Unassociated Document
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, 2011
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
 
Commission File Number: 000-51584
 
 
BERKSHIRE HILLS BANCORP, INC.
 
(Exact name of registrant as specified in its charter)

Delaware
 
04-3510455
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
24 North Street, Pittsfield, Massachusetts
 
01201
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (413) 443-5601
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x     No ¨
 
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 ¨  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)
 
Large Accelerated Filer ¨        Accelerated Filer x       Non-Accelerated Filer ¨     Smaller Reporting Company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
 
Yes ¨  No x
 
The Registrant had 16,779,110 shares of common stock, par value $0.01 per share, outstanding as of May 2, 2011.

 
 

 

BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q

INDEX
     
Page
PART I.
FINANCIAL INFORMATION
   
       
Item 1.
Consolidated Financial Statements (unaudited)
   
       
 
Consolidated Balance Sheets as of
 
3
 
March 31, 2011 and December 31, 2010
   
       
 
Consolidated Statements of Income for the Three
 
4
 
Months Ended March 31, 2011 and 2010
   
       
 
Consolidated Statements of Changes in Stockholders’ Equity
 
5
 
for the Three Months Ended March 31, 2011 and 2010
   
       
 
Consolidated Statements of Cash Flows for the
 
6
 
Three Months Ended March 31, 2011 and 2010
   
       
 
Notes to Consolidated Financial Statements
 
7
       
Item 2.
Management’s Discussion and Analysis of Financial
 
33
 
Condition and Results of Operations
   
       
 
Selected Financial Data
 
36
       
 
Average Balances and Average Yields/Rates
 
37
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
42
       
Item 4.
Controls and Procedures
 
43
       
PART II.
OTHER INFORMATION
   
       
Item 1.
Legal Proceedings
 
44
       
Item 1A.
Risk Factors
 
45
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
45
       
Item 3.
Defaults Upon Senior Securities
 
45
       
Item 4.
Removed and Reserved
 
45
       
Item 5.
Other Information
 
45
       
Item 6.
Exhibits
 
46
       
Signatures
   
47

 
2

 

PART I
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

   
March 31,
   
December 31,
 
(In thousands, except share data)
 
2011
   
2010
 
Assets
           
Cash and due from banks
  $ 30,928     $ 24,643  
Short-term investments
    10,297       19,497  
Total cash and cash equivalents
    41,225       44,140  
                 
Trading security
    15,781       16,155  
Securities available for sale, at fair value
    315,333       310,242  
Securities held to maturity (fair values of $57,802 and $57,594)
    56,628       56,436  
Federal Home Loan Bank stock and other restricted securities
    23,120       23,120  
Total securities
    410,862       405,953  
                 
Loans held for sale
    142       1,043  
                 
Residential mortgages
    655,601       644,973  
Commercial mortgages
    924,311       925,573  
Commercial business loans
    288,375       286,087  
Consumer loans
    277,015       285,529  
Total loans
    2,145,302       2,142,162  
Less:  Allowance for loan losses
    (31,898 )     (31,898 )
Net loans
    2,113,404       2,110,264  
                 
Premises and equipment, net
    39,131       38,546  
Other real estate owned
    2,400       3,386  
Goodwill
    161,725       161,725  
Other intangible assets
    10,638       11,354  
Cash surrender value of bank-owned life insurance policies
    46,465       46,085  
Other assets
    59,122       58,220  
Total assets
  $ 2,885,114     $ 2,880,716  
                 
Liabilities
               
Demand deposits
  $ 283,526     $ 297,502  
NOW deposits
    217,776       212,143  
Money market deposits
    770,024       716,078  
Savings deposits
    229,528       237,594  
Time deposits
    740,195       741,124  
Total deposits
    2,241,049       2,204,441  
                 
Short-term debt
    15,480       47,030  
Long-term Federal Home Loan Bank advances
    197,922       197,807  
Junior subordinated debentures
    15,464       15,464  
Total borrowings
    228,866       260,301  
Other liabilities
    25,201       28,014  
Total liabilities
    2,495,116       2,492,756  
                 
Stockholders’ equity
               
Common stock ($.01 par value; 26,000,000 shares authorized; 15,848,825 shares issued and 14,114,874 shares outstanding in 2011; 15,848,825 shares issued and 14,076,148 shares outstanding in 2010)
    158       158  
Additional paid-in capital
    337,315       337,537  
Unearned compensation
    (2,561 )     (1,776 )
Retained earnings
    103,720       103,285  
Accumulated other comprehensive loss
    (4,888 )     (6,410 )
Treasury stock, at cost (1,733,951 shares in 2011 and 1,772,677 shares in 2010)
    (43,746 )     (44,834 )
Total stockholders' equity
    389,998       387,960  
Total liabilities and stockholders' equity
  $ 2,885,114     $ 2,880,716  

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

 
3

 

BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME

   
Three Months Ended
 
   
March 31,
 
(In thousands, except per share data)
 
2011
   
2010
 
Interest and dividend income
           
Loans
  $ 24,606     $ 23,947  
Securities and other
    3,307       3,535  
Total interest and dividend income
    27,913       27,482  
Interest expense
               
Deposits
    5,715       6,896  
Borrowings and junior subordinated debentures
    2,052       2,289  
Total interest expense
    7,767       9,185  
Net interest income
    20,146       18,297  
Non-interest income
               
Loan related fees
    591       956  
Deposit related fees
    2,541       2,460  
Insurance commissions and fees
    3,730       3,473  
Wealth management fees
    1,192       1,176  
Total fee income
    8,054       8,065  
Other
    448       433  
Total non-interest income
    8,502       8,498  
Total net revenue
    28,648       26,795  
Provision for loan losses
    1,600       2,326  
Non-interest expense
               
Compensation and benefits
    11,151       10,997  
Occupancy and equipment
    3,435       3,035  
Technology and communications
    1,466       1,383  
Marketing and professional services
    1,213       1,297  
Supplies, postage and delivery
    454       573  
FDIC premiums and assessments
    1,027       773  
Other real estate owned
    609       27  
Amortization of intangible assets
    716       768  
Non-recurring expenses
    1,708       21  
Other
    1,410       1,318  
Total non-interest expense
    23,189       20,192  
                 
Income before income taxes
    3,859       4,277  
Income tax expense
    1,061       941  
Net income
  $ 2,798     $ 3,336  
                 
Basic earnings per share
  $ 0.20     $ 0.24  
                 
Diluted earnings per share
  $ 0.20     $ 0.24  
                 
Weighted average shares outstanding:
               
Basic
    13,943       13,829  
Diluted
    13,981       13,858  

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

 
4

 

BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
                                       
Accumulated
             
                     
Additional
   
Unearned
         
other comp-
             
   
Common stock
   
Preferred
   
paid-in
   
compen-
   
Retained
   
rehensive
   
Treasury
       
(In thousands)
 
Shares
   
Amount
   
stock
   
capital
   
sation
   
earnings
   
(loss) income
   
stock
   
Total
 
             
Balance at December 31, 2009
    13,916     $ 158     $ -     $ 338,822     $ (1,318 )   $ 99,033     $ (2,968 )   $ (49,146 )   $ 384,581  
                                                                         
Comprehensive income:
                                                                       
Net income
    -       -       -       -       -       3,336       -       -       3,336  
Other net comprehensive loss
    -       -       -       -       -       -       (567 )     -       (567 )
Total comprehensive income
                                                                    2,769  
Cash dividends declared ($0.16 per share)
    -       -       -       -       -       (2,244 )     -       -       (2,244 )
Restricted stock grants
    123       -       -       (1,093 )     (2,036 )     -       -       3,129       -  
Stock-based compensation
    -       -       -       2       409       -       -       -       411  
Other, net
    (12 )     -       -       -       -       -       -       (196 )     (196 )
                                                                         
Balance at March 31, 2010
    14,027       158       -       337,731       (2,945 )     100,125       (3,535 )     (46,213 )     385,321  
                                                                         
Balance at December 31, 2010
    14,076       158       -       337,537       (1,776 )     103,285       (6,410 )     (44,834 )     387,960  
                                                                         
Comprehensive income:
                                                                       
Net income
    -       -       -       -       -       2,798       -       -       2,798  
Other net comprehensive income
    -       -       -       -       -       -       1,522       -       1,522  
Total comprehensive income
                                                                    4,320  
Cash dividends declared ($0.16 per share)
    -       -       -       -       -       (2,251 )     -       -       (2,251 )
Forfeited shares
    (7 )     -       -       3       167       -       -       (170 )     -  
Exercise of stock options
    13       -       -       -       -       (112 )     -       326       214  
Restricted stock grants
    55       -       -       (226 )     (1,159 )     -       -       1,385       -  
Stock-based compensation
    -       -       -       1       207       -       -       -       208  
Other, net
    (22 )     -       -       -       -       -       -       (453 )     (453 )
                                                                         
Balance at March 31, 2011
    14,115     $ 158     $ -     $ 337,315     $ (2,561 )   $ 103,720     $ (4,888 )   $ (43,746 )   $ 389,998  

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

 
5

 

BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months Ended March 31,
 
(In thousands)
 
2011
   
2010
 
Cash flows from operating activities:
           
Net income
  $ 2,798     $ 3,336  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    1,600       2,326  
Net amortization of securities
    340       673  
Change in unamortized net loan costs and premiums
    390       233  
Premises and equipment depreciation and amortization expense
    1,062       912  
Stock-based compensation expense
    208       411  
Amortization of intangible assets
    716       768  
Income from cash surrender value of bank-owned life insurance policies
    (380 )     (286 )
Net decrease in loans held for sale
    901       2,272  
Net change in other
    1,281       3,793  
Net cash provided by operating activities
    8,916       14,438  
                 
Cash flows from investing activities:
               
Trading account security:
               
Proceeds from maturities, calls and prepayments
    116       110  
Securities available for sale:
               
Sales
    -       3,159  
Proceeds from maturities, calls and prepayments
    40,355       24,389  
Purchases
    (44,772 )     (17,370 )
Securities held to maturity:
               
Proceeds from maturities, calls and prepayments
    2,105       6,304  
Purchases
    (2,296 )     (11,494 )
                 
Net investment in limited partnership tax credits
    (4,166 )     -  
Loan originations, net
    (5,044 )     (25,479 )
Proceeds from sale of other real estate
    382       -  
Proceeds from surrender of life insurance
    -       2,217  
Capital expenditures
    (1,647 )     (965 )
Net cash used by investing activities
    (14,967 )     (19,129 )
                 
Cash flows from financing activities:
               
Net increase in deposits
    36,608       50,531  
Proceeds from Federal Home Loan Bank advances and other borrowings
    15,480       44,130  
Repayments of Federal Home Loan Bank advances and other borrowings
    (46,915 )     (93,757 )
Net proceeds from reissuance of treasury stock
    214       -  
Common stock cash dividends paid
    (2,251 )     (2,244 )
Net cash provided (used) by financing activities
    3,136       (1,340 )
                 
Net change in cash and cash equivalents
    (2,915 )     (6,031 )
Cash and cash equivalents at beginning of period
    44,140       32,608  
Cash and cash equivalents at end of period
  $ 41,225     $ 26,577  
                 
Supplemental cash flow information:
               
Interest paid on deposits
    5,753       6,917  
Interest paid on borrowed funds
    2,052       2,316  
Income taxes paid, net
    55       2,209  
Transfers into other real estate owned
    -       3,250  

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

 
6

 

1.           GENERAL
 
Basis of presentation and consolidation
 
The consolidated financial statements (the “financial statements”) of Berkshire Hills Bancorp, Inc. (the “Company” or “Berkshire”) have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements, including year-end consolidated balance sheet data presented, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation are reflected in the interim financial statements and consist of normal recurring entries. These financial statements include the accounts of the Company and its wholly-owned subsidiaries, Berkshire Insurance Group, Inc. (“BIG”) and Berkshire Bank (the “Bank”), together with the Bank’s consolidated subsidiaries. One of the Bank’s consolidated subsidiaries is Berkshire Bank Municipal Bank, a New York chartered limited-purpose commercial bank. All significant inter-company transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results which may be expected for the year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Business
 
Through its wholly-owned subsidiaries, the Company provides a variety of financial services to individuals, businesses, not-for-profit organizations, and municipalities through its offices in western Massachusetts, southern Vermont and northeastern and central New York. The Company also provides asset-based middle-market commercial lending throughout New England and its New York markets.  Its primary deposit products are checking, NOW, money market, savings, and time deposit accounts.  Its primary lending products are residential mortgages, commercial mortgages, commercial business loans and consumer loans. The Company offers electronic banking, cash management, other transaction and reporting services and interest rate swap contracts to commercial customers. The Company offers wealth management services including trust, financial planning, and investment services. The Company is also an agent for complete lines of property and casualty, life, disability, and health insurance.
 
Business segments
 
An operating segment is a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance. 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 commercial and consumer banking services.  Insurance includes the activities of BIG and its subsidiaries, which provides commercial and consumer insurance services.  The only other consolidated financial activity of the Company consists of the transactions of its parent, Berkshire Hills Bancorp, Inc.

Use of estimates
 
In preparing the financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses; the valuation of deferred tax assets; the estimates related to the initial measurement of goodwill and intangible assets and subsequent impairment analyses; the determination of other-than-temporary impairment of securities; and the determination of fair value of financial instruments and subsequent impairment analysis.
 
 
7

 

Significant accounting policies
 
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in the 2010 Form 10-K.  The allowance for loan loss policy has since been refined and is described below:

Allowance for Loan Losses
 
The allowance for loan losses represents our estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. We establish the amount of the allowance for loan losses by analyzing the quality of the loan portfolio at least quarterly, and more often if deemed necessary.
 
We estimate the appropriate level of our allowance for loan losses by applying historical and industry loss rates to existing loans with similar risk characteristics. The loss rates used to establish the allowance are adjusted to reflect our current assessment of many factors, including:

 
·
State and local economic and business conditions;
 
·
Trends in past due and concentration of portfolio risk;
 
·
Experience, ability and depth of our lending management and staff;
 
·
Risk selection, lending policies and underwriting standards
 
·
Trends in portfolio mix, growth/concentration and types of products offered;
 
·
Banking industry conditions and other external factors.

For all TDR’s, regardless of size as well as, impaired loans having an outstanding balance greater than $150 thousand, we conduct further analysis to determine the probable amount of loss and assign a specific allowance to the loan, if deemed appropriate. We estimate the extent of impairment by comparing the carrying amount of the loan with the estimated present value of its future cash flows, the fair value of its underlying collateral or the loan’s observable market price. We may assign a specific allowance — even when sources of repayment appear sufficient — if we remain uncertain about whether the loan will be repaid in full.

In the first quarter of 2011, management made refinements to its allowance for loan loss methodology to better incorporate the Company’s internal risk ratings into a formula-based approach.  This refinement did not have a significant effect on the first quarter loan loss provision or the total allowance for loan loss.
 
8

 

The Company evaluates certain loans individually for specific impairment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Loans are selected for evaluation based upon a change in internal risk rating, occurrence of delinquency, loan classification, or non-accrual status. A specific allowance amount is allocated to an individual loan when such loan has been deemed impaired and when the amount of the probable loss is able to be estimated. Estimates of loss may be determined by the present value of anticipated future cash flows or the loan’s observable fair market value, or the fair value of the collateral, if the loan is collateral dependent. However, for collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible.

Large groups of small-balance homogeneous loans such as the residential mortgage, home equity and other consumer portfolios are collectively evaluated for impairment. As such, the Company does not typically identify individual loans within these groupings as impaired loans or for impairment evaluation and disclosure. The Company evaluates all TDRs for impairment on an individual loan basis regardless of loan type.

In the first quarter of 2011, management made refinements to its allowance for loan loss methodology to better incorporate the Company’s internal risk ratings into its formula-based approach. This refinement did not have a significant effect on the first quarter loan loss provision or the total allowance for loan loss.

Earnings Per Common Share
 
Earnings per common 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)
 
2011
   
2010
 
Net income
  $ 2,798     $ 3,336  
                 
Average number of shares outstanding
    14,105       13,989  
Less: average number of unvested stock award shares
    (162 )     (160 )
Average number of basic shares outstanding
    13,943       13,829  
                 
Plus: average number of dilutive unvested stock award shares
    34       16  
Plus: average number of dilutive stock options
    4       13  
Average number of diluted shares outstanding
    13,981       13,858  
                 
Basic earnings per share
  $ 0.20     $ 0.24  
Diluted earnings per share
  $ 0.20     $ 0.24  

For the quarter ended March 31, 2011, 129 thousand shares of restricted stock and 141 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. For the quarter ended March 31, 2010, 144 thousand shares of restricted stock and 257 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.
 
Recent accounting pronouncements
 
FASB ASU No. 2010-20, “Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. In July 2010, the FASB issued ASU 2010-20 which requires an entity to provide disclosures that facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s loan portfolio (2) how that risk is analyzed and assessed in arriving at the allowance for loan and lease losses and (3) the changes and reasons for those changes in the allowance for loan and lease losses. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this guidance resulted in significant additional loan disclosures included in Note 4.

 
9

 
 
FASB ASU No. 2010-29, “Business Combinations (Topic 805), Disclosure of Supplementary Pro Forma Information for Business Combinations”. In December 2010, the FASB issued ASU 2010-29 which clarifies the presentation of pro forma information required for business combinations when a public company presents comparative financial information. The amendments in this guidance are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this guidance will require additional disclosures.
 
FASB ASU No. 2011-02,A Creditor’s Determination of Whether Restructuring Is a Troubled Debt Restructuring”.  In April 2011, the FASB issued ASU 2011-02 which clarifies when a loan modification or restructuring is considered a troubled debt restructuring.  The guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption.  The adoption of this guidance could result in additional loans being classified as troubled debt restructurings and will require additional loan disclosures.

2.           TRADING ACCOUNT SECURITY
  
The Company holds a tax advantaged economic development bond that is being accounted for at fair value. The security had an amortized cost of $14.4 million and $14.6 million and a fair value of $15.8 million and $16.2 million at March 31, 2011 and December 31, 2010, respectively. As discussed further in Note 9-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, 2011.
 
 
10

 

3.           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, 2011
                       
Securities available for sale
                       
Debt securities:
                       
Municipal bonds and obligations
  $ 76,489     $ 1,451     $ (177 )   $ 77,763  
Government guaranteed residential mortgage-backed securities
    18,987       233       (10 )     19,210  
Government-sponsored residential mortgage-backed securities
    164,627       2,494       (602 )     166,519  
Corporate bonds
    9,004       25       (85 )     8,944  
Trust preferred securities
    22,192       678       (2,260 )     20,610  
Other bonds and obligations
    386       2       -       388  
Total debt securities
    291,685       4,883       (3,134 )     293,434  
Equity securities:
                               
Marketable equity securities
    18,662       3,237       -       21,899  
Total securities available for sale
    310,347       8,120       (3,134 )     315,333  
                                 
Securities held to maturity
                               
Municipal bonds and obligations
    7,498       -       -       7,498  
Government-sponsored residential mortgage-backed securities
    82       4       -       86  
Tax advantaged economic development bonds
    48,625       1,170       -       49,795  
Other bonds and obligations
    423       -       -       423  
Total securities held to maturity
    56,628       1,174       -       57,802  
                                 
Total
  $ 366,975     $ 9,294     $ (3,134 )   $ 373,135  
                                 
December 31, 2010
                               
Securities available for sale
                               
Debt securities:
                               
Municipal bonds and obligations
  $ 79,292     $ 1,008     $ (394 )   $ 79,906  
Government guaranteed residential mortgage-backed securities
    25,801       370       (7 )     26,164  
Government-sponsored residential mortgage-backed securities
    144,493       2,806       (580 )     146,719  
Corporate bonds
    18,307       73       (90 )     18,290  
Trust preferred  securities
    22,222       316       (2,683 )     19,855  
Other bonds and obligations
    402       2       (1 )     403  
Total debt securities
    290,517       4,575       (3,755 )     291,337  
Equity securities:
                               
Marketable equity securities
    15,756       3,217       (68 )     18,905  
Total securities available for sale
    306,273       7,792       (3,823 )     310,242  
                                 
Securities held to maturity
                               
Municipal bonds and obligations
    7,069       -       -       7,069  
Government-sponsored residential mortgage-backed securities
    83       3       -       86  
Tax advantaged economic development bonds
    48,861       1,155       -       50,016  
Other bonds and obligations
    423       -       -       423  
Total securities held to maturity
    56,436       1,158       -       57,594  
                                 
Total
  $ 362,709     $ 8,950     $ (3,823 )   $ 367,836  

 
11

 
 
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, 2011 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
  $ 5,756     $ 5,782     $ 4,602     $ 4,602  
Over 1 year to 5 years
    2,995       2,910       1,702       1,702  
Over 5 years to 10 years
    21,098       21,429       30,665       31,375  
Over 10 years
    78,222       77,584       19,577       20,037  
Total bonds and obligations
    108,071       107,705       56,546       57,716  
                                 
Marketable equity securities
    18,662       21,899       -       -  
Residential mortgage-backed securities
    183,614       185,729       82       86  
                                 
Total
  $ 310,347     $ 315,333     $ 56,628     $ 57,802  

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, 2011
                 
                                     
Securities available for sale
                                   
Debt securities:
                                   
Municipal bonds and obligations
  $ 111     $ 8,288     $ 66     $ 2,902     $ 177     $ 11,190  
Government guaranteed residential mortgage-backed securities
    10       4,955       -       -       10       4,955  
Government-sponsored residential mortgage-backed securities
    600       53,418       2       2,890       602       56,308  
Corporate bonds
    -       -       85       2,910       85       2,910  
Trust preferred securities
    -       -       2,260       3,382       2,260       3,382  
Other bonds and obligations
    -       -       -       304       -       304  
Total debt securities
    721       66,661       2,413       12,388       3,134       79,049  
                                                 
Marketable equity securities
    -       -       -       -       -       -  
Total securities available for sale
  721     $ 66,661     2,413     12,388     3,134     79,049  
                                                 
December 31, 2010
                                               
                                                 
Securities available for sale
                                               
Debt securities:
                                               
Municipal bonds and obligations
  $ 335     $ 15,630     $ 59     $ 1,195     $ 394     $ 16,825  
Government guaranteed residential mortgage-backed securities
    7       5,125       -       -       7       5,125  
Government-sponsored residential mortgage-backed securities
    580       54,056       -       -       580       54,056  
Corporate bonds
    15       1,985       75       2,920       90       4,905  
Trust preferred securities
    5       2,041       2,678       4,529       2,683       6,570  
Other bonds and obligations
    -       -       1       309       1       309  
Total debt securities
    942       78,837       2,813       8,953       3,755       87,790  
                                                 
Marketable equity securities
    -       -       68       1,432       68       1,432  
Total securities available for sale
  942     78,837     2,881     10,385     3,823     89,222  

 
12

 

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, 2011, 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 historical low portfolio sales. 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 portfolio were not other-than-temporarily impaired at March 31, 2011:

AFS municipal bonds and obligations

At March 31, 2011, 16 out of a total of 134 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 2% of the amortized cost of securities in unrealized loss positions. The securities are all investment grade rated, all insured except for one AAA bond, and all general obligation or water and sewer revenue bonds. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to have to the market.  At this time, the Company feels that the bonds in this portfolio carry minimal risk of default and that we are appropriately compensated for that risk.  There were no material underlying credit downgrades during 2011. All securities are performing.

AFS residential mortgage-backed securities

At March 31, 2011, 15 out of a total of 110 securities in the Company’s portfolio of AFS residential mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association (“GNMA”) guarantees the contractual cash flows of the Company’s AFS residential mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during 2011. All securities are performing.

AFS corporate bonds

At March 31, 2011, 1 out of a total of 4 securities in the Company’s portfolio of AFS corporate bonds was in an unrealized loss position. The aggregate unrealized loss represents 3% of the amortized cost. The security is investment grade rated, and there were no material underlying credit downgrades during 2011. The security is performing.

AFS trust preferred securities

At March 31, 2011, 3 out of 7 securities in the Company’s portfolio of AFS trust preferred securities were in unrealized loss positions. Aggregate unrealized losses represented 40% of the amortized cost of securities in unrealized loss positions. The Company’s evaluation of the present value of expected cash flows on these securities supports its conclusions about the recoverability of the securities’ amortized cost basis.  Except for the security discussed below, the aggregate unrealized loss on the other securities in unrealized loss positions represented less than 8% of their amortized cost.

At March 31, 2011, $2.0 million of the total unrealized losses was attributable to a $2.6 million investment in a Mezzanine Class B tranche of a $360 million pooled trust preferred security issued by banking and insurance entities.  The Company evaluated the security, with a Level 3 fair value of $0.6 million, for potential other-than-temporary impairment (“OTTI”) at March 31, 2011 and determined that OTTI was not evident based on both the Company’s more likely than not ability to hold the security until the recovery of its remaining amortized cost and the protection from credit loss afforded by $37 million in excess subordination above current and projected losses.

 
13

 

AFS other bonds and obligations

At March 31, 2011, 4 out of a total of 7 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of the securities in unrealized loss positions. The securities are investment grade rated and there were no material underlying credit downgrades during 2011. All securities are performing.

Marketable Equity Securities

In evaluating its marketable equity securities portfolio for OTTI, the Company considers its more likely than not 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 is recognized immediately through earnings.

At March 31, 2011, none of the 18 securities in the Company’s portfolio of marketable equity securities was in an unrealized loss position.
 
4.           LOANS
   
Loans consist of the following:

(In thousands)
 
March 31, 2011
   
December 31, 2010
 
             
Residential mortgages
           
1-4 family
  $ 629,302     $ 619,969  
Construction
    26,299       25,004  
Total residential mortgages
    655,601       644,973  
                 
Commercial mortgages:
               
Construction
    107,931       126,824  
Single and multifamily
    88,393       86,925  
Commercial real estate
    727,987       711,824  
Total commercial mortgages
    924,311       925,573  
                 
Commercial business loans
               
Asset based lending
    112,560       98,239  
Other commercial business loans
    175,815       187,848  
Total commercial business loans
    288,375       286,087  
                 
Total commercial loans
    1,212,686       1,211,660  
                 
Consumer loans:
               
Home equity
    225,857       226,458  
Other
    51,158       59,071  
Total consumer loans
    277,015       285,529  
                 
Total loans
  $ 2,145,302     $ 2,142,162  

 
14

 

The following is a summary of past due loans at March 31, 2011 and December 31, 2010:
 
(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, 2011
                                         
Residential mortgages:
                                         
1-4 family
  $ 1,763     $ 208     $ 3,368     $ 5,339     $ 623,963     $ 629,302     $ 1,971  
Construction
    -       -       132       132       26,167       26,299       -  
Total
    1,763       208       3,500       5,471       650,130       655,601       1,971  
Commercial mortgages:
                                                       
Construction
    1,595       -       3,237       4,832       103,099       107,931       -  
Single and multi-family
    133       196       770       1,099       87,294       88,393       88  
Commercial real estate
    1,428       5,981       5,710       13,119       714,868       727,987       119  
Total
    3,156       6,177       9,717       19,050       905,261       924,311       207  
                                                         
Commercial business loans - other
    334       353       1,508       2,195       286,180       288,375       1  
                                                         
Consumer loans:
                                                       
Home equity
    200       19       716       935       224,922       225,857       5  
Other
    419       52       216       687       50,471       51,158       164  
Total
    619       71       932       1,622       275,393       277,015       169  
Total
  $ 5,872     $ 6,809     $ 15,657     $ 28,338     $ 2,116,964     $ 2,145,302     $ 2,348  
 
               
Greater
                     
Past Due >
 
               
Than 90
                     
90 days
 
   
30-59 Days
   
60-89 Days
   
Days Past
   
Total Past
         
Total
   
and
 
(in thousands)
 
Past Due
   
Past Due
   
Due
   
Due
   
Current
   
Loans
   
Accruing
 
December 31, 2010
                                         
Residential mortgages:
                                         
1-4 family
  $ 2,103     $ 1,598     $ 1,936     $ 5,637     $ 614,332     $ 619,969     $ -  
Construction
    -       104       237       341       24,663       25,004       -  
Total
    2,103       1,702       2,173       5,978       638,995       644,973       -  
Commercial mortgages:
                                                       
Construction
    -       -       1,962       1,962       124,862       126,824       -  
Single and multi-family
    -       -       1,514       1,514       85,411       86,925       88  
Commercial real estate
    389       74       6,442       6,905       704,919       711,824       342  
Total
    389       74       9,918       10,381       915,192       925,573       430  
                                                         
Commercial business loans - other
    111       128       1,617       1,856       284,231       286,087       312  
                                                         
Consumer loans: