-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WLSJAfZp7vp5YOUu45XeKYVZIt8fMf42cOABVzmZQKaHnBDcZZPtogsgo6RiKFxE LcNu/7AX2f6LZDFWZZ9hHg== 0000914317-02-001381.txt : 20021114 0000914317-02-001381.hdr.sgml : 20021114 20021114095519 ACCESSION NUMBER: 0000914317-02-001381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKSHIRE HILLS BANCORP INC CENTRAL INDEX KEY: 0001108134 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 043510455 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15781 FILM NUMBER: 02822142 BUSINESS ADDRESS: STREET 1: 24 NORTH ST. CITY: PITTSFIELD STATE: MA ZIP: 01201 BUSINESS PHONE: 4134435601 MAIL ADDRESS: STREET 1: 24 NORTH ST CITY: PITTSFIELD STATE: MA ZIP: 01201 10-Q 1 form10q-47515.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 or [ ] 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 1-15781 BERKSHIRE HILLS BANCORP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-3510455 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 24 North Street, Pittsfield, Massachusetts 01201 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (413) 443-5601 - -------------------------------------------------------------------------------- (Issuer's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The Issuer had 6,110,227 shares of common stock, par value $0.01 per share, outstanding as of November 12, 2002. BERKSHIRE HILLS BANCORP, INC. FORM 10-Q INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Balance Sheets as of 1 September 30, 2002 and December 31, 2001 Consolidated Statements of Income for the Three and Nine 2 Months Ended September 30, 2002 and 2001 Consolidated Statements of Changes in Stockholders' Equity 3 for the Nine Months Ended September 30, 2002 and 2001 Consolidated Statements of Cash Flows for the 4 Nine Months Ended September 30, 2002 and 2001 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3. Qualitative and Quantitative Disclosures About Market Risk 17 Item 4. Controls and Procedures 19 PART II: OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K Signatures 21 Certifications 22 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS.
BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 2002 2001 ----------- ----------- (In thousands) Unaudited Assets: Cash and due from banks $ 24,320 $ 22,652 Short term investments 35,109 19,471 ----------- ----------- Total cash and cash equivalents 59,429 42,123 Securities available for sale, at fair value 131,147 104,446 Securities held to maturity, at amortized cost 42,040 33,263 Federal Home Loan Bank stock, at cost 7,440 7,027 Savings Bank Life Insurance stock, at cost 2,043 2,043 Loans 786,687 800,414 Loans held for sale, at lower of cost or fair value -- 2,540 Allowance for loan losses (10,676) (11,034) ----------- ----------- Net loans 776,011 791,920 Premises and equipment, net 13,478 14,213 Foreclosed real estate 2,000 -- Accrued interest receivable 5,479 5,873 Goodwill and other intangibles 10,068 10,592 Other assets 17,507 19,201 ----------- ----------- Total assets $ 1,066,642 $ 1,030,701 =========== =========== Liabilities and Stockholders' Equity: Deposits 774,721 742,729 Federal Home Loan Bank advances 146,947 133,964 Securities sold under agreements to repurchase 1,250 1,890 Net deferred tax liability 1,878 4,573 Accrued expenses and other liabilities 6,080 5,099 ----------- ----------- Total liabilities 930,876 888,255 ----------- ----------- Minority Interests 2,823 3,123 Stockholders' Equity: Preferred stock ($.01 par value; 1,000,000 shares authorized; None issued or outstanding) -- -- Common stock ( $.01 par value: 26,000,000 shares authorized; shares issued: 7,673,761 at September 30, 2002 and December 31, 2000; shares outstanding: 6,113,527 at September 30, 2002 and 6,425,140 at December 31, 2001) 77 77 Additional paid-in capital 74,524 74,146 Unearned compensation (9,927) (11,101) Retained earnings 84,652 80,657 Accumulated other comprehensive income 13,821 18,836 Treasury stock, at cost (1,560,234 shares at September 30, 2002 and 1,248,621 shares at December 31, 2001) (30,204) (23,292) ----------- ----------- Total stockholders' equity 132,943 139,323 ----------- ----------- Total liabilities and stockholders' equity $ 1,066,642 $ 1,030,701 =========== ===========
See accompanying notes to unaudited consolidated financial statements 1
BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Unaudited Unaudited Three Months Ended Nine Months Ended September 30, September 30, ---------------------- --------------------- 2002 2001 2002 2001 -------- -------- -------- ------- (In thousands, except per share amounts) Interest and dividend income: Bond interest $ 1,368 $ 1,286 $ 3,940 $ 4,250 Stock dividends 411 393 1,031 1,143 Short term investment interest 121 128 326 272 Loan interest 14,551 17,289 44,282 51,831 -------- -------- -------- ------- Total interest and dividend income 16,451 19,096 49,579 57,496 -------- -------- -------- ------- Interest expense: Interest on deposits 4,425 6,749 13,556 20,999 Interest on FHLB advances 1,463 1,703 4,307 5,077 Interest on securities sold under agreements to repurchase and other borrowings 4 11 18 251 -------- -------- -------- ------- Total interest expense 5,892 8,463 17,881 26,327 -------- -------- -------- ------- Net interest income 10,559 10,633 31,698 31,169 Provision for loan losses 1,050 945 3,875 2,625 -------- -------- -------- ------- Net interest income, after provision for loan losses 9,509 9,688 27,823 28,544 -------- -------- -------- ------- Noninterest income: Customer service fees 557 434 1,666 1,357 Trust department fees 411 428 1,365 1,303 Loan fees 79 235 394 486 Gain (loss) on securities, net (29) (11) (37) 266 License maintenance and processing fees 1,098 1,006 3,268 1,006 License sales and other fees 1,075 1,390 1,984 1,390 Other income 69 124 450 355 -------- -------- -------- ------- Total noninterest income 3,260 3,606 9,090 6,163 -------- -------- -------- ------- Operating expenses: Salaries and benefits 5,411 5,063 16,261 12,665 Occupancy and equipment 1,236 1,291 3,932 3,332 Marketing and advertising 177 120 389 409 Data processing 148 424 494 864 Professional services 337 429 942 859 Office supplies 154 162 531 682 Foreclosed real estate and other loans, net 581 604 1,822 1,840 Amortization of other intangibles 175 196 524 445 Minority Interests (43) 29 (300) 29 Other expenses 1,268 1,111 3,343 2,879 -------- -------- -------- ------- Total operating expenses 9,444 9,429 27,938 24,004 -------- -------- -------- ------- Income before taxes 3,325 3,865 8,975 10,703 Provision for income taxes 1,081 1,258 2,917 3,511 -------- -------- -------- ------- Net income $ 2,244 $ 2,607 $ 6,058 $ 7,192 ======== ======== ======== ======= Earnings per share: Basic $ 0.42 $ 0.42 $ 1.11 $ 1.12 Diluted $ 0.38 $ 0.40 $ 1.03 $ 1.06 Weighted average shares outstanding: Basic 5,378 6,196 5,457 6,432 Diluted 5,850 6,568 5,907 6,755
See accompanying notes to unaudited consolidated financial statements 2
BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 UNAUDITED Accumulated Additional Other Common Paid-in Unearned Retained Comprehensive Treasury Stock Capital Compensation Earnings Income Stock Total -------- -------- ------------ -------- ------- -------- -------- (In thousands) Balance at December 31, 2000 $ 77 $ 74,054 $ (7,187) $ 74,554 $19,824 $ -- $161,322 Comprehensive income : Net income -- -- -- 7,192 -- -- 7,192 Change in net unrealized gain on securities available for sale, net of re-classification adjustments and tax effects -- -- -- -- (1,729) -- (1,729) -------- Total comprehensive income -- -- -- -- -- -- 5,463 Cash dividends declared -- -- -- (2,147) -- -- (2,147) Treasury stock purchased -- -- -- -- -- (15,428) (15,428) Purchase of common stock - MRP -- -- (5,453) -- -- -- (5,453) Change in unearned compensation - MRP -- -- 727 -- -- -- 727 Change in unearned compensation - ESOP -- 167 411 -- -- -- 578 -------- -------- -------- -------- ------- -------- -------- Balance at September 30, 2001 $ 77 $ 74,221 $(11,502) $ 79,599 $18,095 $(15,428) $145,062 ======== ======== ======== ======== ======= ======== ======== Balance at December 31, 2001 $ 77 $ 74,146 $(11,101) $ 80,657 $18,836 $(23,292) $139,323 Comprehensive income: Net Income -- -- -- 6,058 -- -- 6,058 Change in net unrealized gain on securities available for sale, net of re-classification adjustments and tax effects -- -- -- -- (5,015) -- (5,015) -------- Total comprehensive income 1,043 Cash dividends declared ($.36 per share) -- -- -- (2,063) -- -- (2,063) Treasury stock purchased -- -- -- -- -- (6,912) (6,912) Change in unearned compensation - MRP -- 74 818 -- -- -- 892 Change in unearned compensation - ESOP -- 304 356 -- -- -- 660 -------- -------- -------- -------- ------- -------- -------- Balance at September 30, 2002 $ 77 $ 74,524 $ (9,927) $ 84,652 $13,821 $(30,204) $132,943 ======== ======== ======== ======== ======= ======== ========
See accompanying notes to unaudited consolidated financial statements. 3
BERKSHIRE HILLS BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Nine Months Ended September 30, -------------------------- 2002 2001 --------- -------- (In thousands) Cash flows from operating activities: Net income $ 6,058 $ 7,192 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,875 2,625 Net amortization of securities 593 131 Depreciation and amortization expense 1,797 1,441 Amortization of other intangibles 524 445 Management Rewards Plan Expense 892 727 ESOP Plan Expense 660 578 Gain on sales and dispositions of securities, net (310) (266) Loss on impairment of securities 347 -- Loss on sale of equipment -- 35 Deferred tax provision -- 9 Net change in loans held for sale -- (1,265) Minority interest (300) 29 Changes in operating assets and liabilities: Accrued interest receivable and other assets 2,088 395 Accrued expenses and other liabilities 981 2,250 --------- -------- Net cash provided by operating activities 17,205 14,326 --------- -------- Cash flows from investing activities: Activity in available for sale securities: Sales 9,067 8,315 Maturities 43,123 22,369 Principal payments 17,963 11,280 Purchases (105,046) (38,624) Activity in held to maturity securities: Maturities 9,431 11,597 Principal payments 17,693 16,462 Purchases (36,049) (23,130) Purchase of Federal Home Loan Bank stock (413) (1,376) Loan originations, net of principal payments 10,034 (23,613) Additions to banking premises and equipment (1,062) (1,836) Proceeds from sales of foreclosed real estate -- 76 Proceeds from sale of equipment -- 20 Payment for purchase of EastPoint Technologies, LLC -- (7,300) --------- -------- Net cash used by investing activities (35,259) (25,760) --------- --------
(continued) 4
BERKSHIRE HILLS BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded) Unaudited Nine Months Ended September 30, -------------------------- 2002 2001 -------- --------- (In thousands) Cash flows from financing activities: Net increase in deposits $ 31,992 $ 14,298 Net decrease in securities sold under agreements to repurchase (640) (180) Proceeds from Federal Home Loan Bank advances with maturities in excess of three months 75,172 122,000 Repayments of Federal Home Loan Bank advances with maturities in excess of three months (62,189) (87,516) Proceeds of borrowings with maturities of three months or less, net of Repayments -- -- Net decrease in loans sold with recourse -- (7,740) Treasury stock purchased (6,912) (15,428) Purchase of common stock in connection with employee and non-employee directors benefit programs -- (5,453) Dividends paid (2,063) (2,147) -------- --------- Net cash provided by financing activities 35,360 17,834 -------- --------- Net change in cash and cash equivalents 17,306 6,400 Cash and cash equivalents at beginning of period 42,123 43,612 -------- --------- Cash and cash equivalents at end of period $ 59,429 $ 50,012 ======== ========= Supplemental cash flow information: Interest paid on deposits $ 13,551 $ 21,060 Interest paid on borrowed funds 4,352 5,146 Income taxes paid 1,675 2,316 Transfers from loans to foreclosed real estate 2,000 26
See accompanying notes to unaudited consolidated financial statements. 5 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2002 and 2001 (Unaudited) Note 1. Basis of Presentation - ----------------------------- The consolidated interim financial statements of Berkshire Hills Bancorp, Inc. ("Berkshire Hills" or the "Company") and its wholly owned subsidiaries, Berkshire Bank (the "Bank"), Berkshire Hills Funding Corp., and Berkshire Hills Technology, Inc. herein presented are intended to be read in conjunction with the consolidated financial statements presented in the Company's most recent Securities and Exchange Commission Form 10-K and accompanying notes to the Consolidated Financial Statements filed by the Company for the year ended December 31, 2001. The consolidated financial information at September 30, 2002 and for the three and nine month periods ended September 30, 2002 and 2001 are derived from unaudited consolidated financial statements but, in the opinion of management, reflect all adjustments necessary to present fairly the results for these interim periods in accordance with accounting principles generally accepted in the United States of America. These adjustments consist only of normal recurring adjustments. The interim results are not necessarily indicative of the results of operations that may be expected for the entire year. Note 2. Commitments - ------------------- At September 30, 2002, the Company had outstanding commitments to originate new residential and commercial loans totaling $27.0 million, which are not reflected on the consolidated balance sheet. In addition, unadvanced funds on home equity lines totaled $40.6 million and unadvanced commercial lines, including unadvanced construction loan funds, totaled $62.3 million. The Company anticipates it will have sufficient funds to meet these commitments. Note 3. Earnings Per Share - -------------------------- Basic earnings per share represents net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if potential dilutive shares, such as stock options, had been issued. Unallocated shares of common stock held by the Bank's employee stock ownership plan (the "ESOP") are not included in the weighted average number of common shares outstanding for either basic or diluted earnings per share calculations. Earnings per share data is presented for the three and nine months ended September 30, 2002 and 2001, respectively. Basic earnings per share equaled $0.42 for the quarter ending September 30, 2002, based on 5,378,371 average shares outstanding as compared to $0.42 for the quarter ending September 30, 2001 based on 6,196,013 average shares outstanding. Diluted earnings per share equaled $0.38 for the quarter ending September 30, 2002, based on 5,849,618 average shares outstanding as compared to $0.40 for the quarter ending September 30, 2001 based on 6,567,976 average shares outstanding. Basic and diluted earnings per share for the nine months ending September 30, 2002 were $1.11 and $1.03 respectively, based on 5,457,271 average shares outstanding and 5,907,230 average shares outstanding, respectively. This compares to basic and diluted earnings per share for the nine months ended September 30, 2001 of $1.12 and $1.06 respectively, based on 6,432,179 average shares outstanding and 6,754,663 average shares outstanding, respectively. Note 4. Book Value - ------------------ The book value per share of Berkshire Hills' common stock at September 30, 2002 was $21.75, based on total equity of $132.9 million and outstanding shares of 6,113,527. The book value at December 31, 2001 was $21.68 based on total equity of $139.3 million and total outstanding shares of 6,425,140. 6 Note 5. Dividend - ----------------- On July 24, 2002, the Company's Board of Directors approved the payment of a cash dividend of $0.12 per share, payable on August 23, 2002, to stockholders of record on August 8, 2002. Note 6. Stock Repurchase Program - -------------------------------- During the third quarter of 2002, the Company continued its fifth 5% stock repurchase program purchasing 28,200 shares at a cost of $618,000. The Company has 172,416 shares available for repurchase under this program. The Company has repurchased 311,613 shares at a cost of $6.9 million during 2002. Note 7. Recent Accounting Pronouncements - ------------------------------------------ On June 30, 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. With the adoption of SFAS No. 142, effective January 1, 2001, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value based test. Additionally, under SFAS No. 142, acquired intangible assets should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of intent to do so. As a result of the Company's investment in EastPoint Technologies, LLC, $4.3 million of goodwill was recorded on the books of the Company. An annual evaluation of this goodwill was completed in June 2002 and resulted in no impairment in 2002, as of the evaluation date. Note 8. Real Estate Investment Trust (REIT) - --------------------------------------------- Berkshire Hills established a real estate investment trust (REIT) in the second quarter of 2001. As a result of its operations, the Company was able to reduce its tax obligations by an estimated $205,000 in the third quarter of 2002 and $346,000 for the first nine months of 2002. Similarly, for the year ended December 31, 2001, it is estimated the operations of the REIT reduced the Company's net tax liability by $494,000. Recently, the Massachusetts Department of Revenue has questioned the applicability of allowing a deduction on dividends upstreamed from a bank-established REIT to a parent company. While the ultimate resolution of the matter is uncertain and no assurances can be made that such deductions will be deemed to be appropriate for state tax purposes, the Company believes the deductions it has taken to date are appropriate and thus has not taken any provision in its financial statements for any amounts that the Department of Revenue may assess in the future. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following analysis discusses changes in the financial condition and results of operations at and for the three and nine months ended September 30, 2002 and 2001, and should be read in conjunction with Berkshire Hills Bancorp, Inc.'s Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document. Forward Looking Statements This report contains forward looking statements that are based on assumptions and may describe future plans, strategies, and expectations of Berkshire Hills and Berkshire Bank. These forward looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. Berkshire Hills' and Berkshire Bank's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of Berkshire Hills and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in Berkshire Hills' and Berkshire Bank's market area, changes in real estate market values in Berkshire Hills' and Berkshire Bank's market area, and changes in relevant accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Berkshire Hills does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events. General Berkshire Hills is a Delaware corporation and the holding company for Berkshire Bank, a state-chartered savings bank headquartered in Pittsfield, Massachusetts. Established in 1846, Berkshire Bank is one of Massachusetts' oldest and largest independent banks. With eleven full service branch offices serving communities throughout Berkshire County, Berkshire Bank is the largest banking institution based in Western Massachusetts. The Bank is a community-based financial institution that originates a variety of loan products including real estate loans, commercial loans, and consumer loans primarily in Berkshire County, Massachusetts and its surrounding areas. The Bank offers a wide variety of deposit products and other investment products and financial services to its customers, including asset management and trust services. Berkshire Hills, through its wholly owned subsidiary Berkshire Hills Technology, Inc., owns a 60.3% interest in EastPoint Technologies, LLC ("EastPoint"), a data and financial services provider for financial institutions. Recent Developments On October 17, 2002, Berkshire Hills announced that Michael P. Daly, who previously served as Executive Vice President of the Company and the Bank, was appointed to serve as President, Chief Executive Officer and a Director of the Company and the Bank and that Lawrence A. Bossidy was appointed as Non-Executive Chairman of the Board of Directors of the Company. On October 17, 2002, the Company also announced that James A. Cunningham, Jr. resigned as President, Chief Executive Officer and a Director of the Company and the Bank, effective October 16, 2002. In connection with his resignation, the Company, the Bank and Mr. Cunningham entered into a severance agreement to resolve the obligation owed Mr. Cunningham under his existing employment agreements which provided severance payments and benefits. Such severance agreement also provides the Company and Bank with a release from certain other claims related to Mr. Cunningham's employment and impose certain restrictions on him, including non-competition and confidentiality requirements.The Company expects to incur a $2.4 million (after-tax) charge in the fourth quarter in connection with the severance agreement. Berkshire Hills named Michael J. Ferry as Senior Vice President of Commercial Lending of Berkshire Bank and Linda A. Johnston had been named Senior Vice President of Human Resources of Berkshire Bank. Mr. Ferry and Ms. Johnston had each previously served as a vice president of Berkshire Bank. Additionally, Berkshire Hills announced that the responsibilities of Gayle P. Fawcett, Senior Vice President of Systems and Operations, had been expanded to include oversight over branch administration, marketing and facilities. The individuals listed above have assumed the responsibilities of Susan M. Santora, Executive Vice President of Berkshire Hills and Berkshire Bank, who will resign effective November 15, 2002, and John A. Davidson, Senior Vice President of Berkshire Bank, who will resign effective December 20, 2002. Additionally, Charles F. Plungis, Jr., Senior Vice President, Treasurer and Chief Financial Officer of Berkshire Hills and Berkshire Bank, will be resigning effective upon the earlier of February 28, 2003 or as Berkshire Hills and Berkshire Bank may determine to be appropriate after the fiscal year-end reporting is completed. Berkshire Hills and Berkshire Bank entered into severance agreements with such departing officers to resolve obligations owed under existing employment agreements or change-in-control agreements which provided severance payments and benefits to such officers. Such severance agreements also provide the Company and Bank with a release from certain other claims related to their employment and impose certain restrictions on such individuals, including non-competition and confidentiality requirements. Berkshire Hills expects to incur an after-tax charge of approximately $2.0 million in the fourth quarter in connection with these severance agreements. Comparison of Financial Condition at September 30, 2002 and December 31, 2001 Total assets at September 30, 2002 were $1.07 billion, an increase of $35.9 million, or 3.5%, from $1.03 billion at December 31, 2001. Securities, including Federal Home Loan Bank stock and Savings Bank Life Insurance stock, totaled $182.7 million at September 30, 2002, a $35.9 million, or 24.4%, increase from $146.8 million at December 31, 2001. Short-term investments increased $15.6 million, or 80.3%, to $35.1 million at September 30, 2002. A $16.3 million, or 2.0%, decrease in loans outstanding, which totaled $786.7 million at September 30, 2002, as well as a $32.0 million increase in deposits to $774.7 million at 8 September 30, 2002 and a $13.0 million increase in Federal Home Loan Bank advances, which totaled $146.9 million at September 30, 2002, funded the securities and short term investments increases. Loans Total loans outstanding decreased $16.3 million, or 2.0%, to $786.7 million during the first nine months of 2002. The lower total outstanding was due to a decrease in sub-prime automobile loans resulting from the Company's strategy to exit the sub-prime automobile loan business and lower balances in the commercial land development and construction loan category outpaced increases in the commercial real estate and residential land development and construction loan portfolios. The consumer loan portfolio fell $30.1 million, or 11.1%, to $241.0 million at September 30, 2002. The automobile loan portion of the portfolio decreased by $29.0 million during the first nine months of 2002 and comprised 23.78% of total loans outstanding at September 30, 2002 down from 26.90% at December 31, 2001. The Company has decided to exit the sub-prime automobile loan business by allowing its existing sub-prime automobile loans to pay down and by discontinuing the origination of new sub-prime loans. In implementing this strategy during the first nine months of 2002, the Company saw its sub-prime automobile loans fall from $113.9 million at December 31, 2001 to $88.2 million at September 30, 2002. It is estimated that the balance of sub-prime automobile loans held by the Company on December 31, 2002 will be approximately $79.0 million. Residential one-to four-family loans declined $2.9 million to $226.5 million at September 30, 2002 as mortgage originations did not fully offset monthly amortization and prepayments. Residential land development and construction loans increased $3.8 million, or 107.4%, to $7.4 million reflecting a strong local new housing market. Commercial land development and construction loans decreased by $9.5 million as several large projects converted to permanent financing. The conversion of these loans as well as the origination of $12.0 million in net new business resulted in a $21.5 million, or 25.5%, increase in commercial real estate loans.
At September 30, 2002 At December 31, 2001 ---------------------- ----------------------- Percent Percent Balance of total Balance of total ----------- -------- ----------- --------- (Dollars in thousands) Real estate loans: Residential one-to four-family $ 226,525 28.81% $ 229,432 28.57% Residential land development and construction 7,434 0.94% 3,585 0.45% Commercial one-to four-family 10,768 1.37% 11,517 1.43% Commercial real estate 106,074 13.48% 84,538 10.53% Commercial land development and construction 9,832 1.25% 19,351 2.41% Multi-family 14,973 1.90% 13,183 1.64% ----------- -------- ----------- --------- Total real estate loans 375,606 47.75% 361,606 45.03% Commercial loans 170,130 21.62% 170,305 21.21% Consumer loans: Automobile 187,025 23.78% 216,026 26.90% Home equity loans 38,645 4.91% 34,439 4.30% Other 15,281 1.94% 20,578 2.56% ----------- -------- ----------- --------- Total consumer loans 240,951 30.63% 271,043 33.76% Total loans 786,687 802,954 Less: Allowance for loan losses (10,676) 1.36% (11,034) 1.37% ----------- ----------- Loans, net $ 776,011 $ 791,920 =========== ===========
9 Allowance for Loan Losses All banks that manage loan portfolios will experience losses to varying degrees. The allowance for loan losses is the amount available to absorb these losses and represents management's evaluation of the risks inherent in the portfolio including the collectibility of the loans, changing collateral values, past loan loss history, specific borrower situations, and general economic conditions. Management continually assesses the adequacy of the allowance for loan losses and makes monthly provisions in an amount considered adequate to cover losses in the loan portfolio. Because future events affecting the loan portfolio cannot be predicted with complete accuracy, there can be no assurances that management's estimates are correct and that the existing allowance for loan losses is adequate. However, management believes that based on the information available to it on September 30, 2002, the Company's allowance for loan losses is sufficient to cover losses inherent in the Company's current loan portfolio. The allowance consists of allocated, general and unallocated components. The allocated component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors such as the credit history and credit quality of the borrower, the type and geographic concentration of loans in the portfolio, and the local economic environment. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating losses in the portfolio. On September 30, 2002, the allowance for loan losses totaled $10.7 million, or 1.36% of total loans outstanding, as compared to $11.0 million, or 1.37% of total loans outstanding, at December 31, 2001. Charged-off loans totaled $6.8 million during the first nine months this year as compared to $2.6 million last year primarily due to continued weakness in the indirect automobile portfolio and the institution of a new, more aggressive policy in the fourth quarter of 2001 regarding the charge-off of automobile loans. Under the new policy, all delinquent automobile loans remain on accrual status until they are 120 days past due at which time they are charged off, except for loans to customers in bankruptcy proceedings, which are transferred to nonaccrual status. In addition, two commercial real estate loans totaling $510,000 were charged off in the first nine months of 2002 versus none last year. Recoveries totaled $2.6 million for the nine months this year as compared to $591,000 for the nine months last year, an increase of $2.0 million, as the Company aggressively pursued the collection of previously charged-off loans. On September 30, 2002, the allowance expressed as a percentage of nonperforming loans was 424.66% while on September 30, 2001 it was 179.58%. 10 The following table sets forth information regarding the allowance for loan losses for the nine month periods ended September 30, 2002 and 2001.
Nine Months Ended ------------------------------------------ September 30, 2002 September 30, 2001 ------------------ ------------------- (Dollars in thousands) Allowance for loan losses, beginning of period $11,034 $10,216 Charge-offs: Residential one-to four-family -- 33 Residential land development and construction -- -- Commercial one-to four-family -- -- Commercial real estate 510 -- Commercial land development and construction -- -- Multi-family -- -- Commercial 204 139 Consumer (1) 6,115 2,419 ------- ------- Total charge-offs 6,829 2,591 ------- ------- Recoveries: Residential one-to four-family -- -- Residential land development and construction -- -- Commercial one-to four-family -- -- Commercial real estate -- -- Commercial land development and construction -- -- Multi-family -- -- Commercial 133 225 Consumer (1) 2,463 366 ------- ------- Total recoveries 2,596 591 ------- ------- Net charge offs 4,233 2,000 Provision 3,875 2,625 ------- ------- Allowance for loan losses, end of period $10,676 $10,841 ======= ======= Net loans charged-off to total loans 0.54% 0.24% Allowance for loan losses to total loans 1.36% 1.33% Allowance for loan losses to nonperforming loans 424.66% 179.58% Recoveries to charge-offs 38.01% 22.81% (1) Consists primarily of automobile loans
11 Nonperforming Assets The following table sets forth information regarding nonperforming assets as of September 30, 2002 and December 31, 2001.
At September 30, 2002 At December 31, 2001 --------------------- --------------------- (Dollars in thousands) Nonaccruing loans: Residential one-to four-family $ 166 $ 250 Residential land development and construction -- -- Commercial one-to four-family -- 60 Commercial real estate -- -- Commercial land development and construction -- -- Multi-family -- -- Commercial 1,490 2,077 Automobile 858 315 Home equity -- -- Other consumer -- -- ------ ------ Total 2,514 2,702 ------ ------ Other real estate owned 2,000 -- ------ ------ Total nonperforming assets $4,514 $2,702 ====== ====== Total nonperforming loans to total loans 0.32% 0.34% Total nonperforming assets to total assets 0.42% 0.26%
Generally, the Company ceases accruing interest on all loans when principal or interest payments are 90 days or more past due unless management determines the principal and interest to be fully secured and in the process of collection. Once management determines that interest is uncollectible and ceases accruing interest on a loan, all previously accrued interest is reversed against current interest income. However, in the last quarter of 2001, the Company initiated a new policy for automobile loans whereby all delinquent automobile loans remain on accrual status until they are 120 days past due at which time they are charged off, except for loans to customers in bankruptcy proceedings, which are transferred to nonaccrual status. At September 30, 2002, the Company had $1.2 million in automobile loans that were 90 days past due and still accruing as compared to $1.3 million at December 31, 2001. Total nonaccruing loans amounted to $2.5 million, a decrease of $188,000, or 7.0%, from $2.7 million at December 31, 2001. This decrease was due to the decrease in commercial nonaccruing loans, which declined to $1.5 million at September 30, 2002 from $2.1 million at December 31, 2001 as collections more than offset new loans added to the commercial nonaccruing totals. Partially offsetting this decrease was an increase in automobile nonaccruing loans of $543,000 as all previous nonaccural automobile loans remain on nonaccrual until such loans are current for a period of six months. The ratio of nonperforming loans as a percentage of total loans decreased to 0.32% at September 30, 2002 from 0.34% as of December 31, 2001. Foreclosed real estate was $2.0 million at September 30, 2002 versus zero at December 31, 2001 as the Company took possession of one commercial property. Investment Securities Securities, including Federal Home Loan Bank stock and Savings Bank Life Insurance stock, totaled $182.7 million at September 30, 2002, a $35.9 million, or 24.4%, increase from $146.8 million at December 31, 2001. This increase was primarily due to an increase in investments in callable agency securities with final maturities of five years or less. The net unrealized gain in the portfolio decreased by $5.0 million from December 31, 2001 to $13.8 million due to this year's decline in equity prices. This change was recognized in accumulated other comprehensive income on the consolidated statement of changes in stockholders' equity. 12 Miscellaneous Assets Miscellaneous assets, which include premises and equipment, foreclosed real estate, accrued interest receivable, goodwill and other intangibles, and other assets, totaled $48.5 million at September 30, 2002, a decrease of $1.3 million, or 2.7%, from $49.9 million at December 31, 2001. The decrease in miscellaneous assets was primarily due to a $477,000 decrease in repossessed automobiles from December 31, 2001, as repossessed automobiles totaled $2.1 million at September 30, 2002 and a $524,000 decrease in other intangible assets due to normal amortization. Deposits Customers' deposits are the primary funding vehicle for the Company's asset base. The following table sets forth the Company's deposit stratification as of September 30, 2002 and December 31, 2001.
At September 30, 2002 At December 31, 2001 --------------------------- --------------------------- Percent Percent Balance of deposits Balance of deposits ----------- ----------- ----------- ----------- (Dollars in thousands) Demand deposits $84,829 10.95% $82,758 11.14% NOW accounts 84,208 10.87% 80,970 10.90% Savings accounts 158,510 20.46% 151,565 20.41% Money market accounts 117,002 15.10% 110,199 14.84% Certificates of deposit 330,172 42.62% 317,237 42.71% ----------- ----------- Total deposits $ 774,721 $ 742,729 =========== ===========
Total deposits were $774.7 million on September 30, 2002, an increase of $32.0 million for the first nine months of the year as deposits rebounded well in the second and third quarters from a seasonally slow first quarter. Certificates of deposit and savings accounts increased $19.9 million from December 31, 2001 while demand deposit accounts increased $2.1 million. Money market and NOW accounts increased $10.0 million. Core deposits, which the Company considers to be all but certificates of deposit, were 57.4% of total deposits on September 30, 2002 as compared to 57.3% on December 31, 2001. Borrowings Borrowings from the Federal Home Loan Bank of Boston totaled $146.9 million at September 30, 2002, a $13.0 million, or 9.7%, increase from $134.0 million at December 31, 2001, as the Company has looked to extend maturities and take advantage of low cost funds. The Company's borrowing capacity at the Federal Home Loan Bank of Boston is in excess of $175 million. Stockholders' Equity At September 30, 2002, the Company had $132.9 million in stockholders' equity compared to $139.3 million at December 31, 2001. The decrease was primarily due to the purchase of 311,613 shares of the Company's common stock under this year's repurchase programs at a cost of $6.9 million. The Company also declared and paid cash dividends of $0.36 per common share amounting to $2.1 million during the first nine months of 2002. The net unrealized gain in the securities portfolio decreased by $5.0 million from December 31, 2001 to $13.8 million. This change was recognized in accumulated other comprehensive income on the consolidated statement of changes in stockholders' equity. Partially offsetting these decreases in stockholders' equity was net income of $6.1 million. Comparison of Operating Results for the Three Months Ended September 30, 2002 and 2001 Net Interest Income. Net interest income is the largest component of the Company's revenue stream and is the difference between the interest and dividends earned on the loan and investment portfolios and the interest paid on the Company's funding sources, primarily customer deposits and advances from the Federal Home Loan Bank of Boston. Net interest income, before the provision for loan losses, decreased $74,000, or 0.7%, to $10.6 million for the third quarter of 2002. The Company's net interest margin was 4.21% for the quarter ended September 30, 2002 compared to 4.36% for the same quarter last year as customers refinanced loans at lower rates and pay downs for higher rate automobile and other loans were reinvested in lower yielding securities. 13 Total interest and dividend income decreased $2.6 million, or 13.9%, to $16.5 million for the third quarter of 2002 as compared to the same period last year. Loan interest dropped to $14.6 million in the current quarter, a decrease of $2.7 million, or 15.8%, due to lower average loan balances compared to the third quarter last year and due to lower yields as rates have remained at levels below those experienced in 2001. Total interest expense fell $2.6 million, or 30.4%, to $5.9 million for the third quarter due to lower rates paid on all interest-bearing liabilities. Deposit expense fell by $2.3 million for the third quarter of 2002 to $4.4 million while interest on FHLB advances decreased $240,000 to $1.5 million from $1.7 million last year as lower rates paid on new borrowings replaced higher cost advances. The Company's provision for loan losses was $1.1 million in the third quarter of this year as compared to $945,000 in the same quarter last year. In assessing the provision for the third quarter of 2002, management took into consideration a $14.6 million increase in commercial loans from the third quarter of last year. This increase in commercial loans directly resulted in a $714,000 increase in the commercial loan reserve requirement. However, this increase in reserve requirement was more than offset by a $1.3 million decrease in the consumer loan reserve requirement as consumer loan balances dropped $40.5 million to $241.0 million at September 30, 2002 from $281.4 million at September 30, 2001. The Company also looks closely at loan charge-offs, which increased $738,000 to $1.8 million in the third quarter of this year from $1.1 million last year. Foremost in this increase was consumer loan charge-offs which rose $723,000 to $1.7 million at September 30, 2002 from $965,000 at September 30, 2001. In establishing the provision for loan losses, the Company also examined nonperforming loans which decreased significantly, from $6.0 million at September 30, 2001 to $2.5 million at September 30, 2002. The Company also evaluates current recoveries and the likelihood for recoveries of previously charged-off loans, among other items. After the provision for loan losses, net interest income was $9.5 million for the quarter ending September 30, 2002, as compared to $9.7 million for the same period last year, a decrease of $179,000, or 1.8%. Noninterest Income. For the three months ended September 30, 2002, noninterest income totaled $3.3 million, a decrease of $346,000 from the same quarter last year. A large one-time incremental license fee earned by EastPoint of $1.1 million inflated last year's total. Excluding that $1.1 million fee, revenues for EastPoint were $2.2 million for the three months ended September 30, 2002 compared to $1.3 million for the three months ended September 30, 2001. Higher ATM and debit card usage helped produce an increase of $123,000 to $557,000 in 2002's third quarter customer service fees. However, loan fees dropped $156,000 to $79,000 as the Company decided earlier this year to retain in portfolio all loans that it originates and thus is now servicing fewer loans. Noninterest Expenses. Noninterest (operating) expenses amounted to $9.4 million for the three months ending September 30, 2002, an increase of only $15,000 from last year's third quarter totals. Salaries and benefits expense rose $348,000, or 6.9%, to $5.4 million in the third quarter of this year from $5.1 million in the third quarter of last year. However, this increase was partially offset by a $276,000 decrease in data processing expenses as a switch in ATM network vendors resulted in lower operating costs for the third quarter this year. The data processing expense for the third quarter of last year included $173,000 in nonrecurring costs. In addition, professional services fees decreased $92,000. Income Taxes. Income taxes were $1.1 million in this year's third quarter with an effective tax rate of 32.5%, the same tax rate as the third quarter last year. Berkshire Hills established a real estate investment trust (REIT) in the second quarter of 2001. As a result of its operations, the Company was able to reduce its tax obligations by an estimated $205,000 in the third quarter of 2002 and $346,000 for the first nine months of 2002. Similarly, for the year ended December 31, 2001, it is estimated the operations of the REIT reduced the Company's net tax liability by $494,000. Recently, the Massachusetts Department of Revenue has questioned the applicability of allowing a deduction on dividends upstreamed from a bank-established REIT to a parent company. While the ultimate resolution of the matter is uncertain and no assurances can be made that such deductions will be deemed to be appropriate for state tax purposes, the Company believes the deductions it has taken to date are appropriate and thus has not taken any provision in its financial statements for any amounts that the Department of Revenue may assess in the future. 14 Comparison of Operating Results for the Nine Months Ended September 30, 2002 and 2001 Net Interest Income. Net interest income, before the provision for loan losses, totaled $31.7 million for the first nine months of 2002, up $529,000 from $31.2 million over the same period last year. Both interest income and interest expense have declined over the first nine months of this year due to the lower market interest rate environment, however, the decline in interest income was more than offset by the decline in interest expense. The Company's net interest margin equaled 4.32% over the first nine months of 2002 versus 4.31% last year. The increase in net interest margin was primarily due to the elimination of interest rate floors on certain deposit accounts in the second half of 2001. The Company's Asset/Liability committee strives to keep the Company's net interest margin as unaffected as possible by market interest rate fluctuations. This was accomplished as declines in the rates earned on the Company's loan and securities portfolios over the first nine months this year were more than offset by decreases in the rates paid on deposits and the refinancing of advances from the Federal Home Loan Bank of Boston at lower rates. Total interest and dividend income totaled $49.6 million for the first nine months of 2002, a $7.9 million, or 13.8%, decrease from $57.5 million over the first nine months last year. The interest earned on the Company's loan portfolio dropped $7.5 million to $44.3 million for the nine months ended September 30, 2002 as loan yields fell due to heavy refinancing activity resulting from the sharp decline in interest rates and a competitive local marketplace. Total interest expense dropped $8.4 million, or 32.1%, to $17.9 million for the nine months ended September 30, 2002 due to lower rates paid on all interest bearing liabilities. Interest paid on deposits totaled $13.6 million, a decrease of $7.4 million from $21.0 million over the comparable period last year. Interest on FHLB advances dropped $770,000 as lower rates offset higher balances. The provision for loan losses increased $1.3 million to $3.9 million for the first three quarters of 2002 from $2.6 million for the first nine months of 2001. In assessing the Company's provision, management looks closely at the balances and rate of loan growth in the various Company loan portfolios, especially its consumer loan and commercial loan portfolios. Due to increases in the balance of the commercial loan portfolio, the Company increased the provision by $714,000 from where it was one year ago. Offsetting this is a lower balance in the consumer loan portfolio and in particular, the sub-prime indirect automobile loan portfolio, which allowed management to lower the provision by $1.3 million. The Company also evaluates loan charge-offs in determining the provision for loan losses. Loan charge-offs increased by $4.3 million in the first nine months of 2002 over the same period last year. Of these, consumer loan charge-offs increased $3.7 million to $6.1 million at September 30, 2002 from $2.4 million at September 30, 2001. Management also considers the level and trend of nonperforming loans in determining the provision for loan losses. Nonperforming loans totaled $2.5 million at September 30, 2002, a $3.5 million decrease from $6.0 million at September 30, 2001. Among other items, the Company also evaluates current recoveries and the likelihood for recoveries of previously charged off loans. After the provision for loan losses, net interest income was $27.8 million for the first nine months of 2002, as compared to $28.5 million for the same period last year, a decrease of $721,000, or 2.5%. Noninterest Income. For the nine months ended September 30, 2002, noninterest income totaled $9.1 million, a $2.9 million increase from $6.2 million for the same period last year. Substantially all of this increase was related to the operations of EastPoint, as nine months worth of license fees totaling $5.3 million were included in 2002's results while only three months worth of license fees totaling $2.4 million were included in 2001's results. Excluding EastPoint's contribution, noninterest income increased $71,000, or 1.9%, over last year's $3.8 million. During the first nine months of 2002 customer service fees increased $309,000 to $1.7 million due to higher ATM and debit card usage and deposit account service charges. Trust department fees rose $62,000 to $1.4 million versus the same period last year. Somewhat offsetting these increases was a $37,000 loss on the sale of securities this year as opposed to a gain of $266,000 last year, a difference of $303,000. Loan fees decreased $92,000 for the first nine months of 2002 versus the first nine months last year as the Company decided to retain new originations and is servicing fewer loans. Noninterest Expenses. Noninterest (operating) expense totaled $27.9 million for the nine months ended September 30, 2002, an increase of $3.9 million, or 16.4%, from $24.0 million for the same period last year. As was the case with noninterest income, substantially all of the increase in expenses was due to the operations of EastPoint. Total salaries and benefits expense equaled $16.3 million at September 30, 2002, an increase of $3.6 million from $12.7 million last year while occupancy and equipment expenses totaled $3.9 million for the nine months ended September 30, 2002, an increase of $600,000. Included in these increases were expenses of $3.9 million related to EastPoint and $1.0 million related to EastPoint's occupancy and equipment totals. Excluding the operations of EastPoint, noninterest expenses 15 equaled $22.1 million, an increase of only $52,000 from last year. Data processing expenses dropped $370,000 to $494,000 for the first three quarters of 2002 due to a switch in ATM network vendors last year. Income Taxes. Income taxes were $2.9 million for the first nine months of this year versus $3.5 million for the same nine months as last year. The effective tax rates were 32.5% and 32.8% respectively. The lower tax rate in 2002 was due to the operation of the Company's REIT for the full nine months of this year versus only a portion of the first nine months of last year. Regulatory Capital The Company's capital to assets ratios for September 30, 2002 and December 31, 2001 were 12.46% and 13.52%, respectively. The various regulatory capital ratios for the Company and the Bank at September 30, 2002 and December 31, 2001 were as follows:
At September 30, 2002 --------------------------------------------------------------------------------------- Minimum To Be Well Minimum Capitalized Under Capital Prompt Corrective Actual Requirement Action Provisions ------------------------- ------------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio ----------- ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Total capital to risk weighted assets: Berkshire Hills Bancorp, Inc. $128,802 15.34 % N/A N/A N/A N/A Berkshire Bank 114,678 13.77 $66,612 8.00 % $83,265 10.00 % Tier I capital to risk weighted assets: Berkshire Hills Bancorp, Inc. 109,055 12.98 N/A N/A N/A N/A Berkshire Bank 95,020 11.41 33,306 4.00 49,959 6.00 Tier I capital to average assets: Berkshire Hills Bancorp, Inc. 109,055 10.83 N/A N/A N/A N/A Berkshire Bank 95,020 9.48 40,098 4.00 50,122 5.00
At December 31, 2001 --------------------------------------------------------------------------------------- Minimum To Be Well Minimum Capitalized Under Capital Prompt Corrective Actual Requirement Action Provisions ------------------------- ------------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio ----------- ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Total capital to risk weighted assets: Berkshire Hills Bancorp, Inc. $133,240 15.73 % N/A N/A N/A N/A Berkshire Bank 111,640 13.38 $66,749 8.00 % $83,437 10.00 % Tier I capital to risk weighted assets: Berkshire Hills Bancorp, Inc. 109,895 12.98 N/A N/A N/A N/A Berkshire Bank 88,450 10.60 33,375 4.00 50,062 6.00 Tier I capital to average assets: Berkshire Hills Bancorp, Inc. 109,895 11.02 N/A N/A N/A N/A Berkshire Bank 88,450 9.05 39,108 4.00 48,885 5.00
16 As of September 30, 2002, 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 I risk-based, and Tier I leverage ratios. As part of management's revised strategy to address the level of sub-prime automobile loans and the overall credit risk to Berkshire Bank, management has determined to maintain capital levels in an amount in excess of the regulatory requirements and in amounts which management will determine in consideration of the amount of lower quality sub-prime automobile loans in the loan portfolio. Liquidity Liquidity is the ability to meet current and future financial obligations of a short term nature. Berkshire Bank further defines liquidity as the ability to respond to the needs of depositors and borrowers as well as maintaining the flexibility to take advantage of investment opportunities. Berkshire Bank's primary investing activities are: (1) originating residential one-to four-family mortgage loans, commercial business and real estate loans, multi-family loans, home equity loans and lines of credit, and consumer loans; and (2) investing in mortgage-and asset-backed securities, U.S. Government and agency obligations, and corporate equity securities and debt obligations. Outstanding commitments for all loans and unadvanced construction loans and lines of credit totaled $129.9 million at September 30, 2002. The Company's investments in mortgage-and asset-backed securities, U. S. Government and agency obligations, corporate debt obligations and corporate equity securities totaled $182.7 million at September 30, 2002. These activities are funded primarily by principal and interest payments on loans, maturities of securities, deposits and Federal Home Loan Bank of Boston advances. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions, and competition. Additionally, deposit flows are affected by the overall level of interest rates, the interest rates and products offered by Berkshire Bank and its local competitors, and other factors. Berkshire Bank closely monitors its liquidity position on a daily basis. If Berkshire Bank should require funds beyond its ability to generate them internally, additional sources of funds are available through advances or a line of credit with the Federal Home Loan Bank and through a repurchase agreement with the Depositors Insurance Fund, the Bank's excess deposit insurer. Berkshire Bank relies primarily on competitive rates, customer service, and long-standing relationships with customers to retain deposits. Occasionally, Berkshire Bank will also offer special competitive promotions to its customers to increase retention and promote deposit growth. Based upon Berkshire Bank's historical experience with deposit retention, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with Berkshire Bank. Certificates of deposit that were scheduled to mature in one year or less from September 30, 2002 were approximately $227.1 million. The primary source of funding for Berkshire Hills is dividend payments from Berkshire Bank, sales and maturities of investment securities, and to a lesser extent, earnings on investments and deposits held by Berkshire Hills. Dividend payments by Berkshire Bank have primarily been used to pay holding company obligations, including the payment of dividends and the funding of stock repurchase programs. The Bank's ability to pay dividends and other capital distributions to Berkshire Hills is generally limited by the Massachusetts banking regulations and the regulations of the Federal Deposit Insurance Corporation. Additionally, the Massachusetts Banking Commissioner and Federal Deposit Insurance Corporation may prohibit the payment of dividends which are otherwise permissible by regulation for safety and soundness reasons. As of September 30, 2002, the Bank had the ability to declare $4.9 million of dividends to the Company without regulatory approval. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK. Qualitative Aspects of Market Risk. Berkshire Bank's most significant form of market risk is interest rate risk. The principal objectives of Berkshire Bank's interest rate risk management are to evaluate the interest rate risk inherent in certain balance sheet accounts, determine the level of risk appropriate given its business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with its established policies. Berkshire Bank maintains an Asset/Liability Committee that is responsible for reviewing its asset/liability policies and interest rate risk position, which meets quarterly and reports to the Executive Committee of the Bank and the Board of Directors. The 17 Asset/Liability Committee consists of Berkshire Bank's President and Chief Executive Officer; Senior Vice President, Treasurer and Chief Financial Officer; Senior Vice President-Lending Officer; and Senior Vice President-Retail Banking. The extent of the movement of interest rates is an uncertainty that could have a negative impact on the earnings of Berkshire Bank. Berkshire Bank manages interest rate risk by: o emphasizing the origination of adjustable rate loans and, from time to time, selling a portion of its longer term fixed rate loans as market interest rate conditions dictate; o originating shorter term commercial and consumer loans; o investing in a high quality, liquid securities portfolio that provides the flexibility to take advantage of opportunities that may arise from fluctuations in market interest rates, the overall maturity and duration of which is monitored in relation to the repricing of its loan portfolio; o promoting lower cost liability accounts such as core deposits; and o using Federal Home Loan Bank advances to better structure maturities of its interest rate sensitive liabilities. For Berkshire Bank, market risk also includes price risk, primarily security price risk. The securities portfolio had unrealized gains before taxes of $21.2 million at September 30, 2002. Changes in this figure are reflected, net of taxes, in accumulated other comprehensive income as a separate component of Berkshire Hills' equity. Since December 31, 2001, this component has decreased $5.0 million. It is not possible to predict with complete accuracy the direction and magnitude of securities price changes. Unfavorable market conditions or other factors could cause price declines in the securities portfolio. Quantitative Aspects of Market Risk. Berkshire Hills uses a simulation model to measure the potential change in net interest income, incorporating various assumptions regarding the shape of the yield curve, the pricing characteristics of loans, deposits and borrowings, prepayments on loans and securities and changes in the balance sheet mix. The model assumes the yield curve is derived from the interpolated Treasury yield curve and that an instantaneous increase or decrease of market interest rates would cause a simultaneous parallel shift along the entire yield curve. Loans, deposits and borrowings are expected to reprice at the new market rate on the contractual review or maturity date. The Company closely monitors its loan prepayment trends and uses prepayment guidelines set forth by Freddie Mac and Fannie Mae as well as Company generated figures where applicable. All prepayments are assumed to roll over into new loans originated in the same loan category at the new market rate. Berkshire Hills further assumes that its securities' cash flows, especially its mortgage backed securities cash flows, are such that they will generally follow industry standards and that prepayments will be reinvested in the same category at the prevailing market rate. Finally, the model presumes that the balance sheet mix will remain relatively unchanged throughout the next calendar year. The tables below set forth, as of September 30, 2002 and December 31, 2001, estimated net interest income and the estimated changes in Berkshire Hills net interest income for the next twelve month period which may result given instantaneous increases or decreases in market interest rates of 100 and 200 basis points.
Increase/ (decrease) in market At September 30, 2002 At December 31, 2001 interest rates --------------------------------------- ------------------------------------ in basis points Dollar Percent Dollar Percent (rate shock) Amount Change change Amount change change -------------------- ----------- ----------- ---------- ---------- ---------- ---------- 200 $ 40,855 $ 349 0.86 % $ 45,863 $ 64 0.14 % 100 39,971 (535) (1.32) 45,209 (590) (1.29) Static 40,506 -- -- 45,799 -- -- (100) 40,796 290 0.72 46,332 533 1.16 (200) 39,436 (1,070 ) (2.64 ) 44,955 (844 ) (1.84)
At September 30, 2002, for small movements in market interest rates (+/- 100 basis points), Berkshire Hills was liability sensitive as it was at December 31, 2001. Thus, in the event of a sudden and sustained decline in prevailing market rates of 100 basis points, the September 30, 2002 chart indicates a $290,000 increase in net interest income while the December 31, 2001 chart indicates an increase of $533,000. Likewise, in the event of a 100 basis point increase, the September 30, 2002 chart indicates a decrease in net interest income of $535,000 compared to a $590,000 decrease in the December 31, 2001 chart. The Company was less liability sensitive at September 30, 2002 as continuing loan pay downs and funds from new certificate of deposits were invested in short-term securities. 18 In the event of a sudden and sustained decrease in prevailing market interest rates of 200 basis points, the September 30, 2002 table indicates a decline in net interest income of $1.1 million compared to a $844,000 decline in the December 31, 2001 chart. A sudden and sustained increase of 200 basis points in market interest rates would lead to a $349,000 increase in net interest income in the September 30, 2002 scenario while the December 31, 2001 scenario shows an increase of $64,000. The Company's net interest income is negatively impacted in the case of a 200 basis point drop as deposit accounts hit predetermined floors while net interest income is enhanced in the case of a 200 basis point increase because these same deposit accounts hit Company determined caps. Computation of prospective effects of hypothetical interest rate changes are based on a number of assumptions including the level of market interest rates, the degree to which certain assets and liabilities with similar maturities or periods to repricing react to changes in market interest rates, the expected prepayment rates on loans and investments, the degree to which early withdrawals occur on certificates of deposit, and other deposit flows. As a result, these computations should not be relied upon as indicative of actual results. Further, the computations do not reflect any actions that management may undertake in response to changes in interest rates. Impact of Inflation and Changing Prices The consolidated financial statements and related data presented have been prepared in conformity with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company's performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as inflation. ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure controls and procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive officer and the chief financial officer of the Company concluded that the Company's disclosure controls and procedures were adequate. (b) Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and chief financial officer. 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is not involved in any legal proceedings other than routine legal proceedings occurring in the normal course of business. Such routine proceedings, in the aggregate, are believed by management to be immaterial to the Company's financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K (ss.249.308 OF THIS CHAPTER). (a) Exhibits 3.1 Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (1) 3.2 Bylaws of Berkshire Hills Bancorp, Inc. 4.0 Stock Certificate of Berkshire Hills Bancorp, Inc. (1) 10.1 Severance Agreement, dated October 16, 2002, by and among James A. Cunningham, Jr., Berkshire Hills Bancorp, Inc. and Berkshire Bank (2) 10.2 Severance Agreement, dated November 13, 2002, by and among Charles F. Plungis, Jr., Berkshire Hills Bancorp, Inc. and Berkshire Bank 10.3 Severance Agreement, dated November 13, 2002, by and among Susan M. Santora, Berkshire Hills Bancorp, Inc. and Berkshire Bank 99.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K None _____________________________ (1) Incorporated by reference into this document from the Exhibits filed with the Registration Statement on Form S-1, and any amendments thereto, Registration No. 333-32146. (2) Incorporated by reference into this document from the Exhibits filed with the Company's Form 8-K on October 18, 2002. 20 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BERKSHIRE HILLS BANCORP, INC. Dated: November 12, 2002 By: /s/ Michael P. Daly --------------------------------------- Michael P. Daly President, Chief Executive Officer and Director (principal executive officer) Dated: November 12, 2002 By: /s/ Charles F. Plungis, Jr. ---------------------------------------- Charles F. Plungis, Jr. Senior Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) 21 CERTIFICATION I, Michael P. Daly, certify, that: 1. I have reviewed this quarterly report of Form 10-Q of Berkshire Hills Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Michael P. Daly ------------------------------------- Michael P. Daly President and Chief Executive Officer 22 CERTIFICATION I, Charles F. Plungis, Jr., certify, that: 1. I have reviewed this quarterly report of Form 10-Q of Berkshire Hills Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Charles F. Plungis, Jr. ------------------------------------ Charles F. Plungis, Jr. Senior Vice President, Treasurer and Chief Financial Officer 23 EX-3.2 3 exhibit3-2.txt BERKSHIRE HILLS BANCORP, INC. Amended and Restated Bylaws ARTICLE I - STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of Directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 2. Special Meetings. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of Directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the provisions of Article IV of the Corporation's Certificate of Incorporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy (after giving effect to the provisions of Article IV of the Corporation's Certificate of Incorporation) shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present in person or by proxy constituting a quorum, then except as otherwise required by law, those present in person or by proxy at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 5. Organization. Such person as the Board of Directors may have designated or, in his or her absence of such a person, the President and Chief Executive Officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting appoints. Section 6. Conduct of Business. (a) The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting: (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(b). For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before 2 the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder; and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(b). The Officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(b) and, if he or she should so determine, shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. (c) Only persons who are nominated in accordance with the procedures and meet the qualifications set forth in these Bylaws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only: (i) by or at the direction of the Board of Directors; or (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the date of the meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth: (i) as to each person whom such stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the provisions of this Section 6(c). The Officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she shall so determine, he or she shall so declare to the meeting and the defective nomination shall be 3 disregarded. No nomination shall be made or voted upon if the nominee is ineligible for election to the Board of Directors under these Bylaws. (d) No person shall be eligible for election or appointment to the Board of Directors: (i) if such person has, within the previous 10 years, been the subject of supervisory action by a financial regulatory agency that resulted in a cease and desist order or an agreement or other written statement subject to public disclosure under 12 U.S.C. 1818(u), or any successor provision; (ii) if such person has been convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state or federal law; (iii) if such person is currently charged in any information, indictment, or other complaint with the commission of or participation in such a crime; and (iv) except for persons serving as members of the of the initial Board of Directors or except as otherwise approved by the Board of Directors, unless such person has been, for a period of at least one year immediately prior to his or her nomination or appointment, a resident of a county in which the Corporation or its subsidiaries maintains a banking office or a county contiguous to any such county. No person shall be eligible for election or appointment to the Board of Directors if such person is the nominee or representative of a company, as that term is defined in Section 10 of the Home Owners' Loan Act or any successor provision, of which any director, partner, trustee or shareholder controlling more than 10% of any class of voting stock would not be eligible for election or appointment to the Board of Directors under this Section 6. No person shall be eligible for election to the Board of Directors if such person is the nominee or representative of a person or group, or of a group acting in concert (as defined in 12 C.F.R Section 574 4(d)), that includes a person who is ineligible for election to the Board of Directors under this Section 6. The Board of Directors shall have the power to construe and apply the provisions of this Section 6 and to make all determinations necessary or desirable to implement such provisions, including but not limited to determinations as to whether a person is a nominee or representative of a person, a company or a group, whether a person or company is included in a group, and whether a person is the nominee or representative of a group acting in concert. (e) Notwithstanding any other provision of these Bylaws, in no event shall any person, group or company that would not be eligible for election to the Board of Directors or to have his or its representative or nominee eligible for election to the Board of Directors under Section 6 of this Article I be entitled or permitted to vote his or its shares with respect to any amendment, modification or repeal of Section 6 of this Article I. Section 7. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting. Any facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of Directors but excepting where otherwise required 4 by law or by the governing documents of the Corporation, may be made by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedures established for the meeting. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. Section 8. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. ARTICLE II - BOARD OF DIRECTORS Section 1. General Powers, Number, Term of Office and Limitations. The business and affairs of the Corporation shall be under the direction of its Board of Directors. The number of Directors who shall constitute the Whole Board shall be such number as the Board of Directors shall from time to time have designated, except that in the absence of 5 such designation shall be eighteen (18). The Board of Directors shall annually elect a Chairman of the Board from among its members who shall, when present, preside at its meetings. No person shall be qualified to continue to serve as a Director after the annual meeting immediately following his or her seventy-second birthday; provided, however, that any Director serving on the date these Bylaws are adopted may not be re-elected following his or her seventy-second birthday but shall be qualified to serve as a Director until the expiration of the last term he or she is elected to serve prior to his or her seventy-second birthday. The Directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be divided, with respect to the time for which they severally hold office, into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each Director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each Director to hold office until his or her successor shall have been duly elected and qualified. Section 2. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such Director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent Director. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all Directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third (1/3) of the Directors then in office (rounded up to the nearest whole number), or by the Chairman of the Board or the President or, in the event that the Chairman of the Board or the President are incapacitated or otherwise unable to call such meeting, by the Secretary, and shall be held at such 6 place, on such date, and at such time as they, or he or she, shall fix. Notice of the place, date, and time of each such special meeting shall be given each Director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. At any meeting of the Board of Directors, a majority of the Whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the Directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 8. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any Officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any Officer upon any other person for the time being; 7 (5) To confer upon any Officer of the Corporation the power to appoint, remove and suspend subordinate Officers, employees and agents; (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for Directors, Officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for Directors, Officers, employees and agents of the Corporation and its subsidiaries as it may determine; (8) To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs; and (9) To fix the Compensation of officers and employees of the Corporation and its subsidiaries as it may determine. Section 9. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as Directors, including, without limitation, their services as members of committees of the Board of Directors. ARTICLE III - COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for these committees and any others provided for herein, elect a Director or Directors to serve as the member or members, designating, if it desires, other Directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. 8 Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. The quorum requirements for each such committee shall be a majority of the members of such committee unless otherwise determined by the Board of Directors by a majority vote of the Board of Directors which such quorum determined by a majority of the Board may be one- third of such members and all matters considered by such committees shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Nominating Committee. The Board of Directors shall appoint a Nominating Committee of the Board, consisting of not less than three (3) members of the Board of Directors. The Nominating Committee shall have authority: (a) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii) of Article I of these Bylaws in order to determine compliance with such Bylaw; and (b) to recommend to the Whole Board nominees for election to the Board of Directors to replace those Directors whose terms expire at the annual meeting of stockholders next ensuing. ARTICLE IV - OFFICERS Section 1. Generally. (a) The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, a President and Chief Executive Officer, one or more Vice Presidents, a Secretary and a Treasurer and from time to time may choose such other officers as it may deem proper. The Chairman of the Board shall be chosen from among the Directors. Any number of offices may be held by the same person. (b) The term of office of the Chairman of the Board and of all Officers shall be until the next annual election of Officers and until their respective successors are chosen but any Officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of Directors then constituting the Board of Directors or the Chief Executive Officer. (c) All Officers chosen by the Board of Directors or the Chief Executive Officer shall have such powers and duties as generally pertain to their respective Offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. 9 Section 2. Chairman of the Board of Directors. The Chairman of the Board shall perform such duties designated to him or her by the Board of Directors and which are delegated to him or her by the Board of Directors by resolution of the Board of Directors. The Chairman of the Board, when present, or his or her designee shall preside at all meetings of the stockholders of the Corporation. Section 3. President and Chief Executive Officer. The President and Chief Executive Officer shall have general responsibility for the management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of President and Chief Executive Officer or which are delegated to him or her by the Board of Directors. Subject to the direction of the Board of Directors, the President and Chief Executive Officer shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision of all of the other Officers (other than the Chairman of the Board), employees and agents of the Corporation. Section 4. Vice President. The Vice President or Vice Presidents shall perform the duties of the President in his absence or during his inability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them by the Board of Directors, the Chairman of the Board or the President. A Vice President or Vice Presidents may be designated as Executive Vice President or Senior Vice President. Section 5. Secretary. The Secretary or Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such office and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board or the President. Subject to the direction of the Board of Directors, the Secretary shall have the power to sign all stock certificates. Section 6. Treasurer. The Treasurer shall be the Comptroller of the Corporation and shall have the responsibility for maintaining the financial records of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe. Subject to the direction of the Board of Directors, the Treasurer shall have the power to sign all stock certificates. 10 Section 7. Assistant Secretaries and Other Officers. The Board of Directors or the Chief Executive Officer may appoint one or more Assistant Secretaries and such other Officers who shall have such powers and shall perform such duties as are provided in these Bylaws or as may be assigned to them by the Board of Directors, the Chairman of the Board or the President and the Chief Executive Officer. Section 8. Action with Respect to Securities of Other Corporation. Unless otherwise directed by the Board of Directors, the President or any Officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V - STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board or the President, and by the Secretary or an Assistant Secretary, or any Treasurer or Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Section 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next 11 preceding the day on which notice is given or, if notice is waived, at the close of business on the next day preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment or rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 4. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI - NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, Director, Officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram or other courier. Any such notice shall be addressed to such stockholder, Director, Officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram or other courier, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, Director, Officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, Director, Officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance of a person at a meeting shall constitute a waiver of notice of such 12 meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened. ARTICLE VII - MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or an assistant to the Treasurer. Section 3. Reliance Upon Books, Reports and Records. Each Director, each member of any committee designated by the Board of Directors, and each Officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its Officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such Director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII - AMENDMENTS The Board of Directors may amend, alter or repeal these Bylaws at any meeting of the Board, provided notice of the proposed change was given not less than two (2) days prior to the meeting. The stockholders shall also have power to amend, alter or repeal these Bylaws at any 13 meeting of stockholders provided notice of the proposed change was given in the notice of the meeting; provided, however, that, notwithstanding any other provisions of the Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the voting stock required by law, the Certificate of Incorporation, any Preferred Stock Designation or these Bylaws, the affirmative votes of the holders of at least 80% of the voting power of all the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal any provisions of these Bylaws. The above Amended and Restated Bylaws amend and restate the Bylaws of Berkshire Hills Bancorp, Inc., effective as of January 10, 2000, and are effective as of October 16, 2002. 14 EX-10.2 4 exhibit10-2.txt [LETTERHEAD OF BERKSHIRE HILLS BANCORP, INC.] November 13, 2002 Charles F. Plungis. Jr. 6 Heberts Drive Great Barrington, MA 01230 Dear Charlie: This letter agreement (the "Agreement") sets forth the agreement that we have reached regarding your resignation from your regular, full-time employment and all offices and positions you hold with Berkshire Bank ("Berkshire Bank") and Berkshire Hills Bancorp, Inc. (the "Holding Company") and their related and affiliated entities (collectively, "Berkshire"). In exchange for the promises set forth below, you and Berkshire agree as follows: 1. Resignation You agree to resign effective as of February 28, 2003 or on such earlier date as Berkshire may determine to be appropriate after year-end financial reporting is completed (the "Resignation Date") as Senior Vice President, Treasurer and Chief Financial Officer of the Holding Company and of Berkshire Bank and from all other positions, including any offices, directorships or employment that you hold with Berkshire or any subsidiary or affiliate of Berkshire. Berkshire shall pay your base salary through your Resignation Date and will credit you with pro rata vacation to reflect the number of days that you work in 2003 in calculating the amount of pay that you are due for accrued but unused vacation as of the Resignation Date. 2. Continued Employment; Payments Prior to Resignation Date You agree to continue to serve in your capacity as Senior Vice President, Treasurer and Chief Financial Officer of the Holding Company and of Berkshire Bank and in all other positions, including any offices, directorships or employment that you hold with Berkshire or any subsidiary or affiliate of Berkshire until the Resignation Date. You agree to work diligently and in good faith on behalf of Berkshire until your Resignation Date and understand that Berkshire's obligations to you under this Agreement are conditioned upon your faithful performance of duties through the Resignation Date. Berkshire will continue to provide you with your base salary as well as regular benefits, including an annual contribution to the ESOP for 2002 which will be made in the ordinary course until your Resignation Date. You will receive a bonus for 2002 equal to $12,237 when bonuses are paid to other employees. 3. Post Resignation Payment Berkshire will make a lump sum payment within thirty (30) days of the Resignation Date equal to the sum of the amounts set forth or determined pursuant to Sections 3(a) through (d). (a) Severance Pay. Berkshire shall pay you $502,815 which is the total of (i) three times your base salary rate of $152,967 and (ii) three times your most recent bonus payment of $14,638. (b) 401(k) and ESOP. In addition to the annual contribution to the ESOP for 2002 which will be made in the ordinary course as set forth in Section 2 above, Berkshire will also pay you $76,005.42, which represents the total of (i) three times the total annual contribution of $10,707.69 that it made to your 401(k) and (ii) three times the total annual contribution of $14,627.45 that it made to the ESOP. (c) Stock Options. Berkshire shall pay you $89,015.50 which equals the difference between $24.00 and the option exercise price of $16.75 multiplied by 12,278 which is the number of shares of stock which you had an unvested option to purchase as of the Resignation Date. You agree that notwithstanding any provisions of the January 30, 2001 Incentive Stock Option Award Agreement between you and the Holding Company, any unvested options are hereby cancelled as of the Effective Date (as defined in Section 16(c) hereof) and any rights you may have with respect to your vested options will be determined by the terms of the Incentive Stock Option Award Agreement. (d) Restricted Stock. Berkshire shall pay you $412,512 which equals $24.00 multiplied by 17,188, which is the number of shares of unvested restricted stock in the Holding Company that have been issued to you. Berkshire will also pay you $17,703.64 which represents an amount equal to the value of the accumulated dividends for the unvested shares from the date of the initial award of the restricted stock through your Resignation Date. You agree that notwithstanding any provisions of the January 30, 2001 Restricted Stock Award Agreement between you and the Holding Company, any unvested restricted stock award outstanding as of the Effective Date shall be forfeited and cancelled on the Effective Date. 4. Benefit Continuation To the extent permitted by the respective benefit plans, you will be permitted to participate in medical and dental insurance plans for a period of three years after the Resignation Date or until you become eligible for comparable benefits, whichever is earlier. Since the terms of the life insurance and disability plans do not permit you to participate after the Resignation Date, Berkshire will pay you $4,043.16, an amount equal to three times the annual premiums of $1,347.72 for such benefits. Your rights to medical and dental coverage under COBRA will run concurrently with the coverage provided under this Agreement from the Resignation Date. Your co-payment obligation for the continuation of medical and dental coverage will be withheld from the lump sum payment. The co-payment obligation that will be withheld is $4,444.44 which represents three times your annual co-payment of $1,481.48. In the event that you become eligible for comparable benefits prior to three years after the Resignation Date, Berkshire shall reimburse you appropriately to the extent that the co-payment amount withheld proves to have been excessive. 5. Tax Treatment Berkshire shall undertake to make deductions, withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in good faith determines that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require Berkshire to make any payments to compensate you for any adverse tax effect associated with any payments or benefits or for any deduction or withholding from any payment or benefit. 6. Return of Property You agree to return to Berkshire, on or before the Resignation Date, all of its property, including, without limitation, computer equipment, software, keys and access cards, credit cards, files and any other documents (including computerized data and any copies made of any computerized data or software) containing information concerning Berkshire, its business or its business relationships (in the latter two cases, actual or prospective). In the event that you discover that you continue to retain any such property after the Resignation Date, you shall return it to Berkshire immediately. 7. Confidential Information You recognize and acknowledge that knowledge of the business activities and plans for business activities of Berkshire is a valuable, special and unique asset of Berkshire's business. You agree that you will not disclose at any time any knowledge of the past, present, planned or considered business activities of Berkshire to any person, firm, corporation, or other entity for any reason or purpose whatsoever unless expressly authorized by the Board of Directors or required by law. Notwithstanding the foregoing, you may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of Berkshire. In the event that you breach or threaten to breach this Section 7, Berkshire will be entitled to an injunction restraining you from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of Berkshire or from rendering any services to any person, firm, corporation or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting Berkshire from pursuing any other remedies available to Berkshire for such breach or threatened breach, including the recovery of damages from you. 8. Noncompetition You agree not to compete with Berkshire for a period of one (1) year following the Resignation Date in any city, town or county in which your normal business office is located or in which Berkshire has an office or has filed an application for regulatory approval to establish an office, determined as of the Resignation Date, except as agreed to pursuant to a resolution duly adopted by the Board of Directors. You agree that during such period and within said cities, towns and counties, you shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of Berkshire. Recognizing that irreparable injury will result to Berkshire, its business and property in the event of your breach of this Section 8, you agree that in the event of any such breach by you, Berkshire will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by you, your partners, agents, servants, employees and all persons acting for or under your direction. You represent and admit that your experience and capabilities are such that you can obtain employment in a business engaged in other lines and/or of a different nature than Berkshire, and that the enforcement of a remedy by way of injunction will not prevent you from earning a livelihood. Nothing herein will be construed as prohibiting Berkshire or its subsidiaries from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from you. 9. Release Claims (a) By You. In consideration for, among other terms, the payments and benefits described in Sections 3 and 4, you voluntarily release and forever discharge Berkshire, its affiliated and related entities, its and their respective predecessors, successors and assigns, its and their respective employee benefit plans and fiduciaries of such plans, and the current and former officers, directors, shareholders, employees, attorneys, accountants and agents of each of the foregoing in their official and personal capacities (collectively referred to as the "Releasees") generally from all claims, demands, debts, damages and liabilities of every name and nature, known or unknown ("Claims") that, as of the date when you sign this Agreement, you have, ever had, now claim to have or ever claimed to have had against any or all of the Releasees. This release includes, without limitation, all Claims: o relating to your employment by and resignation from employment with Berkshire; o arising from or out of the June 27, 2000 employment agreement between you and the Holding Company and/or the June 27, 2000 employment agreement between you and Berkshire Bank (collectively referred to herein as the "Employment Agreements"); o of wrongful discharge; o of breach of contract; o of retaliation or discrimination under federal, state or local law (including, without limitation, Claims of age discrimination or retaliation under the Age Discrimination in Employment Act, Claims of disability discrimination or retaliation under the Americans with Disabilities Act, and Claims of discrimination or retaliation under Title VII of the Civil Rights Act of 1964); o under any other federal or state statute (including, without limitation, Claims under the Family Medical Leave Act and Claims under the Worker Adjustment and Retraining Notification Act); o of defamation or other torts; o of violation of public policy; o for wages, bonuses, incentive compensation, vacation pay or any other compensation or benefits; and o for damages or other remedies of any sort, including, without limitation, compensatory damages, punitive damages, injunctive relief and attorney's fees; provided, however, that this release shall not affect your rights under this Agreement or your rights to receive a distribution of your vested account balances under the 401(k) Plan and ESOP. You agree that you shall not seek or accept damages of any nature, other equitable or legal remedies for your own benefit, attorney's fees, or costs from any of the Releasees with respect to any Claim. As a material inducement to Berkshire to enter into this Agreement, you represent that you have not assigned to any third party and you have not filed with any agency or court any Claim released by this Agreement. (b) By Berkshire. Berkshire, on behalf of itself and its predecessors, successors, assign, directors (but only in their capacities as directors of Berkshire) and officers (but only in their capacities as officers of Berkshire) voluntarily and irrevocably release and discharge you and your successors, assigns, heirs, and survivors from any and all charges, complaints, claims, promises, agreements, causes of action, damages and debts (including attorney's fees and costs actually incurred) which any of them have, claim to have, ever had or ever claimed to have had against you through the date hereof, known or unknown, which relate to good faith acts or omissions by you during the course of your employment with Berkshire undertaken or not undertaken in the reasonable belief that such acts or omissions were in the best interest of Berkshire. 10. Nondisparagement You agree not to make any disparaging statements concerning Berkshire or any of its affiliates or current or former officers, directors, shareholders, employees or agents. You further agree not to take any actions or conduct yourself in any way that would reasonably be expected to affect adversely the reputation or goodwill of Berkshire or any of its affiliates or any of its current or former officers, directors, shareholders, employees or agents. Berkshire will instruct the members of its Board of Directors and its executive management not to take any action or make any statement, written or oral, which disparages or criticizes you or your management and business practices. The provisions of this Section 10 shall not apply to any truthful statement required to be made by you or Berkshire, as the case may be, in any legal proceeding or governmental or regulatory investigation or any truthful statements made by Berkshire in connection with the public disclosure of your resignation from Berkshire. 11. Future Cooperation You agree to cooperate reasonably with Berkshire and all of its affiliates (including its outside counsel) in connection with the contemplation, prosecution and defense of all phases of existing, past and future litigation, regulatory or administrative actions about which Berkshire believes you may have knowledge or information. You further agree to make yourself available at mutually convenient times during and outside of regular business hours as reasonably deemed necessary by Berkshire's counsel. Berkshire shall not utilize this Section 10 to require you to make yourself available to an extent that would unreasonably interfere with full-time employment responsibilities that you may have. You agree to appear without the necessity of a subpoena to testify truthfully in any legal proceedings in which Berkshire calls you as a witness. Berkshire shall also reimburse you for any pre-approved reasonable business travel expenses that you incur on Berkshire's behalf as a result of your litigation cooperation services, after receipt of appropriate documentation consistent with Berkshire's business expense reimbursement policy. You further agree that you shall not voluntarily provide information to or otherwise cooperate with any individual or entity that is contemplating or pursuing litigation against any of the Releasees or that is undertaking any investigation or review of any of the Releasees' activities or practices; provided, however, that you may participate in or otherwise assist in any investigation or inquiry conducted by the EEOC or the Massachusetts Commission Against Discrimination. 12. Suspension or Termination of Payments In the event that you fail to comply with any of your obligations under this Agreement, in addition to any other legal or equitable remedies it may have for such breach Berkshire shall have the right to terminate or suspend its payments to you under this Agreement. The termination or suspension of such payments in the event of such breach by you will not affect your continuing obligations under this Agreement. Notwithstanding the foregoing, this provision shall not apply to the extent that your breach of this Agreement consists of initiating a legal action in which you contend that the release set forth in Section 9(a) is invalid, in whole or in part, due to the provisions of 29 U.S.C. ss. 626(f). 13. Legal Representation This Agreement is a legally binding document and your signature will commit you to its terms. You acknowledge that you have been advised to discuss all aspects of this Agreement with your attorney, that you have in fact retained a personal attorney who has reviewed this Agreement and represented you concerning it, that you have carefully read and fully understand all of the provisions of this Agreement and that you are voluntarily entering into this Agreement. Berkshire represents and warrants to you that all requisite company authority, and all other consents necessary for the execution of this Agreement, have been duly adopted and obtained, and Berkshire has the full right, power and authority to execute, deliver, and carry out the terms and conditions of this Agreement and all other documents to be executed pursuant to, or in connection with, this Agreement. 14. Enforcement (a) Jurisdiction. You and Berkshire hereby agree that the Superior Court of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts shall have the exclusive jurisdiction to consider any matters related to this Agreement, including without limitation any claim for violation of this Agreement. With respect to any such court action, you (i) submit to the jurisdiction of such courts, (ii) consent to service of process, and (iii) waive any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction or venue. (b) Relief. You agree that it would be difficult to measure any harm caused to Berkshire that might result from any breach by you of your promises set forth in Sections 6, 7, 8 and 10 and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, you agree that if you breach, or propose to breach, any portion of your obligations under Sections 6, 7, 8 and 10, Berkshire shall be entitled, in addition to all other remedies it may have, to an injunction or other appropriate equitable relief to restrain any such breach, without showing or proving any actual damage to Berkshire and without the necessity of posting a bond. In the event that Berkshire prevails in any action to enforce Section 6, 7, 8 and 10, then you also shall be liable to Berkshire for attorney's fees and costs incurred by Berkshire in enforcing such provision(s). In addition, in the event that you breach any portion of Section 7, you agree that the restrictions of Section 8 shall remain in effect for the period of such breach notwithstanding the period of one (1) year set forth above and you further agree that the same restrictions shall apply for a period of one (1) year commencing effective upon the cessation of any such breach. 15. Indemnification Berkshire shall indemnify you (and your heirs, executors and administrators) to the fullest extent permitted under Delaware law against all expenses and liabilities reasonably incurred by you in connection with or arising out of any action, suit, or proceeding in which you may be involved by reason of your having been a director or officer of Berkshire (whether or not incurred before or after the Resignation Date). Such expenses and liabilities will include, but will not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. Any payments made to you pursuant to this Section 15 are subject to and conditioned on compliance with 12 U.S.C. ss. 1828(k) and 12 C.F.R. Part 359 and any rules or regulations promulgated thereunder. 16. Notices, Acknowledgments and Other Terms (a) You are advised to consult with an attorney before signing this Agreement. (b) You acknowledge and agree that Berkshire's promises in this Agreement constitute consideration in addition to anything of value to which you are otherwise entitled by reason of your resignation from employment. The parties agree that this Agreement and the payments set forth herein are derived from the Employment Agreements and that this Agreement represents a compromise of disputed claims that you could have made under the Employment Agreements, including without implication of limitation, your claims under Section 4(a)(ii)(B) of the Employment Agreements as well as a compromise of the other claims which you have released as set forth in Section 9(a) of this Agreement. The parties agree that none of the payments herein are contingent upon any change in the ownership or effective control of the Berkshire Bank or the Holding Company or any change in ownership of any substantial portion of the assets of the Berkshire Bank or the Holding Company. (c) You acknowledge that you have been given the opportunity, if you so desired, to consider this Agreement for twenty-one (21) days before executing it. If not signed by you and returned to Gerald A. Denmark so that it is received by close of business on the twenty-second (22nd) day after your receipt of the Agreement, this Agreement will not be valid. In addition, if you breach any of the conditions of the Agreement within the twenty-one (21) day period, the offer of this Agreement will be withdrawn and your execution of the Agreement will not be valid. In the event that you execute and return this Agreement within twenty-one (21) days or less of the date of its delivery to you, you acknowledge that such decision was entirely voluntary and that you had the opportunity to consider this letter agreement for the entire twenty-one (21) day period. Berkshire acknowledges that for a period of seven (7) days from the date of the execution of this Agreement, you shall retain the right to revoke this Agreement by written notice delivered to Gerald A. Denmark before the end of such period. This Agreement shall become effective upon the expiration of such revocation period (the "Effective Date"). You acknowledge that the Bank may elect to accept your resignation and announce it publicly at any time after you tender a signed copy of this Agreement. (d) By signing this Agreement, you acknowledge that you are doing so voluntarily and knowingly, fully intending to be bound by this Agreement. You also acknowledge that you are not relying on any representations by us or any other representative of Berkshire concerning the meaning of any aspect of this Agreement. You understand that this Agreement shall not in any way be construed as an admission by Berkshire of any liability or any act of wrongdoing whatsoever by Berkshire against you and that Berkshire specifically disclaims any liability or wrongdoing whatsoever against you on the part of itself and its respective officers, directors, shareholders, employees and agents. You understand that if you do not enter into this Agreement and bring any claims against Berkshire, Berkshire will dispute the merits of those claims and contend that it acted lawfully and for good business reasons with respect to you. (e) In the event of any dispute, this Agreement will be construed as a whole, will be interpreted in accordance with its fair meaning, and will not be construed strictly for or against either you or Berkshire. (f) Except to the extent that the law of Delaware will establish the scope of Berkshire's obligations to indemnify you pursuant to Section 15 of this Agreement, the law of the Commonwealth of Massachusetts will govern any dispute about this Agreement, including any interpretation or enforcement of this Agreement. (g) In the event that any provision or portion of a provision of this Agreement shall be determined to be illegal, invalid or unenforceable, the remainder of this Agreement shall be enforced to the fullest extent possible and the illegal, invalid or unenforceable provision or portion of a provision will be amended by a court of competent jurisdiction to reflect the parties' intent if possible. If such amendment is not possible, the illegal, invalid or unenforceable provision or portion of a provision will be severed from the remainder of this Agreement and the remainder of this Agreement shall be enforced to the fullest extent possible as if such illegal, invalid or unenforceable provision or portion of a provision was not included. (h) This Agreement may be modified only by a written agreement signed by you and authorized representatives of Berkshire. (i) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter. (j) This Agreement shall be binding upon each of the parties and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of each party and to their heirs, administrators, representatives, executors, successors, and assigns. Please indicate your agreement to the terms of this Agreement by signing and returning to me the original of this letter within the time period set forth above. Very truly yours, BERKSHIRE BANK By: /s/ Michael P. Daly November 13, 2002 -------------------------------- ----------------------------- Michael P. Daly Date President and CEO BERKSHIRE HILLS BANCORP, INC. By: /s/ Michael P. Daly November 13, 2002 -------------------------------- ----------------------------- Michael P. Daly Date President and CEO You are advised to consult with an attorney before signing this Agreement. The foregoing is agreed to and accepted by: /s/ Charles F. Plungis, Jr. November 13, 2002 - --------------------------- ----------------------------- Charles F. Plungis, Jr. Date EX-10.3 5 exhibit10-3.txt [LETTERHEAD OF BERKSHIRE HILLS BANCORP, INC.] November 13, 2002 Susan Santora 30 Commonwealth Avenue Great Barrington, MA 01230 Dear Susan: This letter agreement (the "Agreement") sets forth the agreement that we have reached regarding your resignation from your regular, full-time employment and all offices and positions you hold with Berkshire Bank ("Berkshire Bank") and Berkshire Hills Bancorp, Inc. (the "Holding Company") and their related and affiliated entities (collectively, "Berkshire"). In exchange for the promises set forth below, you and Berkshire agree as follows: 1. Resignation You hereby resign effective as of November 15, 2002 (the "Resignation Date") as Executive Vice President of the Holding Company and Executive Vice President-Retail Banking of Berkshire Bank and from all other positions, including any offices, directorships or employment that you hold with Berkshire or any subsidiary or affiliate of Berkshire. Berkshire shall pay you your base salary through the Resignation Date as well as any accrued but unused vacation as of the Resignation Date. Said resignations are hereby accepted by Berkshire. 2. Post Resignation Payment Berkshire will make a lump sum payment within thirty (30) days of the Effective Date (as defined in Section 15(c)) equal to the sum of the amounts set forth or determined pursuant to Sections 2(a) through (d). (a) Severance Pay. Berkshire shall pay you $452,289 which represents three times the sum of (i) your base salary rate of $137,710 plus (ii) incentive compensation of $13,053, which represents an amount equal to your most recent bonus payment. (b) 401(k) and ESOP. Berkshire will pay you $68,075.16, which represents three times the sum of (i) the total annual contribution of $9,639.70 that it made to your 401(k) and (ii) the total annual contribution of $13,052.02 that it made to the ESOP. (c) Stock Options. Berkshire shall pay you $133,516 which equals the difference between $24.00 and the option exercise price of $16.75 multiplied by 18,416 which is the number of shares of stock which you had an unvested option to purchase as of the Resignation Date. (d) Restricted Stock. Berkshire shall pay you $412,512 which equals $24.00 multiplied by 17,188, which is the number of shares of unvested restricted stock in the Holding Company that have been issued to you. Berkshire will also pay you $14,168.80 which represents an amount equal to the value of the accumulated dividends for the unvested shares from the date of the initial award of the restricted stock through your Resignation Date. 3. Benefit Continuation Since the terms of the life insurance and disability plans do not permit you to participate after the Resignation Date, Berkshire will pay you $3,901.32, an amount equal to three times the annual premiums of $1,300.44 for such benefits. You will continue to be eligible for participation in the dental plan until November 15, 2005 or until you become eligible for comparable benefits, whichever is earlier. In addition, Berkshire will reimburse you for up to $1,000 per year for the cost of an annual physical examination at the Lahey Clinic in 2003, 2004 and 2005 to the extent that such cost is not covered by your health insurance plan. This will confirm that you are not otherwise participating in any other benefit plans. 4. Tax Treatment Berkshire shall undertake to make deductions, withholdings and tax reports with respect to payments and benefits under this Agreement to the extent that it reasonably and in good faith determines that it is required to make such deductions, withholdings and tax reports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall be construed to require Berkshire to make any payments to compensate you for any adverse tax effect associated with any payments or benefits or for any deduction or withholding from any payment or benefit. 5. Return of Property You agree to return to Berkshire, on or before the Resignation Date, all of its property, including, without limitation, computer equipment, software, keys and access cards, credit cards, files and any other documents (including computerized data and any copies made of any computerized data or software) containing information concerning Berkshire, its business or its business relationships (in the latter two cases, actual or prospective). In the event that you discover that you continue to retain any such property after the Resignation Date, you shall return it to Berkshire immediately. 6. Confidential Information You recognize and acknowledge that knowledge of the business activities and plans for business activities of Berkshire is a valuable, special and unique asset of Berkshire's business. You agree that you will not disclose at any time any knowledge of the past, present, planned or considered business activities of Berkshire to any person, firm, corporation, or other entity for any reason or purpose whatsoever unless expressly authorized by the Board of Directors or required by law. Notwithstanding the foregoing, you may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of Berkshire. In the event that you breach or threaten to breach this Section 6, Berkshire will be entitled to an injunction restraining you from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of Berkshire or from rendering any services to any person, firm, corporation or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting Berkshire from pursuing any other remedies available to Berkshire for such breach or threatened breach, including the recovery of damages from you. 7. Noncompetition You agree not to compete with Berkshire for a period of one (1) year following the Resignation Date in any city, town or county in which your normal business office is located or in which Berkshire has an office or has filed an application for regulatory approval to establish an office, determined as of the Resignation Date, except as agreed to pursuant to a resolution duly adopted by the Board of Directors. You agree that during such period and within said cities, towns and counties, you shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the depository, lending or other business activities of Berkshire. Recognizing that irreparable injury will result to Berkshire, its business and property in the event of your breach of this Section 7, you agree that in the event of any such breach by you, Berkshire will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by you, your partners, agents, servants, employees and all persons acting for or under your direction. You represent and admit that your experience and capabilities are such that you can obtain employment in a business engaged in other lines and/or of a different nature than Berkshire, and that the enforcement of a remedy by way of injunction will not prevent you from earning a livelihood. Nothing herein will be construed as prohibiting Berkshire or its subsidiaries from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from you. 8. Release Claims (a) By You. In consideration for, among other terms, the payments and benefits described in Sections 2 and 3, you voluntarily release and forever discharge Berkshire, its affiliated and related entities, its and their respective predecessors, successors and assigns, its and their respective employee benefit plans and fiduciaries of such plans, and the current and former officers, directors, shareholders, employees, attorneys, accountants and agents of each of the foregoing in their official and personal capacities (collectively referred to as the "Releasees") generally from all claims, demands, debts, damages and liabilities of every name and nature, known or unknown ("Claims") that, as of the date when you sign this Agreement, you have, ever had, now claim to have or ever claimed to have had against any or all of the Releasees. This release includes, without limitation, all Claims: o relating to your employment by and resignation from employment with Berkshire; o arising from or out of the June 27, 2000 employment agreement between you and the Holding Company and/or the June 27, 2000 employment agreement between you and Berkshire Bank; o of wrongful discharge; o of breach of contract; o of retaliation or discrimination under federal, state or local law (including, without limitation, Claims of age discrimination or retaliation under the Age Discrimination in Employment Act, Claims of disability discrimination or retaliation under the Americans with Disabilities Act, and Claims of discrimination or retaliation under Title VII of the Civil Rights Act of 1964); o under any other federal or state statute (including, without limitation, Claims under the Family Medical Leave Act and Claims under the Worker Adjustment and Retraining Notification Act); o of defamation or other torts; o of violation of public policy; o for wages, bonuses, incentive compensation, vacation pay or any other compensation or benefits; and o for damages or other remedies of any sort, including, without limitation, compensatory damages, punitive damages, injunctive relief and attorney's fees; provided, however, that this release shall not affect your rights under this Agreement or your rights to receive a distribution of your vested account balances under the 401(k) Plan and ESOP. You agree that you shall not seek or accept damages of any nature, other equitable or legal remedies for your own benefit, attorney's fees, or costs from any of the Releasees with respect to any Claim. As a material inducement to Berkshire to enter into this Agreement, you represent that you have not assigned to any third party and you have not filed with any agency or court any Claim released by this Agreement. (b) By Berkshire. Berkshire, on behalf of itself and its predecessors, successors, assign, directors (but only in their capacities as directors of Berkshire) and officers (but only in their capacities as officers of Berkshire) voluntarily and irrevocably release and discharge you and your successors, assigns, heirs, and survivors from any and all charges, complaints, claims, promises, agreements, causes of action, damages and debts (including attorney's fees and costs actually incurred) which any of them have, claim to have, ever had or ever claimed to have had against you through the date hereof, known or unknown, which relate to good faith acts or omissions by you during the course of your employment with Berkshire undertaken or not undertaken in the reasonable belief that such acts or omissions were in the best interest of Berkshire. 9. Nondisparagement You agree not to make any disparaging statements concerning Berkshire or any of its affiliates or current or former officers, directors, shareholders, employees or agents. You further agree not to take any actions or conduct yourself in any way that would reasonably be expected to affect adversely the reputation or goodwill of Berkshire or any of its affiliates or any of its current or former officers, directors, shareholders, employees or agents. Berkshire will instruct the members of its Board of Directors and its executive management not to take any action or make any statement, written or oral, which disparages or criticizes you or your management and business practices. The provisions of this Section 9 shall not apply to any truthful statement required to be made by you or Berkshire, as the case may be, in any legal proceeding or governmental or regulatory investigation or any truthful statements made by Berkshire in connection with the public disclosure of your resignation from Berkshire. 10. Future Cooperation You agree to cooperate reasonably with Berkshire and all of its affiliates (including its outside counsel) in connection with the contemplation, prosecution and defense of all phases of existing, past and future litigation, regulatory or administrative actions about which Berkshire believes you may have knowledge or information. You further agree to make yourself available at mutually convenient times during and outside of regular business hours as reasonably deemed necessary by Berkshire's counsel. Berkshire shall not utilize this Section 10 to require you to make yourself available to an extent that would unreasonably interfere with full-time employment responsibilities that you may have. You agree to appear without the necessity of a subpoena to testify truthfully in any legal proceedings in which Berkshire calls you as a witness. Berkshire shall also reimburse you for any pre-approved reasonable business travel expenses that you incur on Berkshire's behalf as a result of your litigation cooperation services, after receipt of appropriate documentation consistent with Berkshire's business expense reimbursement policy. You further agree that you shall not voluntarily provide information to or otherwise cooperate with any individual or entity that is contemplating or pursuing litigation against any of the Releasees or that is undertaking any investigation or review of any of the Releasees' activities or practices; provided, however, that you may participate in or otherwise assist in any investigation or inquiry conducted by the EEOC or the Massachusetts Commission Against Discrimination. 11. Suspension or Termination of Payments In the event that you fail to comply with any of your obligations under this Agreement, in addition to any other legal or equitable remedies it may have for such breach Berkshire shall have the right to terminate or suspend its payments to you under this Agreement. The termination or suspension of such payments in the event of such breach by you will not affect your continuing obligations under this Agreement. Notwithstanding the foregoing, this provision shall not apply to the extent that your breach of this Agreement consists of initiating a legal action in which you contend that the release set forth in Section 8(a) is invalid, in whole or in part, due to the provisions of 29 U.S.C. ss. 626(f). 12. Legal Representation This Agreement is a legally binding document and your signature will commit you to its terms. You acknowledge that you have been advised to discuss all aspects of this Agreement with your attorney, that you have in fact retained a personal attorney who has reviewed this Agreement and represented you concerning it, that you have carefully read and fully understand all of the provisions of this Agreement and that you are voluntarily entering into this Agreement. Berkshire represents and warrants to you that all requisite company authority, and all other consents necessary for the execution of this Agreement, have been duly adopted and obtained, and Berkshire has the full right, power and authority to execute, deliver, and carry out the terms and conditions of this Agreement and all other documents to be executed pursuant to, or in connection with, this Agreement. 13. Enforcement (a) Jurisdiction. You and Berkshire hereby agree that the Superior Court of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts shall have the exclusive jurisdiction to consider any matters related to this Agreement, including without limitation any claim for violation of this Agreement. With respect to any such court action, you (i) submit to the jurisdiction of such courts, (ii) consent to service of process, and (iii) waive any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction or venue. (b) Relief. You agree that it would be difficult to measure any harm caused to Berkshire that might result from any breach by you of your promises set forth in Sections 5, 6, 7 and 9 and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, you agree that if you breach, or propose to breach, any portion of your obligations under Sections 5, 6, 7 and 9, Berkshire shall be entitled, in addition to all other remedies it may have, to an injunction or other appropriate equitable relief to restrain any such breach, without showing or proving any actual damage to Berkshire and without the necessity of posting a bond. In the event that Berkshire prevails in any action to enforce Section 5, 6, 7 and 9, then you also shall be liable to Berkshire for attorney's fees and costs incurred by Berkshire in enforcing such provision(s). In addition, in the event that you breach any portion of Section 7, you agree that the restrictions of Section 7 shall remain in effect for the period of such breach notwithstanding the period of one (1) year set forth above and you further agree that the same restrictions shall apply for a period of one (1) year commencing effective upon the cessation of any such breach. 14. Indemnification Berkshire shall indemnify you (and your heirs, executors and administrators) to the fullest extent permitted under Delaware law against all expenses and liabilities reasonably incurred by you in connection with or arising out of any action, suit, or proceeding in which you may be involved by reason of your having been a director or officer of Berkshire (whether or not incurred before or after the Resignation Date). Such expenses and liabilities will include, but will not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. Any payments made to you pursuant to this Section 14 are subject to and conditioned on compliance with 12 U.S.C. ss. 1828(k) and 12 C.F.R. Part 359 and any rules or regulations promulgated thereunder. 15. Notices, Acknowledgments and Other Terms (a) You are advised to consult with an attorney before signing this Agreement. (b) You acknowledge and agree that Berkshire's promises in this Agreement constitute consideration in addition to anything of value to which you are otherwise entitled by reason of your resignation from employment. (c) You acknowledge that you have been given the opportunity, if you so desired, to consider this Agreement for twenty-one (21) days before executing it. If not signed by you and returned to Gerald A. Denmark so that it is received by close of business on the twenty-second (22nd) day after your receipt of the Agreement, this Agreement will not be valid. In addition, if you breach any of the conditions of the Agreement within the twenty-one (21) day period, the offer of this Agreement will be withdrawn and your execution of the Agreement will not be valid. In the event that you execute and return this Agreement within twenty-one (21) days or less of the date of its delivery to you, you acknowledge that such decision was entirely voluntary and that you had the opportunity to consider this letter agreement for the entire twenty-one (21) day period. Berkshire acknowledges that for a period of seven (7) days from the date of the execution of this Agreement, you shall retain the right to revoke this Agreement by written notice delivered to Gerald A. Denmark before the end of such period. This Agreement shall become effective upon the expiration of such revocation period (the "Effective Date"). You acknowledge that the Bank may elect to accept your resignation and announce it publicly at any time after you tender a signed copy of this Agreement. (d) By signing this Agreement, you acknowledge that you are doing so voluntarily and knowingly, fully intending to be bound by this Agreement. You also acknowledge that you are not relying on any representations by us or any other representative of Berkshire concerning the meaning of any aspect of this Agreement. You understand that this Agreement shall not in any way be construed as an admission by Berkshire of any liability or any act of wrongdoing whatsoever by Berkshire against you and that Berkshire specifically disclaims any liability or wrongdoing whatsoever against you on the part of itself and its respective officers, directors, shareholders, employees and agents. You understand that if you do not enter into this Agreement and bring any claims against Berkshire, Berkshire will dispute the merits of those claims and contend that it acted lawfully and for good business reasons with respect to you. (e) In the event of any dispute, this Agreement will be construed as a whole, will be interpreted in accordance with its fair meaning, and will not be construed strictly for or against either you or Berkshire. (f) Except to the extent that the law of Delaware will establish the scope of Berkshire's obligations to indemnify you pursuant to Section 14 of this Agreement, the law of the Commonwealth of Massachusetts will govern any dispute about this Agreement, including any interpretation or enforcement of this Agreement. (g) In the event that any provision or portion of a provision of this Agreement shall be determined to be illegal, invalid or unenforceable, the remainder of this Agreement shall be enforced to the fullest extent possible and the illegal, invalid or unenforceable provision or portion of a provision will be amended by a court of competent jurisdiction to reflect the parties' intent if possible. If such amendment is not possible, the illegal, invalid or unenforceable provision or portion of a provision will be severed from the remainder of this Agreement and the remainder of this Agreement shall be enforced to the fullest extent possible as if such illegal, invalid or unenforceable provision or portion of a provision was not included. (h) This Agreement may be modified only by a written agreement signed by you and authorized representatives of Berkshire. (i) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter. (j) This Agreement shall be binding upon each of the parties and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of each party and to their heirs, administrators, representatives, executors, successors, and assigns. Please indicate your agreement to the terms of this Agreement by signing and returning to me the original of this letter within the time period set forth above. Very truly yours, BERKSHIRE BANK By: /s/ Michael P. Daly November 13, 2002 ------------------------------- ---------------------------- Michael P. Daly Date President and CEO BERKSHIRE HILLS BANCORP, INC. By: /s/ Michael P. Daly November 13, 2002 ------------------------------- ---------------------------- Michael P. Daly Date President You are advised to consult with an attorney before signing this Agreement. The foregoing is agreed to and accepted by: /s/ Susan Santora November 13, 2002 - ------------------------------------------ ---------------------------- Susan Santora Date EX-99.1 6 exhibit99-1.txt Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Berkshire Hills Bancorp, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael P. Daly, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. /s/ Michael P. Daly ----------------------- Michael P. Daly Chief Executive Officer November 13, 2002 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Berkshire Hills Bancorp, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles F. Plungis, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. /s/ Charles F. Plungis, Jr. --------------------------- Charles F. Plungis, Jr. Chief Financial Officer November 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----