Berkshire Hills Bancorp (BHLB) reported third quarter 2009 net income of $1.9 million, or $0.14 per share. Included in the quarter’s results was a charge of $0.08 per share after tax resulting from the Company’s decision to accelerate the disposition of a nonperforming loan. The Company’s earnings per share were $0.22 before this charge. Quarterly earnings were also net of a $0.05 per share charge after tax related to an increase in the loan loss allowance to 1.22% of total loans from 1.16% during the quarter.

Third quarter earnings per share increased from the prior quarter results, which included charges of $1.3 million representing a special FDIC industry-wide assessment and $3.3 million in non-recurring preferred stock dividends. These dividends consisted mostly of a one-time deemed dividend which was non-cash and had no impact on stockholders’ equity, and which was related to the prepayment of preferred stock held by the U.S. Treasury. For the first nine months of the year, Berkshire reported net income of $8.1 million, or $0.63 per share before these charges. Including these charges, nine month 2009 GAAP earnings per share totaled $0.32.

THIRD QUARTER HIGHLIGHTS

• Strong quarterly growth in targeted loans and deposits
  • 12% annualized commercial loan growth
  • 16% annualized non-maturity deposit growth
• Significant linked quarter revenue growth
  • 11% annualized growth in net interest income compared to linked quarter, with the net interest margin improving to 2.96% from 2.91% and reaching 3.03% in September
  • 36% increase in fee income related to deposits, loans, interest rate swaps, and wealth management compared to linked quarter
• Continuing solid loan performance
  • 0.60% nonperforming assets/assets excluding the above mentioned loan targeted for liquidation; 0.85% including this loan
  • 0.42% accruing delinquent loans/loans
  • 0.59% annualized net charge-offs to average loans in third quarter; 0.52% for the year-to-date
  • 1.22% allowance/loans, increased from 1.16% during the quarter

Michael P. Daly, President and Chief Executive Officer, stated, “We produced broad-based revenue increases in the third quarter, together with strong growth in targeted loans and deposits. Our franchise is well positioned to serve the needs of our markets, as we increase our market share by providing solutions in place of national providers who are less active in our region. Through careful pricing, we have begun to increase our net interest margin and we are benefiting from improved market conditions in our wealth management business. Our regional teams are seeing the benefit of community outreach over the past year, and we are pleased with the initial contributions from the new leadership that joined us in our attractive New York region in the second quarter.”

Mr. Daly continued, “Our basic operations strengthened and moved forward in the third quarter. In that context, we made a decision to accelerate the disposition of the previously mentioned secured nonperforming loan, which we hope to liquidate at a 22% discount in the fourth quarter. Our provision included a $1.9 million charge related to this loan, which was written down to $6.6 million. The performance of our other loans remained strong, and our total loan charge-offs have remained moderate. Nonetheless, we believe that the accumulating impacts of the recession and unemployment are a growing burden on many of our commercial and non-profit customers. We are expanding our portfolio monitoring as we obtain updated financial information from our customers, and we will be assessing risk management strategies actively as we evaluate the economic and financial conditions in our markets.”

Mr. Daly concluded, “We opened our new Pioneer Valley regional headquarters in Springfield last week. This well located facility will provide a convenient base for our growing team to service this market, along with other business opportunities through our relationship connections in Massachusetts and Connecticut. We also will continue to maintain a strong regional presence in our Westfield facility to service our longstanding customer base. We will be opening our new branch in our Springfield headquarters in November, and this will be a model of improvements that we are designing into our retail service delivery as America’s Most Exciting Bank^SM.”

SPRINGFIELD REGION HEADQUARTERS

Berkshire’s new Springfield region headquarters will service the Company’s 15 banking and insurance offices in its Pioneer Valley, Massachusetts region. The headquarters is located at 1259 East Columbus Avenue, and has immediate North and South-bound access to Interstate-91 from a convenient address in Springfield’s downtown business district. Springfield is among the top six metropolitan statistical areas in New England, and the Hartford-Springfield market is the second largest metro area in the region. Springfield is strategically located at the intersection of Interstate-91 which runs the length of New England and Interstate-90 which runs across New England. This headquarters will provide Berkshire with more convenient access to its customers in adjacent markets, including Hartford and Worcester. The Springfield area is an educational hub for more than 100,000 students in 29 colleges and universities. The area enjoys an attractive cost-of-living, ready airport access, and is at the crossroads of major regional and national telecommunications backbones. A public/private collaborative recently announced plans to build a green world class high performance computing facility in the region. Berkshire’s team in the region is led by Senior Vice President Thomas Creed and includes retail and commercial banking, insurance, and wealth management professionals.

SHELF REGISTRATION FILING

The Company plans to file a $150 million universal shelf registration with the SEC during the fourth quarter. This replaces the prior $125 million shelf registration which expired in September and which was used for common and preferred stock issuances over the last twelve months. The Company has no current plans to issue securities under this registration, but it will be available to facilitate capital offerings over the next three years as Berkshire continues to pursue attractive growth opportunities through de novo and acquisition initiatives as it increases the breadth and depth of its footprint in the attractive New England and northeastern New York financial services markets.

DIVIDEND DECLARED

The Board of Directors maintained the cash dividend on Berkshire’s common stock, declaring a dividend of $0.16 per share to stockholders of record at the close of business on November 12, 2009 and payable on November 25, 2009.

FINANCIAL CONDITION

Total assets have remained steady at $2.7 billion during 2009. A $58 million increase in securities since year-end has been funded through the utilization of short-term investments and cash flow from the planned run-off of indirect auto loans. A $137 million increase in deposits was used to reduce borrowings and short term liabilities. A second quarter common stock issuance raised $32 million which was the primary source of funds to repay $40 million of U.S. Treasury preferred stock. The Company currently has no funded participation in any federal stimulus programs; it continues to voluntarily purchase unlimited FDIC transaction account deposit insurance.

Total securities increased by $30 million in the third quarter and by $58 million for the first nine months of 2009. Berkshire has purchased high grade short duration debt securities with the expectation that funds will gradually be re-invested in loan growth. Loans totaled $2.0 billion at the most recent quarter-end, increasing by $17 million in the third quarter and decreasing by $21 million for the year-to-date. Auto loans decreased by $46 million for the year-to-date due to the planned run-off of the Company’s indirect auto portfolio. Loan growth has been concentrated mainly in commercial loans, where loan growth totaled $30 million in the third quarter (12% annualized) and $52 million for the year-to date (7% annualized). Most of this growth has been in commercial mortgages; the origination pace has picked up since the markets began to recover in the second quarter from the previous steep drop-off in activity. New York commercial originations have also benefited from the new commercial leadership which was recruited in the second quarter. Commercial loan growth offset a decline in residential mortgages, which had decreased by $49 million during the first six months due to the high volume of loan refinancing into low fixed rate loans which were sold to government agencies. The Company held more mortgages in portfolio in the third quarter and promoted jumbo mortgage originations; as a result the portfolio only declined by $2 million during the quarter. Home equity and other consumer loan outstandings increased at a 15% annualized rate during the first nine months primarily due to home equity promotions in the first half of the year.

Excluding the $6.6 million balance of the nonperforming loan which is expected to be liquidated, nonperforming assets measured 0.60% of total assets at September 30, 2009. Including this loan, this ratio stood at 0.85%. This is an increase from 0.42% at mid-year and 0.48% at the prior year-end. This increase is due to two condominium construction loans that became nonperforming in the most recent quarter. One of these loans is targeted for liquidation as noted above; the other loan is carried at $5.1 million, and unit sales in this project have resumed following a homeowner dispute resolution in September. Accruing delinquent loans decreased to 0.42% of total loans at quarter-end, compared to 0.66% at the prior quarter-end, due primarily to the resolution of two commercial loans which became current during the quarter. Annualized net loan charge-offs measured 0.59% in the third quarter and 0.52% for the year-to-date. Net loan charge-offs of $2.9 million in the most recent quarter included $2.3 million related to the above two construction loans. The loan loss allowance was 1.22% of total loans at quarter-end, increasing from 1.16% at the start of the quarter. The allowance provided 152% coverage of nonperforming loans at quarter-end, excluding the construction loan targeted for liquidation. Despite the generally favorable continuing performance of the loan portfolio, management believes that portfolio risk may be increasing due to the accumulating impacts of the recession, and this will be monitored as updated information is received from borrowers.

Total deposits were $2.0 billion at September 30, 2009, increasing by $15 million (at a 3% annualized rate) in the most recent quarter and by $137 million (at a 10% annualized rate) for the year-to-date. Growth was concentrated in non-maturity deposits, which grew at a 14% annualized rate for the year-to-date, including the benefit of 18% annualized demand deposit growth. The Company repriced maturing time deposits in the third quarter reflecting current market conditions, and this contributed to the $32 million decrease in these balances. By emphasizing lower cost non-maturity deposits and lowering time deposit costs, Berkshire has reduced the cost of its deposits in order to offset the impact of lower asset yields in the current low interest rate environment. Much of the year-to-date deposit growth has been concentrated in the Berkshire’s New York market, reflecting ongoing market share growth resulting from Berkshire’s de novo expansion in this attractive region.

Total stockholders’ equity was $410 million at September 30, 2009, increasing from $408 million at the start of the year. Berkshire’s equity benefited by $8 million due to an increase in the market values for the Company’s securities and derivatives contracts. During the second quarter, Berkshire raised $32 million in net proceeds from a public common stock offering and repaid $40 million in preferred stock previously issued to the U.S. Treasury. The ratio of tangible common equity to assets improved to a strong 9.3% at September 30, 2009, while the ratio of total equity to assets measured 15.3%. Tangible book value per common share improved to $16.76 from $15.73 at the start of the year. Quarter-end total book value per share measured $29.46, compared to $30.33 at the start of the year. These changes included the impact of the second quarter common stock offering, which was issued at an offering price of $21.50 per share.

RESULTS OF OPERATIONS

Third quarter 2009 net income was $1.9 million, compared to $5.3 million in the third quarter of 2008. For the first nine months of 2009, net income was $8.1 million, compared to $17.0 million in the same period of 2008. The decrease in income in 2009 was primarily related to lower net interest income, higher FDIC insurance premiums, and an increase in the loan loss provision. Earnings per share also decreased, including the impact of additional common and preferred shares issued over the last twelve months.

The net interest margin rebounded in the most recent quarter, increasing to 2.96% from 2.91% in the prior quarter due to the benefit of commercial loan growth and deposit gathering strategies. The year-to-year decline in net interest income was due to margin compression from 3.48% in the third quarter of 2008. The low interest rate environment has negatively impacted the Company’s asset sensitive net interest income, as management has chosen to sacrifice current yield to protect earnings in the event of future rate increases. Market deposit interest rate floors and runoff of mortgage and auto loans have also pressured margins. Income was also reduced by the elimination in 2009 of dividends from the Federal Home Loan Bank of Boston; these dividends totaled $0.7 million in the first nine months of 2008.

Quarterly non-interest income also rebounded, increasing year-to-year in the third quarter. There was also a 36% increase in fees in the most recent quarter related to deposits, loans, interest rate swaps, and wealth management fees compared to the linked quarter. Berkshire has benefited from volume growth of deposit accounts, along with the benefit of mortgage origination fees and interest rate swap fees. Wealth management fees increased due to a rebound in stock prices in the most recent quarter; assets under management increased at a 10% annualized rate for the year-to-date. Insurance fees year-to-date decreased primarily due to lower contingency income and ongoing tighter pricing conditions in the consumer and commercial markets. Insurance fee income is seasonal, with most contingency income received in the first half of the year. Non-recurring income totaled $1.2 million in 2009, primarily due to $1.0 million in fees related to the June termination of the merger agreement with CNB Financial Corp.

The loan loss provision increased in 2009, exceeding net loan charge-offs and resulting in an increase in the allowance for loan losses to 1.22% of total loans from 1.16% during the third quarter. Net loan charge-offs measured 0.52% for the year-to-date in 2009, increasing from 0.16% in the first nine months of 2008 primarily due to higher commercial loan charge-offs. Commercial loan losses annualized measured 0.75% of average loans for the current year-to-date, including 0.24% related to decisions to accelerate the disposition of problem loans.

Third quarter non-interest expense increased from year-to-year primarily due to the impact of higher FDIC premiums. The FDIC has raised its industry premium rates in 2009. Excluding these charges, all other expenses were up 4% year-to-year in the third quarter. Linked quarter compensation expense increased due primarily to higher mortgage department costs recorded as compensation expense, along with higher compensation for the expanded New York commercial team. Year-to-date expense included a $1.3 million second quarter FDIC special industry assessment ($0.06 per share after tax), as well as $0.6 million in non-core second quarter charges related to the terminated CNB merger agreement and restructuring charges. The Company recorded a $0.7 million income tax benefit in the most recent quarter, resulting in a year-to date effective tax rate of 15%. This rate was down from 29% in the same period of 2008 due to the lower level of pretax income in 2009.

CONFERENCE CALL

Berkshire will conduct a conference call/webcast at 9:00 A.M. eastern time on Wednesday, October 28, 2009 to discuss the results for the quarter and guidance about expected future results. Information about the conference call follows:

Dial-in: 800-860-2442

Webcast: www.berkshirebank.com (Investor Relations link)

A telephone replay of the call will be available through November 4, 2009 by calling 877-344-7529 and entering conference number: 434382. The webcast and a podcast will be available at Berkshire's website above for an extended period of time.

BACKGROUND

Berkshire Hills Bancorp is headquartered in Pittsfield, Massachusetts. It has $2.7 billion in assets and is the parent of Berkshire Bank — America’s Most Exciting Bank^SM. The Company provides personal and business banking, insurance, investment, and wealth management services through 46 financial centers in western Massachusetts, northeastern New York, and southern Vermont. Berkshire Bank provides 100% deposit insurance protection, regardless of amount, based on a combination of FDIC insurance and the Depositors Insurance Fund (DIF). For more information, visit www.berkshirebank.com or call 800-773-5601.

FORWARD LOOKING STATEMENTS

Statements in this news release regarding Berkshire Hills Bancorp that are not historical facts are “forward-looking statements”. These statements reflect management’s views of future events, and involve risks and uncertainties. For a discussion of factors that could cause actual results to differ materially from expectations, see “Forward Looking Statements” in the Company’s 2008 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are available at the Securities and Exchange Commission’s Internet website (www.sec.gov) and to which reference is hereby made. Actual future results may differ significantly from results discussed in these forward-looking statements, and undue reliance should not be placed on such statements. Except as required by law, the Company assumes no obligation to update any forward-looking statements.

NON-GAAP FINANCIAL MEASURES

This news release contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included in the accompanying financial tables. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders. The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations, including merger costs and restructuring costs. Similarly, the efficiency ratio is also adjusted for these non-core items. Additionally, the Company adjusts core income to exclude amortization of intangibles to arrive at a measure of the underlying operating cash return for the benefit of stockholders. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community. In the first quarter of 2009, the Company adjusted core earnings per share and core return on tangible common equity to be net of preferred stock dividends. These measures were not adjusted in this manner in the second quarter of 2009. The second quarter deemed dividend was a nonrecurring non-cash charge with no impact on stockholders’ equity and did not reflect a core economic event in the Company’s view. Additionally, the Company held cash at near-zero interest rates in the second quarter while it awaited the approval of the U.S. Treasury to repay the preferred stock. Accordingly, the preferred stock cash dividend and accretion charges were viewed by the Company as non-core one-time charges against income available to common stockholders related to the process of repaying the preferred stock.