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Section 1: 10-K



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended December 31, 2003

|_|   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 Identification No.)
      incorporation or organization)

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

       Registrant's telephone number, including area code: (413) 443-5601
          Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange
          Title of each class:                        on which registered:
Common Stock, par value $0.01 per share             American Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. |X|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                              Yes |X|       No |_|

The aggregate market value of the voting and non-voting common equity held by
non-affiliates was $156.5 million, based upon the closing price of $28.40 as
quoted on the American Stock Exchange as of the last business day of the
registrant's most recently completed second fiscal quarter.

              The number of shares outstanding of the registrant's
              common stock as of February 26, 2004, was 5,936,461.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of the Proxy Statement for the 2004 Annual Meeting of
    Stockholders are incorporated by reference in Part III of this Form 10-K.


                                      -13-
      

INDEX
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PART I .............................................................................        15

   ITEM 1. BUSINESS ................................................................        15

   ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT ...................................        44

   ITEM 2. PROPERTIES ..............................................................        45

   ITEM 3. LEGAL PROCEEDINGS .......................................................        46

   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .....................        46

PART II ............................................................................        46

   ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ...        46

   ITEM 6. SELECTED FINANCIAL DATA .................................................        47

   ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS ...................................................        49

   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .............        59

   ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............................        61

   ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE ....................................................       107

   ITEM 9a. CONTROLS AND PROCEDURES ................................................       107

PART III ...........................................................................       107

   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .....................       107

   ITEM 11. EXECUTIVE COMPENSATION .................................................       107

   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
            RELATED STOCKHOLDER MATTERS ............................................       107

   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .........................       108

   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES .................................       108

PART IV ............................................................................       109

   ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K .......       109
        


                                      -14-
      

                                     PART I

ITEM 1. BUSINESS
--------------------------------------------------------------------------------

General

      Berkshire Hills Bancorp, Inc. (the "Company" or "Berkshire Hills"), a
Delaware corporation, was organized in January 2000 to become the holding
company for Berkshire Bank (the "Bank") upon the conversion of the Bank's former
parent holding company, Berkshire Bancorp, from the mutual to stock form of
organization, which occurred on June 27, 2000. The Company owns all of the
outstanding shares of the Bank. The Company has no significant liabilities.
Management of the Company and the Bank are substantially similar and the Company
neither owns nor leases any property, but instead uses the premises, equipment
and furniture of the Bank. Accordingly, the information set forth in this
report, including the consolidated financial statements and related financial
data, relates primarily to the Bank.

      The Bank is regulated by the Massachusetts Division of Banks and the
Federal Deposit Insurance Corporation (the "FDIC"). The Bank's deposits are
insured to the maximum allowable amount by the Bank Insurance Fund (the "BIF")
of the FDIC and the Depositors Insurance Fund (the "DIF"). Berkshire Bank has
been a member of the Federal Home Loan Bank system since 1973.

      Berkshire Bank is a community bank that accepts retail deposits from the
general public in the areas surrounding its 11 full-service banking offices and
uses those funds, together with funds generated from operations and borrowings,
to originate residential mortgage loans, commercial business and real estate
loans and consumer loans, primarily automobile loans and home equity lines of
credit. Berkshire Bank primarily holds the loans that it originates for
investment, but occasionally sells or securitizes some of its loans, including
automobile and fixed-rate residential mortgage loans, in the secondary market.
Berkshire Bank also invests in U.S. Government and Agency securities, mortgage-
and asset-backed securities, including real estate mortgage investment conduits
and collateralized mortgage obligations, debt and equity securities and other
permissible investments. Berkshire Bank's revenues are derived principally from
the generation of interest and fees on loans originated and, to a lesser extent,
interest and dividends on its investment securities. Berkshire Bank's primary
sources of funds are deposits, principal and interest payments on loans and
securities and advances from the Federal Home Loan Bank of Boston.

Company Website and Availability of Securities and Exchange Commission Filings

      The Company's Internet website is www.berkshirebank.com. The Company makes
available free of charge on or through its website, its annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to,
the Securities and Exchange Commission.

Market Area

      Berkshire Bank is headquartered in Pittsfield, Massachusetts, in Berkshire
County. Berkshire Bank's primary deposit gathering and lending areas are
concentrated in the communities surrounding its 11 full-service banking offices
located in Berkshire County. However, Berkshire Bank also makes loans throughout
western Massachusetts, northern Connecticut, eastern New York and southern
Vermont and occasionally other geographic areas.

      Berkshire County, the western-most county in Massachusetts, is
approximately two and one-half hours from both Boston and New York City.
Berkshire County borders Vermont, Connecticut and New York. Berkshire County has
experienced a shift in its economy as manufacturing jobs have been replaced with
service-related jobs, primarily in tourism, social service and health care.
Other than Berkshire Bank, the major employers in the area include Berkshire
Life Insurance Company of America, Crane & Company, GE Plastics, Kay Bee Toys,
Berkshire Health Systems, General Dynamics Defense Systems, Mead Corporation and
several institutions of higher education.

Competition

      The Bank faces intense competition for the attraction of deposits and
origination of loans in its primary market area. As of June 30, 2003, according
to information presented on the Federal Deposit Insurance Corporation's website,
the Bank held approximately 32% of the deposits in Berkshire County, which was
the largest share of deposits out of 12 financial institutions in the county.
Berkshire Bank's most direct competition for deposits comes from one large
credit union in the area, which has a competitive advantage as credit unions do
not have to pay state or federal taxes. The Bank also competes with
super-regional banks, such as Banknorth and Citizens Bank. These competitors
have substantially greater resources and lending limits than the Bank does and
offers services that the Bank does not provide. Additionally, Berkshire Bank
faces competition for deposits from several commercial and savings banks
operating in its primary market area and, to a lesser extent, from other
financial institutions, such as brokerage firms, insurance companies and the
mutual fund industry, as customers seek alternative sources of investment for


                                      -15-
      

their funds. Berkshire Bank also faces significant competition for investors'
funds due to its direct purchase of short-term money market securities and other
corporate and government securities. Berkshire Bank faces competition for loans
from a significant number of traditional financial institutions, primarily
savings banks and commercial banks in its market area, as well as the mortgage
companies and mortgage brokers operating in its primary market area. The
increase of Internet-accessible financial institutions which solicit deposits
and originate loans on a nationwide basis also increases competition for
Berkshire Bank's customers. Additionally, competition has increased as a result
of regulatory actions and legislative changes, most notably the enactment of the
Gramm-Leach-Bliley Act of 1999. These changes have eased restrictions on
interstate banking and the entrance into the financial services market by
non-depository and non-traditional financial services providers, including
insurance companies, securities brokerage and underwriting firms and specialty
financial services companies (such as Internet-based providers).

Lending Activities

      General. The types of loans that Berkshire Bank may originate are limited
by federal and state laws and regulations. Interest rates charged by Berkshire
Bank on loans are affected principally by Berkshire Bank's current
asset/liability strategy, the demand for such loans, the supply of money
available for lending purposes and the rates offered by competitors. These
factors, in turn, are affected by general and economic conditions, monetary
policies of the federal government, including the Federal Reserve Board,
legislative tax policies and governmental budgetary matters.

      Loan Portfolio Analysis. The following table sets forth the composition of
Berkshire Bank's loan portfolio in dollar amounts and as a percentage of the
portfolio at the dates indicated.

       
         
                                                              At December 31,
                                  -----------------------------------------------------------------------
                                          2003                     2002                     2001
                                  ---------------------    ---------------------    ---------------------
                                                Percent                  Percent                  Percent
                                                  of                       of                       of
                                    Amount       Total       Amount       Total       Amount       Total
                                  ---------     -------    ---------     -------    ---------     -------
                                                           (Dollars in thousands)
                                                                                                     
Real estate loans:

   One- to four-family            $ 266,753      33.70%    $ 246,938      34.15%    $ 240,852      30.01%

   Commercial                       154,244      19.49       119,198      16.48        84,741      10.56

   Multi-family                      15,514       1.96        14,920       2.06        13,183       1.64

   Construction and land
    development                      34,719       4.39        17,627       2.44        22,936       2.86
                                  ---------     ------     ---------     ------     ---------     ------
      Total real estate loans       471,230      59.54       398,683      55.13       361,712      45.07
                                  ---------     ------     ---------     ------     ---------     ------

Consumer loans:

   Home equity lines of credit       45,783       5.78        40,713       5.63        34,439       4.29

   Automobile                       103,674      13.10       113,321      15.67       228,412      28.46

   Other                              4,506       0.57         5,017       0.69         7,792       0.97
                                  ---------     ------     ---------     ------     ---------     ------
      Total consumer loans          153,963      19.45       159,051      21.99       270,643      33.72
                                  ---------     ------     ---------     ------     ---------     ------

Commercial loans                    166,451      21.01       165,447      22.88       170,230      21.21
                                  ---------     ------     ---------     ------     ---------     ------
      Total loans                   791,644     100.00%      723,181     100.00%      802,585     100.00%
                                                ======                   ======                   ======

Net deferred loan origination
  costs                                 110                       41                      172

Unamortized discount on
  purchased loans                       473                     (200)                    (203)

Allowance for loan losses            (8,969)                 (10,308)                 (11,034)
                                  ---------                ---------                ---------
   Total loans, net               $ 783,258                $ 712,714                $ 791,520
                                  =========                =========                =========

         
                                                 At December 31,
                                  ----------------------------------------------
                                          2000                     1999
                                  ---------------------    ---------------------
                                                Percent                  Percent
                                                  of                       of
                                    Amount       Total       Amount       Total
                                  ---------     -------    ---------     -------
                                              (Dollars in thousands)
                                                                            
Real estate loans:

   One- to four-family            $ 249,440      31.44%    $ 245,240      36.39%

   Commercial                        63,871       8.05        46,419       6.89

   Multi-family                      15,699       1.98        14,793       2.20

   Construction and land
    development                      14,290       1.80        12,534       1.86
                                  ---------     ------     ---------     ------
      Total real estate loans       343,300      43.27       318,986      47.34
                                  ---------     ------     ---------     ------

Consumer loans:

   Home equity lines of credit       34,471       4.34        33,168       4.92

   Automobile                       241,862      30.48       171,527      24.46

   Other                              6,800       0.87         4,041       1.59
                                  ---------     ------     ---------     ------
      Total consumer loans          283,133      35.69       208,736      30.97
                                  ---------     ------     ---------     ------

Commercial loans                    166,956      21.04       146,196      21.69
                                  ---------     ------     ---------     ------
      Total loans                   793,389     100.00%      673,918     100.00%
                                                ======                   ======

Net deferred loan origination
  costs                                 232                      170

Unamortized discount on
  purchased loans                        --                       --

Allowance for loan losses           (10,216)                  (8,534)
                                  ---------                ---------
   Total loans, net               $ 783,405                $ 665,554
                                  =========                =========
        

Real Estate Lending

      One- to Four-Family Real Estate Loans. One of Berkshire Bank's primary
lending activities is to originate loans secured by one- to four-family
residences located in its primary market area. At December 31, 2003, $266.8
million, or 33.7%, of Berkshire Bank's total loans consisted of one- to
four-family mortgage loans. Of the one- to four-family loans outstanding at that
date, 49.0% were fixed-rate mortgage loans and 51.0% were adjustable-rate loans.

      Berkshire Bank originates fixed-rate fully amortizing loans with
maturities of 15, 20 and 30 years. Management establishes the loan interest
rates based on market conditions. Berkshire Bank offers mortgage loans that
conform to Fannie Mae and Freddie Mac guidelines. In addition, Berkshire Bank
offers jumbo loan products, which presently are loans in amounts over


                                      -16-
      

$333,700. Berkshire Bank generally originates loans for its own portfolio, but
occasionally sells or securitizes some fixed-rate one- to four-family loans in
the secondary market. The determination of whether to sell or securitize loans
is reviewed periodically by management as a means of managing the Company's
interest rate risk profile or providing liquidity.

      Berkshire Bank also currently offers adjustable-rate mortgage loans, with
an interest rate based on the one-year, three- year or five-year Constant
Maturity Treasury index, which adjust every one, three or five years from the
outset of the loan, with terms of up to 30 years. Interest rate adjustments on
such loans range from 2% to 5% during any adjustment period and are limited to
no more than 6% over the life of the loan.

      Adjustable-rate mortgage loans help reduce Berkshire Bank's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by borrowers. During periods of rising interest rates, the risk of default on
adjustable-rate mortgage loans increases as a result of repricing and the
increased payments required to be made by borrowers. In addition, although
adjustable-rate mortgage loans allow Berkshire Bank to increase the sensitivity
of its asset base to changes in interest rates, the extent of this interest
sensitivity is limited by the periodic and lifetime interest rate adjustment
limits. Because of these considerations, Berkshire Bank has no assurance that
yields on adjustable-rate mortgage loans will be sufficient to offset increases
in Berkshire Bank's cost of funds during periods of rising interest rates. These
risks have not had a material adverse effect on Berkshire Bank to date.

      Berkshire Bank underwrites one- to four-family residential mortgage loans
with loan-to-value ratios of up to 100% on a one- to two-family primary
residence, up to 90% on a three- to four-family primary residence or a vacation
home, and up to 75% on a condominium. A borrower is required to obtain private
mortgage insurance on loans that exceed 80%, or 75% in the case of a
condominium, of the appraised value or sales price, whichever is less, of the
secured property. Berkshire Bank also generally requires fire, casualty, title,
hazard insurance and, if appropriate, flood insurance to be maintained on all
properties securing real estate loans made by Berkshire Bank. An independent
licensed appraiser generally appraises all properties.

      To provide financing for low- and moderate-income families, Berkshire Bank
offers Federal Housing Authority, Veterans Administration and Massachusetts
Housing Finance Agency residential mortgage loans to qualified individuals with
adjustable- and fixed-rates of interest and terms of up to 30 years. Such loans
may be secured by one- to four-family residential properties and are
underwritten using modified underwriting guidelines. Berkshire Bank also
participates in the Good Samaritan Home Ownership Program, which is a non-profit
venture established to advise and assist low- and middle-income families in the
purchase of their first home in Berkshire County. Qualified individuals can
obtain a 30-year fixed-rate mortgage loan on a one- to four-family, owner
occupied property.

      Construction and Land Development Loans. At December 31, 2003,
construction and land development loans totaled $34.7 million, or 4.4% of
Berkshire Bank's total loan portfolio, of which $10.6 million were residential
construction loans, $15.4 million were commercial construction loans and $8.7
million were commercial land development loans. At December 31, 2003, the
unadvanced portion of construction and land development loans totaled $18.1
million.

      Berkshire Bank originates construction and land development loans to
individuals for the construction and acquisition of personal residences.
Berkshire Bank's residential construction and land development loans generally
provide for the payment of interest only during the construction phase, which is
usually twelve months. At the end of the construction phase, the loan converts
to a permanent mortgage loan. Loans can be made with a maximum loan to value
ratio of 85%, provided that the borrower obtains private mortgage insurance if
the loan balance exceeds 80% of the appraised value or sales price, whichever is
less, of the secured property. At December 31, 2003, the largest outstanding
residential construction and land development loan commitment was for $2.5
million. Construction and land development loans to individuals are generally
made on the same terms as Berkshire Bank's one- to four-family mortgage loans.

      Before making a commitment to fund a residential construction and land
development loan, Berkshire Bank requires an appraisal of the property and
planned improvements by an independent licensed appraiser. Berkshire Bank also
reviews and inspects each property before disbursement of funds during the term
of the construction and land development loan. Loan proceeds are disbursed after
inspection based on the percentage of completion method.

      Berkshire Bank also makes construction and land development loans for
commercial development projects, including multi-family commercial properties,
single-family subdivisions and condominiums. These loans generally have an
interest only phase during construction then convert to permanent financing.
Disbursement of funds is at the sole discretion of Berkshire Bank and is based
on the progress of construction. The maximum loan to value ratio for these loans
depends upon the type of commercial development project being undertaken, but
generally will not exceed 80%. At December 31, 2003, the largest commercial
construction and land development commitment was $4.5 million, of which $4.5
million was outstanding, to a locally headquartered company that develops
residential subdivisions on a national scale, and is a long-time Berkshire Bank
borrower. This loan is secured by a 1,075 acre, 892 lot residential subdivision
in the Austin-San Antonio, Texas corridor. This loan was performing according to
its terms at December 31, 2003.


                                      -17-
      

      Berkshire Bank also originates land loans to local contractors and
developers for the purpose of making improvements thereon, or for the purpose of
holding or developing the land for sale. Such loans are secured by a lien on the
property, have loan to value ratios that are limited to 75% of the value of the
land used for residential development and 80% of the value of the land used for
commercial development (based on the lower of the acquisition price or the
appraised value of the land). Land loans are offered with a term of three years
in which only interest is required to be paid each month. A balloon payment for
the principal plus any accrued interest is due at the end of the three-year
period. Berkshire Bank's land loans are generally secured by property in its
primary market area. Berkshire Bank generally requires title insurance and, if
applicable, either a hazardous waste survey or environmental insurance coverage.

      Construction and land development financing is generally considered to
involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction compared to the estimated cost (including interest)
of construction and other assumptions. If the estimate of construction cost
proves to be inaccurate, Berkshire Bank may be required to advance funds beyond
the amount originally committed to protect the value of the property.
Additionally, if the estimate of value proves to be inaccurate, Berkshire Bank
may be confronted with a completed project, having a value insufficient to
assure full repayment.

      Multi-Family and Commercial Real Estate Loans. Berkshire Bank originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small office buildings, industrial, healthcare, lodging or retail facilities
predominantly located in Berkshire Bank's primary market area. Berkshire Bank's
multi-family and commercial real estate loans may be made in amounts of up to
80% of the appraised value of the property or the selling price, whichever is
less. Loans secured by single-family subdivisions and condominium projects may
be made in amounts of up to 75% and 70%, respectively, of the appraised value of
the property or selling price, whichever is less. Berkshire Bank's multi-family
and commercial real estate loans may be made with terms of up to 20 years and
substantially all of which are originated with interest rates that adjust
periodically and are generally indexed to Berkshire Bank's base rate. In
reaching its decision on whether to make a multi-family or commercial real
estate loan, Berkshire Bank considers the net operating income and value of the
property and the borrower's expertise, credit history and profitability. In
addition, with respect to commercial real estate rental properties, Berkshire
Bank will also consider the term of the lease and the quality of the tenants.
Berkshire Bank generally requires that the properties securing these real estate
loans have debt service coverage ratios (the ratio of available cash flows
before debt service to debt service) of at least 1.25x. Environmental surveys or
environmental insurance coverage are generally required for commercial real
estate loans. Additionally, in larger real estate projects, it is recommended
that a feasibility study be obtained. A feasibility study is particularly
important with respect to multi-family housing projects, hotel/motel
construction and health care facilities. Generally, multi-family and commercial
real estate loans made to corporations, partnerships and other business entities
require personal guarantees by the principals. The largest multi-family or
commercial real estate loan relationship in Berkshire Bank's portfolio at
December 31, 2003 consisted of four loans to related health care facilities in
Massachusetts totaling $8.5 million. All loans were performing according to
their terms at December 31, 2003.

      Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be affected by adverse conditions in the real estate market or
the economy. Berkshire Bank seeks to minimize these risks through strict
adherence to its underwriting standards.

Consumer Lending

      Automobile Lending. At December 31, 2003, automobile loans totaled $103.7
million, or 13.1% of Berkshire Bank's total loans and 67.3% of consumer loans.
The Bank offers fixed-rate automobile loans on a direct and indirect basis with
terms of up to 72 months for new and recent model used cars and up to 66 months
for older model used cars. Berkshire Bank generally will make such loans up to
100% of the retail value shown in the NADA Used Car Guide. The interest rates
offered differ depending on the age of the automobile and current interest rates
offered by competitors.

      Berkshire Bank began offering indirect automobile loans through automobile
dealers over ten years ago. Currently, Berkshire Bank maintains contractual
relationships with over 90 new and used car dealers throughout western
Massachusetts, northern Connecticut, eastern New York and southern Vermont. In
2001, management determined to decrease the Bank's emphasis on lower quality or
sub-prime automobile loans and attempt to reduce the overall size of the
automobile loan portfolio. This process was accelerated through the sale of
$69.7 million of sub-prime automobile loans in 2002 and the sale of an
additional $9.9 million of sub-prime automobile loans in 2003. At December 31,
2003, $1.4 million of lower quality or sub-prime automobile loans, representing
1.3% of automobile loans, or 0.2% of total loans, remained.

      Home Equity Lines of Credit and Other Consumer Loans. Berkshire Bank
offers home equity lines of credit secured by owner-occupied one- to four-family
residences. At December 31, 2003, home equity lines of credit totaled $45.8
million, or 5.8% of Berkshire Bank's total loans and 29.7% of consumer loans.
Additionally, at December 31, 2003, the unadvanced amounts of


                                      -18-
      

home equity lines of credit totaled $45.5 million. The underwriting standards
employed by Berkshire Bank for home equity lines of credit include a
determination of the applicant's credit history, an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. Home equity loans will
not be made if the borrower's first mortgage payment, monthly real estate
payment and amortized equity line payment exceed 25% of the borrower's gross
monthly income. Additionally, the borrower's monthly debt service cannot exceed
35% of the borrower's gross monthly income. Home equity lines of credit have
adjustable rates of interest which are indexed to the prime rate as reported in
The Wall Street Journal. Generally, the maximum combined loan-to-value ratio on
home equity lines of credit is 80% for loans up to $200,000 and 60% for loans
greater than $200,000. A home equity line of credit may be drawn down by the
borrower for an initial period of five years from the date of the loan
agreement. During this period, the borrower has the option of paying, on a
monthly basis, either principal and interest or only interest. If not renewed,
the borrower has to pay back the amount outstanding under the line of credit
over a term not to exceed ten years, beginning at the end of the five-year
period.

      Other consumer loans at December 31, 2003 amounted to $4.5 million, or
0.6% of Berkshire Bank's total loans and 2.9% of consumer loans. These loans
include education, collateral, personal and unsecured loans, and second mortgage
loans other than home equity lines of credit. Collateral loans are generally
secured by a passbook account, a certificate of deposit or marketable
securities. Unsecured loans generally have a maximum borrowing limitation of
$10,000 and a maximum term of five years. Second mortgages are offered on
owner-occupied primary or secondary residences and are adjustable-rate, either
adjusting annually or with a five-year initial fixed period adjusting annually
thereafter, with terms up to 30 years.

      Loans secured by rapidly depreciable assets such as automobiles or that
are unsecured entail greater risks than one- to four-family mortgage loans. In
such cases, repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. Further,
collections on these loans are dependent on the borrower's continuing financial
stability and, therefore, are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Finally, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans if a borrower
defaults.

Commercial Lending

      Commercial Loans. At December 31, 2003, Berkshire Bank had $166.5 million
in commercial loans which amounted to 21.0% of total loans. In addition, at such
date, Berkshire Bank had $49.4 million of unadvanced commercial lines of credit.
Berkshire Bank makes commercial business loans primarily in its market area to a
variety of professionals, sole proprietorships and small businesses. Berkshire
Bank's largest commercial loan relationship was a $4.4 million loan to a long
time customer secured by various types of business assets located in Berkshire
County. This loan was performing according to its terms at December 31, 2003.

      Berkshire Bank offers secured commercial term loans, which have maturities
of greater than one year and the repayment of which is dependent on future
earnings. The term for repayment will normally be limited to the lesser of the
expected useful life of the asset being financed or a fixed amount of time,
generally seven years or less. Berkshire Bank also offers loans originated to
finance a business' equipment and machinery, lines of credit, letters of credit,
time notes and Small Business Administration guaranteed loans. In addition,
Berkshire Bank offers revolving lines of credit called operating loans that are
secured by business assets other than real estate, such as business equipment,
inventory and accounts receivable. Business lines of credit have adjustable
rates of interest and are payable on demand, subject to annual review and
renewal. Time notes are short-term loans, generally limited to 90 days which do
not require payment of principal or interest until maturity.

      When making commercial business loans, Berkshire Bank considers the
financial statements of the borrower, the borrower's payment history of both
corporate and personal debt, the debt service capabilities of the borrower, the
projected cash flows of the business, the viability of the industry in which the
customer operates and the value of the collateral. Commercial business loans are
generally secured by a variety of collateral such as accounts receivable,
inventory and equipment, and are generally supported by personal guarantees.
Depending on the collateral used to secure the loans, commercial loans are
generally made in amounts of up to 95% of the value of the collateral securing
the loan. Berkshire Bank generally does not make unsecured commercial loans.

      Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his or her employment or other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial loans are of higher risk and typically are made
on the basis of the borrower's ability to make repayment from the cash flow of
the borrower's business. As a result, the availability of funds for the
repayment of commercial loans may depend substantially on the success of the
business itself. Further, any collateral securing such loans may depreciate over
time, may be difficult to appraise and may fluctuate in value.


                                      -19-
      

      Loans to One Borrower. The maximum amount that Berkshire Bank may lend to
one borrower is limited by statute. At December 31, 2003, Berkshire Bank's
statutory limit on loans to one borrower was $21.0 million. At that date,
Berkshire Bank's largest amount of loans to one borrower, including the
borrower's related interests, was approximately $10.3 million and consisted of
ten loans secured by various types of business and real estate assets. These
loans were performing according to their terms at December 31, 2003.

      Maturity of Loan Portfolio. The following table shows the remaining
contractual maturity of Berkshire Bank's total loans at December 31, 2003,
excluding the effect of future principal prepayments, and contractual repricing.

       
         
                                                                     At December 31, 2003
                       -------------------------------------------------------------------------------------------------------------
                                      Construction                     Home Equity
                       One- to Four-    and Land     Commercial and       Lines                     Other
                          Family       Development    Multi-Family      of Credit     Automobile   Consumer   Commercial      Total
                       -------------  ------------   --------------    -----------    ----------   --------   ----------    --------
                                                                        (In thousands)
                                                                                                                               
Amounts due in:
   One year or less      $    620        $25,017        $  8,373        $ 1,767        $  2,420     $  544     $ 49,627     $ 88,368
   More than one
     year to five
     years                  7,781          7,079          10,598         11,823          81,305      1,641       26,296      146,523
   More than 5 years      258,352          2,623         150,787         32,193          19,949      2,321       90,528      556,753
                         --------        -------        --------        -------        --------     ------     --------     --------
   Total amount due      $266,753        $34,719        $169,758        $45,783        $103,674     $4,506     $166,451     $791,644
                         ========        =======        ========        =======        ========     ======     ========     ========
        

      The following table sets forth, at December 31, 2003, the dollar amount of
loans contractually due after December 31, 2004, and whether such loans have
fixed interest rates or adjustable interest rates.

                                            Due After December 31, 2004
                                     ----------------------------------------
                                       Fixed        Adjustable         Total
                                     --------        --------        --------
                                                  (In thousands)
Real estate loans:
   One- to four-family               $130,530        $135,603        $266,133
   Construction and land
      development                          --           9,702           9,702
   Commercial and
      multi-family                     13,170         148,215         161,385
                                     --------        --------        --------
      Total real estate loans         143,700         293,520         437,220
Home equity lines of credit                --          44,016          44,016
Automobile                            101,254              --         101,254
Other consumer                          1,938           2,024           3,962
Commercial loans                       12,470         104,354         116,824
                                     --------        --------        --------
      Total loans                    $259,362        $443,914        $703,276
                                     ========        ========        ========

      Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. Automobile loans have relatively
short average lives since they are fully amortizing with final maturities
generally no longer than five years. In addition, due-on-sale clauses on loans
generally give Berkshire Bank the right to declare loans immediately due and
payable if, among other things, the borrower sells the real property with the
mortgage and the loan is not repaid. The average life of a mortgage loan tends
to increase, however, when current mortgage loan market rates are substantially
higher than rates on existing mortgage loans and, conversely, tends to decrease
when rates on existing mortgage loans are substantially higher than current
mortgage loan market rates.

      Loan Approval Procedures and Authority. Berkshire Bank's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by Berkshire Bank's Board of Directors and
management. The Board of Directors has authorized the following persons and
groups of persons to approve loans up to the amounts indicated: several retail
lenders have been delegated authority to approve residential mortgage loans up
to $300,000; home equity lines of


                                      -20-
      

credit ranging from $50,000 to $300,000; unsecured consumer loans from $5,000 to
$30,000; and secured consumer loans from $20,000 to $50,000. One- to four-family
mortgage loans and home equity loans up to $300,000, secured consumer loans up
to $50,000 and unsecured loans up to $30,000, may be approved by the President
and the Senior Vice President-Retail Lending.

      One- to four-family mortgage loans and home equity loans from $300,000 to
$600,000 may be approved by a combination of individual officer authorities,
provided that approval must include either the President or Senior Vice
President-Retail Lending. Approvals from $600,000 to $1.5 million require
approvals of both the President and the Senior Vice President-Retail Lending.
All residential loans in excess of $1.5 million require the approval of the Loan
and Investment Committee of the Board of Directors or the full Board of
Directors.

      The Board of Directors has delegated the authority to approve loans to the
President, the Senior Commercial Lender and several commercial loan officers in
amounts ranging up to $300,000 for secured commercial loans and in amounts
ranging up to $175,000 for unsecured commercial loans. Loans in excess of these
amounts require the approval of a majority of the members of Berkshire Bank's
Senior Lending Committee, which consists of the Senior Commercial Lender and all
commercial loan officers. The President, the Credit Administration Officer and
the Loan Review Officer are non-voting members of the Senior Loan Committee.
Delegated approval authorities may be combined. However, individual limits may
be combined only up to $500,000 for commercial loan approvals without requiring
approval of the Senior Lending Committee, provided that commercial loans
approved by a combination of authorities must include the approval of either the
President or the Senior Commercial Lender. All commercial loans in excess of
$1.5 million require the approval of the Loan and Investment Committee of the
Board of Directors or the full Board of Directors.

      Loan Originations, Purchases and Sales. Berkshire Bank's lending
activities are conducted by its salaried and commissioned loan personnel and
through its relationships with automobile dealers. Currently, Berkshire Bank has
contractual relationships with over 90 automobile dealers who originate
automobile loans for Berkshire Bank. Such loans are only made following an
underwriting review and acceptance by Berkshire Bank. These loans are closed by
the automobile dealer and immediately assigned to Berkshire Bank, who then
services the loans. On loans originated by its automobile dealers, Berkshire
Bank compensates the originator an amount by which the interest rate paid on the
loan exceeds a specified threshold, up to a maximum of four points. The
compensation is paid at the time the loan is closed and assigned to Berkshire
Bank. For the fiscal years 2003 and 2002, Berkshire Bank originated or purchased
$60.2 million and $54.3 million of automobile loans, respectively, of which
90.6% and 87.4%, respectively, were originated indirectly through the automobile
dealers.

      From time to time, Berkshire Bank will purchase whole loans or
participations in loans. These loans are underwritten according to Berkshire
Bank's underwriting criteria and procedures and are generally serviced by the
originating lender under terms of the applicable participation agreement.
Berkshire Bank purchased $57.4 million of loans in 2003, of which $53.8 million
were secured by first mortgage liens on residential real estate. Amounts
outstanding related to loan participation interests purchased by Berkshire Bank
totaled $50.9 million and $13.7 million at December 31, 2003 and December 31,
2002, respectively, and consisted primarily of loans secured by real estate.

      At December 31, 2003, Berkshire Bank was servicing $7.2 million of
automobile loans, $8.6 million of one- to four-family mortgage loans and $8.0
million of commercial loans sold to others. Loan servicing includes collecting
and remitting loan payments, accounting for principal and interest, contacting
delinquent borrowers, supervising foreclosures and property dispositions when
there 4are unremedied defaults, making insurance and tax payments on behalf of
the borrowers and generally administering the loans. The gross servicing fee
income from loans sold is generally 25 basis points for one- to four-family
mortgage loans and 100 basis points for automobile loans of the total balance of
the loan being serviced.

      Berkshire Bank generally originates loans for its own portfolio but from
time to time will sell or securitize loans in the secondary market based on
prevailing market interest rate conditions and an analysis of the composition
and risk of the loan portfolio, the Bank's interest rate risk profile and
liquidity needs. Berkshire Bank sold or securitized fixed rate residential one-
to four-family mortgages of $69.4 million in 2003 and has contracted to
securitize an additional $39.6 million in January 2004. In addition, Berkshire
Bank sold $9.9 million of sub-prime automobile loans in 2003.


                                      -21-
      

      The following table presents total loans originated, purchased, sold and
repaid during the years indicated.

                                               For the Years Ended December 31,
                                              ----------------------------------
                                                2003         2002         2001
                                              --------    ---------     --------
                                                        (In thousands)

Loans at beginning of year                    $723,181    $ 802,985     $793,389
                                              --------    ---------     --------
  Originations:
    Real estate loans:
      One-to four-family                       113,606       88,770       36,668
      Construction and land development         32,246       30,678       22,170
      Commercial                                48,644       37,564       13,296
      Multi-family                               2,862        5,242          800
                                              --------    ---------     --------
        Total real estate loans                197,358      162,254       72,934
                                              --------    ---------     --------
    Consumer loans:
      Home equity lines of credit               15,380       16,361        6,887
      Automobile                                60,174       54,284      105,124
      Other                                      3,466        4,613        4,527
                                              --------    ---------     --------
        Total consumer loans                    79,020       75,258      116,538

    Commercial loans:
      Commercial                                44,727       48,343       63,456
                                              --------    ---------     --------
        Total loans originated                 321,105      285,855      252,928
                                              --------    ---------     --------

  Purchases:
    Real estate loans:
      Residential                               53,814           --           --
      Commercial real estate                     3,041        2,724        4,042
                                              --------    ---------     --------
        Total real estate loans                 56,855        2,724        4,042
    Consumer loans:
      Automobile                                    --           --        7,451
    Commercial loans:
      Commercial                                   500           --        2,000
                                              --------    ---------     --------
        Total loans purchased                   57,355        2,724       13,493
                                              --------    ---------     --------

  Deduct:
    Principal loan repayments, prepayments
      and other, net                           225,528      285,852      226,179
    Loan sales                                  65,400       73,625       24,263
    Securitization of loans                     16,270           --           --
    Net loan charge-offs                         2,799        6,906        6,357
    Transfers to real estate owned                  --        2,000           26
                                              --------    ---------     --------
        Total deductions                       309,997      368,383      256,825
                                              --------    ---------     --------
Net increase (decrease) in loans                68,463      (79,804)       9,596
                                              --------    ---------     --------
Loans at end of year                          $791,644    $ 723,181     $802,985
                                              ========    =========     ========

      Loan Commitments. Berkshire Bank issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
generally honored for up to 60 days from approval. At December 31, 2003,
Berkshire Bank had loan commitments and unadvanced loans and lines of credit
totaling $143.0 million.

      Loan Fees. In addition to interest earned on loans, Berkshire Bank
receives income from fees derived from loan originations, loan modifications,
late payments and for miscellaneous services related to its loans. Income from
these activities varies from period to period depending upon the volume and type
of loans made and competitive conditions.


                                      -22-
      

      Berkshire Bank charges loan origination fees which are calculated as a
percentage of the amount borrowed. As required by applicable accounting
principles, loan origination fees, discount points and certain loan origination
costs are deferred and recognized over the contractual remaining lives of the
related loans on a level yield basis. At December 31, 2003, Berkshire Bank had
approximately $110,000 of net deferred loan fees and costs. Berkshire Bank
amortized approximately $34,000 of net deferred loan fees and costs during the
year ended December 31, 2003.

      Nonperforming Assets, Delinquencies and Impaired Loans. When a borrower
fails to make a required loan payment, Berkshire Bank attempts to cure the
deficiency by mailing a past due notice on the 10th day after payment is due. In
most cases, delinquencies are cured promptly. If a delinquency continues beyond
the 15th day after the payment is due, the loan will appear on a delinquency
list and the account officer will contact the borrower. If a delinquency
continues beyond the 30th day, the borrower is again contacted and if it is
determined that the late payment is not a short-term cash flow problem, the
account is reported to the Senior Loan Officer. While Berkshire Bank generally
prefers to work with borrowers to resolve problems, Berkshire Bank generally
will initiate foreclosure or other proceedings no later than the 90th day of a
delinquency, as necessary, to minimize any potential loss.

      Management informs the Board of Directors monthly of the amount of loans
delinquent more than 30 days, all loans in foreclosure, and all foreclosed and
repossessed property that Berkshire Bank owns. Berkshire Bank generally ceases
accruing interest on all commercial and residential loans when principal or
interest payments are delinquent 90 days or more unless management determines
the loan principal and interest to be fully-secured and in the process of
collection. Once management determines that interest is uncollectible, the
accrual of interest income on a loan is discontinued and all interest previously
accrued is reversed against current period interest income. In 2001, to enhance
its risk management practices, the Bank initiated a more conservative policy for
automobile loans whereby all delinquent automobile loans remain on accrual
status until they reach 120 days delinquent. At that time they are charged-off,
except for those customers who are in bankruptcy proceedings with a secured
loan, in which case the loan is transferred to nonaccrual status.

      Berkshire Bank has adopted Statements of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended
by SFAS No. 118 "Accounting by Creditors for Impairment of a Loan--an amendment
to SFAS No. 114." At December 31, 2003 and December 31, 2002, Berkshire Bank had
$388,000 and $727,000, respectively, recorded investment in impaired loans,
which had no specific allowances and $2.0 million and $2.1 million in loans with
specific valuation allowances of $267,000 and $295,000, respectively.

      The following table sets forth information regarding nonperforming assets
and loans that were 90 days or more past due and still accruing at the dates
indicated.

       
         
                                                       At December 31,
                                     --------------------------------------------------
                                      2003       2002       2001       2000       1999
                                     ------     ------     ------     ------     ------
                                                   (Dollars in thousands)
                                                                                    
Nonaccruing loans:
  One- to four-family real estate    $  348     $  230     $  310     $  390     $  450
  Commercial real estate                496         --         --         --         --
  Commercial                          1,887      2,850      2,077        466      1,572
  Consumer(1)                           468        661        315      2,013        819
                                     ------     ------     ------     ------     ------
    Total nonperforming loans         3,199      3,741      2,702      2,869      2,841
Real estate owned                        --      1,500         --         50        220
                                     ------     ------     ------     ------     ------
    Total nonperforming assets       $3,199     $5,241     $2,702     $2,919     $3,061
                                     ======     ======     ======     ======     ======
Total nonperforming loans as a
   percentage of total loans           0.40%      0.52%      0.34%      0.36%      0.42%
Total nonperforming assets as a
   percentage of total assets          0.26%      0.50%      0.26%      0.29%      0.36%
Loans 90 days or more past due
   and still accruing(2)             $  306     $  590     $1,306     $   --     $   --
        

----------
(1)   Consists primarily of automobile loans.

(2)   Reflects Bank's policy on delinquent automobile loans whereby all
      delinquent automobile loans remain on accrual status until they reach 120
      days delinquent, at which time they are charged off. Previous to 2001,
      automobile loans past due 90 days or more were reported as nonaccrual.


                                      -23-
      

      Nonaccruing commercial loans and commercial real estate loans decreased to
$2.4 million at December 31, 2003 from $2.9 million at December 31, 2002
primarily as the result of the return of two loans to accrual status, payments
collected on accounts remaining on nonaccruing status and $157,000 in gross
commercial loan charge-offs. The borrowers with loans in Berkshire Bank's
nonaccruing commercial loan portfolio have been adversely affected by national
and regional economic conditions.

      Interest income that would have been recorded for the year ended December
31, 2003, had nonaccruing loans been current according to their original terms,
amounted to $165,000. A total of $14,000 was included in interest income to
reflect payments received on loans that had been paid off or brought up to date
but were still classified as nonaccruing.

      The following table sets forth the delinquencies in Berkshire Bank's loan
portfolio as of the dates indicated.

       
         
                                At December 31, 2003                         At December 31, 2002
                      -----------------------------------------    ------------------------------------------
                          60-89 Days          90 Days or More          60-89 Days           90 Days or More
                      -------------------   -------------------    -------------------    -------------------
                                Principal             Principal              Principal              Principal
                                 Balance               Balance                Balance                Balance
                      Number of    of       Number of    of        Number of    of        Number of    of
                        Loans     Loans       Loans     Loans        Loans     Loans        Loans     Loans
                      --------- ---------   --------- ---------    --------- ---------    --------- ---------
                                                      (Dollars in thousands)
                                                                                                        
Real estate loans:
  One- to four-
    family                 3      $ 236          3     $  220           3     $  207           4     $   92
  Commercial              --         --         --         --          --         --          --         --
  Multi-family            --         --         --         --          --         --          --         --
Consumer loans:
  Home equity lines
    of credit             --         --         --         --          --         --          --         --
  All other(1)            80        460         85        612         120        924         118        893
Commercial loans           1         36          6        215           2         49           4        110
                        ----      -----       ----     ------        ----     ------        ----     ------
  Total                   84      $ 732         94     $1,047         125     $1,180         126     $1,095
                        ====      =====       ====     ======        ====     ======        ====     ======
Delinquent loans to
  total loans           0.42%      0.09%      0.47%      0.13%       0.57%      0.16%       0.57%      0.15%

         
                                At December 31, 2001
                      ------------------------------------------
                          60-89 Days           90 Days or More
                      -------------------    -------------------
                                Principal              Principal
                                 Balance                Balance
                      Number of    of        Number of    of
                        Loans     Loans        Loans     Loans
                      --------- ---------    --------- ---------
                                (Dollars in thousands)
                                                           
Real estate loans:
  One- to four-
    family                 3     $  144           3     $  254
  Commercial              --         --          --         --
  Multi-family            --         --          --         --
Consumer loans:
  Home equity lines
    of credit             --         --          --         --
  All other(1)           323      2,645         217      1,621
Commercial loans           2        381           7      1,234
                        ----     ------        ----     ------
  Total                  328     $3,170         227     $3,109
                        ====     ======        ====     ======
Delinquent loans to
  total loans           0.96%      0.39%       0.66%      0.39%
        

----------
(1)   Consists primarily of automobile loans.

      Real Estate Owned. Real estate acquired by Berkshire Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure, establishing a new cost basis. Holding costs and declines
in fair value after acquisition are expensed. At December 31, 2003, Berkshire
Bank had no foreclosed property.

      Asset Classification. Regulators have adopted various regulations and
practices regarding problem assets of financial institutions. Under such
regulations, federal and state examiners have authority to identify problem
assets during examinations and, if appropriate, require them to be classified.
Berkshire Bank performs an internal analysis of its loan portfolio and assets to
classify such loans and assets similar to the manner in which such loans and
assets are classified by the federal banking regulators. In addition, Berkshire
Bank regularly analyzes the losses inherent in its loan portfolio and its
nonperforming loans to determine the appropriate level of the allowance for loan
losses.

      There are four classifications for problem assets: loss, doubtful,
substandard and special mention. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified as
loss, the insured institution establishes specific allowances for loan losses
for the full amount of the portion of the asset classified as loss. Doubtful
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not corrected. All or
a portion of general loan loss allowances established to cover probable losses
related to assets classified as substandard or doubtful can be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Assets that do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are designated "special mention."


                                      -24-
      

      The following table sets forth Berkshire Bank's classified assets at
December 31, 2003.

       
         
                                  Loss                      Doubtful                   Substandard               Special Mention
                         -----------------------     -----------------------     -----------------------     -----------------------
                         Number of     Principal     Number of     Principal     Number of     Principal     Number of     Principal
                           Loans        Balance        Loans        Balance        Loans        Balance        Loans        Balance
                         ---------     ---------     ---------     ---------     ---------     ---------     ---------     ---------
                                                                                                                               
                                                                    (Dollars in thousands)
Real estate loans:
  One- to four-family          --       $    --            --       $    --             9       $   476             3       $   236
  Commercial                   --            --            --            --             7         1,618             2         2,560
  Multi-family                 --            --            --            --            --            --             1           549
  Construction and land
    development                --            --            --            --            --            --             1         4,106
Consumer loans:
  Home equity lines of
    credit                     --            --            --            --            --            --            --            --
  Automobile                   --            --            --            --           123           800            77           410
  All other                    --            --            --            --             3             2             3            50
Commercial loans               --            --             1           194            36         4,146            45         9,423
                          -------       -------       -------       -------       -------       -------       -------       -------
    Total                      --       $    --             1       $   194           178       $ 7,042           132       $17,334
                          =======       =======       =======       =======       =======       =======       =======       =======
        

      At December 31, 2003, Berkshire Bank had four outstanding commercial loans
with one borrower, which were adversely classified or identified as a problem
credit, totaling $1.5 million. These loans were classified as substandard and
were secured by a lien on the borrower's commercial real estate, accounts
receivable, inventory and other commercial business assets. Based on
management's collateral value estimates, $459,000 of Berkshire Bank's December
31, 2003 allowance for loan losses have been allocated to this borrowing
relationship. Management believes that the current allocation is adequate. The
aforementioned loans were not performing according to their terms on December
31, 2003. Berkshire Bank had no other classified loans greater than $500,000
which were not performing according to their terms on December 31, 2003.

      Allowance for Loan Losses. In originating loans, Berkshire Bank recognizes
that losses will be experienced on loans and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. Berkshire Bank
maintains an allowance for loan losses to absorb losses inherent in the loan
portfolio. The allowance for loan losses represents management's estimate of
probable losses based on information available as of the date of the financial
statements. The allowance for loan losses is based on management's evaluation of
the collectibility of the loan portfolio, including past loan loss experience,
known and inherent risks in the nature and volume of the portfolio, information
about specific borrower situations and estimated collateral values and economic
conditions.

      The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, management employs an independent third party to
perform an annual review of all of Berkshire Bank's commercial loan
relationships exceeding $1.0 million, all material credits on Berkshire Bank's
watch list or classified as substandard and a random sampling of new loans. The
regulatory agencies, as an integral part of their examination process, also
periodically review Berkshire Bank's allowance for loan losses. Such agencies
may require Berkshire Bank to make additional provisions for estimated losses
based upon judgments different from those of management.

      In assessing the allowance for loan losses, loss factors are applied to
various pools of outstanding loans and certain unused commitments. Berkshire
Bank segregates the loan portfolio according to risk characteristics (i.e.,
mortgage loans, home equity, other consumer, commercial). Loss factors are
derived using Berkshire Bank's historical loss experience and may be adjusted
for significant factors that, in management's judgment, affect the
collectibility of the portfolio as of the evaluation date.

      All classified loans are reviewed for adequacy of their estimated
supporting collateral values and guarantees. If a loan is determined to have a
recovery value less than the loan balance after deducting the general reserve
assigned to that loan based upon its classification, an additional specific
reserve is assigned in an amount equal to the projected shortfall.

      In addition, management assesses the allowance using factors that cannot
be associated with specific credit or loan categories. These factors include
management's subjective evaluation of local and national economic and business
conditions, portfolio concentration and changes in the character and size of the
loan portfolio. The allowance methodology reflects management's objective that
the overall allowance appropriately reflects a margin for the imprecision
necessarily inherent in estimates of expected credit losses.


                                      -25-
      

      Although management believes that it uses the best information available
to establish the allowance for loan losses, future adjustments to the allowance
for loan losses may be necessary and results of operations could be adversely
affected if circumstances differ substantially from the assumptions used in
making its determinations. Furthermore, while Berkshire Bank believes it has
established its existing allowance for loan losses in conformity with accounting
principles generally accepted in the United States of America, there can be no
assurance that regulators, in reviewing Berkshire Bank's loan portfolio, will
not request Berkshire Bank to increase its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect
Berkshire Bank's financial condition and results of operations.

      The following table presents an analysis of Berkshire Bank's allowance for
loan losses for the years indicated.

       
         
                                                     At or For the Years Ended December 31,
                                             -------------------------------------------------------
                                               2003        2002        2001        2000        1999
                                             -------     -------     -------     -------     -------
                                                             (Dollars in thousands)
                                                                                                
Allowance for loan losses, beginning of
  year                                       $10,308     $11,034     $10,216     $ 8,534     $ 7,589
                                             -------     -------     -------     -------     -------
Charged-off loans:
  One- to four-family real estate                 --          --           2          --         117
  Multi-family                                    --          --         222          --          --
  Commercial real estate                          --         510          --          19         297
  Consumer(1)                                  4,175       9,074       5,989       1,422         731
  Home equity lines of credit                     32          --          52          --          --
  Commercial                                     157         444         797         469       1,208
                                             -------     -------     -------     -------     -------
    Total charged-off loans                    4,364      10,028       7,062       1,910       2,353
Recoveries on loans previously
  charged off                                  1,565       3,122         705         422         268
                                             -------     -------     -------     -------     -------
Net loans charged off                          2,799       6,906       6,357       1,488       2,085
Provision for loan losses                      1,460       6,180       7,175       3,170       3,030
                                             -------     -------     -------     -------     -------
Allowance for loan losses, end of year       $ 8,969     $10,308     $11,034     $10,216     $ 8,534
                                             =======     =======     =======     =======     =======
Ratios:
Net loans charged off to interest-earning
  loans                                         0.36%       0.96%       0.79%       0.19%       0.31%
Allowance for loan losses to total loans        1.13%       1.43%       1.37%       1.29%       1.27%
Allowance for loan losses to
  nonperforming loans                         280.37%     275.54%     408.36%     356.08%     300.39%
Net loans charged off to allowance
  for loan losses                              31.21%      67.00%      57.61%      14.57%      24.43%
Recoveries to charged-off loans                35.86%      31.13%       9.98%      22.09%      11.39%
        

----------
(1)   Consists primarily of automobile loans.


                                      -26-
      

      The following table presents the approximate allocation of the allowance
for loan losses by loan categories at the dates indicated and the percentage of
such amounts to the total allowance and to total loans. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not indicative of future losses
and does not restrict the use of any of the allowance to absorb losses in any
category.

       
         
                                                                     At December 31,
                            -------------------------------------------------------------------------------------------------
                                         2003                            2002                             2001
                            -------------------------------  -------------------------------  -------------------------------
                                     Percent of  Percent of           Percent of  Percent of           Percent of  Percent of
                                      Allowance     Loans              Allowance     Loans              Allowance     Loans
                                       in Each     in Each              in Each     in Each              in Each     in Each
                                      Category    Category             Category    Category             Category    Category
                                      to Total    to Total             to Total    to Total             to Total    to Total
                             Amount   Allowance     Loans     Amount   Allowance     Loans     Amount   Allowance     Loans
                            -------  ----------  ----------  -------  ----------  ----------  -------  ----------  ----------
                                                                 (Dollars in thousands)
                                                                                                                        
Real estate loans           $ 3,436     38.31%      59.54%   $ 2,289     22.21%      55.13%   $ 2,347     21.27%      45.07%
Consumer loans                2,171     24.21       19.45      4,650     45.11       21.99      4,217     38.22       33.72
Commercial loans              3,362     37.48       21.01      3,369     32.68       22.88      4,470     40.51       21.21
                            -------    ------      ------    -------    ------      ------    -------    ------      ------
  Total allowance for
    loan losses             $ 8,969    100.00%     100.00%   $10,308    100.00%     100.00%   $11,034    100.00%     100.00%
                            =======    ======      ======    =======    ======      ======    =======    ======      ======

         
                                                   At December 31,
                            ----------------------------------------------------------------
                                         2000                            1999
                            -------------------------------  -------------------------------
                                     Percent of  Percent of           Percent of  Percent of
                                      Allowance     Loans              Allowance     Loans
                                       in Each     in Each              in Each     in Each
                                      Category    Category             Category    Category
                                      to Total    to Total             to Total    to Total
                             Amount   Allowance     Loans     Amount   Allowance     Loans
                            -------  ----------  ----------  -------  ----------  ----------
                                                (Dollars in thousands)
                                                                                       
Real estate loans           $ 2,337     22.88%      43.27%   $ 2,322     27.20%      47.34%
Consumer loans                4,528     44.32       35.69      2,867     33.60       30.97
Commercial loans              3,351     32.80       21.04      3,345     39.20       21.69
                            -------    ------      ------    -------    ------      ------
  Total allowance for
    loan losses             $10,216    100.00%     100.00%   $ 8,534    100.00%     100.00%
                            =======    ======      ======    =======    ======      ======
        

Investment Securities Activities

      General. Under Massachusetts law, Berkshire Bank has authority to purchase
a wide range of investment securities. As a result of changes in federal banking
laws, however, financial institutions such as Berkshire Bank may not engage as
principals in any activities that are not permissible for a national bank,
unless the Federal Deposit Insurance Corporation has determined that the
investments would pose no significant risk to the Bank Insurance Fund and
Berkshire Bank is in compliance with applicable capital standards. In 1993, the
Regional Director of the Federal Deposit Insurance Corporation approved a
request by Berkshire Bank to acquire and retain certain listed stocks and/or
registered stocks subject to certain conditions. The Company makes its
investments through Berkshire Bank or one of the Bank's securities corporation
subsidiaries and is generally not subject to any such restrictions on its
investment authority. See "Regulation and Supervision."

      Berkshire Bank's main source of income has been and will continue to be
derived from its loan portfolio. The investment securities portfolio is
primarily used to provide for Berkshire Bank's cash flow needs, to provide
adequate liquidity to protect the safety of customer deposits and to earn a
reasonable return on investment. The structure of the investment securities
portfolio is based upon the composition and quality of the loan portfolio and
Berkshire Bank's liquidity position and deposit structure.

      Berkshire Bank's investment policy divides investments into two
categories, fixed income and equity portfolios. The primary objectives of the
fixed income portfolio are to: (1) maintain an adequate source of liquidity
sufficient to meet regulatory and operating requirements, including funding for
loans; (2) safeguard against deposit outflows, reduced loan amortization and
increased loan demand; and (3) manage interest rate risk. The fixed income
securities portfolio primarily consists of debt issues, including corporate and
municipal bonds, U.S. Government and Agency obligations and mortgage-backed and
asset-backed securities, including collateralized mortgage obligations and real
estate mortgage investment conduits. A collateralized mortgage obligation is a
mortgage-backed bond that separates mortgage pools into different maturities
called "tranches." Tranches pay different rates of interest and can mature in a
few months, or a few years. In return for a lower yield, collateralized mortgage
obligations provide increased security over the life of the investment. However,
in a declining interest rate risk environment, collateralized mortgage
obligations tend to be repaid before their expected maturities as prepayments
increase. This may result in Berkshire Bank having to reinvest the funds at a
lower interest rate. Real estate mortgage investment conduits, a type of


                                      -27-
      

collateralized mortgage obligation, are similar in that securities representing
an undivided interest in such mortgages are issued. However, real estate
mortgage investment conduits have more flexibility than other types of
collateralized mortgage obligations as issuers can separate mortgage pools not
only into different maturity classes but also into different risk classes. At
present, 99.8% of Berkshire Bank's mortgage-backed securities are issued or
guaranteed by agencies of the U.S. Government, which carry lower credit risk
than mortgage-backed securities of a private issuer. Other types of asset-backed
securities in which Berkshire Bank invests are typically collateralized by the
cash flow from a pool of automobile loans, credit card receivables, consumer
loans and other similar obligations. Both mortgage-backed and asset-backed
securities carry the risk that changing market interest rates may cause a change
in market value.

      The marketable equity securities portfolio is currently managed to produce
capital gains through price appreciation and lowering taxable income through
deductions permitted for a portion of dividends received. However, Berkshire
Bank continued restructuring its investment portfolio by placing less emphasis
on equity securities. The marketable equity securities portfolio consists
primarily of bank, utility and industrial stocks and is currently limited by the
investment policy to 100% of Tier I capital. Berkshire Bank had $93.8 million of
Tier 1 capital at December 31, 2003. Equities totaling $7.0 million were sold in
2003, resulting in a gain of $2.7 million. At December 31, 2003, equities,
excluding Federal Home Loan Bank and Savings Bank Life Insurance stock,
comprised 4.3% of the investment portfolio compared to 9.0% at December 31,
2002. The gross unrealized gains associated with the marketable equity
securities portfolio were $8.4 million at December 31, 2003. At such date, there
were no gross unrealized losses. The marketable equity securities portfolio
carries equity price risk in that, if equity prices decline due to unfavorable
market conditions or other factors, Berkshire Bank's capital would decrease.

      SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that securities be categorized as "held-to-maturity,"
"trading securities" or "available-for-sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held-to-maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as
"held-to-maturity." Debt and equity securities held for current resale are
classified as "trading securities." These securities are reported at fair value,
and unrealized gains and losses on the securities would be included in earnings.
Berkshire Bank does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held-to-maturity" or "trading
securities" are classified as "available-for-sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and included in accumulated other comprehensive income,
net of taxes.

      The Loan and Investment Committee of the Board of Directors is responsible
for developing and reviewing Berkshire Bank's investment policy. Investment
decisions are made in accordance with Berkshire Bank's investment policy and are
based upon the quality of a particular investment, its inherent risks, Berkshire
Bank's liquidity needs, prospects for yield and/or appreciation and the
potential tax consequences. While general investment strategies are developed
and authorized by the Loan and Investment Committee, the execution of specific
investment actions and the day-to-day oversight of Berkshire Bank's investment
portfolio rests with the President and the Treasurer. These officers are
authorized to execute investment transactions up to specified limits based on
the type of security without the prior approval of the Loan and Investment
Committee. However, such purchases require a review of the Loan and Investment
Committee at their next scheduled meeting. The Board of Directors receives a
monthly report of all securities transactions made during the previous month.

      Berkshire Bank's investment policy allows the use of certain hedging
strategies, including the purchase of options in an effort to increase the
return and decrease the risk on the securities portfolio. Berkshire Bank has
used covered call option strategies in the past and may continue to do so in the
future. Berkshire Bank has not used interest rate futures or options on futures
as part of its interest rate hedging strategies.


                                      -28-
      

      The following table presents the amortized cost and fair value of
Berkshire Bank's available-for-sale securities, by type of security, at the
dates indicated.

       
         
                                                                         At December 31,
                                            --------------------------------------------------------------------------
                                                     2003                      2002                      2001
                                            ----------------------    ----------------------    ----------------------
                                            Amortized                 Amortized                 Amortized
                                              Cost      Fair Value      Cost      Fair Value      Cost      Fair Value
                                            ---------   ----------    ---------   ----------    ---------   ----------
                                                                         (In thousands)
                                                                                                                
Investment securities:
  Obligations of U.S. Treasury and
    U.S. Government Agencies                $ 20,840     $ 20,969     $ 98,058     $ 98,719     $ 13,876     $ 14,017
  Corporate bonds and notes                   17,102       17,310       31,284       31,637       31,017       31,251
  Municipal notes                             12,294       12,282           --           --           --           --
  Asset-backed securities                      2,566        2,106        6,956        6,772        1,484        1,496
  Marketable equity securities(1)              6,515       14,888       11,132       19,581       11,447       39,803
                                            --------     --------     --------     --------     --------     --------
    Total investment securities               59,317       67,555      147,430      156,709       57,824       86,567
                                            --------     --------     --------     --------     --------     --------

Mortgage-backed securities:
  Freddie Mac                                 53,883       53,638        3,558        3,605        3,292        3,335
  Fannie Mae                                 185,018      185,551        3,066        3,051        2,774        2,845
  Private label REMICs                           653          648        9,761        9,750       11,555       11,619
  Ginnie Mae                                      32           33           52           54           78           80
                                            --------     --------     --------     --------     --------     --------
    Total mortgage-backed securities         239,586      239,870       16,437       16,460       17,699       17,879
                                            --------     --------     --------     --------     --------     --------
    Total available for sale securities     $298,903     $307,425     $163,867     $173,169     $ 75,523     $104,446
                                            ========     ========     ========     ========     ========     ========
        

----------
(1)   Includes mutual funds.

      The following table presents the amortized cost and fair value of
Berkshire Bank's held for maturity securities, by type of security, at the dates
indicated.

       
         
                                                                         At December 31,
                                            --------------------------------------------------------------------------
                                                     2003                      2002                      2001
                                            ----------------------    ----------------------    ----------------------
                                            Amortized                 Amortized                 Amortized
                                              Cost      Fair Value      Cost      Fair Value      Cost      Fair Value
                                            ---------   ----------    ---------   ----------    ---------   ----------
                                                                         (In thousands)
                                                                                                                
Investment securities:
  Municipal notes and other
    obligations                             $ 20,545     $ 20,545     $ 14,480     $ 14,480     $ 11,241     $ 11,241
                                            --------     --------     --------     --------     --------     --------
    Total investment securities               20,545       20,545       14,480       14,480       11,241       11,241
                                            --------     --------     --------     --------     --------     --------

Mortgage-backed securities:
  Freddie Mac                                 10,163       10,146       17,120       17,164        9,790        9,851
  Fannie Mae                                   3,743        3,742       11,657       11,688       11,177       11,253
  Ginnie Mae                                   2,452        2,435        1,010        1,016        1,055        1,064
                                            --------     --------     --------     --------     --------     --------
    Total mortgage-backed securities          16,358       16,323       29,787       29,868       22,022       22,168
                                            --------     --------     --------     --------     --------     --------
    Total held to maturity securities       $ 36,903     $ 36,868     $ 44,267     $ 44,348     $ 33,263     $ 33,409
                                            ========     ========     ========     ========     ========     ========
        

      At December 31, 2003, Berkshire Bank did not own any investment or
mortgage-backed securities of a single issuer, other than U.S. Treasury and U.S.
Government Agency securities, which had an aggregate book value in excess of 10%
of Berkshire Bank's capital at that date.


                                      -29-
      

      The following table presents the activity in the investment securities and
mortgage-backed securities portfolios for the years indicated.

       
         
                                                           For the Years Ended December 31,
                                                       ---------------------------------------
                                                          2003           2002           2001
                                                       ---------      ---------      ---------
                                                                    (In thousands)
                                                                                        
Investment securities:
Investment securities, beginning of year               $ 171,189      $  97,808      $  97,023
                                                       ---------      ---------      ---------
Purchases                                                 83,227        195,005         49,212
Sales                                                    (12,133)       (13,112)        (3,697)
Loss on impairment of securities                              --           (673)            --
Maturities and calls                                    (147,286)       (84,606)       (39,559)
Repayments and prepayments                                (5,140)        (3,191)        (2,395)
Net (premium)                                               (994)          (578)        (1,225)
(Decrease) in unrealized gain                               (763)       (19,464)        (1,551)
                                                       ---------      ---------      ---------
  Net increase/(decrease) in investment securities       (83,089)        73,381            785
                                                       ---------      ---------      ---------
    Investment securities, end of year                    88,100        171,189         97,808
                                                       ---------      ---------      ---------

Mortgage-backed securities:
Mortgage-backed securities, beginning of year             46,247         39,901         34,524
                                                       ---------      ---------      ---------
Purchases                                                266,586         63,065         43,853
Securitized mortgages                                     16,270             --             --
Repayments and prepayments                               (66,918)       (56,037)       (39,477)
Sales                                                     (5,139)            --             --
Net (premium) discount                                      (801)          (525)           955
Increase /(decrease) in unrealized gain                      (17)          (157)            46
                                                       ---------      ---------      ---------
  Net increase in mortgage-backed securities             209,981          6,346          5,377
                                                       ---------      ---------      ---------
    Mortgage-backed securities, end of year              256,228         46,247         39,901
                                                       ---------      ---------      ---------
      Total securities, end of year                    $ 344,328      $ 217,436      $ 137,709
                                                       =========      =========      =========
        

      The following table presents certain information regarding the amortized
cost, weighted average yields and estimated maturities or periods to repricing
of Berkshire Bank's debt securities at December 31, 2003.

       
         
                                                                    At December 31, 2003
                                         ---------------------------------------------------------------------------
                                                                     More than One Year        More than Five Years
                                           One Year or Less             to Five Years              to Ten Years
                                         ---------------------      ---------------------      ---------------------
                                                      Weighted                   Weighted                   Weighted
                                         Amortized     Average      Amortized     Average      Amortized     Average
                                           Cost         Yield         Cost         Yield         Cost         Yield
                                         ---------    --------      ---------    --------      ---------    --------
                                                                   (Dollars in thousands)
                                                                                                                 
Investment securities:
  Obligations of U.S. Treasury and
    U.S. Government Agencies             $ 15,696       2.73%       $  5,144       3.10%       $     --         --%
  Mortgage-backed securities                2,777       2.11         226,086       3.90          27,080       4.73
  Municipal notes                           8,088       1.42           5,073       4.13           3,052       4.27
  Corporate bonds and notes                10,049       2.63           3,975       2.17              --         --
  Asset-backed securities                     268       0.21           2,298       6.18              --         --
                                         --------                   --------                   --------
      Total                              $ 36,878       2.35%       $242,576       3.88%       $ 30,132       4.68%
                                         ========                   ========                   ========

         
                                                        At December 31, 2003
                                         ------------------------------------------------
                                          More than Ten Years               Total
                                         ---------------------      ---------------------
                                                      Weighted                   Weighted
                                         Amortized     Average      Amortized     Average
                                           Cost         Yield         Cost         Yield
                                         ---------    --------      ---------    --------
                                                       (Dollars in thousands)
                                                                                      
Investment securities:
  Obligations of U.S. Treasury and
    U.S. Government Agencies             $     --         --%       $ 20,840       2.82%
  Mortgage-backed securities                   --         --         255,943       3.97
  Municipal notes                          16,627       4.90          32,840       3.86
  Corporate bonds and notes                 3,078       4.36          17,102       2.84
  Asset-backed securities                      --         --           2,566       5.55
                                         --------                   --------
      Total                              $ 19,705       4.82%       $329,291       3.84%
                                         ========                   ========
        


                                      -30-
      

Deposit Activities and Other Sources of Funds

      General. Deposits are the major source of funds for Berkshire Bank's
lending and other investment activities. In addition, Berkshire Bank also
generates funds internally from loan repayments, prepayments and sales and
maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. Berkshire Bank uses borrowings from the Federal Home Loan Bank of
Boston as an additional source of funding for loan and securities investment
activity.

      Deposit Accounts. Substantially all of Berkshire Bank's deposits are
generated from the areas surrounding its branch offices. Berkshire Bank offers a
wide variety of deposit accounts with a range of interest rates and terms.
Berkshire Bank may periodically offer special interest rates and terms for
limited periods of time. Berkshire Bank's deposit accounts consist of
interest-bearing checking, noninterest-bearing checking, regular savings, money
market savings and certificates of deposit. The initial maturities of Berkshire
Bank's certificate of deposit accounts range from three months to ten years. In
addition, Berkshire Bank offers retirement accounts, including Traditional IRAs,
Roth IRAs, Simple IRAs, Self-Directed IRAs and Keogh accounts, simplified
employee pension plan, profit-sharing qualified plan and money purchase pension
plan accounts.

      Berkshire Bank also offers a variety of deposit accounts designed for the
businesses operating in its market area. Deposit account terms vary with the
principal differences being the minimum balance deposit, early withdrawal
penalties, limits on the number of transactions and the interest rate. Berkshire
Bank's business banking deposit products include a commercial checking account
that provides an earnings credit to offset monthly service charges and a
checking account specifically designed for small businesses. Additionally,
Berkshire Bank offers sweep accounts and money market accounts for businesses
and IOLTA interest checking and escrow accounts. Berkshire Bank has sought to
increase its commercial deposits through the offering of these products,
particularly to its commercial borrowers and to the municipalities that
participate in its government banking program.

      Berkshire Bank reviews its deposit mix and pricing on a weekly basis and
believes it offers competitive interest rates on its deposit products. Berkshire
Bank determines the rates paid based on a number of factors, including rates
paid by competitors, Berkshire Bank's need for funds and cost of funds,
Berkshire Bank's current asset/liability structure, the amount of maturing
deposits and movements of market interest rates. Berkshire Bank currently does
not utilize brokers to obtain deposits but may choose to do so in the future.

      In the unlikely event Berkshire Bank is liquidated, depositors will be
entitled to full payment of their deposit accounts before any payment is made to
Berkshire Hills as the sole stockholder of Berkshire Bank.

      The following table presents the deposit activity of Berkshire Bank for
the years indicated.

       
         
                                                    For the Years Ended December 31,
                                                    --------------------------------
                                                       2003       2002       2001
                                                     --------   --------   --------
                                                             (In thousands)
                                                                              
      Increase/(decrease) before interest credited   $ 34,022   $ 21,854   $(13,550)
      Interest credited                                13,862     17,777     26,685
                                                     --------   --------   --------
        Net increase                                 $ 47,884   $ 39,631   $ 13,135
                                                     ========   ========   ========
        

      At December 31, 2003, Berkshire Bank had certificate of deposit accounts
in amounts of $100,000 or more maturing as follows:

                                                               Weighted
            Maturity                                            Average
            Period                                  Amount       Rate
            -----------------------------------------------------------
                                                 (Dollars in thousands)
            Three months or less                  $ 30,702       1.90%
            Over 3 months through 6 months          28,273       2.14
            Over 6 months through 12 months         31,730       2.71
            Over 12 months                          50,388       4.75
                                                  --------
                Total                             $141,093       3.14%
                                                  ========


                                      -31-
      

      The following table presents information concerning average balances and
weighted average interest rates on Berkshire Bank's deposit accounts for the
years indicated.

       
         
                                                       For the Years Ended December 31,
                              -------------------------------------------------------------------------------
                                              2003                                      2002
                              --------------------------------------     ------------------------------------
                                            Percent of                                Percent of
                                              Total        Weighted                     Total        Weighted
                               Average       Average       Average        Average      Average       Average
                               Balance       Deposits        Rate         Balance      Deposits        Rate
                              --------      ----------     --------      --------     ----------     --------
                                                           (Dollars in thousands)
                                                                                                           
Money market accounts         $132,497        16.25%         1.24%       $117,950        15.48%         1.69%

NOW accounts                    90,170        11.06          0.17          83,399        10.95          0.75

Savings(1)                     170,749        20.95          1.01         157,444        20.66          1.70

Certificates of deposit        330,116        40.50          3.13         320,418        42.05          3.91

Demand accounts                 91,627        11.24            --          82,752        10.86            --
                              --------       ------                      --------       ------
    Total                     $815,159       100.00%         1.70%       $761,963       100.00%         2.33%
                              ========       ======                      ========       ======

         
                                 For the Years Ended December 31,
                              -------------------------------------
                                              2001
                              -------------------------------------
                                            Percent of
                                              Total        Weighted
                               Average       Average        Average
                               Balance       Deposits        Rate
                              --------      ----------     --------
                                      (Dollars in thousands)
                                                                
Money market accounts         $112,434        15.31%         3.30%

NOW accounts                    77,276        10.52          1.04

Savings(1)                     142,150        19.36          2.88

Certificates of deposit        325,633        44.34          5.55

Demand accounts                 76,912        10.47            --
                              --------       ------
    Total                     $734,405       100.00%         3.63%
                              ========       ======
        

----------
(1)   Includes mortgagors' escrow accounts.

      Certificates of Deposit by Rates and Maturities. The following table
presents the amount of certificate accounts categorized by rates and maturities,
for the periods and years indicated.

       
         
                       Period to Maturity from December 31, 2003
                   -------------------------------------------------          Total at December 31,
                   Less than    One to Two  Two to Three  Over Three    ----------------------------------
                    One Year       Years        Years       Years         2003         2002         2001
                   ---------     ---------  ------------  ----------    --------     --------     --------
                                                        (In thousands)
                                                                                                     
0.00-4.00%          $210,485     $ 24,073     $  6,817     $  5,661     $247,036     $236,829     $107,984
4.01-5.00%             2,457       14,629        1,239       21,788       40,113       43,019       79,635
5.01-6.00%             3,967        1,327        1,913        9,740       16,947       20,196       50,726
6.01-7.00%             2,621        2,802          550        9,455       15,428       28,423       70,223
7.01% and above           92        1,734           --           --        1,826        1,722        8,669
                    --------     --------     --------     --------     --------     --------     --------
    Total           $219,622     $ 44,565     $ 10,519     $ 46,644     $321,350     $330,189     $317,237
                    ========     ========     ========     ========     ========     ========     ========
        

      Borrowings. Berkshire Bank utilizes advances from the Federal Home Loan
Bank of Boston to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The Federal Home Loan Bank of Boston functions as a
central reserve bank providing credit for savings banks and certain other member
financial institutions. As a member of the Federal Home Loan Bank of Boston,
Berkshire Bank is required to own capital stock in the Federal Home Loan Bank of
Boston and may apply for advances on the security of the capital stock and
certain of its mortgage loans and other assets, principally securities that are
obligations of, or guaranteed by, the U.S. Government or its Agencies, provided
certain creditworthiness standards have been met. Advances are made under
several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At December 31, 2003,
Berkshire Bank had the ability to borrow a total of approximately $374.8 million
from the Federal Home Loan Bank of Boston. At that date, Berkshire Bank had
outstanding advances of $251.5 million. In addition, Berkshire Bank had a $2.0
million repurchase agreement line of credit to be secured by securities or other
assets of Berkshire Bank with the Depositors Insurance Fund, and a $50.0 million
repurchase agreement line of credit with a nationally recognized broker-dealer.
At December 31, 2003, Berkshire Bank had no outstanding borrowings against
either of these agreements.


                                      -32-
      

      The following tables present certain information regarding Berkshire
Bank's Federal Home Loan Bank advances during the periods and at the dates
indicated.

                                             For the Years Ended December 31,
                                           ------------------------------------
                                             2003          2002          2001
                                           --------      --------      --------
                                                  (Dollars in thousands)
Maximum amount of advances
  outstanding at any month end             $251,465      $143,053      $140,115
Average advances outstanding                167,621       140,406       127,990
Weighted average rate paid
  on advances                                  2.91%         4.01%         5.17%

                                                    At December 31,
                                           ------------------------------------
                                             2003          2002          2001
                                           --------      --------      --------
                                                  (Dollars in thousands)
Balance outstanding at end of year         $251,465      $133,002      $133,964
Weighted average rate on advances
  at end of year                               2.61%         3.27%         4.26%

      Berkshire Bank offers retail repurchase agreements to selected higher
balance customers and certain municipalities. These agreements are direct
obligations of Berkshire Bank to repay at maturity or on demand the purchase
price of an undivided interest in a U.S. Government or agency security owned by
Berkshire Bank. Since these agreements are not deposits, they are not insured by
the Federal Deposit Insurance Corporation. At December 31, 2003, there were no
such retail repurchase agreements.

      The following tables represent certain information regarding Berkshire
Bank's retail repurchase agreements during the years and at the dates indicated.

                                             For the Years Ended December 31,
                                           ------------------------------------
                                             2003          2002          2001
                                           --------      --------      --------
                                                  (Dollars in thousands)
Maximum amount of retail repurchase
  agreements outstanding at any month end  $    500      $  1,830      $  2,340
Average retail repurchase agreements
  outstanding                                    88         1,349         1,584
Weighted average rate paid on retail
  repurchase agreements                        1.24%         1.72%         3.78%

                                                     At December 31,
                                           ------------------------------------
                                             2003          2002          2001
                                           --------      --------      --------
                                                  (Dollars in thousands)
Balance outstanding at end of year               --      $    700      $  1,890
Weighted average rate on retail repurchase
  agreements at end of year                      --%         1.59%         1.74%

Trust Services

      Berkshire Bank maintains the Asset Management/Trust Group as a department
within Berkshire Bank which primarily provides trust and investment services to
individuals, partnerships, corporations and institutions and also acts as a
fiduciary of estates and conservatorships and as a trustee under various wills,
trusts and other plans. The trust department allows Berkshire Bank to provide
investment opportunities and fiduciary services to both current and prospective
customers. Consistent with Berkshire Bank's operating strategy, Berkshire Bank
will continue to emphasize the growth of its trust service operations to grow
assets and increase fee-based income. Berkshire Bank has implemented several
policies governing the practices and procedures of the trust department,
including policies relating to maintaining confidentiality of trust records,
investment of trust property, handling conflicts of interest, and maintaining
impartiality. At December 31, 2003, the trust department managed 792 accounts
with aggregate assets of $287.7 million, of which the largest relationship
totaled $20.0 million, or 7.0%, of the trust department's total assets. Trust
fees totaled $2.1 million for 2003 and $1.8 million for 2002.


                                      -33-
      

Government Banking

      Berkshire Bank offers full-service government banking for cities, towns
and municipal school districts in western Massachusetts and southern Vermont.
Berkshire Bank offers municipalities all aspects of financial advisory services
for the sale of notes and bonds, actively working with bond counsel, rating
agencies, consulting agencies and bond buyers. Additionally, Berkshire Bank
offers a wide range of municipal deposit products and checking accounts, as well
as the origination of payroll accounts. At December 31, 2003, Berkshire Bank was
working with approximately 63 municipal entities. For 2003, government banking
generated $56,000 of net fee income compared to $180,000 for 2002.

Personnel

      As of December 31, 2003, Berkshire Bank had 230 full-time employees and 34
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank will strive to continue its strong relationship
with its employees.

Subsidiary Activities

      The following are descriptions of Berkshire Bank's active subsidiaries,
all of which are wholly-owned. All subsidiaries are incorporated in
Massachusetts and are indirectly owned by Berkshire Hills.

      North Street Securities Corporation. North Street Securities Corporation,
("North Street") originally named GBSB Leasing Corporation, was established in
January 1984 to acquire and hold investment securities of a type that are
permissible for banks to hold under applicable law. North Street is qualified as
a "securities corporation" for Massachusetts income tax purposes. Income earned
by a qualifying securities corporation is generally entitled to special tax
treatment from Massachusetts income tax. As of December 31, 2003, North Street
had assets totaling $105.6 million, consisting primarily of municipal bonds,
corporate bonds, private label REMICs and common and preferred equity
securities.

      Gold Leaf Investment Services, Inc. Gold Leaf Investment Services, Inc.,
established in May 2000, began operations during the first quarter of 2001. Gold
Leaf Investment Services offers access to a full range of security brokerage
services, including financial planning, professional money management, stocks,
bonds, mutual funds and annuities. These services are available through a
partnership with UVEST Investment Services, a registered securities
broker-dealer and member NASD/SIPC and are available in all of the Bank's
branches.

      Gold Leaf Insurance Agency, Inc. Gold Leaf Insurance Agency, Inc.,
established in May 2000, began operations during the third quarter of 2000. Gold
Leaf Insurance Agency offers a full line of products including automobile, home,
business and life insurance.

      Gold Leaf Securities Corporation. Gold Leaf Securities Corporation was
established in May 2003 to acquire and hold investment securities of a type that
are permissible for banks to hold under applicable law. Gold Leaf Securities
Corporation is qualified as a "securities corporation" for Massachusetts income
tax purposes. As of December 31, 2003, Gold Leaf Securities Corporation had
assets totaling $5.1 million, consisting primarily of Industrial Revenue Bonds.

      Woodland Securities, Inc. Woodland Securities, Inc. ("Woodland"),
originally named Woodland Realty, Inc., was established in April 1995 to
purchase, own, sell, develop and lease real property and personal property of
all types. Inactive for a number of years, Woodland converted to a Massachusetts
"securities corporation" for Massachusetts income tax purposes in 2002. As of
December 31, 2003, Woodland had assets of $210.0 million consisting primarily of
agency mortgage-backed, callable agency securities and agency REMICs. The Bank
has pledged all of its shares of Woodland to the Federal Home Loan Bank of
Boston to secure its borrowing facility.

      Excluding Berkshire Bank, the following are descriptions of Berkshire
Hills' wholly-owned active subsidiaries. All of Berkshire Hills' subsidiaries,
including Berkshire Bank, are incorporated in Massachusetts.

      Berkshire Hills Funding Corporation. Berkshire Hills Funding Corporation
was established in May 2000 as a general purpose funding vehicle for Berkshire
Hills. Outside of cash, its sole asset is a loan to Berkshire Bank's Employee
Stock Ownership Plan ("ESOP"). The proceeds of such loan were used to fund the
ESOP trustee's purchase of Berkshire Hills common stock.

      Berkshire Hills Technology, Inc. Berkshire Hills Technology, Inc. was
established in May 2001 to invest, own and sell any type of business enterprise
including, but not limited to, corporations and limited liability companies. In
June 2001, along with a consortium of five other financial institutions,
Berkshire Hills Technology, Inc. announced its investment of $4.7 million in
EastPoint Technologies, LLC ("EastPoint"). The Company's equity interest in
EastPoint equals 60.3%. EastPoint, headquartered in Bedford, New Hampshire, is a
software and data processing provider for financial institutions.


                                      -34-
      

Segment Reporting

      Through its wholly-owned subsidiary, Berkshire Hills Technology, Inc., the
Company owns a 60.3% equity interest in EastPoint. Prior to the acquisition of
EastPoint, management monitored the revenue streams of the various products and
services in evaluating the Company's operations and financial performance.
Accordingly, all of the Company's operations were considered by management to be
aggregated in one reportable operating segment. Subsequent to the acquisition of
EastPoint, the Company's operations continue to be aggregated in one reportable
segment, the Bank, except Berkshire Hills Technology, Inc., which is evaluated
on a stand-alone basis.

      Information about reportable segments, and the reconciliation of such
information to the consolidated financial statements as of and for the years
ended December 31, 2003, 2002 and 2001 follows:

                                             At December 31, 2003
                                  ---------------------------------------------
                                               Berkshire Hills     Consolidated
                                      Bank     Technology, Inc.       Totals
                                  -----------  ----------------    ------------
                                                (In thousands)
Net interest income               $    37,566     $        --      $    37,566
Depreciation and amortization           1,412             695            2,107
Provision for loan losses               1,460              --            1,460
License fees                               --           7,262            7,262
Minority interest                          --            (186)            (186)
Profit (loss)                           9,247            (282)           8,965
Assets                              1,210,890           7,658        1,218,548
Expenditures for additions to
  premises and equipment                1,386              80            1,466

                                             At December 31, 2002
                                  ---------------------------------------------
                                               Berkshire Hills     Consolidated
                                      Bank     Technology, Inc.       Totals
                                  -----------  ----------------    ------------
                                                (In thousands)
Net interest income               $    40,700     $        --      $    40,700
Depreciation and amortization           1,813             601            2,414
Provision for loan losses               6,180              --            6,180
License fees                               --           6,991            6,991
Minority interest                          --            (685)            (685)
Profit (loss)                           3,937          (1,040)           2,097
Assets                              1,037,376           8,571        1,045,947
Expenditures for additions to
  premises and equipment                1,044             424            1,468

                                             At December 31, 2001
                                  ---------------------------------------------
                                               Berkshire Hills     Consolidated
                                      Bank     Technology, Inc.       Totals
                                  -----------  ----------------    ------------
                                                (In thousands)
Net interest income               $    42,236     $        --      $    42,236
Depreciation and amortization           1,769             312            2,081
Provision for loan losses               7,175              --            7,175
License fees                               --           3,465            3,465
Minority interest                          --            (119)            (119)
Profit (loss)                           8,868              43            8,911
Assets                              1,021,623           9,078        1,030,701
Expenditures for additions to
  premises and equipment                  735           1,609            2,344

      The Company does not allocate income taxes to its segments, but rather,
assigns all taxes to the Bank.


                                      -35-
      

REGULATION AND SUPERVISION

General

      As a savings and loan holding company, Berkshire Hills is required to file
reports with, and otherwise comply with the rules and regulations of, the Office
of Thrift Supervision ("OTS"). As a savings bank chartered by the Commonwealth
of Massachusetts, Berkshire Bank is subject to extensive regulation, examination
and supervision by the Massachusetts Commissioner of Banks, as its primary
regulator, and the Federal Deposit Insurance Corporation, as the deposit
insurer. Berkshire Bank is a member of the Federal Home Loan Bank system and,
with respect to deposit insurance, of the Bank Insurance Fund managed by the
Federal Deposit Insurance Corporation. Berkshire Bank must file reports with the
Commissioner of Banks and the Federal Deposit Insurance Corporation concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The Commissioner of Banks and /or
the Federal Deposit Insurance Corporation conduct periodic examinations to test
Berkshire Bank's safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Commissioner
of Banks, the Federal Deposit Insurance Corporation or Congress, could have a
material adverse impact on the Company, the Bank and their operations. Certain
regulatory requirements applicable to Berkshire Bank and to the Company are
referred to below or elsewhere herein. The description of statutory provisions
and regulations applicable to savings institutions and their holding companies
set forth in this Form 10-K does not purport to be a complete description of
such statutes and regulations and their effects on Berkshire Bank and Berkshire
Hills.

Massachusetts Banking Laws and Supervision

      Massachusetts savings banks are regulated and supervised by the
Massachusetts Commissioner of Banks. The Massachusetts Commissioner of Banks is
required to regularly examine each state-chartered bank. The approval of the
Massachusetts Commissioner of Banks is required to establish or close branches,
to merge with another bank, to form a holding company, to issue stock or to
undertake many other activities. Any Massachusetts bank that does not operate in
accordance with the regulations, policies and directives of the Massachusetts
Commissioner of Banks may be sanctioned. The Massachusetts Commissioner of Banks
may suspend or remove directors or officers of a bank who have violated the law,
conducted a bank's business in a manner that is unsafe, unsound or contrary to
the depositors' interests, or been negligent in the performance of their duties.
In addition, the Massachusetts Commissioner of Banks has the authority to
appoint a receiver or conservator if it is determined that the bank is
conducting its business in an unsafe or unauthorized manner, and under certain
other circumstances.

      All Massachusetts-chartered savings banks are required to be members of
the Depositors Insurance Fund, a private deposit insurer, which insures all
deposits in member banks in excess of Federal Deposit Insurance Corporation
deposit insurance limits. Member banks are required to pay the assessments of
the fund. In addition, the Mutual Savings Central Fund acts as a source of
liquidity to its members in supplying them with low-cost funds, and purchasing
qualifying obligations from them.

      The powers that Massachusetts-chartered savings banks can exercise under
these laws are summarized below.

      Lending Activities. A Massachusetts-chartered savings bank may make a wide
variety of mortgage loans including fixed-rate loans, adjustable-rate loans,
variable-rate loans, participation loans, graduated payment loans, construction
and development loans, condominium and co-operative loans, second mortgage loans
and other types of loans that may be made in accordance with applicable
regulations. Commercial loans may be made to corporations and other commercial
enterprises with or without security. Consumer and personal loans may also be
made with or without security. Loans to individual borrowers generally must be
limited to 20% of the total of a bank's capital accounts and stockholders'
equity.

      Investments Authorized. Massachusetts-chartered savings banks have broad
investment powers under Massachusetts law, including so-called "leeway"
authority for investments that are not otherwise specifically authorized. The
investment powers authorized under Massachusetts law are restricted by federal
law to permit, in general, only investments of the kinds that would be permitted
for national banks. Berkshire Bank has authority to invest in all of the classes
of loans and investments that are permitted by its existing loan and investment
policies.

      Payment of Dividends. A savings bank may only pay dividends on its capital
stock if such payment would not impair the bank's capital stock. No dividends
may be paid to stockholders of a bank if such dividends would reduce
stockholders' equity of the bank below the amount of the liquidation account
required by the Massachusetts conversion regulations. Additionally, the
Massachusetts Commissioner of Banks may restrict the payment of dividends by a
bank if it is determined that such payment would result in safety and soundness
concerns.


                                      -36-
      

      Parity Regulation. Effective November 19, 2002, Massachusetts law was
amended to increase the powers of Massachusetts banks under certain conditions.
As a result of such amendment, a Massachusetts bank may engage in any activity
or offer any product or service if the activity, product or service is engaged
in or offered in accordance with regulations promulgated by the Massachusetts
Commissioner of Banks and has been authorized for national banks, federal
thrifts or state banks in a state other than Massachusetts; provided that the
activity is permissible under applicable federal and Massachusetts law and
subject to the same limitations and restrictions imposed on the national bank,
federal thrift or out-of-state bank that had previously been granted the power.

      Assessments. Savings banks are required to pay assessments to the
Commissioner of Banks to fund operations. Assessments paid by Berkshire Bank for
the fiscal year ended December 31, 2003 totaled $150,254.

Federal Regulations

      Capital Requirements. Under Federal Deposit Insurance Corporation
regulations, federally insured state-chartered banks that are not members of the
Federal Reserve System ("state non-member banks"), such as Berkshire Bank, are
required to comply with minimum leverage capital requirements. For an
institution determined by the Federal Deposit Insurance Corporation to not be
anticipating or experiencing significant growth and to be in general a strong
banking organization, rated composite 1 under the Uniform Financial Institutions
Rating System established by the Federal Financial Institutions Examination
Council, the minimum capital leverage requirement is a ratio of Tier 1 capital
to total assets of 3%. For all other institutions, the minimum leverage capital
ratio is not less than 4%. Tier 1 capital is the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority investments in certain subsidiaries, less intangible assets (except
for certain servicing rights and credit card relationships) and a percentage of
certain nonfinancial equity investments.

      Berkshire Bank must also comply with the Federal Deposit Insurance
Corporation risk-based capital guidelines. The Federal Deposit Insurance
Corporation guidelines require state non-member banks to maintain certain levels
of regulatory capital in relation to regulatory risk-weighted assets. The ratio
of regulatory capital to regulatory risk-weighted assets is referred to as
Berkshire Bank's "risk-based capital ratio." Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk. For
example, under the Federal Deposit Insurance Corporation's risk-weighting
system, cash and securities backed by the full faith and credit of the U.S.
Government are given a 0% risk weight, loans secured by one- to four-family
residential properties generally have a 50% risk weight and commercial loans
have a risk weighting of 100%.

      State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock, a portion of the net
unrealized gain on equity securities and other capital instruments. The
includable amount of Tier 2 capital cannot exceed the amount of the
institution's Tier 1 capital.

      The Federal Deposit Insurance Corporation Improvement Act required each
federal banking agency to revise its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of interest
rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family residential loans. The Federal Deposit Insurance
Corporation, along with the other federal banking agencies, has adopted a
regulation providing that the agencies will take into account the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy.

      As a savings and loan holding company regulated by the Office of Thrift
Supervision, Berkshire Hills is not, under current law, subject to any separate
regulatory capital requirements.

      The following is a summary of Berkshire Bank's regulatory capital at
December 31, 2003:

                GAAP Capital to Total Assets                 10.11%
                Total Capital to Risk-Weighted Assets        12.57%
                Tier I Leverage Ratio                         7.87%
                Tier I to Risk-Weighted Assets               11.07%

      Standards for Safety and Soundness. The federal banking agencies adopted
regulations and Interagency Guidelines Establishing Standards for Safety and
Soundness to implement safety and soundness standards. The guidelines set forth
the safety and soundness standards that the federal banking agencies use to
identify and address problems at insured depository institutions before capital
becomes impaired. The guidelines address internal controls and information
systems, an internal audit system, credit underwriting, loan documentation,
interest rate risk exposure, asset growth, asset quality, earnings and
compensation, and fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the


                                      -37-
      

guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard.

Investment Activities

      Under federal law, all state-chartered Federal Deposit Insurance
Corporation insured banks, including savings banks, have generally been limited
to activities as principal and equity investments of the type and in the amount
authorized for national banks, notwithstanding state law. The Federal Deposit
Insurance Corporation Improvement Act and the Federal Deposit Insurance
Corporation permit exceptions to these limitations. For example, state chartered
banks, such as Berkshire Bank, may, with Federal Deposit Insurance Corporation
approval, continue to exercise grandfathered state authority to invest in common
or preferred stocks listed on a national securities exchange or the NASDAQ
National Market and in the shares of an investment company registered under
federal law. In addition, the Federal Deposit Insurance Corporation is
authorized to permit such institutions to engage in state authorized activities
or investments that do not meet this standard (other than non-subsidiary equity
investments) for institutions that meet all applicable capital requirements if
it is determined that such activities or investments do not pose a significant
risk to the Bank Insurance Fund. All non-subsidiary equity investments, unless
otherwise authorized or approved by the Federal Deposit Insurance Corporation,
must have been divested by December 19, 1996, under a Federal Deposit Insurance
Corporation-approved divestiture plan, unless such investments were
grandfathered by the Federal Deposit Insurance Corporation. Berkshire Bank
received grandfathering authority from the Federal Deposit Insurance Corporation
in February 1993 to invest in listed stocks and/or registered shares. The
maximum permissible investment is 100% of Tier 1 capital, as specified by the
Federal Deposit Insurance Corporation's regulations, or the maximum amount
permitted by Massachusetts Banking Law, whichever is less. The Federal Deposit
Insurance Corporation also required that Berkshire Bank provide prior notice to
the agency if it increases the holdings of listed stock and/or registered shares
as a percentage of Tier 1 equity capital by 25%. Such grandfathering authority
may be terminated upon the Federal Deposit Insurance Corporation's determination
that such investments pose a safety and soundness risk to Berkshire Bank or if
Berkshire Bank converts its charter or undergoes a change in control. As of
December 31, 2003, Berkshire Bank had marketable equity securities including
money market preferred stocks with a market value of $14.9 million which were
held under such grandfathering authority.

Interstate Banking and Branching

      Beginning June 1, 1997, the Interstate Banking Act permitted the
responsible federal banking agencies to approve merger transactions between
banks located in different states, regardless of whether the merger would be
prohibited under the law of the two states. The Interstate Banking Act also
permitted a state to "opt in" to the provisions of the Interstate Banking Act
before June 1, 1997, and permitted a state to "opt out" of the provisions of the
Interstate Banking Act by adopting appropriate legislation before that date.
Accordingly, beginning June 1, 1997, the Interstate Banking Act permitted a
bank, such as Berkshire Bank, to acquire an institution by merger in a state
other than Massachusetts unless the other state had opted out of the Interstate
Banking Act. The Interstate Banking Act also authorizes de novo branching into
another state if the host state enacts a law expressly permitting out of state
banks to establish such branches within its borders.

Prompt Corrective Regulatory Action

      Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.

      The Federal Deposit Insurance Corporation has adopted regulations to
implement the prompt corrective action legislation. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage
ratio of 5% or greater. An institution is "adequately capitalized" if it has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater and generally a leverage ratio of 4% or greater. An
institution is "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4% (3% or less for institutions with the highest
examination rating). An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is considered to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%. As of December 31, 2003, Berkshire Bank met
the conditions to be classified a "well capitalized" institution.

      "Undercapitalized" banks must adhere to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. No institution may make a capital distribution, including
payment as a dividend, if it would be "undercapitalized" after the payment. A
bank's compliance with such plan is required to be guaranteed by any company
that controls the undercapitalized institution in an amount equal to the lesser
of 5% of the institution's total assets when deemed undercapitalized or the
amount necessary to achieve the status of adequately capitalized. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." "Significantly undercapitalized" banks
must comply with one or more of a number of additional restrictions, including
but not limited to an order by the Federal Deposit


                                      -38-
      

Insurance Corporation to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks or dismiss directors or officers, and restrictions on
interest rates paid on deposits, compensation of executive officers and capital
distributions by the parent holding company. "Critically undercapitalized"
institutions must comply with additional sanctions including, subject to a
narrow exception, the appointment of a receiver or conservator within 270 days
after it obtains such status.

Transactions with Affiliates

      Under current federal law, transactions between depository institutions
and their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. In a holding company context, at a minimum, the parent holding company of a
savings bank and any companies which are controlled by such parent holding
company are affiliates of the savings bank. Generally, Section 23A limits the
extent to which the savings bank or its subsidiaries may engage in "covered
transactions" with any one affiliate to 10% of such savings bank's capital stock
and surplus, and contains an aggregate limit on all such transactions with all
affiliates to 20% of capital stock and surplus. The term "covered transaction"
includes, among other things, the making of loans or other extensions of credit
to an affiliate and the purchase of assets from an affiliate. Section 23A also
establishes specific collateral requirements for loans or extensions of credit
to, or guarantees, acceptances on letters of credit issued on behalf of an
affiliate. Section 23B requires that covered transactions and a broad list of
other specified transactions be on terms substantially the same, or no less
favorable, to the savings bank or its subsidiary as similar transactions with
non-affiliates.

      Further, federal law restricts an institution with respect to loans to
directors, executive officers, and principal stockholders ("insiders"). Loans to
insiders and their related interests may not exceed, together with all other
outstanding loans to such persons and affiliated entities, the institution's
total capital and surplus. Loans to insiders above specified amounts must
receive the prior approval of the board of directors. Further, loans to insiders
must be made on terms substantially the same as offered in comparable
transactions to other persons, except that such insiders may receive
preferential loans made under a benefit or compensation program that is widely
available to Berkshire Bank's employees and does not give preference to the
insider over the employees. Federal law places additional limitations on loans
to executive officers.

Enforcement

      The Federal Deposit Insurance Corporation has extensive enforcement
authority over insured savings banks, including Berkshire Bank. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders and to remove directors and
officers. In general, these enforcement actions may be initiated in response to
violations of laws and regulations and unsafe or unsound practices.

      The Federal Deposit Insurance Corporation has authority under federal law
to appoint a conservator or receiver for an insured bank under limited
circumstances. The Federal Deposit Insurance Corporation is required, with
certain exceptions, to appoint a receiver or conservator for an insured state
non-member bank if that bank was "critically undercapitalized" on average during
the calendar quarter beginning 270 days after the date on which the institution
became "critically undercapitalized." See "Prompt Corrective Regulatory Action."
The Federal Deposit Insurance Corporation may also appoint itself as conservator
or receiver for an insured state non-member institution under specific
circumstances on the basis of the institution's financial condition or upon the
occurrence of other events, including: (1) insolvency; (2) substantial
dissipation of assets or earnings through violations of law or unsafe or unsound
practices; (3) existence of an unsafe or unsound condition to transact business;
and (4) insufficient capital, or the incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment without federal assistance.

Insurance of Deposit Accounts

      The Federal Deposit Insurance Corporation has adopted a risk-based
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the Federal Deposit
Insurance Corporation by the institution's primary federal regulator and
information which the Federal Deposit Insurance Corporation determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. Assessment rates for
insurance fund deposits currently range from 0 basis points for the strongest
institution to 27 basis points for the weakest. Bank Insurance Fund members are
also required to assist in the repayment of bonds issued by the Financing
Corporation in the late 1980s to recapitalize the Federal Savings and Loan
Insurance Corporation. Effective January 1, 2000, full pro rata sharing of the
payments between Bank Insurance Fund and Savings Association Insurance Fund
members commenced. The Federal Deposit Insurance Corporation is authorized to
raise the assessment rates. The Federal Deposit Insurance Corporation has
exercised this authority several times in the past and may raise insurance
premiums in the future. If the Federal Deposit Insurance Corporation takes such
action, it could have an adverse effect on the earnings of Berkshire Bank.


                                      -39-
      

      The Federal Deposit Insurance Corporation may terminate insurance of
deposits if it finds that the institution is in an unsafe or unsound condition
to continue operations, has engaged in unsafe or unsound practices, or has
violated any applicable law, regulation, rule, order or condition imposed by the
Federal Deposit Insurance Corporation. The management of the Bank does not know
of any practice, condition or violation that might lead to termination of
deposit insurance.

      Berkshire Bank, as a member of the Depositors Insurance Fund, is also
subject to its assessments. See "- Massachusetts Banking Laws and Supervision."

Federal Reserve System

      The Federal Reserve Board regulations require depository institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations currently require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $45.4 million less an exemption of $6.6 million (which may be
adjusted by the Federal Reserve Board) the reserve requirement is 3%; and for
accounts greater than $45.4 million, the reserve requirement is 10% (which may
be adjusted by the Federal Reserve Board between 8% and 14%) of the portion in
excess of $45.4 million. Berkshire Bank is in compliance with these
requirements.

Community Reinvestment Act

      Under the Community Reinvestment Act, as implemented by Federal Deposit
Insurance Corporation regulations, a state non-member bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate-income
neighborhoods. The Community Reinvestment Act neither establishes specific
lending requirements or programs for financial institutions nor limits an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The Community Reinvestment
Act requires the Federal Deposit Insurance Corporation, in connection with its
examination of an institution, to assess the institution's record of meeting the
credit needs of its community and to consider such record when it evaluates
applications made by such institution. The Community Reinvestment Act requires
public disclosure of an institution's Community Reinvestment Act rating.
Berkshire Bank's latest Community Reinvestment Act rating received from the
Federal Deposit Insurance Corporation was "Outstanding."

      Berkshire Bank is also subject to similar obligations under Massachusetts
Law, which has an additional CRA rating category. The Massachusetts Community
Reinvestment Act requires the Massachusetts Banking Commissioner to consider a
bank's Massachusetts Community Reinvestment Act rating when reviewing a bank's
application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of such
application. Berkshire Bank's latest Massachusetts Community Reinvestment Act
rating received from the Massachusetts Division of Banks was "Outstanding."

Federal Home Loan Bank System

      The Bank is a member of the Federal Home Loan Bank system, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a
central credit facility primarily for member institutions. Berkshire Bank, as a
member of the Federal Home Loan Bank of Boston, is required to acquire and hold
shares of capital stock in the Federal Home Loan Bank of Boston in an amount
equal to at least 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank of Boston, whichever
is greater. Berkshire Bank was in compliance with this requirement with an
investment in Federal Home Loan Bank of Boston stock at December 31, 2003 of
$12.9 million.

      The Federal Home Loan Banks are required to provide funds for certain
purposes including contributing funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal Home Loan
Banks pay to their members and result in the Federal Home Loan Banks imposing a
higher rate of interest on advances to their members. For the years ended 2003,
2002, 2001, 2000, and 1999, cash dividends from the Federal Home Loan Bank of
Boston to Berkshire Bank amounted to approximately $249,211, $283,300, $303,600,
$332,700 and $180,900, respectively. Further, there can be no assurance that the
impact of recent or future legislation on the Federal Home Loan Banks will not
also cause a decrease in the value of the Federal Home Loan Bank stock held by
the Bank.

Holding Company Regulation

      Federal law allows a state savings bank that qualifies as a "Qualified
Thrift Lender," discussed below, to elect to be treated as a savings association
for purposes of the savings and loan holding company provisions of federal law.
Such election allows its holding company to be regulated as a savings and loan
holding company by the Office of Thrift Supervision rather than as a bank
holding company by the Federal Reserve Board. Berkshire Bank made such election
and the Company is a non-


                                      -40-
      

diversified unitary savings and loan holding company within the meaning of
federal law. As such, the Company is registered with the Office of Thrift
Supervision and has adhered to the Office of Thrift Supervision's regulations
and reporting requirements. In addition, the Office of Thrift Supervision may
examine and supervise the Company and the Office of Thrift Supervision has
enforcement authority over the Company and its non-savings institution
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings institution. Additionally, Berkshire Bank
is required to notify the Office of Thrift Supervision at least 30 days before
declaring any dividend to the Company. By regulation, the Office of Thrift
Supervision may restrict or prohibit the Bank from paying dividends.

      As a unitary savings and loan holding company, the Company is generally
not restricted under existing laws as to the types of business activities in
which it may engage. The Gramm-Leach-Bliley Act of 1999 expanded the authority
of bank holding companies to affiliate with other financial services companies
such as insurance companies and investment banking companies. The
Gramm-Leach-Bliley Act, however, provided that unitary savings and loan holding
companies may only engage in activities permitted to a financial holding company
under the legislation and those permitted for a multiple savings and loan
holding company. Unitary savings and loan companies existing prior to May 4,
1999, such as the Company, were grandfathered as to the unrestricted activities.
Upon any non-supervisory acquisition by the Company of another savings
association as a separate subsidiary, the Company would become a multiple
savings and loan holding company. Federal law limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, provided the prior
approval of the Office of Thrift Supervision is obtained, to other activities
authorized by Office of Thrift Supervision regulation and to those permitted for
financial holding companies. Multiple savings and loan holding companies are
generally prohibited from acquiring or retaining more than 5% of a
non-subsidiary company engaged in activities other than those permitted by
federal law.

      Federal law prohibits a savings and loan holding company from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
association or savings and loan holding company or from acquiring such an
institution or company by merger, consolidation or purchase of its assets,
without prior written approval of the Office of Thrift Supervision. In
evaluating applications by holding companies to acquire savings associations,
the Office of Thrift Supervision considers the financial and managerial
resources and future prospects of the Company and the institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors.

      The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, except for (1)
interstate supervisory acquisitions by savings and loan holding companies, and
(2) the acquisition of a savings institution in another state if the laws of the
state of the target savings institution specifically permit such acquisitions.

      To be regulated as a savings and loan holding company by the Office of
Thrift Supervision (rather than as a bank holding company by the Federal Reserve
Board), the Bank must qualify as a Qualified Thrift Lender. To qualify as a
Qualified Thrift Lender, the Bank must maintain compliance with the test for a
"domestic building and loan association," as defined in the Internal Revenue
Code, or with a Qualified Thrift Lender Test. Under the Qualified Thrift Lender
Test, a savings institution is required to maintain at least 65% of its
"portfolio assets" (total assets less: (1) specified liquid assets up to 20% of
total assets; (2) intangibles, including goodwill; and (3) the value of property
used to conduct business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain mortgage-backed
and related securities) in at least 9 months out of each 12 month period. As of
December 31, 2003, Berkshire Bank maintained 93.1% of its portfolio assets in
qualified thrift investments. Berkshire Bank also met the QTL test in each of
the prior twelve months and, therefore, met the QTL Test.

      Acquisition of the Company. Under the Federal Change in Bank Control Act,
a notice must be submitted to the Office of Thrift Supervision if any person
(including a company), or group acting in concert, seeks to acquire "control" of
a savings and loan holding company. Under certain circumstances, a change in
control may occur, and prior notice is required, upon the acquisition of 10% or
more of the Company's outstanding voting stock, unless the Office of Thrift
Supervision has found that the acquisition will not result in a change of
control of the Company. Under the Change in Bank Control Act, the Office of
Thrift Supervision has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects of the
acquisition. Any company that acquires control would then be subject to
regulation as a savings and loan holding company.

      Massachusetts Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in Massachusetts must comply with any regulation under the Massachusetts law.
The term "bank holding company," for the purposes of Massachusetts law, is
defined generally to include any company which, directly or indirectly, owns,
controls or holds with power to vote more than 25% of the voting stock of each
of two or more banking institutions, including commercial banks and state
co-operative banks, savings banks and savings and loan associations and national
banks, federal savings banks and federal savings and loan associations. In
general, a holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
Massachusetts law. Under Massachusetts law, the prior approval of the Board of
Bank Incorporation is required before: any


                                      -41-
      

company may become a bank holding company; any bank holding company acquires
direct or indirect ownership or control of more than 5% of the voting stock of,
or all or substantially all of the assets of, a banking institution; or any bank
holding company merges with another bank holding company. Although the Company
is not a bank holding company for purposes of Massachusetts law, any future
acquisition of ownership, control, or the power to vote 25% or more of the
voting stock of another banking institution or bank holding company would cause
it to become such. The Company has no current plan or arrangement to acquire
ownership or control, directly or indirectly, of 25% or more of the voting stock
of another banking institution.

Federal Securities Laws

      The Company's common stock is registered with the Securities and Exchange
Commission under the Exchange Act. The Company is subject to the information,
proxy solicitation, insider trading restrictions and other requirements under
the Exchange Act.

      The registration under the Securities Act of shares of common stock does
not cover the resale of such shares. Shares of the common stock purchased by
persons who are not affiliates of the Company may be resold without
registration. The resale restrictions of Rule 144 under the Securities Act
govern shares purchased by an affiliate of the Company. If the Company meets the
current public information requirements of Rule 144 under the Securities Act,
each affiliate of the Company who complies with the other conditions of Rule 144
(including those that require the affiliate's sale to be aggregated with those
of other persons) would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (1) 1% of the outstanding shares of the Company or (2) the average
weekly volume of trading in such shares during the preceding four calendar
weeks. Future provision may be made by the Company to permit affiliates to have
their shares registered for sale under the Securities Act under specific
circumstances.

FEDERAL AND STATE TAXATION ON INCOME

Federal Income Taxation

      General. The Company and Berkshire Bank report their income on a calendar
year basis using the accrual method of accounting. The federal income tax laws
apply to the Company and Berkshire Bank in the same manner as to other
corporations with some exceptions, including particularly Berkshire Bank's
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to Berkshire Bank or the Company.
Berkshire Bank's federal income tax returns have been either audited or closed
under the statute of limitations through tax year 1999. For its 2003 tax year,
Berkshire Bank's maximum federal income tax rate was 34%.

      Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for
non-qualifying loans was computed using the experience method.

      Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and required savings institutions to recapture or
take into income certain portions of their accumulated bad debt reserves.
Approximately $844,000 of the Bank's accumulated bad debt reserves will not be
recaptured into taxable income unless the Bank makes a "nondividend
distribution" to the Company as described below.

      Distributions. If the Bank makes "nondividend distributions" to the
Company, they will be considered to have been made from the Bank's unrecaptured
tax bad debt reserves, including the balance of its reserves as of December 31,
1987, to the extent of the "nondividend distributions," and then from the Bank's
supplemental reserve for losses on loans, to the extent of those reserves, and
an amount based on the amount distributed, but not more than the amount of those
reserves, will be included in the Bank's taxable income. Nondividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be included in the Bank's taxable income.

      The amount of additional taxable income triggered by a nondividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Therefore, if the Bank makes
a nondividend distribution to the Company, approximately one and one-half times
the amount of the distribution not in excess of the amount of the reserves would
be includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserves.


                                      -42-
      

State Taxation

      Massachusetts Taxation. The Massachusetts excise tax rate for savings
banks is currently 10.5% of federal taxable income, adjusted for certain items.
Taxable income includes gross income as defined under the Internal Revenue Code,
plus interest from bonds, notes and evidences of indebtedness of any state,
including Massachusetts, less deductions, but not the credits, allowable under
the provisions of the Internal Revenue Code, except no deduction is allowed for
taxes paid to the state which are based on income. Carryforwards and carrybacks
of net operating losses are not allowed.

      A financial institution or business corporation is generally entitled to
special tax treatment as a "securities corporation," provided that: (a) its
activities are limited to buying, selling, dealing in or holding securities on
its own behalf and not as a broker; and (b) it has applied for, and received,
classification as a "securities corporation" by the Commissioner of the
Massachusetts Department of Revenue. A securities corporation that is also a
bank holding company under the Code must pay a tax equal to 0.33% of its gross
income. A securities corporation that is not a bank holding company under the
Code must pay a tax equal to 1.32% of its gross income. Three of the Bank's
subsidiaries, North Street Securities Corporation, Gold Leaf Securities
Corporation and Woodland Securities, Inc., are Massachusetts securities
corporations.

      In June 2003, the Company reached a settlement with the Massachusetts
Department of Revenue (the "DOR") with respect to the DOR's tax assessment
resulting from the DOR's disallowance of the Company's deduction of certain
dividend distributions received by the Bank from Gold Leaf Capital Corporation,
its majority-owned real estate investment trust (the "REIT"). As a result, the
Company paid approximately $398,000 to the DOR representing one-half of the
assessment plus interest and obtained the DOR's release from liability for the
remaining half assessed. The Company dissolved the REIT during the third quarter
of 2003.

      Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.


                                      -43-
      

ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------------------------------------

      The following table sets forth certain information regarding the executive
officers of Berkshire Hills and Berkshire Bank.

       
         
      Name                                 Age(1)         Position
      ----                                 ------         --------
                                                             
      Michael P. Daly                        42           President and Chief Executive Officer
      Wayne F. Patenaude                     43           Senior Vice President, Chief Financial Officer and Treasurer
      Gayle P. Fawcett                       51           Senior Vice President of Retail Banking and Operations
        

--------------------
(1)   As of December 31, 2003

      The executive officers are elected annually and hold office until their
successors have been elected and qualified or until they are removed or
replaced.

Biographical Information

      Michael P. Daly serves as President and Chief Executive Officer of the
      Company and Berkshire Bank. Prior to this position, Mr. Daly served as
      Executive Vice President of the Company and Bank from January 2000 to
      October 2002 and as Senior Vice President of Commercial Lending from
      October 1997 until January 2000.

      Wayne F. Patenaude has served as Senior Vice President, Chief Financial
      Officer and Treasurer of the Company and Berkshire Bank since February
      2003. Mr. Patenaude served as Executive Vice President, Chief Financial
      Officer and Treasurer of American Savings Bank, located in New Britain,
      Connecticut, from 1999 until American Savings Bank's acquisition by
      Banknorth, N.A. on February 14, 2003. Mr. Patenaude served as Chief
      Financial Officer of Bancorp Connecticut from December 1998 to 1999 when
      he joined American Savings Bank.

      Gayle P. Fawcett has been Senior Vice President of Retail Banking and
      Operations of the Company and Berkshire Bank since October 2002. Prior to
      this position, Ms. Fawcett served as Senior Vice President of Systems and
      Operations of Berkshire Bank since May 1999.


                                      -44-
      

ITEM 2. PROPERTIES
--------------------------------------------------------------------------------

      The Company and the Bank currently conduct their business through the main
office located in Pittsfield, Massachusetts, and 11 other full service banking
offices and one other facility listed below. The Company and the Bank believe
their facilities are adequate to meet their present and immediately foreseeable
needs.

       
         
                                                                                                            Net Book Value
                                                                                                              of Property
                                             Lease            Original Year           Date of                or Leasehold
                                               Or                 Leased               Lease                Improvements at
  Location                                    Own              or Acquired           Expiration            December 31, 2003
-------------                            ---------------    -------------------    ---------------    ----------------------------
                                                                                                            (In thousands)
                                                                                                                   
Main Office

24 North Street
Pittsfield, Massachusetts                     Own                  1898                    --                   $1,637

Banking Offices

244 Main Street
Great Barrington, Massachusetts               Own                  1950                    --                      695

103 North Main Street
Sheffield, Massachusetts                      Own                  1966                    --                      180

Old Town Hall
43 East Street                               Lease                 1969                  2030                      454
Pittsfield, Massachusetts

2 Depot Street
West Stockbridge, Massachusetts               Own                  1975                    --                      318

165 Elm Street
Pittsfield, Massachusetts                     Own                  1977                    --                      216

255 Stockbridge Road
Great Barrington, Massachusetts               Own                  1985                    --                      223

37 Main Street
North Adams, Massachusetts                   Lease                 1985                  2005(1)                   330

1 Park Street
Lee, Massachusetts                            Own                  1991                    --                      191

32 Main Street
Stockbridge, Massachusetts                    Own                  1991                    --                      261

66 West Street
Pittsfield, Massachusetts                    Lease                 1998                  2009(2)                   157

Allendale Shopping Center
39 Cheshire Road                             Lease                 2001                  2021(3)                 1,205
Pittsfield, Massachusetts

Other Office

66 Allen Street(4)                            Own                  1999                    --                    2,136
Pittsfield, Massachusetts
        

--------------

(1)   Berkshire Bank has one option to renew for ten years.

(2)   Berkshire Bank has two options to renew, each for an additional five-year
      period.

(3)   Berkshire Bank has four options to renew, each for an additional five-year
      period.

(4)   This facility houses Berkshire Bank's Commercial Lending Division, Asset
      Management/Trust Division and Government Banking Department.


                                      -45-
      

ITEM 3. LEGAL PROCEEDINGS
--------------------------------------------------------------------------------

      Periodically, there have been various claims and lawsuits involving
Berkshire Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Bank holds security interests, claims involving the
making and servicing of real property loans and other issues incident to the
Bank's business. However, neither the Company nor the Bank is a party to any
pending legal proceedings that it believes would have a material adverse effect
on the financial condition or operations of the Company, taken as a whole.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------------------------

      None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

      The common stock is traded on the American Stock Exchange under the symbol
"BHL." As of February 26, 2004, the Company had approximately 951 holders of
record. The following table sets forth, for the quarters indicated, the daily
closing high and low sales price for the common stock and the dividends paid.
The Company is subject to the requirements of Delaware law, which generally
limits dividends to an amount equal to the excess of the net assets of the
Company (the amount by which total assets exceed total liabilities) over its
statutory capital or, if there is no excess, to its net profits for the current
and/or immediately preceding fiscal year.

                          For the Year Ended December 31, 2003
                -----------------------------------------------------
                4th Quarter   3rd Quarter   2nd Quarter   1st Quarter
                -----------   -----------   -----------   -----------
High            $     37.40   $     33.90   $     28.40   $     24.00

Low             $     33.55   $     28.10   $     23.10   $     21.86

Dividend Paid   $      0.12   $      0.12   $      0.12   $      0.12

                          For the Year Ended December 31, 2002
                -----------------------------------------------------
                4th Quarter   3rd Quarter   2nd Quarter   1st Quarter
                -----------   -----------   -----------   -----------

High            $     25.25   $     27.25   $     26.20   $     22.08

Low             $     22.94   $     20.99   $     21.98   $     19.65

Dividend Paid   $      0.12   $      0.12   $      0.12   $      0.12


                                      -46-
      

ITEM 6. SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------

      The Company has derived the following selected consolidated financial and
other data of the Company and Berkshire Bank in part from the consolidated
financial statements and notes appearing elsewhere in this Form 10-K. The data
as of and for the years ended December 31, 2003, 2002, 2001 and 2000 are derived
from the audited consolidated financial statements for Berkshire Hills and
Berkshire Bank. The data as of and for the year ended December 31, 1999 is
derived from the audited consolidated financial statements of Berkshire Bancorp
and Berkshire Bank.

       
         
                                                        At or For the Years Ended December 31,
                                         ------------------------------------------------------------------
                                            2003            2002          2001         2000         1999
                                         -----------    -----------    ----------   ----------   ----------
                                                         (In thousands, except per share data)
                                                                                                    
Selected Financial Data:
  Total assets                           $ 1,218,548    $ 1,045,947    $1,030,701   $1,011,340   $  841,651
  Loans, net                                 783,258        712,714       791,920      783,405      665,554
  Investment securities:
    Available-for-sale                       307,425        173,169       104,446       99,309       93,084
    Held-to-maturity                          36,903         44,267        33,263       32,238       17,014
    Federal Home Loan Bank stock              12,923          7,440         7,027        5,651        3,843
    Savings Bank Life Insurance stock          2,043          2,043         2,043        2,043        2,043
  Deposits(1)                                830,244        782,360       742,729      729,594      680,767
  Federal Home Loan Bank advances            251,465        133,002       133,964      101,386       58,928
  Repurchase agreements                           --            700         1,890        2,030        1,120
  Total stockholders' equity                 123,175        120,569       139,323      161,322       88,352
  Real estate owned                               --          1,500            --           50          220
  Nonperforming loans                          3,199          3,741         2,702        2,869        2,841

Selected Operating Data:
  Total interest and dividend income     $    56,308    $    64,128    $   75,796   $   71,018   $   58,468
  Total interest expense                      18,742         23,428        33,560       33,468       26,922
                                         -----------    -----------    ----------   ----------   ----------
    Net interest income                       37,566         40,700        42,236       37,550       31,546
  Provision for loan losses                    1,460          6,180         7,175        3,170        3,030
                                         -----------    -----------    ----------   ----------   ----------
    Net interest income afer provision
     for loan losses                          36,106         34,520        35,061       34,380       28,516
                                         -----------    -----------    ----------   ----------   ----------
  Noninterest income:
  Service charges and fees                     4,776          4,469         4,187        3,743        3,405
  Gain on sales and dispositions of
    securities, net                            3,077         14,470           268          423          491
    Loss on sale of loans                     (1,854)       (10,702)           --           --           --
  Other(2)                                     7,711          5,181         6,093          580          402
                                         -----------    -----------    ----------   ----------   ----------
    Total noninterest income                  13,710         13,418        10,548        4,746        4,298
                                         -----------    -----------    ----------   ----------   ----------
    Total noninterest expense                 35,786         45,310        32,349       32,184       25,196
                                         -----------    -----------    ----------   ----------   ----------
  Income before income taxes                  14,030          2,628        13,260        6,942        7,618
  Income taxes                                 5,065            531         4,349        2,360        1,995
                                         -----------    -----------    ----------   ----------   ----------
    Net income                           $     8,965    $     2,097    $    8,911   $    4,582   $    5,623
                                         ===========    ===========    ==========   ==========   ==========
  Dividends per share                    $      0.48    $      0.48    $     0.43   $     0.10          N/A
  Earnings per share
    Basic                                $      1.70    $      0.39    $     1.42          N/A          N/A
    Diluted                              $      1.57    $      0.36    $     1.35          N/A          N/A
        

                                      -47-
      

       
         
                                                             At or For the Years Ended December 31,
                                                   --------------------------------------------------------
                                                     2003        2002        2001        2000        1999
                                                   --------    --------    --------    --------    --------
                                                                                                        
Selected Operating Ratios and Other Data(3):
  Performance Ratios:
    Average yield on interest-earning assets           5.35%       6.49%       7.80%       8.04%       7.65%
    Average rate paid on interest-bearing
      liabilities                                      2.10        2.85        4.25        4.64        4.15
    Interest rate spread(4)                            3.25        3.64        3.55        3.40        3.50
    Net interest margin(5)                             3.57        4.12        4.35        4.25        4.13
    Interest-bearing assets to interest-bearing
      liabilities                                    118.01      120.33      123.04      122.53      117.75
    Net interest income after provision for loan
      losses to noninterest expense                  100.89       75.36      108.39      106.82      113.18
    Noninterest expense as a percent of
      average assets                                   3.21        4.31        3.13        3.44        3.09
    Return on average assets(6)                        0.80        0.20        0.86        0.49        0.69
    Return on average equity(7)                        7.28        1.54        5.74        3.72        6.51
    Average equity to average assets                  11.04       12.96       15.00       13.15       10.59
    Dividend payout ratio(8)                          28.19      145.45       30.28         N/A         N/A
    Efficiency ratio(9)                               70.96       77.32       61.60       76.86       71.27
  Regulatory Capital Ratios:
    Tier 1 capital to average assets                   8.97       10.04       11.02       14.54        7.91
    Total capital to risk-weighted assets             14.10       15.18       15.73       20.15       12.90
  Asset Quality Ratios:
    Nonperforming loans as a percent of total
      loans(10)                                        0.40        0.52        0.34        0.36        0.42
    Nonperforming assets as a percent of total
      assets(11)                                       0.26        0.36        0.26        0.29        0.36
    Allowance for loan losses as a percent of
      total loans                                      1.13        1.43        1.37        1.29        1.27
    Allowance for loan losses as a percent of
      nonperforming loans                            280.37      275.54      408.36      356.08      300.39
    Net loans charged-off as a percent of
      interest-earning loans                           0.11        0.09        0.79        0.19        0.31
        

----------------

(1)   Includes mortgagors' escrow accounts.

(2)   Consists primarily of Berkshire Hills Technology's revenues in 2003, 2002
      and 2001. Berkshire Hills Technology was formed in May 2001.

(3)   Regulatory Capital and Asset Quality Ratios are end of period ratios.
      Performance Ratios are based on daily averages.

(4)   Difference between weighted average yield on interest-earning assets and
      weighted average cost of interest-bearing liabilities.

(5)   Net interest income as a percentage of average interest-earning assets.

(6)   Net income divided by average total assets.

(7)   Net income divided by average total equity.

(8)   Dividends per share divided by basic earnings per share. Comparable
      figures for 2000 and 1999 are not available as the Company began paying
      dividends in the fourth quarter of 2000.

(9)   Operating expenses divided by net interest income plus other income, less
      gain on sale of securities plus losses on sale of sub-prime loans. For
      purposes of the 2002 computation, severance payments of $6.9 million were
      deducted from operating expenses.

(10)  Nonperforming loans consist of nonaccrual loans.

(11)  Nonperforming assets consist of nonaccrual loans and real estate owned.


                                      -48-
      

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
--------------------------------------------------------------------------------

General

      Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes contained in this report.

Forward-Looking Statements

      This Annual Report on Form 10-K contains certain forward-looking
statements that are based on certain assumptions and describe future plans,
strategies and expectations of the Company. These forward-looking statements are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company'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 the Company and its subsidiaries include, but are not limited to,
changes in interest rates, general economic conditions, legislative/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 or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
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. The Company 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 such statements or to reflect the occurrence
of anticipated or unanticipated events.

Critical Accounting Policies

      The Company has established various accounting policies, which govern the
application of generally accepted accounting principles in the preparation of
the financial statements. Certain accounting policies involve significant
judgments and assumptions by management that have a material impact on the
carrying value of certain assets and liabilities. Management considers such
accounting policies to be critical accounting policies. The judgments and
assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the circumstances. Because of
the nature of the judgments and assumptions made by management, actual results
could differ from these judgments and estimates that could have a material
impact on the carrying values of assets and liabilities and the results of
operations of the Company. The Company believes the allowance for loan losses is
a critical accounting policy that requires the most significant judgments and
estimates used in the preparation of the Consolidated Financial Statements.
Refer to Footnote 1 to the Consolidated Financial Statements, "Summary of
Significant Accounting Policies" and the allowance for loan loss discussion in
Item 1. Business, for a detailed description of the estimation processes and
methodology related to the allowance for loan losses.

Operating Strategy

      The Bank is an independent, community-oriented savings bank, delivering
quality customer service and offering a wide range of deposit, loan and
investment products to its customers. In recent years, the Bank's strategy has
been to enhance profitability through controlled balance sheet growth by
emphasizing the origination of real estate mortgages, commercial loans and home
equity loans, increasing sources of noninterest income and by improving
operating efficiencies while managing its capital position and limiting its
credit and interest rate risk exposure. The Company has established
profitability goals of a return on assets of 1.0%, a return on equity of 10.0%
and an efficiency ratio of under 60%, which it expects to achieve by 2005.
Earnings growth is always a priority for a public company and good balance of
this with community involvement and employee retention is paramount to the
Company's management.

      The Bank is primarily a lending institution, which does a good job of
cross-selling products in an effort to "own" the "whole customer." While it does
not overpay for deposits, it has still achieved strong growth in its core
deposit base. In addition, being vigilant in expense control through efficiency
efforts, including the implementation of Six Sigma, is critical and we believe
those efforts will help earnings. To accomplish these objectives, the Bank has
sought to:

      o     Operate as a full-service community bank by expanding the services
            and products it offers.

      o     Provide superior customer service through an attention to detail and
            a focus on building customer relationships.

      o     Provide innovative products by increasing the functionality of its
            ATM network and expanding the capability of its call center.

      o     Increase fee income by broadening non-depository product offerings
            and services.


                                      -49-
      

      o     Continue to increase its emphasis on high quality consumer and
            commercial loans.

      o     Control credit risk by continuing to employ conservative
            underwriting standards to minimize the level of new problem assets.

      o     Improve asset quality by exiting the indirect sub-prime automobile
            loan business.

      o     Manage interest rate risk by emphasizing investments in shorter-term
            loans and investment securities, engaging in the sale,
            securitization and purchase of loans and by managing the Company's
            sources of borrowed funds, such as, its ability to borrow from the
            FHLB of Boston.

      o     Limit equity price risk and reductions to capital with decreases in
            its equity securities portfolio by selling a portion of its
            marketable equity securities portfolio.

      o     Operate more efficiently by: (1) increasing core deposits through
            aggressive cross-selling of products and using a disciplined
            approach to deposit pricing; and (2) utilizing "Six Sigma" process
            improvement infrastructure, which is designed to improve the
            Company's operating efficiencies.

      o     Invest primarily in debt instruments that provide adequate liquidity
            to meet cash flow needs and to earn a reasonable return on
            investment.

      As global and local economies continue to improve, the Company will strive
to take advantage of growth opportunities, both organic and through non-dilutive
acquisitions. While industry consolidation continues to increase acquisition
multiples making them increasingly more difficult to achieve, the Company will
prudently continue to explore opportunities that will improve its franchise and
be accretive to shareholders.


                                      -50-
      

Fourth Quarter Events and Recent Developments

      In December 2003, as part of the Bank's effort to improve its credit risk
profile, the Bank accelerated its strategy to exit the sub-prime automobile loan
business by selling $9.9 million of such loans, which resulted in the reversal
of approximately $1.0 million of previously provided loan loss provision. At
December 31, 2003, the Bank held $1.4 million of sub-prime automobile loans. The
Bank will continue to invest in automobile loans, but will no longer originate
or acquire sub-prime automobile loans.

      To prepare for a volatile and potentially rising interest rate
environment, $55.0 million of one- to four-family fixed rate residential
mortgages were securitized, of which $16.3 million settled in December 2003, and
the remaining $38.7 million settled in January 2004.

      Total commercial loans increased $20.1 million, or at an annualized rate
of 22.8%, from September 30, 2003. The majority of this increase was in
commercial real estate loans, which increased $22.3 million from September 30,
2003 as several new loans were added to the portfolio, of which the largest loan
was $2.5 million, while commercial loans declined $2.2 million for the same
period.

      Core deposits, which the Company considers to be all deposits other than
certificates of deposit, increased $8.5 million, or at an annualized rate of
6.8%, from September 30, 2003. The Bank had the largest increase in demand
deposits, which increased $6.3 million, or 6.5%. NOW accounts increased $2.9
million, or 3.2%, and money market accounts increased $1.4 million, or 1.0%. The
Bank continues to aggressively pursue deposits through customer cross-selling
efforts and other marketing campaigns.

Comparison of Financial Condition at December 31, 2003 and 2002

      Total assets were $1.22 billion at December 31, 2003, an increase of
$172.6 million, or 16.5%, from $1.05 billion at December 31, 2002. The Company's
investment portfolio, excluding FHLB and SBLI stock, increased 58.4% to $344.3
million at the end of 2003 from $217.4 million at the end of 2002 as the Company
purchased securities with attractive yields relative to the rates paid on a
corresponding increase in borrowings from the Federal Home Loan Bank of Boston.
These purchases were primarily in securities with durations averaging three to
five years. Short-term investments totaled $1.9 million at December 31, 2003, a
decrease of $41.5 million from December 31, 2002, reflecting the investment of
the proceeds from the December 2002 sale of sub-prime automobile loans in
purchased one-to four-family residential mortgage loans. Loans totaled $783.2
million at December 31, 2003, an increase of $70.5 million, or 9.9%, from the
year ended December 31, 2002. Organic loan growth, which excludes purchases,
securitization and sales of loans, increased $88.1 million, or 12.2%, from
December 31, 2002. Automobile loans decreased $9.6 million, or 8.5%, to $104.0
million at December 31, 2003 from December 31, 2002 as the Bank sold $9.9
million of its sub-prime automobile loans to a third party. At December 31,
2003, $1.4 million of sub-prime automobile loans remained with an allocated
reserve of $623,000, or 44.8%. Construction and land development loans increased
$17.1 million, or 97.0%, to $34.7 million at December 31, 2003 from $17.6
million at December 31, 2002. Commercial real estate totaled $154.2 million at
December 31, 2003, an increase of $35.0 million, or 29.4%, from December 31,
2002, while residential one- to four-family loans increased $19.8 million, or
8.0%, to $266.8 million at December 31, 2003 from December 31, 2002. The
increases reflect the Bank's expansion into new commercial loan markets,
primarily in the eastern New York area, and a strong local real estate loan
market primarily driven by a low interest rate environment. Commercial loans
remained relatively flat with an increase of $1.0 million, or 0.6%, to $166.5
million at December 31, 2003 from $165.4 million at December 31, 2002.

      Nonperforming loans totaled $3.2 million at December 31, 2003, a decrease
of $542,000, or 14.5%, from $3.7 million at December 31, 2002. Commercial and
commercial real estate nonaccruing loans totaled $2.4 million at the end of 2003
compared to $2.9 million at the end of 2002, primarily as the result of the
return of two loans to accrual status, payments collected on accounts remaining
on nonaccruing status and $156,000 in gross commercial loan charge-offs.
Nonaccruing consumer loans totaled $468,000 at the end of 2003, down from
$661,000 at the end of 2002. Automobile loans of $306,000 were 90 days or more
past due and still accruing interest at the end of 2003, compared to $590,000 at
the end of 2002. The ratio of nonperforming loans to total loans at December 31,
2003 and 2002 was 0.40% and 0.52%, respectively.

      The Bank executed a single premium Bank Owned Life Insurance ("BOLI")
contract in June of 2003, totaling $7.5 million. This transaction is expected to
earn a tax-equivalent return in excess of other earning assets with similar risk
characteristics. The income earned on BOLI is recorded as an increase in
noninterest income. BOLI totaled $7.7 million at December 31, 2003.

      Interest-bearing liabilities increased $150.7 million, or 18.2%, to $978.9
million at December 31, 2003 from $828.2 million at December 31, 2002, primarily
due to a $118.5 million, or 89.1%, increase in FHLB borrowings. Borrowings
totaled $251.5 million at December 31, 2003, increasing from $133.0 million at
December 31, 2002, as the Bank utilized lower cost borrowings to fund asset
growth. Interest-bearing deposits increased $32.2 million, or 4.6%, to $727.5
million at the end of 2003 from $695.2 million at the end of 2002. Money market
and NOW accounts increased $27.9 million and savings accounts


                                      -51-
      

increased $13.3 million, while certificates of deposit decreased $8.8 million.
Noninterest bearing demand deposits grew $15.6 million to $102.8 million at
December 31, 2003 from $87.1 million at December 31, 2002.

      Stockholders' equity totaled $123.2 million at December 31, 2003, an
increase of $2.6 million, or 2.2%, from December 31, 2002. This increase was
primarily due to net income of $9.0 million, partially offset by the repurchase
of 285,116 shares at a cost of $7.1 million, the exercise of 71,064 shares of
stock options and the payment of cash dividends of $0.48 per share amounting to
$2.6 million.

Comparison of Operating Results for the Years Ended December 31, 2003 and 2002

      Net Income. Net income totaled $9.0 million for the year ended December
31, 2003, an increase of $6.9 million, or 327.5%, from $2.1 million for the year
ended December 31, 2002. Net income for 2003 includes $437,000 in charges
related to a non-recurring retirement benefit while net income for 2002 includes
$8.3 million in charges in connection with the restructuring of the Company's
senior management and the reorganizing of the Company's long-term business
strategy. Basic and diluted earnings per share for the year ended December 31,
2003 were $1.70 and $1.57, respectively, compared to basic and diluted earnings
of $0.39 and $0.36 for the year ended December 31, 2002.

      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 decreased $3.1 million, or
7.7%, to $37.6 million in 2003 from $40.7 million in 2002 as the relatively low
market interest rate environment led to a high number of loan prepayments and
refinancings, which had a negative impact on earnings, and due to the
reinvestment of the proceeds from the December 2002 sale of sub-prime automobile
loans in lower yielding loans. Average earning assets increased $63.9 million,
or 6.5%, to $1.05 billion in 2003 from $987.9 million in 2002, while the yield
on average earnings assets declined to 5.35% from 6.49% for the twelve-month
period ended December 31, 2003. Partially offsetting the decline in the yield on
average earning assets was a 75 basis point decrease in the rate paid on average
interest-bearing liabilities from the same period last year. As a result, the
Company's net interest margin for the twelve months ended December 31, 2003 and
2002 were 3.57% and 4.12%, respectively.

      Interest and dividend income declined $7.8 million, or 12.2%, to $56.3
million for 2003 from $64.1 million for 2002 as interest earned on the Bank's
loan portfolio decreased $9.2 million, or 16.2%, from $56.9 million for 2002 due
to the sale of $69.7 million of higher rate sub-prime automobile loans in
December 2002 and the impact of lower market interest rates resulting from
comparatively stronger loan refinance activity. The lower loan interest income
also reflects the forfeiture of $65,000 in accrued interest and a write-down of
$180,000 of dealer reserve related to the December 2003 sale of $9.9 million of
sub-prime automobile loans. Interest and dividend income on the Company's
investment portfolio, including FHLB and SBLI stock, equaled $8.5 million in
2003, an increase of $1.8 million, or 25.9%, from $6.8 million earned in 2002 as
higher average balances were able to offset lower average yields earned.

      The decrease in interest and dividend income was partially offset by a
decrease in interest expense which decreased $4.7 million, or 20.0%, to $18.7
million for the year ended December 31, 2003 from $23.4 million for the year
ended December 31, 2002 due to lower rates paid, particularly on the Bank's
deposit accounts. Interest expense on deposits totaled $13.9 million for the
twelve months ended December 31, 2003, a decrease of $3.9 million, or 22.0%,
from $17.8 million for the twelve months ended December 31, 2002. Average
interest-bearing deposit balances increased $44.3 million to $723.5 million in
2003 from $679.2 million in 2002, but were more than offset by a lower average
rate of 1.92% paid in 2003 compared to 2.62% in 2002. Interest expense on FHLB
advances and other borrowings totaled $4.9 million this year, a decrease of
$771,000, or 13.7%, from $5.7 million last year, due to lower rates paid, as new
lower-cost borrowings replaced maturing higher cost advances and as a result of
the Bank's prepayment of higher cost advances in December 2002.

      Provision for Loan Losses. The provision for loan losses decreased $4.7
million, or 76.4%, to $1.5 million in 2003 from $6.2 million in 2002. The sale
of $9.9 million of sub-prime automobile loans in December 2003 resulted in the
reversal of approximately $1.0 million of previously provided loan loss
provision. In assessing the provision for the twelve months ended December 31,
2003, management took into consideration an $18.2 million decrease in sub-prime
automobile loans from December 31, 2002. The Company also considered net loan
charge-offs which decreased $4.1 million, to $2.8 million in 2003, from $6.9
million last year. Foremost in this decrease were gross consumer loan
charge-offs which declined $4.9 million in 2003 and consisted mainly of
sub-prime automobile loans. Additionally, management considered the level of
delinquent loans, which declined from 1.40% of total loans at December 31, 2002,
to 0.67% at December 31, 2003.

      At December 31, 2003, the allowance for loan losses was $9.0 million and
represented 1.13% of total loans and 280.37% of nonperforming loans compared to
$10.3 million, 1.43% and 275.54%, respectively, at December 31, 2002. The
decline in the allowance is consistent with improvement in the Company's credit
risk profile, particularly in consideration of the significant reduction in
sub-prime automobile loans.


                                      -52-
      

      Provisions for loan losses are charges to earnings to bring the total
allowance for loan losses to a level considered by management as adequate to
provide for estimated loan losses based on management's evaluation of the
collectibility of the loan portfolio. Management assesses the adequacy of the
allowance for loan losses based on known and inherent risks in the loan
portfolio and upon management's continuing analysis of the factors underlying
the quality of the loan portfolio. While management believes that, based on
information currently available, Berkshire Bank's allowance for loan losses is
sufficient to cover losses inherent in the Bank's loan portfolio at this time,
no assurances can be given that Berkshire Bank's level of allowance for loan
losses will be sufficient to cover future loan losses incurred by the Bank or
that future adjustments to the allowance for loan losses will not be necessary
if economic and other conditions differ substantially from the economic and
other conditions used by management to determine the current level of the
allowance for loan losses. Management may increase its level of allowance for
loan losses as a percentage of total loans and nonperforming loans if the level
of commercial real estate, multi-family, commercial, construction and
development or consumer loans as a percentage of its total loan portfolio
increases. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Berkshire Bank's allowance for
loan losses. These agencies may require Berkshire Bank to provide additions to
the allowance based upon judgments different from management.

      Noninterest Income. Noninterest income totaled $13.7 million for the
twelve months ended December 31, 2003, an increase of $292,000, or 2.2%, over
$13.4 million for 2002. Noninterest income for 2003 includes a $3.1 million gain
on the sale of securities, which was nearly offset by $2.4 million in charges
relating to the sale of sub-prime automobile loans and the valuation adjustment
in repossessed automobiles. EastPoint license maintenance and processing fees
and license sales and other fees increased $271,000, or 3.9%, to $7.3 million
for the twelve months ended December 31, 2003 as compared to $7.0 million for
the same period last year. Noninterest income for 2002 includes several items
related to the reorganizing of the Company's long-term business strategy that
took place in the fourth quarter of 2002. A $14.8 million gain on the sale of
equity securities was nearly offset by $13.4 million in charges relating to the
sale of sub-prime automobile loans, the write-down of one security, the
write-down of repossessed automobiles, and the prepayment penalty on FHLB
advances. In addition, trust department fees increased $294,000, or 16.4%, in
2003 due to an increase of $42.0 million, or 17.0%, in trust assets under
management.

      Noninterest Expenses. Noninterest (operating) expenses totaled $35.8
million for the year ended December 31, 2003 compared to $45.3 million for the
year ended December 31, 2002. Salaries and benefits expense declined $7.3
million for the twelve months ended December 31, 2003 compared to the same
period last year, as expenses for 2002 included $6.9 million of severance
payments for three executive officers and one senior vice president, and the
retirement of seven directors. Expenses for EastPoint, which are recorded in
various noninterest expense categories, totaled $7.8 million for the twelve
months ended December 31, 2003 as compared to $8.2 million for the same period
last year, a decrease of $464,000, or 5.6%. This decrease from 2002 was
attributable to a $500,000 increase in EastPoint's allowance for uncollectible
debt in December 2002. EastPoint had no such increases in 2003. Expenses
pertaining to foreclosed real estate and other loans decreased $2.2 million to
$1.0 million for the year ended December 31, 2003 compared to $3.3 million for
the year ended December 31, 2002, primarily due to a decrease in the expenses
associated with the inventory and sale of repossessed automobiles.

      Income Taxes. Income taxes for the year ended December 31, 2003 were $5.1
million, an increase of $4.5 million from $531,000 for the year ended December
31, 2002, due to increased income before taxes as well as an increase in the
effective tax rate to 36.1% for 2003 from 20.2% for 2002. The increase in the
effective tax rate for 2003 was largely due to the disallowance by Massachusetts
of the dividend received deduction from the Bank's REIT. The lower rate paid in
2002 was primarily due to a higher level of qualifying dividends received to
pretax income in 2002 compared to 2003.

Comparison of Operating Results for the Years Ended December 31, 2002 and 2001

      Net Income. Net income totaled $2.1 million for the year ended December
31, 2002, a decrease of $6.8 million, or 80.1%, from $8.9 million for the year
ended December 31, 2001. Net income for 2002 includes $8.3 million in charges in
connection with the restructuring of the Company's senior management and the
reorganizing of the Company's long-term business strategy while net income for
2001 includes a one-time gain of $2.2 million from the dissolution of the Bank's
defined benefit pension plan. Basic and diluted earnings per share for the year
ended December 31, 2002 were $0.39 and $0.36, respectively, compared to basic
and diluted earnings of $1.42 and $1.35 for the year ended December 31, 2001.

      Net Interest Income. Net interest income decreased $1.5 million, or 3.6%,
to $40.7 million in 2002 from $42.2 million in 2001 as the relatively low market
interest rate environment led to a high number of loan prepayments and
refinancings which had a negative impact on earnings. The average yield on
interest bearing assets declined 131 basis points to 6.49% for the year ended
December 31, 2002 compared to 7.80% for the year ended December 31, 2001 and
more than offset a $16.2 million increase in average interest bearing assets to
$987.9 million for 2002 compared to $971.7 million for 2001. Average interest
bearing liabilities increased $31.3 million to $821.0 million in 2002 from
$789.7 million in 2001, but were more than offset by a lower average rate paid
of 2.85% in 2002 compared to 4.25% in 2001 reflecting the low market interest
rate environment. As a result, the Company's net interest margin for the twelve
months ended December 31, 2002 and 2001 were 4.12% and 4.35%, respectively.


                                      -53-
      

      Interest and dividend income fell $11.7 million, or 15.4%, to $64.1
million for 2002 from $75.8 million for 2001 as interest earned on the Bank's
loan portfolio dropped $11.4 million, or 16.7%, from $68.3 million for 2001 as
the average balance of the Bank's loans fell to $791.3 in 2002 from $815.1 for
last year and the average rate earned equaled 7.19% in 2002 compared to 8.38%
for 2001. The lower loan interest income also reflects the forfeiture of
$492,000 in accrued interest related to the December sale of sub-prime
automobile loans. Interest and dividend income on the Company's investment
portfolio, including FHLB and SBLI stock, equaled $6.8 million in 2002, a
decrease of $330,000, or 4.7%, from $7.1 million earned in 2001. Higher average
balances were not enough to offset the decrease in average rate earned on the
investment portfolio. The average balance of the investment portfolio increased
$24.0 million to $168.7 million in 2002 while the average rate earned dropped 89
basis points to 4.01% in 2002.

      The decrease in interest and dividend income was mostly offset by a
decrease in interest expense as interest expense dropped $10.1 million, or
30.2%, to $23.4 million for the year ended December 31, 2002 from $33.6 million
for the year ended December 31, 2001 due to lower rates paid, particularly on
the Bank's deposit accounts. Interest paid on deposits totaled $17.8 million for
the twelve months ended December 31, 2002, a decrease of $8.9 million, or 33.4%,
from $26.7 million for the twelve months ended December 31, 2001. Average
interest bearing deposit balances increased $21.7 million to $679.2 million in
2002 from $657.5 million in 2001, but were more than offset by a lower average
rate paid of 2.62% in 2002 compared to 4.06% in 2001. Interest paid on
borrowings also decreased due to lower interest rates paid as interest on FHLB
advances and securities sold under agreements to repurchase totaled $5.7 million
this year, a decrease of $1.2 million, or 17.8%, from $6.9 million last year,
even though borrowings only declined $2.2 million, or 1.6%, from last year.

      Provision for Loan Losses. The provision for loan losses decreased $1.0
million, or 13.9%, to $6.2 million in 2002 from $7.2 million in 2001 as a
greater number of charge-offs in 2002 were more than offset by a higher number
of recoveries and a decrease in the balance of sub-prime automobile loans. Total
charge-offs were $10.0 million in 2002, an increase of $3.0 million, or 42.0%,
from $7.1 million last year. This increase was due to the higher consumer loan
charge-offs which rose $3.1 million in 2002. However, this increase was somewhat
offset by the Bank's strong efforts in 2002 to recover charged-off loans.
Recoveries totaled $3.1 million in 2002, an increase of $2.4 million over
$705,000 in 2001. Net charge-offs were $6.9 million for the year ended December
31, 2002 compared to $6.4 million last year, an increase of $549,000, or 8.6%.

      The provision for 2002 also includes $1.5 million added in the fourth
quarter of 2002 to cover losses inherent in the remaining sub-prime automobile
loan portfolio. At December 31, 2002, the allowance for loan losses was $10.3
million and represented 1.43% of total loans and 275.54% of nonperforming loans
compared to $11.0 million at December 31, 2001, which represented 1.37% of total
loans and 408.36% of nonperforming loans.

      Noninterest Income. Noninterest income totaled $13.4 million for the
twelve months ended December 31, 2002, an increase of $2.9 million, or 27.2%,
over $10.6 million for 2001. Noninterest income for 2002 includes several items
related to the reorganizing of the Company's long-term business strategy that
took place in the fourth quarter of 2002. A $14.8 million gain on the sale of
equity securities was nearly offset by $13.4 million in charges relating to the
sale of sub-prime automobile loans, the write-down of one security, the
write-down of repossessed automobiles, and the prepayment penalty on FHLB
advances. Noninterest income also increased in 2002 due to the recording of a
full year's worth of fees earned from the operations of EastPoint Technologies,
LLC versus only six months last year, a difference of $3.5 million. In addition,
customer service fees increased $423,000, or 23.4%, due to increased ATM and
checking account fees. Noninterest income for 2001 includes a one-time gain of
$2.2 million on the curtailment of the Bank's defined benefit pension plan.

      Noninterest Expense. Noninterest (operating) expenses increased $13.0
million, or 40.1%, to $45.3 million for the year ended December 31, 2002 from
$32.3 million for the year ended December 31, 2001 as expenses for 2002 included
charges related to the restructuring of the Company's senior management and the
retirement of several directors. In the fourth quarter of 2002, the Company and
the Bank restructured their management team, which resulted in $6.6 million of
charges, consisting of the payment to or accrual of severance payments for three
executive officers and one senior vice president under existing contractual
obligations. Additionally, seven directors retired from the Boards of the
Company and the Bank and, as a result, the Company incurred a $300,000 charge in
the fourth quarter to fund retirement plan benefits. Expenses pertaining to
foreclosed real estate and other loans increased $1.0 million to $3.3 million as
the Bank wrote down the value of one commercial property by $500,000. As was the
case with noninterest income, noninterest expenses also increased due to the
recognition of a full year's worth of expenses of EastPoint compared to only six
months last year. The increase attributable to EastPoint totaled $4.8 million.

      Income Taxes. Income taxes for the year ended December 31, 2002 were
$531,000, a decrease of $3.8 million from $4.3 million for the year ended
December 31, 2001. The effective tax rate for 2002 and 2001 were 20.2% and
32.8%, respectively. The lower rate paid in 2002 was due to the increase in the
ratio of tax exempt income and qualifying dividends received to pretax income.


                                      -54-
      

Average Balances, Interest and Average Yields/Cost

      The following table presents certain information for the years indicated
regarding average daily balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the years indicated are
derived by dividing income or expense by the average daily balances of assets or
liabilities, respectively, for the years presented. The yields and rates include
fees which are considered adjustments to yields.

       
         
                                                                For the Years Ended December 31,
                                           ----------------------------------------------------------------------------
                                                           2003                                    2002
                                           ------------------------------------    ------------------------------------
                                            Average                   Average       Average                    Average
                                            Balance      Interest    Yield/Rate     Balance      Interest    Yield/Rate
                                           ----------   ----------   ----------    ----------   ----------   ----------
                                                                      (Dollars in thousands)
                                                                                                                      
Interest-earning assets:
  Loans(1)                                 $  800,133   $   47,683         5.96%   $  791,328   $   56,910         7.19%
  Short-term investments                        7,714          109         1.41        27,870          456         1.64
  Investment securities                       232,998        8,204         3.52       159,318        6,416         4.03
  Federal Home Loan Bank stock                  8,889          249         2.80         7,303          283         3.88
  Savings Bank Life Insurance
    stock                                       2,043           63         3.08         2,043           63         3.08
                                           ----------   ----------   ----------    ----------   ----------   ----------
        Total interest-earning assets       1,051,777       56,308         5.35       987,862       64,128         6.49
  Noninterest-earning assets                   64,056                                  63,948
                                           ----------                              ----------
        Total assets                       $1,115,833                              $1,051,810
                                           ==========                              ==========
Interest-bearing liabilities:
  Deposits:
    Money market accounts                  $  132,497   $    1,648         1.24%   $  117,950   $    1,988         1.69%
    NOW accounts                               90,170          155         0.17        83,399          623         0.75
    Savings accounts(2)                       170,749        1,731         1.01       157,444        2,669         1.70
    Certificates of deposit                   330,116       10,328         3.13       320,415       12,497         3.90
                                           ----------   ----------                 ----------   ----------

        Total interest-bearing deposits       723,532       13,862         1.92       679,208       17,777         2.62

    Federal Home Loan Bank
        advances                              167,621        4,878         2.91       140,406        5,628         4.01
    Repurchase agreements                          88            2         1.14         1,349           23         1.72
                                           ----------   ----------                 ----------   ----------
        Total interest-bearing liabilities    891,241       18,742         2.10       820,963       23,428         2.85
                                                        ----------                              ----------
    Noninterest-bearing demand
        deposits                               91,627                                  82,751
    Other noninterest-bearing
        liabilities                             9,817                                  11,935
                                           ----------                              ----------
           Total liabilities                  992,685                                 915,649
    Equity                                    123,148                                 136,161
                                           ----------                              ----------
           Total liabilities and equity    $1,115,833                              $1,051,810
                                           ==========                              ==========
    Net interest-earning assets            $  160,536                              $  166,899
                                           ==========                              ==========
    Net interest income                                 $   37,566                              $   40,700
                                                        ==========                              ==========
    Interest rate spread                                                   3.25%                                   3.64%

    Interest margin (net interest
        income as a percentage of
        total average interest-earning
        assets)                                                            3.57%                                   4.12%
    Total average interest-earning
        assets to total average
        interest-bearing liabilities                                     118.01%                                 120.33%

         

                                             For the Years Ended December 31,
                                           ------------------------------------
                                                           2001
                                           ------------------------------------
                                            Average                    Average
                                            Balance      Interest    Yield/Rate
                                           ----------   ----------   ----------
                                                  (Dollars in thousands)
                                                                            
Interest-earning assets:
  Loans(1)                                   $  815,078   $   68,291         8.38%
  Short-term investments                         11,883          413         3.48
  Investment securities                         136,944        6,725         4.91
  Federal Home Loan Bank stock                    5,707          304         5.33
  Savings Bank Life Insurance
    stock                                         2,043           63         3.08
                                             ----------   ----------   ----------
        Total interest-earning assets           971,655       75,796         7.80
  Noninterest-earning assets                     63,207
                                             ----------
        Total assets                         $1,034,862
                                             ==========
Interest-bearing liabilities:
  Deposits:
    Money market accounts                    $  112,434   $    3,712         3.30%
    NOW accounts                                 77,276          806         1.04
    Savings accounts(2)                         142,150        4,087         2.88
    Certificates of deposit                     325,639       18,080         5.55
                                             ----------   ----------
        Total interest-bearing deposits         657,499       26,685         4.06

    Federal Home Loan Bank
        advances                                127,990        6,613         5.17
    Repurchase agreements                         4,215          262         6.22
                                             ----------   ----------

        Total interest-bearing liabilities      789,704       33,560         4.25
                                                          ----------
    Noninterest-bearing demand
        deposits                                 76,912
    Other noninterest-bearing
        liabilities                              12,968
                                             ----------
           Total liabilities                    879,584
    Equity                                      155,278
                                             ----------
           Total liabilities and equity      $1,034,862
                                             ==========
    Net interest-earning assets              $  181,951
                                             ==========
    Net interest income                                   $   42,236
                                                          ==========
    Interest rate spread                                                     3.55%

    Interest margin (net interest
        income as a percentage of
        total average interest-earning
        assets)                                                              4.35%
    Total average interest-earning
        assets to total average
        interest-bearing liabilities                                       123.04%
        

----------------
(1)   Average balances include nonaccrual loans.

(2)   Includes mortgagors' escrow accounts.


                                      -55-
      

Rate/Volume Analysis

           The following table presents the effects of changing rates and
volumes on the interest income and interest expense of Berkshire Bank. The rate
column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume). The volume column shows the effects attributable to
changes in volume (changes in volume multiplied by prior rate). The net column
represents the sum of the prior columns. For purposes of this table, changes
attributable to changes in both rate and volume, which cannot be segregated,
have been allocated proportionately based on the absolute value of the change
due to rate and the change due to volume.

       
         
                                                Year Ended December 31, 2003           Year Ended December 31, 2002
                                                         Compared to                            Compared to
                                                Year Ended December 31, 2002           Year Ended December 31, 2001
                                             -----------------------------------    -----------------------------------
                                                 Increase (Decrease) Due to             Increase (Decrease) Due to
                                             -----------------------------------    -----------------------------------
                                               Rate        Volume         Net         Rate        Volume         Net
                                             ---------    ---------    ---------    ---------    ---------    ---------
                                                                           (In thousands)
                                                                                                                 
Interest-earning assets:
  Loans                                      $ (12,205)   $   2,978    $  (9,227)   $  (9,440)   $  (1,941)   $ (11,381)
  Short-term investments                           (55)        (292)        (347)         (29)          72           43
  Investment securities                            (45)       1,799        1,754       (3,668)       3,338         (330)
                                             ---------    ---------    ---------    ---------    ---------    ---------
    Total interest-earning assets              (12,305)       4,485       (7,820)     (13,137)       1,469      (11,668)
                                             ---------    ---------    ---------    ---------    ---------    ---------
Interest-bearing liabilities:
  Deposits:
    Money market accounts                         (642)         302         (340)      (1,915)         191       (1,724)
    NOW accounts                                  (523)          55         (468)        (254)          71         (183)
    Savings accounts                            (1,188)         250         (938)      (1,922)         504       (1,418)
    Certificates of deposit                     (2,561)         392       (2,169)      (5,297)        (286)      (5,583)
                                             ---------    ---------    ---------    ---------    ---------    ---------
      Total deposits                            (4,914)         999       (3,915)      (9,388)         480       (8,908)
  Federal Home Loan Bank
    advances                                    (2,564)       1,814         (750)         751       (1,736)        (985)
  Repurchase agreements                             (6)         (15)         (21)        (123)        (116)        (239)
                                             ---------    ---------    ---------    ---------    ---------    ---------
  Total interest-bearing liabilities            (7,484)       2,798       (4,686)      (8,760)      (1,372)     (10,132)
                                             ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net interest income   $  (4,821)   $   1,687    $  (3,134)   $  (4,377)   $   2,841    $  (1,536)
                                             =========    =========    =========    =========    =========    =========
        

Liquidity and Capital Resources

      Liquidity is the ability to meet current and future financial obligations
of a short-term nature. The 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. The Bank's primary
sources of funds consist of deposit inflows, loan repayments, maturities, loan
sales, paydowns of mortgage-backed securities, sales/calls of investments and
borrowings from the Federal Home Loan Bank of Boston. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit outflows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.

      The 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 lines of credit and consumer loans, and (2)
investing in mortgage- and asset-backed securities, U.S. Government and agency
obligations, and debt securities. These activities are funded primarily by
principal and interest payments on loans, proceeds from sales of loans and
investment securities, maturities of securities, deposits and Federal Home Loan
Bank of Boston advances. During the years ended December 31, 2003 and 2002,
Berkshire Bank's loan originations totaled $321.1 million and $285.9 million,
respectively. At December 31, 2003 and 2002, the Bank's investments in
investment securities totaled $344.3 million and $217.4 million, respectively.
The Bank experienced a net increase in total deposits of $47.9 million and $39.6
million for the years ended December 31, 2003 and 2002, respectively. Deposit
flows are affected by the overall level of interest rates, the interest rates
and products offered by the Bank and its local competitors and other factors.
The Bank closely monitors its liquidity position on a daily basis. If the 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 repurchase agreement lines of credit with the
Depositors Insurance Fund and a nationally recognized broker-dealer.


                                      -56-
      

      Outstanding commitments for all loans and unadvanced construction loans
and lines of credit totaled $139.6 million at December 31, 2003. Management of
Berkshire Bank anticipates that it will have sufficient funds available to meet
its current loan commitments. Certificates of deposit that are scheduled to
mature in one year or less from December 31, 2003 totaled $219.6 million. The
Bank relies primarily on competitive rates, customer service and long-standing
relationships with customers to retain deposits. Occasionally, the Bank will
also offer special competitive promotions to its customers to increase retention
and promote deposit growth. Based upon the 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 the Bank.

      The Bank must satisfy various regulatory capital requirements administered
by the federal and state banking agencies including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At December 31,
2003, Berkshire Bank exceeded all of its regulatory capital requirements with
Tier 1 capital to average assets of $93.8 million, or 7.87% of average assets,
which is above the required level of $47.7 million, or 4.0%, and total capital
to risk-weighted assets of $106.6 million, or 12.57% of risk-weighted assets,
which is above the required level of $67.8 million, or 8.0%. The Bank meets the
conditions to be considered "well capitalized" under regulatory guidelines.

      The primary source of funding for Berkshire Hills is dividend payments
from Berkshire Bank, and, to a lesser extent, earnings on deposits held by
Berkshire Hills. Dividend payments by Berkshire Bank have primarily been used to
fund stock repurchase programs and pay dividends to Berkshire Hills'
shareholders. The Bank's ability to pay dividends and other capital
distributions to Berkshire Hills is generally limited by the Massachusetts
banking regulations and regulations of the Federal Deposit Insurance
Corporation. See "Regulation and Supervision - Massachusetts Regulation."
Additionally, the Massachusetts Commissioner of Banks and Federal Deposit
Insurance Corporation may prohibit the payment of dividends which are otherwise
permissible by regulation for safety and soundness reasons. Any dividend by the
Bank beyond its current year's earnings and prior two years' retained net income
would require the approval of the Massachusetts Commissioner of Banks, and
notification to or approval of the Federal Deposit Insurance Corporation and the
Office of Thrift Supervision. To the extent the Bank were to apply for a
dividend distribution to Berkshire Hills in excess of the regulatory permitted
dividend amount, no assurances can be made such application would be approved by
the regulatory authorities.

      Berkshire Hills is currently engaged in its sixth stock repurchase
program. To date, all purchases have been open market purchases. In the current
program, 112,700 shares out of an announced 300,000 have been purchased at a
cost of $3.1 million through December 31, 2003. The Company has sufficient funds
available to complete the repurchase program without having a material adverse
effect on liquidity.

      Contractual Obligations. The following table sets forth, at December 31,
2003, the dollar amount of the Bank's contractual obligations and their
subsequent time period.

       
         
                                                           Commitments by Period
                                     -----------------------------------------------------------------
                                                Less than One  One to Three  Three to Five  After Five
                                      Total          Year         Years         Years         Years
                                     --------   -------------  ------------  -------------  ----------
                                                              (In thousands)
                                                                                                 
Contractual Obligations

Long-term debt obligations (1)       $251,465      $125,000       $ 43,297      $ 39,397      $ 43,771
Operating lease obligations (2)         4,790           474            781           705         2,830
Purchase obligations (3)                1,390         1,390             --            --            --
                                     --------      --------       --------      --------      --------
Total Contractual Obligations        $257,645      $126,864       $ 44,078      $ 40,102      $ 46,601
                                     ========      ========       ========      ========      ========
        

---------------------
(1)   Consists of borrowings from the Federal Home Loan Bank. The maturities
      extend through 2022 and the rates vary by borrowing.

(2)   Consists of leases of four Bank offices through 2030.

(3)   Consists of obligations with multiple vendors to purchase a broad range of
      services and contractual estimates of capital renovations to Bank
      buildings.


                                      -57-
      

Off-Balance Sheet Arrangements

      For a discussion of the Company's off-balance sheet arrangements, see
Footnote 13, "Off-Balance Sheet Activities" in the Notes to the Consolidated
Financial Statements.

Impact of Inflation and Changing Prices

      The consolidated financial statements and related data presented in this
Form 10-K have been prepared in conformity with accounting principles generally
accepted in the United States of America, 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 Berkshire Bank are monetary in nature. As a result, interest
rates have a more significant impact on Berkshire Bank'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.

Impact of New Accounting Standards

      Accounting for Goodwill and Other Intangible Assets. The Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002.
Accordingly, goodwill is no longer subject to amortization over its estimated
useful life, but is subject to at least an annual assessment for impairment by
applying a fair value based test. Additionally, under SFAS No. 142, acquired
intangible assets (such as core deposit intangibles) are 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, and amortized over their useful life. Branch acquisition
transactions were outside the scope of SFAS No. 142 and, accordingly, intangible
assets related to such transactions continued to amortize upon the adoption of
SFAS No. 142.

      As required by SFAS No. 142, the Company completed the annual impairment
test on goodwill assets and has concluded that the amount of recorded goodwill
was not impaired as of December 31, 2003. On October 31, 2002, the Company
adopted SFAS No. 147, "Acquisitions of Certain Financial Institutions." This
Statement amends (except for transactions between two or more mutual
enterprises) previous interpretive guidance on the application of the purchase
method of accounting to acquisitions of financial institutions, and requires the
application of SFAS No. 141, "Business Combinations" and SFAS No. 142 to branch
acquisitions if such transactions meet the definition of a business combination.
This Statement amends SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," to include in its scope core deposit intangibles of
financial institutions. Accordingly, such intangibles are subject to a
recoverability test based on undiscounted cash flows, and to the impairment
recognition and measurement provisions that are required for other long-lived
assets that are held and used. SFAS No. 141 requires that the Company evaluate
its intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria for recognition apart from goodwill. No
reclassifications or adjustments were made as a result of adopting this
statement.

      Consolidation of Variable Interest Entities. In January 2003, the
Financial Accounting Standards Board (FASB) issued Interpretation No. 46,
"Consolidation of Variable Interest Entities," (FIN 46) which establishes
guidance for determining when an entity should consolidate another entity that
meets the definition of a variable interest entity. FIN 46 requires a variable
interest entity to be consolidated by a company if that company will absorb a
majority of the expected losses, will receive a majority of the expected
residual returns, or both. Transferors to qualified special-purpose entities
("QSPEs") and certain other interests in a QSPE are not subject to the
requirements of FIN 46. On December 17, 2003, the FASB deferred the effective
date of FIN 46 to no later than the end of the first reporting period that ends
after March 15, 2004, however, for special-purpose entities the Company would be
required to apply FIN 46 as of December 31, 2003. The interpretation had no
effect on the Company's consolidated financial statements.


                                      -58-
      

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------------------

Management of Interest Rate Risk and Market Risk Analysis

      Qualitative Aspects of Market Risk. The 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 trends and interest rate risk
position to the Board of Directors on a quarterly basis. The Asset/Liability
Committee consists of six senior officers of the Bank and the Senior Financial
Analyst. The extent of the movement of interest rates is an uncertainty that
could have a negative impact on the earnings of Berkshire Bank.

      In recent years, Berkshire Bank has managed interest rate risk by:

      o     emphasizing the origination and purchase 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     securitizing a portion of the Bank's long-term, fixed rate
            mortgages;

      o     originating shorter-term commercial and consumer loans;

      o     investing in high quality liquid investment securities that provide
            adequate liquidity and 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 and funding portfolios;

      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.

      Berkshire Bank's market risk also includes equity price risk. Berkshire
Bank's marketable equity securities portfolio had gross unrealized gains of $8.4
million at December 31, 2003 and no gross unrealized losses which are included,
net of taxes, in accumulated other comprehensive income, a separate component of
Berkshire Bank's shareholders' equity. If equity securities prices decline due
to unfavorable market conditions or other factors, Berkshire Bank's and
Berkshire Hills' capital would decrease. Management decided to decrease the
amount of equity securities it holds by selling a portion of its existing
portfolio each quarter during 2003.

      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 and other
market sources, as well as Company generated data 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 assumes that its balance sheet mix will remain relatively unchanged
throughout the next calendar year.


                                      -59-
      

      The tables below set forth, as of December 31, 2003 and 2002, 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                 At December 31, 2003
Market Interest Rates in       --------------------------------------
Basis Points (Rate Shock)       Amount       $ Change       % Change
-------------------------      --------      --------       ---------
                                        (Dollars in thousands)

            200                $ 37,144      $ (1,757)         (4.52%)
            100                  38,162          (739)         (1.90)
            Static               38,901            --             --
            (100)                39,478           577           1.48
            (200)                37,116        (1,785)         (4.59)

Increase/(Decrease) in Market           At December 31, 2002
Interest Rates in Basis Points --------------------------------------
        (Rate Shock)            Amount       $ Change       % Change
------------------------------ --------      --------       ---------
                                        (Dollars in thousands)
             200               $ 34,583      $ (1,027)         (2.88%)
             100                 34,741          (869)         (2.44)
             Static              35,610            --             --
             (100)               35,162          (448)         (1.26)
             (200)               32,908        (2,702)         (7.59)

      In the event of a sudden and sustained decrease in prevailing market
interest rates of 100 and 200 basis points, the December 31, 2003 table
indicates that net interest income would be expected to increase $577,000 and
decrease $1.8 million, respectively. This result is due to the fact that the
Company is slightly liability sensitive and in a 100 basis point decrease many
non-maturity deposit account rates would decrease significantly and reach
Company determined floors. In a negative 200 basis point scenario, many of these
deposit accounts would have reached their floors and the Company would become
asset sensitive. These results compare to the December 31, 2002 table, which
indicates that in the event of a sudden and sustained decrease of 100 and 200
basis points in prevailing market interest rates, net interest income would be
expected to decrease by $448,000 and $2.7 million, respectively. The primary
reason for the differences between the models for the two years is that many
deposit accounts have lower Company determined floors now than they did one year
ago.

      In the event of a sudden and sustained increase in prevailing market
interest rates of 100 and 200 basis points, the December 31, 2003 table
indicates that net interest income would be expected to decrease $739,000 and
$1.8 million, respectively, compared to the December 31, 2002 table, which
indicates that net interest income would decrease by $869,000 and $1.0 million,
respectively. The primary reason for the difference in the up 200 basis point
scenario was that at December 31, 2002, the Company had a larger amount of
securities, including overnight federal funds, repricing or maturing in the next
year than it had on December 31, 2003. Partially offsetting this was
Management's expectation that the rates paid on the Company's interest-bearing
non-maturity deposits were less sensitive to changes in prevailing market
interest rates at year-end 2003 than at year-end 2002. After examining the
historic rates paid on interest-bearing non-maturity deposits compared to the
then prevailing market interest rates, Management determined during 2003 that
the rates paid or the cost of these deposits would not have to increase as much
in a rising interest rate environment than what was anticipated at year-end
2002.

      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.


                                      -60-
      

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------------------------------

                                TABLE OF CONTENTS

                                                                           PAGE


INDEPENDENT AUDITORS' REPORT                                                62

CONSOLIDATED BALANCE SHEETS AS OF                                           63
DECEMBER 31, 2003 AND 2002

CONSOLIDATED STATEMENTS OF INCOME FOR THE                                   64
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

CONSOLIDATED STATEMENTS OF CHANGES IN                                       65
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR                                   66
THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  68


                                      -61-
      

WOLF                                                Certified Public Accountants
& COMPANY, P.C.                                         and Business Consultants
--------------------------------------------------------------------------------

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
  Berkshire Hills Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of Berkshire Hills
Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above  present
fairly, in all material respects, the financial position of Berkshire Hills
Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.


/s/ Wolf & Company, P.C.

Boston, Massachusetts
January 23, 2004


99 High Street o Boston, Massachusetts o 02110-2320 o Phone 617-439-9700 o Fax
                                  617-542-0400
   1500 Main Street o Suite 1908 o Springfield, Massachusetts o 01115 o Phone
                        413-747-9042 o Fax 413-739-5149
                               www.wolfandco.com



                                      -62-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2003 and 2002

       
         
                                                                                             2003              2002
                                                                                          -----------       -----------
                                                                                                 (In thousands)
                                                                                                               
Assets
Cash and due from banks                                                                   $    15,583       $    17,258
Short-term investments                                                                          1,859            43,397
                                                                                          -----------       -----------
    Total cash and cash equivalents                                                            17,442            60,655
Securities available for sale, at fair value                                                  307,425           173,169
Securities held to maturity (fair value approximates $36,868,000 and
  $44,348,000 at December 31, 2003 and 2002, respectively)                                     36,903            44,267
Federal Home Loan Bank stock, at cost                                                          12,923             7,440
Loans, net of allowance for loan losses of $8,969,000
  in 2003 and $10,308,000 in 2002                                                             783,258           712,714
Foreclosed real estate, net                                                                        --             1,500
Premises and equipment, net                                                                    12,626            13,267
Accrued interest receivable                                                                     5,080             5,125
Savings Bank Life Insurance stock                                                               2,043             2,043
Goodwill and other intangibles                                                                 10,233            10,436
Net deferred tax asset                                                                          1,725             2,016
Bank owned life insurance                                                                       7,721                --
Due from broker                                                                                 7,089                --
Other assets                                                                                   14,080            13,315
                                                                                          -----------       -----------
                                                                                          $ 1,218,548       $ 1,045,947
                                                                                          ===========       ===========
Liabilities and Stockholders' Equity
Deposits                                                                                  $   830,244       $   782,360
Federal Home Loan Bank advances                                                               251,465           133,002
Loans sold with recourse                                                                          473             1,201
Securities sold under agreements to repurchase                                                     --               700
Due to broker                                                                                   5,646                --
Accrued expenses and other liabilities                                                          5,293             5,677
                                                                                          -----------       -----------
      Total liabilities                                                                     1,093,121           922,940
                                                                                          -----------       -----------
Minority Interests                                                                              2,252             2,438
                                                                                          -----------       -----------
Commitments and contingencies (Notes 6, 13 and 14)
Stockholders' equity:
  Preferred stock ($.01 par value; 1,000,000 shares
    authorized; no shares issued and outstanding)                                                  --                --
  Common stock ($.01 par value; 26,000,000 shares authorized; and 7,673,761
    shares issued at December 31, 2003 and 2002, respectively, shares
    outstanding 5,903,082 and 6,117,134 at December 31, 2003 and 2002, respectively)               77                77
  Additional paid-in capital                                                                   75,764            74,632
  Unearned compensation                                                                        (8,507)           (9,535)
  Retained earnings                                                                            86,276            80,011
  Accumulated other comprehensive income                                                        5,559             5,542
  Treasury stock, at cost (1,770,679 and 1,556,627 shares
    at December 31, 2003 and 2002, respectively)                                              (35,994)          (30,158)
                                                                                          -----------       -----------
      Total stockholders' equity                                                              123,175           120,569
                                                                                          -----------       -----------
      Total liabilities and stockholders' equity                                          $ 1,218,548       $ 1,045,947
                                                                                          ===========       ===========
        

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


                                      -63-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years Ended December 31, 2003, 2002 and 2001

       
         
                                                                    2003           2002           2001
                                                                  --------       --------       --------
                                                                   (In thousands, except per share data)
                                                                                                   
Interest and dividend income:
    Loans, including fees                                         $ 47,683       $ 56,910       $ 68,291
    Debt securities:
        Taxable                                                      7,298          5,234          5,233
        Tax-exempt                                                     262            173            375
    Dividends                                                          956          1,355          1,484
    Short-term and other investments                                   109            456            413
                                                                  --------       --------       --------
               Total interest and dividend income                   56,308         64,128         75,796
                                                                  --------       --------       --------
Interest expense:
    Deposits                                                        13,862         17,777         26,685
    Federal Home Loan Bank advances                                  4,878          5,628          6,613
    Securities sold under agreements to repurchase                       2             23            262
                                                                  --------       --------       --------
               Total interest expense                               18,742         23,428         33,560
                                                                  --------       --------       --------
Net interest income                                                 37,566         40,700         42,236
Provision for loan losses                                            1,460          6,180          7,175
                                                                  --------       --------       --------
Net interest income, after provision for loan losses                36,106         34,520         35,061
                                                                  --------       --------       --------
Other income:
    Customer service fees                                            2,300          2,140          1,810
    Trust department fees                                            2,090          1,796          1,782
    Loan servicing fees                                                386            533            595
    Gain on sales and dispositions of securities, net                3,077         15,143            268
    Loss on impairment of securities                                    --           (673)            --
    Loss on sale of loans, net                                      (1,854)       (10,702)            --
    Loss on impairment of other assets                                (206)        (1,262)            --
    Penalty on prepayment of FHLB borrowings                            --         (1,067)            --
    License maintenance and processing fees                          4,443          4,379          1,322
    License sales and other fees                                     2,819          2,612          2,143
    Gain on curtailment of defined benefit pension plan, net            --             --          2,173
    Miscellaneous                                                      655            519            455
                                                                  --------       --------       --------
               Total other income                                   13,710         13,418         10,548
                                                                  --------       --------       --------
Operating expenses:
    Salaries and employee benefits                                  21,219         28,488         17,590
    Occupancy and equipment                                          5,045          5,288          4,689
    Marketing and advertising                                          678            648            629
    Data processing                                                    989            758          1,065
    Professional services                                            1,379          1,384          1,314
    Office supplies                                                    695            769            899
    Foreclosed real estate and repossessed assets, net               1,047          3,250          2,238
    Amortization of goodwill and other intangibles                     203            203            827
    Minority interests                                                (186)          (685)          (119)
    Other general and administrative expenses                        4,717          5,207          3,217
                                                                  --------       --------       --------
               Total operating expenses                             35,786         45,310         32,349
                                                                  --------       --------       --------
Income before income taxes                                          14,030          2,628         13,260
Provision for income taxes                                           5,065            531          4,349
                                                                  --------       --------       --------
              Net income                                          $  8,965       $  2,097       $  8,911
                                                                  ========       ========       ========
Earnings per share:
    Basic                                                         $   1.70       $   0.39       $   1.42
    Diluted                                                       $   1.57       $   0.36       $   1.35
        

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


                                      -64-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                  Years Ended December 31, 2003, 2002 and 2001

       
         
                                                                                               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)   $  74,555    $  19,824    $      --   $ 161,323
                                                                                                                          ---------
Comprehensive income:
    Net income                                      --           --           --        8,911           --           --       8,911
    Change in net unrealized gain on
        securities available for sale, net
        of reclassification adjustment and
        tax effects                                 --           --           --           --         (988)          --        (988)
                                                                                                                          ---------
                Total comprehensive income                                                                                    7,923
                                                                                                                          ---------
Cash dividends paid ($0.43 per share)               --           --           --       (2,808)          --           --      (2,808)
Treasury stock purchased                            --           --           --           --           --      (23,292)    (23,292)
Purchase of common stock - stock awards             --           --       (5,453)          --           --           --      (5,453)
Change in unearned compensation                     --          234        1,539           --           --           --       1,773
Minority interest adjustment                        --         (142)          --           --           --           --        (142)
                                             ---------    ---------    ---------    ---------    ---------    ---------   ---------
Balance at December 31, 2001                        77       74,146      (11,101)      80,658       18,836      (23,292)    139,324
                                                                                                                          ---------
Comprehensive income (loss):
    Net income                                      --           --           --        2,097           --           --       2,097
    Change in net unrealized gain on
        securities available for sale, net
        of reclassification adjustment and
        tax effects                                 --           --           --           --      (13,294)          --     (13,294)
                                                                                                                          ---------
                Total comprehensive loss                                                                                    (11,197)
                                                                                                                          ---------
Cash dividends paid ($0.48 per share)               --           --           --       (2,737)          --           --      (2,737)
Treasury stock purchased                            --           --           --           --           --       (6,989)     (6,989)
Reissuance of treasury stock under stock
    option plan (6,907 shares)                      --           --           --           (7)          --          123         116
Change in unearned compensation                     --          486        1,566           --           --           --       2,052
                                             ---------    ---------    ---------    ---------    ---------    ---------   ---------
Balance at December 31, 2002                        77       74,632       (9,535)      80,011        5,542      (30,158)    120,569
                                                                                                                          ---------
Comprehensive income (loss):
    Net income                                      --           --           --        8,965           --           --       8,965
    Change in net unrealized gain on
        securities available for sale, net
        of reclassification adjustment and
        tax effects                                 --           --           --           --           17           --          17
                                                                                                                          ---------
                Total comprehensive income                                                                                    8,982
                                                                                                                          ---------
Cash dividends paid ($0.48 per share)               --           --           --       (2,628)          --           --      (2,628)
Treasury stock purchased                            --           --           --           --           --       (7,099)     (7,099)
Reissuance of treasury stock under stock
    option plan (71,064 shares)                     --           --           --          (72)          --        1,263       1,191
Change in unearned compensation                     --        1,132        1,028           --           --           --       2,160
                                             ---------    ---------    ---------    ---------    ---------    ---------   ---------
Balance at December 31, 2003                 $      77    $  75,764    $  (8,507)   $  86,276    $   5,559    $ (35,994)  $ 123,175
                                             =========    =========    =========    =========    =========    =========   =========
        

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


                                      -65-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years Ended December 31, 2003, 2002 and 2001

       
         
                                                                          2003         2002         2001
                                                                       ---------    ---------    ---------
                                                                                                    
                                                                                  (In thousands)
Cash flows from operating activities:
    Net income                                                         $   8,965    $   2,097    $   8,911
    Adjustments to reconcile net income to net cash
        provided by operating activities:
            Provision for loan losses                                      1,460        6,180        7,175
            Net amortizaton of securities                                  1,795        1,103          270
            Depreciation and amortization expense                          2,107        2,414        2,081
            Amortization of goodwill and other intangibles                   203          203          827
            Management awards plan expense                                 1,066        1,165        1,000
            Employee stock ownership plan expense                          1,094          887          773
            Increase in cash surrender value of Bank Owned
                Life Insurance                                              (221)          --           --
            Gain on curtailment of defined benefit pension plan, net          --           --        2,173
            Gain on sales and dispositions of securities, net             (3,077)     (15,143)        (268)
            Loss on impairment of securities                                  --          673           --
            Loss on sale/writedown of foreclosed real estate, net             44          500           --
            Loss on impairment of other assets                               206        1,262           --
            Loss on sale of equipment                                         --           --           35
            Loss on sale of loans, net                                     1,854       10,702           --
            Deferred income tax provision (benefit)                        1,088         (262)         608
            Net change in loans held for sale                                 --        2,540       (2,540)
            Minority Interest                                               (186)        (685)        (119)
            Changes in operating assets and liabilities:
                Accrued interest receivable and other assets                (926)       5,157        1,899
                Accrued expenses and other liabilities                      (384)         747       (2,929)
                                                                       ---------    ---------    ---------
                      Net cash provided by operating activities           15,088       19,540       19,896
                                                                       ---------    ---------    ---------
Cash flows from investing activities:
    Activity in available-for-sale securities:
        Sales                                                             20,349       28,255        3,965
        Maturities                                                       130,091       68,232       26,577
        Principal payments                                                33,182       30,096       19,685
        Purchases                                                       (302,014)    (201,258)     (56,890)
    Activity in held-to-maturity securities:
        Maturities                                                        17,195       16,374       12,982
        Principal payments                                                38,876       29,132       22,187
        Purchases                                                        (49,242)     (56,812)     (36,175)
    Purchase of FHLB stock                                                (5,483)        (413)      (1,376)
    Purchase of Bank Owned Life Insurance                                 (7,500)          --           --
    Loan originations and purchases, net of
        principal payments                                              (153,674)       8,616      (13,176)
        

                                                                     (continued)

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


                                      -66-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)

                  Years Ended December 31, 2003, 2002 and 2001

       
         
                                                                 2003         2002         2001
                                                              ---------    ---------    ---------
                                                                         (In thousands)
                                                                                           
    Proceeds from sales of loans from portfolio                  63,546       66,400           --
    Additions to premises and equipment                          (1,466)      (1,468)      (2,344)
    Proceeds from sales of foreclosed real estate                 1,456           --           76
    Proceeds from sale of equipment                                  --           --           20
    Payment for purchase of EastPoint Technologies, LLC              --           --       (4,700)
                                                              ---------    ---------    ---------
                Net cash used in investing activities          (214,684)     (30,078)     (29,169)
                                                              ---------    ---------    ---------
Cash flows from financing activities:
    Net increase in deposits                                     47,884       39,631       14,638
    Net decrease in securities sold under
        agreements to repurchase                                   (700)      (1,190)        (140)
    Proceeds from Federal Home Loan Bank advances               252,000      120,172      152,000
    Repayments of Federal Home Loan Bank advances              (133,537)    (121,134)    (119,421)
    Increase (decrease) in loans sold with recourse                (728)       1,201       (7,740)
    Treasury stock purchased                                     (7,099)      (6,989)     (23,292)
    Proceeds from reissuance of treasury stock                    1,191          116           --
    Purchase of common stock in connection with restricted
        stock awards under stock based incentive plan                --           --       (5,453)
    Cash dividends paid                                          (2,628)      (2,737)      (2,808)
                                                              ---------    ---------    ---------
                  Net cash provided by financing activities     156,383       29,070        7,784
                                                              ---------    ---------    ---------

Net change in cash and cash equivalents                         (43,213)      18,532       (1,489)

Cash and cash equivalents at beginning of year                   60,655       42,123       43,612
                                                              ---------    ---------    ---------

Cash and cash equivalents at end of year                      $  17,442    $  60,655    $  42,123
                                                              =========    =========    =========

Supplemental cash flow information:
    Interest paid on deposits                                 $  13,887    $  17,835    $  26,746
    Interest paid on borrowed funds                               4,696        6,856        6,719
    Income taxes paid, net                                        4,175        1,618        2,882
    Transfers from loans to foreclosed real estate                   --        2,000           26
    Securitization of and transfer of loans to securities        16,270           --           --
    Due to broker                                                 5,646           --           --
    Due from broker                                               7,089           --           --
        

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


                                      -67-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  Years Ended December 31, 2003, 2002 and 2001


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

      Basis of presentation and consolidation

Berkshire Hills Bancorp, Inc. (the "Company") is a Delaware corporation and the
holding company for Berkshire Bank (the "Bank"), a state-chartered savings bank
headquartered in Pittsfield, Massachusetts. These consolidated financial
statements include the accounts of Berkshire Hills Bancorp, Inc. and its
wholly-owned subsidiaries, Berkshire Bank, Berkshire Hills Funding Corporation
and Berkshire Hills Technology, Inc., which was formed during 2001 for the
purpose of acquiring a controlling interest in EastPoint Technologies, LLC. The
Bank's wholly-owned subsidiaries are North Street Securities Corporation, Gold
Leaf Insurance Company, Gold Leaf Investment Services, Gold Leaf Securities
Corporation and Woodland Securities Corporation, Inc. North Street Securities
Corporation, Gold Leaf Securities Corporation, and Woodland Securities
Corporation, Inc. hold title to certain investment securities. Gold Leaf
Insurance Company and Gold Leaf Investment Services were formed in 2000 and
offer insurance and investment products to customers. Berkshire Hills Funding
Corporation was established and funded to loan funds to the Bank's Employee
Stock Ownership Plan. During 2001, the Bank established a majority-owned
subsidiary, Gold Leaf Capital Corporation, which held real estate mortgages
prior to being dissolved during 2003. All significant intercompany balances and
transactions have been eliminated in consolidation.

On June 29, 2001, the Company, through its wholly-owned subsidiary, Berkshire
Hills Technology, Inc., purchased a controlling interest in EastPoint
Technologies, LLC ("EastPoint"), which on the same date acquired all of the
domestic operations and service contracts of M&I EastPoint Technology, Inc.,
Bedford, New Hampshire, a software and data processing provider for financial
institutions, as well as substantially all of the operations and service
contracts of Preferred Financial Systems, Inc., Arden Hills, Minnesota, a data
processing service provider, both of which utilized the EastPoint Technology,
Inc. software. The Company's equity interest in EastPoint at December 31, 2003
and 2002 is 60.3% and represents a total investment of $4.7 million. During 2001
the Company's ownership percentage decreased from 93.6% to 60.3% as other
investor financial institutions obtained regulatory approval to invest in
EastPoint Technologies, LLC. The change in ownership percentage is shown as an
adjustment to additional paid-in capital. This acquisition was accounted for
under the purchase method of accounting.

      Business

The Company provides a variety of financial services to individuals,
municipalities and businesses through its offices in Berkshire County. Its
primary deposit products are savings, checking accounts and term certificate
accounts and its primary lending products are residential and commercial
mortgage loans, commercial loans and automobile loans. In addition, trust
services and insurance products are offered to individuals and small businesses
in the Berkshire County area.

      Use of estimates

In preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the consolidated balance sheet and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and deferred taxes.

      Reclassifications

Certain amounts in the 2002 and 2001 consolidated financial statements have been
reclassified to conform to the 2003 presentation.

      Cash and cash equivalents

For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash, balances due from banks and short-term investments,
all of which mature within ninety days.


                                      -68-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Short-term investments

Short-term investments mature within ninety days and are carried at cost, which
approximates fair value.

      Securities

Debt securities that management has the positive intent and ability to hold to
maturity are classified as "held-to-maturity" and recorded at amortized cost.
Securities not classified as held-to-maturity, including equity securities with
readily determinable fair values, are classified as "available-for-sale" and
recorded at fair value, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
In estimating other-than-temporary impairment losses, management considers (1)
the length of time and the extent to which the fair value has been less than
cost, (2) the financial condition and near-term prospects of the issuer, and (3)
the intent and ability of the Company to retain its investment in the issuer for
a period of time sufficient to allow for any anticipated recovery in fair value.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.

Federal Home Loan Bank of Boston ("FHLB") stock is reflected at cost. Savings
Bank Life Insurance Company of Massachusetts ("SBLI") stock was recorded at fair
value at acquisition as determined by an appraisal performed by independent
investment consultants retained by SBLI.

      Loans

The Bank grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans in
Berkshire County. The ability of the Bank's debtors to honor their contracts is
dependent upon the local economy and the local real estate market.

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans. Interest income is
accrued on the unpaid principal balance. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the
related loan yield using the interest method.

Interest on loans, excluding automobile loans, is generally not accrued on loans
which are ninety days or more past due unless the loan is well-secured and in
the process of collection. Past due status is based on contractual terms of the
loan. Automobile loans continue accruing to one hundred and twenty days
delinquent at which time they are charged off, unless the customer is in
bankruptcy proceedings. All interest accrued but not collected for loans that
are placed on non-accrual or charged-off is reversed against interest income.
The interest on these loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.


                                      -69-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses
charged to earnings as losses are estimated to have occurred. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the composition and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The
specific 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. 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 allocated and general
losses in the portfolio.

A loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Impaired loans are generally maintained on a non-accrual basis.
Impairment is measured on a loan by loan basis by either the present value of
expected future cash flows discounted at the loan's effective interest rate, or
the fair value of the collateral if the loan is collateral dependent.
Substantially all of the Bank's loans that have been identified as impaired have
been measured by the fair value of existing collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer loans or residential mortgage loans for impairment disclosures.

      Loans held for sale

Loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.

      Foreclosed and repossessed assets

Assets acquired through, or in lieu of, loan foreclosure or repossession are
held for sale and are initially recorded at the lower of the investment in the
loan or fair value less estimated cost to sell at the date of foreclosure or
repossession, establishing a new cost basis. Subsequently, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from foreclosed real estate and repossessed assets.

      Premises and equipment

Land is carried at cost. Buildings and improvements and equipment are carried at
cost, less accumulated depreciation and amortization computed on the
straight-line method over the estimated useful lives of the assets or terms of
the leases, if shorter.


                                      -70-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Goodwill and other intangibles

Goodwill and other intangibles includes goodwill associated with the acquisition
of EastPoint which is evaluated for impairment on an annual basis. Intangible
assets refer to customer relationships acquired in association with the
EastPoint Technologies purchase, which are being amortized on a straight-line
basis over three years, as well as the Company's purchase of two branches from
another financial institution in 1991 and three branches in 1998. The branch
acquisition costs are evaluated for impairment on an annual basis.

      Securities sold under agreements to repurchase

The Company enters into repurchase agreements with commercial customers. The
funds are invested in an overnight sweep account and deposited back in
customers' accounts on a daily basis. These agreements are secured by pledged
securities in the Bank's investment portfolio.

      Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

      Income taxes

Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted accordingly
through the provision for income taxes. The Bank's base amount of its federal
income tax reserve for loan losses is a permanent difference for which there is
no recognition of a deferred tax liability. However, the loan loss allowance
maintained for financial reporting purposes is a temporary difference with
allowable recognition of a related deferred tax asset, if it is deemed
realizable.

      Stock compensation plans

Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plans have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them.


                                      -71-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Stock compensation plans (concluded)

At December 31, 2003, the Company maintains stock-based compensation plans,
which are described more fully in Note 16. The Company has elected to continue
with the accounting methodology in APB No. 25 and, as a result, has provided pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting had been applied. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of SFAS No. 123 to stock-based employee
compensation.

       
         
                                                          Years Ended December 31,
                                                ----------------------------------------
                                                   2003           2002           2001
                                                ----------     ----------     ----------
                                                  (In thousands, except per share data)
                                                                                 
Net income, as reported                         $    8,965     $    2,097     $    8,911
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects                                (398)          (324)          (355)
                                                ----------     ----------     ----------
Pro forma net income                            $    8,567     $    1,773     $    8,556
                                                ==========     ==========     ==========

Earnings per share:
   Basic-as reported                            $     1.70     $     0.39     $     1.42
                                                ==========     ==========     ==========
   Basic-pro forma                              $     1.63     $     0.33     $     1.37
                                                ==========     ==========     ==========

   Diluted-as reported                          $     1.57     $     0.36     $     1.35
                                                ==========     ==========     ==========
   Diluted-pro forma                            $     1.50     $     0.30     $     1.30
                                                ==========     ==========     ==========
        

                                      -72-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Earnings per common share

Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued.
Potential common shares that may be issued by the Company related to outstanding
stock awards and stock options, and are determined using the treasury stock
method.

Earnings per common share have been computed based upon the following:

       
         
                                                              2003            2002            2001
                                                           ----------      ----------      ----------
                                                              (In thousands, except per share data)
                                                                                              
Net income applicable to common stock                      $    8,965      $    2,097      $    8,911
                                                           ==========      ==========      ==========
Average number of common shares outstanding                     5,266           5,435           6,264
Effect of dilutive potential common shares                        437             432             340
                                                           ----------      ----------      ----------
Average number of common shares outstanding
   used to calculate diluted earnings per common share          5,703           5,867           6,604
                                                           ==========      ==========      ==========
        

      Employee stock ownership plan ("ESOP")

Compensation expense is recognized as ESOP shares are committed to be released.
Allocated and committed to be released ESOP shares are considered outstanding
for earnings per share calculations. Other ESOP shares are excluded from
earnings per share calculations. Dividends declared on allocated ESOP shares are
charged to retained earnings. Dividends declared on unallocated ESOP shares are
used to satisfy debt service. The value of unearned shares to be allocated to
ESOP participants for future services not yet performed is reflected as a
reduction of stockholders' equity.

      Stock awards

The fair market value of the stock awards, based on the market price at date of
grant, is recorded as unearned compensation. Unearned compensation is amortized
over the vesting period. Stock award shares are considered outstanding for basic
earnings per share in the period that they vest. Stock award shares not vested
are considered in the calculation of diluted earnings per share.

      Advertising costs

Advertising costs are charged to earnings when incurred.

      Trust assets

Trust assets held in a fiduciary or agent capacity are not included in the
accompanying consolidated balance sheets because they are not assets of the
Company.

      Comprehensive income

Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
consolidated balance sheet, such items, along with net income, are components of
comprehensive income.


                                      -73-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

      Comprehensive income (concluded)

The components of other comprehensive income and related tax effects are as
follows for the years ended December 31, 2003, 2002 and 2001:

       
         
                                                               2003            2002            2001
                                                           ----------      ----------      ----------
                                                                          (In thousands)
                                                                                              
Change in net unrealized holding gains/losses              $    2,297      $   (5,151)     $   (1,237)
   on available-for-sale securities
Reclassification adjustment for gains                          (3,077)        (15,143)           (268)
   realized in income
Reclassification adjustment for impairment
   losses recognized in income                                     --             673              --
                                                           ----------      ----------      ----------
Net change in unrealized gains/losses                            (780)        (19,621)         (1,505)
Tax effects                                                       797           6,327             517
                                                           ----------      ----------      ----------
Net-of-tax change                                          $       17      $  (13,294)     $     (988)
                                                           ==========      ==========      ==========
        

      Accounting changes

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets,"
effective January 1, 2002. Accordingly, goodwill is no longer subject to
amortization over its estimated useful life, but is subject to at least an
annual assessment for impairment by applying a fair value based test.
Additionally, under SFAS No. 142, acquired intangible assets (such as core
deposit intangibles) are 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, and
amortized over their useful life. Branch acquisition transactions were outside
the scope of SFAS No. 142 and, accordingly, intangible assets related to such
transactions continued to amortize upon the adoption of SFAS No. 142. On October
31, 2002, the Company adopted SFAS No. 147, "Acquisitions of Certain Financial
Institutions." This Statement amends (except for transactions between two or
more mutual enterprises) previous interpretive guidance on the application of
the purchase method of accounting to acquisitions of financial institutions, and
requires the application of SFAS No. 141, "Business Combinations" and SFAS No.
142 to branch acquisitions if such transactions meet the definition of a
business combination. This Statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include in its scope core
deposit intangibles of financial institutions. Accordingly, such intangibles are
subject to a recoverability test based on undiscounted cash flows, and to the
impairment recognition and measurement provisions that are required for other
long-lived assets that are held and used.

SFAS No. 141 requires that the Company evaluate its intangible assets and
goodwill that were acquired in a prior purchase business combination, and to
make any necessary reclassifications in order to conform with the new criteria
for recognition apart from goodwill. No reclassifications or adjustments were
made as a result of adopting this statement. As required by SFAS No. 142 the
Company completed the annual impairment test on goodwill assets and has
concluded that the amount of recorded goodwill was not impaired as of December
31, 2003.

      Recent accounting pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46),
which establishes guidance for determining when an entity should consolidate
another entity that meets the definition of a variable interest entity. FIN 46
requires a variable interest entity to be consolidated by a company if that
company will absorb a majority of the expected losses, will receive a majority
of the expected residual returns, or both. Transferors to qualified
special-purpose entities ("QSPEs") and certain other interests in a QSPE are not
subject to the requirements of FIN 46. On December 17, 2003, the FASB deferred
the effective date of FIN 46 to no later than the end of the first reporting
period that ends after March 15, 2004, however, for special-purpose entities the
Company would be required to apply FIN 46 as of December 31, 2003. The
interpretation had no effect on the Company's consolidated financial statements.


                                      -74-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.    RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANK
--------------------------------------------------------------------------------

The Bank is required to maintain cash reserve balances with the Federal Reserve
Bank based upon a percentage of certain deposits. At December 31, 2003 and 2002,
cash and due from banks included $1,129,000 and $972,000, respectively, to
satisfy such reserve requirements.

3.    SHORT-TERM INVESTMENTS
--------------------------------------------------------------------------------

Short-term investments consist of the following at December 31, 2003 and 2002:

                                              2003        2002
                                            -------     -------
                                               (In thousands)

                Federal funds sold          $    --     $17,000
                FHLB overnight deposits       1,859       1,397
                BIF Liquidity Fund               --      25,000
                                            -------     -------
                                            $ 1,859     $43,397
                                            =======     =======


                                      -75-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.    SECURITIES
--------------------------------------------------------------------------------

The amortized cost and estimated fair value of securities, with gross unrealized
gains and losses, follows:

       
         
                                                           December 31, 2003
                                          ------------------------------------------------------
                                                           Gross         Gross
                                           Amortized    Unrealized    Unrealized        Fair
                                             Cost          Gains        Losses          Value
                                          -----------   -----------   -----------    -----------
                                                              (In thousands)
                                                                                        
Securities Available-for-Sale
Debt securities:
   U.S. Treasury and U.S.
           Government agencies            $    20,840   $       135   $        (6)   $    20,969
   Municipal bonds and obligations             12,294            42           (54)        12,282
   Other bonds and obligations                 17,102           242           (34)        17,310
   Mortgaged-backed securities:
            FHLMC/FNMA/GNMA                   238,066         1,727        (1,470)       238,323
            REMIC's and CMO's                   1,520            33            (6)         1,547
   Asset-backed securities                      2,566            --          (460)         2,106
                                          -----------   -----------   -----------    -----------
                  Total debt securities       292,388         2,179        (2,030)       292,537

Marketable equity                               6,515         8,373            --         14,888
                                          -----------   -----------   -----------    -----------
                  Total securities
                    available-for-sale    $   298,903   $    10,552   $    (2,030)   $   307,425
                                          ===========   ===========   ===========    ===========

Securities Held-to-Maturity
Debt securities:
   Municipal bonds and obligations        $    10,590   $        --   $        --    $    10,590
   Mortgaged-backed securities:
            FHLMC/FNMA                          5,319            28            (8)         5,339
            REMIC's and CMO's                  11,039             2           (57)        10,984
   Other bonds and obligations                  9,955            --            --          9,955
                                          -----------   -----------   -----------    -----------
                  Total securities
                    held-to-maturity      $    36,903   $        30   $       (65)   $    36,868
                                          ===========   ===========   ===========    ===========
        


                                      -76-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                             SECURITIES (continued)

       
         
                                                           December 31, 2002
                                          ------------------------------------------------------
                                                           Gross         Gross
                                           Amortized    Unrealized    Unrealized        Fair
                                             Cost          Gains        Losses          Value
                                          -----------   -----------   -----------    -----------
                                                            (In thousands)
                                                                                        
Securities Available-for-Sale
Debt securities:
   U.S. Treasury and U.S.
           Government agencies            $    98,058   $       669   $        (8)   $    98,719
   Other bonds and obligations                 31,284           564          (211)        31,637
   Mortgaged-backed securities:
            FHLMC/FNMA/GNMA                       236            13            --            249
            REMIC's and CMO's                  16,201           128          (118)        16,211
   Asset-backed securities                      6,956            43          (227)         6,772
                                          -----------   -----------   -----------    -----------
                  Total debt securities       152,735         1,417          (564)       153,588

Marketable equity                              11,132         8,526           (77)        19,581
                                          -----------   -----------   -----------    -----------
                  Total securities
                    available-for-sale    $   163,867   $     9,943   $      (641)   $   173,169
                                          ===========   ===========   ===========    ===========

Securities Held-to-Maturity
Debt securities:
   Municipal bonds and obligations        $     7,633   $        --   $        --    $     7,633
   Mortgaged-backed securities:
            FHLMC/FNMA                          8,648           130            (7)         8,771
            REMIC's and CMO's                  21,139            46           (88)        21,097
   Other bonds and obligations                  6,847            --            --          6,847
                                          -----------   -----------   -----------    -----------
                  Total securities
                    held-to-maturity      $    44,267   $       176   $       (95)   $    44,348
                                          ===========   ===========   ===========    ===========
        


                                      -77-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                             SECURITIES (continued)

The amortized cost and estimated fair value of debt securities by contractual
maturity at December 31, 2003 was as follows. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

       
         
                                           Available-for-Sale         Held-to-Maturity
                                         -----------------------   -----------------------
                                         Amortized       Fair      Amortized       Fair
                                            Cost        Value         Cost        Value
                                         ----------   ----------   ----------   ----------
                                                           (In thousands)
                                                                                   
Within 1 year                            $   13,193   $   13,310   $    8,087   $    8,087
Over 1 year to 5 years                       22,728       22,980        4,016        4,016
Over 5 years to 10 years                      1,225        1,235        1,827        1,827
Over 10 years                                13,090       13,036        6,615        6,615
                                         ----------   ----------   ----------   ----------
           Total bonds and obligations       50,236       50,561       20,545       20,545
Mortgaged-backed and asset-backed
     securities                             242,152      241,976       16,358       16,323
                                         ----------   ----------   ----------   ----------
             Total debt securities       $  292,388   $  292,537   $   36,903   $   36,868
                                         ==========   ==========   ==========   ==========
        

At December 31, 2003 and 2002, the Company has pledged securities with an
amortized cost of $1,000,000 and $6,032,000, respectively, and a fair value of
$1,021,500 and $6,185,000, respectively, as collateral for repurchase
agreements, and for its treasury tax and loan account.

For the years ended December 31, 2003, 2002 and 2001, proceeds from the sales of
securities available-for-sale amounted to $20,349,000, $28,255,000 and
$3,965,000, respectively. Gross realized gains amounted to $3,371,000,
$16,111,000 and $440,000, respectively. Gross realized losses amounted to
$294,000, $968,000 and $172,000, respectively.


                                      -78-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                             SECURITIES (concluded)

Information pertaining to securities with gross unrealized losses at December
31, 2003, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, follows:

       
         
                                       Less Than Twelve Months     Over Twelve Months
                                       -----------------------   -----------------------
                                         Gross                     Gross
                                       Unrealized      Fair      Unrealized      Fair
                                         Losses       Value        Losses       Value
                                       ----------   ----------   ----------   ----------
                                                        (In thousands)
                                                                                 
Securities Available-for-Sale
   Other bonds and obligations         $       79   $    8,722   $        9   $      402
   Mortgaged-backed securities              1,475      113,236            7          144
   Asset-backed securities                     10          809          450        1,297
                                       ----------   ----------   ----------   ----------
                Total securities
                  available-for-sale   $    1,564   $  122,767   $      466   $    1,843
                                       ==========   ==========   ==========   ==========

Securities Held-to-Maturity
   Mortgaged-backed securities         $       61   $   12,740   $        4   $      195
                                       ==========   ==========   ==========   ==========
        

Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.

At December 31, 2003, two debt securities, representing 0.11% of total assets,
have unrealized losses with aggregate depreciation of 25.8% from the Company's
amortized cost basis. The unrealized losses are in asset-backed securities that
derive their payment of principal and interest from mortgages on manufactured
housing. At December 31, 2003, these securities had aggregate investment grade
ratings of "A" from nationally recognized rating agencies. Additionally, the
market value on the securities has improved since mid-2003.


                                      -79-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    LOANS
--------------------------------------------------------------------------------

A summary of the balances of loans follows at December 31, 2003 and 2002:

                                             2003         2002
                                          ---------    ---------
                                              (In thousands)

One-to four-family mortgage               $ 266,753    $ 246,938
Commercial mortgage                         154,244      119,198
Multi-family mortgage                        15,514       14,920
Construction and land development            34,719       17,627
Home equity lines of credit                  45,783       40,713
Consumer                                    108,180      118,338
Commercial                                  166,451      165,447
                                          ---------    ---------
          Total loans                       791,644      723,181

Allowance for loan losses                    (8,969)     (10,308)
Unamortized discount on purchased loans         473         (200)
Net deferred loan costs                         110           41
                                          ---------    ---------

            Loans, net                    $ 783,258    $ 712,714
                                          =========    =========

At December 31, 2003 and 2002, there were no loans held for sale.

An analysis of the allowance for loan losses for the years ended December 31,
2003, 2002 and 2001 follows:

                                 2003        2002        2001
                               --------    --------    --------
                                        (In thousands)

Balance at beginning of year   $ 10,308    $ 11,034    $ 10,216
Provision for loan losses         1,460       6,180       7,175
Loans charged-off                (4,364)    (10,028)     (7,062)
Recoveries                        1,565       3,122         705
                               --------    --------    --------
Balance at end of year         $  8,969    $ 10,308    $ 11,034
                               ========    ========    ========


                                      -80-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                LOANS (concluded)

The following is a summary of information pertaining to impaired and non-accrual
loans at December 31, 2003 and 2002:

                                                             2003       2002
                                                           --------   --------
                                                              (In thousands)

Impaired loans with no valuation allowance                 $    388   $    727
Impaired loans with a valuation allowance                     1,994      2,123
                                                           --------   --------
Total impaired loans                                       $  2,382   $  2,850
                                                           ========   ========
Specific valuation allowance allocated to impaired loans   $    267   $    295
                                                           ========   ========
Non-accrual loans                                          $  3,199   $  3,741
                                                           ========   ========
Total loans past due ninety days or more and
   still accruing                                          $    306   $    590
                                                           ========   ========

No additional funds are committed to be advanced in connection with impaired
loans.

For the years ended December 31, 2003, 2002 and 2001, the average recorded
investment in impaired loans amounted to $2,693,000, $2,308,000 and $1,344,000,
respectively. The Company recognized $14,000, $85,000 and $14,000, respectively,
of interest income on impaired loans, during the period that they were impaired,
on the cash basis.

The Bank has sold loans in the secondary market and has retained the servicing
responsibility and receives fees for the services provided. Mortgage loans sold
and serviced for others amounted to $24,878,000 and $3,702,000 at December 31,
2003 and 2002, respectively, which includes $16,270,000 in securitized
mortgages. Consumer loans sold and serviced for others amounted to $7,159,000
and $19,476,000 at December 31, 2003 and 2002, respectively.

Substantially all loans serviced for others were sold without recourse
provisions and are not included in the accompanying consolidated balance sheets.
However, one commercial participation loan sale during 2002 included recourse
provisions amounting to $473,000 and $1,201,000 at December 31, 2003 and 2002.
This loan and the recourse provisions are included in the accompanying
consolidated balance sheets.


                                      -81-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    PREMISES AND EQUIPMENT
--------------------------------------------------------------------------------

A summary of the cost and accumulated depreciation and amortization of premises
and equipment and their estimated useful lives follows at December 31, 2003 and
2002:

                                                         Estimated
                                  2003        2002      Useful Lives
                                --------    --------    ------------
                                   (In thousands)

Banking premises:
   Land                         $  1,558    $  1,558
   Buildings and improvements     18,448      17,848    5-50 years
Equipment                         11,467      10,948    2-38 years
Construction in process              550         203
                                --------    --------
                                  32,023      30,557
Accumulated depreciation and
    amoritization                (19,397)    (17,290)
                                --------    --------
                                $ 12,626    $ 13,267
                                ========    ========

The majority of construction in process in 2003 related to computer conversion
costs and renovations to the Great Barrington branch. The Company is expecting
additional costs of $262,000 to complete the computer conversion project, of
which $155,000 has been committed. Expected and committed costs to complete
branch renovations are $958,000.

Construction in process in 2002 includes a renovation project at the West
Stockbridge branch. During 2003, this project was completed and costs were
transferred to the applicable categories.

Depreciation and amortization expense for the years ended December 31, 2003,
2002 and 2001 amount to $2,107,000, $2,414,000 and $2,081,000, respectively.

7.    OTHER ASSETS
--------------------------------------------------------------------------------

Other assets consist of the following at December 31, 2003 and 2002:

                                                     2003      2002
                                                   -------   -------
                                                     (In thousands)

           Prepaid dealer reserves                 $ 3,196   $ 3,517
           Repossessed vehicles                        352       838
           Cash surrender values, life insurance     5,425     4,952
           Other                                     5,107     4,008
                                                   -------   -------

                       Total other assets          $14,080   $13,315
                                                   =======   =======


                                      -82-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.    GOODWILL AND OTHER INTANGIBLES
--------------------------------------------------------------------------------

Goodwill and other intangibles include goodwill associated with the acquisition
of EastPoint, which is evaluated for impairment on an annual basis. Intangible
assets refer to customer relationships acquired in association with the
EastPoint purchase, which are being amortized on a straight-line basis over
three years as well as the Company's purchase of two branches from another
financial institution in 1991 and three branches in 1998. The branch acquisition
costs are being evaluated for impairment on an annual basis.

There have been no changes in carrying amounts of goodwill for the years ended
December 31, 2003 and 2002. The balance is $4,369,000 for both years.

A summary of other intangible assets at December 31 is as follows:

       
         
                                     2003                            2002
                         ----------------------------    ----------------------------
                           Carrying      Accumulated       Carrying      Accumulated
                            Amount       Amortization       Amount       Amortization
                         ------------    ------------    ------------    ------------
                                                (In thousands)
                                                                            
Branch acquisition       $      5,763    $     (1,700)   $      5,763    $     (1,700)
Customer relationships            101            (507)            304            (304)
                         ------------    ------------    ------------    ------------
                         $      5,864    $     (2,207)   $      6,067    $     (2,004)
                         ============    ============    ============    ============
        

The amortization expense on other intangible assets amounted to $203,000,
$203,000 and $599,000, respectively, for the years ended December 31, 2003, 2002
and 2001. The remaining amortization of customer relationships will be expensed
during 2004.

A reconciliation of reported income before income taxes to adjusted income
before income taxes excluding the impacts of goodwill amortization for the years
ended December 31 are as follows:

                                        2003       2002       2001
                                      --------   --------   --------
                                              (In thousands)

Income before income taxes            $ 14,030   $  2,628   $ 13,260
Add: Goodwill amortization                  --         --        228
                                      --------   --------   --------

Adjusted income before income taxes   $ 14,030   $  2,628   $ 13,032
                                      ========   ========   ========

The adoption of SFAS 147 in 2002 resulted in increases to goodwill of $497,000,
deferred taxes of $169,000 and $328,000 in retained earnings.


                                      -83-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.    DEPOSITS
--------------------------------------------------------------------------------

A summary of deposit balances, by type, was as follows at December 31, 2003 and
2002:

                                          2003       2002
                                        --------   --------
                                          (In thousands)

Demand                                  $102,788   $ 87,149
NOW                                       94,606     92,245
Savings                                  171,139    157,852
Money market                             139,897    114,309
Other                                        464        616
                                        --------   --------
       Total non-certificate accounts    508,894    452,171
                                        --------   --------

Term certificates less than $100,000     180,257    194,635
Term certificates of $100,000 or more    141,093    135,554
                                        --------   --------
       Total certificate accounts        321,350    330,189
                                        --------   --------

       Total deposits                   $830,244   $782,360
                                        ========   ========

A summary of certificate accounts by maturity is as follows at December 31, 2003
and 2002:


                                 2003                      2002
                         ---------------------    ----------------------
                                     Weighted                  Weighted
                                      Average                   Average
                          Amount       Rate        Amount        Rate
                         ---------   ---------    ---------    ---------
                                     (Dollars in thousands)

Within 1 year            $ 219,622        2.20%   $ 215,199         3.07%
Over 1 year to 3 years      55,084        3.61       79,122         4.08
Over 3 years                46,644        5.04       35,868         5.43
                         ---------                ---------

                         $ 321,350        2.85%   $ 330,189         3.57%
                         =========                =========


                                      -84-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.   FEDERAL HOME LOAN BANK ADVANCES
--------------------------------------------------------------------------------

A summary of outstanding advances from the Federal Home Loan Bank of Boston, by
maturity, is as follows at December 31, 2003 and 2002:

                                       2003                      2002
                               ----------------------    ----------------------
                                            Weighted                  Weighted
                                             Average                   Average
                                Amount        Rate        Amount        Rate
                               ---------    ---------    ---------    ---------
                                            (Dollars in thousands)
Fixed rate advances maturing:
                        2003   $      --           --%   $  62,000         1.76%
                        2004     125,000         1.43       10,000         2.83
                        2005      17,670         2.68       12,597*        3.02
                        2006      25,627         2.81          627         5.67
                        2007      34,397*        3.43        9,000         4.74
                        2008       5,000         1.25           --           --
                        2009       7,000         5.40        7,000         5.40
                        2010      20,000         5.84       20,000         5.84
                        2011      10,610         4.47        5,610         4.95
                        2013       6,000         5.18        6,000         5.19
                        2022         161*        2.00          168*        2.00
                               ---------                 ---------

Total FHLB advances            $ 251,465         2.61%   $ 133,002         3.27%
                               =========                 =========

*     Amortizing advances requiring monthly principal and interest payments.

Certain FHLB advances are callable in the amount of $52,000,000 during 2004.

The Bank maintains a line-of-credit with the Federal Home Loan Bank of Boston,
which carries interest at a rate that adjusts daily. Borrowings under the line
are limited to 2% of the Bank's total assets. All borrowings from the Federal
Home Loan Bank of Boston are secured by a blanket lien on certain qualified
collateral, defined principally as 75% of the carrying value of certain first
mortgage loans on owner-occupied residential property and 90% of the market
value of U.S. Government and federal agency securities pledged to the Federal
Home Loan Bank. No amounts were outstanding under this line during 2003 and
2002.


                                      -85-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.   SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
--------------------------------------------------------------------------------

Securities sold under agreements to repurchase ("repurchase agreements") are
funds borrowed from customers on an overnight basis that are secured by
investment securities.

A summary of repurchase agreements was as follows for the years ended December
31, 2003 and 2002:

                                                       2003           2002
                                                      ------         ------
                                                      (Dollars in thousands)

Balance at year end                                   $   --         $  700
Fair value of securities underlying the
     agreements at year end                               --          2,542
Interest rate on year end balance                         --           1.59%

Average amount outstanding during year                    88          1,349
Maximum amount outstanding at
     any month-end                                       500          1,830
Weighted average interest rate during the year          1.24%          1.72%

The Bank also has a repurchase agreement line of credit with the Depositors
Insurance Fund of up to $2.0 million and a $50.0 million repurchase agreement
line of credit with a major broker-dealer to be secured by securities or other
assets of the Bank. As of December 31, 2003 and 2002, there were no outstanding
borrowings against either agreement.

12.   INCOME TAXES
--------------------------------------------------------------------------------

Allocation of federal and state income taxes between current and deferred
portions is as follows for the years ended December 31, 2003, 2002 and 2001:

                                                2003         2002         2001
                                              --------     --------     --------
                                                        (In thousands)

Current tax provision:
       Federal                                $  3,210     $    644     $  3,496
       State                                       767          149          245
                                              --------     --------     --------
                                                 3,977          793        3,741
                                              --------     --------     --------
Deferred tax provision (benefit):
       Federal                                     848         (171)         531
       State                                       240          (91)          77
                                              --------     --------     --------
                                                 1,088         (262)         608
                                              --------     --------     --------
                                              $  5,065     $    531     $  4,349
                                              ========     ========     ========


                                      -86-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                            INCOME TAXES (continued)

The reasons for the differences between the statutory federal income tax rate
and the effective tax rates is summarized as follows for the years ended
December 31, 2003, 2002 and 2001:

                                                2003        2002         2001
                                              --------    --------     --------
                                                       (In thousands)

Statutory tax rate                                34.0%       34.0%        34.0%
Increase (decrease) resulting from:
    State taxes, net of federal tax benefit        4.7         1.5          1.6
    Dividends received deduction                  (1.1)       (8.1)        (1.9)
    Tax exempt income                             (0.9)       (6.1)        (1.0)
    Other, net                                    (0.6)       (1.1)         0.1
                                              --------    --------     --------

Effective tax rate                                36.1%       20.2%        32.8%
                                              ========    ========     ========

The components of the net deferred tax assets are as follows at December 31,
2003 and 2002:

                                            2003        2002
                                          --------    --------
                                             (In thousands)

Deferred tax liability:
      Federal                             $  3,879    $  3,587
      State                                    419       1,098
                                          --------    --------
                                             4,298       4,685
                                          --------    --------

Deferred tax asset:
      Federal                               (4,789)     (5,332)
      State                                 (1,234)     (1,369)
                                          --------    --------
                                            (6,023)     (6,701)
                                          --------    --------

Net deferred tax asset                    $ (1,725)   $ (2,016)
                                          ========    ========


                                      -87-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                            INCOME TAXES (concluded)

The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows at December 31, 2003 and 2002:

                                            2003        2002
                                          --------    --------
                                             (In thousands)
Investments:
      Net unrealized gain on securities
            available for sale            $  2,963    $  3,760
      Other                                    350         164
Depreciation                                     7          (9)
Allowance for loan losses                   (3,671)     (3,999)
Employee benefit plans                      (1,000)       (732)
Charitable contribution carryover             (824)     (1,219)
Other                                          450          19
                                          --------    --------

Net deferred tax asset                    $ (1,725)   $ (2,016)
                                          ========    ========

A summary of the change in the net deferred tax (asset) liability was as follows
for the years ended December 31, 2003, 2002 and 2001:

       
         
                                                      2003        2002        2001
                                                    --------    --------    --------
                                                             (In thousands)
                                                                               
Balance at beginning of year                        $ (2,016)   $  4,573    $  4,482
Deferred tax (benefit) provision                       1,088        (262)        608
Change in deferred tax effects of net unrealized
    gains/losses on securities available for sale       (797)     (6,327)       (517)
                                                    --------    --------    --------

Balance at end of year                              $ (1,725)   $ (2,016)   $  4,573
                                                    ========    ========    ========
        

There is a contribution carryover that was generated during the year ended 2000,
which expires in 2005. Management believes that the deferred tax assets related
to this contribution carryover and other deductible temporary differences will
be realized. As a result, no valuation reserve has been established at December
31, 2003, December 31, 2002 or December 31, 2001.

The federal income tax reserve for loan losses at the Bank's base year is
$844,000. If any portion of the reserve is used for purposes other than to
absorb the losses for which established, approximately 150% of the amount
actually used (limited to the amount of the reserve) would be subject to
taxation in the year in which used. As the Bank intends to use the reserve only
to absorb loan losses, a deferred income tax liability of $346,000 has not been
provided.

In June 2003, the Company reached a settlement with the Massachusetts Department
of Revenue ("DOR") with respect to the DOR's tax assessment resulting from the
DOR's disallowance of the Company's deduction of certain dividend distributions
received by the Bank from its Real Estate Investment Trust majority-owned
subsidiary Gold Leaf Capital Corporation (the "REIT"). As a result, the Company
paid approximately $398,000 to the DOR representing one-half of the assessment
plus interest and obtained the DOR's release from liability for the remaining
half assessed. The Company dissolved the REIT during the third quarter of 2003.


                                      -88-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.   OFF-BALANCE SHEET ACTIVITIES
--------------------------------------------------------------------------------

In the normal course of business, there are outstanding commitments and
contingencies that are not reflected in the accompanying consolidated financial
statements.

      Credit related financial instruments

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
accompanying consolidated balance sheets.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument is represented by the contractual amount
of these commitments. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments. A summary of financial
instruments outstanding whose contract amounts represent credit risk was as
follows at December 31, 2003 and 2002:

                                                   2003       2002
                                                 --------   --------
                                                    (In thousands)

Commitments to grant loans                       $ 26,854   $ 30,815
Unused funds on commercial lines-of-credit         49,380     47,900
Unadvanced funds on home equity and reddi-cash
     lines of credit                               46,904     42,671
Unadvanced funds on construction loans             18,069     19,161
Standby letters of credit                           1,811      1,894

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for lines of credit may expire without
being drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. Funds to be disbursed for loans and home
equity lines of credit are collateralized by real estate. Commercial lines of
credit are generally secured by business assets and securities. Reddi-cash lines
of credit are unsecured.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These letters of
credit are primarily issued to support borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.


                                      -89-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                    OFF-BALANCE SHEET ACTIVITIES (concluded)

      Operating lease commitments

Pursuant to the terms of noncancelable lease agreements in effect at December
31, 2003, pertaining to premises and equipment, future minimum rent commitments
are as follows:

            Years Ending
             December 31,                       (In thousands)
             ------------

                 2004                             $  474
                 2005                                428
                 2006                                353
                 2007                                353
                 2008                                352
             Thereafter                            2,830
                                                 -------

                                                 $ 4,790
                                                 =======

The leases contain options to extend for periods up to twenty years. The cost of
such rental options is not included above. Total rent expense for the years
ended December 31, 2003, 2002 and 2001 amounted to $371,000, $391,000 and
$375,000, respectively.

      Employment and change in control agreements

The Company and the Bank have each entered into an employment agreement with one
senior executive that generally provides for a specified minimum annual
compensation, participation in stock benefit plans and the continuation of
benefits currently received. The original terms of the agreements are for three
years and automatically extend unless either party gives notice to the contrary.
However, such agreements may be terminated for cause, as defined, without
incurring any continuing obligations.

The Bank has also entered into change in control agreements with certain
officers, all of whom are not covered by an employment agreement. The change in
control agreements generally provide a severance payment if the officer is
terminated following a "change in control," as defined in the agreements.

      Legal claims

Various legal claims also arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect on
the Company's consolidated financial statements.

      Mortgage securitization

On December 2, 2003, the Company entered into an agreement to securitize
mortgages with Fannie Mae in the aggregate of $55,900,000, plus or minus 5% of
total principal balance, which would be securitized and transferred back to the
Company. At December 31, 2003, the Company had an outstanding commitment to
securitize mortgage loans under the agreement of $39,600,000.


                                      -90-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.   STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

      Minimum regulatory capital requirements

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's and the Bank's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of its assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weighting, and other factors. Prompt corrective action
provisions are not applicable to savings and loan holding companies.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 2003 and 2002, that the Bank
met the capital adequacy requirements.

As of December 31, 2003, Berkshire Bank met the conditions to be classified as
well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, an institution must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
following tables.


                                      -91-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        STOCKHOLDERS' EQUITY (continued)

The Company and Bank's actual capital amounts and ratios as of December 31, 2003
and 2002 are presented in the following table.

       
         
                                                                   December 31, 2003
                                          ----------------------------------------------------------------------
                                                                                                 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.             $ 120,120       14.10%      N/A         N/A         N/A         N/A
Berkshire Bank                              106,564       12.57    $  67,827        8.00%  $  84,784       10.00%

Tier 1 capital to risk weighted assets:

Berkshire Hills Bancorp, Inc.               107,383       12.60       N/A         N/A         N/A         N/A
Berkshire Bank                               93,827       11.07       33,914        4.00      42,392        6.00

Tier 1 capital to average assets:

Berkshire Hills Bancorp, Inc.               107,383        8.97       N/A         N/A         N/A         N/A
Berkshire Bank                               93,827        7.87       47,664        4.00      59,580        5.00
        


                                      -92-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        STOCKHOLDERS' EQUITY (concluded)

      Minimum regulatory capital requirements (concluded)

       
         
                                                                   December 31, 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.             $ 118,124       15.18%      N/A         N/A         N/A         N/A
Berkshire Bank                              104,087       13.53    $  61,544        8.00%  $  76,929       10.00%

Tier 1 capital to risk weighted assets:

Berkshire Hills Bancorp, Inc.               104,591       13.45       N/A         N/A         N/A         N/A
Berkshire Bank                               90,661       11.78       30,772        4.00      46,158        6.00

Tier 1 capital to average assets:

Berkshire Hills Bancorp, Inc.               104,591       10.04       N/A         N/A         N/A         N/A
Berkshire Bank                               90,661        8.76       41,374        4.00      51,718        5.00
        

      Common stock

On March 28, 2001, the Board of Directors approved a dividend reinvestment plan
and authorized its implementation. The plan, which is available to all
shareholders of record of the Company's common stock, permits the reinvestment
of all cash dividends, the deposit of shares for safekeeping and the sale and
gifting of shares held under the plan. Common shares purchased pursuant to this
plan were 7,504 shares. All shares are purchased in open market transactions.

During 2002 and 2001, the Company repurchased approximately 312,516 and
1,249,000 shares of outstanding common stock. The Company announced in July 2003
that its Board of Directors approved a sixth repurchase program for 298,886
shares, or 5%, of its outstanding common stock and at December 31, 2003, the
Company had 186,186 shares remaining to be purchased in the latest 5%
repurchase. During 2003, a total of 112,700 shares were repurchased relating to
the sixth stock repurchase program.


                                      -93-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15.   EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------

      Defined benefit pension plan

The Company terminated its defined benefit pension plan, effective February 24,
2001. During the second quarter of 2001, the Company recorded a loss of $168,000
from the curtailment of its defined benefit pension plan. The final plan
settlement was approved by the IRS in the fourth quarter of 2001. The settlement
gain was $2,341,000.

      Defined contribution pension plan

The Company has a qualified savings plan under Section 401(k) of the Internal
Revenue Code. Each employee reaching the age of 21 and having completed at least
1,000 hours of service in a twelve-month period, beginning with such employee's
date of employment, automatically becomes a participant in the 401(k) Plan.
Employees may contribute a portion of their compensation subject to certain
limits based on federal tax laws. The Company made matching contributions which
amounted to $603,000, $640,000 and $528,000, respectively, for the years ended
December 31, 2003, 2002 and 2001.

      Supplemental executive retirement plan

The Company has a nonqualified supplemental executive retirement plan for the
benefit of a certain senior executive. Benefits generally commence no earlier
than age sixty and continue for the life of the senior executive. As of December
31, 2003 and 2002, the Company has an accrued expense payable in the amount of
$1,007,000 and $760,000, respectively, representing the present value of future
payments under the supplemental retirement plan. Supplemental retirement expense
for this plan for the year ended December 31, 2003, was $247,000. There was no
expense for the years ended December 31, 2002 and 2001. In some instances, the
Company has also entered into split-dollar life insurance agreements with senior
executives to provide supplemental retirement benefits.

      Incentive plan

The Company has an incentive plan (the "Plan") whereby all management and staff
members are eligible to receive a bonus, tied to performance. The structure of
the Plan is to be reviewed on an annual basis by the Corporate Governance
Committee. The Plan year end is December 31. Incentive compensation expense for
the years ended December 31, 2003, 2002 and 2001 amounted to $925,000, $620,000
and $600,000, respectively.

      Other benefits

The Company has in the past offered its retirees optional medical insurance
coverage. All participating retirees are required to contribute in part to the
cost of this coverage. The retiree medical plan was terminated on December 31,
1996. Any retiree participating in the plan at that time will continue to be
covered for life, however, no new retirees can participate in this plan. At
December 31, 2003 and 2002, the Company had an accrued liability in the amount
of $428,000 and $487,000, respectively, for payment of future premiums under
this plan.


                                      -94-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.   STOCK-BASED INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
--------------------------------------------------------------------------------

      Stock options

Under the Company's Stock-Based Incentive Plan, the Company may grant options to
its directors, officers and employees for up to 767,366 shares of common stock.
Both incentive stock options and non-statutory stock options may be granted
under the plan. The exercise price of each option equals the market price of the
Company's stock on the date of grant and an option's maximum term is ten years.
Options vest at 20% per year. In 2003, the Company's shareholders approved the
2003 Equity Compensation Plan. Under this Plan the Company may grant up to
300,000 options or stock awards to its directors, officers and employees. No
options or awards were granted under this Plan in 2003.

A summary of the status of the Company's stock options for the years ended
December 31, 2003, 2002 and 2001 are presented below:

       
         
                                                   2003                     2002                    2001
                                          ----------------------   ----------------------   ---------------------
                                                       Weighted                 Weighted                Weighted
                                                        Average                  Average                 Average
                                                       Exercise                 Exercise                Exercise
                                           Shares        Price      Shares        Price      Shares       Price
                                          ---------    ---------   ---------    ---------   ---------   ---------
                                                                                                           
Fixed options:
       Outstanding at beginning of year     600,848    $   16.75     767,366    $   16.75          --   $      --
       Granted                              120,143        22.44          --           --     767,366       16.75
       Exercised                            (71,064)       16.75      (6,907)       16.75          --          --
       Forfeited                                 --           --    (159,611)       16.75          --          --
                                          ---------                ---------                ---------
       Outstanding at end of year           649,927    $   17.80     600,848    $   16.75     767,366   $   16.75
                                          =========                =========                =========

Options exercisable at year-end             189,081    $   16.75     146,573    $   16.75          --   $      --
Weighted-average fair value of
       options granted during the year    $    6.15                $      --                $    3.44
        


                                      -95-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

    STOCK-BASED INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN (continued)

      Stock options (concluded)

The fair value of each option grant is estimated on the date of grant using the
Modified Roll Geske option-pricing model with the following weighted-average
assumptions:

                                                 Years Ended December 31,
                                                 -------------------------
                                                   2003             2001
                                                 --------         --------

Dividend yield                                      1.85%            2.12%
Expected life in years                           10 years         10 years
Expected volatility                                20.34%           18.01%
Risk-free interest rate                             3.85%            5.12%

No options were granted during the year ended December 31, 2002.

Information pertaining to options outstanding at December 31, 2003 are as
follows:

                 Options Outstanding          Options Exercisable
              --------------------------   -------------------------
                              Weighted
                               Average                    Weighted
                              Remaining                    Average
                 Number      Contractual     Number       Exercise
Grant Period   Outstanding      Life       Exercisable      Price
--------------------------   -----------   -----------   -----------
     2001        529,784     7.08 years      189,081     $     16.75
     2003        120,143     9.10 years           --           22.44

      Stock awards

Under the Company's Stock-Based Incentive Plan, the Company may grant stock
awards to its directors, officers and employees for up to 306,950 shares of
common stock. The Company applies APB Opinion No. 25 and related Interpretations
in accounting for stock awards. The stock awards vest at 20% per year. The fair
market value of the stock allocations, based on the market price at date of
grant, is recorded as unearned compensation. Unearned compensation is amortized
over the periods to be benefited. The Company recorded compensation cost related
to the stock awards of approximately $1,066,000, $1,165,000 and $1,000,000 in
2003, 2002 and 2001, respectively.


                                      -96-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

    STOCK-BASED INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN (continued)

      Stock awards (concluded)

A summary of the status of the Company's stock awards is presented below:

       
         
                                                        Years Ended December 31,
                                                     ------------------------------
                                                       2003       2002       2001
                                                     --------   --------   --------
                                                                              

Balance at beginning of year                          206,269    306,945         --
       Granted                                         84,166         --    306,945
       Cancelled                                           --   (100,676)        --
                                                     --------   --------   --------

Balance at end of year                                290,435    206,269    306,945
                                                     ========   ========   ========
Fair value of stock awards granted during the year   $  22.38   $     --   $  17.76
                                                     ========   ========   ========
        

      Employee Stock Ownership Plan

The Bank has established an Employee Stock Ownership Plan (the "ESOP") for the
benefit of each employee that has reached the age of 21 and has completed at
least 1,000 hours of service in the previous twelve-month period. As part of the
conversion, Berkshire Hills Funding Corporation provided a loan to the Berkshire
Bank Employee Stock Ownership Plan Trust which was used to purchase 8%, or
613,900 shares, of the Company's outstanding stock in the open market. The loan
bears interest equal to 9.5% and provides for quarterly payments of interest and
principal.

At December 31, 2003, the remaining principal balance is payable as follows:

                 Years Ending
                 December 31,                 (In thousands)
                 ------------

                      2004                        $   294
                      2005                            325
                      2006                            356
                      2007                            392
                      2008                            429
                  Thereafter                        4,458
                                                  -------

                                                  $ 6,254
                                                  =======


                                      -97-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

    STOCK-BASED INCENTIVE PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN (concluded)

      Employee Stock Ownership Plan (concluded)

The Bank has committed to make contributions to the ESOP sufficient to support
the debt service of the loan. The loan is secured by the shares purchased, which
are held in a suspense account for allocation among the participants as the loan
is paid. Total compensation expense applicable to the ESOP amounted to
$1,094,000, $887,000 and $773,000 for the years ended December 31, 2003, 2002
and 2001, respectively.

Shares held by the ESOP include the following at December 31, 2003 and 2002:

                                      2003             2002
                                  ----------       ----------

Allocated                            114,188           83,954
Committed to be allocated             37,853           37,853
Unallocated                          454,240          492,093
                                  ----------       ----------

                                     606,281          613,900
                                  ==========       ==========

Cash dividends received on allocated shares are allocated to participants and
cash dividends received on shares held in suspense are applied to repay the
outstanding debt of the ESOP. The fair value of these shares was approximately
$16,443,000 and $11,589,000 at December 31, 2003 and 2002, respectively.

17.   RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

In the ordinary course of business, the Company has granted loans to directors
and officers and their affiliates. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons. All loans to directors and officers of the Company and their
affiliates are performing in accordance with the contractual terms of the loans
as of December 31, 2003.

An analysis of activity of such loans that aggregate more than $60,000 on an
individual basis to directors and executive officers of the Company and their
affiliates is as follows:

                                    Years Ended December 31,
                                  ---------------------------
                                      2003             2002
                                  ----------       ----------
                                         (In thousands)

Balance at beginning of year      $    5,740       $    6,089
Additions                              1,127              658
Repayments                            (4,662)          (1,007)
                                  ----------       ----------

Balance at end of year            $    2,205       $    5,740
                                  ==========       ==========


                                      -98-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18.   RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES
--------------------------------------------------------------------------------

Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Bank to the Company. The total amount of
dividends which may be paid at any date is generally limited to the retained
earnings of the Bank, and loans or advances are limited to 10% of the Bank's
capital stock and surplus on a secured basis.

At December 31, 2003 and 2002, the Bank's retained earnings available for the
payment of dividends was $67,827,000 and $61,544,000, respectively, and funds
available for loans or advances amounted to $10,656,000 and $10,426,000,
respectively.

In addition, dividends paid by the Bank to the Company would be prohibited if
the effect thereof would cause the Bank's capital to be reduced below applicable
minimum regulatory capital requirements.

In conjunction with Massachusetts conversion regulations, the Bank established a
liquidation account for eligible account holders, which at the time of
conversion amounted to approximately $70 million. In the event of a liquidation
of the Bank, the eligible account holders will be entitled to receive their
pro-rata share of the net worth of the Bank prior to conversion. However, as
qualifying deposits are reduced, the liquidation account will also be reduced in
an amount proportionate to the reduction in the qualifying deposit accounts.


                                      -99-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.   FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

The fair value of a financial instrument is the current amount that would be
exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument. SFAS
107 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the
Company.

The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts of these instruments approximate
fair values.

Securities: Fair values for securities, excluding FHLB and SBLI stock, are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying value of FHLB stock approximates fair value based on
the redemption provisions of the Federal Home Loan Bank and SBLI stock was
recorded at fair value at acquisition as determined by an appraisal performed by
independent investment consultants retained by SBLI.

Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. Fair values for
all other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.

Deposits: The fair values for non-certificate accounts and tax escrow are, by
definition, equal to the amount payable on demand at the reporting date which is
their carrying amounts. Fair values for certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.

Federal Home Loan Bank advances: The fair values of Federal Home Loan Bank
advances are estimated using discounted cash flow analyses based on the Bank's
current incremental borrowing rates for similar types of borrowing arrangements.

Securities sold under agreements to repurchase: The carrying amount of
repurchase agreements approximates fair value. Repurchase agreements generally
mature or "roll over" on a daily basis.

Accrued interest: The carrying amounts of accrued interest approximate fair
value.


                                     -100-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                 FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)

Off-balance-sheet instruments: Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing. The fair values of off-balance sheet
instruments are immaterial.

The carrying amounts and estimated fair values of the Company's financial
instruments are as follows at December 31, 2003 and 2002:

       
         
                                                     2003                      2002
                                            ----------------------    ----------------------
                                            Carrying       Fair       Carrying       Fair
                                             Amount        Value       Amount        Value
                                            ---------    ---------    ---------    ---------
                                                             (In thousands)
                                                                                      
Financial assets:
       Cash and cash equivalents            $  17,442    $  17,442    $  60,655    $  60,655
       Securities available for sale          307,425      307,425      173,169      173,169
       Securities held to maturity             36,903       36,868       44,267       44,348
       Federal Home Loan Bank stock            12,923       12,923        7,440        7,440
       Loans, net                             783,258      787,490      712,714      725,000
       Accrued interest receivable              5,080        5,080        5,125        5,125
       Savings Bank Life Insurance stock        2,043        2,043        2,043        2,043

Financial liabilities:
       Deposits                               830,244      796,623      782,360      759,325
       Federal Home Loan Bank advances        251,465      263,218      133,002      146,258
       Securities sold under agreement
                 to repurchase                     --           --          700          700
        


                                     -101-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20.   CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
--------------------------------------------------------------------------------

Condensed financial information pertaining only to the parent company, Berkshire
Hills Bancorp, Inc., is as follows:

                            CONDENSED BALANCE SHEETS

       
         
                                                                       December 31,
                                                                   --------------------
                                                                     2003        2002
                                                                   --------    --------
                                                                      (In thousands)
                                                                                  
Assets

Cash due from Berkshire Bank                                       $  6,305    $  3,075
Securities available for sale, at fair value                             31          31
Securities held to maturity                                              --       3,463
Investment in common stock of Berkshire Bank                        105,128     101,996
Investment in common stock of Berkshire Hills
    Funding Corporation                                               6,680       6,690
Investment in common stock of Berkshire
    Hills Technology, Inc.                                            3,421       3,703
Other assets                                                          1,640       1,629
                                                                   --------    --------
                     Total assets                                  $123,205    $120,587
                                                                   ========    ========

Liabilities and Stockholders' Equity

Accounts payable                                                   $     30    $     18
Stockholders' equity                                                123,175     120,569
                                                                   --------    --------
                     Total liabilities and stockholders' equity    $123,205    $120,587
                                                                   ========    ========
        


                                     -102-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (continued)

                         CONDENSED STATEMENTS OF INCOME

       
         
                                                                                 Years Ended December 31,
                                                                      -------------------------------------------
                                                                          2003            2002            2001
                                                                      -----------     -----------     -----------
                                                                                     (In thousands)
                                                                                                         
Income:
   Dividends from Berkshire Bank                                      $     8,000     $     2,375     $    13,850
   Dividends from Berkshire Hills Funding Corporation                         559             577           1,700
   Interest on securities                                                      17             273             779
   Other                                                                       54              44             206
                                                                      -----------     -----------     -----------
        Total income                                                        8,630           3,269          16,535
                                                                      -----------     -----------     -----------
Operating expenses                                                            361             405             459
                                                                      -----------     -----------     -----------
Income before income taxes and equity in
    undistributed income (loss) of subsidiaries                             8,269           2,864          16,076
Applicable income tax (benefit) provision                                     (99)             80             138
                                                                      -----------     -----------     -----------
Income before equity in undistributed
    income (loss) of subsidiaries                                           8,368           2,784          15,938
Equity in undistributed income (loss) of Berkshire Bank                       889             612          (5,999)
Equity in undistributed loss of Berkshire Hills
     Funding Corporation                                                      (10)           (259)         (1,071)
Equity in undistributed (loss) income of Berkshire Hills
     Technology, Inc.                                                        (282)         (1,040)             43

                                                                      -----------     -----------     -----------
        Net income                                                    $     8,965     $     2,097     $     8,911
                                                                      ===========     ===========     ===========
        


                                     -103-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (concluded)

                       CONDENSED STATEMENTS OF CASH FLOWS

       
         
                                                                                Years Ended December 31,
                                                                      -------------------------------------------
                                                                          2003            2002            2001
                                                                      -----------     -----------     -----------
                                                                                     (In thousands)
                                                                                                         
Cash flows from operating activities:
    Net income                                                        $     8,965     $     2,097     $     8,911
    Adjustments to reconcile net income
        to net cash provided by operating activities:
           Equity in undistributed (income) loss of Berkshire Bank           (889)           (612)          5,999
           Equity in undistributed loss of  Berkshire Hills
               Funding Corporation                                             10             259           1,071
           Equity in undistributed income of
               Berkshire Hills Technology, Inc.                               282           1,040             (43)
           Deferred tax benefit                                                --              --            (310)
           Net (accretion) amortization of securities                          --              (4)              5
           Other, net                                                         (65)            499             591
                                                                      -----------     -----------     -----------
              Net cash provided by operating activities                     8,303           3,279          16,224
                                                                      -----------     -----------     -----------

Cash flows from investing activities:
    Activity in available-for-sale securities:
        Sales                                                                  --              --           5,666
        Maturities                                                             --              --           2,920
        Principal payments                                                     --             560              --
        Purchases                                                              --              --          (4,623)
    Activity in held-to-maturity securities:
        Maturities                                                          3,463           1,932          12,553
        Principal payments                                                     --             169             135
        Purchases                                                              --             (32)         (8,838)
    Investment in Berkshire Hills Technology, Inc.                             --              --          (4,700)
                                                                      -----------     -----------     -----------
              Net cash provided by investing activities                     3,463           2,629           3,113
                                                                      -----------     -----------     -----------

Cash flows from financing activities:
    Proceeds from issuance of treasury stock                                1,191             116              --
    Payments to acquire treasury stock                                     (7,099)         (6,989)        (23,292)
    Dividends paid                                                         (2,628)         (2,737)         (2,808)
                                                                      -----------     -----------     -----------
              Net cash used in investing activities                        (8,536)         (9,610)        (26,100)
                                                                      -----------     -----------     -----------

Net change in cash and cash equivalents                                     3,230          (3,702)         (6,763)

Cash and cash equivalents at beginning of year                              3,075           6,777          13,540
                                                                      -----------     -----------     -----------

Cash and cash equivalents at end of year                              $     6,305     $     3,075     $     6,777
                                                                      ===========     ===========     ===========
        


                                     -104-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21.   SEGMENT REPORTING
--------------------------------------------------------------------------------

The Company has one reportable segment, the Bank, and two operating segments,
the Bank and Berkshire Hills Technology, Inc. Each segment is described in Note
1 under business.

Information about reportable segments, and reconciliation of such information to
the consolidated financial statements as of and for the years ended December 31,
follows:

       
         
                                                       Berkshire Hills
                                                         Technology     Consolidated
2003                                        Bank            Inc.           Totals
----                                     -----------   ---------------  ------------
                                                       (In thousands)
                                                                            
Net interest income                      $    37,566     $        --     $    37,566
Depreciation and amortization                  1,412             695           2,107
Provision for loan losses                      1,460              --           1,460
Licensing fees                                    --           7,262           7,262
Minority interest                                 --            (186)           (186)
Profit(loss)                                   9,247            (282)          8,965
Assets                                     1,210,890           7,658       1,218,548
Expenditures for additions
   to premises and equipment                   1,386              80           1,466

2002
----
Net interest income                      $    40,700     $        --     $    40,700
Depreciation and amortization                  1,813             601           2,414
Provision for loan losses                      6,180              --           6,180
Licensing fees                                    --           6,991           6,991
Minority interest                                 --            (685)           (685)
Profit(loss)                                   3,137          (1,040)          2,097
Assets                                     1,037,376           8,571       1,045,947
Expenditures for additions
   to premises and equipment                   1,044             424           1,468

2001
----
Net interest income                      $    42,236     $        --     $    42,236
Depreciation and amortization                  1,769             312           2,081
Provision for loan losses                      7,175              --           7,175
Licensing fees                                    --           3,465           3,465
Minority interest                                 --            (119)           (119)
Profit                                         8,868              43           8,911
Assets                                     1,021,623           9,078       1,030,701
Expenditures for additions
   to premises and equipment                     735           1,609           2,344
        

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes not including
nonrecurring gains or losses.

The Company's operating segments are strategic business units that offer
different products and services. They are managed separately because each
segment appeals to different markets and, accordingly, requires different
technology and marketing strategies.


                                     -105-
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                          SEGMENT REPORTING (concluded)

The Company derives a majority of its revenues from interest income and
licensing fees and the chief operating decision maker relies primarily on net
interest revenue and licensing fees to assess the performance of the segments
and make decisions about resources to be allocated to the segment. Therefore,
the segments are reported using net interest income and licensing fees for the
years ended December 31. The Company does not allocate income taxes to the
segments.

The Company does not have a single external customer from which it derives 10
percent or more of its revenues and operates in one geographical area.

22.   QUARTERLY DATA (UNAUDITED)
--------------------------------------------------------------------------------

Quarterly results of operations for the years ended December 31, 2003 and 2002
are as follows:

       
         
                                                           2003                                         2002
                                       -------------------------------------------  -------------------------------------------
                                        Fourth       Third     Second      First     Fourth       Third     Second      First
                                        Quarter     Quarter    Quarter    Quarter    Quarter     Quarter    Quarter    Quarter
                                       ---------   ---------  ---------  ---------  ---------   ---------  ---------  ---------
                                                                 (In thousands, except per share data)
                                                                                                                         
Interest and dividend income           $  14,410   $  13,858  $  14,139  $  13,901  $  14,549   $  16,451  $  16,568  $  16,560
Interest expense                           4,666       4,549      4,706      4,821      5,547       5,892      5,903      6,086
                                       ---------   ---------  ---------  ---------  ---------   ---------  ---------  ---------
Net interest income                        9,744       9,309      9,433      9,080      9,002      10,559     10,665     10,474
Provision (credit) for loan losses          (225)        575        785        325      2,305       1,050      1,315      1,510
Other income (1)                           2,494       3,633      4,022      3,561      4,328       3,260      3,086      2,744
Operating expenses (2)                     8,773       8,595      9,767      8,651     17,745       9,320      9,144      9,102
Provision (benefit) for
    income taxes                           1,099       1,358        765      1,843     (2,512)      1,123      1,070        849
                                       ---------   ---------  ---------  ---------  ---------   ---------  ---------  ---------
Net income (loss)                      $   2,591   $   2,414  $   2,138  $   1,822  $  (4,208)  $   2,326  $   2,222  $   1,757
                                       =========   =========  =========  =========  =========   =========  =========  =========

Earnings (loss) per share:
    Basic                              $    0.50   $    0.46  $    0.40  $    0.34  $   (0.79)  $    0.43  $    0.41  $    0.32
    Diluted                                 0.45        0.43       0.38       0.32      (0.79)       0.40       0.38       0.29
        

Note: (1)   The decrease in the fourth quarter 2003 other income was due to the
            loss on the sale of sub-prime automobile loans.

      (2)   The increase in the fourth quarter 2002 operating expenses was
            primarily due to severance expenses, funding of the retirement plan
            benefit for directors and the write-down in value of repossessed
            automobiles.


                                     -106-
      

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

      None.

ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------------------------------------------------------

      The Company's management, including the Company's principal executive
officer and principal financial officer, have evaluated the effectiveness of the
Company's "disclosure controls and procedures," as such term is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act"). Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Company's disclosure controls and procedures
were effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the "SEC") (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and (2) is accumulated and communicated to the Company's
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. In
addition, based on that evaluation, no change in the Company's internal control
over financial reporting occurred during the quarter ended December 31, 2003
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------------------------------------

      For information concerning the directors of the Company, the information
contained under the sections captioned "Proposal 1 -- Election of Directors" in
Berkshire Hills' Proxy Statement for the 2004 Annual Meeting of Stockholders is
incorporated by reference. For information concerning officers of the Company,
reference is made to Part I, Item 1A, "Business--Executive Officers of the
Registrant" in this report. Reference is made to the cover page of this report
and to the section captioned "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement for information regarding compliance with
Section 16(a) of the Exchange Act. For information concerning the audit
committee financial expert, reference is made to the section captioned
"Corporate Governance - Committees of the Board of Directors - Audit Committee"
in the Proxy Statement.

      For information concerning the Company's code of ethics, the information
contained under the section captioned "Corporate Governance - Code of Business
Conduct" in the Proxy Statement is incorporated by reference. A copy of the
Company's code of ethics is available to stockholders on the Company's website
at "www.berkshirebank.com."

ITEM 11. EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------

      The information contained under the sections captioned "Executive
Compensation" and "Directors Compensation" in the Proxy Statement is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

      (a)   Security Ownership of Certain Beneficial Owners

            Information required by this item is incorporated herein by
            reference to the section captioned "Stock Ownership" in the Proxy
            Statement.

      (b)   Security Ownership of Management

            Information required by this item is incorporated herein by
            reference to the section captioned "Stock Ownership" in the Proxy
            Statement.

      (c)   Management of Berkshire Hills knows of no arrangements, including
            any pledge by any person of securities of Berkshire Hills, the
            operation of which may at a subsequent date result in a change in
            control of the registrant.

      (d)   Equity Compensation Plan Information


                                     -107-
      

            The following table sets forth information, as of December 31, 2003,
about Company common stock that may be issued upon exercise of options under the
Berkshire Hills Bancorp, Inc. 2001 Stock-Based Incentive Plan and the Berkshire
Hills Bancorp, Inc. 2003 Equity Compensation Plan. Each of the plans was
approved by the Company's stockholders.

       
         
                                                                                                     Number of securities
                                            Number of securities                                    remaining available for
                                             to be issued upon          Weighted-average             future issuance under
                                                exercise of             exercise price of          equity compensation plans
                                            outstanding options,      outstanding options,           (excluding securities
         Plan category                      warrants and rights        warrants and rights       reflected in the first column)
----------------------------------     ---------------------------   ----------------------    ---------------------------------
                                                                                                               
Equity compensation plans
  approved by security holders                    949,927                    $17.80                         300,000

Equity compensation plans
  not approved by security holders                     --                        --                              --

Total                                             949,927                    $17.80                         300,000
        

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------

      The information required by this item is incorporated herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------------------------------------------------

      The information required by this item is incorporated herein by reference
to the section captioned "Proposal 2 - Ratification of Independent Auditors" in
the Proxy Statement.


                                     -108-
      

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
--------------------------------------------------------------------------------

      (a)   [1]   Financial Statements

                  o     Independent Auditors' Report

                  o     Consolidated Balance Sheets as of December 31, 2003 and
                        2002

                  o     Consolidated Statements of Income for the Years Ended
                        December 31, 2003, 2002 and 2001

                  o     Consolidated Statements of Changes in Stockholders'
                        Equity for the Years Ended December 31, 2003, 2002 and
                        2001

                  o     Consolidated Statements of Cash Flows for the Years
                        Ended December 31, 2003, 2002 and 2001

                  o     Notes to Consolidated Financial Statements

            [2]   Financial Statement Schedules

                  All financial statement schedules are omitted because they are
                  not required or applicable. The required information is shown
                  in the consolidated financial statements or the notes thereto.


                                     -109-
      

            [3]   Exhibits

                  3.1   Certificate of Incorporation of Berkshire Hills Bancorp,
                        Inc.(1)

                  3.2   Bylaws of Berkshire Hills Bancorp, Inc.

                  4.0   Draft Stock Certificate of Berkshire Hills Bancorp,
                        Inc.(1)

                  10.1  Employment Agreement between Berkshire Bank and Michael
                        P. Daly (2)

                  10.2  Employment Agreement between Berkshire Hills Bancorp,
                        Inc. and Michael P. Daly (2)

                  10.3  Severance Agreement, dated October 16, 2002, by and
                        among James A. Cunningham, Jr., Berkshire Hills Bancorp,
                        Inc. and Berkshire Bank (3)

                  10.4  Severance Agreement, dated November 13, 2002, by and
                        among Charles F. Plungis, Jr., Berkshire Hills Bancorp,
                        Inc. and Berkshire Bank (4)

                  10.5  Severance Agreement, dated November 13, 2002, by and
                        among Susan M. Santora, Berkshire Hills Bancorp, Inc.
                        and Berkshire Bank (4)

                  10.6  Change in Control Agreement between Berkshire Bank and
                        Gayle P. Fawcett

                  10.7  Change in Control Agreement between Berkshire Hills
                        Bancorp, Inc. and Gayle P. Fawcett

                  10.8  Change in Control Agreement between Berkshire Bank and
                        Wayne F. Patenaude

                  10.9  Change in Control Agreement between Berkshire Hills
                        Bancorp, Inc. and Wayne F. Patenaude

                  10.10 Supplemental Executive Retirement Agreement between
                        Berkshire Bank and Michael P. Daly

                  10.11 Berkshire Hills Bancorp, Inc. 2003 Equity Compensation
                        Plan(5)

                  10.12 Letter Agreement, dated June 26, 2003, by and among
                        Berkshire Hills Bancorp, Inc., Berkshire Bank and Robert
                        A. Wells(2)

                  10.13 Form of Berkshire Bank Employee Severance Compensation
                        Plan(1)

                  10.14 Form of Berkshire Bank Supplemental Executive Retirement
                        Plan(1)

                  10.15 Berkshire Hills Bancorp, Inc. 2001 Stock-Based Incentive
                        Plan(6)

                  10.16 Retirement Agreement, dated December 4, 2003, by and
                        among Berkshire Hills Bancorp, Inc., Berkshire Bank and
                        Robert A. Wells

                  11.0  Statement re: Computation of Per Share Earnings

                  21.0  Subsidiary Information is incorporated herein by
                        reference to Part I, Item 1, "Business - Subsidiary
                        Activities"

                  23.0  Consent of Wolf & Company, P.C.

                  31.1  Rule 13a-14(a) Certification of Chief Executive Officer

                  31.2  Rule 13a-14(a) Certification of Chief Financial Officer

                  32.1  Section 1350 Certification of Chief Executive Officer

                  32.2  Section 1350 Certification of Chief Financial Officer


                                     -110-
      

-----------------------------------------------

            (1)   Incorporated herein by reference into this document from the
                  Exhibits to Form S-1, Registration Statement and amendments
                  thereto, initially filed on March 10, 2000, Registration No.
                  333-32146.

            (2)   Incorporated herein by reference into this document from the
                  Exhibits to the Form 10-Q as filed on August 13, 2003.

            (3)   Incorporated herein by reference into this document from the
                  Exhibits to the Form 10-K as filed on March 29, 2001.

            (4)   Incorporated herein by reference into this document from the
                  Exhibits to the Form 10-Q as filed on November 14, 2003.

            (5)   Incorporated herein by reference into this document from the
                  Appendix to the Proxy Statement as filed on March 27, 2003.

            (6)   Incorporated herein by reference into this document from the
                  Appendix to the Proxy Statement as filed on December 7, 2000.

      (b)   Reports on Form 8-K

                  On October 15, 2003, the Company filed a Form 8-K in which it
            announced under Item 5 that it expected to issue its third quarter
            earnings release on October 22, 2003. The Company announced that it
            would conduct a conference call at 10:00 a.m. on October 23, 2003 to
            discuss third quarter results. Instructions on how to access the
            call and an investor presentation that supplemented the call were
            contained in the press release. The press release announcing this
            conference call was attached by exhibit.

                  On October 23, 2003, the Company furnished a Form 8-K in which
            it announced under Item 12 its financial results for the quarter
            ended September 30, 2003. The press release announcing financial
            results for the quarter ended September 30, 2003 was attached by
            exhibit.


                                     -111-
      

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        Berkshire Hills Bancorp, Inc.


Date: February 26, 2004                 By:  /s/ Michael P. Daly
                                           -------------------------------------
                                           Michael P. Daly
                                           President, Chief Executive Officer
                                           and Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

       
                                                                                  
/s/ Michael P. Daly                 President, Chief Executive Officer         February 26, 2004
--------------------------------    and Director
Michael P. Daly                     (principal executive officer)


/s/ Wayne F. Patenaude              Senior Vice President, Treasurer           February 26, 2004
--------------------------------    and Chief Financial Officer
Wayne F. Patenaude                  (principal accounting
                                    and financial officer)


/s/ Lawrence A. Bossidy             Non-Executive Chairman                     February 26, 2004
--------------------------------
Lawrence A. Bossidy


/s/ Thomas O. Andrews               Director                                   February 26, 2004
--------------------------------
Thomas O. Andrews


/s/ Thomas R. Dawson, CPA           Director                                   February 26, 2004
--------------------------------
Thomas R. Dawson, CPA


/s/ A. Allen Gray                   Director                                   February 26, 2004
--------------------------------
A. Allen Gray


/s/ Peter J. Lafayette              Director                                   February 26, 2004
--------------------------------
Peter J. Lafayette


/s/ Edward G. McCormick, Esq.       Director                                   February 26, 2004
--------------------------------
Edward G. McCormick, Esq.


/s/ Catherine B. Miller             Director                                   February 26, 2004
--------------------------------
Catherine B. Miller


/s/ Corydon L. Thurston             Director                                   February 26, 2004
--------------------------------
Corydon L. Thurston
        


                                     -112-
      

       
                                                                                  
/s/ Ann H. Trabulsi                 Director                                   February 26, 2004
--------------------------------
Ann H. Trabulsi


/s/ Robert A. Wells                 Director                                   February 26, 2004
--------------------------------
Robert A. Wells
        


                                     -113-




(Back To Top)

Section 2: EX-3.2


                                                                     Exhibit 3.2

                          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 


                                       2
      

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 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


                                       3
      

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 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 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 may serve on the Board of Directors
and at the same time be a director of more than two other for-profit companies.
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 


                                       4
      

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 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.


                                       5
      

                         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, but shall not exceed twelve (12). The Board of Directors
shall annually elect a non-executive 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 were
initially adopted on January 10, 2000 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.


                                       6
      

      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 and Chief Executive Officer or,
in the event that the Chairman of the Board or the President and Chief Executive
Officer are incapacitated or otherwise unable to call such meeting, by the
Secretary, and shall be held at such 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.


                                       7
      

      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;

      (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.


                                       8
      

                            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.

      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.


                                       9
      

                              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 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. Any number of offices may
be held by the same person.

      (b) The term of office of the 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 by the President and Chief Executive Officer.

      (c) All officers chosen by the Board of Directors or by the President and
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.

      Section 2. 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, employees and agents of the Corporation.

      Section 3. Vice President.

      The Vice President or Vice Presidents shall perform the duties of the
President and Chief Executive Officer 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 or the
President and Chief Executive Officer. A Vice President or Vice Presidents may
be designated as Executive Vice President or Senior Vice President.

      Section 4. 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 or the President and Chief 


                                       10
      

Executive Officer. Subject to the direction of the Board of Directors, the
Secretary shall have the power to sign all stock certificates.

      Section 5. 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.

      Section 6. 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 or the President and Chief Executive
Officer.

      Section 7. Action with Respect to Securities of Other Corporation.

      Unless otherwise directed by the Board of Directors, the President and
Chief Executive Officer or any officer of the Corporation authorized by the
President and Chief Executive Officer 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 Chief
Executive Officer, 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 


                                       11
      

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 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.


                                       12
      

      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
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.


                                       13
      

      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 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 are effective as of December 31,
2003.


                                       14



(Back To Top)

Section 3: EX-10.6


                                                                    Exhibit 10.6

                                 BERKSHIRE BANK
                     THREE YEAR CHANGE IN CONTROL AGREEMENT

      This AGREEMENT is made effective as of October 22, 2003, by and among
Berkshire Bank (the "Institution"), a state chartered savings institution with
its principal administrative offices at 24 North Street, Pittsfield,
Massachusetts 01201, Berkshire Hills Bancorp, Inc. (the "Holding Company"), a
corporation organized under the laws of the state of Delaware, which is the
stock holding company of the Institution, and Gayle P. Fawcett ("Executive").

      WHEREAS, the Institution recognizes the substantial contributions
Executive has made to the Institution and wishes to protect Executive's position
with the Institution for the period provided in this Agreement; and

      WHEREAS, Executive has agreed to serve in the employ of the Institution.

      NOW, THEREFORE, in consideration of the contributions and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:

1.    TERM OF AGREEMENT.

      The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the Board of Directors
(the "Board") may act to extend the term of this Agreement for an additional
year, such that the remaining term of this Agreement would be three years,
unless Executive elects not to extend the term of this Agreement by giving
written notice to the Institution, in which case the term of this Agreement will
expire on the third anniversary of this Agreement.

2.    CHANGE IN CONTROL.

      (a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the involuntary termination of Executive's employment or the
voluntary termination of Executive's employment in accordance with the terms of
this Agreement, other than for Cause, as defined in Section 2(c) of this
Agreement, the provisions of Section 3 of this Agreement shall apply.

      (i)   Upon the occurrence of a Change in Control, Executive shall have the
            right to elect to voluntarily terminate her employment at any time
            during the term of this Agreement following any demotion, loss of
            title, office or significant authority, reduction in annual
            compensation or benefits, or relocation of her principal place of
            employment by more than twenty-five (25) miles from its location
            immediately prior to the Change in Control.

      

      (ii)  Notwithstanding the foregoing clause (i), in the event, however,
            that the Chief Executive Officer of the Institution immediately
            prior to the Change in Control is the Chief Executive Officer of the
            resulting entity with similar responsibilities and duties and
            Executive's position with the resulting entity does not result in:
            (A) a reduction in annual compensation or benefits, (B) a material
            change in work schedule, or (C) relocation of her principal place of
            employment by more than fifty (50) miles, then Executive may not
            voluntarily terminate her employment during the one-year period
            following the Change in Control and receive any payments or benefits
            under this Agreement. For the avoidance of doubt, with respect to
            the immediately foregoing limitation on voluntary termination,
            Executive may voluntarily terminate employment in accordance with
            this Section 2(a) effective upon the expiration of said one-year
            period, and for a period of 30 days thereafter, if one of the events
            set forth in clause (i) has occurred, either at the time of the
            Change in Control or during the one-year period following the time
            of the Change in Control. If one of the events described in clause
            (i) occurs more than one year following the date of the Change in
            Control, but during the remaining term of the Agreement, then
            Executive may terminate her employment in accordance with the
            provisions of this Agreement, notwithstanding this clause (ii).

      (iii) Notwithstanding any other provision of this Agreement to the
            contrary, Executive may consent in writing to any demotion, loss,
            reduction or relocation and waive her ability to voluntarily
            terminate her employment under the terms of this Agreement. The
            effect of any written consent of Executive under this Section 2(a)
            shall be strictly limited to the terms specified in such written
            consent.

      (b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Bank Change in Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. ss. 225.41(b) with respect to the Holding Company,
as in effect on the date hereof; or (iii) results in a transaction requiring
prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. ss. 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Institution; or (iv) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Institution or the Holding Company representing
20% or more of the Institution's or the Holding Company's outstanding securities
except for any securities of the Institution purchased by the Holding Company in
connection with the conversion of the Institution to the stock form and any
securities purchased by any tax-qualified employee benefit plan of the
Institution; or (B) individuals who constitute the Board of Directors on the
date hereof (the "Incumbent Board")


                                       2
      

cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters (3/4) of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity; or (D) solicitations
of shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company shall be distributed; or
(E) a tender offer is made for 20% or more of the voting securities of the
Institution or the Institution.

      (c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 of this Agreement upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of: (i) Executive's
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or (ii) Executive's conviction of a crime or act involving
moral turpitude or a final judgment rendered against Executive based upon
actions of Executive which involve moral turpitude. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Institution
or its affiliates. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to her a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for her,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 4 of this Agreement
through the Date of Termination, stock options granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested stock awards
granted to Executive under any stock-based incentive plan of the Institution,
the Holding Company or any subsidiary or affiliate thereof vest. At the Date of
Termination, such stock options and such unvested stock awards shall become null
and void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.


                                       3
      

3.    TERMINATION BENEFITS.

      (a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the involuntary termination of Executive's
employment (other than for Termination for Cause), or voluntary termination
during the term of this Agreement as provided by Section 2(a) of this Agreement,
the Institution shall be obligated to pay Executive, or in the event of her
subsequent death, her beneficiary or beneficiaries, or her estate, as the case
may be, a sum equal to three (3) times Executive's average annual compensation
for the five most recent taxable years that Executive has been employed by the
Institution or such lesser number of years in the event that Executive shall
have been employed by the Institution for less than five years. For this
purpose, such annual compensation shall include base salary and any other
taxable income, including, but not limited to, amounts related to the granting,
vesting or exercise of restricted stock or stock option awards, commissions,
bonuses, pension and profit sharing plan contributions or benefits (whether or
not taxable), severance payments, retirement benefits, and fringe benefits paid
or to be paid to Executive or paid for Executive's benefit during any such year.
At the election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum or on an annual basis in
approximately equal installments over a three (3) year period.

      (b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment in accordance
with paragraph (a) of this Section 3, other than for Termination for Cause, the
Institution shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Institution for
Executive prior to her severance, except to the extent such coverage may be
changed in its application to all employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months from the Date of Termination.

      (c) Notwithstanding the provisions of this Section 3, in no event shall
the aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") constitute an "excess parachute
payment" under Section 280G of the Internal Revenue Code of 1986, as amended, or
any successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount," as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits shall be determined by Executive.

4.    NOTICE OF TERMINATION.

      (a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by a Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which indicates the specific
termination provision in this Agreement relied upon and shall set forth in


                                       4
      

reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

      (b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
4(c) of this Agreement.

      (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to, her annual salary)
until the earlier of: (i) the resolution of the dispute in accordance with this
Agreement; or (ii) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.

5.    SOURCE OF PAYMENTS.

      It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payments and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.

6.    EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

      This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Institution and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to her without reference to this
Agreement.

      Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.


                                       5
      

7.    NON-COMPETITION AND NON-DISCLOSURE.

      (a) For a period of one (1) year following the payment of termination
benefits to Executive under this agreement, Executive agrees not to compete with
the Institution or its affiliates in any city, town or county in which
Executive's normal business office is located and the Institution or its
affiliates has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination,
except as agreed to pursuant to a resolution duly adopted by the Board of
Directors. Executive agrees that during such one (1) year period and within said
cities, towns and counties, Executive 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
the Institution. The parties hereto, recognizing that irreparable injury will
result to the Institution, its business and property in the event of Executive's
breach of this Section 7(a), agree that in the event of any such breach by
Executive, the Institution will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that, in the event of the termination of her employment following a Change in
Control, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Institution, and that the enforcement of a remedy by way of
injunction will not prevent Executive from earning a livelihood. Nothing herein
will be construed as prohibiting the Institution from pursuing any other
remedies available for such breach or threatened breach, including the recovery
of damages from Executive.

      (b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution, as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. Executive will not, during or after the term of her
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Institution or its affiliates 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, Executive 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 the Institution or
its affiliates. In the event of a breach or threatened breach by Executive of
the provisions of this Section 7, the Institution will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Institution or its affiliates 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 the Institution from pursuing other remedies available
for such breach or threatened breach, including the recovery of damages from
Executive.

8.    NO ATTACHMENT.

      (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge,


                                       6
      

pledge, or hypothecation, or to execution, attachment, levy, or similar process
or assignment by operation of law, and any attempt, voluntary or involuntary, to
affect any such action shall be null, void, and of no effect.

      (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.

9.    MODIFICATION AND WAIVER.

      (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

      (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.

10.   REQUIRED REGULATORY PROVISIONS.

      Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.

11.   SEVERABILITY.

      If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall, to the full extent consistent with
law, continue in full force and effect.

12.   HEADINGS FOR REFERENCE ONLY.

      The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

13.   GOVERNING LAW.

      The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.


                                       7
      

14.   ARBITRATION.

      Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of her right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.

15.   PAYMENT OF COSTS AND LEGAL FEES.

      All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Institution if Executive is successful with respect to
such dispute or question of interpretation pursuant to a legal judgment,
arbitration or settlement.

16.   INDEMNIFICATION.

      The Institution shall provide Executive (including her heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and her
heirs, executors and administrators) to the fullest extent permitted under
Massachusetts law against all expenses and liabilities reasonably incurred by
her in connection with or arising out of any action, suit or proceeding in which
she may be involved by reason of having been a director or officer of the
Institution (whether or not she continues to be a director or officer at the
time of incurring such expenses or liabilities); such expenses and liabilities
to include, but not to be limited to, judgments, court costs and attorneys' fees
and the costs of reasonable settlements.

17.   SUCCESSOR TO THE INSTITUTION.

      The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, to expressly and
unconditionally assume and agree to perform the Institution's obligations under
this Agreement in the same manner and to the same extent that the Institution
would be required to perform such obligations if no such succession or
assignment had taken place.


                                       8
      

                                   SIGNATURES

      IN WITNESS WHEREOF, Berkshire Bank and Berkshire Hills Bancorp, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 22nd day of October, 2003.

ATTEST:                                       BERKSHIRE BANK


/s/ Kathy J. Deman                        By: /s/ Michael P. Daly
-------------------------------               ----------------------------------
ATTEST:                                       BERKSHIRE HILLS BANCORP, INC.
                                              (Guarantor)


/s/ Kathy J. Deman                        By: /s/ Michael P. Daly
-------------------------------               ----------------------------------

SEAL

WITNESS:                                      EXECUTIVE

/s/ Lisa J. Lescarbeau                        /s/ Gayle P. Fawcett
-------------------------------               ----------------------------------
                                              Gayle P. Fawcett


                                       9



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Section 4: EX-10.7


                                                                    Exhibit 10.7

                          BERKSHIRE HILLS BANCORP, INC.
                     THREE YEAR CHANGE IN CONTROL AGREEMENT

      This AGREEMENT is made effective as of October 22, 2003, by and between
Berkshire Hills Bancorp, Inc. (the "Holding Company"), a corporation organized
under the laws of the state of Delaware, with its principal administrative
offices at 24 North Street, Pittsfield, Massachusetts 01201, and Gayle P.
Fawcett ("Executive"). Any reference to the "Institution" herein shall mean
Berkshire Bank or any successor to Berkshire Bank.

      WHEREAS, the Holding Company recognizes the substantial contributions
Executive has made to the Holding Company and wishes to protect Executive's
position with the Holding Company for the period provided in this Agreement; and

      WHEREAS, Executive has agreed to serve in the employ of the Holding
Company.

      NOW, THEREFORE, in consideration of the contributions and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:

1.    TERM OF AGREEMENT.

      The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the Board of Directors
(the "Board") may act to extend the term of this Agreement for an additional
year, such that the remaining term of this Agreement would be three years,
unless Executive elects not to extend the term of this Agreement by giving
written notice to the Holding Company, in which case the term of this Agreement
will expire on the third anniversary of this Agreement.

2.    CHANGE IN CONTROL.

      (a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the involuntary termination of Executive's employment or the
voluntary termination of Executive's employment in accordance with the terms of
this Agreement, other than for Cause, as defined in Section 2(c) of this
Agreement, the provisions of Section 3 of this Agreement shall apply.

      (i)   Upon the occurrence of a Change in Control, Executive shall have the
            right to elect to voluntarily terminate her employment at any time
            during the term of this Agreement following any demotion, loss of
            title, office or significant authority, reduction in annual
            compensation or benefits, or relocation of her principal place of
            employment by more than twenty-five (25) miles from its location
            immediately prior to the Change in Control.

      

      (ii)  Notwithstanding the foregoing clause (i), in the event, however,
            that the Chief Executive Officer of the Institution immediately
            prior to the Change in Control is the Chief Executive Officer of the
            resulting entity with similar responsibilities and duties and
            Executive's position with the resulting entity does not result in:
            (A) a reduction in annual compensation or benefits, (B) a material
            change in work schedule, or (C) relocation of her principal place of
            employment by more than fifty (50) miles, then Executive may not
            voluntarily terminate her employment during the one-year period
            following the Change in Control and receive any payments or benefits
            under this Agreement. For the avoidance of doubt, with respect to
            the immediately foregoing limitation on voluntary termination,
            Executive may voluntarily terminate employment in accordance with
            this Section 2(a) effective upon the expiration of said one-year
            period, and for a period of 30 days thereafter, if one of the events
            set forth in clause (i) has occurred, either at the time of the
            Change in Control or during the one-year period following the time
            of the Change in Control. If one of the events described in clause
            (i) occurs more than one year following the date of the Change in
            Control, but during the remaining term of the Agreement, then
            Executive may terminate her employment in accordance with the
            provisions of this Agreement, notwithstanding this clause (ii).

      (iii) Notwithstanding any other provision of this Agreement to the
            contrary, Executive may consent in writing to any demotion, loss,
            reduction or relocation and waive her ability to voluntarily
            terminate his employment under the terms of this Agreement. The
            effect of any written consent of Executive under this Section 2(a)
            shall be strictly limited to the terms specified in such written
            consent.

      (b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Bank Change in Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. ss. 225.41(b) with respect to the Holding Company,
as in effect on the date hereof; or (iii) results in a transaction requiring
prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. ss. 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Institution; or (iv) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Institution or the Holding Company representing
20% or more of the Institution's or the Holding Company's outstanding securities
except for any securities of the Institution purchased by the Holding Company in
connection with the conversion of the Institution to the stock form and any
securities purchased by any tax-qualified employee benefit plan of the
Institution; or (B) individuals who constitute the Board of Directors on the
date hereof (the "Incumbent Board")


                                       2
      

cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters (3/4) of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity; or (D) solicitations
of shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company shall be distributed; or
(E) a tender offer is made for 20% or more of the voting securities of the
Institution or the Holding Company.

      (c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 of this Agreement upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of: (i) Executive's
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or (ii) Executive's conviction of a crime or act involving
moral turpitude or a final judgement rendered against Executive based upon
actions of Executive which involve moral turpitude. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Holding
Company or its affiliates. Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to her a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for her,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 5 of this Agreement
through the Date of Termination, stock options granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested stock awards
granted to Executive under any stock-based incentive plan of the Institution,
the Holding Company or any subsidiary or affiliate thereof vest. At the Date of
Termination, such stock options and such unvested stock awards shall become null
and void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.


                                       3
      

3.    TERMINATION BENEFITS.

      (a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the involuntary termination of Executive's
employment (other than for Termination for Cause), or voluntary termination
during the term of this Agreement as provided by Section 2(a) of this Agreement,
the Holding Company shall be obligated to pay Executive, or in the event of her
subsequent death, her beneficiary or beneficiaries, or her estate, as the case
may be, a sum equal to three (3) times Executive's average annual compensation
for the five most recent taxable years that Executive has been employed by the
Holding Company or such lesser number of years in the event that Executive shall
have been employed by the Holding Company for less than five years. For this
purpose, such annual compensation shall include base salary and any other
taxable income, including, but not limited to, amounts related to the granting,
vesting or exercise of restricted stock or stock option awards, commissions,
bonuses, pension and profit sharing plan contributions or benefits (whether or
not taxable), severance payments, retirement benefits, and fringe benefits paid
or to be paid to Executive or paid for Executive's benefit during any such year.
At the election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum or on an annual basis in
approximately equal installments over a three (3) year period.

      (b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment in accordance
with paragraph (a) of this Section 3, other than for Termination for Cause, the
Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Institution
or Holding Company for Executive prior to her severance, except to the extent
such coverage may be changed in its application to all Institution or Holding
Company employees on a nondiscriminatory basis. Such coverage and payments shall
cease upon the expiration of thirty-six (36) full calendar months from the Date
of Termination.

4.    CHANGE IN CONTROL-RELATED PROVISIONS.

      (a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment,
benefit or distribution made or provided by the Holding Company or the
Institution to or for the benefit of Executive (whether made or provided
pursuant to the terms of this Agreement or otherwise) (each referred to herein
as a "Payment"), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") or any interest or
penalties are incurred by Executive with respect to such excise tax (the excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after payment
by Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.


                                       4
      

      (b) Determination of Gross-Up Payment. Subject to the provisions of
Section 4(c), all determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a certified public accounting firm reasonably
acceptable to the Holding Company as may be designated by Executive (the
"Accounting Firm") which shall provide detailed supporting calculations to the
Holding Company and Executive within fifteen (15) business days of the receipt
of notice from Executive that there has been a Payment, or such earlier time as
is requested by the Holding Company. All fees and expenses of the Accounting
Firm shall be borne solely by the Holding Company. Any Gross-Up Payment, as
determined pursuant to this Section 4, shall be paid by the Holding Company to
Executive within five business days of the later of (i) the due date for the
payment of any Excise Tax, or (ii) the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Holding Company and Executive. As a result of the uncertainty in the
application of Section 4999 of the Code, at the time of the initial
determination by the Accounting Firm hereunder, it is possible that a Gross-Up
Payment will not have been made by the Holding Company which should have been
made (an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Holding Company exhausts its remedies pursuant
to Section 4(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Holding Company to or for the benefit of Executive.

      (c) Treatment of Claims. Executive shall notify the Holding Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require a Gross-Up Payment to be made. Such notification shall be given as soon
as practicable, but no later than ten business days, after Executive is informed
in writing of such claim and shall apprise the Holding Company of the nature of
such claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Holding Company (or any
shorter period ending on the date that payment of taxes with respect to such
claim is due). If the Holding Company notifies Executive in writing prior to the
expiration of this period that it desires to contest such claim, Executive
shall:

      (i)   give the Holding Company any information reasonably requested by the
            Holding Company relating to such claim;

      (ii)  take such action in connection with contesting such claim as the
            Holding Company shall reasonably request in writing from time to
            time, including, without limitation, accepting legal representation
            with respect to such claim by an attorney reasonably selected by the
            Holding Company;

      (iii) cooperate with the Holding Company in good faith in order to
            effectively contest such claim; and

      (iv)  permit the Holding Company to participate in any proceedings
            relating to such claim; provided, however, that the Holding Company
            shall bear and pay directly


                                       5
      

            all costs and expenses (including additional interest and penalties)
            incurred in connection with such contest and indemnify and hold
            Executive harmless, on an after-tax basis, for any Excise Tax or
            related taxes, interest or penalties imposed as a result of such
            representation and payment of costs and expenses. Without limitation
            on the foregoing provisions of this Section 4(c), the Holding
            Company shall control all proceedings taken in connection with such
            contest and, at its option, may pursue or forgo any and all
            administrative appeals, proceedings, hearings and conferences with
            the taxing authority with respect to such claim and may, at its
            option, either direct Executive to pay the tax claimed and sue for a
            refund or contest the claim in any permissible manner. Further,
            Executive agrees to prosecute such contest to a determination before
            any administrative tribunal, in a court of initial jurisdiction and
            in one or more appellate courts, as the Holding Company shall
            determine; provided, however, that if the Holding Company directs
            Executive to pay such claim and sue for a refund, the Holding
            Company shall advance the amount of such payment to Executive, on an
            interest-free basis (including interest or penalties with respect
            thereto). Furthermore, the Holding Company's control of the contest
            shall be limited to issues with respect to which a Gross-Up Payment
            would be payable hereunder and Executive shall be entitled to settle
            or contest, as the case may be, any other issues raised by the
            Internal Revenue Service or any other taxing authority.

      (d) Adjustments to the Gross-Up Payment. If, after the receipt by
Executive of an amount advanced by the Holding Company pursuant to Section 4(c),
Executive becomes entitled to receive any refund with respect to such claim,
Executive shall (subject to the Holding Company's compliance with the
requirements of Section 4(c)) promptly pay to the Holding Company the amount of
such refund (together with any interest paid or credited thereon after
applicable taxes). If, after the receipt by Executive of an amount advanced by
the Holding Company pursuant to Section 4(c), a determination is made that
Executive shall not be entitled to any refund with respect to such claim and
such denial of refund occurs prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of the Gross-Up Payment required to be paid.

5.    NOTICE OF TERMINATION.

      (a) Any purported termination by the Holding Company or by Executive in
connection with a Change in Control shall be communicated by a Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which indicates the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

      (b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the


                                       6
      

Executive's termination exists, the "Date of Termination" shall be determined in
accordance with Section 5(c) of this Agreement.

      (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Holding Company will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to her annual salary)
until the earlier of: (i) the resolution of the dispute in accordance with this
Agreement; or (ii) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.

6.    SOURCE OF PAYMENTS.

      It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company.

7.    EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

      This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company or the
Institution and Executive, except that this Agreement shall not affect or
operate to reduce any benefit or compensation inuring to Executive of a kind
elsewhere provided. No provision of this Agreement shall be interpreted to mean
that Executive is subject to receiving fewer benefits than those available to
her without reference to this Agreement.

      Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain Executive in its employ for any
period.

8.    NON-COMPETITION AND NON-DISCLOSURE.

      (a) For a period of one (1) year following the payment of termination
benefits to Executive under this agreement, Executive agrees not to compete with
the Holding Company or its subsidiaries in any city, town or county in which
Executive's normal business office is located and the Holding Company or its
subsidiaries has an office or has filed an application for regulatory approval
to establish an office, determined as of the effective date of such termination,
except as agreed to pursuant to a resolution duly adopted by the Board of
Directors. Executive agrees that during such one (1) year period and within said
cities, towns and counties, Executive


                                       7
      

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 the Holding Company or its subsidiaries.
The parties hereto, recognizing that irreparable injury will result to the
Holding Company, its business and property in the event of Executive's breach of
this Section 8(a), agree that in the event of any such breach by Executive, the
Holding Company will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Executive represents and admits that in the
event of the termination of her employment following a Change in Control,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Holding Company or its subsidiaries, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
from pursuing any other remedies available for such breach or threatened breach,
including the recovery of damages from Executive.

      (b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company or
its subsidiaries, as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company. Executive will not, during
or after the term of her employment, disclose any knowledge of the past,
present, planned or considered business activities of the Holding Company or its
subsidiaries 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, Executive 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 the Holding Company or its subsidiaries. In the event of a breach
or threatened breach by Executive of the provisions of this Section 8, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its subsidiaries 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 the Holding
Company from pursuing other remedies available for such breach or threatened
breach, including the recovery of damages from Executive.

9.    NO ATTACHMENT.

      (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

      (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.


                                       8
      

10.   MODIFICATION AND WAIVER.

      (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

      (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.

11.   REQUIRED REGULATORY PROVISIONS.

      Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.

12.   SEVERABILITY.

      If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall, to the full extent consistent with
law, continue in full force and effect.

13.   HEADINGS FOR REFERENCE ONLY.

      The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

14.   GOVERNING LAW.

      The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the state of Delaware.

15.   ARBITRATION.

      Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of her right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.


                                       9
      

16.   PAYMENT OF COSTS AND LEGAL FEES.

      All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful with
respect to such dispute or question of interpretation pursuant to a legal
judgment, arbitration or settlement.

17.   INDEMNIFICATION.

      The Holding Company shall provide Executive (including her heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and her heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by her in connection with or arising out of any action, suit or
proceeding in which she may be involved by reason of having been a director or
officer of the Holding Company (whether or not she continues to be a director or
officer at the time of incurring such expenses or liabilities); such expenses
and liabilities to include, but not to be limited to, judgments, court costs and
attorneys' fees and the costs of reasonable settlements.

18.   SUCCESSOR TO THE HOLDING COMPANY.

      The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Holding Company, to expressly
and unconditionally assume and agree to perform the Holding Company's
obligations under this Agreement in the same manner and to the same extent that
the Holding Company would be required to perform such obligations if no such
succession or assignment had taken place.


                                       10
      

                                   SIGNATURES

      IN WITNESS WHEREOF, Berkshire Hills Bancorp, Inc. has caused this
Agreement to be executed by its duly authorized officer, and Executive has
signed this Agreement, on the 22nd day of October, 2003.

ATTEST:                                       BERKSHIRE HILLS BANCORP, INC.

/s/ Kathy J. Deman                        By: /s/ Michael P. Daly               
-------------------------------               ----------------------------------
                                          
SEAL                                      

WITNESS:                                      EXECUTIVE

/s/ Lisa J. Lescarbeau                       /s/ Gayle P. Fawcett
-------------------------------               ----------------------------------
                                              Gayle P. Fawcett


                                       11


(Back To Top)

Section 5: EX-10.8


                                                                    Exhibit 10.8

                                 BERKSHIRE BANK
                     THREE YEAR CHANGE IN CONTROL AGREEMENT

      This AGREEMENT is made effective as of October 22, 2003, by and among
Berkshire Bank (the "Institution"), a state chartered savings institution with
its principal administrative offices at 24 North Street, Pittsfield,
Massachusetts 01201, Berkshire Hills Bancorp, Inc. (the "Holding Company"), a
corporation organized under the laws of the state of Delaware, which is the
stock holding company of the Institution, and Wayne F. Patenaude ("Executive").

      WHEREAS, the Institution recognizes the substantial contributions
Executive has made to the Institution and wishes to protect Executive's position
with the Institution for the period provided in this Agreement; and

      WHEREAS, Executive has agreed to serve in the employ of the Institution.

      NOW, THEREFORE, in consideration of the contributions and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:

1.    TERM OF AGREEMENT.

      The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the Board of Directors
(the "Board") may act to extend the term of this Agreement for an additional
year, such that the remaining term of this Agreement would be three years,
unless Executive elects not to extend the term of this Agreement by giving
written notice to the Institution, in which case the term of this Agreement will
expire on the third anniversary of this Agreement.

2.    CHANGE IN CONTROL.

      (a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the involuntary termination of Executive's employment or the
voluntary termination of Executive's employment in accordance with the terms of
this Agreement, other than for Cause, as defined in Section 2(c) of this
Agreement, the provisions of Section 3 of this Agreement shall apply.

      (i)   Upon the occurrence of a Change in Control, Executive shall have the
            right to elect to voluntarily terminate his employment at any time
            during the term of this Agreement following any demotion, loss of
            title, office or significant authority, reduction in annual
            compensation or benefits, or relocation of his principal place of
            employment by more than twenty-five (25) miles from its location
            immediately prior to the Change in Control.

      

      (ii)  Notwithstanding the foregoing clause (i), in the event, however,
            that the Chief Executive Officer of the Institution immediately
            prior to the Change in Control is the Chief Executive Officer of the
            resulting entity with similar responsibilities and duties and
            Executive's position with the resulting entity does not result in:
            (A) a reduction in annual compensation or benefits, (B) a material
            change in work schedule, or (C) relocation of his principal place of
            employment by more than fifty (50) miles, then Executive may not
            voluntarily terminate his employment during the one-year period
            following the Change in Control and receive any payments or benefits
            under this Agreement. For the avoidance of doubt, with respect to
            the immediately foregoing limitation on voluntary termination,
            Executive may voluntarily terminate employment in accordance with
            this Section 2(a) effective upon the expiration of said one-year
            period, and for a period of 30 days thereafter, if one of the events
            set forth in clause (i) has occurred, either at the time of the
            Change in Control or during the one-year period following the time
            of the Change in Control. If one of the events described in clause
            (i) occurs more than one year following the date of the Change in
            Control, but during the remaining term of the Agreement, then
            Executive may terminate his employment in accordance with the
            provisions of this Agreement, notwithstanding this clause (ii).

      (iii) Notwithstanding any other provision of this Agreement to the
            contrary, Executive may consent in writing to any demotion, loss,
            reduction or relocation and waive his ability to voluntarily
            terminate his employment under the terms of this Agreement. The
            effect of any written consent of Executive under this Section 2(a)
            shall be strictly limited to the terms specified in such written
            consent.

      (b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Bank Change in Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. ss. 225.41(b) with respect to the Holding Company,
as in effect on the date hereof; or (iii) results in a transaction requiring
prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. ss. 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Institution; or (iv) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Institution or the Holding Company representing
20% or more of the Institution's or the Holding Company's outstanding securities
except for any securities of the Institution purchased by the Holding Company in
connection with the conversion of the Institution to the stock form and any
securities purchased by any tax-qualified employee benefit plan of the
Institution; or (B) individuals who constitute the Board of Directors on the
date hereof (the "Incumbent Board")


                                       2
      

cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters (3/4) of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity; or (D) solicitations
of shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company shall be distributed; or
(E) a tender offer is made for 20% or more of the voting securities of the
Institution or the Institution.

      (c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 of this Agreement upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of: (i) Executive's
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or (ii) Executive's conviction of a crime or act involving
moral turpitude or a final judgment rendered against Executive based upon
actions of Executive which involve moral turpitude. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Institution
or its affiliates. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 4 of this Agreement
through the Date of Termination, stock options granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested stock awards
granted to Executive under any stock-based incentive plan of the Institution,
the Holding Company or any subsidiary or affiliate thereof vest. At the Date of
Termination, such stock options and such unvested stock awards shall become null
and void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.


                                       3
      

3.    TERMINATION BENEFITS.

      (a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the involuntary termination of Executive's
employment (other than for Termination for Cause), or voluntary termination
during the term of this Agreement as provided by Section 2(a) of this Agreement,
the Institution shall be obligated to pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, a sum equal to three (3) times Executive's average annual compensation
for the five most recent taxable years that Executive has been employed by the
Institution or such lesser number of years in the event that Executive shall
have been employed by the Institution for less than five years. For this
purpose, such annual compensation shall include base salary and any other
taxable income, including, but not limited to, amounts related to the granting,
vesting or exercise of restricted stock or stock option awards, commissions,
bonuses, pension and profit sharing plan contributions or benefits (whether or
not taxable), severance payments, retirement benefits, and fringe benefits paid
or to be paid to Executive or paid for Executive's benefit during any such year.
At the election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum or on an annual basis in
approximately equal installments over a three (3) year period.

      (b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment in accordance
with paragraph (a) of this Section 3, other than for Termination for Cause, the
Institution shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Institution for
Executive prior to his severance, except to the extent such coverage may be
changed in its application to all employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months from the Date of Termination.

      (c) Notwithstanding the provisions of this Section 3, in no event shall
the aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") constitute an "excess parachute
payment" under Section 280G of the Internal Revenue Code of 1986, as amended, or
any successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount," as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits shall be determined by Executive.

4.    NOTICE OF TERMINATION.

      (a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by a Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which indicates the specific
termination provision in this Agreement relied upon and shall set forth in


                                       4
      

reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

      (b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
4(c) of this Agreement.

      (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to, his annual salary)
until the earlier of: (i) the resolution of the dispute in accordance with this
Agreement; or (ii) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.

5.    SOURCE OF PAYMENTS.

      It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payments and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.

6.    EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

      This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Institution and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.

      Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.


                                       5
      

7.    NON-COMPETITION AND NON-DISCLOSURE.

      (a) For a period of one (1) year following the payment of termination
benefits to Executive under this agreement, Executive agrees not to compete with
the Institution or its affiliates in any city, town or county in which
Executive's normal business office is located and the Institution or its
affiliates has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination,
except as agreed to pursuant to a resolution duly adopted by the Board of
Directors. Executive agrees that during such one (1) year period and within said
cities, towns and counties, Executive 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
the Institution. The parties hereto, recognizing that irreparable injury will
result to the Institution, its business and property in the event of Executive's
breach of this Section 7(a), agree that in the event of any such breach by
Executive, the Institution will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that, in the event of the termination of his employment following a Change in
Control, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Institution, and that the enforcement of a remedy by way of
injunction will not prevent Executive from earning a livelihood. Nothing herein
will be construed as prohibiting the Institution from pursuing any other
remedies available for such breach or threatened breach, including the recovery
of damages from Executive.

      (b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution, as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Institution or its affiliates 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, Executive 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 the Institution or
its affiliates. In the event of a breach or threatened breach by Executive of
the provisions of this Section 7, the Institution will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Institution or its affiliates 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 the Institution from pursuing other remedies available
for such breach or threatened breach, including the recovery of damages from
Executive.

8.    NO ATTACHMENT.

      (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge,


                                       6
      

pledge, or hypothecation, or to execution, attachment, levy, or similar process
or assignment by operation of law, and any attempt, voluntary or involuntary, to
affect any such action shall be null, void, and of no effect.

      (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.

9.    MODIFICATION AND WAIVER.

      (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

      (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.

10.   REQUIRED REGULATORY PROVISIONS.

      Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.

11.   SEVERABILITY.

      If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall, to the full extent consistent with
law, continue in full force and effect.

12.   HEADINGS FOR REFERENCE ONLY.

      The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

13.   GOVERNING LAW.

      The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.


                                       7
      

14.   ARBITRATION.

      Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.

15.   PAYMENT OF COSTS AND LEGAL FEES.

      All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Institution if Executive is successful with respect to
such dispute or question of interpretation pursuant to a legal judgment,
arbitration or settlement.

16.   INDEMNIFICATION.

      The Institution shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Massachusetts law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities); such expenses and liabilities to
include, but not to be limited to, judgments, court costs and attorneys' fees
and the costs of reasonable settlements.

17.   SUCCESSOR TO THE INSTITUTION.

      The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, to expressly and
unconditionally assume and agree to perform the Institution's obligations under
this Agreement in the same manner and to the same extent that the Institution
would be required to perform such obligations if no such succession or
assignment had taken place.


                                       8
      

                                   SIGNATURES

      IN WITNESS WHEREOF, Berkshire Bank and Berkshire Hills Bancorp, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 22nd day of October, 2003.

ATTEST:                                       BERKSHIRE BANK


/s/ Kathy J. Deman                        By: /s/ Michael P. Daly
-------------------------------               ----------------------------------
ATTEST:                                       BERKSHIRE HILLS BANCORP, INC.
                                              (Guarantor)


/s/ Kathy J. Deman                        By: /s/ Michael P. Daly
-------------------------------               ----------------------------------

SEAL

WITNESS:                                      EXECUTIVE

/s/ Susan A. Lawton                           /s/ Wayne F. Patenaude
-------------------------------               ----------------------------------
                                              Wayne F. Patenaude


                                       9



(Back To Top)

Section 6: EX-10.9


                                                                    Exhibit 10.9

                          BERKSHIRE HILLS BANCORP, INC.
                     THREE YEAR CHANGE IN CONTROL AGREEMENT

      This AGREEMENT is made effective as of October 22, 2003, by and between
Berkshire Hills Bancorp, Inc. (the "Holding Company"), a corporation organized
under the laws of the state of Delaware, with its principal administrative
offices at 24 North Street, Pittsfield, Massachusetts 01201, and Wayne F.
Patenaude ("Executive"). Any reference to the "Institution" herein shall mean
Berkshire Bank or any successor to Berkshire Bank.

      WHEREAS, the Holding Company recognizes the substantial contributions
Executive has made to the Holding Company and wishes to protect Executive's
position with the Holding Company for the period provided in this Agreement; and

      WHEREAS, Executive has agreed to serve in the employ of the Holding
Company.

      NOW, THEREFORE, in consideration of the contributions and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:

1.    TERM OF AGREEMENT.

      The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the Board of Directors
(the "Board") may act to extend the term of this Agreement for an additional
year, such that the remaining term of this Agreement would be three years,
unless Executive elects not to extend the term of this Agreement by giving
written notice to the Holding Company, in which case the term of this Agreement
will expire on the third anniversary of this Agreement.

2.    CHANGE IN CONTROL.

      (a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the involuntary termination of Executive's employment or the
voluntary termination of Executive's employment in accordance with the terms of
this Agreement, other than for Cause, as defined in Section 2(c) of this
Agreement, the provisions of Section 3 of this Agreement shall apply.

      (i)   Upon the occurrence of a Change in Control, Executive shall have the
            right to elect to voluntarily terminate his employment at any time
            during the term of this Agreement following any demotion, loss of
            title, office or significant authority, reduction in annual
            compensation or benefits, or relocation of his principal place of
            employment by more than twenty-five (25) miles from its location
            immediately prior to the Change in Control.
      

      (ii)  Notwithstanding the foregoing clause (i), in the event, however,
            that the Chief Executive Officer of the Institution immediately
            prior to the Change in Control is the Chief Executive Officer of the
            resulting entity with similar responsibilities and duties and
            Executive's position with the resulting entity does not result in:
            (A) a reduction in annual compensation or benefits, (B) a material
            change in work schedule, or (C) relocation of his principal place of
            employment by more than fifty (50) miles, then Executive may not
            voluntarily terminate his employment during the one-year period
            following the Change in Control and receive any payments or benefits
            under this Agreement. For the avoidance of doubt, with respect to
            the immediately foregoing limitation on voluntary termination,
            Executive may voluntarily terminate employment in accordance with
            this Section 2(a) effective upon the expiration of said one-year
            period, and for a period of 30 days thereafter, if one of the events
            set forth in clause (i) has occurred, either at the time of the
            Change in Control or during the one-year period following the time
            of the Change in Control. If one of the events described in clause
            (i) occurs more than one year following the date of the Change in
            Control, but during the remaining term of the Agreement, then
            Executive may terminate his employment in accordance with the
            provisions of this Agreement, notwithstanding this clause (ii).

      (iii) Notwithstanding any other provision of this Agreement to the
            contrary, Executive may consent in writing to any demotion, loss,
            reduction or relocation and waive his ability to voluntarily
            terminate his employment under the terms of this Agreement. The
            effect of any written consent of Executive under this Section 2(a)
            shall be strictly limited to the terms specified in such written
            consent.

      (b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Bank Change in Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. ss. 225.41(b) with respect to the Holding Company,
as in effect on the date hereof; or (iii) results in a transaction requiring
prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. ss. 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Institution; or (iv) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Institution or the Holding Company representing
20% or more of the Institution's or the Holding Company's outstanding securities
except for any securities of the Institution purchased by the Holding Company in
connection with the conversion of the Institution to the stock form and any
securities purchased by any tax-qualified employee benefit plan of the
Institution; or (B) individuals who constitute the Board of Directors on the
date hereof (the "Incumbent Board")


                                       2
      

cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters (3/4) of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Institution or the Holding Company or similar transaction occurs in which the
Institution or Holding Company is not the resulting entity; or (D) solicitations
of shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company shall be distributed; or
(E) a tender offer is made for 20% or more of the voting securities of the
Institution or the Holding Company.

      (c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 of this Agreement upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of: (i) Executive's
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or (ii) Executive's conviction of a crime or act involving
moral turpitude or a final judgment rendered against Executive based upon
actions of Executive which involve moral turpitude. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Holding
Company or its affiliates. Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 5 of this Agreement
through the Date of Termination, stock options granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested stock awards
granted to Executive under any stock-based incentive plan of the Institution,
the Holding Company or any subsidiary or affiliate thereof vest. At the Date of
Termination, such stock options and such unvested stock awards shall become null
and void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Date of Termination for Cause.


                                       3
      

3.    TERMINATION BENEFITS.

      (a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the involuntary termination of Executive's
employment (other than for Termination for Cause), or voluntary termination
during the term of this Agreement as provided by Section 2(a) of this Agreement,
the Holding Company shall be obligated to pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, a sum equal to three (3) times Executive's average annual compensation
for the five most recent taxable years that Executive has been employed by the
Holding Company or such lesser number of years in the event that Executive shall
have been employed by the Holding Company for less than five years. For this
purpose, such annual compensation shall include base salary and any other
taxable income, including, but not limited to, amounts related to the granting,
vesting or exercise of restricted stock or stock option awards, commissions,
bonuses, pension and profit sharing plan contributions or benefits (whether or
not taxable), severance payments, retirement benefits, and fringe benefits paid
or to be paid to Executive or paid for Executive's benefit during any such year.
At the election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum or on an annual basis in
approximately equal installments over a three (3) year period.

      (b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment in accordance
with paragraph (a) of this Section 3, other than for Termination for Cause, the
Holding Company shall cause to be continued life, medical and disability
coverage substantially identical to the coverage maintained by the Institution
or Holding Company for Executive prior to his severance, except to the extent
such coverage may be changed in its application to all Institution or Holding
Company employees on a nondiscriminatory basis. Such coverage and payments shall
cease upon the expiration of thirty-six (36) full calendar months from the Date
of Termination.

4.    CHANGE IN CONTROL-RELATED PROVISIONS.

      (a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment,
benefit or distribution made or provided by the Holding Company or the
Institution to or for the benefit of Executive (whether made or provided
pursuant to the terms of this Agreement or otherwise) (each referred to herein
as a "Payment"), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") or any interest or
penalties are incurred by Executive with respect to such excise tax (the excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after payment
by Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.


                                       4
      

      (b) Determination of Gross-Up Payment. Subject to the provisions of
Section 4(c), all determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a certified public accounting firm reasonably
acceptable to the Holding Company as may be designated by Executive (the
"Accounting Firm") which shall provide detailed supporting calculations to the
Holding Company and Executive within fifteen (15) business days of the receipt
of notice from Executive that there has been a Payment, or such earlier time as
is requested by the Holding Company. All fees and expenses of the Accounting
Firm shall be borne solely by the Holding Company. Any Gross-Up Payment, as
determined pursuant to this Section 4, shall be paid by the Holding Company to
Executive within five business days of the later of (i) the due date for the
payment of any Excise Tax, or (ii) the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Holding Company and Executive. As a result of the uncertainty in the
application of Section 4999 of the Code, at the time of the initial
determination by the Accounting Firm hereunder, it is possible that a Gross-Up
Payment will not have been made by the Holding Company which should have been
made (an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Holding Company exhausts its remedies pursuant
to Section 4(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Holding Company to or for the benefit of Executive.

      (c) Treatment of Claims. Executive shall notify the Holding Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require a Gross-Up Payment to be made. Such notification shall be given as soon
as practicable, but no later than ten business days, after Executive is informed
in writing of such claim and shall apprise the Holding Company of the nature of
such claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Holding Company (or any
shorter period ending on the date that payment of taxes with respect to such
claim is due). If the Holding Company notifies Executive in writing prior to the
expiration of this period that it desires to contest such claim, Executive
shall:

      (i)   give the Holding Company any information reasonably requested by the
            Holding Company relating to such claim;

      (ii)  take such action in connection with contesting such claim as the
            Holding Company shall reasonably request in writing from time to
            time, including, without limitation, accepting legal representation
            with respect to such claim by an attorney reasonably selected by the
            Holding Company;

      (iii) cooperate with the Holding Company in good faith in order to
            effectively contest such claim; and

      (iv)  permit the Holding Company to participate in any proceedings
            relating to such claim; provided, however, that the Holding Company
            shall bear and pay directly


                                       5
      

            all costs and expenses (including additional interest and penalties)
            incurred in connection with such contest and indemnify and hold
            Executive harmless, on an after-tax basis, for any Excise Tax or
            related taxes, interest or penalties imposed as a result of such
            representation and payment of costs and expenses. Without limitation
            on the foregoing provisions of this Section 4(c), the Holding
            Company shall control all proceedings taken in connection with such
            contest and, at its option, may pursue or forgo any and all
            administrative appeals, proceedings, hearings and conferences with
            the taxing authority with respect to such claim and may, at its
            option, either direct Executive to pay the tax claimed and sue for a
            refund or contest the claim in any permissible manner. Further,
            Executive agrees to prosecute such contest to a determination before
            any administrative tribunal, in a court of initial jurisdiction and
            in one or more appellate courts, as the Holding Company shall
            determine; provided, however, that if the Holding Company directs
            Executive to pay such claim and sue for a refund, the Holding
            Company shall advance the amount of such payment to Executive, on an
            interest-free basis (including interest or penalties with respect
            thereto). Furthermore, the Holding Company's control of the contest
            shall be limited to issues with respect to which a Gross-Up Payment
            would be payable hereunder and Executive shall be entitled to settle
            or contest, as the case may be, any other issues raised by the
            Internal Revenue Service or any other taxing authority.

      (d) Adjustments to the Gross-Up Payment. If, after the receipt by
Executive of an amount advanced by the Holding Company pursuant to Section 4(c),
Executive becomes entitled to receive any refund with respect to such claim,
Executive shall (subject to the Holding Company's compliance with the
requirements of Section 4(c)) promptly pay to the Holding Company the amount of
such refund (together with any interest paid or credited thereon after
applicable taxes). If, after the receipt by Executive of an amount advanced by
the Holding Company pursuant to Section 4(c), a determination is made that
Executive shall not be entitled to any refund with respect to such claim and
such denial of refund occurs prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of the Gross-Up Payment required to be paid.

5.    NOTICE OF TERMINATION.

      (a) Any purported termination by the Holding Company or by Executive in
connection with a Change in Control shall be communicated by a Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which indicates the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

      (b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the


                                       6
      

Executive's termination exists, the "Date of Termination" shall be determined in
accordance with Section 5(c) of this Agreement.

      (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Holding Company will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his annual salary)
until the earlier of: (i) the resolution of the dispute in accordance with this
Agreement; or (ii) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.

6.    SOURCE OF PAYMENTS.

      It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company.

7.    EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

      This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company or the
Institution and Executive, except that this Agreement shall not affect or
operate to reduce any benefit or compensation inuring to Executive of a kind
elsewhere provided. No provision of this Agreement shall be interpreted to mean
that Executive is subject to receiving fewer benefits than those available to
him without reference to this Agreement.

      Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain Executive in its employ for any
period.

8.    NON-COMPETITION AND NON-DISCLOSURE.

      (a) For a period of one (1) year following the payment of termination
benefits to Executive under this agreement, Executive agrees not to compete with
the Holding Company or its subsidiaries in any city, town or county in which
Executive's normal business office is located and the Holding Company or its
subsidiaries has an office or has filed an application for regulatory approval
to establish an office, determined as of the effective date of such termination,
except as agreed to pursuant to a resolution duly adopted by the Board of
Directors. Executive agrees that during such one (1) year period and within said
cities, towns and counties, Executive


                                       7
      

      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 the Holding Company or its subsidiaries.
The parties hereto, recognizing that irreparable injury will result to the
Holding Company, its business and property in the event of Executive's breach of
this Section 8(a), agree that in the event of any such breach by Executive, the
Holding Company will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Executive represents and admits that in the
event of the termination of his employment following a Change in Control,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Holding Company or its subsidiaries, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
from pursuing any other remedies available for such breach or threatened breach,
including the recovery of damages from Executive.

      (b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company or
its subsidiaries, as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Holding Company or its
subsidiaries 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, Executive 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 the Holding Company or its subsidiaries. In the event of a breach
or threatened breach by Executive of the provisions of this Section 8, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its subsidiaries 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 the Holding
Company from pursuing other remedies available for such breach or threatened
breach, including the recovery of damages from Executive.

9.    NO ATTACHMENT.

      (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

      (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.


                                       8
      

10.   MODIFICATION AND WAIVER.

      (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

      (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.

11.   REQUIRED REGULATORY PROVISIONS.

      Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.

12.   SEVERABILITY.

      If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall, to the full extent consistent with
law, continue in full force and effect.

13.   HEADINGS FOR REFERENCE ONLY.

      The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

14.   GOVERNING LAW.

      The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the state of Delaware.

15.   ARBITRATION.

      Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.


                                       9
      

16.   PAYMENT OF COSTS AND LEGAL FEES.

      All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful with
respect to such dispute or question of interpretation pursuant to a legal
judgment, arbitration or settlement.

17.   INDEMNIFICATION.

      The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities); such expenses
and liabilities to include, but not to be limited to, judgments, court costs and
attorneys' fees and the costs of reasonable settlements.

18.   SUCCESSOR TO THE HOLDING COMPANY.

      The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Holding Company, to expressly
and unconditionally assume and agree to perform the Holding Company's
obligations under this Agreement in the same manner and to the same extent that
the Holding Company would be required to perform such obligations if no such
succession or assignment had taken place.


                                       10
      

                                   SIGNATURES

      IN WITNESS WHEREOF, Berkshire Hills Bancorp, Inc. has caused this
Agreement to be executed by its duly authorized officer, and Executive has
signed this Agreement, on the 22nd day of October, 2003.

ATTEST:                                       BERKSHIRE HILLS BANCORP, INC.


/s/ Kathy J. Deman                        By: /s/ Michael P. Daly
-------------------------------               ----------------------------------

SEAL

WITNESS:                                      EXECUTIVE

/s/ Susan A. Lawton                           /s/ Wayne F. Patenaude
-------------------------------               ----------------------------------
                                              Wayne F. Patenaude

                                       11




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Section 7: EX-10.10




                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                                     FOR THE
                    CHIEF EXECUTIVE OFFICER OF BERKSHIRE BANK

                                    Article 1
                      Description, Purpose and Definitions

     1.1 Name. The name of this Plan is the "Berkshire Bank Supplemental
Executive Retirement Plan."

     1.2 Purpose. The purpose of the Plan is to promote the retention of Michael
P. Daly, the Chief Executive Officer of the Company, by providing an additional
source of retirement income to supplement that available to him from other
sources.

     1.3 Definitions. For purposes of the Plan, the following words and phrases
shall have the meanings indicated, unless the context clearly indicates
otherwise.

     "Bank" means Berkshire Bank, Pittsfield, Massachusetts.

     "Cause" means termination of employment because of Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar infractions)
or a final cease-and-desist order.

     "Change in Control" means an event of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Bank Change in
Control Act and the Rules and Regulations promulgated by the Federal Deposit
Insurance Corporation ("FDIC") at 12 C.F.R. ss. 303.4(a) with respect to the
Bank and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. ss. 225.41(b) with respect to the Company, as in effect on the date
hereof; or (iii) results in a transaction requiring prior FRB approval under the
Bank Holding Company Act of 1956 and the regulations promulgated thereunder by
the FRB at 12 C.F.R. ss. 225.11, as in effect on the date hereof except for the
Company's acquisition of the Bank; or (iv) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Company representing
20% or more of the Bank's or the Company's outstanding securities except for any
securities of the Bank purchased by the Company in connection with the
conversion of the Bank to the stock form and any securities purchased by any
tax-qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was




      

approved by a vote of at least three-quarters (3/4) of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction occurs in which the Bank or Company is not
the resulting entity; or (D) solicitations of shareholders of the Company, by
someone other than the current management of the Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the Company or
Bank or similar transaction with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Company shall be distributed; or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or the
Company.

     "Company" means Berkshire Hills Bancorp, Inc., a Delaware corporation.

     "Disability" means Executive suffers a sickness, accident or injury which
has been determined by the carrier of any individual or group disability
insurance policy covering Executive, or by the Social Security Administration,
to be a disability rendering Executive totally and permanently disabled.
Executive must submit proof to the Bank of the carrier's or Social Security
Administration's determination at the request of the Bank.

     "Executive" means Michael P. Daly, Chief Executive Officer of the Bank.

     "Final Average Earnings" means the highest average of the total salary and
bonus paid to executive for any three consecutive completed calendar years
preceding termination.

     "Social Security Benefit" means the amount, as determined by the
Administrator in its discretion and based upon Executive's estimated earnings
history to the date of his termination of employment with the Bank, to which he
will be entitled under the old age provisions of the Social Security Act upon
attainment of the normal Social Security retirement age (assuming no changes in
compensation between the time of Executive's termination from employment and his
normal retirement age for purposes of receiving his receiving his Social
Security Benefit).

                                    Article 2
                                   Eligibility

     2.1 Entitlement to Benefits. Except to the extent provided in Sections 3.3,
3.4 and 3.5, Executive shall become entitled to receive a benefit under the Plan
only if his employment with the Bank terminates for reasons other than Cause
after he has attained age 62. Notwithstanding anything in this Plan to the
contrary, no benefit shall be payable to Executive if his employment is
terminated for Cause.



                                       2

      


                                    Article 3
                        Supplemental Retirement Benefits

     3.1 Basic Benefit. Subject to the succeeding provisions of this Article,
Executive shall be entitled to an annual benefit equal to 70% of his Final
Average Earnings upon his termination of employment (other than for Cause) at or
after attaining age 62.

     3.2 Other Retirement Income Reduction.

          A.   Executive's annual benefit determined under Section 3.1 shall be
               reduced by the sum of the following amounts:

               (1)  50% of the amount of his annual Social Security Benefit;

               (2)  The amount of his annual benefit under the Pension Plan; and

               (3)  The value of his annual benefit attributable to employer
                    matching and non-elective contributions made by the Bank to
                    the Bank's 401(k) Plan and his employer contributions under
                    the Berkshire Bank Employee Stock Ownership Plan.

          B.   If any benefit described in Subsection A is not payable as a
               single life annuity or does not commence at the same time as
               Executive's benefit under this Plan, the Administrator shall, for
               purposes of this section, convert the value of such benefit into
               an actuarially equivalent single life annuity benefit commencing
               at the same time as the benefit under this Plan.

          C.   If Executive would be entitled to a benefit described in
               Subsection A but for his failure to apply for such benefit,
               Subsection A will be applied as if he had applied for and
               received the benefit.

          D.   Changes in a benefit described in Subsection A that occur after
               commencement of Executive's benefit under this Plan because of
               changes in the plan or program under which the benefit is
               provided or because of cost of living adjustments will not change
               the amount of the reduction under Subsection A.

     3.3  Early Retirement Benefit. If Executive's termination of employment
          occurs prior to the date he attains age 62 but after attaining age 55,
          other than by reason of his death or Disability or following a Change
          in Control, he shall be entitled to a percentage of the basic benefit
          determined under Sections 3.1 and 3.2. The percentage of Executive's
          benefit under this Section 3.3 shall be determined as follows:





                                       3

      

               (i)  If he retires during the calendar year in which he attains
                    age 55, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 50%.

               (ii) If he retires during the calendar year in which he attains
                    age 56, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 40%.

               (iii) If he retires during the calendar year in which he attains
                    age 57, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 30%.

               (iv) If he retires during the calendar year in which he attains
                    age 58, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 20%.

               (v)  If he retires during the calendar year in which he attains
                    age 59, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 15%.

               (vi) If he retires during the calendar year in which he attains
                    age 60, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 10%.

               (vii) If he retires during the calendar year in which he attains
                    age 61, the benefit otherwise determined under Sections 3.1
                    and 3.2 shall be reduced by 5%.

     Such benefit shall be paid in accordance with Executive's election under
Section 3.6 at the time specified in Section 3.7.

     3.4  Death and Disability Benefits.

          A.   If Executive dies while employed by the Bank or terminates
               employment by reason of his Disability, there shall be paid to
               his or his designated beneficiary an amount equal to the benefit
               he would have received under Sections 3.1 and 3.2 if he had
               retired on the date immediately preceding his date of death or
               termination of employment and, as of such date, was deemed to
               satisfy the age requirement of Section 3.1. Such benefit shall be
               paid in accordance with his election under Section 3.6 at the
               time specified in Section 3.7.

          B.   If Executive dies after his entitlement to a benefit has been
               established by reason of his termination of employment but prior
               to the time that benefit payment(s) have commenced, such
               payment(s) shall be made to his beneficiary in accordance with
               his election.





                                       4
      


          C.   Executive may, on a form prescribed by and filed with the
               Administrator, designate a beneficiary to receive any death
               benefit payable under this section. If no effective beneficiary
               designation is on file at the time of his death, the death
               benefit under this section shall be paid as follows:

               (1)  To his surviving spouse; or

               (2)  If no spouse survives, to his surviving children in equal
                    shares, with the descendants of a child who has predeceased
                    him taking such child's share by representation; or

               (3)  If none of his spouse and descendants is living, to the
                    representative of his estate.

          D.   The automatic beneficiaries set forth in Subsection C and, except
               as otherwise provided in Executive's duly filed beneficiary
               designation, the beneficiaries named in such designation, shall
               become fixed at his death so that if a beneficiary survives him
               but dies before final payment of the death benefit, any remaining
               death benefits shall be paid to the representative of such
               beneficiary's estate.

     3.5  Change in Control Benefit

     If Executive terminates employment with the Bank following a Change in
Control (other than for Cause), there shall be paid to him an amount equal to
the benefit he would have received if he had retired on the date immediately
preceding his date of termination of employment and, as of such date, was deemed
to satisfy the age requirements of Section 3.1. Such benefit shall be paid in
accordance with his election under Section 3.6 at the time specified in Section
3.7. The benefit payable under this provision shall be calculated using
Executive's Final Average Earnings as of his date of termination.

     3.6  Form of Benefit.

          A.   Upon Executive's entitlement to a benefit under this Plan, his
               benefit shall be paid in the form of (i) a single life annuity
               with 10 annual payments guaranteed or (ii) a lump sum which is
               actuarially equivalent to the annuity form of payment in (i), as
               designated by Executive on an election form designated by the
               Bank for such purpose.

          B.   Executive may, while employed by the Bank, change the form in
               which his benefits shall be paid by filing a revised election
               indicating such change at least one (1) calendar year prior to
               the date payments are to commence. Such election shall be
               irrevocable beginning one (1) calendar year prior to the date
               payments are to commence. No changes in the form






                                       5
      

               of benefit payment shall be permitted following his termination
               of employment.

     3.7  Time of Payment/Calculation of Lump Sum.

          A.   Benefit payments made to Executive or Executive's beneficiary
               pursuant to Sections 3.1 or 3.4 shall commence in accordance with
               his election under Section 3.6 not later than 60 days following
               the his termination of employment.

          B.   Benefit payments made to Executive or Executive's beneficiary
               pursuant to Sections 3.3 or 3.5 shall commence in accordance with
               his election under Section 3.6 not later than 60 days following
               the date he attains age 62. Notwithstanding the foregoing, with
               respect to a benefit payable pursuant to Section 3.5, Executive
               may, with the consent of the Bank, elect to receive the lump sum
               equivalent of the benefit that would have otherwise been paid
               commencing not later than 60 days following the date he attains
               age 62. If Executive makes such an election, and the Bank
               consents, then the lump sum equivalent will be paid no later than
               the date on which the Change in Control occurs.

          C.   For purposes of this Plan, any lump sum calculation shall be made
               assuming a mortality age using the 1994 Group Annuity Reserve
               (GRA) table and a discount rate of  six percent (6%).

     3.8 Payment in the Event of Incapacity or Minority. If the Administrator,
in its discretion, determines that any person entitled to receive any payment
under this Plan is physically, mentally or legally incapable of receiving or
acknowledging receipt of payment, and no legal representative has been appointed
for such person, the Administrator in its discretion may (but shall not be
required to) cause any sum otherwise payable to such person to be paid to one or
more legal person(s) as may be chosen by the Administrator from among the
following: the institution maintaining such person, such person's spouse,
children, parents or other relatives by blood or marriage, a custodian under any
applicable Uniform Transfers to Minors Act or any other person determined by the
Administrator to have incurred expense for such person. The Administrator's
payment, based upon its good faith determination of the incapacity of the person
otherwise entitled to payments under this Plan and the existence of any other
person specified above, shall be conclusive and binding on all persons. Any such
payment shall be a complete discharge of the liabilities of the Company under
this Plan to the extent of such payment.

                                    Article 4
                               Source of Benefits

     4.1 Employer Funds. This Plan is unfunded, and all benefits payable to
Executive and his beneficiaries shall be payable solely from the general assets
of the Bank. Executive shall be required or permitted to make any contribution
to the Plan.



                                       6
      

     4.2 Trust Fund. The Bank may establish a trust from which part or all of
the benefits under the Plan are to be paid. If a trust is established, all of
the principal and income of such trust shall remain subject to the claims of the
Bank's creditors until applied to the payment of benefits.

     4.3 Executive's Right to Funds. This Plan constitutes a mere promise by the
Bank to make benefit payments in the future. Beneficial ownership of any assets,
whether cash or investments, that the Bank may earmark or place in trust to pay
Executive's benefits under this Plan shall at all times remain in the Bank, and
neither Executive nor his beneficiaries shall have any property interest in any
specific assets of the Bank. To the extent Executive or any other person
acquires a right to receive payments from the Bank under this Plan, such right
shall be no greater than the right of any unsecured general creditor of the
Bank.

                                    Article 5
                                 Administration

     5.1 Administrator. The Board of Directors of the Bank shall be the
Administrator of the Plan. The Board may delegate any of its administrative
functions to another person, subject to the revocation of such delegation at any
time.

     5.2 Discretion. The Administrator shall also have the discretionary power
and authority, which it shall exercise in good faith, to determine whether
Executive is entitled to a benefit under the Plan, the identity of Executive's
beneficiaries, and the amount and form of the benefit payable to Executive or
his beneficiary. The Administrator shall have the discretion and authority to
interpret the Plan and to make such rules and regulations as it deems necessary
for the administration of the Plan and to carry out its purposes. The
determinations of the Administrator shall be conclusive and binding on all
persons.

     5.3 Determination of Benefit. The Administrator's good faith determination
of the benefits to which Executive or his beneficiaries are entitled under this
Plan shall be conclusive and binding on all persons; provided, however, that
this provision shall not preclude the Administrator's correcting any error the
Administrator determines to have been made in the computation of any benefit.
The Administrator shall be entitled to recover from any Participant or
beneficiary, or from his estate, the amount of any overpayment of benefits and
may reduce the amount of future benefits payable to any individual by the amount
of any overpayment made with respect to Executive.

     5.4 Benefit Claim Procedure. Within a reasonable period of time following
Executive's termination of employment, the Administrator will inform Executive
or his beneficiary of the amount of benefits, if any, payable from the Plan. Not
later than 30 days after receipt of such notification, Executive or his
beneficiary may file with the Administrator a written claim objecting to the
amount of benefits payable under the Plan. The Administrator, not later than 90
days after receipt of such claim, will render a written decision to the claimant
on the claim. If the claim is denied, in whole or in part, such decision will
include the reason or reasons for the denial, a reference to the Plan provision
that is the basis for the denial, a description of additional material or
information, if any, necessary for the claimant to perfect the claim, an



                                       7
      

explanation as to why such information or material is necessary and an
explanation of the Plan's claim procedure. The claimant may file with the
Administrator, not later than 60 days after receiving the Administrator's
written decision, a written notice of request for review of the decision, and
the claimant or the claimant's representative may review Plan documents which
relate to the claim and may submit written comments to the Administrator. Not
later than 60 days after receipt of such review request, the Administrator will
render a written decision on the claim, which decision will include the specific
reasons for the decision, including a reference to the Plan's specific
provisions where appropriate. The foregoing 90- and 60-day periods during which
the Administrator must respond to the claimant may be extended by up to an
additional 90 or 60 days, respectively, if special circumstances beyond the
Administrator's control so require.

     5.5 Indemnification. The Bank shall indemnify the Administrator and each
other person to whom administrative functions are delegated against any and all
liabilities that may arise out of their administration of the Plan, except those
that are imposed on account of such person's willful misconduct.

     5.6 Limitation of Authority. No person performing any administrative
functions with respect to the Plan shall exercise, or participate in the
exercise of, any discretion with respect to his own benefit under the Plan. This
provision shall not preclude such person from exercising discretionary authority
with respect to the generally applicable provisions of the Plan, even though
such person's benefit may be affected by such exercise.

                                    Article 6
                                  Miscellaneous

     6.1 Actuarial Equivalency. Except as otherwise provided for in Section
3.7C, whenever an actuarial equivalent must be determined under this Plan, it
sshall be determined using reasonable actuarial factors elected by the
Administrator.

     6.2 Termination of Employment. Executive shall be deemed to have terminated
employment for purposes of this Plan when he or she has ceased to provide
service to the Bank as an employee.

     6.3 Effective Date. This Plan is effective as of December 1, 2003.

     6.4 No Employment Rights. Nothing contained in this Plan shall be construed
as conferring upon Executive the right to continue in the employ of the Bank.

     6.5 No Compensation Guarantees. Nothing contained in this Plan shall be
construed as conferring upon Executive the right to receive any specific level
of compensation; nor shall the Bank be prevented in any way from modifying the
manner or form in which Executive is to be compensated.

     6.6 Effect on Benefit Plans. Neither benefits accrued by Executive under
this Plan nor amounts paid pursuant to the Plan following his termination of
employment shall be deemed to be salary or other compensation to him for the
purpose of computing benefits to which he   







                                       8
      

may be entitled under any pension plan or other employee benefit plan or
arrangement sponsored by the Bank, except to the extent such other plan
expressly provides otherwise.

     6.7  Rights and Benefits Not Assignable. The rights and benefits of
Executive and any other person or persons to whom payments may be made pursuant
to this Plan are personal and, except for payments made to the representative of
a person's estate which may be assigned to the persons entitled to such estate,
shall not be subject to any voluntary or involuntary anticipation, alienation,
sale, assignment, pledge, transfer, encumbrance, attachment, garnishment by
creditors of Executive or such person or other disposition.

     6.8  Amendment and Termination.

          A.   The Board of Directors of the Bank may amend this Plan in such
               manner as it deems advisable, provided that no amendment shall
               reduce the accrued benefit of Executive, determined as of the
               date of the adoption of such amendment.

          B.   The Bank may terminate this Plan at any time. No person shall
               accrue any additional benefits under the Plan following the date
               of its termination. However, the termination of the Plan shall
               not affect Executive's right to receive payment of his accrued
               benefit (determined as of the date of the Plan's termination)
               upon termination of employment; provided Executive would have
               been entitled to a benefit upon termination of employment if the
               Plan had not been terminated.

     6.9 Governing Law. Except to the extent preempted by federal law, this Plan
shall be construed in accordance with, and governed by, the laws of the
Commonwealth of Massachusetts without regard to rules relating to choice of law.

     6.10 Entire Agreement. This Plan constitutes the entire understanding
between the Bank and each Participant as to the subject matter hereof. No rights
are granted to Executive by virtue of this Agreement other than those
specifically set forth herein.




                                       9


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Section 8: EX-10.16


                                                                   Exhibit 10.16

                                    AGREEMENT

      THIS AGREEMENT is dated as of December 4, 2003, and is by and between
Robert A. Wells (herein "Mr. Wells") of Lenox, Massachusetts, and Berkshire
Hills Bancorp, Inc. (the "Holding Company") and Berkshire Bank ("Berkshire
Bank") (collectively "Berkshire") with a principal place of business in
Pittsfield, Massachusetts.

      WHEREAS, Mr. Wells' employment by Berkshire and his engagement as an
independent contractor by the Berkshire Hills Foundation and Greater Berkshire
Foundation, Inc. (collectively the "Foundations") shall terminate, effective
December 19, 2003 (the "Retirement Date");

      WHEREAS, Mr. Wells and Berkshire entered into an agreement regarding the
terms and conditions of his separation from Berkshire and the Foundations, a
copy of which is attached hereto as Exhibit A (the "Retirement Agreement").

      NOW, THEREFORE, in consideration of the foregoing and of the agreements
hereinafter set forth, the parties hereto mutually agree as follows:

      1. Mr. Wells hereby elects that his retirement date shall be December 19,
2003. On or before December 26, 2003, the Bank will pay to Mr. Wells the
$200,000.00 lump sum payment as provided in the Retirement Agreement and Mr.
Wells will refund to Berkshire the sum of $20,500.00 for the Royal Macabees (now
Reassure America) Policy premium payments made by Berkshire on his behalf. Upon
receipt of that $20,500.00, Berkshire acknowledges that all such amounts are
paid in full by Mr. Wells. Berkshire and Mr. Wells will fulfill all of their
respective obligations under the Retirement Agreement notwithstanding the
reciprocal releases set forth below.

      2. In consideration of the foregoing, Mr. Wells, for himself, his heirs,
administrators, executors and assigns, with full understanding of the content
and legal effect of this Release, hereby releases, discharges and covenants not
to sue Berkshire or any of its predecessors, subsidiaries or affiliates, and its
or their officers, partners, directors, trustees, agents, employees, attorneys,
successors and assigns (individually and in their representative capacities all
of the foregoing being referred to herein as the "Bank Releasees"), from and
with respect to any and all debts, claims, demands, and causes of action of any
kind whatsoever, whether known or unknown or unforeseen, which Mr. Wells now
has, ever had or may in the future have against the Bank Releasees, arising
prior to December 20, 2003, including without limitation on the foregoing those
arising out of or in any manner relating to Mr. Wells' employment by Berkshire
or the termination thereof.

            With respect to any rights Mr. Wells may have under the Age
Discrimination in Employment Act of 1967 or the Older Worker's Benefit
Protection Act, as presently in effect, which rights he is releasing under this
Agreement, Mr. Wells acknowledges that he has been given twenty-one (21) days to
consider this Agreement; that to the extent he has executed this Agreement prior
to the expiration of that period, he has done so knowingly and voluntarily; that

      

for a period of seven (7) days following his execution of this Agreement, he may
revoke this Agreement; that this Agreement shall not become effective or
enforceable until such seven (7) day revocation period has expired; and that
Berkshire has no obligation to pay any sum or perform any act referred to in
this Agreement until the release contained in this Paragraph 2 becomes effective
and enforceable. Such revocation must be made by delivering a written notice of
revocation to Michael P. Daly, President and CEO, Berkshire Hills Bancorp., Inc.
and Berkshire Bank, and for such revocation to be effective, notice must be
received no later than 5:00 PM (EST) on the seventh (7th) calendar day after Mr.
Wells executes this Agreement.

      3. In consideration of the foregoing, Berkshire, and any and all of its
related or affiliated entities, and their respective officers, directors,
trustees, employees, agents, attorneys, predecessors, successors and assigns,
individually and in their representative capacities, release and forever
discharge, and covenant not to sue or commence or prosecute proceedings against
Mr. Wells, or any of his representatives, agents, attorneys, executors, assigns,
heirs and administrators (herein collectively the "Wells Releasees"), from and
with respect to any and all debts, claims, demands, damages and causes of action
of any kind whatsoever, whether known or unknown or unforeseen, which Berkshire
now has, ever had or may in the future have against the Wells Releasees, arising
prior to December 20, 2003, including without limitation on the foregoing, those
arising out of or in any manner relating to Mr. Wells' employment by Berkshire.

      4. Mr. Wells and Berkshire agree that they will treat each other
respectfully in any public comments and to that end they will not make any
negative, embarrassing or disparaging public statements, either verbal or
written, about each other.

      5. The parties hereto agree that the provisions, terms and conditions of
this Agreement and the Retirement Agreement attached hereto as Exhibit A are to
be held in strict confidence. Unless required by law or compelled by legal
process, Mr. Wells will not disclose or discuss the provisions, terms or
conditions of these agreements with any person, except his immediate family,
attorneys, accountants or other tax or financial advisors. Unless required by
law or compelled by legal or regulatory process, Berkshire agrees not to
disclose or discuss the provisions, terms or conditions of these agreements with
any person, including without limitation any Berkshire agent, servant or
employee; provided, however, that such disclosure may be made to persons,
including Berkshire's attorneys, accountants or other tax or financial advisors,
on a strict need-to-know basis only to the extent necessary to further a
specific and legitimate business interest of Berkshire.

      6. Neither anything contained herein, nor the payment of any sum provided
for herein, nor the performance of any act pursuant hereto shall be construed as
an admission by either party of any liability of any kind to the other party.

      7. This Agreement shall be binding upon Mr. Wells, Berkshire and their
respective heirs, administrators, representatives, executors, predecessors,
successors and assigns, and shall inure to the benefit of Mr. Wells, Berkshire,
the Wells Releasees, and the Bank Releasees, and each of them, and to their
respective heirs, administrators, representatives, executors, predecessors,
successors and assigns.


                                       2
      

      8. This Agreement shall in all respects be interpreted, enforced and
governed by and under the laws of the Commonwealth of Massachusetts without
reference to its conflict of laws provisions.

            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as an instrument under seal all as of the day and year first above written.


WITNESS:                                    BERKSHIRE BANK

/s/ Gerald A. Denmark                     By /s/ Michael P. Daly
----------------------------                ------------------------------------
                                            Michael P. Daly, President and CEO


                                            BERKSHIRE HILLS BANCORP, INC.

/s/ Gerald A. Denmark                     By /s/ Michael P. Daly
----------------------------                ------------------------------------
                                            Michael P. Daly, President and CEO


/s/ Gerald A. Denmark                     /s/ Robert A. Wells
----------------------------              --------------------------------------
                                            Robert A. Wells


                                       3
      
                                                                       Exhibit A

                                         As of June 26, 2003

Mr. Robert A. Wells
76 Lime Kiln Road
Lenox, MA 01240

Dear Bob:

      As we have discussed, this is to confirm that you have decided to retire
as Chairman of the Board of Berkshire Hills Bancorp, Inc. (the "Holding
Company") and Berkshire Bank ("Berkshire Bank") (collectively, "Berkshire") and
as Chairman and Principal Executive of each of Berkshire Hills Foundation and
Greater Berkshire Foundation, Inc. (the "Foundations") effective on the earlier
of (a) December 31, 2003 or (b) such other date as you shall elect upon notice
to me ("Your Retirement Date"). In recognition of your years of service,
Berkshire agrees to the following:

      1. You shall be a director of the Holding Company and Berkshire Bank until
the expiration of your current term in 2004, and thereafter as you are
re-nominated and re-elected. So long as you are a director, you will be a member
of various Berkshire committees to which you are appointed and a director of
each of the Foundations.

      2. After Your Retirement Date, and so long as you are a director of the
Holding Company, you will receive stock awards and options, if any, on the same
basis that they are granted to all other independent directors.

      3. Within 30 days after Your Retirement Date, but in any event no later
than December 31, 2003, you will receive a lump sum payment of $200,000.00, less
all required and necessary deductions and withholdings. All salary and other
payments from Berkshire and the Foundations, other than as set forth in this
letter, will cease as of Your Retirement Date. You will retain all of your
presently vested and unvested stock options and awards. If you are not
re-elected to the Holding Company's Board, you will be appointed to its Advisory
Board for a term sufficient to vest all of your unvested stock options and
awards. If you are not re-elected to the Holding Company's Board of Directors
and if, for any reason, the Advisory Board does not exist at that time, then all
of your unvested stock options and awards will immediately vest.

      4. You are entitled to certain benefits under the executive supplemental
compensation agreement with Berkshire Bank dated November 7, 1995 and a trust
agreement dated May 31, 1996 between Berkshire Bank and State Street Bank and
Trust Company. Berkshire Bank will hire, at its expense, a mutually agreeable,
independent pension actuarial firm (the "Actuary") to calculate, within 30 days
of Your Retirement Date, all benefits due to you under the agreements. If
appropriate, the amounts heretofore funded by Berkshire Bank and held under said
agreements at State Street Bank and Trust Company will be further funded to
satisfy

      

Mr. Robert A. Wells
As of June 26, 2003
Page 2


Berkshire Bank's obligations to you thereunder, or, if overfunded, the
amount by which it is overfunded will be retained by Berkshire Bank. Said
calculation by the Actuary will be final and binding on the parties, but each
party will have the right to review all assumptions and methods of calculation
prior to said calculation becoming final.

      5. Until November 22, 2005, you shall have:

            A. Use of your automobile, with Berkshire Bank paying all automobile
expenses on the same basis that it presently does; and on or about that date,
Berkshire Bank will transfer title of that vehicle to you.

            B. Use of your current office until December 31, 2003; and
thereafter, use of either your existing office or the second floor Board Room.

            C. Continued coverage under Berkshire Bank's existing regular, or
upon you and/or your spouse attaining age 65, MEDEX group medical and dental
insurance plans, as those plans shall hereafter be modified for all eligible
employees. You will continue to be responsible for your premium co-payments, the
amount of which will be billed by Berkshire to you periodically.

      6. Your employment by Berkshire and your engagement as an independent
contractor by the Foundations shall be deemed terminated as of Your Retirement
Date.

      7. You will continue to own the Royal Macabees (now Reassure America)
Policy (No. 4052-202). You will refund payments made by Berkshire on your behalf
by making a payment to Berkshire of $20,500.00 on or before Your Retirement
Date.


                                       2
      

Mr. Robert A. Wells
As of June 26, 2003
Page 3


      Please sign below to signify your agreement with the foregoing, and I will
then ask the Boards of Directors of Berkshire to affirm this agreement.

                                          Very truly yours,

                                          BERKSHIRE HILLS BANCORP, INC. and
                                          BERKSHIRE BANK

                                       By: /s/ Michael P. Daly
                                          --------------------------------------
                                          Michael P. Daly, President and CEO

                                          AGREED TO:

                                          /s/ Robert A. Wells
                                          --------------------------------------
                                          Robert A. Wells

                                          THIS LETTER AGREEMENT IS AFFIRMED:


                                          BERKSHIRE HILLS BANCORP, INC.

                                       By: /s/ Catherine B. Miller
                                          --------------------------------------
                                          On behalf of its Board of Directors


                                          BERKSHIRE BANK

                                       By: /s/ Catherine B. Miller
                                          --------------------------------------
                                          On behalf of its Board of Directors


                                       3




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Section 9: EX-11



                                                                    Exhibit 11.0

                 Statement Re: Computation of Per Share Earnings

Basic

Basic earnings per share is determined by dividing net income by the average
number of net outstanding common shares for the period. The net outstanding
common shares equals the gross number of common shares issued less Treasury
Stock repurchased, unallocated shares of the Employee Stock Ownership Plan, and
unallocated shares of stock awards granted under the Company's Stock-Based
Incentive Plan. This number is computed daily and averaged for the period.

       
         
                                                                                      For the Year Ended
                                                                                       December 31, 2003
                                                                                      ------------------
                                                                                              
o    Average number of net common shares outstanding for 2003 ..................            5,266,008
o    Net income ................................................................           $8,965,463
o    Basic earnings per share ..................................................           $     1.70
        

Diluted

Diluted earnings per share is determined by dividing net income by the average
number of net outstanding common shares computed as if all options granted under
the Company's Stock- Based Incentive Plan were exercised. The average number of
net outstanding common shares used for the basic computation is increased by the
unallocated shares of stock awards under the Company's Stock-Based Incentive
Plan and by the additional diluted shares calculated by the Treasury Stock
method.

       
         
                                                                                      For the Year Ended
                                                                                       December 31, 2003
                                                                                      ------------------
                                                                                              
o    Average number of net common shares used for basic computation .............           5,266,008
o    Average unallocated stock awards ...........................................             212,349
o    Additional diluted shares:
       649,927 option shares at an exercise price of $17.80,
       and an average market price of $29.81 ....................................             224,199
                                                                                           ----------
o    Total average number of common shares outstanding used for
       calculation of diluted earnings per share ................................           5,702,556
                                                                                           ==========
o    Net income .................................................................          $8,965,463
o    Diluted earnings per share .................................................          $     1.57
        



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Section 10: EX-23


                                                                    Exhibit 23.0


                      [Letterhead of Wolf & Company, P.C.]



               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the incorporation by reference in this Registration Statement of
our report dated January 23, 2004, on the consolidated financial statements of
Berkshire Hills Bancorp, Inc. and subsidiaries, appearing in the Annual Report
on Form 10-K of Berkshire Hills Bancorp, Inc. for the year ended December 31,
2003.

/s/ Wolf & Company, P.C.
------------------------
Boston, Massachusetts
March 8, 2004






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Section 11: EX-31.1


                                                                    Exhibit 31.1
                                  CERTIFICATION

I, Michael P. Daly, certify that:

1.   I have reviewed this report on Form 10-K of Berkshire Hills Bancorp, Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement 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 report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this 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 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-15(e) and 15d-15)(e)) for the registrant and
     have:

     a.   Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, 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 report is being prepared;

     b.   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c.   Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth fiscal quarter in
          the case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     (a)  All significant deficiencies and material weakness in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.




Date: February 26, 2004                    /s/Michael P. Daly
                                           -------------------------------------
                                           Michael P. Daly
                                           President and Chief Executive Officer























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Section 12: EX-31.2


                                                                    Exhibit 31.2
                                  CERTIFICATION

I, Wayne F. Patenaude, certify that:

1.   I have reviewed this report on Form 10-K of Berkshire Hills Bancorp, Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement 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 report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this 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 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-15(e) and 15d-15)(e)) for the registrant and
     have:

     a.   Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, 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 report is being prepared;

     b.   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c.   Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth fiscal quarter in
          the case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     (a)  All significant deficiencies and material weakness in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.




Date: February 26, 2004                          /s/Wayne F. Patenaude
                                                 -------------------------------
                                                 Wayne F. Patenaude
                                                 Senior Vice President, Chief
                                                 Financial Officer and Treasurer


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Section 13: EX-32.1


                                                                    Exhibit 32.1



                            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 Annual Report of Berkshire Hills Bancorp, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2003, as filed with
the Securities and Exchange Commission (the "Report"), I, Michael P. Daly, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as added by Section 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.


February 26, 2004                                        /s/ Michael P. Daly
                                                         -----------------------
                                                         Michael P. Daly
                                                         Chief Executive Officer


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Section 14: EX-32.2


                                                                    Exhibit 32.2



                            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 Annual Report of Berkshire Hills Bancorp, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2003, as filed with
the Securities and Exchange Commission (the "Report"), I, Wayne F. Patenaude,
Senior Vice President, Chief Financial Officer and Treausrer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as added by Section 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.


February 26, 2004                                /s/ Wayne F. Patenaude
                                                 -------------------------------
                                                 Wayne F. Patenaude
                                                 Senior Vice President, Chief
                                                 Executive Officer and Treasurer


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