in the final month of the quarter. The balance of loans from business activities increased by 4% to $3.29 billion and the balance of loans acquired in business combinations decreased by 5% to $0.96 billion.

All regions contributed to commercial loan originations, with strong contributions from Western New England and Central and Eastern Massachusetts. Berkshire is building business loan volume in its markets while it targets relationships with middle market customers who require a full range of products and services provided by a responsive local banking partner. The $49 million increase in commercial loans consisted primarily of a $40 million increase in commercial real estate loans and a $17 million increase in asset based lending balances. At quarter-end, the pipeline of commercial loan originations commitments totaled $142 million, compared to $152 million at the start of the quarter.

The decline in residential mortgages primarily reflected the seasonally lower mortgage production as well as the sale of $17 million in existing mortgage loans. Consumer loan growth was primarily in automobile loans reflecting continued expansion by the Syracuse based consumer team.

The loan yield was 4.13% in the most recent quarter, compared to 4.26% in the linked quarter and to 4.75% in the first quarter of 2013. The loan yield included purchased loan accretion, which included recoveries on the collection of purchased credit impaired loans. By comparison, the loan yield was 3.99% in the most recent quarter, compared to 4.02% in the linked quarter, before the impact of purchased loan accretion. This reduction reflected the improving quality of the portfolio and the shift away from commercial real estate loans with higher yields, as well as the decrease in acquired loans including collections of higher yielding purchased credit impaired loans. The percentage of loans with pricing adjusting within one year increased by 1% to 33% during the most recent quarter, while the percentage of loans repricing after five years decreased by 3% to 36%.

At period-end, the remaining carrying balance of purchased credit impaired loans was $24 million and the contractual amount owed on these loans was $45 million. The comparable measures at year-end 2013 were $30 million and $53 million, respectively. The balance of accretable yield on these loans increased to $3.2 million from $2.6 million during the quarter, including a credit of $1.5 million transferred from non-accretable discount for loans with improved cash flows, which was partially offset by accretion of $0.9 million recorded during the quarter.

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. Asset performance metrics remained favorable during the first quarter of 2014. Annualized net loan charge-offs measured 0.30% of average loans. Compared to the start of the quarter, quarter-end non-performing assets decreased to 0.46% of total assets from 0.53%, and accruing delinquent loans decreased to 0.59% of total loans from 0.73%. Loans which became non-accruing totaled $4 million during the quarter, which was down from the range of $6-9 million in several previous quarters.

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

The total amount of the loan loss allowance increased by $0.3 million to $33.6 million in the first quarter of 2014. The ratio of the allowance to total loans decreased to 0.79% from 0.80% during the quarter. For loans from business activities, this ratio decreased to 0.89% from 0.93%, while the allowance on acquired loans increased to 0.44% from 0.38%. At quarter-end, the allowance provided 2.7X coverage of first quarter annualized net charge-offs and 1.3X coverage of period-end non-accrual loans. The credit risk profile of the Company’s loan portfolio is described in the Loan Loss Allowance note in the consolidated financial statements. The Company’s risk management process focuses primary attention on loans with higher than normal risk, which includes loans rated special mention and classified (substandard and lower). These loans are referred to as criticized loans. Criticized loans were reduced in the first quarter of 2014 to $161 million (2.7% of assets) from $165 million (2.9% of assets).

The Company views its potential problem loans as those loans from business activities which are rated as classified and continue to accrue interest. These loans have a possibility of loss if weaknesses are not corrected. Classified loans acquired in business combinations are recorded at fair value and are classified as performing at the time of acquisition and therefore are not generally viewed as potential problem loans. Potential problem loans increased by $1 million to $72 million during the quarter. There were no significant changes in the composition of non-accruing and potential problem assets during the quarter. The Company’s evaluation of its credit risk profile also compares the amount of criticized assets to the total of the Bank’s Tier 1 Capital plus the loan loss allowance. This ratio declined by 1% to 36% during the most recent quarter.

Other Assets. Goodwill and intangible assets increased due to the branch acquisition, including $8 million in goodwill and a $3 million core deposit intangible recorded for that transaction. The deferred tax asset decreased by $11 million to $40 million during the quarter.

Deposits. Total deposits increased by $370 million (10%) to $4.219 billion during the first quarter. Deposits added from the New York branch acquisition were recorded at $440 million and acquired balances were retained during the quarter. Acquired deposits included $110 million in demand deposits, $80 million in NOW accounts, $124 million in money market deposits, $36 million in savings accounts, and $90 million in time deposits. Excluding acquired deposits, all other deposits decreased by $70 million during the quarter. The Company adjusted its funding strategies in conjunction with the deposit acquisition, de-emphasizing select municipal deposit sources and other higher cost deposits. The change in total deposits also reflected seasonal factors. Berkshire’s ongoing development of consumer relationships was demonstrated by a 5% organic increase in personal demand deposit balances, excluding acquired balances. Due to the deposit growth, the loans/deposits ratio decreased to 101% from 109% during the quarter. The average cost of deposits decreased to 0.46% in the most recent quarter, compared to 0.53% in the linked quarter and in the first quarter of 2013. This reduction included the benefit of the acquired deposits, which had a 0.16% cost during the quarter. Excluding the acquired balances, the average cost of deposits was approximately 0.48% during the quarter.

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Borrowings. Total borrowings decreased by $38 million to $1.026 billion in the first quarter of 2014. The $440 million in funds received for acquired deposits was initially utilized to reduce FHLBB borrowings, including $215 million in three month revolving advances that the Company elected to extinguish. The Company terminated all of its cash flow interest rate swaps which were related to these three month revolving advances and which had a total notional balance of $410 million including both currently effective and forward starting swaps. During the quarter, the Company borrowed new short term advances to fund growth in earning assets. Including the benefit of the borrowings and hedges restructuring, the interest expense for borrowings decreased by $1.3 million compared to the linked quarter and the first quarter of 2013. The cost of borrowings decreased to 1.03% in the most recent quarter, compared to 1.69% in the linked quarter and to 3.43% in the first quarter of 2013.

Derivative Financial Instruments and Hedging Activities. The notional value of derivatives totaled $805 million at March 31, 2014. There was little change in economic hedges and non-hedging derivatives; these financial instruments are related to interest rate contracts with commercial and residential mortgages customers. Cash flow hedges decreased to $315 million from $425 million. In the above discussion about borrowings, it was noted that all of the $410 million in starting cash flow hedges on FHLBB borrowings were terminated. During the quarter, the Company entered into $300 million in new hedges on new borrowings with different characteristics. The terminated swaps included, as of the beginning of the quarter, $150 million currently paying at a rate of 2.61% with a weighted average maturity of 2.5 years and $260 million which were forward starting with, on average, a rate of 1.88% and a three year swap period beginning in mid 2015 and an average maturity of 4.5 years. The Company entered into $300 million in new forward starting three year cash flow swaps on different FHLBB borrowings which start in the first half of 2016 with an average pay rate of 2.29% and a three year swap period and an average maturity of 5.0 years.

Stockholders’ Equity. Stockholders’ equity totaled $678 million at March 31, 2014 and was unchanged from the start of the quarter. The $6.2 million after-tax charge to income for the swap terminations was generally offset by a credit to other comprehensive income. The benefit of income before this charge was mostly offset by the $4.6 million dividend payout. The Company repurchased 100 thousand shares which mostly offset the impact of 126 thousand shares issued in stock grants. The Company issues long term equity compensation each year in the first quarter subject to three year time and performance vesting terms. The 2014 grant was reduced from the 146 thousand share grant issued in the prior year.

Due to the deposit acquisition and loan growth the ratio of equity to assets decreased to 11.3% from 12.0% during the first quarter. The ratio of tangible equity to tangible assets decreased to 6.9% from 7.5%. Tangible equity is a non-GAAP financial measure commonly used by investors and it excludes goodwill and other intangible assets. Tangible book value per share decreased to $15.84 from $16.27, while book value per share decreased to $26.99 from $27.08. Berkshire Bank’s total risk based capital ratio decreased to 11.2% from 11.6% and its Tier 1 risk based capital ratio decreased to 9.5% from 10.0%. The Company is a savings and loan holding company and is not subject to specific regulatory capital requirements. Subject to regulatory approval, the Company expects to convert to a bank holding company and would be subject to bank holding company capital requirements. At quarter-end, the Company estimated that its consolidated holding company capital measures were consistent with a Well Capitalized status for the holding company.

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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

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

During 2013, results were adversely affected by events in the first half of the year. An industry-wide downturn in mortgage banking revenues began near midyear due to a sharp increase in long term interest rates. Additionally, commercial lending revenues were adversely impacted by accelerated outplacements of acquired impaired and non-relationship loans due to institutional demand for these lower quality assets, which were primarily commercial real estate loans. The near term impact of these events was partially offset by recoveries recorded to interest income through purchased loan accretion for collections of acquired impaired loans. In response to these events, management initiated a restructuring program in the second half of the year, recording restructuring charges and lowering ongoing operating expenses. References to the linked quarter in this discussion are intended to show recent trends in improving revenues and core earnings.

The Company recorded a loss of $1.1 million ($0.04 per share) in the first quarter of 2014, compared to a net profit of $10.5 million ($0.42 per share) both in the linked quarter and in the first quarter of 2013. Due to the loss, the Company’s diluted shares were equal to its basic shares for the most recent quarter. As previously discussed, the Company recorded charges of $0.46 per share in the most recent quarter that it deemed as non-core and its measure of core earnings per share was $0.42 before these charges. The Company’s goal is that the acquired New York branches will be accretive to its future earnings but the Company estimated that there was no accretive benefit in the first quarter, as acquired operations were being integrated and balance sheet strategies were being implemented for acquired funds.

Revenue. Total net revenue decreased to $47.2 million in the most recent quarter due primarily to the $8.8 million charge for the loss on termination of hedges. For illustrative purposes, net revenue before this charge was $56.0 million which was an increase compared to the linked quarter and a decrease from $56.7 million in the first quarter of 2013 as the decrease in real estate loan related revenue more than offset the revenue from acquired branch operations. Annualized revenue per share was $7.64 in the most recent quarter compared to $8.94 in the linked quarter and $9.03 in the first quarter of 2013. Measured before the charge for the swap termination, annualized revenue was $9.07 in the most recent quarter.

Net Interest Income. Net interest income increased by $2.9 million (7%) compared to the linked quarter and by $0.8 million (2%) compared to the first quarter of 2013. Growth in net interest income has included the benefit of growth from business development as well as the branch acquisition. 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.

Business combinations in recent years have included the recording of credit related net discounts primarily on impaired commercial loans. Purchased loan accretion has been credited to net interest income based on expected loan lives, together with recoveries from the disposition of impaired loans. Purchased loan accretion totaled $1.4 million in the most recent quarter, compared to $2.4 million in the linked quarter and to $3.8 million in the first quarter of 2013. Purchased loan accretion in the most recent quarter included $2.1 million in recoveries from the collection of purchased credit impaired loans and was net of a $1.4 million out of period adjustment. The $3.2 million balance of accretable yield at quarter-end was expected to be recorded to net interest income over the next several quarters based on existing amortization schedules.

Average earning assets increased by 7% compared to the linked quarter and by 14% compared to the first quarter of 2013 due to growth in loans and securities. The net interest margin measured 3.35% in the most recent quarter, compared to 3.26% in the linked quarter and to 3.73% in the first quarter of 2013. For illustrative purposes, before the benefit of purchased loan accretion, the margin was 3.24%, 3.07%, and 3.39% in these periods respectively. The decrease compared to last year was due to ongoing compression of loan yields which has not been fully offset by reductions in funds costs. Berkshire maintains a close focus on its loan and deposit pricing disciplines to lessen the impact of market yield compression. The improvement in the margin compared to the linked quarter was due primarily to the branch acquisition, including the low cost acquired deposits as well as the reduction in borrowings interest expense due to the borrowings and swaps restructuring. Borrowings interest expense decreased by $1.3 million compared to the linked quarter and the first quarter of 2013, which contributed approximately a 0.10% benefit to the margin in the first quarter of 2014.

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Non-Interest Income. Non-interest income decreased in the most recent quarter due primarily to the $8.8 million charge for the loss on termination of swap hedges. Most non-interest income consists of fee income, which totaled $12.7 million in the most recent quarter. Fee income increased by $1.6 million (14%) from the linked quarter due to seasonal insurance revenue and the benefit of the acquired branch operations. Fee income decreased by $1.8 million (12%) from the first quarter of 2013 due to a $1.5 million decrease in loan fee income and a $1.8 million decrease in mortgage banking income. The decrease in loan fees included a $0.8 million decrease in seasoned loan sale gains and the mortgage banking fees reflected lower originations volume due to an increase in mortgage rates from near record lows. The $1.2 million (28%) increase in deposit fee income was due to the acquired branch operations. Annualized deposit related fees increased to 0.52% of average deposit balances in the most recent quarter from 0.42% in the first quarter of 2013 due to the higher fee service penetration of the acquired deposits. Insurance fees increased by $0.1 million (2%) and wealth management fees increased by $0.3 million (13%) due to improved pricing and volume. First quarter insurance revenue includes the seasonal benefit of annual contingency payments by insurance carriers. Wealth management revenue includes seasonal tax preparation fees and benefited from improved securities market prices on which revenues are based. Wealth management new business was generated at a 9% annualized rate in the most recent quarter, and assets under management totaled $1.3 billion at quarter-end.

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 provision increased to $3.4 million in the most recent quarter from $3.1 million in the linked quarter and $2.4 million in the first quarter of 2013. The provision exceeded the level of net loan charge-offs, resulting in an increase in the total allowance for loan losses.

Non-Interest Expense and Income Tax Expense. First quarter non-interest expense increased from the linked quarter and from the first quarter of 2013 primarily due to acquisition, restructuring, and conversion expenses, together with the operating costs of the newly acquired branches. First quarter non-interest expense increased by $5.9 million to $45.4 million in 2014 compared to $39.5 million in 2013. Acquisition, restructuring, and conversion expenses increased by $1.2 million to $6.3 million from $5.1 million. In 2014, these charges included $3.6 million related to the branch acquisition and $2.7 million in restructuring and conversion expenses. The restructuring costs resulted from actions initiated in the third quarter of 2013 to reduce ongoing overhead following the decline in revenues. Conversion costs were from the final major systems project related to the core systems conversion. The charges in 2013 related primarily to the integration and systems conversion of the operations acquired with Beacon Federal Bancorp.

First quarter expenses include seasonally higher compensation and maintenance expenses. Full time equivalent staff totaled 1,050 at quarter-end, compared to 939 at year-end 2013 and to 1,004 at March 31, 2013. In addition to the staff related to the acquired branches, expense growth in the most recent quarter also included targeted investment in commercial and retail market teams. During the first quarter, the Company consolidated two of the 20 acquired branches along with two existing branches, and it opened a new branch in Loudonville, N.Y. The effective income tax rate was approximately 29% in the most recent quarter, unchanged from the 29% effective rate for the year 2013 and for the first quarter of 2013.

Results of Segment and Parent Operations . Berkshire Hills Bancorp (“the Parent”) has two subsidiary operating segments — banking and insurance. Results in the banking segment generally followed the levels and trends of consolidated results, which have been previously discussed. In the insurance segment, first quarter net income decreased by $0.1 million to $0.4 million in 2014 compared to 2013 due to higher expenses. The Parent’s loss primarily reflected changes in the Bank’s operations.

Total Comprehensive Income . Total comprehensive income includes net income together with other comprehensive income/(loss). Total first quarter comprehensive income decreased by $4.5 million to $7.3 million in 2014 compared to $11.8 million in 2013 primarily due to the decrease in income before the charge for loss on termination of hedges in 2014 .

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Liquidity and Cash Flows. During the first quarter of 2014, acquired deposits were the primary source of funds and purchases of investment securities were the primary use of funds. Loan growth, reduced borrowings, and targeted deposit reductions were also uses of funds. Berkshire generally plans that over the medium term, deposit growth will be the primary source of funds and loan growth will be the primary use of funds. The Bank expects to further diversify its deposit sources including institutional and wholesale sources as part of the expansion of its liquidity management program. The Bank is also expanding its use of short term institutional borrowings and FHLBB borrowings will continue to be a significant source of liquidity for daily operations and borrowings targeted for specific asset/liability purposes. The Company also uses interest rate swaps in managing its funds sources and uses. At the end of the most recent quarter, the Company had approximately $631 million in borrowing availability with the Federal Home Loan Bank. This was increased from $416 million at the start of the quarter due to the added liquidity resulting from the branch purchase, including increased securities collateral and lower FHLBB borrowing balances.

Berkshire Hills Bancorp had a cash balance totaling $25 million as of March 31, 2014, which was on deposit with Berkshire Bank. The primary long run routine sources of funds for the Parent are expected to be dividends from Berkshire Bank and Berkshire Insurance Group, as well as cash from the exercise of stock options. There were no dividends paid from subsidiaries in the first quarter of 2014. The Parent also has a $10 million revolving line of credit provided by a correspondent bank. The primary long run uses of funds by the parent include the payment of cash dividends on common stock and debt service.

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

As previously noted, the Company expects to change its charter from a savings and loan holding company to a bank holding company in 2014. With this charter change, the Company will become subjected to bank holding company regulatory capital requirements. The Company believes that its capital presently conforms to requirements for the Well Capitalized designation for a bank holding company and it does not expect any near term impact to its capital management as a result of this change.

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

Off-Balance Sheet Arrangements and Contractual Obligations. In the normal course of operations, Berkshire engages in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in the Company’s financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. Further information about the Company’s off-balance sheet arrangements is contained in the Company’s 2013 Form 10-K and information relating to payments due under contractual obligations is presented in the 2013 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. There were no significant changes in off-balance sheet arrangements and contractual obligations during the first quarter of 2014.

Fair Value Measurements. The Company records fair value measurements of certain assets and liabilities, as described in the related note in the financial statements. There were no significant changes in the fair value measurement methodologies at March 31, 2014 compared to December 31, 2013. The Company compares the

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carrying value to fair value for major categories of financial assets and liabilities. The biggest difference relates to loans and normally varies inversely to the direction of longer term interest rates during the quarter. Due to the decrease in longer term interest rates in the first quarter of 2014, the excess of fair value over carrying value for net loans increased to $66 million at quarter-end from $7 million at the start of the quarter. This increase contributed to an increase in the net economic value of equity related to financial assets and liabilities based solely on the measures used for the purpose of this analysis.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the way that the Company measures market risk during the first quarter of 2014. For further discussion about the Company’s Quantitative and Qualitative Aspects of Market Risk, please review Item 7A of the Report 10-K filed for the fiscal year ended December 31, 2013. Berkshire has a targeted position to maintain an asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes. The Company measures this sensitivity primarily by evaluating the impact of ramped interest rate changes in the 12 month and 24 month time horizons.

During the first quarter, the Company acquired $440 million in deposits from the New York branch acquisition, which it views as a stable funds source. It increased its investment portfolio by $275 million with the purchase of mostly medium term securities while slightly reducing the average duration of the investment portfolio. The loan portfolio increased by $62 million and the repricing characteristics of the portfolio also shortened slightly. The Company terminated $410 million in currently active and forward starting fixed payment interest rate swaps with 3.8 year average maturities and entered into $300 million in new forward starting fixed payment swaps with 5.0 year average maturities. There was little change to near term and long term interest rate risk as a result of these changes. The asset sensitivity to a two year 100 basis point upward interest rate ramp was 3.7% of net interest income based on sensitivity in the second year of a ramp scenario. The Company expects to benefit initially from a gradual increase in interest rates in a future period as monetary policy is adjusted away from the sustained accommodation in recent years. The liability sensitivity of a 200 basis point upward interest rate ramp was increased from 0.6% to 3.0% of net interest income in the second year. The Company would expect to adjust its balance sheet composition to minimize any negative income impact in the anticipated environment of gradually rising short term rates further out in future periods. The economic value of equity at risk in an upward 200 basis point scenario became slightly less sensitive, with the modeled liability sensitivity decreasing to 9% from 10%. This sensitivity was expected to decrease further in the event that interest rates resulted in increased asset prepayment speed expectations.

ITEM 4. CONTROLS AND PROCEDURES

a) Disclosure controls and procedures.

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

b) Changes in internal control over financial reporting.

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

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PART II

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

During the first quarter of 2014, the Company completed the acquisition and integration of 20 New York branches. The Company continues to face risk factors relating to customer retention and successful conduct of these new operations as described in the Form 10-K.

In 2014, the Company promoted its Senior Vice President, Chief Accounting Officer to the position of Chief Financial Officer and it recruited a new Treasurer. As noted in the Form 10-K, transitions in management introduce control risks to the operating environment.

Also in 2014, the Company initiated actions intended to result in charter changes for the Bank and the Company. The Company expects to complete these changes in 2014. The risk factors related to these events are further described in Item 1-A of Form 10-K.

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

(a)	No Company unregistered securities were sold during the quarter ended March 31, 2014.
(b)	Not applicable.
(c)	The following table provides certain information with regard to shares repurchased by the Company in the first quarter of 2014.

				Total number of shares	Maximum number of
				purchased as part of	shares that may yet
	Total number of	Average price		publicly announced	be purchased under
Period	shares purchased	paid per share		plans or programs	the plans or programs
January 1-31, 2014	—	$	—	—	118,113
February 1-28, 2014	100,000	24.67		—	18,113
March 1-31, 2014	—	—		—	18,113
Total	100,000	$	24.67	—	18,113

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

3.1		Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (1)
3.2		Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc.(2)
4.1		Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (1)
4.2		Note Subscription Agreement by and among Berkshire Hills Bancorp, Inc. and certain subscribers dated September 20, 2012 (3)
10.1		Amended and Restated Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Michael P. Daly (4)
10.2		Amended and Restated Supplemental Executive Retirement Agreement between Berkshire Bank and Michael P. Daly (5)
10.3		Three Year Executive Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and George F. Bacigalupo (6)
10.4		Three-Year Executive Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Josephine Iannelli (6)
10.5		Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Richard M. Marotta (7)
10.6		Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Sean A. Gray (8)
10.7		Form of Split Dollar Agreement entered into with Michael P. Daly, Sean A. Gray, and Richard M. Marotta (9)
10.8		Non-Competition and Consulting Agreement by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and J. Williar Dunlaevy, dated as of April 6, 2011 (10)
10.10		Berkshire Hills Bancorp, Inc. 2011 Equity Incentive Plan (11)
10.11		Berkshire Hills Bancorp, Inc. 2013 Equity Incentive Plan (12)
10.12		Legacy Bancorp, Inc. Amended and Restated 2006 Equity Incentive Plan (13)
10.13		Berkshire Bank 2013 Executive Short Term Incentive Plan (6)
11.0		Statement re: Computation of Per Share Earnings is incorporated herein by reference to Part II, Item 8, “Financial Statements and Supplementary Data”
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of

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		2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail

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

Table of Contents

SIGNATURES

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

BERKSHIRE HILLS BANCORP, INC.


Dated: May 12, 2014	By:	/s/ Michael P. Daly
	Michael P. Daly
	Chairman, President and Chief Executive Officer


Dated: May 12, 2014	By:	/s/ Josephine Iannelli
	Josephine Iannelli
	Executive Vice President, Chief Financial Officer

TABLE OF CONTENTS

Part I Item 1. Consolidated Financial Statements (unaudited)Note 1. Basis Of Presentation Note 2. Acquisition Note 3. Trading Security Note 4. Securities Available For Sale and Held To Maturity Note 5. Loans Note 6. Loan Loss Allowance Note 7. Deposits Note 8. Borrowed Funds Note 9. Stockholders Equity Note 10. Earnings Per Share Note 11. Stock-based Compensation Plans Note 12. Operating Segments Note 13. Derivative Financial Instruments and Hedging Activities Note 14. Fair Value Measurements Note 15. Net Interest Income After Provision For Loan Losses Note 16. Subsequent Events Item 2 . Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

BBT 10-Q Quarter ended March 31, 2014