BERKSHIRE HILLS BANCORP INC - Quarter Report: 2012 June (Form 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: June 30, 2012

 

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

 

For the transition period from              to             

 

Commission File Number: 000-51584

 

 

BERKSHIRE HILLS BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

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)

 

 

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 22,208,105 shares of common stock, par value $0.01 per share, outstanding as of August 3, 2012.

 

 

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 June 30, 2012 and December 31, 2011		4
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2012 and 2011		5
	Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2012 and 2011		6
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2012 and 2011		7
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011		8
	Notes to Consolidated Financial Statements		9
	Note 1	Basis of Presentation	9
	Note 2	Recent Accounting Pronouncements	9
	Note 3	Acquisitions	11
	Note 4	Trading Account Security	15
	Note 5	Securities Available for Sale and Held to Maturity	16
	Note 6	Loans	20
	Note 7	Deposits	36
	Note 8	Stockholders’ Equity	37
	Note 9	Earnings per Share	38
	Note 10	Stock-Based Compensation Plans	38
	Note 11	Operating Segments	39
	Note 12	Derivative Financial Instruments and Hedging Activities	40
	Note 13	Fair Value Measurements	44
	Note 14	Net Interest Income after Provision for Loan Losses	50
	Note 15	Subsequent Events	50
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		50
	Selected Financial Data		55
	Average Balances and Average Yields/Rates		57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		65
Item 4.	Controls and Procedures		66
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		67

 

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Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	68
Signatures		70

 

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PART I

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

 

		June 30,			December 31,
(In thousands, except share data)		2012			2011
Assets
Cash and due from banks		$	44,696		$	46,713
Short-term investments		21,790			28,646
Total cash and cash equivalents		66,486			75,359
Trading security		17,365			17,395
Securities available for sale, at fair value		471,368			419,756
Securities held to maturity (fair values of $43,285 and $60,395)		41,822			58,912
Federal Home Loan Bank stock and other restricted securities		37,174			37,118
Total securities		567,729			533,181
Loans held for sale		59,280			1,455
Residential mortgages		1,193,447			1,020,435
Commercial mortgages		1,281,058			1,156,241
Commercial business loans		519,684			410,292
Consumer loans		371,430			369,602
Total loans		3,365,619			2,956,570
Less: Allowance for loan losses		(32,868		)	(32,444		)
Net loans		3,332,751			2,924,126
Premises and equipment, net		68,569			60,139
Other real estate owned		827			1,900
Goodwill		220,360			202,391
Other intangible assets		19,505			20,973
Cash surrender value of bank-owned life insurance policies		76,290			75,009
Other assets		95,926			91,309
Assets from discontinued operations		—			5,362
Total assets		$	4,507,723		$	3,991,204
Liabilities
Demand deposits		$	535,472		$	447,414
NOW deposits		298,236			272,204
Money market deposits		1,158,562			1,055,306
Savings deposits		371,668			350,517
Time deposits		1,045,767			975,734
Total deposits		3,409,705			3,101,175
Short-term debt		239,030			10,000
Long-term Federal Home Loan Bank advances		213,497			211,938
Junior subordinated debentures		15,464			15,464
Total borrowings		467,991			237,402
Other liabilities		46,757			43,758
Liabilities from discontinued operations		—			55,504
Total liabilities		3,924,453			3,437,839
Stockholders’ equity
Common stock ($.01 par value; 50,000,000 shares authorized and 23,824,972 shares issued and 22,169,157 shares outstanding in 2012; 22,860,368 shares issued and 21,147,736 shares outstanding in 2011)		238			229
Additional paid-in capital		516,183			494,304
Unearned compensation		(3,200		)	(2,790		)
Retained earnings		115,871			109,477
Accumulated other comprehensive loss		(4,336		)	(4,885		)
Treasury stock, at cost (1,655,815 shares in 2012 and 1,712,632 shares in 2011)		(41,486		)	(42,970		)
Total stockholders’ equity		583,270			553,365
Total liabilities and stockholders’ equity		$	4,507,723		$	3,991,204

 

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

 

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

 

		Three Months Ended						Six Months Ended
		June 30,						June 30,
(In thousands, except per share data)		2012			2011			2012			2011
Interest and dividend income
Loans		$	38,787		$	28,607		$	73,838		$	53,213
Securities and other		3,869			3,446			7,490			6,753
Total interest and dividend income		42,656			32,053			81,328			59,966
Interest expense
Deposits		5,482			5,768			10,984			11,483
Borrowings and junior subordinated debentures		2,121			2,084			4,146			4,136
Total interest expense		7,603			7,852			15,130			15,619
Net interest income		35,053			24,201			66,198			44,347
Non-interest income
Loan related fees		3,524			780			4,897			1,371
Deposit related fees		3,963			3,366			7,463			5,907
Insurance commissions and fees		2,768			2,782			5,514			6,512
Wealth management fees		1,757			1,389			3,657			2,581
Total fee income		12,012			8,317			21,531			16,371
Other		269			(277		)	510			(197		)
Gain on borrowings		—			124			42			124
Gain on sale of securities, net		7			6			7			6
Total non-interest income		12,288			8,170			22,090			16,304
Total net revenue		47,341			32,371			88,288			60,651
Provision for loan losses		2,250			1,500			4,250			3,100
Non-interest expense
Compensation and benefits		15,638			12,027			29,227			23,178
Occupancy and equipment		4,490			3,546			8,885			6,981
Technology and communications		2,258			1,531			4,216			2,997
Marketing and promotion		778			341			1,129			622
Professional services		1,493			1,216			2,858			2,148
FDIC premiums and assessments		870			741			1,551			1,768
Other real estate owned and foreclosures		(6		)	700			173			1,309
Amortization of intangible assets		1,357			935			2,668			1,651
Merger, acquisition and conversion related expenses		4,085			5,451			8,308			7,159
Other		3,221			2,135			5,363			3,999
Total non-interest expense		34,184			28,623			64,378			51,812
Income from continuing operations before income taxes		10,907			2,248			19,660			5,739
Income tax expense		2,921			371			5,193			1,027
Net income from continuing operations		7,986			1,877			14,467			4,712
Loss from discontinued operations before income taxes (including gain on disposal of $63)		—			—			(261		)	—
Income tax expense		—			—			376			—
Net loss from discontinued operations		—			—			(637		)	—
Net income		$	7,986		$	1,877		$	13,830		$	4,712
Basic and diluted earnings per share:
Continuing operations		$	0.37		$	0.11		$	0.68		$	0.31
Discontinued operations		—			—			(0.03		)	—
Total basic and diluted earnings per share		$	0.37		$	0.11		$	0.65		$	0.31
Weighted average common shares outstanding:
Basic		21,742			16,580			21,349			15,269
Diluted		21,806			16,601			21,434			15,299

 

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

 

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

		Three Months Ended						Six Months Ended
		June 30,						June 30,
(In thousands)		2012			2011			2012			2011
Net income		$	7,986		$	1,877		$	13,830		$	4,712
Other comprehensive income
Changes in unrealized gainson securities available-for-sale		1,394			878			2,687			1,894
Changes in unrealized (losses) gains on derivative hedges		(2,488		)	(816		)	(2,204		)	436
Changes in unrealized gains on terminated swaps		235			235			471			471
Changes in unrealized losses on pension		(257		)	—			(257		)	—
Income taxes related to other comprehensive income		672			(103		)	(148		)	(1,085		)
Total other comprehensive (loss) income		(444		)	194			549			1,716
Total comprehensive income		$	7,542		$	2,071		$	14,379		$	6,428

 

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

 

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

																Accumulated
							Additional									other
		Common stock					paid-in			Unearned			Retained			comprehensive			Treasury
(In thousands)		Shares		Amount			capital			compensation			earnings			loss			stock			Total
Balance at December 31, 2010		14,076		$	158		$	337,537		$	(1,776	)	$	103,972		$	(6,410	)	$	(44,834	)	$	388,647
Comprehensive income:
Net income		—		—			—			—			4,712			—			—			4,712
Other comprehensive income		—		—			—			—			—			1,716			—			1,716
Total comprehensive income																						6,428
Acquisition of Rome Bancorp, Inc.		2,661		27			55,463			—			—			—			—			55,490
Rome ESOP loan repayment		(44	)	—			—			—			—			—			(943		)	(943		)
Cash dividends declared ($0.32 per share)		—		—			—			—			(4,930		)	—			—			(4,930		)
Forfeited shares		(21	)	—			33			426			—			—			(459		)	—
Exercise of stock options		13		—			—			—			(112		)	—			326			214
Restricted stock grants		59		—			(242		)	(1,261		)	—			—			1,503			—
Stock-based compensation		—		—			2			471			—			—			—			473
Net tax expense related to stock-based compensation		—		—			66			—			—			—			—			66
Other, net		(23	)	—			—			—			—			—			(475		)	(475		)
Balance at June 30, 2011		16,721		$	185		$	392,859		$	(2,140	)	$	103,642		$	(4,694	)	$	(44,882	)	$	444,970
Balance at December 31, 2011		21,148		$	229		$	494,304		$	(2,790	)	$	109,477		$	(4,885	)	$	(42,970	)	$	553,365
Comprehensive income:
Net income		—		—			—			—			13,830			—			—			13,830
Other comprehensive income		—		—			—			—			—			549			—			549
Total comprehensive income																						14,379
Acquisition of The Connecticut Bank and Trust Company		965		9			21,981			—			—			—			—			21,990
Cash dividends declared ($0.34 per share)		—		—			—			—			(7,372		)	—			—			(7,372		)
Forfeited shares		(8	)	—			11			169			—			—			(180		)	—
Exercise of stock options		13		—			—			—			(64		)	—			335			271
Restricted stock grants		64		—			(148		)	(1,476		)	—			—			1,624			—
Stock-based compensation		—		—			—			897			—			—			—			897
Net tax benefit related to stock-based compensation		—		—			35			—			—			—			—			35
Other, net		(13	)	—			—			—			—			—			(295		)	(295		)
Balance at June 30, 2012		22,169		$	238		$	516,183		$	(3,200	)	$	115,871		$	(4,336	)	$	(41,486	)	$	583,270

 

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

 

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Six Months Ended June 30,
(In thousands)		2012			2011
Cash flows from operating activities:
Net income		$	13,830		$	4,712
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,250			3,100
Net amortization of securities		986			595
Change in unamortized net loan costs and premiums		(461		)	475
Premises depreciation and amortization expense		2,921			2,159
Write down of other real estate owned		—			1,200
Stock-based compensation expense		895			473
(Accretion)/Amortization of purchase accounting entries		(3,541		)	(468		)
Amortization of other intangibles		2,668			1,651
Excess tax loss from stock-based payment arrangements		(35		)	—
Income from cash surrender value of bank-owned life insurance policies		(1,281		)	(872		)
Gain on sales of securities, net		(48		)	(253		)
Net (increase) decrease in loans held for sale		(9,561		)	1,043
Loss on disposition of assets		1,527			—
Loss on sale of other real estate		28			104
Net change in other		3,925			2,792
Net cash provided by operating activities		16,103			16,711
Cash flows from investing activities:
Net decrease in trading security		240			130
Proceeds from sales of securities available for sale		32,440			3,525
Proceeds from maturities, calls and prepayments of securities available for sale		47,006			70,196
Purchases of securities available for sale		(89,843		)	(68,360		)
Proceeds from maturities, calls and prepayments of securities held to maturity		25,775			6,058
Purchases of securities held to maturity		(8,685		)	(4,683		)
Net change in loans		(200,668		)	(55,391		)
Net cash used for Divestiture		(48,890		)	—
Proceeds from sale of Federal Home Loan Bank stock		1,861			3,571
Proceeds from sale of other real estate		1,872			382
Acquisitions, net of cash paid		(58,150		)	10,849
Purchase of premises and equipment, net		(11,604		)	(2,907		)
Net cash (used) by investing activities		(308,646		)	(36,630		)
Cash flows from financing activities:
Net increase in deposits		98,609			51,984
Proceeds from Federal Home Loan Bank advances and other borrowings		231,595			105,480
Repayments of Federal Home Loan Bank advances and other borrowings		(39,891		)	(135,118		)
Net proceeds from reissuance of treasury stock		271			214
Excess tax loss from stock based payment arrangements		35			66
Common stock cash dividends paid		(7,372		)	(4,930		)
Net cash provided by financing activities		283,247			17,696
Net change in cash and cash equivalents		(9,296		)	(2,223		)
Cash and cash equivalents at beginning of period		75,782			44,140
Cash and cash equivalents at end of period		$	66,486		$	41,917
Supplemental cash flow information:
Interest paid on deposits		10,984			11,536
Interest paid on borrowed funds		4,146			4,045
Income taxes (refunded) paid, net		(965		)	55
Acquisition of non-cash assets and liabilities:
Assets acquired		342,786			322,305
Liabilities assumed		(253,155		)	(259,524		)
Rome stock owned by the Company		—			668
Other non-cash changes:
Other net comprehensive income		549			1,716
Real estate owned acquired in settlement of loans		(320		)	—

 

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

Note: The Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and the cash and cash equivalents at beginning of period includes the cash flows from activities associated with discontinued operations.

 

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NOTE 1.                BASIS OF PRESENTATION

 

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

 

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

 

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

 

Election of the use of the Fair Value Option

 

In connection with the Company’s purchase of Greenpark Mortgage Corporation (“Greenpark”) as described in Note 3, the Company elected the applicable accounting guidance for the fair value option as it relates to loans held for sale (“HFS”).  This election allows for a more effective matching of the fair value changes that flow through earnings from the interest rate lock commitment (“IRLC”) stage to the funded HFS loan stage, and forward commitments used to economically hedge the changes in fair value of the IRLC and HFS loans.  The election was applied on a prospective basis starting with all HFS loans originated after April 30, 2012.  See Note 13 for the HFS loans fair value recorded in the Company’s Consolidated Balance Sheet and unrealized gain recorded in the Company’s Consolidated Statement of Income as of and for the period ended June 30, 2012.

 

Out of Period Adjustments

 

For the three months and six months ended June 30, 2012, the Company recorded a correction of an immaterial error relating to prior years that increased net income by $0.5 million and $0.7 million, respectively. The correction represents a prior period tax related over-accrual.  While these adjustments were noteworthy for the quarter, after evaluating the quantitative and qualitative aspects of these adjustments, the Company concluded that its prior period financial statements were not materially misstated and, therefore, no restatement was required.

 

NOTE 2.                RECENT ACCOUNTING PRONOUNCEMENTS

 

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

 

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The fair value measurement provisions of ASU No. 2011-04 had no impact on the Company’s financial statements.  The required disclosures are incorporated in Note 14 to the Company’s financial statements.

 

ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 is effective for annual and interim periods beginning after December 15, 2011; however, certain provisions related to the presentation of reclassification adjustments have been deferred by ASU 2011-12 “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” as further discussed below.  The Company adopted the new guidance by reporting the components of comprehensive income in two separate but consecutive statements.

 

ASU No. 2011-08, “Testing Goodwill for Impairment”. In September 2011, the FASB issued ASU 2011-08 which will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount . The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.  In July 2012, the FASB issued ASU 2012-02 that amends ASU 2011-08 to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment.  After an assessment of certain qualitative factors, if it is determined to be more likely than not that an indefinite-lived asset is impaired, entities must perform the quantitative impairment test.  Otherwise, the quantitative test is optional.  ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

 

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is limited to matters of presentation with no impact expected on the Company’s financial statements.

 

ASU 2011-12 “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after December 15, 2011. The required disclosures required are incorporated in Note 8 and do not have a significant impact on the Company’s financial statements.

 

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Table of Contents

 

NOTE 3.                ACQUISITIONS

 

The Connecticut Bank and Trust Company

 

On April 20, 2012, the Company acquired all of the outstanding common shares of The Connecticut Bank and Trust Company (“CBT”). CBT operated eight banking offices serving the Greater Hartford area and was merged with and into Berkshire Bank, a wholly owned subsidiary of the Company.  This business combination is an extension of the Berkshire franchise and the goodwill recognized results from the expected synergies and earnings accretion from this combination, including future cost savings related to CBT’s operations.    The combination was negotiated between the companies and was approved unanimously by their boards of directors.

 

CBT shareholders received 965 thousand shares of the Company common stock and $9.0 million in cash.  On the acquisition date, CBT had 3.617 million outstanding common shares.  Through a cash/share election procedure, the Company paid $8.25 per share for 30% of the outstanding common shares.  For 70% of the outstanding shares, the Company exchanged its stock in a ratio of 0.381 shares of the Company’s common stock for each share of CBT stock.  The 965 thousand shares of Company common stock issued in this exchange were valued at $22.80 per share based on its closing price on April 19, 2012.  Berkshire paid $0.2 million in cash consideration to settle all outstanding CBT options.  The Company issued no new Berkshire options in connection with the merger.

 

As of April 20, 2012, CBT had assets with a carrying value of approximately $268.8 million, including loans outstanding with a carrying value of approximately $215.8 million, as well as deposits with a carrying value of approximately $209.7 million. The results of CBT’s operations are included in the Consolidated Statement of Income from the date of acquisition. As part of the acquisition, the Company repurchased and retired from the United States Department of Treasury (“Treasury”) each share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of CBT stock issued and outstanding for $5.4 million and the outstanding warrant issued to the Treasury to purchase CBT common stock for $0.8 million.

 

The assets and liabilities in the CBT acquisition were recorded at their fair value based on management’s best estimate using information available at the date of acquisition.  Consideration paid, and fair values of CBT’s assets acquired and liabilities assumed as of April 20, 2012 are summarized in the following table:

 

Consideration Paid:
Berkshire Hills Bancorp common stock issued to CBT common stockholders		$	21,992
Cash consideration paid to CBT common shareholders		8,952
Repurchase of CBT’s preferred stock and warrant		6,290
Cash consideration paid for CBT employee stock options		150
Total consideration paid		$	37,384

 

Recognized Amounts of Identifiable Assets Aquired and (Liabilities Assumed), At Fair Value:		As Acquired			Fair Value Adjustments			As Recorded at Acquisition
Cash and short term investments		$	10,568		$	—		$	10,567
Investment securities		41,428			(46		)(a)	41,382
Loans		215,773			(6,181		)(b)	209,592
Premises and equipment		1,393			—			1,393
Core deposit intangibles					1,200		(c)	1,200
Other intangibles		—			(238		)(d)	(238		)
Other assets		3,081			7,795		(e)	10,877
Deposits		(209,707		)	(428		)(f)	(210,135		)
Borrowings		(35,865		)	(3,020		)(g)	(38,885		)
Other liabilities		(1,978		)	(209		)(h)	(2,187		)
Total identifiable net assets		$	24,693		$	(1,127	)	$	23,566
Goodwill								$	13,818

 

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