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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, 2000


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

         For the transition period from _________ to __________

                         Commission File Number: 1-15781


                          BERKSHIRE HILLS BANCORP, INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                                   04-3510455
         (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                   Identification No.)

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

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

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

         The aggregate  market value of the voting and non-voting  common equity
held by non-affiliates  was $129,290,890  based upon the closing price of $18.32
as listed on the American Stock Exchange on March 12, 2001.  Solely for purposes
of this  calculation,  the shares  held by the  directors  and  officers  of the
registrant are deemed to be held by affiliates.

         As of March 12, 2001,  the  registrant  had 7,290,073  shares of common
stock outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of Proxy  Statement  for the Annual  Meeting of  Stockholders
("Proxy Statement"). (Part III)


      


                                      INDEX

                                     Part I
                                                                            Page

Item 1.     Business.......................................................  1
Item 1A.    Executive Officers of the Registrant........................... 30
Item 2.     Properties..................................................... 31
Item 3.     Legal Proceedings.............................................. 32
Item 4.     Submission of Matters to a Vote of Securities Holders.......... 32

                                     Part II

Item 5.     Market for Registrant's Common Equity and Related 
               Stockholder Matters......................................... 33
Item 6.     Selected Financial Data........................................ 34
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................... 37
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk..... 47
Item 8.     Financial Statements and Supplementary Data.................... 49
Item 9.     Changes in and Disagreements with Accountants on Accounting 
               and Financial Disclosure ................................... 93

                                    Part III

Item 10.    Directors and Executive Officers of the Registrant............. 94
Item 11.    Executive Compensation......................................... 94
Item 12.    Security Ownership of Certain Beneficial Owners and Management. 94
Item 13.    Certain Relationships and Related Transactions................. 94

                                     Part IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K 94




      
                                     PART I

ITEM 1.  BUSINESS

General

         Berkshire Hills Bancorp,  Inc. (the "Company" or "Berkshire  Hills"), a
Delaware corporation,  was organized in January 2000 for the purpose of becoming
the holding company for Berkshire Bank (the "Bank" or "Berkshire Bank") upon the
conversion of the Bank's former parent holding company,  Berkshire  Bancorp (the
"MHC" or  "Berkshire  Bancorp"),  from the mutual to stock form of  organization
(the "Conversion"). The Conversion was completed on June 27, 2000. In connection
with the Conversion,  the Company sold 7,105,334 shares of its common stock, par
value $0.01 per share (the "Common  Stock") at a purchase price of $10 per share
to depositors of the Bank in a subscription  offering. In addition,  the Company
issued an additional  568,427 shares,  representing 8% of the shares sold in the
subscription  offering,  to Berkshire Hills Foundation,  a charitable foundation
established by the Bank. The Company owns all of the  outstanding  shares of the
Bank and has invested a portion of the net proceeds it retained from its initial
public offering in securities such as industrial revenue bonds, municipal notes,
and corporate bonds. 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.

         Berkshire  Bank is the product of the May 1, 1997  merger of  Berkshire
County Savings Bank and Great Barrington  Savings Bank, which at the time of the
merger were the two largest banks headquartered in Berkshire County. 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  indirect  automobile  loans.
Berkshire Bank primarily holds the loans that it originates for investment,  but
sells some of its loans,  including automobile and fixed-rate mortgage loans, in
the secondary market,  while generally  retaining the servicing.  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.

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 banking offices located
in Berkshire County. However, Berkshire Bank also makes loans throughout western
Massachusetts, northern Connecticut, eastern New York and southern Vermont.

         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,  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.  Berkshire  Bank's most direct
competition  for  deposits  comes from credit  unions in the area,  which have a
competitive  advantage  as  they do not  have to pay  state  or  federal  taxes.
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 

                                       1
      
other financial  institutions,  such as brokerage firms and insurance companies.
While these entities  continue to provide a source of competition  for deposits,
Berkshire Bank increasingly faces significant  competition for deposits from the
mutual fund industry as customers  seek  alternative  sources of investment  for
their funds.  Berkshire Bank also faces  significant  competition for investors'
funds due to their direct  purchase of short-term  money market  securities  and
other corporate and government securities.  Berkshire Bank faces competition for
loans  from  the  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 may also increase competition
for  Berkshire  Bank's  customers  and  have an  adverse  impact  on its  future
operations.  Additionally,  competition  is  likely to  increase  as a result of
recent regulatory actions and legislative changes, most notably the enactment of
the  Gramm-Leach-Bliley  Act of 1999.  These  changes have eased and likely will
continue to ease  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,
                                       --------------------------------------------------------------------------------------------
                                        2000               1999                1998               1997               1996
                                       ----------------   ---------------    ----------------   ----------------   ----------------
                                                Percent            Percent            Percent             Percent            Percent
                                                  of                 of                  of                 of                 of
                                        Amount   Total    Amount    Total     Amount    Total    Amount    Total    Amount    Total
                                        ------   -----    ------    -----     ------    -----    ------    -----    ------    -----
                                                                       (Dollars in thousands)
                                                                                                                                    
Real estate loans:
  One- to four-family..........        $249,440  31.44%  $245,240   36.39%  $220,612    36.36%  $202,305   40.64%  $196,712   42.26%
   Commercial..................          63,871   8.05     46,419    6.89     51,598     8.50     41,267    8.29     50,824   10.92
   Multi-family................          15,699   1.98     14,793    2.20     15,393     2.54     14,740    2.96     12,451    2.67
   Construction ...............          14,290   1.80     12,534    1.86     12,821     2.11     11,531    2.32      6,229    1.34
                                       --------  -----   --------   -----   --------    -----   --------   -----   --------   ----- 
    Total real estate loans....         343,300  43.27    318,986   47.34    300,424    49.51    269,843   54.21    266,216   57.19
                                       --------  -----   --------   -----   --------    -----   --------   -----   --------   ----- 

Consumer loans:
   Home equity lines of credit           34,471   4.34     33,168    4.92     31,628     5.21     25,801    5.18     24,945    5.36
   Automobile..................         230,648  29.08    164,862   24.46    134,616    22.19     84,979   17.07     67,006   14.39
   Other.......................          18,014   2.27     10,706    1.59      5,933     0.98      5,889    1.18      3,446    0.74
                                       --------  -----   --------   -----   --------    -----   --------   -----   --------   ----- 
    Total consumer loans.......         283,133  35.69    208,736   30.97    172,177    28.38    116,669   23.43     95,397   20.49
                                       --------  -----   --------   -----   --------    -----   --------   -----   --------   ----- 

Commercial loans...............         166,956  21.04    146,196   21.69    134,115    22.11    111,372   22.36    103,884   22.32
                                       --------  -----   --------   -----   --------    -----   --------   -----   --------   ----- 
      Total loans..............         793,389 100.00%   673,918  100.00%   606,716   100.00%   497,884  100.00%   465,497  100.00%
                                                ======             ======              ======             ======             ======
Net deferred loan origination            
    costs (fees)............                232               170                 44                 (63)              (135)
Allowance for loan losses..             (10,216)           (8,534)            (7,589)             (6,078)            (6,303)
                                       --------          --------           --------            --------           --------
      Total loans, net.....            $783,405          $665,554           $599,171            $491,743           $459,059
                                       ========          ========           ========            ========           ========


        

     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,
     2000,  $249.4 million,  or 31.4%, 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,  approximately 34% were fixed-rate mortgage loans
     and approximately 66% were adjustable-rate loans.



                                       2
      

         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,  as well as jumbo loans, which
presently are loans in amounts over $279,500.  Fixed-rate  conforming  loans are
generally originated for portfolio. However, such loans may be sold by Berkshire
Bank from time to time. The determination of whether to sell loans is determined
periodically by management in response to changes in prevailing  market interest
rates and  liquidity  needs.  Loans  that are sold are  generally  sold with the
servicing rights retained.

         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 or which  adjust  annually  after a seven or ten year initial
fixed period and 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. All of Berkshire Bank's  adjustable-rate
mortgages  are  originated  at an interest  rate below the fully indexed rate on
adjustable-rate  mortgages. At December 31, 2000, the initial discounted rate on
these loans was 100 to 200 basis points below the current  fully  indexed  rate.
Generally, these loans will begin to reprice towards their fully indexed rate on
their next review date.

         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.
Berkshire  Bank  believes  these  risks,  which have not had a material  adverse
effect on Berkshire Bank to date,  generally are less than the risks  associated
with  holding  fixed-rate  loans  in its  portfolio  in a rising  interest  rate
environment.

         Berkshire Bank underwrites fixed- and variable-rate 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.

         Berkshire  Bank also offers  adjustable-rate  home equity loans with an
interest  rate based on the prime rate as reported  in The Wall Street  Journal,
which adjusts monthly. The combined  loan-to-value ratio of home equity loans is
generally  limited to 80%. Second  mortgages are also offered on  owner-occupied
primary  or  secondary  residences  and are  adjustable-rate,  either  adjusting
annually  or with a  five-year  initial  fixed  period  which  adjusts  annually
thereafter, with terms up to 30 years.

         In  an  effort  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   property  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. Additionally,  Berkshire
Bank maintains its own First-Time  Home Buyer loan program.  This program offers
one- and two-family  residential mortgage loans to first-time home buyers. These
loans are offered with initial  five-year  fixed-rates  of interest which adjust
annually thereafter with terms of up to 30 years.

         Construction  Loans. At December 31, 2000,  construction  loans totaled
$14.3 million,  or 1.8% of Berkshire Bank's total loan portfolio,  of which $5.8
million were  residential  construction  loans and $8.5 million were  commercial
construction loans. At December 31, 2000, the unadvanced portion of construction
loans totaled $12.4 million.

         Berkshire Bank  originates  construction  loans to individuals  for the
construction   and  acquisition  of  personal   residences.   Berkshire   Bank's
residential  construction  loans  generally  provide for the payment of interest
only during the 

                                       3
      
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 90%,  provided  that the  borrower
obtains private  mortgage  insurance on the loan if the loan balance exceeds 80%
of the  appraised  value or sales  price,  whichever  is  less,  of the  secured
property. At December 31, 2000, the largest outstanding residential construction
loan commitment was for $850,000,  $335,500 of which was outstanding.  This loan
was performing  according to its terms at December 31, 2000.  Construction 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  loan,
Berkshire Bank requires an appraisal of the property by an independent  licensed
appraiser.  Berkshire  Bank also  reviews  and  inspects  each  property  before
disbursement  of funds during the term of the  construction  loan. Loan proceeds
are disbursed after inspection based on the percentage of completion method.

         Berkshire Bank also makes construction 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,  2000,   the  largest   outstanding   commercial
construction  loan  commitment  was $6.0  million,  of which  $1.6  million  was
outstanding.  The accommodation was granted to a non-profit organization for the
renovation  and upgrade of a 320 acre  property in  Stockbridge,  Massachusetts.
This loan was performing according to the terms at December 31, 2000.

         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 70% of the value of the
land used for residential  development and 65% 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) and are written with a fixed interest rate based on
a margin over the prime rate as reported in The Wall Street Journal.  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. Additionally,  Berkshire Bank offers
fully-amortized land loans with a term of 15 years.  Berkshire Bank's land loans
are generally  secured by property in its primary  market area.  Berkshire  Bank
requires title insurance and, if applicable,  a hazardous waste survey reporting
that the land is free of hazardous or toxic waste.

         Construction  and  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 in order to protect the value of the property.
Additionally,  if the estimate of value proves to be inaccurate,  Berkshire Bank
may be  confronted  with a  project,  when  completed,  having a value  which is
insufficient to assure full repayment.

         Commercial  and   Multi-Family   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  facilities  or
retail  facilities  primarily  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 the prime
rate as reported in The Wall Street Journal. In reaching its decision on whether
to make a multi-family or commercial real estate loan,  Berkshire Bank considers
the net  operating  income of the property,  the  borrower's  expertise,  credit
history and profitability and the value of the underlying property. 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 has generally required that the properties securing these real estate loans
have debt service  coverage ratios (the ratio of earnings before debt service to
debt service) of at least 1.25x.  Environmental  surveys are generally  required
for commercial real estate loans. Additionally,  in larger real estate projects,
it is  recommended  that a  feasibility  study  be  obtained  to  determine  the
viability of the project.  A feasibility  study is  particularly  important with
respect to multi-family  housing projects,  hotel/motel  construction and health
care 

                                       4
      
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 in Berkshire  Bank's  portfolio at December 31, 2000 was a performing  $5.7
million real estate loan secured by a motel located in Lenox, Massachusetts.

         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 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.

Commercial Lending

         Commercial  Loans.  At December  31,  2000,  Berkshire  Bank had $167.0
million in commercial loans which amounted to 21.0% of total loans. In addition,
at such date, Berkshire Bank had $48.5 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 $5.8 million loan to
a long time  customer  secured by various  types of business  assets  located in
counties adjacent to Berkshire County in New York and Connecticut. This loan was
performing according to its original terms at December 31, 2000.

         Berkshire  Bank offers  secured  commercial  term  loans,  which have a
maturity  of  greater  than one year and the  payment 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  less  than  seven  years.  Berkshire  Bank also  offers  loans
originated in order to finance a business' operating  facility,  lines of credit
secured by business assets other than real estate,  such as business  equipment,
inventory  and  accounts  receivable,  letters of  credit,  time notes and Small
Business Administration guaranteed loans. Operating facility loans are revolving
lines of credit  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.

         Berkshire Bank also offers a Business Manager Line of Credit.  Unlike a
traditional  line of credit,  the  Business  Manager  Line is a program  whereby
Berkshire Bank purchases a customer's  accounts  receivable on a recourse basis.
Berkshire  Bank's income from the program  arises  primarily  from:  (1) service
charges,  which range from two to five percent,  which are discounted  from each
receivable  purchased,  and (2) the interest, if any, charged to account debtors
on unpaid  balances.  At December 31,  2000,  Business  Manager  Lines of Credit
totaled $1.4 million, or 0.8% of commercial loans. Additionally,  the unadvanced
amounts of Business Manager Lines of Credit totaled approximately $867,400.

         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, and 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,  primarily  accounts  receivable,
inventory and  equipment,  and are generally  supported by personal  guarantees.
Depending on the collateral used to secure the loans,  commercial loans are 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.



                                       5
      
Consumer Lending

         Automobile  Lending.  At December 31, 2000,  automobile  loans  totaled
$230.6 million,  or 29.1% of Berkshire  Bank's total loans and 81.5% 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
60 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 eight years ago.  Currently,  Berkshire  Bank maintains
contractual  relationships  with  over 100 new and used car  dealers  throughout
western  Massachusetts,  northern  Connecticut,  eastern  New York and  southern
Vermont. The substantial majority of such loans are secured by used automobiles.
The large growth in the automobile  portfolio in the past few years is primarily
attributable to the addition of one automobile dealer in 1997 and two automobile
dealers in 1998.  These  three  dealers  located in eastern  New York,  northern
Connecticut and western Massachusetts,  accounted for approximately 27.0% of the
loans originated in 2000. Berkshire Bank has been selling automobile loans since
1998.  Berkshire Bank anticipates that it will continue to sell a portion of its
automobile  loans in the secondary  market for liquidity  purposes and to manage
the credit risk of the loan portfolio.

         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, 2000,  home equity  lines of credit  totaled  $34.5
million,  or 4.3% of Berkshire  Bank's total loans and 12.2% of consumer  loans.
Additionally,  at December 31, 2000, the unadvanced amounts of home equity lines
of  credit  totaled  $35.4  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  exceeds  25%  of the  borrower's  gross  monthly  income.
Additionally,  the  borrower's  monthly debt 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 less than  $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 the 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, 2000 amounted to $18.0 million, or
2.3% of  Berkshire  Bank's total loans and 6.4% of consumer  loans.  These loans
include education, collateral, personal and unsecured loans, and second mortgage
loans other than home equity loans.  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.

         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.

         Loans to One Borrower.  The maximum amount that Berkshire Bank may lend
to one borrower is limited by statute.  At December 31, 2000,  Berkshire  Bank's
statutory  limit on loans to one  borrower  was  $24.9  million.  At that  date,
Berkshire  Bank's  largest  amount  of  loans  to one  borrower,  including  the
borrower's  related  interests,  was approximately $7.8 million and consisted of
five  loans  secured by  various  types of  business  assets.  These  loans were
performing according to their original terms at December 31, 2000.


                                       6
      


         Maturity of Loan  Portfolio.  The  following  table shows the remaining
contractual  maturity of  Berkshire  Bank's  total loans at December  31,  2000,
excluding the effect of future principal prepayments.
       
         
                                                                 At December 31, 2000
                                ---------------------------------------------------------------------------------------------
                                                          Commercial      Home
                                One-to                       and         Equity          
                                 Four-     Construction  Multi-Family   Lines of      Other          
                                Family          (1)      Real Estate     Credit    Automobile   Consumer   Commercial    Total   
                                ---------------------------------------------------------------------------------------------
                                                                     (In thousands)
                                                                                                                              
     Amounts due in:
        One year or less....     $  467       $14,268        $ 130      $ 1,898     $ 12,179    $ 1,015    $ 52,336   $ 82,293
        More than one year       
           to three years...      2,025            22        5,406            -       33,565      4,874      15,796     61,688
        More than three
           years                        
           to five years....      1,594             -        5,749            -      131,095      7,282      13,441    159,161
        More than five
           years                
           to 15 years......     71,565             -       36,352       15,338       53,809      3,084      43,649    223,797
        More than 15 years..    173,789             -       31,933       17,235            -      1,759      41,734    266,450
                               --------       -------      -------      -------     --------    -------    --------   --------
           Total amount due.   $249,440       $14,290      $79,570      $34,471     $230,648    $18,014    $166,956   $793,389
                               ========       =======      =======      =======     ========    =======    ========   ========
        

 (1) Includes residential and commercial construction loans.



         The following table sets forth, at December 31, 2000, the dollar amount
of loans  contractually due after December 31, 2001, and whether such loans have
fixed interest rates or adjustable interest rates.

       
         
                                                                          Due After December 31, 2001
                                                                 -----------------------------------------------
                                                                   Fixed           Adjustable          Total
                                                                 -----------------------------------------------
                                                                                 (In thousands)
                                                                                                               
              Real estate loans:
                 One- to four-family.....................          $ 88,675            $160,298        $248,973
                 Construction............................                22                   -              22
                 Commercial and multi-family.............             9,318              70,122          79,440
                                                                   --------            --------        --------
                    Total real estate loans..............            98,015             230,420         328,435
              Home equity loans..........................                 -              32,573          32,573
              Automobile.................................           218,469                   -         218,469
              Other consumer.............................            13,840               3,159          16,999
              Commercial loans...........................            11,057             103,563         114,620
                                                                   --------            --------        --------
                    Total loans..........................          $341,381            $369,715        $711,096
                                                                   ========            ========        ========

        

         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. 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
residential   mortgage   lenders  have  been  delegated   authority  to  approve
residential mortgage loans ranging from $240,000 to $300,000;  home equity lines
of credit  ranging  from  $50,000 to  $100,000;  unsecured  consumer  loans from
$10,000 to $30,000; and secured consumer loans from $30,000 to $50,000. All one-
to  four-family  mortgage loans and home equity lines of credit in amounts of up
to  $300,000,  all  secured  consumer  loans  up to  $50,000  and all  unsecured
installment  loans up to $30,000,  may be approved by the Chairman of the Board,
the President,  the Executive Vice  President-Senior Loan Officer and the Senior
Vice President-Retail Lending. All such loans in excess of these amounts require
the  approval  of a majority  of the  members  and the  signature  of two of the
members of  Berkshire  Bank's  Residential  Mortgage  Lending  Committee,  which
consists of the President, the Executive Vice President-Senior Loan Officer, the
Senior Vice President-Retail Lending, the Retail Loan 

                                       7
      
Administration  Officer and the  residential  mortgage  lenders.  Combining  any
delegated approval  authorities is permitted provided that individual limits may
be combined only up to $600,000 for residential  mortgage loan approvals without
requiring the approval of the Residential  Mortgage Lending  Committee  provided
that  residential  mortgage loans approved by a combination of authorities  must
include  the  signature  of either  the  Executive  Vice  President-Senior  Loan
Officer,   the  Senior  Vice   President-Retail   Lending  or  the  Senior  Vice
President-Commercial  Lending.  All residential  loans in excess of $1.5 million
require the approval of the Executive Committee of the Board of Directors or the
full Board of Directors.

         The Board of Directors  has delegated the authority to approve loans to
several commercial loan officers in amounts ranging from $20,000 to $150,000 for
secured  commercial  loans and in amounts  ranging  from  $20,000 to $75,000 for
unsecured  commercial  loans.  All  secured  commercial  loans in  amounts up to
$300,000  and  unsecured  commercial  loans in  amounts  up to  $175,000  may be
approved  by the  Chairman  of the Board,  the  President,  the  Executive  Vice
President-Senior Loan Officer, the Senior Vice Presidents of Lending and certain
commercial  loan  managers.  Such 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 Executive Vice  President-Senior Loan Officer,
the Senior Vice  Presidents of Lending and all  commercial  loan  officers.  The
President and the Credit  Administration  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
signature of either the Executive  Vice  President-Senior  Loan Officer,  Senior
Vice   President-Commercial   Lending  or  the  Senior  Commercial  Lender.  All
commercial loans in excess of $1.5 million require the approval of the Executive
Committee of the Board of Directors or the full Board of Directors.

         Loan  Originations,   Purchases  and  Sales.   Berkshire  Bank  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  100  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 2000 and 1999, Berkshire Bank originated or purchased
$180.3 million and $129.4 million of automobile  loans,  respectively,  of which
97.9% and 97.5% were  originated  indirectly  through  the  automobile  dealers.
Berkshire  Bank  purchased  consumer  loans from a third party which  originates
loans through smaller automobile dealers.  The consumer loans purchased from the
third party are  underwritten  and closed by that third party.  Berkshire  Bank,
however,  also performs its own credit  analysis  before  purchasing such loans.
Berkshire Bank purchased $48.7 million of these consumer loans in 2000.

         From  time to  time,  Berkshire  Bank  will  purchase  whole  loans  or
participations  in loans.  The commercial real estate loans and other commercial
loans participated in by Berkshire Bank are underwritten  according to Berkshire
Bank's own underwriting criteria and procedures and are generally purchased with
the accompanying servicing rights. Berkshire Bank purchased $4.7 million of such
loans in 2000.  Amounts  outstanding  related  to loan  participation  interests
purchased  by  Berkshire  Bank totaled $9.7 million and $3.5 million at December
31, 2000 and December 31, 1999,  respectively,  and consisted primarily of loans
secured by commercial real estate.

         At December 31, 2000,  Berkshire  Bank was  servicing  $75.3 million of
loans for others,  consisting  primarily of  automobile  and one-to  four-family
mortgage loans sold by Berkshire  Bank. Loan servicing  includes  collecting and
remitting  loan  payments,  accounting  for principal  and interest,  contacting
delinquent  borrowers,  supervising  foreclosures and property dispositions when
there are 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  between  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 portfolio but from time
to time will sell  loans in the  secondary  market  based on  prevailing  market
interest rate conditions and an analysis of the composition and risk of the loan
portfolio and liquidity needs. Historically,  Berkshire Bank, from time to time,
sold one-to  four-family  mortgage loans in the secondary market while retaining
the servicing.  However,  in recent years  Berkshire Bank has begun to primarily
sell a portion of its  automobile  loans in the secondary  market to a financial
institution  in Vermont.  In 2000,  Berkshire  Bank sold $38.9 million of loans,
which  consisted  primarily  of  automobile  loans.   Berkshire  Bank  currently
anticipates  that future loan sales will  consist  predominately  of  automobile
loans. Generally, loans are sold without recourse,  however, 

                                       8
      
$7.7 million of the  aforementioned  loans sold in 2000 were subject to recourse
until nine months from their  origination date. These loans remained as an asset
for Berkshire Bank on December 31, 2000.

         The following table presents total loans  originated,  purchased,  sold
and repaid during the periods indicated.
       
         
                                                                                   For the Year Ended December 31,
                                                                              -------------------------------------------
                                                                                 2000            1999            1998
                                                                              -------------------------------------------
                                                                                            (In thousands)
                                                                                                                        
     Loans at beginning of period......................................         $673,918        $606,716        $497,884
                                                                                --------        --------        --------
        Originations:
           Real estate loans:
              One-to four-family ......................................           31,231          49,207          66,410
              Construction.............................................           25,071           7,199          10,978
              Commercial...............................................            2,289           9,478          24,454
               Multi-family.............................................           7,671           3,620             926
                                                                                --------        --------        --------
                 Total real estate loans...............................           66,262          69,504         102,768
                                                                                --------        --------        --------
           Consumer loans:
              Home equity lines of credit..............................            8,225          10,796          21,942
              Other (1)................................................          145,126         135,574         101,035
                                                                                --------        --------        --------
                 Total consumer loans..................................          153,351         146,370         122,977
           Commercial loans............................................           64,887          64,542          51,989
                                                                                --------        --------        --------
                 Total loans originated................................          284,500         280,416         277,734
                                                                                --------        --------        --------

        Purchases:
           Real estate loans:
              Multi-family.............................................                -             566           2,080
              Commercial real estate...................................            4,664           2,228              --
                                                                                --------        --------        --------
                 Total real estate loans...............................            4,664           2,794           2,080
           Consumer loans:
              Other (1)................................................           48,724          11,877           6,006
           Commercial loans............................................            3,175           1,088          15,567
                                                                                --------        --------        --------
                 Total loans purchased.................................           56,563          15,759          23,653
                                                                                --------        --------        --------

     Deduct:
           Principal loan repayments, repayments and other, net........          181,082         182,429         186,199
           Loan sales..................................................           38,942          44,308           5,590
           Net loan charge-offs........................................            1,488           2,085             544
           Transfers to real estate owned..............................               80             151             222
                                                                                --------        --------        --------
                 Total deductions......................................          221,592         228,973         192,555
                                                                                --------        --------        --------
     Net increase in loans.............................................          119,471          67,202         108,832
                                                                                --------        --------        --------
     Loans at end of period............................................         $793,389        $673,918        $606,716
                                                                                ========        ========        ========

        
(1)  Consists primarily of automobile loans.

         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,  2000,
Berkshire Bank had loan  commitments  and  unadvanced  loans and lines of credit
totaling $137.4 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.

         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,


                                       9
      
2000,  Berkshire Bank had  approximately  $232,000 of net deferred loan fees and
costs. Berkshire Bank amortized  approximately $44,000 of net deferred loan fees
and costs during the year ended December 31, 2000.

         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  Workout  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 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 the accrual
of  interest  on a loan is  discontinued,  all  interest  previously  accrued is
reversed against current period interest income once management  determines that
interest is uncollectible.

         On January 1, 1995, Berkshire Bank adopted 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, 2000 and December 31, 1999,  Berkshire Bank had a $395,000 and $1.5 million,
respectively,  recorded  investment  in  impaired  loans,  which had no specific
allowances and $71,000 and $50,000 in loans with valuation  allowances of $4,000
and $14,000, respectively.

         The  following  table sets forth  information  regarding  nonperforming
assets at the dates indicated.

       
         
                                                                             At December 31,
                                                           -----------------------------------------------------
                                                             2000       1999       1998      1997       1996
                                                           -----------------------------------------------------
                                                                          (Dollars in thousands)
                                                                                                               
     Nonaccruing loans:
        One- to four-family real estate...................     $ 390      $ 450    $1,272      $ 623      $ 766
        Commercial real estate............................        --         --     1,064        336      1,421
        Commercial........................................       466      1,572       612        613      2,619
        Consumer (1)......................................     2,013        819       542        584         39
                                                              ------     ------    ------     ------     ------
           Total nonperforming loans......................     2,869      2,841     3,490      2,156      4,845
     Real estate owned....................................        50        220       398        364      2,888
                                                              ------     ------    ------     ------     ------
           Total nonperforming assets.....................    $2,919     $3,061    $3,888     $2,520     $7,733
                                                              ======     ======    ======     ======     ======

     Total nonperforming loans as a percentage
        of total loans....................................     0.36%      0.42%     0.58%      0.43%      1.04%

     Total nonperforming assets as a percentage
        of total assets...................................     0.29%      0.36%     0.50%      0.40%      1.23%
        

(1)  Consists primarily of automobile loans.

         Interest  income  that  would  have been  recorded  for the year  ended
December 31, 2000 had nonaccruing loans been current according to their original
terms  amounted  to  approximately  $291,000,  $33,000 of which was  included in
interest income related to these loans.


                                       10
      

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

       
         

                               At December 31, 2000             At December 31, 1999            At December 31, 1998
                          ---------------------------------------------------------------------------------------------------

                              60-89 Days    90 Days or More    60-89 Days     90 Days or More   60-89 Days    90 Days or More
                          ----------------  ---------------  --------------  ---------------- --------------  ---------------
                                 Principal        Principal       Principal       Principal        Principal       Principal
                           Number  Balance  Number Balance   Number Balance  Number Balance   Number Balance  Number Balance
                               of       of      of      of       of      of      of      of       of      of      of      of      
                            Loans    Loans   Loans   Loans    Loans   Loans   Loans   Loans    Loans   Loans   Loans   Loans
                            -----    -----   -----   -----    -----   -----   -----   -----    -----   -----   -----   -----
                                                                 (Dollars in thousands)

                                                                                                                           
Real estate loans:
   One- to four-family...       2   $ 154        2   $ 43        6  $ 384        1   $ 106       2    $169        4   $ 375
   Commercial............      --      --       --     --       --     --       --      --      --      --       --      --
   Multi-family..........      --      --       --     --       --     --       --      --      --      --        1      79
Consumer loans:
   Equity lines of credit       2      57        1     20       --     --       --      --      --      --        1      50
   All other (1).........     238   1,728      262  1,923       95    831      121     776      68     607       65     492
Commercial loans.........       4     129        3    149        6    335       11   1,168       2     150       19   1,397
                              ---  ------      --- ------      --- ------      ---  ------      --    ----       --  ------

      Total..............     246  $2,068      268 $2,135      107 $1,550      133  $2,050      72    $926       90  $2,393
                              ===  ======      === ======      === ======      ===  ======      ==    ====       ==  ======

Delinquent loans to         
   total loans...........    0.60%   0.26%    0.66%  0.27%    0.34%  0.23%    0.43%   0.31%   0.29%   0.15%    0.36%   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, 2000,
Berkshire Bank had $50,000 of real estate owned, net, consisting  primarily of a
vacant manufacturing facility.

         Asset  Classification.  Regulators have adopted various regulations and
practices  regarding  problem  assets  of  savings   institutions.   Under  such
regulations,  federal and state  examiners  have  authority to identify  problem
assets during examinations and, if appropriate, require them to be classified.

         There  are  three  classifications  for  problem  assets:  substandard,
doubtful and 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.  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. 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. 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."  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 in determining the appropriate
level of the allowance for loan losses.




                                       11
      

         The following table sets forth Berkshire  Bank's  classified  assets at
December 31, 2000.
       
         

                                              Loss                Doubtful            Substandard        Special Mention
                                      ------------------------------------------------------------------------------------
                                       Number                Number                Number               Number
                                         of      Principal     of      Principal     of     Principal     of     Principal
                                        Loans     Balance     Loans     Balance     Loans    Balance     Loans    Balance
                                      ------------------------------------------------------------------------------------
                                                                     (Dollars in thousands)
                                                                                                                        
    Real estate loans:
        One- to four-family........        --        $--        --        $--         10      $ 470         2      $ 154
        Commercial.................        --         --        --         --          5      1,209         4      1,449
        Multi-family...............        --         --        --         --          3        725        --         --
     Consumer loans:
        Equity lines of credit.....         1         20        --         --         --         --         2         57
        Automobile.................        --         --        --         --        269      1,987       233      1,720
        All other..................        --         --        --         --          4          6         5          8
     Commercial loans..............        --         --         1         20         29      3,924        42      6,906
                                          ---        ---       ---        ---        ---     ------       ---    -------
           Total...................         1        $20         1        $20        320     $8,321       288    $10,294
                                          ===        ===       ===        ===        ===     ======       ===    =======
        

         At December 31, 2000,  Berkshire  Bank had no classified  loans greater
than $500,000 which were not performing according to their terms.

         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  a 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,  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.

         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.

         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 the determinations. Furthermore, while Berkshire Bank believes it
has  established  its  existing  allowance  for loan losses in  conformity  with
generally accepted in the United States of America accounting principles,  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


                                       12
      
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 Year Ended December 31,
                                                               ---------------------------------------------------------- 
                                                                  2000        1999         1998        1997        1996
                                                                --------------------------------------------------------- 
                                                                               (Dollars in thousands)
                                                                                                                        
     Allowance for loan losses, beginning of year..........       $8,534      $7,589      $6,078      $6,303      $6,484
                                                                  ------      ------      ------      ------      ------

     Charged-off loans:
        One- to four-family real estate....................           --         117          14          66         188
        Multi-family.......................................           --          --          --          82          --
        Commercial real estate.............................           19         297         253         959         103
        Consumer (1).......................................        1,422         731         311         699         363
        Commercial.........................................          469       1,208         234         490       1,754
                                                                  ------      ------      ------      ------      ------
           Total charged-off loans.........................        1,910       2,353         812       2,296       2,408

     Recoveries on loans previously charged off............          422         268         268         594         247
                                                                  ------      ------      ------      ------      ------
     Net loans charged off.................................        1,488       2,085         544       1,702       2,161
     Provision for loan losses.............................        3,170       3,030       2,055       1,477       1,980
                                                                  ------      ------      ------      ------      ------
     Allowance for loan losses, end of year................      $10,216      $8,534      $7,589      $6,078      $6,303
                                                                 =======      ======      ======      ======      ======

     Ratios:
     Net loans charged-off to interest-earning loans.......        0.19%       0.31%       0.09%       0.34%       0.47%
     Allowance for loan losses to total loans..............        1.29%       1.27%       1.25%       1.22%       1.35%
     Allowance for loan losses to nonperforming loans .....      356.08%     300.39%     217.45%     281.91%     130.09%
     Net loans charged-off to allowance                           
        for loan losses....................................       14.57%      24.43%       7.17%      28.00%      34.29%
     Recoveries to charge-offs.............................       22.09%      11.39%      33.00%      25.87%      10.26%


        

(1)  Consists primarily of automobile loans.

                                       13

      


         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,
                          ----------------------------------------------------------------------------------------------------------
                                      2000                               1999                                 1998
                          ----------------------------------------------------------------------------------------------------------
                                    Percent of  Percent                Percent of   Percent                Percent of   Percent    
                                    Allowance   of  Loans              Allowance    of  Loans               Allowance    of  Loans  
                                    in Each     In Each                in Each      In Each                 in Each      In Each    
                                    Category    Category to            Category     Category to             Category     Category to
                                    to Total    Total                  to Total     Total                   to Total     Total      
                           Amount   Allowance   Loans        Amount    Allowance    Loans         Amount    Allowance    Loans      
                          ----------------------------------------------------------------------------------------------------------
                                                                (Dollars in thousands)                    
                                                                                                                                  
Real estate loans ...     $ 2,337     22.88%     43.27%     $ 2,322       27.20%      47.34%      $ 2,262       29.81%      49.51%
Consumer loans ......       4,528     44.32      35.69        2,867       33.60       30.97         2,339       30.82       28.38
Commercial ..........       3,351     32.80      21.04        3,345       39.20       21.69         2,988       39.37       22.11
                          -------    ------     ------      -------      ------      ------       -------      ------      ------ 
   Total allowance       
      for loan losses     $10,216    100.00%    100.00%     $ 8,534      100.00%     100.00%      $ 7,589      100.00%     100.00% 
                          =======    ======     ======      =======      ======      ======       =======      ======      ======  
                         
                                                                 At December 31,
                                         -----------------------------------------------------------------------
                                                        1997                          1996
                                         -----------------------------------------------------------------------
                                                     Percent                             Percent                
                                                        of        Percent                   of        Percent   
                                                     Allowance   of Loans                Allowance   of Loans   
                                                      in Each     in Each                 in Each     in Each   
                                                     Category   Category to              Category   Category to 
                                                     to Total       Total                to Total      Total    
                                             Amount  Allowance      Loans        Amount  Allowance     Loans    
                                         -----------------------------------------------------------------------
                                                                   (Dollars in thousands)
                                                                                                             
                    Real estate loans....    $1,938      31.88%      54.21%      $1,866     29.60%      57.19%
                    Consumer loans.......     1,590      26.16       23.43        1,901     30.15       20.49
                    Commercial...........     2,550      41.96       22.36        2,536     40.25       22.32
                                             ------     ------      ------       ------    ------      ------ 
                       Total allowance       
                          for loan losses    $6,078     100.00%     100.00%      $6,303    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.

         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.


                                       14
      


         Berkshire Bank's investment  securities 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 investments 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  about  the  life  of the  investment.
However, in a lowering 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  investments  conduits,  a type of
collateralized mortgage obligation,  are similar in that securities representing
an  undivided  interest  in such  mortgages  are  issued.  However,  real estate
mortgage  investments  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.
Approximately 76.7% 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 auto loans, credit card receivables, consumer loans and
other similar  obligations.  Both  mortgage-backed  and asset-backed  securities
carry  market  risk,  the risk that  rising  market  interest  rates may cause a
decrease 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. The total cost
of the  marketable  equity  securities  portfolio  is  currently  limited by the
investment  policy to 100% of Tier 1 capital.  At December 31, 2000, the cost of
the  marketable  equity  securities   portfolio,   including  restricted  equity
securities, totaled $19.7 million or 20.0% of its authorized limit and consisted
primarily of bank,  utility and  industrial  stocks.  At December 31, 2000,  the
gross  unrealized  gains  associated  with  the  marketable   equity  securities
portfolio were $31.6 million and the gross unrealized losses were $603,000.  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 Executive  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 Executive Committee,  the execution of specific investment
actions and the day-to-day  oversight of Berkshire Bank's  investment  portfolio
rests with the Chairman,  President and 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 Executive  Committee.  However,  such
purchases  require the  ratification  of the  Executive  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 will  continue to do so in
the future.  Berkshire Bank has not emphasized  interest rate futures or options
on futures as part of its interest  rate hedging  strategies.  If  circumstances
warrant the use of such derivative  instruments in the future,  Berkshire Bank's
current investment securities policy would be amended to specifically  authorize
such transactions and provide limitations on such investments.


                                       15
      

         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,
                                                   ---------------------------------------------------------------------  
                                                           2000                    1999                    1998
                                                   --------------------------------------------------------------------- 
                                                   Amortized      Fair     Amortized      Fair     Amortized      Fair
                                                      Cost        Value       Cost        Value       Cost        Value
                                                   --------------------------------------------------------------------- 
                                                                              (In thousands)
                                                                                                                        
     Investment securities:
        Obligations of U.S. Treasury and
            U.S. Government agencies...........      $10,146     $10,106     $10,986     $10,711     $12,243     $12,286
        Corporate bonds and notes..............       31,750      31,034      31,177      30,634      18,054      18,073
        Asset-backed securities................        1,986       1,998       3,253       3,207       2,639       2,604
        Marketable equity securities...........       12,022      43,060      10,454      38,399      10,538      39,786
                                                     -------     -------     -------     -------     -------     -------
           Total investment securities.........       55,904      86,198      55,870      82,951      43,474      72,749
                                                     -------     -------     -------     -------     -------     -------
     Mortgage-backed securities:
        Freddie Mac............................        2,203       2,257       2,469       2,493       3,591       3,654
        Fannie Mae.............................        2,619       2,670       1,604       1,618       2,124       2,188
        Private label REMICs...................        8,022       8,049       5,878       5,841      14,877      14,886
        Ginnie Mae.............................          133         135         180         181         293         297
                                                     -------     -------     -------     -------     -------     -------
          Total mortgage-backed securities....        12,977      13,111      10,131      10,133      20,885      21,025
                                                     -------     -------     -------     -------     -------     -------
           Total available-for-sale securities.      $68,881     $99,309     $66,001     $93,084     $64,359     $93,774
                                                     =======     =======     =======     =======     =======     =======

        



         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,
                                                -----------------------------------------------------------------------  
                                                           2000                     1999                      1998
                                                 -----------------------------------------------------------------------  
                                                 Amortized      Fair       Amortized      Fair      Amortized     Fair
                                                     Cost        Value         Cost        Value        Cost      Value
                                                 -----------------------------------------------------------------------  
                                                                              (In thousands)
                                                                                                                        
     Investment securities:
        Obligations of U.S. Treasury and                
           U.S. Government agencies............     $     --     $    --     $    --     $    --      $    --    $    --    
        Municipal notes........................       10,825      10,825       6,720       6,720        6,997      6,997
        Other bonds and notes..................           --          --          --         --            --         --
                                                     -------     -------     -------     -------      -------    -------
           Total investment securities.........       10,825      10,825       6,720       6,720        6,997      6,997
                                                     -------     -------     -------     -------      -------    -------
     Mortgage-backed securities:
        Freddie Mac............................       10,686      10,726       5,368       5,334        8,642      8,643
        Fannie Mae.............................       10,466      10,533       4,352       4,303        7,306      7,288
        Ginnie Mae.............................          261         258         574         565          835        828
                                                     -------     -------     -------     -------      -------    -------
           Total mortgage-backed securities....       21,413      21,517      10,294      10,202       16,783     16,759
                                                     -------     -------     -------     -------      -------    -------
           Total held-to-maturity securities...      $32,238     $32,342     $17,014     $16,922      $23,780    $23,756
                                                     =======     =======     =======     =======      =======    =======
 

        

         At December  31, 2000,  Berkshire  Bank did not own any  investment  or
mortgage-backed  securities of a single issuer,  other than U.S.  Government and
agency  securities,  which  had an  aggregate  book  value in  excess  of 10% of
Berkshire Bank's capital at that date.




                                       16
      


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

       
         
                                                                                For the Year Ended December 31,
                                                                        ------------------------------------------------
                                                                            2000             1999              1998
                                                                        ------------------------------------------------
                                                                                        (In thousands)
                                                                                                                       
     Investment securities:
     Investment securities, beginning of year.....................           $89,671          $79,746           $63,539
                                                                            --------         --------          --------
     Purchases....................................................            91,904           34,636            56,472
     Sales........................................................          (32,431)          (2,440)          (16,554)
     Maturities and calls.........................................          (52,314)         (16,646)          (27,220)
     Net (premium)/discount.......................................           (3,020)          (3,426)           (3,373)
     (Decrease)/increase in unrealized gain.......................             3,213          (2,199)             6,882
                                                                            --------         --------          --------
        Net increase in investment securities.....................             7,352            9,925            16,207
                                                                            --------         --------          --------
           Investment securities, end of year.....................            97,023           89,671            79,746
                                                                            --------         --------          --------

     Mortgage-backed securities:
     Mortgage-backed securities, beginning of year................            20,427           37,808            42,914
                                                                            --------         --------          --------
     Purchases....................................................            32,707           18,256            58,638
     Maturities and calls.........................................                --               --                --
     Repayments and prepayments...................................          (18,794)         (36,246)          (62,592)
     Net (premium)/discount.......................................                52              742           (1,122)
     (Decrease)/increase in unrealized gain.......................               132            (133)              (30)
                                                                            --------         --------          --------
        Net (decrease)/increase in mortgage-backed securities.....            14,097         (17,381)           (5,106)
                                                                            --------         --------          --------
           Mortgage-backed securities, end of year................            34,524           20,427            37,808
                                                                            --------         --------          --------
              Total securities, end of year.......................          $131,547         $110,098          $117,554
                                                                            ========         ========          ========
        

         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, 2000.


       
         
                                                                     At December 31, 2000
                               -----------------------------------------------------------------------------------------------------

                                                      More than One       More than Five        More than Ten       
                               One Year or Less     Year to Five Years  Years to Ten Years          Years               Total
                               -----------------------------------------------------------------------------------------------------
                                         Weighted            Weighted              Weighted             Weighted            Weighted
                               Amortized  Average  Amortized  Average   Amortized   Average  Amortized   Average  Amortized  Average
                                    Cost    Yield       Cost    Yield        Cost     Yield       Cost     Yield       Cost    Yield
                               -----------------------------------------------------------------------------------------------------
                                                                    (Dollars in thousands)
                                                                                                                                    
Investment securities:
   Obligations of U.S.
   Treasury and U.S. Government
     agencies .................   $1,288   5.24%      $7,597   6.04%     $1,158      5.76%    $  103      9.30%    $10,146     5.94%
   Mortgage-backed securities..   19,470   7.00       12,722   7.39         933      8.20      1,265      8.28      34,390     7.22
   Municipal notes.............    6,084   4.93          225   5.70       1,377      7.02      3,139      6.46      10,825     5.65
   Corporate bonds and notes...    9,423   6.72       19,489   6.86       1,002      6.35      1,836      7.07      31,750     6.81
   Asset-backed securities.....    1,628   7.20          358   7.53          --        --         --        --       1,986     7.26
                                 -------             -------             ------               -------              -------      
         Total.................  $37,893   6.55%     $40,391   6.87%     $4,470      6.79%    $ 6,343     7.05%    $89,097     6.74%
                                 =======             =======             ======               =======              =======      

        


Deposit Activities and Other Sources of Funds

         General.  Deposits are the major external source of funds for Berkshire
Bank's lending and other investment activities. In addition, Berkshire Bank also
generates funds  internally  from loan principal  repayments and prepayments 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 a source of funding for loan and securities  investment activity. To a
lesser extent,  Berkshire Bank also utilizes retail  repurchase  agreements as a
source of funds.

         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's  deposit  accounts  consist  of   interest-bearing   checking,
noninterest-bearing   checking,   regular  savings,  money  market  savings  and
certificates  of deposit.  The  maturities of Berkshire  Bank's  certificate  of
deposit  accounts 

                                       17
      
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  commercial  business  products to small  businesses
operating  within its primary 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 reviews its deposit mix and pricing on a weekly basis.

         Berkshire Bank also offers a variety of deposit  accounts  designed for
the businesses  operating in its market area.  Berkshire Bank's business banking
deposit  products  include a  commercial  checking  account  which  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 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. At December 31, 2000, Berkshire Bank had no brokered deposits.

         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 Year Ended December 31,
                                                                       -----------------------------------------
                                                                         2000             1999             1998
                                                                       -----------------------------------------
                                                                                    (In thousands)
                                                                                                                
            Increase before interest credited................          $21,224           $9,797          $85,460
             Interest credited................................          27,603           23,848           22,601
                                                                       -------          -------         --------
                  Net increase...............................          $48,827          $33,645         $108,061
                                                                       =======          =======         ========


        
         At  December  31,  2000,  Berkshire  Bank had  certificate  of  deposit
accounts in amounts of $100,000 or more maturing as follows:

       
         

                                                                                          Weighted
                                                                                          Average
                         Maturity Period                                   Amount         Rate
                         --------------------------------------------------------------------------
                                                                            (Dollars in thousands)
                                                                                                   
                         Three months or less.................              $20,469           6.02%
                         Over 3 months through 6 months.......               20,668           6.19
                         Over 6 months through 12 months......               26,993           6.37
                         Over 12 months.......................               39,283           6.73
                                                                           --------
                               Total..........................             $107,413           6.53%
                                                                           ========           

        


                                       18


      

         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 Year Ended December 31,
                               ------------------------------------------------------------------------------------------
                                            2000                         1999                          1998
                               ------------------------------------------------------------------------------------------
                                         Percent                        Percent                        Percent             
                                         of Total   Weighted            of Total   Weighted            of Total   Weighted 
                                Average  Average    Average    Average  Average    Average    Average  Average    Average  
                                Balance  Deposits     Rate     Balance  Deposits     Rate     Balance  Deposits     Rate   
                               ------------------------------------------------------------------------------------------
                                                                  (Dollars in thousands)
                                                                                                                                 
     Money market accounts...  $ 106,058   15.09%     4.43%    $84,971   12.88%    3.73%      $62,043    10.72%      3.50%       
     NOW accounts............     75,673   10.76      1.05      73,615   11.16      1.13       60,039    10.37        1.94       
     Savings (1).............    143,357   20.39      3.19     142,193   21.55      3.07      129,020    22.30        3.04       
     Certificates of deposit.    301,920   42.94      5.81     291,344   44.16      5.34      271,959    47.00        5.64       
     Demand accounts.........     76,060   10.82       --       67,563   10.25        --       55,585     9.61          --       
                                --------  ------               --------  ------              --------   ------                
           Total.............   $703,068  100.00%     3.93%   $659,686  100.00%     3.62%    $578,646   100.00%      3.91%       
                                ========  ======              ========  ======               ========   ======                
                                                              

        
  
(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, 2000
                                   ------------------------------------------ 
                                   Less than     One to      Two to     Over                 Total at December 31, 
                                      One         Two        Three      Three         ----------------------------------            
                                      Year       Years       Years      Years           2000         1999          1998   
                                   -------------------------------------------------------------------------------------
                                                                  (Dollars in thousands)
                                                                                                                        
     0.00-4.00%..............       $     --    $    --     $    --      $     5      $      5    $    851      $  1,095
     4.01-5.00%..............          3,786        151          36            -         3,973     108,037        61,510
     5.01-6.00%..............         83,469     11,908       1,341        4,975       101,693     154,861       188,280
     6.01-7.00%..............        139,326     38,845      12,716       14,699       205,586      22,242        27,626
     7.01% and above.........             15      7,076          11        1,414         8,516       9,312        12,146
                                    --------    -------     -------      -------      --------    --------      --------
               Total..........      $226,596    $57,980     $14,104      $21,093      $319,773    $295,303      $290,657
                                    ========    =======     =======      =======      ========    ========      ========

        

         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 is  authorized  to 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,  2000,  Berkshire  Bank  had the  ability  to  borrow  a total  of
approximately  $246 million  from the Federal Home Loan Bank of Boston.  At that
date,  Berkshire Bank had outstanding  advances of $101.4 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.  Berkshire  Bank only  intends to use this line of credit on an
emergency basis to solve a funding problem. At December 31, 2000, Berkshire Bank
had no outstanding borrowings against this agreement.

         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, 2000, such retail
repurchase agreement borrowings totaled $2.0 million.



                                       19
      
         The following tables present certain  information  regarding  Berkshire
Bank's  Federal  Home Loan Bank  advances  during the  periods  and at the dates
indicated.
       
         
                                                                              Year Ended December 31, 
                                                                      -----------------------------------------
                                                                       2000             1999             1998
                                                                      -----------------------------------------
                                                                              (Dollars in thousands)
                                                                                                               
             Maximum amount of advances                               
                outstanding at any month end.................         $112,158         $76,861          $42,892  
             Approximate average advances                                                                        
                outstanding..................................           92,567          50,951           23,941  
             Approximate weighted average rate                                                                   
                paid on advances.............................            6.23%           5.49%            5.07%  
                                                                      
         

                                                                                    At December 31,
                                                                      -----------------------------------------
                                                                         2000             1999             1998
                                                                      -----------------------------------------
                                                                              (Dollars in thousands)
                                                                                                               
             Balance outstanding at end of year..............         $101,386         $58,928          $29,590
             Weighted average rate on advances...............            6.18%           5.64%            4.52%
        


Trust Services

         Berkshire Bank maintains the Asset Management/Trust Department 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.  Berkshire Bank believes that the trust
department allows it 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, 2000, the trust department managed
665  accounts  with  aggregate  assets of $268.8  million,  of which the largest
relationship  totaled  $9.0  million,  or 3.3% of the trust  department's  total
assets, at December 31, 2000. Trust fees were unchanged at $1.7 million in 2000.
However,  1999  benefited  from  a  one-time  adjustment  of  $245,000  made  in
connection  with a change in accounting for trust fees from a cash to an accrual
basis.

Government Banking

         In 1998, Berkshire Bank began offering full-service  government banking
for cities,  towns and  municipal  school  districts  in western  Massachusetts,
eastern New York,  northern  Connecticut  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
commercial deposit products and checking accounts, as well as the origination of
payroll  accounts.  At  December  31,  2000,  Berkshire  Bank was  working  with
approximately 35 municipalities.  For 2000, government banking generated $82,209
of net fee income compared to $94,500 for 1999.

Personnel

         As of December 31, 2000, Berkshire Bank had 250 full-time employees and
39  part-time  employees.  The  employees  are not  represented  by a collective
bargaining  unit and the Bank  believes its  relationship  with its employees is
good.



                                       20

      
Subsidiary Activities

         The following are  descriptions of Berkshire Bank's wholly owned active
subsidiaries, which are indirectly owned by Berkshire Hills.

         G.B.S.B., Inc. G.B.S.B., Inc. was established in August 1990 to acquire
and hold investment  securities of a type that are permissible for banks to hold
under applicable law. G.B.S.B.  was 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, 2000,  G.B.S.B.,  Inc. had assets  totaling $49.7
million, consisting primarily of state and municipal bonds and bank, utility and
industrial stocks.

         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 was 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,  2000,  North  Street had assets  totaling  $35.0
million, consisting primarily of corporate bonds and private label REMICs.

         Gold Leaf Insurance  Agency and Gold Leaf Investment  Services.  In May
2000,  Berkshire Bank formed two  subsidiaries  designed to offer  insurance and
investment  products to its  customers.  Gold Leaf  Insurance  Agency  opened in
September of 2000.  Gold Leaf  Investment  Services,  while formed in 2000, will
begin operations in the first quarter of 2001.




                                       21
      


                           REGULATION AND SUPERVISION

General

         As a savings  bank  chartered  by the  Commonwealth  of  Massachusetts,
Berkshire  Bank is  extensively  regulated  under state law with respect to many
aspects of its banking activities by the Massachusetts Banking Commissioner.  In
addition,  as a bank whose deposits are insured by the Federal Deposit Insurance
Corporation  through the Bank  Insurance  Fund,  Berkshire Bank must pay deposit
insurance  assessments  and is examined and  supervised  by the Federal  Deposit
Insurance  Corporation.   These  laws  and  regulations  have  been  established
primarily for the protection of depositors, customers and borrowers of the Bank,
not bank stockholders.

         The Company is also required to file reports with, and otherwise comply
with the rules and  regulations  of,  the  Office  of  Thrift  Supervision,  the
Massachusetts  Banking  Commissioner and the Securities and Exchange  Commission
under the federal  securities  laws.  The  following  discussion of the laws and
regulations  material to the operations of the Company and the Bank is a summary
and is qualified in its entirety by reference to such laws and regulations.

         The Bank is and the Company, as a savings and loan holding company, are
extensively  regulated and supervised.  Regulations,  which affect the Bank on a
daily basis, may be changed at any time, and the  interpretation of the relevant
law and  regulations  may also  change  because  of new  interpretations  by the
authorities  who  interpret  those  laws  and  regulations.  Any  change  in the
regulatory  structure or the applicable statutes or regulations,  whether by the
Massachusetts  Banking Commissioner,  the State of Massachusetts,  the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation or Congress, could
have a material impact on the Company, the Bank and its operations.

Massachusetts Banking Laws and Supervision

         Massachusetts  savings  banks  are  regulated  and  supervised  by  the
Massachusetts  Banking  Commissioner.  The Massachusetts Banking Commissioner is
required to regularly  examine each  state-chartered  bank.  The approval of the
Massachusetts  Banking  Commissioner 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
Banking Commissioner may be sanctioned.  The Massachusetts  Banking Commissioner
may  suspend  or  remove  directors,  trustees  or  officers  of a bank who have
violated  the law,  conducted  a bank's  business  in a manner  which is unsafe,
unsound or contrary  to the  depositors'  interests,  or been  negligent  in the
performance of their duties.

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

         The powers  which  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.  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 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 and
surplus  account.  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 Massachusetts conversion regulations.


                                       22
      

         Parity Regulation. The Massachusetts regulation on parity with national
banks  establishes   procedures  allowing   state-chartered  banks  to  exercise
additional  or more flexible  parallel  powers  granted to national  banks under
federal law which are not otherwise  permitted  under state law. The  procedures
and  requirements  for  engaging in such  activities  range from an  application
process,  expedited  review  and  notice  process  to  activities  requiring  no
application or notice  whatsoever.  The applicable  procedures and  requirements
vary  according  to the  nature  of  the  activity  to be  engaged  in  and  the
capitalization  of the bank.  Berkshire Bank is eligible to engage in certain of
the above-referenced activities within the limits of the applicable requirements
of Massachusetts regulation.

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
Ranking  System  (the  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).

         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.

         Standards for Safety and Soundness. As required by statute, the federal
banking   agencies   adopted  final   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, 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  guidelines,   the  agency  may  require  the
institution  to submit to the agency an  acceptable  plan to achieve  compliance
with the standard.


                                       23
      
Investment Activities

         Since  the  enactment  of the  Federal  Deposit  Insurance  Corporation
Improvement  Act, 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 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 the  Investment
Company Act of 1940,  as amended.  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.  The Federal  Deposit
Insurance   Corporation  has  recently  adopted  revisions  to  its  regulations
governing the procedures  for  institutions  seeking  approval to engage in such
activities or investments.  These revisions,  among other things, streamline the
application procedures for healthy banks and impose quantitative and qualitative
restrictions  on a bank's dealings with its  subsidiaries  engaged in activities
not  permitted  for  national  bank  subsidiaries.   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  grandfathered  authority  from  the  Federal  Deposit
Insurance  Corporation  in  February  1993 to  invest in  listed  stocks  and/or
registered shares. However, 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 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  grandfathered  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,  2000,  Berkshire  Bank had
securities  with a market  value of $50.8  million  which  were held  under such
grandfathering authority.

Interstate Banking and Branching

         The  Gramm-Leach-Bliley Act of 1999 imposed certain conditions on state
bank  investments in subsidiaries  that are engaged in activities  permitted for
national  banks  to  conduct   through  a  "financial   subsidiary"   under  the
legislation.

         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 the 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


                                       24
      
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, 2000, Berkshire Bank was 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 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
nonaffiliates.

         Further,  Section  22(h)  of  the  Federal  Reserve  Act  restricts  an
institution  with  respect  to  loans  to  directors,  executive  officers,  and
principal stockholders ("insiders").  Under Section 22(h), 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,  under  Section  22(h),  loans to
directors,  executive officers and principal  shareholders 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. Section 22(g) of the
Federal  Reserve  Act  places  additional  limitations  on  loans  to  executive
officers.

Enforcement

         The Federal Deposit  Insurance  Corporation  has extensive  enforcement
authority  over insured  savings  banks,  including the 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.


                                       25
      
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 1980's to  recapitalize  the  Federal  Savings and Loan
Insurance  Corporation.  Bank Insurance Fund members had been assessed about 1.2
basis points,  which is generally 20% of the amount charged Savings  Association
Insurance Fund members.  Effective January 1, 2000, full pro rata sharing of the
payments between Bank Insurance Fund members and Savings  Association  Insurance
Fund members  commenced and totaled 2.07 basis points for the year.  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 such action is
taken by the Federal  Deposit  Insurance  Corporation,  it could have an adverse
effect on the earnings of the Bank.

         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 Depositor  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  non-interest-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  $42.8  million  less an  exemption  of $5.5  million  (which may be
adjusted by the Federal  Reserve  Board) the reserve  requirement is 3%; and for
accounts  greater than $42.8  million,  the reserve  requirement is $1.1 million
plus 10% (which may be adjusted by the Federal Reserve Board between 8% and 14%)
against that portion of total  transaction  accounts in excess of $42.8 million.
The 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."

         The 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 


                                       26
      
latest Massachusetts  Community Reinvestment Act 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  at least  equal to 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, 2000 of $5.7 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 2000,
1999,  1998,  1997 and 1996,  cash  dividends from the Federal Home Loan Bank of
Boston to Berkshire Bank amounted to approximately $332,700, $180,900, $163,600,
$155,000 and $155,600, 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 the Home
Owners' Loan Act. 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.  The Bank made such
election and the Company is a  nondiversified  savings and loan holding  company
within the meaning of the Home Owners' Loan Act. 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, the 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.

         The Company is a unitary savings and loan holding company under federal
law because the Bank is its only insured subsidiary. Formerly, a unitary savings
and  loan  holding  company  was not  restricted  as to the  types  of  business
activities  in which it  could  engage,  provided  that its  subsidiary  savings
association  continued to be a qualified thrift lender.  The  Gramm-Leach-Bliley
Act of 1999,  however,  restricts unitary savings and loan holding companies not
existing  or  applied  for before May 4, 1999 to  activities  permissible  for a
financial holding company as defined under the legislation,  including insurance
and securities  activities,  and those permitted for a multiple savings and loan
holding company as described  below.  The Company is subject to these activities
restrictions.  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.  The Home Owners' Loan Act 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,  and to other
activities  authorized  by  Office of Thrift  Supervision  regulation.  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 the Home Owners' Loan Act.

         The Home Owners' Loan Act 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 Berkshire Hills 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.


                                       27
      
         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: (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, 2000 Berkshire Bank  maintained in excess of 73.1% of its portfolio
assets in qualified thrift investments.

         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 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.

         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. Provision may be made in the future by
the Company to permit  affiliates to have their shares registered for sale under
the Securities Act under specific circumstances.



                                       28
      
FEDERAL AND STATE TAXATION ON INCOME

Federal Income Taxation

         General.  The Company and the 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 the Bank in the same  manner as to other  corporations
with some  exceptions,  including  particularly the 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 the Bank or the Company.  The Bank's  federal  income tax returns
have been either audited or closed under the statute of limitations  through tax
year 1996. For its 2000 tax year,  Berkshire  Bank's maximum  federal income tax
rate was 35%.

         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 nonqualifying
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 would not be
recaptured   into  taxable   income  unless  the  Bank  makes  a   "non-dividend
distribution" to the Company as described below.

         Distributions.  If the Bank makes  "non-dividend  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  "non-dividend  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.
Non-dividend 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 so included in the Bank's taxable income.

         The amount of additional  taxable income triggered by a non-dividend 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  non-dividend
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.

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 "security  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  "security   corporation"  by  the  Commissioner  of  the
Massachusetts  Department of Revenue. A security corporation that is also a bank
holding  company  under  the  Code  must pay a tax  equal to 0.33% of its  gross
income. A security corporation that is not a bank holding company under the Code
must  pay a tax  equal  to  1.32%  of  its  gross  income.  Two  of  the  Bank's
subsidiaries,  North Street  Securities  Corporation  and  G.B.S.B.,  Inc.,  are
Massachusetts security corporations.

         Delaware  State  Taxation.  As a Delaware  holding  company not earning
income in Delaware,  the Company is exempted 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.



                                       29
      
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
     ------------------------            -------        -------------------------------------
                                                                                               
     James A. Cunningham, Jr.               50          President and Chief Executive Officer
     Robert A. Wells                        61          Chairman of the Board
     Michael P. Daly                        39          Executive Vice President
     Charles F. Plungis, Jr.                49          Senior Vice President, Treasurer and Chief Financial Officer
     Susan M. Santora                       47          Executive Vice President

        

----------------------------
(1)  As of December 31, 2000

         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

         James A.  Cunningham,  Jr.  serves as  President  and  Chief  Executive
Officer of the Company and  Berkshire  Bank.  Mr.  Cunningham  was President and
Chief  Executive  Officer of Great  Barrington  Savings Bank prior to its merger
with Berkshire County Savings Bank in May 1997.

         Robert A. Wells is Chairman  of the Board of the Company and  Berkshire
Bank.  Mr. Wells served as President  and Chief  Executive  Officer of Berkshire
County  Savings Bank prior to its merger with Great  Barrington  Savings Bank in
May 1997.

         Michael P. Daly is Executive  Vice President and Senior Loan Officer of
Berkshire Bank and Executive  Vice President of the Company.  Before being named
to these  positions,  Mr.  Daly served as Senior Vice  President  of  Commercial
Banking.  Prior to the  merger  of  Berkshire  County  Savings  Bank  and  Great
Barrington Savings Bank, Mr. Daly was in charge of commercial lending,  consumer
lending and operations at Berkshire County Savings Bank.

         Charles F. Plungis,  Jr. is Senior Vice President,  Treasurer and Chief
Financial  Officer of the Company  and  Berkshire  Bank.  Prior to the merger of
Berkshire County Savings Bank and Great Barrington Savings Bank, Mr. Plungis was
Senior Vice President and Treasurer of Great Barrington Savings Bank.

         Susan M.  Santora is  Executive  Vice  President  of Retail  Banking of
Berkshire Bank and Executive Vice President of the Company.  Prior to the merger
of Berkshire County Savings Bank and Great Barrington  Savings Bank, Ms. Santora
was Vice President of Great Barrington Savings Bank.

                                       30
      
ITEM 2   PROPERTIES

         The Company and the Bank currently  conducts 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 that their facilities are adequate to meet their present and immediately
foreseeable needs.

       
         

                                                                                                           Net Book Value
                                                                                                           of Property
                                                                 Original                                   or Leasehold
     Location                                       Lease          Year               Date of              Improvements at
                                                     Or           Leased               Lease                 December 31,
                                                     Own          Acquired          Expiration                    2000
---------------------------------------------------------------------------------------------------------------------------
                                                                                                            (In thousands)
                                                                                                                    
     Main Office:
     24 North Street                                 Own            1898                    --                   $1,939
     Pittsfield, Massachusetts

     Banking Offices:
     244 Main St.                                    Own            1950                    --                      912
     Great Barrington, Massachusetts

     103 North Main Street                           Own            1966                    --                      221
     Sheffield, Massachusetts
 
     Old Town Hall                                  Lease           1969                  2030                      177
     Pittsfield, Massachusetts

     Allendale Shopping Center                      Lease           1970                  2001                       59
     Pittsfield, Massachusetts

     2 Depot Street                                  Own            1975                    --                      116
     W. Stockbridge, Massachusetts

     165 Elm Street                                  Own            1977                    --                      311
     Pittsfield, Massachusetts
    
     255 Stockbridge Road                            Own            1985                    --                      277
     Great Barrington, Massachusetts
 
     37 Main Street                                 Lease           1985                  2005(1)                   376
     North Adams, Massachusetts

     1 Park Street                                   Own            1991                    --                      243
     Lee, Massachusetts

     32 Main Street                                  Own            1991                    --                      306
     Stockbridge, Massachusetts

     66 West Street                                 Lease           1998                  2015(1)                    96
     Pittsfield, Massachusetts

     Other Office
     66 Allen Street (2)                             Own            1999                    --                    2,354
     Pittsfield, Massachusetts
                                                                                                        
        
-------------------------------
(1)  Berkshire  Bank has two options to renew each for an  additional  five-year
     period.
(2)  This facility houses Berkshire Bank's Commercial  Lending  Division,  Asset
     Management/Trust Department and Government Banking Program.



                                       31

      

ITEM 3.  LEGAL PROCEEDINGS

     Periodically,  there have been various  claims and lawsuits  involving  the
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.  The Company is not 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.

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

       None.




                                       32
      

                                     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 December  31,  2000,  the Company had  approximately  1,062
holders of record.  The following table sets forth, for the quarters  indicated,
the 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.

       
         
                                                                Year Ended December 31, 2000
                                          ---------------------------------------------------------------------
                                          4th Quarter         3rd Quarter          2nd Quarter      1st Quarter
                                          -----------         -----------          -----------      -----------
                                                                                                           
     High..............................      $16.00            $14.875               $12.75             N/A
     Low...............................      $13.00            $12.5625              $12.25             N/A
     Dividend Paid.....................      $0.10                 N/A                  N/A             N/A


        
                                       33

      
ITEM 6. SELECTED FINANCIAL DATA

       The Company has derived the following selected consolidated financial and
other data of the Company and the Bank in part from the  consolidated  financial
statements  and notes  appearing  elsewhere  in this Form  10-K.  The data as of
December 31, 1996 and for the year then ended represents the combined  financial
position  and  results  of  operations  of  Great  Barrington  Savings  Bank and
Berkshire  County  Savings  Bank  and is  derived  from  unaudited  consolidated
financial statements.  These two banks were merged to form Berkshire Bank on May
1, 1997. The data as of December 31, 1999,  1998 and 1997 and for the years then
ended  are  derived  from  the  audited  consolidated  financial  statements  of
Berkshire  Bancorp  and  Berkshire  Bank.  The data as of  December  31, 2000 is
derived from the audited  consolidated  financial statements for Berkshire Hills
Bancorp and Berkshire Bank.

       
         
                                                                                At December 31,
                                                         ---------------------------------------------------------------
                                                             2000        1999         1998         1997         1996
                                                         ---------------------------------------------------------------
                                                                                 (In thousands)
                                                                                                                       
     Selected Financial Data:
        Total assets.................................      $1,011,340  $841,651      $780,289     $637,346     $627,453
        Loans, net...................................         783,405   665,554       599,171      491,743      459,059
        Investment securities:
           Available for sale........................          99,309    93,084        93,774       71,778       82,888
           Held to maturity..........................          32,238    17,014        23,780       34,675       33,243
           Federal Home Loan Bank stock..............           5,651     3,843         2,547        2,547        2,509
           Savings Bank Life Insurance stock.........           2,043     2,043         2,043        2,043        2,043
        Deposits (1).................................         729,594   680,767       647,122      539,061      535,505
        Federal Home Loan Bank advances..............         101,386    58,928        29,590        6,880        7,732
        Repurchase agreements........................           2,030     1,120         7,000        5,070        6,340
        Total stockholders' equity...................         161,322    88,352        84,201       75,317       68,713
        Real estate owned............................              50       220           398          364        2,888
        Nonperforming loans..........................           2,869     2,841         3,490        2,156        4,845

        



                                       34
      
       
         


                                                                          For the Year Ended December 31,
                                                           --------------------------------------------------------------
                                                             2000         1999         1998          1997         1996
                                                           --------------------------------------------------------------
                                                                                  (In thousands)
                                                                                                                        
     Selected Operating Data:
        Total interest and dividend income...........       $71,018       $58,468      $52,495      $48,423      $46,890
        Total interest expense.......................        33,468        26,922       24,182       22,290       22,032
                                                            -------       -------      -------      -------      -------
           Net interest income.......................        37,550        31,546       28,313       26,133       24,858
        Provision for loan losses....................         3,170         3,030        2,055        1,477        1,980
                                                            -------       -------      -------      -------      -------
           Net interest income after provision               
              for loan losses........................        34,380        28,516       26,258       24,656       22,878
                                                            -------       -------      -------      -------      -------
        Noninterest income:
           Service charges and fees..................         3,743         3,405        2,568        2,440        2,801
           Gain on sales and dispositions of                   
              securities, net........................           423           491          425        2,653        1,364
           Other.....................................           580           402          300          512          653
                                                            -------       -------      -------      -------      -------
               Total noninterest income...............        4,746         4,298        3,293        5,605        4,818            
                                                            -------       -------      -------      -------      -------
              Total noninterest expense..............        32,184        25,196       22,359       26,066       19,257
                                                            -------       -------      -------      -------      -------
           Income before income taxes................         6,942         7,618        7,192        4,195        8,439            
           Income taxes..............................         2,360         1,995        2,768        1,692        3,039            
                                                            -------       -------      -------      -------      -------
              Net income.............................        $4,582        $5,623       $4,424       $2,503       $5,400
                                                            =======       =======      =======      =======       ======
        Dividends per share                                  $ 0.10           N/A          N/A          N/A          N/A

        
                                       35
      
       
         
                                                                                At December 31,
                                                            --------------------------------------------------------
                                                                2000       1999        1998        1997        1996
                                                                                                                  
     Selected Other Data:
     Number of:
        Mortgage loans outstanding........................     3,607       3,667       2,961       2,879      2,967
        Deposit accounts..................................    75,818      76,493      75,648      65,012     65,142
        Banking offices and other facilities..............        13          14          14          11         11


         
                                                                         At or For the Year Ended December 31,
                                                            --------------------------------------------------------
                                                                2000       1999        1998        1997        1996
                                                            --------------------------------------------------------
                                                                                                                  
     Selected Operating Ratios and Other Data (2):
        Performance Ratios:
           Average yield on interest-earning assets.......      8.04%       7.65%      7.83%       8.10%       8.07%
           Average rate paid on interest-bearing               
              liabilities.................................      4.64        4.15       4.36        4.45        4.42
           Interest rate spread (3).......................      3.40        3.50       3.47        3.65        3.65
           Net interest margin (4)........................      4.25        4.13       4.22        4.37        4.28
           Interest-bearing assets to interest-bearing        
              liabilities.................................    122.53      117.75     120.94      119.44      116.46
           Net interest income after provision for loan
              losses to noninterest expense...............    106.82      113.18     117.44       94.59      118.80
           Non-interest expense as a percent of average         
              assets......................................      3.44        3.09       3.19        4.16        3.13
           Return on average assets (5)...................      0.49        0.69       0.63        0.40        0.88
           Return on average equity (6)...................      3.72        6.51       5.56        3.54        8.55
           Average equity to average assets...............     13.15       10.59      11.34       11.30       10.25

        Regulatory Capital Ratios:
           Tier 1 capital to average assets...............     14.54        7.91       7.79        9.80        9.46
           Total capital to risk-weighted assets..........     20.15       12.90      13.04       13.46       14.52

        Asset Quality Ratios:
           Nonperforming loans as a percent of                
              total loans (7).............................      0.36        0.42       0.58        0.43        1.04      
           Nonperforming assets as a percent of                                                                          
              total assets (8)............................      0.29        0.36       0.50        0.40        1.23      
           Allowance for loan losses as a percent of                                                                     
              total loans.................................      1.29        1.27       1.25        1.22        1.35      
           Allowance for loan losses as a percent of                                                                     
              nonperforming loans.........................    356.08      300.39     217.45      281.91      130.09      
           Net loans charged-off as a percent of                                                                         
              interest-earning loans......................      0.19        0.31       0.09        0.34        0.47      
                                                              
        

     (1)  Includes mortgagors' escrow accounts.
     (2)  Regulatory  Capital and Asset Quality Ratios are end of period ratios.
          Performance  Ratios  for  2000,  1999  and  1998  are  based  on daily
          averages.  Performance  Ratios  for 1997 and 1996 are based on monthly
          averages.
     (3)  Difference between weighted average yield on  interest-earning  assets
          and weighted average cost of interest-bearing liabilities.
     (4)  Net  interest  income  as a  percentage  of  average  interest-earning
          assets.
     (5)  Net income divided by average total assets.
     (6)  Net income divided by average total equity.
     (7)  Nonperforming loans consist of nonaccrual loans.
     (8)  Nonperforming  assets  consist of  nonaccrual loans  and  real  estate
          owned.



                                       36
      
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  which 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 the 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.

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,  home
equity loans and automobile loans, increasing sources of non-interest income and
by improving  operating  efficiencies  while  managing its capital  position and
limiting  its  credit and  interest  rate risk  exposure.  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 and innovative  products by
                  expanding  delivery  systems through the opening of new branch
                  offices,  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,  including  expansion  of its  trust
                  services  through an  investment  services  subsidiary  and by
                  expanding  the  offering  of  insurance   products  through  a
                  recently established insurance agency.

         o        Increase  fee  income  through  the sale of a  portion  of its
                  indirect  automobile  loan  portfolio,   while  retaining  the
                  servicing rights.

         o        Continue to increase its  emphasis on high quality  commercial
                  and  consumer  loans to  increase  the  yields  earned  on its
                  overall loan portfolio,  without incurring unacceptable credit
                  risk.

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

         o        Manage  interest  rate  risk  by  emphasizing  investments  in
                  shorter-term loans and investment securities.

         o        Invest  primarily  in debt  instruments  and money market type
                  equity investments to provide adequate liquidity, to meet cash
                  flow needs and to earn a reasonable return on investment.


                                       37
      

Comparison of Financial Condition at December 31, 2000 and 1999

         Total assets  increased  $169.7 million,  or 20.2%, to $1.01 billion at
December  31,  2000 from  $841.7  million at  December  31,  1999.  Loan  growth
accounted  for the majority of the increase as net loans grew to $783.4  million
at the end of December 2000 as compared to $665.6 million at the end of December
1999,  an increase of $117.9  million or 17.7%.  The  consumer  loan  portfolio,
primarily  automobile  loans,  was  the  fastest  growing  segment  of the  loan
portfolio.  Increased  originations  by Berkshire  Bank's dealer  network helped
consumer  loans rise to $283.1 million at the end of 2000 from $208.7 million at
the end of 1999,  an  increase  of $74.4  million  or  35.6%.  Automobile  loans
increased  $65.8  million,  or 39.9%,  to $230.6 million from $164.9 million and
comprised  29.1% of the total loan portfolio at December 31, 2000 as compared to
24.5% at December 31, 1999. The growth in the automobile portfolio was mitigated
somewhat by the sale of $38.9 million of automobile  loans throughout the course
of 2000.  One-to-four  family  mortgage loans grew by $4.2 million,  or 1.7%, to
$249.4  million  at the end of 2000 from  $245.2  million  at the end of 1999 as
heightened  competition slowed loan growth in this area.  Commercial real estate
loans and other  commercial  loans  increased  more  substantially  as Berkshire
Bank's dominant  position in the local commercial  marketplace,  especially with
larger credits,  helped to increase the portfolio's size. Commercial real estate
loans increased  $17.5 million,  or 37.6%, to $63.9 million at December 31, 2000
from $46.4 million at December 31, 1999 while  commercial  loans increased $20.8
million,  or 14.2%,  to $167.0  million  from $146.2  million over the same time
period.  Berkshire  Bank's  ratio of net loans to assets  was 77.5% and 79.1% at
December 31, 2000 and 1999, respectively.

         The securities portfolio also increased during 2000 as a portion of the
net proceeds from the initial public offering were invested in short-term  fixed
income investments. Excluding Federal Home Loan Bank stock and Savings Bank Life
Insurance stock, total securities  increased $21.4 million,  or 19.5%, to $131.5
million  at year end 2000  from  $110.1  million  at year end  1999.  Short-term
investments totaled $16.7 million at December 31, 2000 from $1.3 at December 31,
1999.  The  increase  at year end 2000 was the result of the  investment  of the
proceeds from the sale of just under $17.0  million of  automobile  loans in the
latter half of December 2000.

         Nonperforming  loans  totaled  $2.9  million at December  31, 2000 just
above  the $2.8  million  of  December  31,  1999.  A decline  in  nonperforming
commercial loans due to the sale of a large  commercial  property in North Adams
was fully  offset by a rise in  nonperforming  consumer  loans,  primarily  auto
loans. Nonperforming automobile loans totaled $2.0 million at December 31, 2000,
and represented 0.86% of total automobile loans and 0.25% of total loans. At the
end of 1999,  nonperforming automobile loans totaled $817,000, and equaled 0.50%
of total  automobile  loans and 0.12% of total loans.  The rise in nonperforming
automobile  loans was due to increasing  economic  difficulties of our borrowers
and the more aggressive  recognition of nonperforming loans in anticipation of a
softening in the economy.

         Total interest bearing  liabilities  increased $84.5 million, or 12.6%,
to $756.3  million at December 31, 2000 from 671.8  million at December 31, 1999
as both  interest  bearing  deposits  and  Federal  Home  Loan  Bank  of  Boston
borrowings  increased  during  the  year.  Interest  bearing  deposits  grew  by
$41.1million,  or 6.7%,  to $652.8  million at  December  31,  2000 from  $611.7
million one year ago.  Certificates of deposit rose by $24.5 million during 2000
and by $16.0 million in the fourth  quarter 2000 as customers  sought to lock in
favorable  interest rates.  Money market accounts  increased by $23.1 million in
2000 as  commercial  and  governmental  customers  continued  to increase  their
balances at the bank. In addition, noninterest bearing checking account balances
increased  $7.7 million at year-end from one year ago.  However,  deposit growth
was not sufficient  enough to keep up with loan growth during 2000. As a result,
increased  borrowings  from the  Federal  Home Loan Bank of Boston  were used to
support the growth in the loan portfolio. FHLB advances increased $42.5 million,
or 72.0%,  to $101.4 million at December 31, 2000 from $58.9 million at December
31, 1999.

         Stockholders'  equity,  including  retained  earnings,  rose to  $161.3
million at  December  31,  2000 from $88.4  million at December  31,  1999.  The
increase  was  primarily  due to the influx of capital  from the June 27,  2000,
conversion of Berkshire Bancorp,  Berkshire Hills Bancorp's predecessor,  from a
mutual to a stock holding  company.  Net of conversion fees and expenses,  $68.4
million was raised in the initial  public  offering.  Also  contributing  to the
increase in  stockholders'  equity for the year were net income of $4.6  million
and an increase in the net unrealized  gain in the securities  portfolio of $2.2
million net of tax effects as a rebound in financial stocks over the second half
of 2000 aided portfolio  performance.  In the fourth quarter of 2000,  Berkshire
Hills Bancorp paid an initial common stock dividend of $0.10 per share.


                                       38
      
Comparison of Operating Results for the Years Ended December 31, 2000 and 1999

              Net Income.  Net income  declined $1.0 million,  or 18.5%, to $4.6
million in 2000 from $5.6 million in 1999. Included in the current year's result
is a  one-time  donation  of $5.7  million  of the  Company's  common  stock  to
Berkshire Hills  Foundation,  a charitable  foundation formed by Berkshire Hills
Bancorp in  conjunction  with the  conversion of its mutual  holding  company to
stock form in June 2000. Excluding this contribution, net income would have been
$8.3 million, which represents a $3.8 million, or 81.9%, increase from 1999. Net
interest income increased $6.0 million,  or 19.0%, to $37.6 million in 2000 from
$31.5  million in 1999 aided by strong  loan  growth and the  investment  of the
Company's  net public  offering  proceeds  over the second half of the year.  In
addition,  non-interest income rose to $4.7 million in 2000 from $4.3 million in
1999, an increase of $448,000 or 10.4%. However,  non-interest expense rose $7.0
million,  or 27.7%,  to $32.2  million in 2000 from $25.2  million in 1999,  due
primarily to the one-time  contribution  mentioned above.  Absent this donation,
expenses would have risen $1.3 million or 5.2%.

         Net Interest  Income.  Net interest income  increased $6.0 million,  or
19.0%,  to $37.5 million in 2000 from $31.5 million in 1999.  Total interest and
dividend  income rose $12.6  million,  or 21.5%,  to $71.0  million in 2000 from
$58.5  million in 1999,  but was  partially  offset by an  increase  in interest
expense  of $6.5  million,  or 24.3% in 2000.  Interest  expense  totaled  $33.5
million in 2000 as compared to $26.9 million in 1999.

         The increase in interest income was due to a $119.6 million,  or 15.6%,
increase in average  interest  earning  assets to $883.8  million this year from
$764.2  million last year and a 39 basis point  increase in the average yield on
interest  earning assets to 8.04% in 2000 from 7.65% in 1999.  Proceeds from the
Company's   initial  public  offering,   initially   invested  in  money  market
instruments,  coupled  with strong loan demand in the  commercial  and  consumer
sectors helped boost average  interest  earning assets in 2000. The reallocation
of funds from money  market  instruments  to loans along with a higher  interest
rate environment led to the increase in the average yield.

         Interest on loans rose $11.1  million,  or 21.2%,  to $63.7  million in
2000 from $52.5  million in 1999 fueled by the growth in all sectors of the loan
portfolio.  In addition,  the higher interest rate  environment  resulted in the
average yield on the loan portfolio  rising to 8.53% in 2000 from 8.21% in 1999.
Similarly,  investment security income, including dividends on Federal Home Loan
Bank stock and Savings Bank Life Insurance stock, rose $1.1 million, or 19.6% to
$6.7 million this year from $5.6  million  last year.  Higher  balances and a 54
basis point  increase in the average  rate earned on  investment  securities  to
5.24% in 2000 from 4.70% in 1999 contributed to the increase.

         Interest expense increased $6.5 million,  or 24.3%, to $33.5 million in
2000 from $26.9 million in 1999. The largest  portion of the increase was due to
a rise in deposit costs as interest on deposits rose $3.8 million,  or 15.7%, to
$27.6  million in 2000 from $23.8  million the previous  year.  Higher  interest
rates, an erratic stock market,  and a continuing  effort to attract  commercial
and  governmental  deposit  accounts  may have  helped  boost  money  market and
certificate of deposit  balances and interest costs.  Average  interest  bearing
deposit balances  increased $34.9 million,  or 5.9%, to $627.0 million this year
from $592.1 million last year. With this year's rise in rates,  the average rate
paid on interest  bearing  deposit  account was 4.40% in 2000  against  4.03% in
1999.  Interest on Federal Home Loan Bank advances accounted for the rest of the
increase and was partially  offset by a decline in the interest paid on customer
repurchase  accounts.  Federal Home Loan Bank interest  expense  increased  $3.0
million,  or 106.2%,  to $5.8  million  this year from $2.8  million  last year.
Average  borrowings  outstanding  increased  $41.6 million,  or 81.7%,  to $92.6
million in 2000 from $51.0 in 1999 as the funds were  needed to support the loan
portfolio's growth. The average rate paid on the borrowings was 6.23% in 2000 as
compared to 5.49% in 1999.  A number of  borrowings  repriced at higher rates in
2000,  and rates on the new advances were  contracted  for at levels higher than
those already in the portfolio.

         Buoyed by the  investment  of the  initial  public  offering  proceeds,
Berkshire  Hills' net interest margin increased to 4.25% for 2000 as compared to
4.13% for 1999.

         Provision  for Loan Losses.  The  provision  for loan losses  increased
$140,000, or 4.6%, to $3.2 million in 2000 from $3.0 million in 1999 as the loan
portfolio  continued to grow strongly in 2000  especially in the  commercial and
consumer  sectors.  As a result,  even though loan charge-offs  declined to $1.9
million in 2000 from $2.4 million the previous year and non-performing  loans as
a percent  of total  loans  fell to 0.36% on  December  31,  2000 from  0.42% on
December 31, 1999,  management  deemed it prudent to increase the allowance as a
percent of total loans to 1.29% at year end 2000 from 1.27% last year.  Vigilant
collection  efforts  and a good  economy  helped  keep  commercial  loan  losses
extremely  low while  consumer  loan  charge-offs  increased  $691,000  or 94.5%
primarily due to the larger size of the  portfolio and some  weakening in credit
quality.  Indirect  automobile  loan  charge-offs  expressed as a percent of the
automobile  portfolio  were 0.52% and 0.31% in 2000 and 1999,  respectively.  At
December 31, 2000,  the  allowance for loan losses was $10.2 million as compared
to $8.5 million at December 31, 1999 and represented  356.08% of  non-performing
loans this year as compared to 300.39% last year.

                                       39
      

         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 its 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 Berkshire  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 non-performing loans if the level
of  commercial  real  estate,   multi-family,   commercial,   construction   and
development  or consumer  lending 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 $4.7 million for
2000 and $4.3  million for 1999,  an increase of  $448,000,  or 10.4%.  Customer
service fees advanced $257,000, or 19.3%, as increased usage of debit and credit
cards led to an additional  $60,000 in card fees.  Also,  more  automobile  loan
customers  requested life insurance  coverage which led to an additional $69,000
in life insurance fees. Much of the balance of the increase in customer  service
fees  was due to a rise of  $96,000  in  overdraft  fees.  Loan  servicing  fees
increased  $104,000,  or 30.6%,  as $38.9 million of consumer loans were sold in
2000 with servicing retained.  Miscellaneous  income increased $166,000 or 38.4%
and was  wholly  due to a rise in the cash  surrender  value of bank  owned life
insurance  policies.  Partially  offsetting  these  increases  was a decline  of
$68,000, or 13.8% in gains realized on the sale of securities.

         Noninterest  Expense.  Noninterest  expense increased $7.0 million,  or
27.7%,  to $32.2 million in 2000 from $25.2 million in 1999.  Included in 2000's
total  is a  one-time  contribution  of  $5.7  million  to the  Berkshire  Hills
Foundation,  a  charitable  foundation  set up by the Company at the time of the
mutual  to  stock  conversion.   Excluding  this  expense,  noninterest  expense
increased $1.3 million or 5.2%. The major  contributor to the increase was other
general and  administrative  expenses  which rose $1.0  million or 33.8% to $4.1
million  in  2000  from  $3.1   million  in  1999.   The  rise  in  general  and
administrative  expense was primarily due to an increase of $501,000, or 110.1%,
in costs associated with the handling, servicing, and selling of a larger number
of  repossessed  automobiles.  The  balance of the  increase  was due to a large
number of other expenses such as phone,  postage,  and trust department expenses
experiencing  smaller increases.  Data processing expenses grew by $272,000,  or
18.3%,  as  the  Company  spent  approximately   $250,000  to  convert  from  an
out-sourced to an in-house imaging system.

         Income Taxes.  Income taxes for the year ending  December 31, 2000 were
$2.4 million,  an increase of $365,000 or 18.3%,  over the $2.0 million paid for
the year ending  December 31, 1999.  The  effective  tax rates for 2000 and 1999
were 34.0% and 26.2%,  respectively.  The lower  effective  tax rate in 1999 was
partially  attributable  to the  use of  approximately  $850,000  of  deductible
contribution carryforwards related to the establishment of the Greater Berkshire
Foundation,  Inc. in 1997.  Approximately  $544,000 more of these  carryforwards
remained at December  31, 1999,  and were fully used during  2000.  In addition,
approximately  $300,000 of federal tax credits relating to the rehabilitation of
an historic firehouse in Pittsfield, Massachusetts were booked in 1999. However,
the Company's  application for the tax credits was denied by federal authorities
in August 2000, and the credits were subsequently reversed. The Company has also
established two securities  corporations,  which were in effect in both 2000 and
1999, in an effort to minimize state taxes.

Comparison of Operating Results for the Years Ended December 31, 1999 and 1998

         Net  Income.  Net income  increased  $1.2  million,  or 27.1%,  to $5.6
million for 1999 from $4.4 million for the previous  year,  primarily  due to an
increase  in net  interest  income of $3.2  million,  or 11.4%,  an  increase in
non-interest  income,  of $1.0  million,  and a  decrease  in  income  taxes  of
$773,000,  or 27.9%, to $2.0 million for 1999 from $2.8 million for the previous
year.  Also,  non-interest  expense  increased $2.8 million,  or 12.7%, to $25.2
million for 1999 from $22.4  million for 1998,  due to  additional  accruals for
certain items, and an increase in the provision for loan losses of $975,000,  or
47.5%,  to $3.0 million due to loan growth,  in  particular,  growth in consumer
loans.  Berkshire  Bancorp's  efficiency  ratio was 71.27% for 1999  compared to
71.71% for 1998.

         Net Interest Income. Net interest income increased by $3.2 million,  or
11.4%, to $31.5 million for 1999 from $28.3 million for 1998. Total interest and
dividend  income rose $6.0  million,  or 11.4%,  to $58.5  million for 1999 from


                                       40
      
$52.5 million for 1998, offset in part by a $2.7 million, or 11.3%,  increase in
interest expense to $26.9 million for 1999 from $24.2 million for 1998.

         The increase in interest  income was due to a $93.6 million,  or 14.0%,
increase  in average  interest  earning  assets to $764.2  million  from  $670.6
million,  partially offset by an 18 basis point decrease in the average yield on
interest  earning  assets to 7.65% for 1999 from 7.83% for 1998 due to increased
competition  and a lower interest rate  environment.  Interest and fees on loans
rose $6.1  million,  or 13.1%,  to $52.5  million for 1999 from $46.4 million in
1998,  primarily due to increases in one- to  four-family  real estate loans and
consumer loans,  partially  offset by a competitive  pricing  environment  which
caused  management  to more  aggressively  price such loans and  resulted in the
average yield on the loan portfolio  decreasing to 8.21% for 1999 from 8.49% for
1998. Investment security income,  including dividends on Federal Home Loan Bank
stock and Savings Bank Life  Insurance  stock rose  $203,000,  or 3.8%,  to $5.6
million from $5.4 million for 1998 as average  balances  increased $6.8 million,
or 6.1%, to $119.2  million from $112.3  million for 1998.  The higher  balances
were offset by an 8 basis point decline on the average rate earned on investment
securities  to 4.70%  for 1999  from  4.78%  for  1998,  due to  investments  in
lower-yielding,  higher  liquidity  securities in preparation  for the Year 2000
transition.

         Interest expense increased $2.7 million, or 11.3%, to $26.9 million for
1999 from $24.2 million for 1998,  due to a $1.2 million,  or 5.5%,  increase in
interest expense on deposits and a $1.6 million, or 130.3%, increase in interest
expense on Federal Home Loan Bank advances.  The Federal Home Loan Bank interest
expense includes an additional $277,000,  which resulted from additional Federal
Home Loan Bank interest accruals.  The increase in interest expense was due to a
$69.1 million,  or 13.2%,  increase in average interest bearing deposit balances
to $592.1  million for the year from $523.1  million for the previous  year. The
increased  deposit  balances for 1999 are due to the assumption of $69.7 million
of deposits associated with the purchase of three Fleet branches in August 1998,
an increased emphasis on attracting commercial and governmental deposit accounts
and  increased  marketing  efforts in late 1999.  The  increase  in the  average
balance on interest-bearing  deposits was offset by a 29 basis point decrease in
the average rate paid on  interest-bearing  deposit  accounts for 1999 to 4.03%,
from 4.32% for 1998.  Average Federal Home Loan Bank borrowings  increased $27.0
million, or 112.8%, to $51.0 million for 1999 from $23.9 million for 1998. Also,
a number  of  lower  cost  borrowings  repriced  into  higher  cost  obligations
throughout the year from the increase in market  interest  rates  resulting in a
higher  effective  cost of  borrowings  and an  additional  $100,000 in interest
expense.  The average rate paid for 1999 was 5.49%,  compared to 5.07% for 1998.
The additional advances primarily were used to fund loan growth.

         Provision  for Loan Losses.  The  provision  for loan losses  increased
$975,000,  or 47.4%,  for 1999 to $3.0  million from $2.1 million to reflect the
growth in the loan  portfolio  and, in  particular,  the increase in the average
balance of commercial and consumer loans,  which generally bear a greater degree
of risk than one- to four-family  mortgage loans.  The increase in the provision
also reflects  management's  assessment of increased charge-offs which increased
to $2.4  million for 1999 from  $812,000  the  previous  year due  primarily  to
increased  charge-offs  of  commercial  loans which  increased by  $974,000,  or
416.2%,  and increases in consumer loan charge-offs of $420,000,  or 135.1%. The
ratio of net charge-offs to interest  earning loans was 0.31% for 1999 and 0.09%
for 1998.  At December 31, 1999 and December 31, 1998,  the  allowance  for loan
losses  was $8.5  million  and $7.6  million,  respectively,  which  represented
300.39% of  nonperforming  loans and 1.27% of total loans at December  31, 1999,
compared to 217.45% of nonperforming  loans and 1.25% of total loans at December
31, 1998.

         Noninterest  Income.  Noninterest  income totaled $4.3 million for 1999
and $3.3 million for 1998, an increase of $1.0 million,  or 30.5%, due primarily
to a $576,000,  or 49.9%,  increase in trust fees to $1.7  million for 1999 from
$1.2 million for 1998 of which $245,000 resulted from a one-time adjustment made
in connection  with  accounting for trust fees during 1999. The remainder of the
increase in trust fees primarily  resulted from increased trust account activity
and  revisions  to the fee  structure.  Also  contributing  to the  increase  in
noninterest  income was a $251,000  increase in other fee income,  including ATM
fees and  government  banking  advisory  fees,  an $89,000  increase  in service
charges on checking accounts due to increased volume,  and a $66,000 increase in
gains on the sale of securities.

         Noninterest  Expense.  Noninterest  expense increased $2.8 million,  or
12.7%, to $25.2 million for 1999, compared to $22.4 million for 1998,  primarily
due to the increased expenses  associated with the purchase of three branches in
August 1998. The additional personnel required to staff the branches contributed
to an increase in other salary and benefit costs of $1.9 million.  Additionally,
expense for the amortization of goodwill rose $290,000,  or 112.0%,  in 1999 due
to the  purchase of the three  branches.  Also  contributing  to the increase in
noninterest expense was $285,000 in consulting expenses incurred in streamlining
Berkshire Bank's management information system and Year 2000 preparedness. Audit
and  examination  fees  increased  by  $131,000  and  salary  expense  increased
$170,000.  In addition,  severance costs were $189,000 for 1999 while there were
none for 1998.  The increase in  noninterest  expense  


                                       41
      
also reflects a $194,000 expense relating to the acceleration of depreciation on
a branch office which closed in April 2000.

         Income Taxes.  Income taxes for the year ending  December 31, 1999 were
$2.0 million,  a decrease of $773,000,  or 27.9%, from $2.8 million for the year
ended  December 31, 1998.  The  effective tax rates for 1999 and 1998 were 26.2%
and 38.5%, respectively.  The lower effective tax rate for 1999 was attributable
to a projected  $850,000  carryforward  of the deduction in connection  with the
establishment of Greater Berkshire Foundation,  Inc. in 1997. Under the Internal
Revenue  Code,  Berkshire  Bank may only  deduct  up to 10% of its  consolidated
taxable income before the charitable contribution in any one year. The excess of
the  deductible  amount  will be  deductible  over  each of the five  succeeding
taxable years,  subject to a 10% limitation each year. In 1998,  $381,000 of the
carryforward  was  utilized  and  approximately  $544,000  of such  carryforward
remains  to be  utilized.  Additionally,  Berkshire  Bank  booked  approximately
$300,000 in federal tax credits in 1999, in connection  with its application for
rehabilitating  a  historic  firehouse  in  Pittsfield,   Massachusetts,   which
contributed  to  lowering  taxes.  At the  state  level,  Greenland  Development
Corporation  and  Forward  Development   Corporation,   two  wholly  owned  bank
subsidiaries,   utilized  the   remaining   $1.5   million  and  $1.8   million,
respectively,  of their unused state net operating loss carryforwards  available
at December 31, 1998.



                                       42
      
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 Year Ended December 31,
                                                ---------------------------------------------------------------------------------
                                                            2000                      1999                        1998
                                                ---------------------------------------------------------------------------------
                                                                   Average                    Average                     Average 
                                                Average             Yield/   Average           Yield/    Average           Yield/ 
                                                Balance   Interest    Rate   Balance  Interest   Rate    Balance  Interest   Rate 
                                                -------   --------    ----   -------  --------   ----    -------  --------   ---- 
                                                                               (Dollars in thousands)         
                                                                                                                                    

Interest-earning assets:
   Loans (1)................................   $746,018    $63,664    8.53% $639,517 $52,522    8.21%   $546,845 $46,449    8.49%   
   Short-term investments...................     10,492        654    6.23     4,042     215    5.32       9,336     498    5.33    
   Investment securities....................    120,123      6,296    5.24   113,929   5,351    4.70     108,048   5,165    4.78    
   Federal Home Loan Bank stock.............      4,959        333    6.72     3,193     181    5.67       2,546     164    6.44    
   Savings Bank Life Insurance                                                                                                      
      stock.................................      2,043         63    3.08     2,043      63    3.08       2,043      63    3.08    
   Interest-earning deposits................        127          8    6.30     1,470     136    9.25       1,754     156    8.89    
                                               --------    -------    ----  -------- -------    ----    -------- -------    ----    
         Total interest-earning assets......    883,762     71,018    8.04   764,194  58,468    7.65     670,572  52,495    7.83    
                                                           -------                   -------                     ------- 
   Non-interest earning assets..............     52,891                       51,111                      30,933                    
                                               --------                     --------                    -------- 
         Total assets.......................   $936,653                     $815,305                    $701,505                    
                                               ========                     ========                    ========                    
                                                                                                                                    
Interest-bearing liabilities:                                                                                                       
   Deposits:                                                                                                                        
      Money market accounts.................   $106,058      4,701    4.43   $84,971   3,169    3.73     $62,043   2,173    3.50    
      NOW accounts..........................     75,673        794    1.05    73,615     830    1.13      60,039   1,165    1.94    
      Savings accounts (2)..................    143,357      4,578    3.19   142,193   4,366    3.07     129,020   3,925    3.04    
      Certificates of deposit...............    301,920     17,530    5.81   291,344  15,483    5.31     271,959  15,338    5.64    
                                               --------    -------    ----  -------- -------    ----    -------- -------    ----    
         Total interest-bearing deposits....    627,008     27,603    4.40   592,123  23,848    4.03     523,061  22,601    4.32    
      Federal Home Loan Bank                                                                                                        
         advances...........................     92,567      5,766    6.23    50,951   2,796    5.49      23,941   1,214    5.07    
      Repurchase agreements.................      1,683         99    5.88     5,923     278    4.69       7,446     367    4.93    
                                               --------    -------    ----  -------- -------    ----    -------- -------    ----    
         Total interest-bearing                                                                                                     
            liabilities.....................    721,258     33,468    4.64   648,997  26,922    4.15     554,448  24,182    4.36 
                                                           -------                   -------                     -------   
      Non-interest-bearing                                                                                                          
            demand deposits.................     76,060                       67,563                      55,585                    
      Other noninterest-bearing liabilities.     16,170                       12,396                      11,940 
                                               --------                     --------                    --------
            Total liabilities...............    813,488                      728,956                     621,973                    
      Equity................................    123,165                       86,349                      79,532                    
                                               --------                     --------                    --------
            Total liabilities and equity....   $936,653                     $815,305                    $701,505                    
                                               ========                     ========                    ========                    
                                                                                                                                    
      Net interest-earning assets...........   $162,504                     $115,197                    $116,124                    
                                               ========                     ========                    ========                    
      Net interest income...................               $37,550                    $31,546                     $28,313           
                                                           =======                    =======                     =======           
      Interest rate spread..................                          3.40%                     3.50%                       3.47%   
      Interest margin (net interest                                                                                                 
         income as a percentage of                                                                                                  
         total average interest-earning                                                                                             
         assets)............................                          4.25%                     4.13%                       4.22%   
      Total average interest-earning                                                                                                
         assets to total average interest-                                                                                          
         bearing liabilities...                                     122.53%                   117.75%                     120.94%   
                                                                                                        

        

(1)  Average balances include nonaccrual loans.
(2)  Includes mortgagors' escrow accounts.

                                       43
      
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                               Year Ended
                                                      December 31, 2000                        December 31, 1999
                                                    Compared to Year Ended                  Compared to Year Ended
                                                        December 31, 1999                       December 31, 1998
                                              -----------------------------------     -----------------------------------

                                                Increase (Decrease)                     Increase (Decrease)
                                                      Due to                                  Due to
                                              ----------------------                  --------------------- 
                                                  Rate        Volume        Net          Rate        Volume        Net
                                               --------     --------     --------     --------     --------     --------
                                                                             (In thousands)
                                                                                                                        
Interest-earning assets:
   Loans ..................................    $  1,949     $  9,193     $ 11,142     $ (1,581)    $  7,654     $  6,073
   Short-term investments .................          42          397          439           (1)        (282)        (283)
   Investment securities ..................         707          390        1,097         (103)         306          203
   Interest-bearing deposits ..............         (33)         (95)        (128)           6          (26)         (20)
                                               --------     --------     --------     --------     --------     --------
      Total interest-earning assets .......       2,665        9,885       12,550       (1,679)       7,652        5,973
                                               --------     --------     --------     --------     --------     --------

Interest-bearing liabilities:
   Deposits:
      Money market accounts ...............         661          871        1,532          149          847          996
      NOW accounts ........................         (58)          22          (36)        (560)         225         (335)
      Savings accounts ....................         176           36          212           37          404          441
      Certificates of deposit .............       1,453          594        2,047         (913)       1,058          145
                                               --------     --------     --------     --------     --------     --------
         Total deposits ...................       2,232        1,523        3,755       (1,287)       2,534        1,247
   Federal Home Loan Bank 
      advances ............................         377        2,593        2,970          107        1,475        1,582
   Repurchase agreements ..................         104         (283)        (179)         (16)         (73)         (89)
                                               --------     --------     --------     --------     --------     --------
         Total interest-bearing liabilities       2,713        3,833        6,546       (1,196)       3,936        2,740
                                               --------     --------     --------     --------     --------     --------

Increase (decrease) in net interest 
   income .................................    $    (48)    $  6,052     $  6,004     $   (483)    $  3,716     $  3,233     
                                               ========     ========     ========     ========     ========     ========     
          

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.
Primary  sources  of  funds  consist  of  deposit   inflows,   loan  repayments,
maturities, paydowns, and sales of investment and mortgage-backed securities 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  loans and lines of credit and
consumer loans, and (2) investing in mortgage- and asset-backed securities, U.S.
Government  and agency  obligations  and corporate  equity  securities  and debt
obligations.  These  activities  are funded  primarily by principal and interest
payments on loans, maturities of securities, deposits and Federal Home Loan Bank
of Boston  advances.  During years ended  December 31, 2000 and 1999,  Berkshire
Bank's  loan   originations   totaled   $284.5   million  and  $280.4   million,
respectively. At December 31, 2000 and 1999, the Bank's investments in mortgage-
and  asset-backed  securities,   U.S.  Government  and  agency  obligations  and
corporate  equity  securities  and debt  obligations  totaled $139.2 million and
$116.0  million,  respectively.  The Bank  experienced  a net  increase in total
deposits of $48.8  million and $33.6  million for the years ended  December  31,
2000 and 1999, respectively, primarily as a result of increased money market and
transaction  account  deposits from  commercial and  governmental  customers and
increased  certificate  of  deposit  usage by  retail  customers  and  increased
marketing efforts,  special promotions,  and a higher interest rate environment.
Deposit flows 


                                       44
      

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 a repurchase  agreement  with the  Depositors
Insurance Fund.

         Outstanding commitments for all loans and unadvanced construction loans
and lines of credit totaled  $137.4 million at December 31, 2000.  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, 2000 totaled  $226.6  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,  2000,  Berkshire  Bank  exceeded  all of its  regulatory  capital
requirements  with Tier 1 capital to average assets of $98.4 million,  or 10.64%
of average assets,  which is above the required level of $37.0 million, or 4.0%,
and total  capital  to  risk-weighted  assets of  $122.2  million,  or 15.61% of
risk-weighted  assets,  which is above the required level of $62.6  million,  or
8.0%. The Bank is considered "well capitalized" under regulatory guidelines.

         The capital  from the  Conversion  initially  increased  the  Company's
liquidity and capital  resources.  Over time, the initial level of liquidity has
been reduced as net proceeds are used for general corporate purposes,  including
the funding of lending activities. The Company's financial condition and results
of operations have been enhanced by the capital from the  Conversion,  resulting
in increased net  interest-earning  assets and net income.  However,  due to the
large increase in equity resulting from the capital injection,  return on equity
has been adversely impacted.

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 Derivative  Instruments and Hedging Activities.  In June
1998, the Financial  Accounting  Standards  Board ("FASB")  issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities," which, as amended by SFAS No. 137 and 138,
is effective  for fiscal years  beginning  after June 15, 2000.  This  Statement
establishes  accounting and reporting  standards for derivative  instruments and
hedging activities,  including certain derivative  instruments embedded in other
contracts,  and requires that an entity  recognize all  derivatives as assets or
liabilities  in the  balance  sheet and measure  them at fair value.  If certain
conditions  are met, an entity may elect to designate a derivative  as a hedging
instrument.  The  Statement  generally  provides  for matching the timing of the
recognition of the gain or loss on derivatives designated as hedging instruments
with the  recognition of the changes in the fair value of the item being hedged.
Depending on the type of hedge, such recognition will be in either net income or
other  comprehensive  income.  For a  derivative  not  designated  as a  hedging
instrument, changes in fair value will be recognized in net income in the period
of  change.  The  Company  adopted  this  Statement  on  January 1, 2001 with no
material impact on the consolidated financial statements.

         Accounting  for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of  Liabilities.  During  September  of 2000,  SFAS No. 140 was
issued  replacing  SFAS No. 125,  "Accounting  for  Transfers  and  Servicing of
Financial Assets and  Extinguishments  of Liabilities."  This Statement provides
accounting  and  reporting  standards  for  transfers and servicing of financial
assets  and  extinguishments  of  liabilities  based on a  financial  components
approach 

                                       45
      

that  focuses on control.  Under that  approach,  after a transfer of  financial
assets,  an entity  recognizes  the financial and serving assets it controls and
the liabilities it has incurred,  derecognizes financial assets when control has
been surrendered,  and derecognizes liabilities when extinguished.  In addition,
this Statement  requires certain  disclosures  regarding  securitized  financial
assets.  SFAS No. 140 is  effective  for  transfers  and  servicing of financial
assets and  extinguishments  of  liabilities  occurring  after  March 31,  2001.
Management is currently  evaluating the impact of adopting this Statement on the
consolidated financial statements and does not anticipate a material impact.




                                       46

      

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  Executive  Committee of the Board of Directors and the Board of
Directors  on a  quarterly  basis.  The  Asset/Liability  Committee  consists of
Berkshire Bank's President and Chief Executive  Officer,  Senior Vice President,
Treasurer and Chief  Financial  Officer,  Executive Vice  President-Senior  Loan
Officer and Executive Vice President-Retail  Banking. The extent of the movement
of interest  rates is an  uncertainty  that could have a negative  impact on the
earnings of Berkshire Bank.

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

         o        emphasizing the origination of adjustable-rate loans and, from
                  time to time,  selling a portion of its longer term fixed-rate
                  loans as market interest rate conditions dictate;

         o        originating  shorter-term  commercial and consumer loans, with
                  an emphasis on automobile loans;

         o        investing in a high quality liquid  securities  portfolio that
                  provides 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 portfolio;

         o        promoting lower cost liability accounts such as core deposits;
                  and

         o        using  Federal  Home Loan Bank  advances  to better  structure
                  maturities of its interest rate sensitive liabilities.

         Berkshire Bank's market risk also includes equity price risk. Berkshire
Bank's  mutual  fund and  marketable  equity  securities  portfolios  had  gross
unrealized  gains of $31.6  million at December  31,  2000 and gross  unrealized
losses of  $603,000  which are  included,  net of taxes,  in  accumulated  other
comprehensive income, a separate component of Berkshire Bank's equity. If equity
security prices decline due to unfavorable  market  conditions or other factors,
Berkshire Bank's equity would decrease.

         Quantitative  Aspects of Market Risk.  Berkshire Bank 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 balance sheet mix. The table below sets forth,  as of
December 31, 2000,  estimated net interest  income and the estimated  changes in
Berkshire  Bank's 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.



                                       47
      
   Increase/
   (Decrease)
   in Market
 Interest Rates
in Basis Points
  (Rate Shock)                        At December 31, 2000
---------------          ------------------------------------------------
                            Amount           $ Change           % Change
                         ----------          --------           ---------
                                     (Dollars in thousands)

      200                  $12,882              $524               4.24%
      100                   12,697               339               2.74
     Static                 12,358               ---                ---
     (100)                  11,891             (467)              (3.78)
     (200)                  11,369             (989)              (8.00)




         The above table  indicates  that in the event of a sudden and sustained
decline in prevailing  market  interest  rates of 100 basis points and 200 basis
points,  Berkshire  Bank's net interest  income would be expected to decrease by
$467,000 and $989,000, respectively.

         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.







                                       48

      

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA













                                TABLE OF CONTENTS

                                                                      Page

Independent Auditors' Report                                           50

Consolidated Balance Sheets as of December 31, 2000
     and 1999                                                          51

Consolidated Statements of Income for the Years Ended
     December 31, 2000, 1999 and 1998                                  52

Consolidated Statements of Changes in Stockholders'
     Equity for the Years Ended December 31, 2000,
     1999 and 1998                                                     53

Consolidated Statements of Cash Flows for the Years
     Ended December 31, 2000, 1999 and 1998                            54-55

Notes to Consolidated Financial Statements                             56-92






                                       49
      

                          INDEPENDENT AUDITORS' REPORT


The Audit Committee
Berkshire Hills Bancorp, Inc.
Pittsfield, Massachusetts


We have audited the accompanying  consolidated balance sheets of Berkshire Hills
Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000.
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, 2000 and 1999 and the results
of their operations and their cash flows for each of the years in the three-year
period  ended  December  31,  2000  in  conformity  with  accounting  principles
generally accepted in the United States of America.




/s/Wolf & Company, P.C.
-----------------------
Wolf & Company, P.C.



Boston, Massachusetts
January 31, 2001



                                       50
      

       
         
                          BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
                                    CONSOLIDATED BALANCE SHEETS
                                    December 31, 2000 and 1999
                                              ASSETS


                                                                          2000              1999
                                                                      -----------      -----------
                                                                              (In Thousands)
                                                                                                  
Cash and due from banks..........................................     $    26,891      $    23,301
Short-term investments...........................................          16,721            1,341
                                                                      -----------      -----------
    Total cash and cash equivalents..............................          43,612           24,642

Securities available for sale, at fair value.....................          99,309           93,084
Securities held to maturity, at amortized cost...................          32,238           17,014
Federal Home Loan Bank stock, at cost............................           5,651            3,843
Loans, net of allowance for loan losses of $10,216,000 in
2000 and $8,534,000 in 1999 .....................................         783,405          665,554
Foreclosed real estate ..........................................              50              220
Banking premises and equipment, net..............................          12,370           11,531
Accrued interest receivable......................................           6,310            4,910
Savings Bank Life Insurance stock................................           2,043            2,043
Goodwill ........................................................           6,260            6,809
Other assets ....................................................          20,092           12,001
                                                                      -----------      -----------
                                                                       $1,011,340      $   841,651
                                                                       ==========      ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits ........................................................      $  729,594      $   680,767
Federal Home Loan Bank advances..................................         101,386           58,928
Loans sold with recourse.........................................           7,740             --
Securities sold under agreements to repurchse....................           2,030            1,120
Net deferred tax liability.......................................           4,482            6,073
Accrued expenses and other liabilities...........................           4,786            6,411
                                                                      -----------      -----------
    Total liabilities ...........................................         850,018          753,299
                                                                      -----------      -----------
Commitments and contingencies (Notes 5 and 11)

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; 7,673,761 shares issued and outstanding
     at December 31, 2000) ......................................              77             --
Additional paid-in capital.......................................          74,054             --
Unearned compensation - ESOP.....................................          (7,187)            --
Retained earnings................................................          74,554           70,679
Accumulated other comprehensive income - net
  unrealized gain on securities available for sale,
  net of tax effects.............................................          19,824           17,673
                                                                      -----------      -----------
Total stockholders' equity.......................................         161,322           88,352
                                                                      -----------      -----------
Total liabilities and stockholders' equity.......................     $ 1,011,340      $   841,651
                                                                      ===========      ===========

        

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


                                       51
      
       
         
                            BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF INCOME
                             Years Ended December 31, 2000, 1999 and 1998


                                                                   2000          1999          1998
                                                                 --------      --------      --------
                                                                          (In thousands)
                                                                                                     
Interest and dividend income:
  Interest and fees on loans ...............................     $ 63,664      $ 52,522      $ 46,449
  Interest on debt securities:
    Taxable ................................................        5,142         4,160         4,123
    Tax-exempt .............................................          188           252           227
  Dividends ................................................        1,362         1,183         1,042
  Interest on short-term and other investments .............          662           351           654
                                                                 --------      --------      --------
      Total interest and dividend income ...................       71,018        58,468        52,495
                                                                 --------      --------      --------

Interest expense:
  Interest on deposits .....................................       27,603        23,848        22,601
  Interest on Federal Home Loan Bank advances ..............        5,766         2,796         1,214
  Interest on securities sold under agreements to repurchase           99           278           367
                                                                 --------      --------      --------
      Total interest expense ...............................       33,468        26,922        24,182
                                                                 --------      --------      --------

Net interest income ........................................       37,550        31,546        28,313
Provision for loan losses ..................................        3,170         3,030         2,055
                                                                 --------      --------      --------
Net interest income, after provision for loan losses .......       34,380        28,516        26,258
                                                                 --------      --------      --------

Other income:
  Customer service fees ....................................        1,590         1,333         1,180
  Trust department fees ....................................        1,707         1,730         1,154
  Loan servicing fees ......................................          446           342           234
  Gain on sales and dispositions of securities, net ........          423           491           425
  Gain on sale of other real estate ........................         --            --             119
  Loss on sale of equipment ................................          (18)          (30)         --
  Miscellaneous ............................................          598           432           181
                                                                 --------      --------      --------
      Total other income ...................................        4,746         4,298         3,293
                                                                 --------      --------      --------

Operating expenses:
  Salaries and employee benefits ...........................       13,631        13,767        11,842
  Occupancy and equipment ..................................        4,178         4,152         3,591
  Data processing ..........................................        1,765         1,493         1,204
  Charitable contribution to foundation ....................        5,684          --            --
  Foreclosed real estate, net ..............................          111            (8)           54
  Office supplies ..........................................          706           687           930
  Professional fees ........................................          850           869           895
  Advertising ..............................................          578           599           792
  Amortization of goodwill .................................          549           549           259
  Other general and administrative expenses ................        4,132         3,088         2,792
                                                                 --------      --------      --------
      Total operating expenses .............................       32,184        25,196        22,359
                                                                 --------      --------      --------

Income before income taxes .................................        6,942         7,618         7,192
Provision for income taxes .................................        2,360         1,995         2,768
                                                                 --------      --------      --------
      Net income ...........................................     $  4,582      $  5,623      $  4,424
                                                                 ========      ========      ========
        


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


                                       52
      
       
         
                                         BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

                                          Years Ended December 31, 2000, 1999 and 1998


                                                                                                     Accumulated
                                                           Additional     Unearned                      Other
                                                 Common      Paid-In    Compensation-    Retained   Comprehenensive
                                                 Stock       Capital        ESOP         Earnings        Income        Total
                                                -------      -------      -------       ---------     ---------     ---------
                                                                               (In thousands)
                                                                                                                             
Balance at December 31, 1997 ...............    $    --      $    --      $    --       $  60,632     $  14,685     $  75,317
                                                                                                                    ---------

Comprehensive income:
    Net income .............................         --           --           --           4,424          --           4,424
    Change in net unrealized gain on
       securities available for sale, net
       of reclassification adjustment and
       tax effects .........................         --           --           --            --           4,460         4,460
                                                                                                                    ---------
            Total comprehensive income .....                                                                            8,884
                                                -------      -------      -------       ---------     ---------     ---------

Balance at December 31, 1998 ...............         --           --           --          65,056        19,145        84,201
                                                                                                                    ---------
Comprehensive income:
     Net income ............................         --           --           --           5,623          --           5,623
     Change in net unrealized gain on
     securities available for sale, net
     of reclassification adjustment and
     tax effects ...........................         --           --           --            --          (1,472)       (1,472)
                                                                                                                    ---------
            Total comprehensive income .....                                                                            4,151
                                                -------      -------      -------       ---------     ---------     ---------
Balance at December  31, 1999 ..............         --           --           --          70,679        17,673        88,352
                                                                                                                    ---------
Comprehensive income:
     Net  income ...........................         --           --           --           4,582          --           4,582
     Change in net unrealized gain on
     securities available for sale, net
     of reclassificationm adjustment and
     tax effects ...........................         --           --           --            --           2,151         2,151
                                                                                                                    ---------
            Total comprehensive income .....                                                                            6,733
                                                                                                                    ---------
Issuance of common stock in connection with
     Bank's conversion from mutual to stock-
     owned bank holding company ............           77       73,993       (7,701)         --            --          66,369
Change in unearned compensation - ESOP .....         --             61          514          --            --             575
Cash dividends declared ($0.10 per share) ..         --           --           --            (707)         --            (707)
                                                -------        -------      -------     ---------     ---------     ---------

Balance at December 31, 2000 ...............    $      77    $  74,054    $  (7,187)    $  74,554     $  19,824     $ 161,322
                                                =========    =========    =========     =========     =========     =========


        

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

                                       53
      
       
         


                           BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31, 2000, 1999 and 1998


                                                                 2000          1999         1998
                                                             ---------     ---------     ---------
                                                                           (In thousands)
                                                                                                  
Cash flows from operating activities:
   Net income ...........................................    $   4,582     $   5,623     $   4,424
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Provision for loan losses ........................        3,170         3,030         2,055
       Net amortizaton of securities ....................          206           400           158
       Charitable contribution in the form of equity
          securities ....................................        5,684            --            --
       Depreciation and amortization expense ............        1,668         1,860         1,735
       Amortization of goodwill .........................          549           549           259
       Employee stock ownership plan expense ............          575            --            --
       Gain on sales and dispositions of securities, net          (423)         (491)         (425)
       Gain on sale of other real estate ................           --            --          (119)
       Loss (gain) on sale of foreclosed real estate, net           86           (18)           (5)
       Loss on sale of equipment ........................           18            30            --
       Deferred income tax benefits .....................       (2,785)         (319)         (850)
       Net change in loans held for sale ................           --        (2,425)           --
       Changes in operating assets and liabilities:
          Accrued interest receivable and other assets ..       (9,491)       (2,063)       (2,732)
          Accrued expenses and other liabilities ........       (1,625)        1,287          (283)
                                                             ---------     ---------     ---------
            Net cash provided by operating activities ...        2,214         7,463         4,217
                                                             ---------     ---------     ---------

Cash flows from investing activities:
  Activity in available-for-sale securities:
       Sales ............................................       32,854         1,191         5,319
       Maturities .......................................       41,238         8,468        16,475
       Principal payments ...............................       10,263        21,589        23,244
       Purchases ........................................      (87,029)      (32,749)      (61,859)
  Activity in held-to-maturity securities:
       Maturities .......................................       11,076         9,171         8,351
       Principal payments ...............................       11,294        15,902        41,240
       Purchases ........................................      (37,583)      (18,357)      (38,753)
  Purchase of FHLB stock ................................       (1,808)       (1,296)           --
  Loan originations and purchases, net of
       principal payments ...............................     (121,101)      (67,139)      (92,872)
  Additions to banking premises and equipment ...........       (2,528)       (3,744)       (2,278)
  Proceeds from sales of foreclosed real estate .........          164           347           193
  Proceeds from sales of other real estate ..............           --            --           119
  Proceeds from sale of equipment .......................            3            18            --
  Cash received from acquisition of three branch offices            --            --        44,843
  Loan to fund employee stock ownership plan ............       (7,701)           --            --
                                                             ---------     ---------     ---------
            Net cash used in investing activities .......     (150,858)      (66,599)      (55,978)
                                                             ---------     ---------     ---------
        

                                  (continued)

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

                                       54
      
       
         
                        BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
                         Years Ended December 31, 2000, 1999 and 1998


                                                          2000          1999         1998
                                                       ---------     ---------     ---------
                                                                   (In thousands)
                                                                                         
Cash flows from financing activities:
   Net increase in deposits .......................       48,827        33,645        38,379
   Net increase (decrease) in securities sold under
     agreements to repurchase .....................          910        (5,880)        1,930
   Proceeds from Federal Home Loan Bank advances
     with maturities in excess of three months ....      140,000        40,000        32,000
   Repayments of Federal Home Loan Bank advances
     with maturities in excess of three months ....      (97,542)      (13,662)       (9,290)
   Proceeds of borrowings with maturities of
     three months or less .........................         --           3,000          --
   Increase in loans sold with recourse ...........        7,740          --            --
   Net proceeds from initial public offering ......       68,386          --            --
   Cash dividends paid ............................         (707)         --            --
                                                       ---------     ---------     ---------
          Net cash provided by financing activities      167,614        57,103        63,019
                                                       ---------     ---------     ---------

Net change in cash and cash equivalents ...........       18,970        (2,033)       11,258

Cash and cash equivalents at beginning of year ....       24,642        26,675        15,417
                                                       ---------     ---------     ---------

Cash and cash equivalents at end of year ..........    $  43,612     $  24,642     $  26,675
                                                       =========     =========     =========

Supplemental cash flow information:
   Interest paid on deposits ......................    $  27,603     $  23,834     $  22,553
   Interest paid on borrowed funds ................        5,610         2,797         1,581
   Income taxes paid, net .........................        6,314         2,080         2,929
   Transfers from loans to foreclosed real estate .           80           151           222


        


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


                                       55
      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  Years Ended December 31, 2000, 1999 and 1998


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.
        The 2000  consolidated  financial  statements  include  the  accounts of
        Berkshire  Hills  Bancorp,  Inc.  and  its  wholly  owned  subsidiaries,
        Berkshire  Bank and  Berkshire  Hills  Funding  Corporation.  The Bank's
        wholly-owned  subsidiaries  are  North  Street  Securities  Corporation,
        G.B.S.B.,  Inc.,  Gold Leaf Insurance  Agency ("Gold  Leaf"),  Gold Leaf
        Investment  Services and Woodland Realty,  Inc. North Street  Securities
        Corporation  and  G.B.S.B.,   Inc.  hold  title  to  certain  investment
        securities.  Gold Leaf was formed in 2000 and offers insurance  products
        to customers.  Gold Leaf Investment  Services and Woodland Realty,  Inc.
        are  presently   inactive.   Berkshire  Hills  Funding  Corporation  was
        established  and funded to loan funds to the  Employee  Stock  Ownership
        Plan. All significant  intercompany  balances and transactions have been
        eliminated in consolidation.

        On June 27, 2000, Berkshire Hills Bancorp, Inc. acquired the Bank. Prior
        to that time,  Berkshire Bancorp existed as a mutual holding company and
        owned all of the outstanding  capital stock of Berkshire Bank. After the
        conversion  on June 27,  2000,  Berkshire  Bancorp  ceased to exist.  In
        connection  with the  conversion,  the Company  issued an  aggregate  of
        7,673,761 shares of its common stock of which 7,105,334 shares were sold
        at a purchase  price of $10 per share.  At that time,  568,427 shares of
        stock  were  donated  to  Berkshire  Hills   Foundation,   a  charitable
        foundation established by the Company. The net proceeds,  after offering
        expenses of $2.6  million,  resulting  from the offering  totaled  $68.4
        million.

        Business and operating segments

        The Company provides a variety of financial  services to individuals 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 and automobile  loans.  In addition,  trust services and insurance
        products  are  offered  to  individuals  and  small  businesses  in  the
        Berkshire County area.

        Generally, financial information is required to be reported on the basis
        that  it is used  internally  for  evaluating  segment  performance  and
        deciding how to allocate resources to segments. Management evaluates the
        Company's  performance and allocates resources based on a single segment
        concept.  Accordingly,  there  are no  separately  identified  operating
        segments for which  discrete  financial  information  is available.  The
        Company  does not derive  revenues  from,  or have  assets  located  in,
        foreign countries,  nor does it derive revenues from any single customer
        that represents 10% or more of the Company's total revenues.


                                       56
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

        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, deferred taxes and the pension liability.

        Reclassifications

        Certain amounts in the 1999 and 1998 consolidated  financial  statements
        have been reclassified to conform to the 2000 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.  The  Bank is
        required to maintain cash reserve balances with the Federal Reserve Bank
        based upon a percentage  of certain  deposits.  At December 31, 2000 and
        1999,  cash and due from  banks  included  $10,144,000  and  $7,585,000,
        respectively, to satisfy such reserve requirements.

        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 reflected at
        amortized cost, less principal payments received.  Securities classified
        as "available for sale" are carried at fair value, with unrealized gains
        and losses  excluded from  earnings and reported in other  comprehensive
        income, net of tax effects.


                                       57
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

        Securities (concluded)

        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.

        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  securities  below  their cost that are deemed to be other
        than temporary are reflected in earnings as realized  losses.  Gains and
        losses on the sale of securities  are recorded on the trade date and are
        determined using the specific identification method.

        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  loans 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 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. All interest accrued but not collected for loans that are
        placed on nonaccrual 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.

        Loans  originated and intended for sale are carried at the lower of cost
        or  estimated  fair  value  in the  aggregate.  Fair  value  is based on
        commitments  on hand from  investors or prevailing  market  prices.  Net
        unrealized losses, if any, are recognized through a valuation  allowance
        by charges to income.


                                       58
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

        Loans (concluded)

        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 nonaccrual  basis.  Factors  considered by management in
        determining impairment include payment status, collateral value, and the
        probability of collecting scheduled principal and interest payments when
        due.  Loans that  experience  insignificant  payment  delays and payment
        shortfalls   generally  are  not  classified  as  impaired.   Management
        determines the significance of payment delays and payment  shortfalls on
        a case-by-case basis, taking into consideration all of the circumstances
        surrounding  the loan and the  borrower,  including  the  length  of the
        delay,  the reasons for the delay,  the borrower's prior payment record,
        and the  amount  of the  shortfall  in  relation  to the  principal  and
        interest owed.  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 which
        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.

        Allowance for loan losses

        The allowance for loan losses is  established as losses are estimated to
        have occurred  through a provision for loan losses  charged to earnings.
        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
        nature 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.


                                       59
      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

        Allowance for loan losses (concluded)

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

        Foreclosed assets

        Assets acquired  through,  or in lieu of, loan  foreclosure 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,  establishing a new cost basis.  Subsequent to foreclosure,
        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 assets.

        Banking 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.

        Goodwill

        Goodwill is associated with the Company's  purchase of two branches from
        another financial  institution in 1985 and three branches in 1998. These
        costs are currently  amortized  against income on a straight-line  basis
        over 15 years.

        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.


                                       60
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

        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.

        Pension plan

        The compensation cost of an employee's  pension benefit is recognized on
        the net  periodic  pension cost method over the  employee's  approximate
        service  period.  The  aggregate  cost  method is  utilized  for funding
        purposes.

        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 based on debt
        service payments. 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.

        Earnings per common share

        Basic and diluted  earnings  per share  represents  income  available to
        common  stockholders  divided by the  weighted-average  number of common
        shares  outstanding  during the period.  Earnings  per share data is not
        presented in these consolidated financial statements for the years ended
        December 31, 2000,  1999 and 1998 since shares of the  Company's  common
        stock were not issued until June 27, 2000.


                                       61
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

        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.

        The  components of other  comprehensive  income,  relative to securities
        available for sale, and related tax effects are as follows for the years
        ended December 31, 2000, 1999 and 1998:

       
         

                                           2000         1999        1998
                                          -------     -------     --------
                                                     (In Thousands)

                                                                          
Change in net unrealized holding gains
   on available-for-sale securities...    $ 3,768     $(1,841)   $  7,276
Reclassification adjustment for gains
   realized in income.................       (423)       (491)       (425)
                                          -------     -------     --------
Net change in unrealized gains........      3,345      (2,332)      6,851

Tax effects ..........................     (1,194)        860      (2,391)
                                          -------     -------     --------

Net-of-tax change ....................    $ 2,151     $(1,472)    $ 4,460
                                          =======     =======     =======
        


                                       62
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

        Recent accounting pronouncements

        In June 1998, the Financial  Accounting  Standards Board ("FASB") issued
        Statement  of   Financial   Accounting   Standards   ("SFAS")  No.  133,
        "Accounting for Derivative  Instruments and Hedging  Activities," which,
        as amended  by SFAS No.  137 and 138,  is  effective  for  fiscal  years
        beginning after June 15, 2000. This Statement establishes accounting and
        reporting  standards for derivative  instruments and hedging activities,
        including certain  derivative  instruments  embedded in other contracts,
        and  requires  that an entity  recognize  all  derivatives  as assets or
        liabilities  in the  balance  sheet and measure  them at fair value.  If
        certain  conditions  are  met,  an  entity  may  elect  to  designate  a
        derivative as a hedging instrument. The Statement generally provides for
        matching  the  timing  of  the  recognition  of  the  gain  or  loss  on
        derivatives  designated as hedging  instruments  with the recognition of
        the changes in the fair value of the item being hedged. Depending on the
        type of hedge,  such  recognition  will be in either net income or other
        comprehensive  income.  For a  derivative  not  designated  as a hedging
        instrument,  changes in fair value will be  recognized  in net income in
        the period of change.  The Company  adopted this Statement on January 1,
        2001 with no material impact on the consolidated financial statements.

        During  September of 2000,  SFAS No. 140 was issued  replacing  SFAS No.
        125,  "Accounting  for Transfers  and Servicing of Financial  Assets and
        Extinguishments of Liabilities." This Statement provides  accounting and
        reporting  standards for transfers and servicing of financial assets and
        extinguishments of liabilities based on a financial-components  approach
        that  focuses on  control.  Under  that  approach,  after a transfer  of
        financial  assets,  an entity  recognizes  the  financial  and servicing
        assets it controls and the  liabilities  it has  incurred,  derecognizes
        financial  assets when control has been  surrendered,  and  derecognizes
        liabilities  when  extinguished.  In addition,  this Statement  requires
        certain disclosures regarding securitized financial assets. SFAS No. 140
        is  effective  for  transfers  and  servicing  of  financial  assets and
        extinguishments   of  liabilities   occurring   after  March  31,  2001.
        Management is currently evaluating the impact of adopting this Statement
        on the  consolidated  financial  statements  and does not  anticipate  a
        material impact.


2.      SHORT-TERM INVESTMENTS

        Short-term investments consist of the following at December 31, 2000 and
1999:

       
         
                                                        2000               1999
                                                      -------            -------
                                                            (In Thousands)
                                                                                
Federal funds sold........................            $ 5,000            $ 1,000
FHLB Overnight deposits...................              7,721                341
BIF Liquidity fund........................              4,000                 --
                                                      -------            -------

                                                      $16,721            $ 1,341
                                                      =======            =======


        
                                       63
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3.      SECURITIES

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

       
         


                                                        December 31, 2000
                                       ------------------------------------------------
                                                       Gross         Gross
                                       Amortized     Unrealized    Unrealized     Fair
                                          Cost         Gains         Losses       Value
                                         -------      -------      -------       -------
                                                    (In thousands)

                                                                                        
Securities Available for Sale
-----------------------------

Debt securities:
  U.S. Treasury obligations .........    $ 2,045      $    18      $    (2)      $ 2,061
  Federal agency obligations ........      8,101            4          (60)        8,045
  Other bonds and obligations .......     31,750           76         (792)       31,034
  Mortgage-backed securities:
    FHLMC/ FNMA/GNMA ................        641            6           (6)          641
    REMIC's and CMO's ...............     12,336          160          (26)       12,470
  Asset-backed securities ...........      1,986           14           (2)        1,998
                                         -------      -------      -------       -------
        Total debt securities .......     56,859          278         (888)       56,249

Mutual funds ........................        907         --           (188)          719
Marketable equity securities ........     11,115       31,641         (415)       42,341
                                         -------      -------      -------       -------

        Total securities
            available for sale ......    $68,881      $31,919      $(1,491)      $99,309
                                         =======      =======      =======       =======


Securities Held to Maturity
---------------------------

Debt securities:
  Municipal bonds and obligations ...    $10,825      $    --      $    --       $10,825
  Mortgage-backed securities:
    FHLMC/GNMA ......................      3,625           23           (4)        3,644
    REMIC's and CMO's ...............     17,788          118          (33)       17,873
                                         -------      -------      -------       -------
        Total securities
            held to maturity ........    $32,238      $   141      $   (37)      $32,342
                                         =======      =======      =======       =======
        

                                       64
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        SECURITIES (continued)

       
         

                                                        December 31, 1999
                                       ------------------------------------------------
                                                       Gross         Gross
                                       Amortized     Unrealized    Unrealized     Fair
                                          Cost         Gains         Losses       Value
                                         -------      -------      -------       -------
                                                        (In thousands)
                                                                                        

Securities Available for Sale
-----------------------------

Debt securities:
  U.S. Treasury obligations .......      $ 3,049      $  --        $   (26)      $ 3,023
  Federal agency obligations ......        7,937         --           (249)        7,688
  Other bonds and obligations .....       31,177            1         (544)       30,634
  Mortgage-backed securities:
    FHLMC/ FNMA/GNMA ..............          547            2           (4)          545
    REMIC's and CMO's .............        9,584          105         (101)        9,588
  Asset-backed securities .........        3,253            2          (48)        3,207
                                         -------      -------      -------       -------
        Total debt securities .....       55,547          110         (972)       54,685

Mutual funds ......................          947         --           (148)          799
Marketable equity securities ......        9,507       28,446         (353)       37,600
                                         -------      -------      -------       -------
        Total securities
            available for sale ....      $66,001      $28,556      $(1,473)      $93,084
                                         =======      =======      =======       =======


Securities Held to Maturity
---------------------------      

Debt securities:
  Municipal bonds and obligations..      $ 6,720      $  --        $  --         $ 6,720
  Mortgage-backed securities:
    FHLMC/GNMA ....................        1,140            2           (4)        1,138
    REMIC's and CMO's .............        9,154            2          (92)        9,064
                                         -------      -------      -------       -------
        Total securities
            held to maturity ......      $17,014      $     4      $   (96)      $16,922
                                         =======      =======      =======       =======


        
                                       65
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        SECURITIES (concluded)

        The  amortized  cost and  estimated  fair  value of debt  securities  by
        contractual  maturity  at  December  31,  2000 is 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 ......................      $10,711      $10,694      $ 6,084      $ 6,084
Over 1 year to 5 years .............       27,086       26,633          225          225
Over 5 years to 10 years ...........        2,160        1,897        1,377        1,377
Over 10 years ......................        1,939        1,916        3,139        3,139
                                          -------      -------      -------      -------
         Total bonds and obligations       41,896       41,140       10,825       10,825
Mortgage-backed and asset-backed
    securities .....................       14,963       15,109       21,413       21,517
                                          -------      -------      -------      -------

         Total debt securities .....      $56,859      $56,249      $32,238      $ 32,342
                                          =======      =======      =======      ========

        
          

        At  December  31, 2000 and 1999,  the  Company  has  pledged  investment
        securities   with  an  amortized  cost  of  $7,592,000  and  $5,396,000,
        respectively,   and  a  fair  value  of   $7,584,000   and   $5,283,000,
        respectively,  to  a  commercial  bank,  as  collateral  for  repurchase
        agreements, and for its treasury tax and loan account.

        For the years ended December 31, 2000, 1999 and 1998,  proceeds from the
        sales  of  securities   available  for  sale  amounted  to  $32,854,000,
        $1,191,000 and $5,319,000,  respectively.  Gross realized gains amounted
        to $458,000, $685,000 and $511,000,  respectively. Gross realized losses
        amounted to $35,000, $194,000 and $86,000, respectively.


                                       66

      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.      LOANS

        A summary of the  balances  of loans  follows at  December  31, 2000 and
        1999:

       
         
         

                                                       2000               1999
                                                    ---------         ---------
                                                           (In thousands)

                                                                               
One- to four-family mortgage loans .........        $ 249,440         $ 245,240
Commercial mortgage loans ..................           63,871            46,419
Multi-family mortgage loans ................           15,699            14,793
Construction loans .........................           14,290            12,534
Home equity loans ..........................           34,471            33,168
Consumer loans .............................          248,662           175,568
Commercial loans ...........................          166,956           146,196
                                                    ---------         ---------
      Total loans ..........................          793,389           673,918

Allowance for loan losses ..................          (10,216)           (8,534)
Net deferred loan costs ....................              232               170
                                                    ---------         ---------
      Loans, net ...........................        $ 783,405         $ 665,554
                                                    =========         =========
        


        At December 31, 2000 and 1999, consumer loans include $0 and $2,425,000,
respectively, of loans which were held for sale.

        An  analysis  of the  allowance  for loan  losses  for the  years  ended
December 31, 2000, 1999 and 1998 follows:
       
         
 

                                            2000          1999             1998
                                         --------       --------       --------
                                                      (In thousands)
                                                                               
Balance at beginning of year ......      $  8,534       $  7,589       $  6,078
Provision for loan losses .........         3,170          3,030          2,055
Loans charged-off .................        (1,910)        (2,353)          (812)
Recoveries ........................           422            268            268
                                         --------       --------       --------
Balance at end of year ............      $ 10,216       $  8,534       $  7,589
                                         ========       ========       ========

        


                                      67



      
                 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
        nonaccrual loans at December 31, 2000 and 1999:

      

       
         

                                                              2000         1999
                                                             ------       ------
                                                                (In thousands)
                                                                                
Impaired loans with no valuation allowance ...........       $  395       $1,522
Impaired loans with a valuation allowance ............           71           50
                                                             ------       ------

Total impaired loans .................................       $  466       $1,572
                                                             ======       ======

Valuation allowance allocated to impaired loans ......       $    4       $   14
                                                             ======       ======

Nonaccrual loans .....................................       $2,869       $2,841
                                                             ======       ======

        


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

        For the years  ended  December  31,  2000,  1999 and 1998,  the  average
        recorded investment in impaired loans amounted to $1,094,000, $2,496,000
        and $3,015,000,  respectively.  The Company recognized $16,000,  $23,000
        and $218,000, 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 $19,359,000 and
        $24,963,000 at December 31, 2000 and 1999, respectively.  Consumer loans
        sold and serviced for others  amounted to $49,901,000 and $38,359,000 at
        December 31, 2000 and 1999, respectively.

        Substantially  all loans serviced for others were sold without  recourse
        provisions and are not included in the accompanying consolidated balance
        sheets.  However,  one consumer loan sale during 2000 included  recourse
        provisions  amounting  to  $7,740,000  at December  31,  2000,  and such
        recourse  provisions will expire by September 30, 2001.  These loans and
        the recourse  provision  are included in the  accompanying  consolidated
        balance sheet.



                                       68

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


5.      BANKING PREMISES AND EQUIPMENT

        A summary of the cost and accumulated  depreciation  and amortization of
        banking  premises and equipment and their estimated useful lives follows
        at December 31, 2000 and 1999:

       
         


                                                                   Estimated
                                       2000           1999         Use Lives
                                    --------       --------       ----------
                                         (In thousands)
                                                                     
Banking premises:
  Land .........................    $  1,558       $  1,558
  Buildings and improvements ...      16,074         15,138       5-50 years
Equipment ....................         6,537          5,639       2-38 years
Construction in process ......           996            323
                                    --------       --------
                                      25,165         22,658
Accumulated depreciation and
    amortization ..............      (12,795)       (11,127)
                                    --------       --------
                                    $ 12,370       $ 11,531
                                    ========       ========


        
         
        Construction  in process in 2000  includes a  renovation  project at the
        Allendale  branch.  Estimated  costs to complete are $534,000  including
        committed costs of $406,000.

        Construction  in process in 1999  includes a  renovation  project at the
        Bank's main office.  During 2000,  this project was  completed and costs
        were transferred to the applicable categories.

        Depreciation and  amortization  expense for the years ended December 31,
        2000,  1999 and 1998 amount to $1,668,000,  $1,860,000  and  $1,735,000,
        respectively.



                                       69

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6.      OTHER ASSETS

        Other assets consist of the following at December 31, 2000 and 1999:

       
         
        
                                                           2000            1999
                                                         -------         -------
                                                             (In thousands)
                                                                                
Prepaid dealer reserves ........................         $10,019         $ 6,211
Repossessed vehicles ...........................           3,177             996
Cash surrender values, life insurance ..........           4,171           3,470
Other ..........................................           2,725           1,324
                                                         -------         -------
       Total other assets ......................         $20,092         $12,001
                                                         =======         =======

        

7.      DEPOSITS

        A summary of deposit  balances,  by type,  is as follows at December 31,
2000 and 1999:

       
         
                                                        2000               1999
                                                      --------          --------
                                                          (In Thousands)
                                                                                
Demand .....................................          $ 76,750          $ 69,034
NOW ........................................            79,978            78,223
Savings ....................................           136,430           144,704
Money market ...............................           115,800            92,721
Escrow .....................................               863               782
                                                      --------          --------
       Total non-certificate accounts.......           409,821           385,464
                                                      --------          --------

Term certificates less than $100,000........           212,360           212,538
Term certificates of $100,000 or more.......           107,413            82,765
                                                      --------          --------
Total certificate accounts..................           319,773           295,303
                                                      --------          --------

       Total deposits ......................          $729,594          $680,767
                                                      ========          ========

        
                                       70

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        DEPOSITS (concluded)

        A summary of certificate  accounts by maturity is as follows at December
31, 2000 and 1999:

       
         
                                           2000                       1999
                                  ------------------------  ------------------------
                                                  Weighted                  Weighted
                                                   Average                   Average
                                   Amount           Rate      Amount          Rate
                                  --------          ----    --------          ---- 
                                                (Dollars in thousands)
                                                                                   
Within 1 year ..............      $226,596          6.03%   $206,556          5.13%
Over 1 year to 3 years .....        72,084          6.47      70,006          5.78
Over 3 years ...............        21,093          6.38      18,741          5.99
                                  --------                  --------           
                                  $319,773          6.15%   $295,303          5.34%
                                  ========                  ========           
        


                                       71

      

8.      FEDERAL HOME LOAN BANK ADVANCES

        A summary of  outstanding  advances  from the Federal  Home Loan Bank of
        Boston  ("FHLB"),  by  maturity,  is as follows at December 31, 2000 and
        1999:

       
         

                                         2000                          1999
                               -----------------------         ----------------------
                                              Weighted                       Weighted
                                               Average                        Average
                                 Amount          Rate           Amount          Rate
                                 ------          ----           ------          ----
                                                (Dollars in thousands)
                                                                                              
Fixed rate advances maturing:
2000                           $      -             - %        $23,995          5.46%         
2000                                  -             -              188 *        5.91        
2001                             49,000          6.59                -             -                
2002                              3,166 *        6.13            4,746 *        6.13              
2003                              3,000          6.61                -             -               
2003                              2,847 *        6.65                -             -                 
2004                              2,476 *        6.45            3,000 *        6.45              
2005                                  -             -            3,000          5.25        
2006                                627          5.67            6,627          5.12          
2006                                698 *        6.50              762 *        6.50              
2007                              4,000          5.95                -             -               
2007                              1,962 *        6.71                -             -                 
2009                              7,000          5.40            7,000          5.40            
2010                             20,000          5.84                -             -                
2011                                610          5.70              610          5.70          
2013                              6,000          5.19            9,000          4.85   
                               --------                        -------         
Total FHLB advances            $101,386          6.18%         $58,928          5.64%       
                               ========                        =======
        
* Amortizing advances requiring monthly principal and interest payments.



                                       72
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        FEDERAL HOME LOAN BANK ADVANCES (concluded)

        At December 31, 2000,  certain FHLB advances are callable in the amounts
        of  $22,000,000,  $6,000,000 and $9,000,000  during 2001, 2002 and 2003,
        respectively.

        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 obligations owned by the Bank.


9.      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  is as follows  for the years ended
        December 31, 2000 and 1999:

       
         
   

                                                           2000            1999
                                                         -------        -------                           
                                                          (Dollars in thousands)
                                                                                                          
        Balance at year end..........................    $ 2,030        $ 1,120                           
        Fair value of securities underlying the                             
           agreements at year end....................    $ 4,177        $ 1,930                           
        Interest rate on year end balance............       6.00%          5.20%           
                                                                            
        Average amount outstanding during year.......    $ 1,683        $ 5,923           
        Maximum amount outstanding at                                       
           any month-end..............................   $ 2,980        $ 9,300                                   
        Weighted average interest rate during the year      5.88%          4.70%   
                                                                                        
        
        

        The  Bank  also  has a  repurchase  agreement  line of  credit  with the
        Depositors  Insurance  Fund  of  up  to  $2,000,000  to  be  secured  by
        securities  or other  assets of the Bank.  As of  December  31, 2000 and
        1999, there were no outstanding borrowings against this agreement.



                                       73
      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


  10.   INCOME TAXES

        Allocation  of  federal  and state  income  taxes  between  current  and
        deferred  portions is as follows for the years ended  December 31, 2000,
        1999 and 1998:

       
         
                                              2000          1999          1998
                                            -------       -------       -------
                                                      (In thousands)
                                                                               
Current tax provision:
   Federal ...........................      $ 4,024       $ 1,743       $ 2,842
   State .............................        1,121           571           776
                                            -------       -------       -------
                                              5,145         2,314         3,618
                                            -------       -------       -------
Deferred tax provision (benefit):
   Federal ...........................       (1,822)          (75)         (727)
   State .............................         (561)          104           171
                                            -------       -------       -------
                                             (2,383)           29          (556)
                                            -------       -------       -------

Change in valuation reserve ..........         (402)         (348)         (294)
                                            -------       -------       -------

                                            $ 2,360       $ 1,995       $ 2,768
                                            =======       =======       =======

        
       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, 2000, 1999 and 1998:

       
         
        
                                                          2000         1999      1998
                                                          ----         ----      ----
                                                                                      
Statutory tax rate ...............................        34.0%       34.0%       34.0%
Increase (decrease) resulting from:
   State taxes, net of federal tax benefit .......         5.3         5.9         8.7
   Dividends received deduction .................        (3.3)       (2.9)       (3.4)
   Non-taxable appreciation of securities donated.          --        (3.6)       (2.2)
   Change in valuation reserve ...................        (5.8)       (4.6)       (4.1)
   Other, net ....................................         3.8        (2.6)        5.5
                                                          ----        ----        ----
Effective tax rates ..............................        34.0%       26.2%       38.5%
                                                          ====        ====        ==== 


        
                                       74
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        INCOME TAXES (continued)

        The  components  of the net  deferred  tax  liability  are as follows at
        December 31, 2000 and 1999:

       
         
         
                                                      2000                1999
                                                   --------            --------
                                                         (In thousands)
                                                                               
Deferred tax liability:
   Federal .............................           $ 10,898            $ 10,246
   State ...............................                635                 704
                                                   --------            --------
                                                     11,533              10,950
                                                   --------            --------

Deferred tax asset:
   Federal .............................             (5,652)             (3,975)
   State ...............................             (1,399)             (1,304)
                                                   --------            --------
                                                     (7,051)             (5,279)
   Valuation reserve ...................                 --                 402
                                                   --------            --------

                                                     (7,051)             (4,877)
                                                   --------            --------

Net deferred tax liability .............           $  4,482            $  6,073
                                                   ========            ======== 

        
        The tax effects of each type of income and  expense  item that give rise
        to deferred taxes are as follows at December 31, 2000 and 1999:

       
         

                                                        2000              1999
                                                     --------          --------
                                                          (In thousands)
                                                                               
Investments:
  Net unrealized gain on securities
    available for sale .....................         $ 10,604          $  9,410
  Other ....................................              649               546
Depreciation ...............................               53               308
Allowance for loan losses ..................           (4,126)           (3,032)
Employee benefit plans .....................           (1,192)           (1,380)
Charitable contribution carryover ..........           (1,598)             (196)
Other ......................................               92                15
                                                     --------          --------
                                                        4,482             5,671
Valuation reserve ..........................               --               402
                                                     --------          --------

Net deferred tax liability .................         $  4,482          $  6,073
                                                     ========          ========

        
                                       75

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        INCOME TAXES (concluded)

        A summary of the change in the net deferred tax  liability is as follows
        for the years ended December 31, 2000, 1999 and 1998:

       
         
        
                                                    2000          1999          1998
                                                  -------       -------       -------
                                                            (In thousands)
                                                                                     
Balance at beginning of year ...............      $ 6,073       $ 7,252       $ 5,711
Deferred tax (benefit) provision ...........       (2,383)           29          (556)
Deferred tax effects of net unrealized gains
   on securities available for sale ........        1,194          (860)        2,391
Utilization of valuation reserve ...........         (402)         (348)         (294)
                                                  -------       -------       -------
Balance at end of year .....................      $ 4,482       $ 6,073       $ 7,252
                                                  =======       =======       =======

        
 
        A summary  of the change in the  valuation  reserve  application  to the
        deferred tax assets is as follows for the years ended December 31, 2000,
        1999 and 1998:
       
         


                                                   2000            1999        1998
                                                  -------       -------       -------
                                                             (In thousands)
                                                                                     
Balance at beginning of year ...............      $   402       $   750       $ 1,044
Benefits utilized by current year 
     operations.............................         (402)         (348)         (497)
Change in future income assumptions ........           --            --           203
                                                  -------       -------       -------
Balance at end of year .....................      $    --       $   402       $   750
                                                  =======       =======       =======


        

        The valuation  reserve at December 31, 1998 related primarily to a state
        net operating loss carryfoward and a charitable  contribution carryover.
        The net  operating  loss  carryfoward  was used in full by December  31,
        1999. The charitable contribution  carryover,  which existed at December
        31,  1999,  was  used in full  by  December  31,  2000.  There  is a new
        contribution  carryover  at December 31,  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, 2000.

        The  federal  income tax reserve for loan losses at the Bank's base year
        is  approximately  $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 fiscal year in which
        used. As the Bank intends to use the reserve only to absorb loan losses,
        a deferred income tax liability of  approximately  $346,000 has not been
        provided.


                                       76

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


11.     COMMITMENTS AND CONTINGENCIES

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

        Loan commitments

        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 is as follows at December  31,
        2000 and 1999:

       
         
        
                                                             2000          1999
                                                           -------       -------
                                                               (In thousands)
                                                                                
Commitments to grant loans .........................       $37,882       $25,153
Unused funds on commercial lines-of-credit .........        48,485        49,103
Unadvanced funds on home equity and reddi-cash
   lines of credit .................................        36,672        36,429
Unadvanced funds on construction loans .............        12,350         4,732
Standby letters of credit ..........................         2,004         2,026

        

        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 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.

                                       77
      

                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        COMMITMENTS AND CONTINGENCIES (concluded)

        Operating lease commitments

        Pursuant to the terms of  noncancelable  lease  agreements  in effect at
        December 31, 2000, pertaining to banking premises and equipment,  future
        minimum rent commitments are as follows:

         
        Years Ending                
        December 31,        (In thousands)         
        ------------                                                
        2001                      $ 422                  
        2002                        417                  
        2003                        433                  
        2004                        432                  
        2005                        399                  
        Thereafter                1,445                  
                                 -------                  
                                $ 3,548                  
                                =======                  
                                



        The leases  contain  options to extend  for  periods  from ten to thirty
        years.  The cost of such  rentals  is not  included  above.  Total  rent
        expense for the years ended December 31, 2000, 1999 and 1998 amounted to
        $593,000, $448,000 and $244,000, respectively.

        Employment and change in control agreements

        The Company and the Bank have entered into  employment  agreements  with
        certain senior executives that generally provide 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.


                                       78


      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


12.     MINIMUM REGULATORY CAPITAL REQUIREMENTS

        The  Company  (on a  consolidated  basis)  and the Bank are  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 Company and the Bank must meet specific capital
        guidelines   that  involve   quantitative   measures  of  their  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 weightings, and other factors. Prompt corrective action
        provisions are not applicable to bank holding companies.

        Quantitative  measures  established  by  regulation  to  ensure  capital
        adequacy  require the Company and 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  (as  defined)  to  average  assets  (as
        defined).  Management  believes,  as of December 31, 2000 and 1999, that
        the Company and the Bank meet all capital adequacy requirements to which
        they are subject.

        As of December 31, 2000, the most recent  notification  from the Federal
        Deposit Insurance  Corporation  categorized the Bank 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.  There are no conditions or events since
        that  notification  that  management  believes  have  changed the Bank's
        category.



                                       79

      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        MINIMUM REGULATORY CAPITAL REQUIREMENTS (continued)

        The  Company's  and  Bank's  actual  capital  amounts  and  ratios as of
        December  31,  2000  and  1999  are also  presented  in the  table.  The
        Company's  capital amounts and ratios are not presented for December 31,
        1999 since the  conversion  was not  consummated  until  June 27,  2000.
        Berkshire Bancorp's capital amounts and ratios are set forth at December
        31, 1999.

       
         
                                                                 December 31, 2000
                                      ------------------------------------------------------------------------
                                                                                             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. ....................      $159,164         20.15%   $ 63,198        8.0%         N/A         N/A
   Berkshire Bank ..............       122,270         15.61      62,649        8.0     $ 78,311        10.0%

Tier 1 capital to risk
   weighted assets:

   Berkshire Hills Bancorp,
       Inc. ....................      135,238         17.12      31,599        4.0          N/A         N/A
   Berkshire Bank ..............        98,429         12.57      31,325        4.0       46,987         6.0

Tier 1 capital to average
   assets:

   Berkshire Hills Bancorp, 
       Inc. ....................      135,238         14.54      37,216        4.0          N/A         N/A
   Berkshire Bank ..............        98,429         10.64      37,003        4.0       46,253         5.0


        
                                       80




      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        MINIMUM REGULATORY CAPITAL REQUIREMENTS (concluded)

       
         
                                                                       December 31, 1999
                                              ------------------------------------------------------------------- 
                                                                                                   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 Bancorp ..................      $84,652         12.90%   $52,516        8.0%        N/A         N/A
   Berkshire Bank .....................       84,554         12.88     52,516        8.0     $64,645        10.0%

Tier 1 capital to risk weighted assets:

   Berkshire Bancorp ..................       63,870          9.73     26,258        4.0         N/A      N/A
   Berkshire Bank .....................       63,773          9.71     26,258        4.0      39,387         6.0

Tier 1 capital to average assets:

   Berkshire Bancorp ..................       63,870          7.91     32,309        4.0         N/A      N/A
   Berkshire Bank .....................       63,773          7.90     32,305        4.0      40,381         5.0


        

13.     EMPLOYEE BENEFIT PLANS

        Defined benefit pension plan

        The Company provides pension benefits for eligible  employees  through a
        defined benefit  pension plan. 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 pension plan.  Participants  become fully
        vested when credited with three years of service.


                                       81

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        EMPLOYEE BENEFIT PLANS (continued)

        Defined benefit pension plan (continued)

        Information pertaining to the activity in the plan is as follows:
       
         

        
                                                           Plan Years Ended October 31,
                                                      --------------------------------------
                                                        2000           1999            1998
                                                      --------       --------       --------
                                                                  (In thousands)
                                                                                            
Change in plan assets:
  Fair value of plan assets at 
       beginning of year .......................     $ 11,047       $  9,151       $  7,897
  Actual return on plan assets .................         1,639          1,753            654
  Employer contribution ........................           676            348            916
  Benefits paid ................................          (405)          (205)          (316)
                                                      --------       --------       --------
  Fair value of plan assets at end of year .....        12,957         11,047          9,151
                                                      --------       --------       --------

Change in benefit obligation:
  Benefit obligation at beginning of year ......         9,492          9,518          9,807
  Service cost .................................           564            519            611
  Interest cost ................................           736            642            711
  Actuarial gain ...............................           (18)          (982)        (1,295)
  Benefits paid ................................          (405)          (205)          (316)
                                                      --------       --------       --------
  Benefit obligation at end of year ............        10,369          9,492          9,518
                                                      --------       --------       --------

Funded status ..................................         2,588          1,555           (367)
Unrecognized net actuarial gain ................        (4,872)        (4,286)        (2,386)
Unrecognized prior service cost ................           171            183            194
                                                      --------       --------       --------

Accrued pension cost ...........................      $ (2,113)      $ (2,548)        (2,559)
                                                      ========       ========       ======== 


        
 
        The components of net periodic  pension cost are as follows for the plan
year ended October 31, 2000, 1999 and 1998:

       
         
        
                                                 2000         1999         1998
                                                -----        -----        -----
                                                          (In thousands)
                                                                               
Service cost ............................       $ 564        $ 519        $ 611
Interest cost ...........................         736          642          711
Expected return on plan assets ..........        (885)        (732)        (631)
Amortization of prior service cost ......          12           11           11
Recognized net actuarial gain ...........        (186)        (104)         (48)
                                                -----        -----        -----
                                                $ 241        $ 336        $ 654
                                                =====        =====        =====


        
                                       82

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        EMPLOYEE BENEFIT PLANS (continued)

        Defined benefit pension plan (concluded)

        Actuarial assumptions used in accounting were:
       
         

                                                                2000    1999    1998
                                                                ----    ----    ----
                                                                                     
        Discount rate on benefit obligations .............      7.75%   6.75%   7.25%
        Rates of increase in compensation levels .........      4.50    4.50    5.00
        Expected long-term rates of return on plan assets.      8.00    8.00    8.00
 
        

        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 up to 15% of
        their compensation  subject to certain limits based on federal tax laws.
        The Company may choose to make matching  contributions  equal to 100% of
        the first 3% of an  employee's  compensation  contributed  to the 401(k)
        Plan.  The  Company  made  matching   contributions  which  amounted  to
        $237,000,  $209,000  and  $201,000,  respectively,  for the years  ended
        December 31, 2000, 1999 and 1998.

        Supplemental employee retirement plan

        The Company has nonqualified  supplemental employee retirement plans for
        the benefit of certain senior executives. Benefits generally commence no
        earlier  than  age  sixty  and  continue  for  the  life  of the  senior
        executive.  As of December 31, 2000 and 1999, the Company has an accrued
        expense  payable in the amount of $808,000 and  $817,000,  respectively,
        representing the present value of future payments under the supplemental
        retirement  plans.  In some  instances,  the Company  has  entered  into
        split-dollar life insurance agreements with senior executives to provide
        supplemental retirement benefits.

        Incentive plan

        The  Company   adopted  an  incentive  plan  ("the  Plan")  whereby  all
        management  and staff  members are eligible to receive a bonus,  tied to
        performance,  of up to 10%  of net  operating  income  accrued  for on a
        monthly basis.  The structure of the Plan is to be reviewed on an annual
        basis by the  Executive  Committee.  The Plan  year end is  October  31.
        Incentive  compensation  expense for the years ended  December 31, 2000,
        1999  and  1998  amounted  to  $874,000,   $1,132,000  and   $1,007,000,
        respectively.


                                       83


      
                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        EMPLOYEE BENEFIT PLANS (concluded)

        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, 2000 and
        1999, the Company had an accrued liability in the amount of $584,000 and
        $626,000, respectively, for payment of future premiums under this plan.


14.     EMPLOYEE STOCK OWNERSHIP PLAN

        The  Company  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 613,901  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 annual payments of principal.

        At December  31, 2000,  the  remaining  principal  balance is payable as
        follow:

        Years Ending
        December 31,        (In thouands)      
        ------------
                                       
        2001                   $   242                    
        2002                       266                    
        2003                       292                    
        2004                       319                    
        2005                       352                    
        Thereafter               5,651                  
                               -------                  
                               $ 7,122                  
                               =======                  
        
 
        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
        members as the loan is paid. Total  compensation  expense  applicable to
        the ESOP amounted to $575,000 for the year ended December 31, 2000.


                                       84
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        EMPLOYEE STOCK OWNERSHIP PLAN (concluded)

        Shares held by the ESOP include the following at December 31, 2000:

        
        Allocated                                                         --  
        Committed to be allocated                                     40,868
        Unallocated                                                  573,033
                                                                     -------
                                                                     613,901
                                                                     =======


        The fair value of these shares was approximately  $9,669,000 at December
        31, 2000.


15.     RELATED PARTY TRANSACTIONS

        In the  ordinary  course  of  business,  the Bank has  granted  loans to
        directors and officers and their affiliates.  Such loans which aggregate
        more than $60,000 on an individual  basis,  amounted to  $4,710,000  and
        $5,233,000 at December 31, 2000 and 1999, respectively.

        During the year ended December 31, 2000 total  principal  additions were
        $454,000 and total principal payments were $977,000.


16.     BRANCH ACQUISITION

        On May 1,  1998,  the  Bank  entered  into  an  agreement  with  another
        financial  institution  in  Berkshire  County to  acquire  three  branch
        offices including loans receivable and deposit liabilities.

        The  Bank  paid   $7,463,000  as  a  premium  in  assuming  the  deposit
        liabilities and acquiring the assets,  and received  $44,843,000 in cash
        from the other  financial  institution.  The premium paid is recorded as
        goodwill and is being  amortized over a 15 year period.  The cost of the
        assets  acquired and value of liabilities  assumed as of August 21, 1998
        (the closing date) were as follows:

        
                                                                 (In thousands)
Assets
-------
Cash                                                                  $44,843
Loans, net                                                             16,833
Goodwill                                                                7,463
Accrued  interest  receivable  and other  assets                          643
                                                                     --------
        Total                                                        $ 69,782
                                                                     ========

Liabilities
-----------

Deposits                                                             $ 69,682
Accrued expenses and other liabilities                                    100 
                                                                     --------
        Total                                                        $ 69,782
                                                                     ========



                                       85
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


17.     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, 2000 and 1999, the Bank's  retained  earnings  available
        for  the  payment  of  dividends  was   $70,973,000   and   $47,393,000,
        respectively,  and funds  available  for loans or  advances  amounted to
        $2,319,000 and $2,319,000, 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.


18.     FAIR VALUE OF FINANCIAL INSTRUMENTS

        SFAS No. 107,  "Disclosures about Fair Value of Financial  Instruments,"
        requires   disclosure   of  estimated   fair  values  of  all  financial
        instruments  where it is practicable  to estimate such values.  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
        derived fair value estimates  cannot be  substantiated  by comparison to
        independent  markets  and,  in many  cases,  could  not be  realized  in
        immediate  settlement of the instrument.  SFAS No. 107 excludes  certain
        financial  instruments  and  all  non-financial   instruments  from  its
        disclosure requirements.  Accordingly,  the aggregate fair value amounts
        presented do not represent the underlying value of the Company.


                                       86
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

        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 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.

                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.


                                       87

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)

        The  carrying  amounts  and  estimated  fair  values  of  the  Company's
financial instruments are as follows at December 31, 2000 and 1999:
       
         
                                                           2000                        1999
                                                 ---------------------       ---------------------
                                                 Carrying        Fair        Carrying        Fair                     
                                                  Amount         Value        Amount         Value
                                                  ------         -----        ------         -----
                                                                    (In thousands)
                                                                                                  
Financial assets:
    Cash and cash equivalents .............     $ 43,612     $ 43,612     $ 24,642     $ 24,642
    Securities available for sale .........       99,309       99,309       93,084       93,084
    Securities held to maturity ...........       32,238       32,342       17,014       16,922
    Federal Home Loan Bank stock ..........        5,651        5,651        3,843        3,843
    Loans,  net ...........................      783,405      772,970      665,554      644,276
    Accrued interest receivable ...........        6,310        6,310        4,910        4,910
    Savings Bank Life Insurance stock .....        2,043        2,043        2,043        2,043

Financial liabilities:
    Deposits ..............................      729,594      730,451      680,767      679,432
    Federal Home Loan Bank advances .......      101,386      102,874       58,928       58,439
    Securities sold under agreements
       to repurchase ......................        2,030        2,030        1,120        1,120

        
                                       88



      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


19.     CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

        Financial information  pertaining only to the parent company,  Berkshire
Hills Bancorp, Inc. commencing June 27, 2000 is as follows:
       
         

                             CONDENSED BALANCE SHEET
                             -----------------------


                                                                     December 31, 
Assets                                                                   2000
------                                                                 ---------
                                                                    (In thousands)
                                                                                
Cash due from Berkshire Bank ....................................       $ 12,740
Securities available for sale, at fair value.....................         13,937
Investment in common stock of Berkshire Bank ....................        124,590
Investment in common stock of Berkshire Hills Funding Corp. .....          8,020
Other assets ....................................................          2,050
                                                                        --------
      Total assets ..............................................       $161,337
                                                                        ========

Liabilities and Stockholders' Equity
------------------------------------

Accounts payable ................................................       $     15
Stockholders' equity ............................................        161,322
                                                                        --------
      Total liabilities and stockholders' equity ................       $161,337
                                                                        ========


        
                                       89

      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (continued)
       
         

                          CONDENSED STATEMENT OF INCOME
                          -----------------------------

                                                                    Period Ended
                                                                     December 31,
                                                                     ------------
                                                                         2000
                                                                   (In thousands)
                                                                         
Income:
   Dividends from Berkshire Bank ..................................     $   800
   Interest on securities .........................................         205
                                                                        -------
     Total income .................................................       1,005
                                                                        -------

Operating expenses:
   Charitable contribution ........................................       5,684
   Other ..........................................................          72
                                                                        -------
     Total operating expenses .....................................       5,756
                                                                        -------

Loss before income taxes and equity in
   undistributed income of subsidiaries ...........................      (4,751)
Applicable income tax benefit .....................................      (1,932)
                                                                        -------

Loss before equity in undistributed  income of subsidiaries .......      (2,819)
Equity in undistributed income of Berkshire Bank ..................       7,082
Equity in undistributed income  of Berkshire Hills Funding Corp. ..         319
                                                                        -------
     Net income ...................................................     $ 4,582
                                                                        =======


        


                                       90
      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


        CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (concluded)
       
         

                        CONDENSED STATEMENT OF CASH FLOWS
                        ---------------------------------


                                                                     Period Ended
                                                                     December 31,
                                                                          2000
                                                                       --------
                                                                    (In thousands)
                                                                               
Cash  flows  from  operating  activities:
   Net  income .................................................       $  4,582
   Adjustments  to reconcile net income
      to net cash provided by operating activities:
        Equity in undistributed income of Berkshire Bank .......         (7,082)
        Equity in undistributed income of Berkshire Hills
            Funding Corporation ................................           (319)
        Charitable contribution in the form of Berkshire
            Hills Bancorp, Inc. common stock ...................          5,684
        Deferred tax benefit ...................................         (1,598)
        Net amortization of securities .........................            (10)
        Other, net .............................................           (320)
                                                                       --------
            Net cash provided by operating activities ..........            937
                                                                       --------

Cash flows from investing activities:
   Activity in available-for-sale securities:
        Sales ..................................................          1,000
        Maturities .............................................          1,950
        Principal payments .....................................             25
        Purchases ..............................................        (16,958)
   Investment in Berkshire Bank ................................        (34,192)
   Investment in Berkshire Hills Funding Corporation ...........         (7,701)
                                                                       --------
            Net cash used in investing activities ..............        (55,876)
                                                                       --------

Cash flows from financing activities:
   Proceeds from issuance of common stock ......................         68,386
   Dividends paid ..............................................           (707)
                                                                       --------
            Net cash provided by investing activities ..........         67,679
                                                                       --------

Net change in cash and cash equivalents ........................         12,740

Cash and cash equivalents at beginning of period ...............           --
                                                                       --------

Cash and cash equivalents at end of period .....................       $ 12,740
                                                                       ========

        
                                       91


      


                 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)


20.     QUARTERLY DATA (UNAUDITED)

        Quarterly  results of operations  for the years ended  December 31, 2000
        and 1999 are as follows:

       
         
                                                 2000                                         1999
                               -------------------------------------------   ----------------------------------------
                                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   $ 19,503   $ 18,826   $ 17,143    $ 15,546   $ 15,315   $ 15,022   $ 14,213   $ 13,918
Interest expense............      9,235      8,639      8,250       7,343      7,374      6,766      6,486      6,296
                               --------   --------   --------    --------   --------   --------   --------   --------
Net interest income.........     10,268     10,187      8,893       8,203      7,941      8,256      7,727      7,622
Provision for loan losses...        740        810        810         810      1,005        675        675        675
Other income................      1,242      1,161        965       1,378      1,258        830        885      1,325
Operating expenses (1)......      7,057      6,742     11,954       6,432      6,993      6,147      6,130      5,926
Provision (benefit) for
income taxes ...............      1,256      1,297       (975)        782        314        593        473        615
                               --------   --------   --------    --------   --------   --------   --------   --------
Net income (loss)...........   $  2,457   $  2,499   $ (1,931)   $  1,557   $    887   $  1,671   $  1,334   $  1,731
                               ========   ========   ========    ========   ========   ========   ========   ========

Earnings per share (2):
Basic ......................   $   0.35   $   0.35        N/A         N/A        N/A        N/A        N/A        N/A
Diluted ....................   $   0.35   $   0.35        N/A         N/A        N/A        N/A        N/A        N/A

        


        Notes:  (1) Operating  expenses in the 2000 second quarter were impacted
                    by the $5,684,000 charitable contribution in connection with
                    the conversion to a stock institution.
                    
                (2) Earnings  per share is not  applicable  ("N/A") for quarters
                    prior  to  the  2000  third  quarter  since  shares  of  the
                    Company's stock were not issued until June 27, 2000.


21.     SUBSEQUENT EVENTS

        At the January 23, 2001  Special  Meeting of  Stockholders  of Berkshire
        Hills Bancorp,  Inc., the 2001 Stock-based  Incentive Plan was approved.
        Subject to the terms of the Plan,  all employees  and Outside  Directors
        shall be eligible to received Awards under the Plan. The Awards that may
        be granted under the Plan are  non-statutory  stock  options,  incentive
        stock  options,  and stock  awards.  The number of shares  available for
        issuance as stock options is 767,376. The number of shares available for
        issuance  as  restricted  stock  awards  is  306,950.  The Plan  will be
        administered by a Committee appointed by the Board of Directors.

        On January  24,  2001,  the Board of  Directors  voted to cease  defined
        benefit pension plan accruals effective February 28, 2001 in conjunction
        with  termination  of the Plan.  As a result,  the  Company  expects  to
        recognize a  settlement  gain during the year 2001.  Termination  of the
        Plan is subject to approval by the Internal Revenue Service.



                                       92

      


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

         None.





                                       93
      


                                    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 I -- Election of
Directors" and "Directors  Compensation" in Berkshire Hills' Proxy Statement for
the 2001 Annual  Meeting of  Stockholders  is  incorporated  by  reference.  For
information  concerning  officers of the  Company,  reference is made to Part I,
Item  1,  "Business--Executive  Officers  of the  Registrant"  in  this  report.
Reference is made to the cover page of this report and to the section  captioned
"Compliance  with Section 16(a) of the "Exchange Act" in the Proxy Statement for
information regarding compliance with Section 16(a) of the Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (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.

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.


                                     PART IV

ITEM 14. 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, 2000 and 1999

               o Consolidated  Statements of Income for the Years Ended December
                 31, 2000, 1999 and 1998

               o Consolidated  Statements of Changes in Stockholders' Equity for
                 the Years Ended December 31, 2000, 1999, and 1998

               o Consolidated  Statements  of Cash  Flows for the  Years  Ended
                 December 31, 2000, 1999, and 1998

               o Notes to Consolidated Financial Statements


                                       94
      


         (2)   Financial Statement Schedules

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

         (3)   Exhibits

               3.1    Certificate of  Incorporation  of Berkshire Hills Bancorp,
                      Inc. (1)
               3.2    Bylaws of Berkshire Hills Bancorp, Inc. (1)
               4.0    Draft Stock  Certificate of Berkshire Hills Bancorp,  Inc.
                      (1)
               10.1   Employment  Agreement  between Berkshire Bank and James A.
                      Cunningham, Jr.
               10.2   Employment  Agreement between Berkshire Bank and Robert A.
                      Wells
               10.3   Employment  Agreement  between Berkshire Bank and Susan M.
                      Santora
               10.4   Employment Agreement between Berkshire Bank and Michael P.
                      Daly
               10.5   Employment Agreement between Berkshire Bank and Charles F.
                      Plungis, Jr.
               10.6   Employment Agreement between Berkshire Hills Bancorp, Inc.
                      and James A. Cunningham, Jr.
               10.7   Employment Agreement between Berkshire Hills Bancorp, Inc.
                      and Robert A. Wells
               10.8   Employment Agreement between Berkshire Hills Bancorp, Inc.
                      and Susan M. Santora
               10.9   Employment Agreement between Berkshire Hills Bancorp, Inc.
                      and Michael P. Daly
               10.10  Employment Agreement between Berkshire Hills Bancorp, Inc.
                      and Charles F. Plungis, Jr.
               10.11  Form of Berkshire  Bank  Employee  Severance  Compensation
                      Plan (1)
               10.12  Form of Berkshire Bank Supplemental  Executive  Retirement
                      Plan (1)
               21.0   Subsidiary Information is incorporated herein by reference
                      to Part I, Item 1, "Business -
               23.0   Consent of Wolf & Company, P.C.

               --------------------
               (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.

(b)      Reports on Form 8-K

         None.



                                       95
      


                                   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:  March 21, 2001                 By:  /s/ James A. Cunningham, Jr.
                                           ----------------------------
                                           James A. Cunningham, Jr.
                                           President, Chief Executive Officer
                                           and Director

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



 
/s/ James A. Cunningham, Jr.   President, Chief Executive Officer March 21, 2001
----------------------------   and Director
James A. Cunningham, Jr.       (principal executive officer) 
                              

/s/ Charles F. Plungis, Jr.    Senior Vice President, Treasurer   March 21, 2001
--------------------------     and Chief Financial Officer  
Charles F. Plungis, Jr.        (principal accounting        
                               and financial officer)      
                               


/s/ Robert A. Wells            Chairman of the Board              March 21, 2001
-------------------
Robert A. Wells


/s/ Thomas O. Andrews          Director                           March 21, 2001
---------------------
Thomas O. Andrews


/s/ Thomas R. Dawson, CPA      Director                           March 21, 2001
-------------------------
Thomas R. Dawson


/s/ Henry D. Granger           Director                           March 21, 2001
--------------------
Henry D. Granger


/s/ A. Allen Gray, Esq.        Director                           March 21, 2001
----------------------
A. Allen Gray


/s/ John Kittredge             Director                           March 21, 2001
------------------
John Kittredge

      

/s/ Peter J. Lafayette         Director                           March 21, 2001
----------------------
Peter J. Lafayette


/s/ Edward G. McCormick, Esq.  Director                           March 21, 2001
-----------------------------
Edward G. McCormick


/s/ Catherine B. Miller        Director                           March 21, 2001
-----------------------
Catherine B. Miller


/s/ Michael G. Miller          Director                           March 21, 2001
---------------------
Michael G. Miller


/s/ Raymond B. Murray, III     Director                           March 21, 2001
--------------------------
Raymond B. Murray, III


/s/ Louis J. Oggiani, Esq.     Director                           March 21, 2001
--------------------------
Louis J. Oggiani


/s/ Robert S. Raser            Director                           March 21, 2001
-------------------
Robert S. Raser


/s/ Corydon L. Thurston        Director                           March 21, 2001
-----------------------
Corydon L. Thurston


/s/ Ann H. Trabulsi            Director                           March 21, 2001
-------------------
Ann H. Trabulsi


/s/ William E. Williams        Director                           March 21, 2001
-----------------------
William E. Williams


/s/ Anne Everest Wojtkowski    Director                           March 21, 2001
---------------------------
Anne Everest Wojtkowski


(Back To Top)

Section 2: EX-10.1




                                 BERKSHIRE BANK
                              EMPLOYMENT AGREEMENT


         This EMPLOYMENT  AGREEMENT  ("Agreement")  is made effective as of June
27, 2000 (the "Effective  Time"), by and between Berkshire Bank (the "Bank"),  a
state-chartered  savings  institution,  with its  principal  offices at 24 North
Street,  Pittsfield,  Massachusetts,  01202,  Berkshire Hills Bancorp, Inc. (the
"Holding  Company"),  a  corporation  organized  under  the laws of the state of
Delaware  and the  holding  company of the Bank,  and James A.  Cunningham,  Jr.
("Executive").

         WHEREAS, the Bank believes that the assurance of Executive's employment
by the Bank for the  term of this  Agreement  and the  benefit  of his  business
experience are of material importance; and

         WHEREAS,  Executive  desires  to serve in the  employ  of the Bank on a
full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties to this Agreement hereby agree as follows:

1.       POSITIONS AND RESPONSIBILITIES

(a) During the term of this Agreement Executive agrees to serve as President and
Chief Executive Officer of the Bank.  Executive shall render  administrative and
management services to the Bank such as are customarily  performed by persons in
a similar executive capacity. During the term of this Agreement,  Executive also
agrees to serve,  if elected as director of the Bank and in such  capacity  will
carry  out such  duties  and  responsibilities  reasonably  appropriate  to that
office.

(b) During the term of Executive's  employment under this Agreement,  except for
periods of absence occasioned by illness,  vacation, and other reasonable leaves
of  absence,  Executive  shall  devote  substantially  all  his  business  time,
attention,  skill,  and efforts to the faithful  performance of his duties under
this Agreement,  including  activities and services related to the organization,
operation and  management of the Bank,  as well as  participation  in community,
professional and civic organizations; provided, however, that, with the approval
of the Board of Directors of the Bank (the "Board of  Directors"),  as evidenced
by a resolution  of the Board of  Directors,  from time to time,  Executive  may
serve,  or continue to serve,  on the boards of directors of, and hold any other
offices or positions in, companies or  organizations,  which, in the judgment of
the Board of Directors,  will not present any conflict of interest with the Bank
or materially  affect the  performance  of Executive's  duties  pursuant to this
Agreement.

(c) Notwithstanding anything herein contained to the contrary,  either Executive
or the  Bank  may  terminate  Executive's  employment  with the Bank at any time
during the term of this  Agreement,  subject to the terms and conditions of this
Agreement.

 
                                      - 1 -

      



2.       TERM OF EMPLOYMENT

Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective  Time and shall  continue for a period of thirty-six  (36) full
calendar months from the Effective Time.  Commencing on the date of execution of
this  Agreement,  the term of this  Agreement  shall extend for one day each day
until such time as the Board of Directors or Executive  elects not to extend the
term of the Agreement by giving written notice to the other party, in which case
the term of this  Agreement  shall  become  fixed  and  shall  end on the  third
anniversary of the date of such written notice.

3.       COMPENSATION, BENEFITS AND REIMBURSEMENT

(a) Base Salary. The Holding Company shall pay Executive an annual salary of not
less than $320,000 ("Base Salary").  Executive's Base Salary shall be payable in
accordance with the normal payroll practices of the Bank.  Whenever used in this
Agreement,  Base Salary shall  include any amounts of  compensation  deferred by
Executive  under any  tax-qualified  retirement  or welfare  benefit plan or any
other deferred compensation  arrangement maintained by the Bank. During the term
of this Agreement,  the Board of Directors or a committee appointed by the Board
of Directors  shall  review  Executive's  Base Salary at least  annually and the
Board of Directors or the committee may increase  Executive's Base Salary at any
time.  Any  increase  in  Executive's  Base Salary  shall  become a term of this
Agreement and shall be the new "Base Salary" for purposes of this Agreement.

(b) Incentive Compensation.  In addition to his Base Salary,  Executive shall be
entitled  to  participate  in and shall  receive  payments  under any  incentive
compensation  bonus  program  sponsored  by  the  Bank.   Executive's  incentive
compensation  shall be  determined  by the  Board of  Directors  or a  committee
appointed  by the  Board  of  Directors  at a level  appropriate  for  executive
officers.

(c) Supplemental Pension and Life Insurance.  The Bank shall continue to provide
to  Executive,  without  cost,  the  supplemental  pension  and  life  insurance
arrangements in place at the Effective Time. The  supplemental  pension and life
insurance arrangements shall be governed by the terms of the specific agreements
in effect at the Effective Time.

(d) Club Dues.  In addition to any other  compensation  provided  for under this
Agreement,  the Bank shall pay Executive an amount  sufficient,  on an after-tax
basis, to maintain his membership at the Country Club of Pittsfield.

(e) Automobile and Cellular  Phone.  The Bank shall provide  Executive with, and
Executive  shall have the primary use of, an  automobile  owned or leased by the
Bank and the  Bank  shall  pay (or  reimburse  Executive)  for all  expenses  of
insurance, registration,  operation and maintenance of the automobile. Executive
shall comply with  reasonable  reporting and expense  limitations  on the use of
such automobile,  as the Board of Directors may establish from time to time, and
the Holding Company or the Bank shall annually  include on Executive's  Form W-2
any amount attributable to Executive's personal use of such automobile. The Bank
shall also provide Executive with a cellular

 
                                      - 2 -

      



phone and shall pay (or reimburse Executive) for all reasonable expenses related
to the business use of such phone.

(f) Vacation;  Holidays;  Sick Time.  Executive shall be entitled to vacation in
accordance with the standard  vacation policies of the Bank for senior executive
officers,  but in no event less than four (4) weeks vacation during each year of
employment.  Executive shall take vacation at a time mutually agreed upon by the
Bank and Executive.  Executive  shall receive his Base Salary and other benefits
during  periods of  vacation.  Executive  shall also be  entitled  to paid legal
holidays in accordance  with the policies of the Bank.  Executive  shall also be
entitled to sick leave in  accordance  with the  policies of the Bank for senior
executive  officers,  but in no event less than the number of days of sick leave
per year to which Executive was entitled at the Effective Time.

(g) Other Employee  Benefits.  In addition to any other compensation or benefits
provided for under this  Agreement,  Executive  shall be entitled to continue to
participate in any employee  benefit plans,  arrangements and perquisites of the
Bank in which he  participates  or is eligible to  participate  at the Effective
Time.  Executive shall also be entitled to participate in any employee  benefits
or perquisites the Bank offers to full-time employees or executive management in
the future. The Bank will not, without  Executive's prior written consent,  make
any changes in such plans,  arrangements  or perquisites  which would  adversely
affect  Executive's rights or benefits  thereunder without separately  providing
for an arrangement that ensures Executive  receives or will receive the economic
value that Executive  would  otherwise lose as a result of such adverse  effect.
Without  limiting the generality of the foregoing  provisions of this paragraph,
Executive  shall be entitled to  participate  in or receive  benefits  under all
plans  relating to stock  options,  restricted  stock awards,  stock  purchases,
pension,  profit sharing,  employee stock  ownership,  supplemental  retirement,
group life  insurance,  medical and other health and welfare  coverage  that are
made  available by the Bank at the  Effective  Time or at any time in the future
during the term of this Agreement, subject to and on a basis consistent with the
terms,  conditions and overall  administration  of such plans and  arrangements.
Nothing paid to Executive under any such plans or arrangements will be deemed to
be in lieu of other  compensation  to which  Executive  is  entitled  under this
Agreement.

4.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

(a) Upon the  occurrence of an Event of  Termination  (as defined  herein below)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination of
Executive's full-time employment under this Agreement by the Bank for any reason
other  than a  termination  governed  by  Section 7 of this  Agreement;  or (ii)
Executive's  resignation from his employment with the Bank upon, any (A) failure
to elect or re-elect or to appoint or re-appoint  Executive to his positions set
forth in Section 1 of this Agreement,  unless Executive  consents to such event,
(B) material change in Executive's  functions,  duties, or responsibilities with
the Bank or its subsidiaries,  which change would cause Executive's  position(s)
to become one of lesser responsibility,  importance,  or scope, unless Executive
consents  to such  event,  (C)  relocation  of  Executive's  principal  place of
employment by more than twenty-five (25) miles from its location


                                      - 3 -

      
at the Effective Time,  unless  Executive  consents to such event,  (D) material
reduction in the benefits and perquisites provided to Executive from those being
provided as of the Effective Time of this Agreement,  unless Executive  consents
to such event,  (E)  liquidation or  dissolution  of the Holding  Company or the
Bank, or (F) breach of this Agreement by the Bank or the Holding  Company.  Upon
the occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above,  Executive  shall have the right to terminate his  employment  under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six (6) full calendar months after the applicable event giving rise
to Executive's right to elect to terminate his employment.

(b) Upon  Executive's  termination  from employment in accordance with paragraph
(a) of this  Section 4, on the Date of  Termination,  as defined in Section 8 of
the Agreement, the Bank shall be obligated to pay Executive, or, in the event of
his death following the Date of Termination,  his beneficiary or  beneficiaries,
or his estate,  as the case may be, an amount  equal to the sum of: (i) the Base
Salary and incentive compensation that would have been paid to Executive for the
remaining  term of this  Agreement  had the Event of  Termination  not  occurred
(based on Executive's then current Base Salary and most recently paid or accrued
bonus at the  time of the  Event  of  Termination);  plus  (ii)  the  value,  as
calculated by a recognized firm  customarily  performing such valuation,  of any
stock  options  which  as of the  Date of  Termination,  have  been  granted  to
Executive but are not  exercisable  by Executive and the value of any restricted
stock awards which have been granted to Executive,  but in which  Executive does
not  have  a  non-forfeitable  or  fully-vested  interest  as  of  the  Date  of
Termination;  plus (iii) the value of all employee benefits that would have been
provided to Executive for the remaining  term of this  Agreement had an Event of
Termination  not  occurred,  based on the  most  recent  level of  contribution,
accrual or other participation by or on behalf of Executive.  At the election of
Executive,  which election is to be made prior to the Date of Termination,  such
payments  shall be made in a lump sum.  In the event that no  election  is made,
payment to  Executive  will be made on a monthly  basis in  approximately  equal
installments during the remaining unexpired term of the Agreement. Such payments
shall not be reduced in the event Executive  obtains other employment  following
termination of employment.

(c) In addition to the payments provided for in paragraph (b) of this Section 4,
upon Executive's  termination of employment in accordance with the provisions of
paragraph  (a) of this Section 4, to the extent that the Holding  Company or the
Bank  continues  to offer  any  life,  medical,  health,  disability  or  dental
insurance plan or arrangement in which Executive participates in on the last day
of his  employment  (each  being a "Welfare  Plan"),  Executive  and his covered
dependents shall continue  participating  in such Welfare Plans,  subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of  Termination  until the  earlier of (i) his death (ii) his
employment by another  employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank  does  not  offer  the  Welfare  Plans at any time  after  the  Event of
Termination,  then the Bank shall provide  Executive with a payment equal to the
premiums  for such  benefits  for the period which runs until the earlier of (i)
his death (ii) his employment by another  employer other than one of which he is
the majority owner or (iii) the end of the remaining term of this Agreement.


                                      - 4 -

      
5.       CHANGE IN CONTROL

(a) For purposes of this Agreement, a "Change in Control" 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 Bank 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
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 Holding  Company  representing  20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding  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 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 Bank or the Holding Company
or similar  transaction  occurs in which the Bank 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 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  Holding  Company  shall  be
distributed;  or (E) a  tender  offer  is made  for  20% or  more of the  voting
securities of the Bank or the Holding Company.

(b)  If any of the  events  described  in  paragraph  (a)  of  this  Section  5,
constituting  a Change in  Control,  have  occurred  or the  Board of  Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon his termination of employment at any time during the term of this Agreement
on or  after  the date the  Change  in  Control  occurs  due to (1)  Executive's
dismissal or (2) Executive's  resignation following any demotion, loss of title,
office  or  significant   authority  or  responsibility,   reduction  in  annual
compensation or benefits or relocation of his principal place of employment by


                                      - 5 -

      
more than  twenty-five  (25) miles from its  location  immediately  prior to the
Change  in  Control,  unless  such  termination  is  because  of  his  death  or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this Agreement.

(c)  Upon  the  occurrence  of a  Change  in  Control  followed  by  Executive's
termination of  employment,  as provided in paragraph (b) of this Section 5, the
Bank  shall  pay  Executive,  or in the  event  of  his  subsequent  death,  his
beneficiary or  beneficiaries,  or his estate,  as the case may be, as severance
pay or  liquidated  damages,  or both,  a sum  equal to the  greater  of: 1) the
payments and benefits due for the  remaining  term of the  Agreement or 2) three
(3) times Executive's average annual compensation from the Holding Company,  the
Bank or their affiliates for the five (5) preceding taxable years or such lesser
number of years in the event that Executive shall have actually been employed by
the Bank for less than five (5) years. In determining Executive's average annual
compensation,  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  (whether  paid or  accrued  for the  applicable  period),  as well  as,
severance payments,  retirement benefits,  director or committee fees and fringe
benefits paid or to be paid to Executive or paid for Executive's  benefit during
any  such  year,  profit  sharing,  employee  stock  ownership  plan  and  other
retirement  contributions or benefits,  including to any  tax-qualified  plan or
arrangement  (whether or not taxable)  made or accrued on behalf of Executive of
such year. At the election of Executive,  which  election is to be made prior to
or within thirty (30) days of the Date of  Termination  on or following a Change
in Control,  such payment may be made in a lump sum (without  discount for early
payment) on or immediately  following the Date of Termination  (which may be the
date a Change in Control  occurs) or paid in equal monthly  installments  during
the sixty (60) months following  Executive's  termination.  In the event that no
election is made,  payment to Executive  will be made on a monthly  basis during
the sixty (60) months following Executive's termination.

(d) Upon the  occurrence of a Change in Control,  Executive  will be entitled to
receive benefits due him under or contributed by the Bank on his behalf pursuant
to any  retirement,  incentive,  profit  sharing  or  other  retirement,  bonus,
performance, disability or other employee benefit plan maintained by the Bank on
Executive's  behalf  to the  extent  such  benefits  are not  otherwise  paid to
Executive  under a  separate  provision  of this  Agreement.  In  addition,  for
purposes of determining his vested accrued benefit,  Executive shall be credited
either under any defined  benefit pension plan maintained by the Bank or, if not
permitted  under such plan,  under a separate  arrangement,  with the additional
"years of service"  that he would have  earned for  vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  his  employment  not
terminated.

(e) Upon the  occurrence of a Change in Control and  Executive's  termination of
employment in connection  therewith,  the Bank will cause to be continued  life,
medical  and  disability  coverage  substantially   identical  to  the  coverage
maintained  by the Bank for Executive  and any of his  dependents  covered under
such plans prior to the Change in Control.  Such  coverage  and  payments  shall
cease upon the expiration of thirty-six (36) full calendar months  following the
Date of Termination.  In the event Executive's participation in any such plan or
program is barred by reason of his not being an employee, the Bank shall arrange
to provide Executive and his dependents with

 
                                      - 6 -

      
benefits  substantially  similar to those of which  Executive and his dependents
would otherwise have been entitled to receive under such plans and programs from
which  their  continued  participation  is  barred  or  provide  their  economic
equivalent.

(f) The use or provision of any  membership,  license,  automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place  immediately  prior to the
Change in  Control.  To the extent that any item  referred to in this  paragraph
will,  at the end of the term of this  Agreement,  no  longer  be  available  to
Executive,  Executive  will have the option to purchase  all rights then held by
the Bank to such  item for a price  equal to the then fair  market  value of the
item.

(g) In the event that  Executive  is  receiving  monthly  payments  pursuant  to
Section  5(c)  hereof,  on an annual  basis,  thereafter,  between  the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount  payable  under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis  pursuant to such  section.  Such  election  shall be
irrevocable for the year for which such election is made.

6.       CHANGE IN CONTROL RELATED PROVISIONS

         Notwithstanding  the  provisions  of Section  5, 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 provided by Section 5 shall be determined by Executive.

7.       TERMINATION FOR CAUSE

         The term  "Termination  for Cause"  shall mean  termination  because of
Executive's  personal  dishonesty,  willful misconduct,  any 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.  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  three-fourths
(3/4) of the  members  of the Board of  Directors  at a meeting  of the Board of
Directors 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
of Directors), finding that in the good faith opinion of the Board of Directors,
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

 
                                      - 7 -

      



Notice  of  Termination  pursuant  to  Section  8  hereof  through  the  Date of
Termination,  stock  options  granted to  Executive  under any stock option plan
shall not be  exercisable  nor shall any  unvested  awards  granted to Executive
under any stock benefit plan of the Bank, vest. At the Date of Termination, such
stock options and any such unvested  awards shall become null and void and shall
not be exercisable  by or delivered to Executive at any time  subsequent to such
Termination for Cause.

8.       NOTICE

(a) Any purported  termination by the Bank or by Executive 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 case of a Termination for Cause,  shall not be less
than thirty (30) days from the date such Notice of Termination is given).

(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,  except upon the  occurrence of a
Change in Control and voluntary  termination by Executive in which case the Date
of  Termination  shall  be  the  date  specified  in the  Notice,  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,  the Bank will continue to pay
Executive  his full  compensation  in effect when the notice  giving rise to the
dispute was given (including,  but not limited to, Base Salary) and continue him
as a participant in all  compensation,  benefit and insurance  plans in which he
was  participating  when the notice of dispute  was given,  until the dispute is
finally  resolved in  accordance  with this  Agreement.  Amounts paid under this
Section 8 are in addition  to all other  amounts  due under this  Agreement  and
shall not be  offset  against  or  reduce  any  other  amounts  due  under  this
Agreement.

9.       POST-TERMINATION OBLIGATIONS

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section  9 for one (1) full  year  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Bank. Executive shall, upon reasonable notice,  furnish such
information and assistance to the Bank as may reasonably be required by the Bank
in  connection  with any  litigation in which it or any of its  subsidiaries  or
affiliates is, or may become, a party.

 
                                      - 8 -

      



10.      NON-COMPETITION AND NON-DISCLOSURE

(a) Upon any termination of Executive's employment hereunder pursuant to Section
4 hereof,  Executive agrees not to compete with the Bank for a period of one (1)
year following such termination in any city, town or county in which Executive's
normal  business  office is  located  and the Bank 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 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  Bank.  The  parties  hereto,   recognizing  that
irreparable  injury will result to the Bank,  its  business  and property in the
event of Executive's  breach of this Subsection 10(a) agree that in the event of
any such  breach by  Executive,  the Bank 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  pursuant  to
Section 4 of this Agreement,  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 Bank, 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 or its  subsidiaries
from  pursuing  any  other  remedies  available  to the Bank 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 Bank as it may exist from
time to time,  is a valuable,  special and unique  asset of the  business of the
Bank.  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 Bank 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  Bank.  In the  event of a breach  or  threatened  breach  by
Executive of the  provisions of this Section 10, the Bank 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
Bank or from  rendering  any services to any person,  firm,  corporation,  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
Bank from pursuing any other  remedies  available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.

11.      DEATH AND DISABILITY

(a)  Death.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  in the event of Executive's  death during the term of this Agreement,
the Bank shall immediately pay his estate any

 
                                      - 9 -

      
salary and bonus  accrued  but unpaid as of the date of his  death,  and,  for a
period of six (6) months after  Executive's  death,  the Bank shall  continue to
provide medical  insurance  benefits existing on the date of his death and shall
pay Executive's  designated beneficiary all compensation that would otherwise be
payable to him pursuant to Section 3 of this Agreement. This provision shall not
negate any rights  Executive  or his  beneficiaries  may have to death  benefits
under any employee benefit plan of the Bank.

(b)      Disability

         (i) Disability.  If during the term of Executive's employment Executive
begins to receive disability benefits under the long-term  disability  insurance
policy  maintained  by the Bank  (the  "Disability  Policy"),  then  the  Bank's
obligation to pay Executive his Base Salary shall,  as of the date such benefits
first  become  payable  under the  Disability  Policy on account of  Executive's
disability,  be reduced to equal the difference between  Executive's Base Salary
and amounts received under all long-term disability policies, to the extent that
such salary payments do not result in a reduction in disability payments.

         (ii) Incapacity. If, as a result of Disability, Executive is determined
by a physician  chosen by the Bank and  reasonably  acceptable  to  Executive or
Executive's personal representatives not to be capable of fulfilling Executive's
responsibilities  as an officer of the Bank  ("Incapacity  Determination"),  (1)
Executive shall continue to be covered by the Bank's medical  insurance and life
insurance policies until the third anniversary of the Incapacity  Determination,
and (2) the Bank's obligation to provide Executive with other employment-related
fringe  benefits  hereunder  shall  cease  as of the  date  of  such  Incapacity
Determination   ("Incapacity  Determination  Date").  Prior  to  the  Incapacity
Determination  Date,  the Bank shall continue to pay Executive his annual salary
in usual  installments  and  Executive  shall  continue  to  receive  all  other
employment-related  fringe  benefits due to Executive  in  accordance  with this
Agreement.  The  Bank's  obligation  to  provide  Executive  with  the  benefits
described in Section 3(c) shall not be affected by an  Incapacity  Determination
unless  the  terms of the  separate  arrangements  governing  such  benefits  so
provide.

         (iii)  Termination of Employment by Reason of  Incapacity.  At any time
from and after the Incapacity Determination Date, the Board of Directors, in its
discretion,  may elect to  terminate  Executive's  employment  by reason of such
incapacity.  Any such  termination as a result of incapacity shall be considered
to be an Event of Termination in accordance with Section 4 of this Agreement.

12.      SOURCE OF PAYMENTS

(a) All  payments  provided  in this  Agreement  shall be timely paid in cash or
check  from the  general  funds of the Bank or subject  to  Section  12(b).  The
Holding Company,  however,  unconditionally  guarantees payment and provision of
all amounts and  benefits due  hereunder  to  Executive  and, if such amount and
benefits  due from the Bank are not timely paid or  provided  by the Bank,  such
amounts and benefits shall be paid or provided by the Holding Company.


 
                                     - 10 -

      



(b)  Notwithstanding  any provision  herein to the contrary,  to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive  under an  employment  agreement in effect  between  Executive and the
Holding  Company,  such  compensation  payments and benefits paid by the Holding
Company will be subtracted from any amount due simultaneously to Executive under
similar  provisions of this Agreement.  Payments  pursuant to this Agreement and
the Holding  Company  agreement shall be allocated in proportion to the level of
activity and the time expended on such  activities by Executive as determined by
the Holding Company and the Bank.

13.      EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding  between the parties hereto and
supersedes any prior employment agreement between the Bank or any predecessor of
the Bank 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.

14.      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
and the Bank and their respective successors and assigns.

15.      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 as to any act other than that specifically waived.


 
                                     - 11 -

      
16.      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.

17.      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.

18.      GOVERNING LAW

This  Agreement   shall  be  governed  by  the  laws  of  the   Commonwealth  of
Massachusetts, without regard to principles of conflicts of law of that state.

19.      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 Bank,  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.

In the event any dispute or  controversy  arising  under or in  connection  with
Executive's termination is resolved in favor of Executive,  whether by judgment,
arbitration  or  settlement,  Executive  shall be entitled to the payment of all
back-pay,  including  salary,  bonuses and any other cash  compensation,  fringe
benefits and any compensation and benefits due Executive under this Agreement.

20.      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 Bank, if Executive is successful  with respect to such
dispute or question of interpretation pursuant to a legal judgment,  arbitration
or settlement.


 
                                     - 12 -

      



21.      INDEMNIFICATION

(a) The Bank  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
federal 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 Bank
(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 cost of reasonable settlements.

(b) Any payments  made to  Executive  pursuant to this Section 21 are subject to
and conditioned  upon  compliance  with 12 U.S.C.  Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.

22.      SUCCESSOR TO THE BANK

The Bank 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  Bank or the  Holding  Company,  to  expressly  and
unconditionally  assume and agree to perform the Bank's  obligations  under this
Agreement,  in the same  manner  and to the same  extent  that the Bank would be
required to perform such  obligations  if no such  succession or assignment  had
taken place.




 
                                     - 13 -

      


                                   SIGNATURES


         IN WITNESS  WHEREOF,  Berkshire  Bank has caused this  Agreement  to be
executed and its seal to be affixed hereunto by its duly authorized  officer and
Executive has signed this Agreement, on the 9th day of August, 2000.


ATTEST:                             BERKSHIRE BANK



/s/Rose A. Borotto                  By:      /s/Robert A. Wells
-------------------                          ------------------ 
Rose A. Borotto                              Robert A. Wells
Corporate Secretary                          For the Entire Board of Directors



                  [SEAL]


ATTEST:                             BERKSHIRE HILLS BANCORP, INC.
                                    (Guarantor)



/s/Rose A. Borotto                  By:      /s/Robert A. Wells  
------------------                           ------------------
/s/Rose A. Borotto                           Robert A. Wells   
Corporate Secretary                          For the Entire Board of Directors




                  [SEAL]


WITNESS:                            EXECUTIVE



/s/Rose A. Borotto                  By:      /s/James A. Cunningham, Jr.
-------------------                          --------------------------- 
Rose A. Borotto                              James A. Cunningham, Jr.
Corporate Secretary                         

                                     - 14 -

(Back To Top)

Section 3: EX-10.2



                                 BERKSHIRE BANK
                              EMPLOYMENT AGREEMENT


         This EMPLOYMENT  AGREEMENT  ("Agreement")  is made effective as of June
27, 2000 (the "Effective  Time"), by and between Berkshire Bank (the "Bank"),  a
state-chartered  savings  institution,  with its  principal  offices at 24 North
Street,  Pittsfield,  Massachusetts,  01202,  Berkshire Hills Bancorp, Inc. (the
"Holding  Company"),  a  corporation  organized  under  the laws of the state of
Delaware and the holding company of the Bank, and Robert A. Wells ("Executive").

         WHEREAS, the Bank believes that the assurance of Executive's employment
by the Bank for the  term of this  Agreement  and the  benefit  of his  business
experience are of material importance; and

         WHEREAS,  Executive  desires  to serve in the  employ  of the Bank on a
full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties to this Agreement hereby agree as follows:

1.       POSITIONS AND RESPONSIBILITIES

(a) During the term of this Agreement  Executive  agrees to serve as Chairman of
the Board of Directors of the Bank.  Executive shall render  administrative  and
management services to the Bank such as are customarily  performed by persons in
a similar executive capacity. During the term of this Agreement,  Executive also
agrees to serve,  if elected as director of the Bank and in such  capacity  will
carry  out such  duties  and  responsibilities  reasonably  appropriate  to that
office.

(b) During the term of Executive's  employment under this Agreement,  except for
periods of absence occasioned by illness,  vacation, and other reasonable leaves
of  absence,  Executive  shall  devote  substantially  all  his  business  time,
attention,  skill,  and efforts to the faithful  performance of his duties under
this Agreement,  including  activities and services related to the organization,
operation and  management of the Bank,  as well as  participation  in community,
professional and civic organizations; provided, however, that, with the approval
of the Board of Directors of the Bank (the "Board of  Directors"),  as evidenced
by a resolution  of the Board of  Directors,  from time to time,  Executive  may
serve,  or continue to serve,  on the boards of directors of, and hold any other
offices or positions in, companies or  organizations,  which, in the judgment of
the Board of Directors,  will not present any conflict of interest with the Bank
or materially  affect the  performance  of Executive's  duties  pursuant to this
Agreement.

(c) Notwithstanding anything herein contained to the contrary,  either Executive
or the  Bank  may  terminate  Executive's  employment  with the Bank at any time
during the term of this  Agreement,  subject to the terms and conditions of this
Agreement.

 
                                      - 1 -

      




2.       TERM OF EMPLOYMENT

Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective  Time and shall  continue for a period of thirty-six  (36) full
calendar months from the Effective Time.  Commencing on the date of execution of
this  Agreement,  the term of this  Agreement  shall extend for one day each day
until such time as the Board of Directors or Executive  elects not to extend the
term of the Agreement by giving written notice to the other party, in which case
the term of this  Agreement  shall  become  fixed  and  shall  end on the  third
anniversary of the date of such written notice.

3.       COMPENSATION, BENEFITS AND REIMBURSEMENT

(a) Base Salary. The Holding Company shall pay Executive an annual salary of not
less than $250,000 ("Base Salary").  Executive's Base Salary shall be payable in
accordance with the normal payroll practices of the Bank.  Whenever used in this
Agreement,  Base Salary shall  include any amounts of  compensation  deferred by
Executive  under any  tax-qualified  retirement  or welfare  benefit plan or any
other deferred compensation  arrangement maintained by the Bank. During the term
of this Agreement,  the Board of Directors or a committee appointed by the Board
of Directors  shall  review  Executive's  Base Salary at least  annually and the
Board of Directors or the committee may increase  Executive's Base Salary at any
time.  Any  increase  in  Executive's  Base Salary  shall  become a term of this
Agreement and shall be the new "Base Salary" for purposes of this Agreement.

(b) Incentive Compensation.  In addition to his Base Salary,  Executive shall be
entitled  to  participate  in and shall  receive  payments  under any  incentive
compensation  bonus  program  sponsored  by  the  Bank.   Executive's  incentive
compensation  shall be  determined  by the  Board of  Directors  or a  committee
appointed  by the  Board  of  Directors  at a level  appropriate  for  executive
officers.

(c) Supplemental Pension and Life Insurance.  The Bank shall continue to provide
to  Executive,  without  cost,  the  supplemental  pension  and  life  insurance
arrangements in place at the Effective Time. The  supplemental  pension and life
insurance arrangements shall be governed by the terms of the specific agreements
in effect at the Effective Time.

(d) Club Dues.  In addition to any other  compensation  provided  for under this
Agreement,  the Bank shall pay Executive an amount  sufficient,  on an after-tax
basis, to maintain his membership at the Lenox Club.

(e) Automobile and Cellular  Phone.  The Bank shall provide  Executive with, and
Executive  shall have the primary use of, an  automobile  owned or leased by the
Bank and the  Bank  shall  pay (or  reimburse  Executive)  for all  expenses  of
insurance, registration,  operation and maintenance of the automobile. Executive
shall comply with reasonable reporting and expense limitations on the use

 
                                      - 2 -

      



of such  automobile,  as the Board of Directors may establish from time to time,
and the Holding Company or the Bank shall annually  include on Executive's  Form
W-2 any amount attributable to Executive's personal use of such automobile.  The
Bank  shall  also  provide  Executive  with a  cellular  phone and shall pay (or
reimburse  Executive) for all reasonable expenses related to the business use of
such phone.

(f) Vacation;  Holidays;  Sick Time.  Executive shall be entitled to vacation in
accordance with the standard  vacation policies of the Bank for senior executive
officers,  but in no event less than four (4) weeks vacation during each year of
employment.  Executive shall take vacation at a time mutually agreed upon by the
Bank and Executive.  Executive  shall receive his Base Salary and other benefits
during  periods of  vacation.  Executive  shall also be  entitled  to paid legal
holidays in accordance  with the policies of the Bank.  Executive  shall also be
entitled to sick leave in  accordance  with the  policies of the Bank for senior
executive  officers,  but in no event less than the number of days of sick leave
per year to which Executive was entitled at the Effective Time.

(g) Other Employee  Benefits.  In addition to any other compensation or benefits
provided for under this  Agreement,  Executive  shall be entitled to continue to
participate in any employee  benefit plans,  arrangements and perquisites of the
Bank in which he  participates  or is eligible to  participate  at the Effective
Time.  Executive shall also be entitled to participate in any employee  benefits
or perquisites the Bank offers to full-time employees or executive management in
the future. The Bank will not, without  Executive's prior written consent,  make
any changes in such plans,  arrangements  or perquisites  which would  adversely
affect  Executive's rights or benefits  thereunder without separately  providing
for an arrangement that ensures Executive  receives or will receive the economic
value that Executive  would  otherwise lose as a result of such adverse  effect.
Without  limiting the generality of the foregoing  provisions of this paragraph,
Executive  shall be entitled to  participate  in or receive  benefits  under all
plans  relating to stock  options,  restricted  stock awards,  stock  purchases,
pension,  profit sharing,  employee stock  ownership,  supplemental  retirement,
group life  insurance,  medical and other health and welfare  coverage  that are
made  available by the Bank at the  Effective  Time or at any time in the future
during the term of this Agreement, subject to and on a basis consistent with the
terms,  conditions and overall  administration  of such plans and  arrangements.
Nothing paid to Executive under any such plans or arrangements will be deemed to
be in lieu of other  compensation  to which  Executive  is  entitled  under this
Agreement.

4.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

(a) Upon the  occurrence of an Event of  Termination  (as defined  herein below)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination of
Executive's full-time employment under this Agreement by the Bank for any reason
other  than a  termination  governed  by  Section 7 of this  Agreement;  or (ii)
Executive's  resignation from his employment with the Bank upon, any (A) failure
to elect or re-elect or to appoint or re-appoint  Executive to his positions set
forth in Section 1 of this Agreement,  unless Executive  consents to such event,
(B) material change in Executive's functions, duties, or

 
                                      - 3 -

      



responsibilities  with the Bank or its  subsidiaries,  which  change would cause
Executive's position(s) to become one of lesser responsibility,  importance,  or
scope,  unless  Executive  consents to such event, (C) relocation of Executive's
principal  place of  employment  by more than  twenty-five  (25)  miles from its
location at the Effective Time,  unless  Executive  consents to such event,  (D)
material  reduction in the benefits and  perquisites  provided to Executive from
those  being  provided  as of the  Effective  Time  of  this  Agreement,  unless
Executive  consents to such event, (E) liquidation or dissolution of the Holding
Company or the Bank, or (F) breach of this  Agreement by the Bank or the Holding
Company.  Upon the  occurrence of any event  described in clauses (A), (B), (C),
(D),  (E) or (F),  above,  Executive  shall  have  the  right to  terminate  his
employment  under this  Agreement by  resignation  upon not less than sixty (60)
days prior written  notice given within six (6) full  calendar  months after the
applicable  event giving rise to  Executive's  right to elect to  terminate  his
employment.

(b) Upon  Executive's  termination  from employment in accordance with paragraph
(a) of this  Section 4, on the Date of  Termination,  as defined in Section 8 of
the Agreement, the Bank shall be obligated to pay Executive, or, in the event of
his death following the Date of Termination,  his beneficiary or  beneficiaries,
or his estate,  as the case may be, an amount  equal to the sum of: (i) the Base
Salary and incentive compensation that would have been paid to Executive for the
remaining  term of this  Agreement  had the Event of  Termination  not  occurred
(based on Executive's then current Base Salary and most recently paid or accrued
bonus at the  time of the  Event  of  Termination);  plus  (ii)  the  value,  as
calculated by a recognized firm  customarily  performing such valuation,  of any
stock  options  which  as of the  Date of  Termination,  have  been  granted  to
Executive but are not  exercisable  by Executive and the value of any restricted
stock awards which have been granted to Executive,  but in which  Executive does
not  have  a  non-forfeitable  or  fully-vested  interest  as  of  the  Date  of
Termination;  plus (iii) the value of all employee benefits that would have been
provided to Executive for the remaining  term of this  Agreement had an Event of
Termination  not  occurred,  based on the  most  recent  level of  contribution,
accrual or other participation by or on behalf of Executive.  At the election of
Executive,  which election is to be made prior to the Date of Termination,  such
payments  shall be made in a lump sum.  In the event that no  election  is made,
payment to  Executive  will be made on a monthly  basis in  approximately  equal
installments during the remaining unexpired term of the Agreement. Such payments
shall not be reduced in the event Executive  obtains other employment  following
termination of employment.

(c) In addition to the payments provided for in paragraph (b) of this Section 4,
upon Executive's  termination of employment in accordance with the provisions of
paragraph  (a) of this Section 4, to the extent that the Holding  Company or the
Bank  continues  to offer  any  life,  medical,  health,  disability  or  dental
insurance plan or arrangement in which Executive participates in on the last day
of his  employment  (each  being a "Welfare  Plan"),  Executive  and his covered
dependents shall continue  participating  in such Welfare Plans,  subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of  Termination  until the  earlier of (i) his death (ii) his
employment by another  employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank  does  not  offer  the  Welfare  Plans at any time  after  the  Event of
Termination, then the Bank shall provide

 
                                      - 4 -

      



Executive  with a payment equal to the premiums for such benefits for the period
which runs until the  earlier  of (i) his death (ii) his  employment  by another
employer  other than one of which he is the  majority  owner or (iii) the end of
the remaining term of this Agreement.

5.       CHANGE IN CONTROL

(a) For purposes of this Agreement, a "Change in Control" 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 Bank 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
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 Holding  Company  representing  20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding  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 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 Bank or the Holding Company
or similar  transaction  occurs in which the Bank 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 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  Holding  Company  shall  be
distributed;  or (E) a  tender  offer  is made  for  20% or  more of the  voting
securities of the Bank or the Holding Company.

(b)  If any of the  events  described  in  paragraph  (a)  of  this  Section  5,
constituting  a Change in  Control,  have  occurred  or the  Board of  Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this

 
                                      - 5 -

      



Section 5 upon his termination of employment at any time during the term of this
Agreement  on or  after  the  date  the  Change  in  Control  occurs  due to (1)
Executive's  dismissal or (2)  Executive's  resignation  following any demotion,
loss of title, office or significant  authority or responsibility,  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,  unless such termination is because of his death
or Termination for Cause; provided, however, that such payments shall be reduced
by any payment made under Section 4 of this Agreement.

(c)  Upon  the  occurrence  of a  Change  in  Control  followed  by  Executive's
termination of  employment,  as provided in paragraph (b) of this Section 5, the
Bank  shall  pay  Executive,  or in the  event  of  his  subsequent  death,  his
beneficiary or  beneficiaries,  or his estate,  as the case may be, as severance
pay or  liquidated  damages,  or both,  a sum  equal to the  greater  of: 1) the
payments and benefits due for the  remaining  term of the  Agreement or 2) three
(3) times Executive's average annual compensation from the Holding Company,  the
Bank or their affiliates for the five (5) preceding taxable years or such lesser
number of years in the event that Executive shall have actually been employed by
the Bank for less than five (5) years. In determining Executive's average annual
compensation,  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  (whether  paid or  accrued  for the  applicable  period),  as well  as,
severance payments,  retirement benefits,  director or committee fees and fringe
benefits paid or to be paid to Executive or paid for Executive's  benefit during
any  such  year,  profit  sharing,  employee  stock  ownership  plan  and  other
retirement  contributions  or benefits,  including to any tax- qualified plan or
arrangement  (whether or not taxable)  made or accrued on behalf of Executive of
such year. At the election of Executive,  which  election is to be made prior to
or within thirty (30) days of the Date of  Termination  on or following a Change
in Control,  such payment may be made in a lump sum (without  discount for early
payment) on or immediately  following the Date of Termination  (which may be the
date a Change in Control  occurs) or paid in equal monthly  installments  during
the sixty (60) months following  Executive's  termination.  In the event that no
election is made,  payment to Executive  will be made on a monthly  basis during
the sixty (60) months following Executive's termination.

(d) Upon the  occurrence of a Change in Control,  Executive  will be entitled to
receive benefits due him under or contributed by the Bank on his behalf pursuant
to any  retirement,  incentive,  profit  sharing  or  other  retirement,  bonus,
performance, disability or other employee benefit plan maintained by the Bank on
Executive's  behalf  to the  extent  such  benefits  are not  otherwise  paid to
Executive  under a  separate  provision  of this  Agreement.  In  addition,  for
purposes of determining his vested accrued benefit,  Executive shall be credited
either under any defined  benefit pension plan maintained by the Bank or, if not
permitted  under such plan,  under a separate  arrangement,  with the additional
"years of service"  that he would have  earned for  vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  his  employment  not
terminated.

(e) Upon the  occurrence of a Change in Control and  Executive's  termination of
employment in connection  therewith,  the Bank will cause to be continued  life,
medical and disability coverage

 
                                      - 6 -

      



substantially identical to the coverage maintained by the Bank for Executive and
any of his  dependents  covered under such plans prior to the Change in Control.
Such coverage and payments  shall cease upon the  expiration of thirty-six  (36)
full calendar months following the Date of Termination. In the event Executive's
participation  in any such plan or  program is barred by reason of his not being
an employee, the Bank shall arrange to provide Executive and his dependents with
benefits  substantially  similar to those of which  Executive and his dependents
would otherwise have been entitled to receive under such plans and programs from
which  their  continued  participation  is  barred  or  provide  their  economic
equivalent.

(f) The use or provision of any  membership,  license,  automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place  immediately  prior to the
Change in  Control.  To the extent that any item  referred to in this  paragraph
will,  at the end of the term of this  Agreement,  no  longer  be  available  to
Executive,  Executive  will have the option to purchase  all rights then held by
the Bank to such  item for a price  equal to the then fair  market  value of the
item.

(g) In the event that  Executive  is  receiving  monthly  payments  pursuant  to
Section  5(c)  hereof,  on an annual  basis,  thereafter,  between  the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount  payable  under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis  pursuant to such  section.  Such  election  shall be
irrevocable for the year for which such election is made.

6.       CHANGE IN CONTROL RELATED PROVISIONS

         Notwithstanding  the  provisions  of Section  5, 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 provided by Section 5 shall be determined by Executive.

7.       TERMINATION FOR CAUSE

         The term  "Termination  for Cause"  shall mean  termination  because of
Executive's  personal  dishonesty,  willful misconduct,  any 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.  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  three-fourths
(3/4) of the  members  of the Board of  Directors  at a meeting  of the Board of
Directors called and held

                                      - 7 -

      



for that purpose (after  reasonable  notice to Executive and an opportunity  for
him, together with counsel, to be heard before the Board of Directors),  finding
that in the good faith opinion of the Board of  Directors,  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  pursuant to Section 8 hereof
through the Date of  Termination,  stock options  granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested awards granted
to  Executive  under any stock  benefit plan of the Bank,  vest.  At the Date of
Termination,  such stock options and any such unvested  awards shall become null
and void and shall not be  exercisable  by or delivered to Executive at any time
subsequent to such Termination for Cause.

8.       NOTICE

(a) Any purported  termination by the Bank or by Executive 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 case of a Termination for Cause,  shall not be less
than thirty (30) days from the date such Notice of Termination is given).

(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,  except upon the  occurrence of a
Change in Control and voluntary  termination by Executive in which case the Date
of  Termination  shall  be  the  date  specified  in the  Notice,  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,  the Bank will continue to pay
Executive  his full  compensation  in effect when the notice  giving rise to the
dispute was given (including,  but not limited to, Base Salary) and continue him
as a participant in all  compensation,  benefit and insurance  plans in which he
was  participating  when the notice of dispute  was given,  until the dispute is
finally  resolved in  accordance  with this  Agreement.  Amounts paid under this
Section 8 are in addition  to all other  amounts  due under this  Agreement  and
shall not be  offset  against  or  reduce  any  other  amounts  due  under  this
Agreement.


   
                                      - 8 -

      



9.       POST-TERMINATION OBLIGATIONS

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section  9 for one (1) full  year  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Bank. Executive shall, upon reasonable notice,  furnish such
information and assistance to the Bank as may reasonably be required by the Bank
in  connection  with any  litigation in which it or any of its  subsidiaries  or
affiliates is, or may become, a party.

10.      NON-COMPETITION AND NON-DISCLOSURE

(a) Upon any termination of Executive's employment hereunder pursuant to Section
4 hereof,  Executive agrees not to compete with the Bank for a period of one (1)
year following such termination in any city, town or county in which Executive's
normal  business  office is  located  and the Bank 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 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  Bank.  The  parties  hereto,   recognizing  that
irreparable  injury will result to the Bank,  its  business  and property in the
event of Executive's  breach of this Subsection 10(a) agree that in the event of
any such  breach by  Executive,  the Bank 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  pursuant  to
Section 4 of this Agreement,  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 Bank, 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 or its  subsidiaries
from  pursuing  any  other  remedies  available  to the Bank 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 Bank as it may exist from
time to time,  is a valuable,  special and unique  asset of the  business of the
Bank.  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 Bank 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  Bank.  In the  event of a breach  or  threatened  breach  by
Executive of the  provisions of this Section 10, the Bank 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
Bank

 
                                      - 9 -

      



or from rendering any services to any person, firm, corporation, 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 Bank from
pursuing any other remedies  available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.

11.      DEATH AND DISABILITY

(a)  Death.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  in the event of Executive's  death during the term of this Agreement,
the Bank shall  immediately  pay his estate  any  salary and bonus  accrued  but
unpaid as of the date of his death,  and,  for a period of six (6) months  after
Executive's death, the Bank shall continue to provide medical insurance benefits
existing  on  the  date  of his  death  and  shall  pay  Executive's  designated
beneficiary all compensation  that would otherwise be payable to him pursuant to
Section  3 of this  Agreement.  This  provision  shall  not  negate  any  rights
Executive or his  beneficiaries  may have to death  benefits  under any employee
benefit plan of the Bank.

(b)      Disability

         (i) Existing Condition.  As of the date of this Agreement Executive has
been determined to be entitled to receive disability benefits under the terms of
the long-term disability  insurance policy ("Disability  Policy") maintained for
him by the Bank. As a result of such determination, the Bank's obligation to pay
Executive  his Base  Salary  has been  reduced to equal the  difference  between
Executive's  Base  Salary  and  amounts  received  from  time to time  under the
long-term  disability  policy,  to the extent that such  salary  payments do not
result in a reduction in disability payments.

         (ii)  Incremental  Disability.   If  during  the  term  of  Executive's
employment,  he begins  to  receive  additional  disability  benefits  under the
Disability  Policy  as a  result  of an  incremental  or  additional  disability
("Incremental Disability"), then the Bank's obligation to pay Executive his Base
Salary shall, as of the date additional benefits first become payable under such
Disability Policy on account of such Incremental Disability,  be further reduced
to equal the difference  between  Executive's  Base Salary and amounts  received
under all long-term disability policies, to the extent that such salary payments
do not result in a reduction in disability payments.

         (iii) Incapacity. If as a result of an Incremental Disability Executive
is  determined  by a  physician  chosen by the  Holding  Company or the Bank and
reasonably  acceptable to Executive or Executive's personal  representatives not
to be capable of fulfilling  Executive's  responsibilities  as an officer of the
Bank ("Incapacity Determination"), (i) Executive shall continue to be covered by
the  Bank's  medical  insurance  and life  insurance  policies  until  the third
anniversary of the Incapacity Determination,  and (ii) the Holding Company's and
the Bank's obligation to provide Executive with other employment  related fringe
benefits  hereunder shall cease as of the date of such Incapacity  Determination
("Incapacity  Determination Date"). Prior to the Incapacity  Determination Date,
the Bank shall continue to pay Executive his annual salary in usual installments
and  Executive  shall  continue to receive all other  employment-related  fringe
benefits due Executive in accordance with

 
                                     - 10 -

      



this Agreement.  The Holding Company's or Bank's obligation to provide Executive
with the  benefits  described  in  Section  4(a)  shall  not be  affected  by an
Incapacity Determination unless the terms of the separate arrangements governing
such benefits so provide.

         (iv)  Termination  of Employment by Reason of  Incapacity.  At any time
from and after the Incapacity Determination Date, the Board of Directors, in its
discretion,  may elect to  terminate  Executive's  employment  by reason of such
incapacity.  Any such  termination as a result of incapacity shall be considered
to be an Event of Termination in accordance with Section 4 of this Agreement.

12.      SOURCE OF PAYMENTS

(a) All  payments  provided  in this  Agreement  shall be timely paid in cash or
check  from the  general  funds of the Bank or subject  to  Section  12(b).  The
Holding Company,  however,  unconditionally  guarantees payment and provision of
all amounts and  benefits due  hereunder  to  Executive  and, if such amount and
benefits  due from the Bank are not timely paid or  provided  by the Bank,  such
amounts and benefits shall be paid or provided by the Holding Company.

(b)  Notwithstanding  any provision  herein to the contrary,  to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive  under an  employment  agreement in effect  between  Executive and the
Holding  Company,  such  compensation  payments and benefits paid by the Holding
Company will be subtracted from any amount due simultaneously to Executive under
similar  provisions of this Agreement.  Payments  pursuant to this Agreement and
the Holding  Company  agreement shall be allocated in proportion to the level of
activity and the time expended on such  activities by Executive as determined by
the Holding Company and the Bank.

13.      EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding  between the parties hereto and
supersedes any prior employment agreement between the Bank or any predecessor of
the Bank 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.

14.      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.


 
                                     - 11 -

      



(b) This Agreement shall be binding upon, and inure to the benefit of, Executive
and the Bank and their respective successors and assigns.

15.      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 as to any act other than that specifically waived.

16.      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.

17.      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.

18.      GOVERNING LAW

This  Agreement   shall  be  governed  by  the  laws  of  the   Commonwealth  of
Massachusetts, without regard to principles of conflicts of law of that state.

19.      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 Bank,  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.

In the event any dispute or  controversy  arising  under or in  connection  with
Executive's termination

 
                                     - 12 -

      



is  resolved  in  favor  of  Executive,  whether  by  judgment,  arbitration  or
settlement,  Executive  shall  be  entitled  to the  payment  of  all  back-pay,
including salary,  bonuses and any other cash compensation,  fringe benefits and
any compensation and benefits due Executive under this Agreement.

20.      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 Bank, if Executive is successful  with respect to such
dispute or question of interpretation pursuant to a legal judgment,  arbitration
or settlement.

21.      INDEMNIFICATION

(a) The Bank  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
federal 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 Bank
(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 cost of reasonable settlements.

(b) Any payments  made to  Executive  pursuant to this Section 21 are subject to
and conditioned  upon  compliance  with 12 U.S.C.  Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.

22.      SUCCESSOR TO THE BANK

The Bank 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  Bank or the  Holding  Company,  to  expressly  and
unconditionally  assume and agree to perform the Bank's  obligations  under this
Agreement,  in the same  manner  and to the same  extent  that the Bank would be
required to perform such  obligations  if no such  succession or assignment  had
taken place.




 
                                     - 13 -

      


                                   SIGNATURES


         IN WITNESS  WHEREOF,  Berkshire  Bank has caused this  Agreement  to be
executed and its seal to be affixed hereunto by its duly authorized  officer and
Executive has signed this Agreement, on the 9th day of August, 2000.


ATTEST:                               BERKSHIRE BANK



/s/Rose A. Borotto                    By:      /s/James A. Cunningham, Jr.
-------------------                            ---------------------------
Rose A. Borotto                                James A. Cunningham, Jr.
Corporate Secretary                            For the Entire Board of Directors



                  [SEAL]


ATTEST:                               BERKSHIRE HILLS BANCORP, INC.
                                      (Guarantor)



/s/Rose A. Borotto                  By:        /s/James A. Cunningham, Jr. 
------------------                             --------------------------
Rose A. Borotto                                James A. Cunningham, Jr.
Corporate Secretary                            For the Entire Board of Directors




                  [SEAL]


WITNESS:                              EXECUTIVE



/s/Rose A. Borotto                  By:        /s/Robert A. Wells
-------------------                            ------------------
/s/Rose A. Borotto                             /s/Robert A. Wells
Corporate Secretary                            Robert A. Wells

 
                                     - 14 -


(Back To Top)

Section 4: EX-10.3



 
                                 BERKSHIRE BANK
                              EMPLOYMENT AGREEMENT


         This EMPLOYMENT  AGREEMENT  ("Agreement")  is made effective as of June
27, 2000 (the "Effective  Time"), by and between Berkshire Bank (the "Bank"),  a
state-chartered  savings  institution,  with its  principal  offices at 24 North
Street,  Pittsfield,  Massachusetts,  01202,  Berkshire Hills Bancorp, Inc. (the
"Holding  Company"),  a  corporation  organized  under  the laws of the state of
Delaware   and  the  holding   company  of  the  Bank,   and  Susan  M.  Santora
("Executive").

         WHEREAS, the Bank believes that the assurance of Executive's employment
by the Bank for the  term of this  Agreement  and the  benefit  of her  business
experience are of material importance; and

         WHEREAS,  Executive  desires  to serve in the  employ  of the Bank on a
full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties to this Agreement hereby agree as follows:

1.       POSITIONS AND RESPONSIBILITIES

(a) During the term of this  Agreement  Executive  agrees to serve as  Executive
Vice   President  -  Retail  Banking  of  the  Bank.   Executive   shall  render
administrative  and  management  services  to the Bank  such as are  customarily
performed by persons in a similar executive capacity.

(b) During the term of Executive's  employment under this Agreement,  except for
periods of absence occasioned by illness,  vacation, and other reasonable leaves
of  absence,  Executive  shall  devote  substantially  all  her  business  time,
attention,  skill,  and efforts to the faithful  performance of her duties under
this Agreement,  including  activities and services related to the organization,
operation and  management of the Bank,  as well as  participation  in community,
professional and civic organizations; provided, however, that, with the approval
of the Board of Directors of the Bank (the "Board of  Directors"),  as evidenced
by a resolution  of the Board of  Directors,  from time to time,  Executive  may
serve,  or continue to serve,  on the boards of directors of, and hold any other
offices or positions in, companies or  organizations,  which, in the judgment of
the Board of Directors,  will not present any conflict of interest with the Bank
or materially  affect the  performance  of Executive's  duties  pursuant to this
Agreement.

(c) Notwithstanding anything herein contained to the contrary,  either Executive
or the  Bank  may  terminate  Executive's  employment  with the Bank at any time
during the term of this  Agreement,  subject to the terms and conditions of this
Agreement.


 
                                      - 1 -

      



2.       TERM OF EMPLOYMENT

Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective  Time and shall  continue for a period of thirty-six  (36) full
calendar months from the Effective Time.  Commencing on the date of execution of
this  Agreement,  the term of this  Agreement  shall extend for one day each day
until such time as the Board of Directors or Executive  elects not to extend the
term of the Agreement by giving written notice to the other party, in which case
the term of this  Agreement  shall  become  fixed  and  shall  end on the  third
anniversary of the date of such written notice.

3.       COMPENSATION, BENEFITS AND REIMBURSEMENT

(a) Base Salary. The Holding Company shall pay Executive an annual salary of not
less than $125,510 ("Base Salary").  Executive's Base Salary shall be payable in
accordance with the normal payroll practices of the Bank.  Whenever used in this
Agreement,  Base Salary shall  include any amounts of  compensation  deferred by
Executive  under any  tax-qualified  retirement  or welfare  benefit plan or any
other deferred compensation  arrangement maintained by the Bank. During the term
of this Agreement,  the Board of Directors or a committee appointed by the Board
of Directors  shall  review  Executive's  Base Salary at least  annually and the
Board of Directors or the committee may increase  Executive's Base Salary at any
time.  Any  increase  in  Executive's  Base Salary  shall  become a term of this
Agreement and shall be the new "Base Salary" for purposes of this Agreement.

(b) Incentive Compensation.  In addition to her Base Salary,  Executive shall be
entitled  to  participate  in and shall  receive  payments  under any  incentive
compensation  bonus  program  sponsored  by  the  Bank.   Executive's  incentive
compensation  shall be  determined  by the  Board of  Directors  or a  committee
appointed  by the  Board  of  Directors  at a level  appropriate  for  executive
officers.

(c) Vacation;  Holidays;  Sick Time.  Executive shall be entitled to vacation in
accordance with the standard  vacation policies of the Bank for senior executive
officers,  but in no event less than four (4) weeks vacation during each year of
employment.  Executive shall take vacation at a time mutually agreed upon by the
Bank and Executive.  Executive  shall receive her Base Salary and other benefits
during  periods of  vacation.  Executive  shall also be  entitled  to paid legal
holidays in accordance  with the policies of the Bank.  Executive  shall also be
entitled to sick leave in  accordance  with the  policies of the Bank for senior
executive  officers,  but in no event less than the number of days of sick leave
per year to which Executive was entitled at the Effective Time.

(d) Other Employee  Benefits.  In addition to any other compensation or benefits
provided for under this  Agreement,  Executive  shall be entitled to continue to
participate in any employee  benefit plans,  arrangements and perquisites of the
Bank in which she  participates  or is eligible to  participate at the Effective
Time.  Executive shall also be entitled to participate in any employee  benefits
or perquisites the Bank offers to full-time employees or executive management in
the future. The Bank will not, without  Executive's prior written consent,  make
any changes in such plans, arrangements

 
                                      - 2 -

      



or  perquisites  which would  adversely  affect  Executive's  rights or benefits
thereunder  without  separately   providing  for  an  arrangement  that  ensures
Executive  receives or will  receive the  economic  value that  Executive  would
otherwise lose as a result of such adverse effect, unless such change is general
in nature and applies in a nondiscriminatory  manner to all employees covered by
the plan,  arrangement  or  perquisite.  Without  limiting the generality of the
foregoing  provisions  of  this  paragraph,   Executive  shall  be  entitled  to
participate  in or receive  benefits  under all plans relating to stock options,
restricted stock awards,  stock  purchases,  pension,  profit sharing,  employee
stock  ownership,  group life  insurance,  medical and other  health and welfare
coverage  that are made  available by the Bank at the  Effective  Time or at any
time in the future during the term of this Agreement,  subject to and on a basis
consistent with the terms,  conditions and overall  administration of such plans
and arrangements. Nothing paid to Executive under any such plans or arrangements
will be  deemed  to be in lieu of  other  compensation  to  which  Executive  is
entitled under this Agreement.

4.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

(a) Upon the  occurrence of an Event of  Termination  (as defined  herein below)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination of
Executive's full-time employment under this Agreement by the Bank for any reason
other  than a  termination  governed  by  Section 7 of this  Agreement;  or (ii)
Executive's  resignation from her employment with the Bank upon, any (A) failure
to  re-appoint  Executive  to her  positions  set  forth  in  Section  1 of this
Agreement,  unless  Executive  consents to such event,  (B)  material  change in
Executive's  functions,  duties,  or  responsibilities  with  the  Bank  or  its
subsidiaries,  which change would cause Executive's position(s) to become one of
lesser responsibility,  importance,  or scope, unless Executive consents to such
event, (C) relocation of Executive's  principal place of employment by more than
twenty-five (25) miles from its location at the Effective Time, unless Executive
consents to such event,  (D) material  reduction  (except to the extent provided
for in Section 3(d) of this Agreement) in the benefits and perquisites  provided
to  Executive  from  those  being  provided  as of the  Effective  Time  of this
Agreement,   unless  Executive  consents  to  such  event,  (E)  liquidation  or
dissolution of the Holding  Company or the Bank, or (F) breach of this Agreement
by the Bank or the Holding  Company.  Upon the occurrence of any event described
in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right
to terminate her employment  under this  Agreement by resignation  upon not less
than sixty (60) days prior  written  notice given  within six (6) full  calendar
months after the applicable  event giving rise to Executive's  right to elect to
terminate her employment.

(b) Upon  Executive's  termination  from employment in accordance with paragraph
(a) of this  Section 4, on the Date of  Termination,  as defined in Section 8 of
the Agreement, the Bank shall be obligated to pay Executive, or, in the event of
her death following the Date of Termination,  her beneficiary or  beneficiaries,
or her estate,  as the case may be, an amount  equal to the sum of: (i) the Base
Salary and incentive compensation that would have been paid to Executive for the
remaining  term of this  Agreement  had the Event of  Termination  not  occurred
(based on Executive's then

 
                                      - 3 -

      



current Base Salary and most  recently  paid or accrued bonus at the time of the
Event of  Termination);  plus (ii) the value, as calculated by a recognized firm
customarily performing such valuation, of any stock options which as of the Date
of  Termination,  have been  granted to  Executive  but are not  exercisable  by
Executive and the value of any  restricted  stock awards which have been granted
to  Executive,  but in  which  Executive  does  not  have a  non-forfeitable  or
fully-vested interest as of the Date of Termination; plus (iii) the value of all
employee  benefits  that would have been provided to Executive for the remaining
term of this  Agreement had an Event of Termination  not occurred,  based on the
most  recent  level of  contribution,  accrual or other  participation  by or on
behalf of Executive. At the election of Executive,  which election is to be made
prior to the Date of Termination,  such payments shall be made in a lump sum. In
the event  that no  election  is made,  payment to  Executive  will be made on a
monthly basis in approximately equal installments during the remaining unexpired
term of the Agreement. Such payments shall not be reduced in the event Executive
obtains other employment following termination of employment.

(c) In addition to the payments provided for in paragraph (b) of this Section 4,
upon Executive's  termination of employment in accordance with the provisions of
paragraph  (a) of this Section 4, to the extent that the Holding  Company or the
Bank  continues  to offer  any  life,  medical,  health,  disability  or  dental
insurance plan or arrangement in which Executive participates in on the last day
of her  employment  (each  being a "Welfare  Plan"),  Executive  and her covered
dependents shall continue  participating  in such Welfare Plans,  subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of  Termination  until the  earlier of (i) her death (ii) her
employment by another employer other than one of which she is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank  does  not  offer  the  Welfare  Plans at any time  after  the  Event of
Termination,  then the Bank shall provide  Executive with a payment equal to the
premiums  for such  benefits  for the period which runs until the earlier of (i)
her death (ii) her employment by another employer other than one of which she is
the majority owner or (iii) the end of the remaining term of this Agreement.

5.       CHANGE IN CONTROL

(a) For purposes of this Agreement, a "Change in Control" 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 Bank 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
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

 
                                      - 4 -

      



under the Exchange Act),  directly or  indirectly,  of securities of the Bank or
the  Holding  Company  representing  20% or more of the  Bank's  or the  Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding  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 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  she 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  Holding  Company  or
similar  transaction  occurs in which  the Bank 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 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  Holding  Company  shall  be
distributed;  or (E) a  tender  offer  is made  for  20% or  more of the  voting
securities of the Bank or the Holding Company.

(b)  If any of the  events  described  in  paragraph  (a)  of  this  Section  5,
constituting  a Change in  Control,  have  occurred  or the  Board of  Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon her termination of employment at any time during the term of this Agreement
on or  after  the date the  Change  in  Control  occurs  due to (1)  Executive's
dismissal or (2) Executive's  resignation following any demotion, loss of title,
office  or  significant   authority  or  responsibility,   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,  unless  such  termination  is  because  of  her  death  or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this Agreement.

(c)  Upon  the  occurrence  of a  Change  in  Control  followed  by  Executive's
termination of  employment,  as provided in paragraph (b) of this Section 5, the
Bank  shall  pay  Executive,  or in the  event  of  her  subsequent  death,  her
beneficiary or  beneficiaries,  or her estate,  as the case may be, as severance
pay or  liquidated  damages,  or both,  a sum  equal to the  greater  of: 1) the
payments and benefits due for the  remaining  term of the  Agreement or 2) three
(3) times Executive's average annual compensation from the Holding Company,  the
Bank or their affiliates for the five (5) preceding taxable years or such lesser
number of years in the event that Executive shall have actually been employed by
the Bank for less than five (5) years. In determining Executive's average annual
compensation,  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 (whether paid or accrued for the applicable period),

 
                                      - 5 -

      



as well as, severance payments,  retirement benefits, director or committee fees
and fringe  benefits  paid or to be paid to  Executive  or paid for  Executive's
benefit during any such year, profit sharing,  employee stock ownership plan and
other retirement contributions or benefits, including to any tax- qualified plan
or  arrangement  (whether or not taxable) made or accrued on behalf of Executive
of such year. At the election of Executive,  which  election is to be made prior
to or within  thirty  (30) days of the Date of  Termination  on or  following  a
Change in Control,  such payment may be made in a lump sum (without discount for
early payment) on or immediately following the Date of Termination (which may be
the date a Change  in  Control  occurs)  or paid in equal  monthly  installments
during the sixty (60) months  following  Executive's  termination.  In the event
that no election is made,  payment to Executive  will be made on a monthly basis
during the sixty (60) months following Executive's termination.

(d) Upon the  occurrence of a Change in Control,  Executive  will be entitled to
receive benefits due her under or contributed by the Bank on her behalf pursuant
to any  retirement,  incentive,  profit  sharing  or  other  retirement,  bonus,
performance, disability or other employee benefit plan maintained by the Bank on
Executive's  behalf  to the  extent  such  benefits  are not  otherwise  paid to
Executive  under a  separate  provision  of this  Agreement.  In  addition,  for
purposes of determining her vested accrued benefit,  Executive shall be credited
either under any defined  benefit pension plan maintained by the Bank or, if not
permitted  under such plan,  under a separate  arrangement,  with the additional
"years of service"  that she would have  earned for vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  her  employment  not
terminated.

(e) Upon the  occurrence of a Change in Control and  Executive's  termination of
employment in connection  therewith,  the Bank will cause to be continued  life,
medical  and  disability  coverage  substantially   identical  to  the  coverage
maintained  by the Bank for Executive  and any of her  dependents  covered under
such plans prior to the Change in Control.  Such  coverage  and  payments  shall
cease upon the expiration of thirty-six (36) full calendar months  following the
Date of Termination.  In the event Executive's participation in any such plan or
program is barred by reason of her not being an employee, the Bank shall arrange
to provide Executive and her dependents with benefits  substantially  similar to
those of which  Executive and her dependents  would otherwise have been entitled
to  receive   under  such  plans  and  programs   from  which  their   continued
participation is barred or provide their economic equivalent.

(f) The use or provision of any  membership,  license,  automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place  immediately  prior to the
Change in  Control.  To the extent that any item  referred to in this  paragraph
will,  at the end of the term of this  Agreement,  no  longer  be  available  to
Executive,  Executive  will have the option to purchase  all rights then held by
the Bank to such  item for a price  equal to the then fair  market  value of the
item.

(g) In the event that  Executive  is  receiving  monthly  payments  pursuant  to
Section  5(c)  hereof,  on an annual  basis,  thereafter,  between  the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid

 
                                      - 6 -

      



in a lump sum or on a pro rata basis  pursuant to such  section.  Such  election
shall be irrevocable for the year for which such election is made.

6.       CHANGE IN CONTROL RELATED PROVISIONS

         Notwithstanding  the  provisions  of Section  5, 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 provided by Section 5 shall be determined by Executive.

7.       TERMINATION FOR CAUSE

         The term  "Termination  for Cause"  shall mean  termination  because of
Executive's  personal  dishonesty,  willful misconduct,  any 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.  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  three-fourths
(3/4) of the  members  of the Board of  Directors  at a meeting  of the Board of
Directors 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
of Directors), finding that in the good faith opinion of the Board of Directors,
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 pursuant to
Section 8 hereof  through  the Date of  Termination,  stock  options  granted to
Executive  under any stock  option plan shall not be  exercisable  nor shall any
unvested  awards granted to Executive  under any stock benefit plan of the Bank,
vest.  At the Date of  Termination,  such stock  options  and any such  unvested
awards shall become null and void and shall not be  exercisable  by or delivered
to Executive at any time subsequent to such Termination for Cause.

8.       NOTICE

(a) Any purported  termination by the Bank or by Executive 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.

 
                                      - 7 -

      



(b)  "Date of  Termination"  shall  mean the date  specified  in the  Notice  of
Termination  (which,  in the case of a Termination for Cause,  shall not be less
than thirty (30) days from the date such Notice of Termination is given).

(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,  except upon the  occurrence of a
Change in Control and voluntary  termination by Executive in which case the Date
of  Termination  shall  be  the  date  specified  in the  Notice,  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,  the Bank will continue to pay
Executive  her full  compensation  in effect when the notice  giving rise to the
dispute was given (including,  but not limited to, Base Salary) and continue her
as a participant in all  compensation,  benefit and insurance plans in which she
was  participating  when the notice of dispute  was given,  until the dispute is
finally  resolved in  accordance  with this  Agreement.  Amounts paid under this
Section 8 are in addition  to all other  amounts  due under this  Agreement  and
shall not be  offset  against  or  reduce  any  other  amounts  due  under  this
Agreement.

9.       POST-TERMINATION OBLIGATIONS

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section  9 for one (1) full  year  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Bank. Executive shall, upon reasonable notice,  furnish such
information and assistance to the Bank as may reasonably be required by the Bank
in  connection  with any  litigation in which it or any of its  subsidiaries  or
affiliates is, or may become, a party.

10.      NON-COMPETITION AND NON-DISCLOSURE

(a) Upon any termination of Executive's employment hereunder pursuant to Section
4 hereof,  Executive agrees not to compete with the Bank for a period of one (1)
year following such termination in any city, town or county in which Executive's
normal  business  office is  located  and the Bank 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 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  Bank.  The  parties  hereto,   recognizing  that
irreparable  injury will result to the Bank,  its  business  and property in the
event of Executive's  breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank will be entitled, in addition

 
                                      - 8 -

      



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
pursuant to Section 4 of this Agreement, 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 Bank, 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
or its subsidiaries  from pursuing any other remedies  available to the Bank 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 Bank as it may exist from
time to time,  is a valuable,  special and unique  asset of the  business of the
Bank.  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 Bank 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  Bank.  In the  event of a breach  or  threatened  breach  by
Executive of the  provisions of this Section 10, the Bank 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
Bank or from  rendering  any services to any person,  firm,  corporation,  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
Bank from pursuing any other  remedies  available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.

11.      DEATH AND DISABILITY

(a)  Death.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  in the event of Executive's  death during the term of this Agreement,
the Bank shall  immediately  pay her estate  any  salary and bonus  accrued  but
unpaid as of the date of her death,  and,  for a period of six (6) months  after
Executive's death, the Bank shall continue to provide medical insurance benefits
existing  on  the  date  of her  death  and  shall  pay  Executive's  designated
beneficiary  the Base Salary that would  otherwise be payable to her pursuant to
Section  3 of this  Agreement.  This  provision  shall  not  negate  any  rights
Executive or her  beneficiaries  may have to death  benefits  under any employee
benefit plan of the Bank.

(b)      Disability

         (i) Disability.  If during the term of Executive's employment Executive
begins to receive disability benefits under the long-term  disability  insurance
policy  maintained  by the Bank  (the  "Disability  Policy"),  then  the  Bank's
obligation to pay Executive her Base Salary shall,  as of the date such benefits
first  become  payable  under the  Disability  Policy on account of  Executive's
disability,

 
                                      - 9 -

      



be reduced to equal the difference  between  Executive's Base Salary and amounts
received under all long-term disability policies, to the extent that such salary
payments do not result in a reduction in disability payments.

         (ii) Incapacity. If, as a result of Disability, Executive is determined
by a physician  chosen by the Bank and  reasonably  acceptable  to  Executive or
Executive's personal representatives not to be capable of fulfilling Executive's
responsibilities  as an officer of the Bank  ("Incapacity  Determination"),  (1)
Executive shall continue to be covered by the Bank's medical  insurance and life
insurance policies until the third anniversary of the Incapacity  Determination,
and (2) the Bank's obligation to provide Executive with other employment-related
fringe  benefits  hereunder  shall  cease  as of the  date  of  such  Incapacity
Determination   ("Incapacity  Determination  Date").  Prior  to  the  Incapacity
Determination  Date,  the Bank shall continue to pay Executive her annual salary
in usual  installments  and  Executive  shall  continue  to  receive  all  other
employment-related  fringe  benefits due to Executive  in  accordance  with this
Agreement.

         (iii)  Termination of Employment by Reason of  Incapacity.  At any time
from and after the Incapacity Determination Date, the Board of Directors, in its
discretion,  may elect to  terminate  Executive's  employment  by reason of such
incapacity.  Any such  termination as a result of incapacity shall be considered
to be an Event of Termination in accordance with Section 4 of this Agreement.

12.      SOURCE OF PAYMENTS

(a) All  payments  provided  in this  Agreement  shall be timely paid in cash or
check  from the  general  funds of the Bank or subject  to  Section  12(b).  The
Holding Company,  however,  unconditionally  guarantees payment and provision of
all amounts and  benefits due  hereunder  to  Executive  and, if such amount and
benefits  due from the Bank are not timely paid or  provided  by the Bank,  such
amounts and benefits shall be paid or provided by the Holding Company.

(b)  Notwithstanding  any provision  herein to the contrary,  to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive  under an  employment  agreement in effect  between  Executive and the
Holding  Company,  such  compensation  payments and benefits paid by the Holding
Company will be subtracted from any amount due simultaneously to Executive under
similar  provisions of this Agreement.  Payments  pursuant to this Agreement and
the Holding  Company  agreement shall be allocated in proportion to the level of
activity and the time expended on such  activities by Executive as determined by
the Holding Company and the Bank.

13.      EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding  between the parties hereto and
supersedes any prior employment agreement between the Bank or any predecessor of
the Bank 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
 

                                     - 10 -

      



mean that Executive is subject to receiving  fewer benefits than those available
to her without reference to this Agreement.

14.      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
and the Bank and their respective successors and assigns.

15.      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 as to any act other than that specifically waived.

16.      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.

17.      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.


 
                                     - 11 -

      



18.      GOVERNING LAW

This  Agreement   shall  be  governed  by  the  laws  of  the   Commonwealth  of
Massachusetts, without regard to principles of conflicts of law of that state.

19.      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 Bank,  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.

In the event any dispute or  controversy  arising  under or in  connection  with
Executive's termination is resolved in favor of Executive,  whether by judgment,
arbitration  or  settlement,  Executive  shall be entitled to the payment of all
back-pay,  including  salary,  bonuses and any other cash  compensation,  fringe
benefits and any compensation and benefits due Executive under this Agreement.

20.      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 Bank, if Executive is successful  with respect to such
dispute or question of interpretation pursuant to a legal judgment,  arbitration
or settlement.

21.      INDEMNIFICATION

(a) The Bank  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
federal 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 her having been a director or officer of the Bank
(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 cost of reasonable settlements.


 
                                     - 12 -

      



(b) Any payments  made to  Executive  pursuant to this Section 21 are subject to
and conditioned  upon  compliance  with 12 U.S.C.  Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.

22.      SUCCESSOR TO THE BANK

The Bank 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  Bank or the  Holding  Company,  to  expressly  and
unconditionally  assume and agree to perform the Bank's  obligations  under this
Agreement,  in the same  manner  and to the same  extent  that the Bank would be
required to perform such  obligations  if no such  succession or assignment  had
taken place.




 
                                     - 13 -

      


                                   SIGNATURES


         IN WITNESS  WHEREOF,  Berkshire  Bank has caused this  Agreement  to be
executed and its seal to be affixed hereunto by its duly authorized  officer and
Executive has signed this Agreement, on the 16th day of August, 2000.


ATTEST:                         BERKSHIRE BANK



/s/Rose A. Borotto                  By:  /s/James A. Cunningham, Jr.  
-------------------                      --------------------------- 
Rose A. Borotto                          James A. Cunningham, Jr.  
Corporate Secretary                      For the Entire Board of Directors



                  [SEAL]


ATTEST:                         BERKSHIRE HILLS BANCORP, INC.
                                (Guarantor)
   

 
/s/Rose A. Borotto                  By:  /s/James A. Cunningham, Jr.    
-------------------                      -------------------------------- 
Rose A. Borotto                          James A. Cunningham, Jr.  
Corporate Secretary                      For the Entire Board of Directors 




                  [SEAL]


WITNESS:                        EXECUTIVE



/s/Rose A. Borotto                  By:  /s/Susan M. Santora    
-------------------                      ------------------- 
Rose A. Borotto                          Susan M. Santora
Corporate Secretary                      

 
                                     - 14 -


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Section 5: EX-10.4




         Mr.  Daly's  Employment  is the  same as the  Employment  Agreement  in
Exhibit 10.3,  which is incorporated  herein by reference  except as to: (i) the
name of the Executive, which is Michael P. Daly; (ii) the position in Section 1,
which is Executive Vice President - Senior Loan Officer; and (iii) the amount of
the base salary in Section 3(a), which is $139,250.




(Back To Top)

Section 6: EX-10.5



 


         Mr.  Plungis's  Employment is the same as the  Employment  Agreement in
Exhibit 10.3,  which is incorporated  herein by reference  except as to: (i) the
name of the  Executive,  which is Charles F. Plungis,  Jr.; (ii) the position in
Section  1,  which is Senior  Vice  President,  Treasurer  and  Chief  Financial
Officer;  and (iii) the  amount of the base  salary in  Section  3(a),  which is
$140,750.


(Back To Top)

Section 7: EX-10.6





                          BERKSHIRE HILLS BANCORP, INC.
                              EMPLOYMENT AGREEMENT


         This EMPLOYMENT  AGREEMENT  ("Agreement")  is made effective as of June
27, 2000 (the "Effective  Time"), by and between  Berkshire Hills Bancorp,  Inc.
(the "Holding  Company"),  a corporation  organized  under the laws of Delaware,
with its principal offices at 24 North Street, Pittsfield, Massachusetts, 01202,
and James A. Cunningham,  Jr. ("Executive").  Any reference to the "Bank" herein
shall mean Berkshire Bank or any successor to Berkshire Bank.

         WHEREAS, the Holding Company believes that the assurance of Executive's
employment by the Holding Company for the term of this Agreement and the benefit
of his business experience are of material importance; and

         WHEREAS,  Executive  desires  to serve  in the  employ  of the  Holding
Company on a full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties to this Agreement hereby agree as follows:

1.       POSITIONS AND RESPONSIBILITIES

(a) During the term of this Agreement Executive agrees to serve as President and
Chief  Executive  Officer  of  the  Holding  Company.   Executive  shall  render
administrative  and  management  services  to the  Holding  Company  such as are
customarily  performed by persons in a similar  executive  capacity.  During the
term of this Agreement, Executive also agrees to serve, if elected or appointed,
as an officer and/or  director of any  subsidiary of the Holding  Company and in
such  capacity  will  carry  out such  duties  and  responsibilities  reasonably
appropriate to that office.

(b) During the term of Executive's  employment under this Agreement,  except for
periods of absence occasioned by illness,  vacation, and other reasonable leaves
of  absence,  Executive  shall  devote  substantially  all  his  business  time,
attention,  skill,  and efforts to the faithful  performance of his duties under
this Agreement,  including  activities and services related to the organization,
operation and management of the Holding Company and its subsidiaries, as well as
participation  in community,  professional  and civic  organizations;  provided,
however,  that,  with the  approval  of the Board of  Directors  of the  Holding
Company (the "Board of Directors"), as evidenced by a resolution of the Board of
Directors,  from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations,  which,  in the  judgment  of the  Board of  Directors,  will not
present any conflict of interest with the Holding  Company or its  subsidiaries,
or materially  affect the  performance  of Executive's  duties  pursuant to this
Agreement.

         (c) Notwithstanding  anything herein contained to the contrary,  either
Executive or the Holding

 
                                      - 1 -

      



Company may terminate  Executive's  employment  with the Holding  Company at any
time during the term of this  Agreement,  subject to the terms and conditions of
this Agreement.

2.       TERM OF EMPLOYMENT

Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective  Time and shall  continue for a period of thirty-six  (36) full
calendar months from the Effective Time.  Commencing on the date of execution of
this  Agreement,  the term of this  Agreement  shall extend for one day each day
until such time as the Board of Directors or Executive  elects not to extend the
term of the Agreement by giving written notice to the other party, in which case
the term of this  Agreement  shall  become  fixed  and  shall  end on the  third
anniversary of the date of such written notice.

3.       COMPENSATION, BENEFITS AND REIMBURSEMENT

(a) Base Salary. The Holding Company shall pay Executive an annual salary of not
less than $320,000 ("Base Salary").  Executive's Base Salary shall be payable in
accordance with the normal payroll  practices of the Holding  Company.  Whenever
used in this  Agreement,  Base Salary shall include any amounts of  compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Holding Company
or the Bank.  During the term of this  Agreement,  the Board of  Directors  or a
committee  appointed by the Board of Directors  shall  review  Executive's  Base
Salary  at least  annually  and the  Board of  Directors  or the  committee  may
increase  Executive's  Base Salary at any time. Any increase in Executive's Base
Salary shall become a term of this  Agreement and shall be the new "Base Salary"
for purposes of this Agreement.

(b) Incentive Compensation.  In addition to his Base Salary,  Executive shall be
entitled  to  participate  in and shall  receive  payments  under any  incentive
compensation  bonus  program  sponsored  by the  Holding  Company  or the  Bank.
Executive's incentive compensation shall be determined by the Board of Directors
or a committee  appointed by the Board of Directors at a level  appropriate  for
executive officers.

(c)  Supplemental  Pension and Life  Insurance.  The Holding Company or the Bank
shall continue to provide to Executive,  without cost, the supplemental  pension
and life insurance arrangements in place at the Effective Time. The supplemental
pension and life  insurance  arrangements  shall be governed by the terms of the
specific agreements in effect at the Effective Time.

(d) Club Dues.  In addition to any other  compensation  provided  for under this
Agreement,  the  Holding  Company  or the Bank  shall  pay  Executive  an amount
sufficient,  on an after-tax  basis,  to maintain his  membership at the Country
Club of Pittsfield.



 
                                      - 2 -

      



(e) Automobile and Cellular Phone. The Holding Company or the Bank shall provide
Executive with, and Executive shall have the primary use of, an automobile owned
or leased by the Holding Company or the Bank and the Holding Company or the Bank
shall pay (or reimburse Executive) for all expenses of insurance,  registration,
operation  and  maintenance  of the  automobile.  Executive  shall  comply  with
reasonable  reporting and expense limitations on the use of such automobile,  as
the Board of Directors may establish from time to time, and the Holding  Company
or  the  Bank  shall  annually  include  on  Executive's  Form  W-2  any  amount
attributable to Executive's personal use of such automobile. The Holding Company
or the Bank shall also provide Executive with a cellular phone and shall pay (or
reimburse  Executive) for all reasonable expenses related to the business use of
such phone.

(f) Vacation;  Holidays;  Sick Time.  Executive shall be entitled to vacation in
accordance  with the standard  vacation  policies of the Holding  Company or the
Bank for  senior  executive  officers,  but in no event less than four (4) weeks
vacation during each year of employment. Executive shall take vacation at a time
mutually agreed upon by the Holding Company or the Bank and Executive. Executive
shall  receive his Base Salary and other  benefits  during  periods of vacation.
Executive  shall also be entitled to paid legal holidays in accordance  with the
policies of the Holding Company or the Bank. Executive shall also be entitled to
sick leave in  accordance  with the policies of the Holding  Company or the Bank
for senior executive  officers,  but in no event less than the number of days of
sick leave per year to which Executive was entitled at the Effective Time.

(g) Other Employee  Benefits.  In addition to any other compensation or benefits
provided for under this  Agreement,  Executive  shall be entitled to continue to
participate in any employee  benefit plans,  arrangements and perquisites of the
Holding  Company  or the  Bank  in  which  he  participates  or is  eligible  to
participate  at  the  Effective  Time.  Executive  shall  also  be  entitled  to
participate in any employee  benefits or perquisites  the Holding Company or the
Bank offers to full-time  employees or executive  management in the future.  The
Holding Company or the Bank will not, without Executive's prior written consent,
make  any  changes  in such  plans,  arrangements  or  perquisites  which  would
adversely affect  Executive's  rights or benefits  thereunder without separately
providing for an arrangement that ensures Executive receives or will receive the
economic value that Executive  would  otherwise lose as a result of such adverse
effect.  Without  limiting the  generality of the  foregoing  provisions of this
paragraph,  Executive  shall be entitled to participate  in or receive  benefits
under all plans  relating  to stock  options,  restricted  stock  awards,  stock
purchases,  pension,  profit  sharing,  employee stock  ownership,  supplemental
retirement,  group life insurance, medical and other health and welfare coverage
that are made available by the Holding Company or the Bank at the Effective Time
or at any time in the future during the term of this  Agreement,  subject to and
on a basis consistent with the terms,  conditions and overall  administration of
such plans and  arrangements.  Nothing paid to Executive under any such plans or
arrangements  will be  deemed  to be in  lieu of  other  compensation  to  which
Executive is entitled under this Agreement.


 
                                      - 3 -

      



4.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

(a) Upon the  occurrence of an Event of  Termination  (as defined  herein below)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination of
Executive's full-time employment under this Agreement by the Holding Company for
any reason other than a termination governed by Section 7 of this Agreement;  or
(ii) Executive's  resignation from his employment with the Holding Company upon,
any (A) failure to elect or re-elect or to appoint or  re-appoint  Executive  to
his  positions  set  forth in  Section  1 of this  Agreement,  unless  Executive
consents to such event, (B) material change in Executive's functions, duties, or
responsibilities  with the Holding  Company or its  subsidiaries,  which  change
would  cause  Executive's  position(s)  to become one of lesser  responsibility,
importance, or scope, unless Executive consents to such event, (C) relocation of
Executive's  principal place of employment by more than  twenty-five  (25) miles
from its  location at the  Effective  Time,  unless  Executive  consents to such
event,  (D)  material  reduction in the  benefits  and  perquisites  provided to
Executive from those being provided as of the Effective Time of this  Agreement,
unless  Executive  consents to such event, (E) liquidation or dissolution of the
Holding  Company or the Bank,  or (F) breach of this  Agreement  by the  Holding
Company.  Upon the  occurrence of any event  described in clauses (A), (B), (C),
(D),  (E) or (F),  above,  Executive  shall  have  the  right to  terminate  his
employment  under this  Agreement by  resignation  upon not less than sixty (60)
days prior written  notice given within six (6) full  calendar  months after the
applicable  event giving rise to  Executive's  right to elect to  terminate  his
employment.

(b) Upon  Executive's  termination  from employment in accordance with paragraph
(a) of this  Section 4, on the Date of  Termination,  as defined in Section 8 of
the Agreement,  the Holding Company shall be obligated to pay Executive,  or, in
the event of his death  following the Date of  Termination,  his  beneficiary or
beneficiaries, or his estate, as the case may be, an amount equal to the sum of:
(i) the Base  Salary  and  incentive  compensation  that would have been paid to
Executive for the remaining  term of this Agreement had the Event of Termination
not occurred  (based on  Executive's  then current Base Salary and most recently
paid or accrued  bonus at the time of the Event of  Termination);  plus (ii) the
value, as calculated by a recognized firm customarily performing such valuation,
of any stock options which as of the Date of  Termination,  have been granted to
Executive but are not  exercisable  by Executive and the value of any restricted
stock awards which have been granted to Executive,  but in which  Executive does
not  have  a  non-forfeitable  or  fully-vested  interest  as  of  the  Date  of
Termination;  plus (iii) the value of all employee benefits that would have been
provided to Executive for the remaining  term of this  Agreement had an Event of
Termination  not  occurred,  based on the  most  recent  level of  contribution,
accrual or other participation by or on behalf of Executive.  At the election of
Executive,  which election is to be made prior to the Date of Termination,  such
payments  shall be made in a lump sum.  In the event that no  election  is made,
payment to  Executive  will be made on a monthly  basis in  approximately  equal
installments during the remaining unexpired term of the Agreement. Such payments
shall not be reduced in the event Executive  obtains other employment  following
termination of employment.


  
                                      - 4 -

      



(c) In addition to the payments provided for in paragraph (b) of this Section 4,
upon Executive's  termination of employment in accordance with the provisions of
paragraph  (a) of this Section 4, to the extent that the Holding  Company or the
Bank  continues  to offer  any  life,  medical,  health,  disability  or  dental
insurance plan or arrangement in which Executive participates in on the last day
of his  employment  (each  being a "Welfare  Plan"),  Executive  and his covered
dependents shall continue  participating  in such Welfare Plans,  subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of  Termination  until the  earlier of (i) his death (ii) his
employment by another  employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank  does  not  offer  the  Welfare  Plans at any time  after  the  Event of
Termination,  then the Holding  Company shall provide  Executive  with a payment
equal to the  premiums  for such  benefits  for the period  which runs until the
earlier of (i) his death (ii) his employment by another  employer other than one
of which he is the majority owner or (iii) the end of the remaining term of this
Agreement.

5.       CHANGE IN CONTROL

(a) For purposes of this Agreement, a "Change in Control" 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 Bank 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
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 Holding  Company  representing  20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding  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 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 Bank or the Holding Company
or similar  transaction  occurs in which the Bank or Holding  Company is not the
resulting  entity;  or (D) solicitations of shareholders of the Holding Company,
by someone other than the current

 
                                      - 5 -

      



management of the Holding  Company,  seeking  stockholder  approval of a plan of
reorganization,  merger  or  consolidation  of the  Holding  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 Holding  Company  shall be  distributed;  or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.

(b)  If any of the  events  described  in  paragraph  (a)  of  this  Section  5,
constituting  a Change in  Control,  have  occurred  or the  Board of  Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon his termination of employment at any time during the term of this Agreement
on or  after  the date the  Change  in  Control  occurs  due to (1)  Executive's
dismissal or (2) Executive's  resignation following any demotion, loss of title,
office  or  significant   authority  or  responsibility,   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,  unless  such  termination  is  because  of  his  death  or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this Agreement.

(c)  Upon  the  occurrence  of a  Change  in  Control  followed  by  Executive's
termination of  employment,  as provided in paragraph (b) of this Section 5, the
Holding  Company shall pay Executive,  or in the event of his subsequent  death,
his  beneficiary  or  beneficiaries,  or his  estate,  as the  case  may be,  as
severance pay or liquidated  damages, or both, a sum equal to the greater of: 1)
the  payments and benefits  due for the  remaining  term of the  Agreement or 2)
three  (3)  times  Executive's  average  annual  compensation  from the  Holding
Company,  the Bank or their affiliates for the five (5) preceding  taxable years
or such lesser number of years in the event that  Executive  shall have actually
been  employed by the Holding  Company or the Bank for less than five (5) years.
In determining  Executive's  average annual  compensation,  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 (whether paid or accrued for
the applicable  period), as well as, severance  payments,  retirement  benefits,
director or committee  fees and fringe  benefits paid or to be paid to Executive
or paid for Executive's  benefit during any such year, profit sharing,  employee
stock ownership plan and other retirement  contributions or benefits,  including
to any  tax-qualified  plan or  arrangement  (whether  or not  taxable)  made or
accrued on behalf of Executive of such year. At the election of Executive, which
election  is to be made  prior  to or  within  thirty  (30)  days of the Date of
Termination  on or following a Change in Control,  such payment may be made in a
lump sum (without  discount for early payment) on or  immediately  following the
Date of Termination  (which may be the date a Change in Control  occurs) or paid
in equal monthly installments during the sixty (60) months following Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly  basis  during the sixty  (60)  months  following  Executive's
termination.

         (d) Upon the  occurrence  of a Change  in  Control,  Executive  will be
entitled to receive  benefits  due him under or  contributed  by the Bank or the
Holding Company on his behalf pursuant to any

 
                                      - 6 -

      



retirement,  incentive, profit sharing or other retirement,  bonus, performance,
disability or other employee  benefit plan  maintained by the Holding Company or
the Bank on  Executive's  behalf to the extent such  benefits are not  otherwise
paid to Executive under a separate provision of this Agreement. In addition, for
purposes of determining his vested accrued benefit,  Executive shall be credited
either under any defined  benefit pension plan maintained by the Bank or, if not
permitted  under such plan,  under a separate  arrangement,  with the additional
"years of service"  that he would have  earned for  vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  his  employment  not
terminated.

(e) Upon the  occurrence of a Change in Control and  Executive's  termination of
employment  in  connection  therewith,  the  Holding  Company  will  cause to be
continued life, medical and disability coverage  substantially  identical to the
coverage  maintained by the Holding Company or the Bank for Executive and any of
his  dependents  covered  under such plans prior to the Change in Control.  Such
coverage and payments  shall cease upon the  expiration of thirty-six  (36) full
calendar  months  following the Date of  Termination.  In the event  Executive's
participation  in any such plan or program is barred,  the Holding Company shall
arrange to provide  Executive and his  dependents  with  benefits  substantially
similar to those of which Executive and his dependents would otherwise have been
entitled to receive  under such plans and  programs  from which their  continued
participation is barred or provide their economic equivalent.

(f) The use or provision of any  membership,  license,  automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place  immediately  prior to the
Change in  Control.  To the extent that any item  referred to in this  paragraph
will,  at the end of the term of this  Agreement,  no  longer  be  available  to
Executive,  Executive  will have the option to purchase  all rights then held by
the Holding  Company or the Bank to such item for a price equal to the then fair
market value of the item.

(g) In the event that  Executive  is  receiving  monthly  payments  pursuant  to
Section  5(c)  hereof,  on an annual  basis,  thereafter,  between  the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount  payable  under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis  pursuant to such  section.  Such  election  shall be
irrevocable for the year for which such election is made.


6.       CHANGE IN CONTROL RELATED PROVISIONS

(a) Notwithstanding the preceding provisions of Section 5 of this Agreement, for
any taxable year in which Executive shall be liable for the payment of an excise
tax under Section 4999 of the Code (or any successor  provision  thereto),  with
respect to any  payment in the nature of the  compensation  made by the  Holding
Company or its  subsidiaries  to (or for the benefit of)  Executive  pursuant to
this  Agreement or otherwise,  the Holding  Company (or any  successor  thereto)
shall pay to Executive an amount determined under the following formula:


 
                                      - 7 -

      



         An amount equal to:  (E x P) + X

WHERE:

         X        =                          E x P  
                           ----------------------------------------- 
                           1 - [(FI x (1 - SLI)) + SLI + E + M + PO]

         E        =        the rate at  which the excise tax  is assessed  under
                           Section 4999 of the Code;

         P        =        the amount with respect  to which  such excise tax is
                           assessed, determined  without regard  to this Section
                           6;
                           

         FI       =        the   highest  marginal  rate   of   federal  income,
                           employment, and other taxes (other than taxes imposed
                           under  Section  4999  of  the  Code)   applicable  to
                           Executive for the taxable year in question (including
                           any  effective   increase  in  Executive's  tax  rate
                           attributable to the disallowance of any deduction);

         SLI       =       the sum  of the highest  marginal rates of income and
                           payroll tax applicable to Executive under  applicable
                           state and local laws for the taxable year in question
                           (including any effective  increase in Executive's tax
                           rate   attributable   to  the   disallowance  of  any
                           deduction);

         M        =        highest marginal rate of Medicare tax; and

         PO       =        adjustment  for phase  out of  or loss of  deduction,
                           personal exemption or other similar items.

With  respect to any payment in the nature of  compensation  that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under  Section  4999 of the Code may or will be assessed,
the payment  determined  under this  Section 6 shall be made to Executive on the
earliest of (i) the date the Holding  Company is required to withhold  such tax,
(ii) the date the tax is required to be paid by Executive,  or (iii) at the time
of the Change in Control.  It is the  intention  of the parties that the Holding
Company provide  Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax  basis,  the result to Executive  shall be
the same as if the excise tax under Section 4999 (or any  successor  provisions)
of the Code had not been imposed.  The payment may be adjusted,  as appropriate,
if alternative minimum tax rules under the Code are applicable to Executive.

(b)  Notwithstanding  the  foregoing,  if it is (i) initially  determined by the
Holding Company's tax advisors that no excise tax under Section 4999 is due with
respect to any payment or benefit  described  in the first  paragraph of Section
6(a) and,  thereafter,  it is determined in a final judicial  determination or a
final  administrative  settlement  that the Section  4999 excise tax is due with
respect to such payments or benefits or (ii) subsequently  determined in a final
judicial determination or a

 
                                      - 8 -

      



final  administrative  settlement to which  Executive is a party that the excise
tax under Section 4999 is due or that the excess parachute payment as defined in
Section 4999 of the Code is more than the amount  determined as "P", above (such
revised  determination  under (i) or (ii) above being thereafter  referred to as
the  "Determinative  Excess  Parachute  Payment"),  then the tax advisors of the
Holding  Company (or any  successor  thereto)  shall  determine  the amount (the
"Adjustment  Amount"),  the  Holding  Company  (or its  successor)  must  pay to
Executive,  in order to put  Executive in the same  position as Executive  would
have  been  if the  amount  determined  as  "P"  above  had  been  equal  to the
Determinative  Excess Parachute  Payment.  In determining the Adjustment Amount,
the tax  advisors  shall  take into  account  any and all taxes  (including  any
penalties of any nature and interest) paid or payable by Executive in connection
with such final judicial  determination or final administrative  settlement.  As
soon as  practicable  after the Adjustment  Amount has been so  determined,  the
Holding Company shall pay the Adjustment Amount to Executive.

(c) The Holding  Company (or its successor)  shall  indemnify and hold Executive
harmless  from  any  and all  losses,  costs  and  expenses  (including  without
limitation,  reasonable attorney's fees, reasonable accountant's fees, interest,
fines and  penalties  of any  kind)  which  Executive  incurs as a result of any
administrative or judicial review of Executive's liability under Section 4999 of
the Code by the Internal  Revenue Service or any comparable state agency through
and including a final judicial determination or final administrative  settlement
of any dispute arising out of Executive's  liability for the Section 4999 excise
tax or otherwise  relating to the classification for purposes of Section 280G of
the Code of any  payment  or  benefit  in the  nature  of  compensation  made or
provided to Executive by the Holding Company or any successor thereto. Executive
shall promptly notify the Holding Company in writing whenever Executive receives
notice of the commencement of any judicial or administrative proceeding,  formal
or informal,  in which the federal tax treatment  under Section 4999 of the Code
of any  amount  paid or  payable  under  this  Supplemental  Agreement  is being
reviewed  or is in  dispute  (including  a notice  of  audit  or  other  inquiry
concerning  the reporting of  Executive's  liability  under Section  4999).  The
Holding  Company (or its  successor)  may assume control at its expense over all
legal and accounting  matters  pertaining to such federal or state tax treatment
(except to the extent necessary or appropriate for Executive to resolve any such
proceeding  with  respect to any  matter  unrelated  to amounts  paid or payable
pursuant to this contract) and Executive  shall cooperate fully with the Holding
Company in any such proceeding. Executive shall not enter into any compromise or
settlement  or  otherwise  prejudice  any rights  the  Holding  Company  (or its
successor) may have in connection therewith without prior consent to the Holding
Company  (or its  successor).  In the event  that the  Holding  Company  (or any
successor  thereto) elects not to assume control over such matters,  the Holding
Company (or any successor  thereto) shall promptly  reimburse  Executive for all
expenses  related thereto as and when incurred upon  presentation of appropriate
documentation relating thereto.



 
                                      - 9 -

      



7.       TERMINATION FOR CAUSE

         The term  "Termination  for Cause"  shall mean  termination  because of
Executive's  personal  dishonesty,  willful misconduct,  any 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.  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  three-fourths
(3/4) of the  members  of the Board of  Directors  at a meeting  of the Board of
Directors 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
of Directors), finding that in the good faith opinion of the Board of Directors,
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 pursuant to
Section 8 hereof  through  the Date of  Termination,  stock  options  granted to
Executive  under any stock  option plan shall not be  exercisable  nor shall any
unvested  awards granted to Executive  under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination,  such stock options and any such unvested  awards shall become null
and void and shall not be  exercisable  by or delivered to Executive at any time
subsequent to such Termination for Cause.

8.       NOTICE

(a) Any purported  termination by the Holding  Company or by Executive  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 case of a Termination for Cause,  shall not be less
than thirty (30) days from the date such Notice of Termination is given).

(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,  except upon the  occurrence of a
Change in Control and voluntary  termination by Executive in which case the Date
of  Termination  shall  be  the  date  specified  in the  Notice,  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

  
                                     - 10 -

      



with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding  Company will continue to pay Executive his full  compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation,  benefit
and insurance plans in which he was participating when the notice of dispute was
given,  until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section 8 are in addition to all other amounts due under
this  Agreement and shall not be offset  against or reduce any other amounts due
under this Agreement.

9.       POST-TERMINATION OBLIGATIONS

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section  9 for one (1) full  year  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Holding Company.  Executive shall,  upon reasonable  notice,
furnish such information and assistance to the Holding Company as may reasonably
be required by the Holding Company in connection with any litigation in which it
or any of its subsidiaries or affiliates is, or may become, a party.

10.      NON-COMPETITION AND NON-DISCLOSURE

(a) Upon any termination of Executive's employment hereunder pursuant to Section
4 hereof,  Executive  agrees  not to  compete  with the  Holding  Company or its
subsidiaries  for a period of one (1) year  following  such  termination  in any
city, town or county in which Executive's  normal business office is located and
the  Holding  Company or any of 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 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 Holding  Company or its  subsidiaries.  The parties
hereto,  recognizing that irreparable  injury will result to the Holding Company
or its  subsidiaries,  its  business  and  property in the event of  Executive's
breach of this  Subsection  10(a)  agree that in the event of any such breach by
Executive,  the  Holding  Company  or its  subsidiaries,  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  pursuant  to  Section  4  of  this  Agreement,  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 or its  subsidiaries  from
pursuing any other remedies available to the Holding Company or its subsidiaries
for such breach or  threatened  breach,  including  the recovery of damages from
Executive.


 
                                     - 11 -

      



(b) Executive  recognizes  and  acknowledges  that the knowledge of the business
activities  and plans for  business  activities  of the Holding  Company and its
subsidiaries  as it may exist  from time to time,  is a  valuable,  special  and
unique  asset of the  business  of the  Holding  Company  and its  subsidiaries.
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 and subsidiaries  thereof 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.  In the event of a
breach or threatened  breach by Executive of the  provisions of this Section 10,
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,  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 any other  remedies  available to the Holding  Company for
such  breach or  threatened  breach,  including  the  recovery  of damages  from
Executive.

11.      DEATH AND DISABILITY

(a)  Death.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  in the event of Executive's  death during the term of this Agreement,
the  Holding  Company  shall  immediately  pay his  estate  any salary and bonus
accrued  but  unpaid as of the date of his death,  and,  for a period of six (6)
months after  Executive's  death,  the Holding Company shall continue to provide
medical  insurance  benefits  existing  on the date of his  death  and shall pay
Executive's  designated  beneficiary  all  compensation  that would otherwise be
payable to him pursuant to Section 3 of this Agreement. This provision shall not
negate any rights  Executive  or his  beneficiaries  may have to death  benefits
under any employee benefit plan of the Holding Company or the Bank.

(b)      Disability

         (i) Disability.  If during the term of Executive's employment Executive
begins to receive disability benefits under the long-term  disability  insurance
policy  maintained  by the Bank  (the  "Disability  Policy"),  then the  Holding
Company's obligation to pay Executive his Base Salary shall, as of the date such
benefits  first  become  payable  under  the  Disability  Policy on  account  of
Executive's  disability,  be reduced to equal the difference between Executive's
Base Salary and amounts received under all long-term disability policies, to the
extent that such salary  payments  do not result in a  reduction  in  disability
payments.

         (ii) Incapacity. If, as a result of Disability, Executive is determined
by a  physician  chosen  by the  Holding  Company  or the  Bank  and  reasonably
acceptable  to  Executive  or  Executive's  personal  representatives  not to be
capable of fulfilling Executive's responsibilities as an officer of

 
                                     - 12 -

      



the Holding Company ("Incapacity  Determination"),  (1) Executive shall continue
to be covered by the Bank's medical insurance and life insurance  policies until
the third  anniversary  of the  Incapacity  Determination,  and (2) the  Holding
Company's   or  the  Bank's   obligation   to  provide   Executive   with  other
employment-related  fringe benefits hereunder shall cease as of the date of such
Incapacity  Determination   ("Incapacity  Determination  Date").  Prior  to  the
Incapacity  Determination  Date,  the  Holding  Company  shall  continue  to pay
Executive his annual salary in usual  installments  and Executive shall continue
to receive all other  employment-related  fringe  benefits  due to  Executive in
accordance with this Agreement.  The Bank's or the Holding Company's  obligation
to provide  Executive  with the benefits  described in Section 3(c) shall not be
affected  by an  Incapacity  Determination  unless  the  terms  of the  separate
arrangements governing such benefits so provide.

         (iii)  Termination of Employment by Reason of  Incapacity.  At any time
from and after the Incapacity Determination Date, the Board of Directors, in its
discretion,  may elect to  terminate  Executive's  employment  by reason of such
incapacity.  Any such  termination as a result of incapacity shall be considered
to be an Event of Termination in accordance with Section 4 of this Agreement.

12.      SOURCE OF PAYMENTS

(a) All  payments  provided  in this  Agreement  shall be timely paid in cash or
check from the general funds of the Holding Company or subject to Section 12(b).

(b)  Notwithstanding  any provision  herein to the contrary,  to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive  under an  employment  agreement in effect  between  Executive and the
Bank,  such  compensation  payments  and  benefits  paid  by the  Bank  will  be
subtracted  from any  amount  due  simultaneously  to  Executive  under  similar
provisions of this Agreement.  Payments  pursuant to this Agreement and the Bank
agreement shall be allocated in proportion to the level of activity and the time
expended on such  activities by Executive as  determined by the Holding  Company
and the Bank.

13.      EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding  between the parties hereto and
supersedes any prior  employment  agreement  between the Holding  Company or any
predecessor  of the Holding  Company 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.


 
                                     - 13 -

      



14.      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
and the Holding Company and their respective successors and assigns.

15.      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 as to any act other than that specifically waived.

16.      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.

17.      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.

18.      GOVERNING LAW

This  Agreement  shall be governed by the laws of the State of Delaware  without
regard to principles of conflicts of law of that state.


 
                                     - 14 -

      



19.      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,  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.

In the event any dispute or  controversy  arising  under or in  connection  with
Executive's termination is resolved in favor of Executive,  whether by judgment,
arbitration  or  settlement,  Executive  shall be entitled to the payment of all
back-pay,  including  salary,  bonuses and any other cash  compensation,  fringe
benefits and any compensation and benefits due Executive under this Agreement.

20.      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.

21.      INDEMNIFICATION

(a) 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 cost of reasonable settlements.


                                     - 15 -
      


(b) Any payments  made to  Executive  pursuant to this Section 21 are subject to
and conditioned  upon  compliance  with 12 U.S.C.  Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.


22.      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 Bank or 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.


                                   SIGNATURES


         IN WITNESS  WHEREOF,  Berkshire  Hills  Bancorp,  Inc.  has caused this
Agreement  to be  executed  and its  seal to be  affixed  hereunto  by its  duly
authorized  officer and Executive has signed this  Agreement,  on the 9th day of
August, 2000.


ATTEST:                           BERKSHIRE HILLS BANCORP, INC.



/s/Rose A. Borotto                   By:   /s/Robert A. Wells   
-------------------                        ------------------ 
Rose A. Borotto                            Robert A. Wells   
Corporate Secretary                        For the Entire Board of Directors



                  [SEAL]


WITNESS:                          EXECUTIVE



/s/Rose A. Borotto                  By:    /s/James A. Cunningham, Jr.        
-------------------                        -------------------------- 
Rose A. Borotto                            James A. Cunningham, Jr.
Corporate Secretary  
 
                                     - 16 -


(Back To Top)

Section 8: EX-10.7





                          BERKSHIRE HILLS BANCORP, INC.
                              EMPLOYMENT AGREEMENT


         This EMPLOYMENT  AGREEMENT  ("Agreement")  is made effective as of June
27, 2000 (the "Effective  Time"), by and between  Berkshire Hills Bancorp,  Inc.
(the "Holding  Company"),  a corporation  organized  under the laws of Delaware,
with its principal offices at 24 North Street, Pittsfield, Massachusetts, 01202,
and Robert A. Wells ("Executive"). Any reference to the "Bank" herein shall mean
Berkshire Bank or any successor to Berkshire Bank.

         WHEREAS, the Holding Company believes that the assurance of Executive's
employment by the Holding Company for the term of this Agreement and the benefit
of his business experience are of material importance; and

         WHEREAS,  Executive  desires  to serve  in the  employ  of the  Holding
Company on a full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties to this Agreement hereby agree as follows:

1.       POSITIONS AND RESPONSIBILITIES

(a) During the term of this Agreement  Executive  agrees to serve as Chairman of
the Board of the Holding  Company.  Executive  shall render  administrative  and
management services to the Holding Company such as are customarily  performed by
persons in a similar  executive  capacity.  During  the term of this  Agreement,
Executive  also agrees to serve,  if elected or appointed,  as an officer and/or
director of any  subsidiary  of the Holding  Company and in such  capacity  will
carry  out such  duties  and  responsibilities  reasonably  appropriate  to that
office.

(b) During the term of Executive's  employment under this Agreement,  except for
periods of absence occasioned by illness,  vacation, and other reasonable leaves
of  absence,  Executive  shall  devote  substantially  all  his  business  time,
attention,  skill,  and efforts to the faithful  performance of his duties under
this Agreement,  including  activities and services related to the organization,
operation and management of the Holding Company and its subsidiaries, as well as
participation  in community,  professional  and civic  organizations;  provided,
however,  that,  with the  approval  of the Board of  Directors  of the  Holding
Company (the "Board of Directors"), as evidenced by a resolution of the Board of
Directors,  from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations,  which,  in the  judgment  of the  Board of  Directors,  will not
present any conflict of interest with the Holding  Company or its  subsidiaries,
or materially  affect the  performance  of Executive's  duties  pursuant to this
Agreement.

(c) Notwithstanding anything herein contained to the contrary,  either Executive
or the Holding

 
                                      - 1 -

      



Company may terminate  Executive's  employment  with the Holding  Company at any
time during the term of this  Agreement,  subject to the terms and conditions of
this Agreement.

2.       TERM OF EMPLOYMENT

Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective  Time and shall  continue for a period of thirty-six  (36) full
calendar months from the Effective Time.  Commencing on the date of execution of
this  Agreement,  the term of this  Agreement  shall extend for one day each day
until such time as the Board of Directors or Executive  elects not to extend the
term of the Agreement by giving written notice to the other party, in which case
the term of this  Agreement  shall  become  fixed  and  shall  end on the  third
anniversary of the date of such written notice.

3.       COMPENSATION, BENEFITS AND REIMBURSEMENT

(a) Base Salary. The Holding Company shall pay Executive an annual salary of not
less than $250,000 ("Base Salary").  Executive's Base Salary shall be payable in
accordance with the normal payroll  practices of the Holding  Company.  Whenever
used in this  Agreement,  Base Salary shall include any amounts of  compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Holding Company
or the Bank.  During the term of this  Agreement,  the Board of  Directors  or a
committee  appointed by the Board of Directors  shall  review  Executive's  Base
Salary  at least  annually  and the  Board of  Directors  or the  committee  may
increase  Executive's  Base Salary at any time. Any increase in Executive's Base
Salary shall become a term of this  Agreement and shall be the new "Base Salary"
for purposes of this Agreement.

(b) Incentive Compensation.  In addition to his Base Salary,  Executive shall be
entitled  to  participate  in and shall  receive  payments  under any  incentive
compensation  bonus  program  sponsored  by the  Holding  Company  or the  Bank.
Executive's incentive compensation shall be determined by the Board of Directors
or a committee  appointed by the Board of Directors at a level  appropriate  for
executive officers.

(c)  Supplemental  Pension and Life  Insurance.  The Holding Company or the Bank
shall continue to provide to Executive,  without cost, the supplemental  pension
and life insurance arrangements in place at the Effective Time. The supplemental
pension and life  insurance  arrangements  shall be governed by the terms of the
specific agreements in effect at the Effective Time.

(d) Club Dues.  In addition to any other  compensation  provided  for under this
Agreement,  the  Holding  Company  or the Bank  shall  pay  Executive  an amount
sufficient, on an after-tax basis, to maintain his membership at the Lenox Club.



 
                                      - 2 -

      



(e) Automobile and Cellular Phone. The Holding Company or the Bank shall provide
Executive with, and Executive shall have the primary use of, an automobile owned
or leased by the Holding Company or the Bank and the Holding Company or the Bank
shall pay (or reimburse Executive) for all expenses of insurance,  registration,
operation  and  maintenance  of the  automobile.  Executive  shall  comply  with
reasonable  reporting and expense limitations on the use of such automobile,  as
the Board of Directors may establish from time to time, and the Holding  Company
or  the  Bank  shall  annually  include  on  Executive's  Form  W-2  any  amount
attributable to Executive's personal use of such automobile. The Holding Company
or the Bank shall also provide Executive with a cellular phone and shall pay (or
reimburse  Executive) for all reasonable expenses related to the business use of
such phone.

(f) Vacation;  Holidays;  Sick Time.  Executive shall be entitled to vacation in
accordance  with the standard  vacation  policies of the Holding  Company or the
Bank for  senior  executive  officers,  but in no event less than four (4) weeks
vacation during each year of employment. Executive shall take vacation at a time
mutually agreed upon by the Holding Company or the Bank and Executive. Executive
shall  receive his Base Salary and other  benefits  during  periods of vacation.
Executive  shall also be entitled to paid legal holidays in accordance  with the
policies of the Holding Company or the Bank. Executive shall also be entitled to
sick leave in  accordance  with the policies of the Holding  Company or the Bank
for senior executive  officers,  but in no event less than the number of days of
sick leave per year to which Executive was entitled at the Effective Time.

(g) Other Employee  Benefits.  In addition to any other compensation or benefits
provided for under this  Agreement,  Executive  shall be entitled to continue to
participate in any employee  benefit plans,  arrangements and perquisites of the
Holding  Company  or the  Bank  in  which  he  participates  or is  eligible  to
participate  at  the  Effective  Time.  Executive  shall  also  be  entitled  to
participate in any employee  benefits or perquisites  the Holding Company or the
Bank offers to full-time  employees or executive  management in the future.  The
Holding Company or the Bank will not, without Executive's prior written consent,
make  any  changes  in such  plans,  arrangements  or  perquisites  which  would
adversely affect  Executive's  rights or benefits  thereunder without separately
providing for an arrangement that ensures Executive receives or will receive the
economic value that Executive  would  otherwise lose as a result of such adverse
effect.  Without  limiting the  generality of the  foregoing  provisions of this
paragraph,  Executive  shall be entitled to participate  in or receive  benefits
under all plans  relating  to stock  options,  restricted  stock  awards,  stock
purchases,  pension,  profit  sharing,  employee stock  ownership,  supplemental
retirement,  group life insurance, medical and other health and welfare coverage
that are made available by the Holding Company or the Bank at the Effective Time
or at any time in the future during the term of this  Agreement,  subject to and
on a basis consistent with the terms,  conditions and overall  administration of
such plans and  arrangements.  Nothing paid to Executive under any such plans or
arrangements  will be  deemed  to be in  lieu of  other  compensation  to  which
Executive is entitled under this Agreement.


 
                                      - 3 -

      



4.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

(a) Upon the  occurrence of an Event of  Termination  (as defined  herein below)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination of
Executive's full-time employment under this Agreement by the Holding Company for
any reason other than a termination governed by Section 7 of this Agreement;  or
(ii) Executive's  resignation from his employment with the Holding Company upon,
any (A) failure to elect or re-elect or to appoint or  re-appoint  Executive  to
his  positions  set  forth in  Section  1 of this  Agreement,  unless  Executive
consents to such event, (B) material change in Executive's functions, duties, or
responsibilities  with the Holding  Company or its  subsidiaries,  which  change
would  cause  Executive's  position(s)  to become one of lesser  responsibility,
importance, or scope, unless Executive consents to such event, (C) relocation of
Executive's  principal place of employment by more than  twenty-five  (25) miles
from its  location at the  Effective  Time,  unless  Executive  consents to such
event,  (D)  material  reduction in the  benefits  and  perquisites  provided to
Executive from those being provided as of the Effective Time of this  Agreement,
unless  Executive  consents to such event, (E) liquidation or dissolution of the
Holding  Company or the Bank,  or (F) breach of this  Agreement  by the  Holding
Company.  Upon the  occurrence of any event  described in clauses (A), (B), (C),
(D),  (E) or (F),  above,  Executive  shall  have  the  right to  terminate  his
employment  under this  Agreement by  resignation  upon not less than sixty (60)
days prior written  notice given within six (6) full  calendar  months after the
applicable  event giving rise to  Executive's  right to elect to  terminate  his
employment.

(b) Upon  Executive's  termination  from employment in accordance with paragraph
(a) of this  Section 4, on the Date of  Termination,  as defined in Section 8 of
the Agreement,  the Holding Company shall be obligated to pay Executive,  or, in
the event of his death  following the Date of  Termination,  his  beneficiary or
beneficiaries, or his estate, as the case may be, an amount equal to the sum of:
(i) the Base  Salary  and  incentive  compensation  that would have been paid to
Executive for the remaining  term of this Agreement had the Event of Termination
not occurred  (based on  Executive's  then current Base Salary and most recently
paid or accrued  bonus at the time of the Event of  Termination);  plus (ii) the
value, as calculated by a recognized firm customarily performing such valuation,
of any stock options which as of the Date of  Termination,  have been granted to
Executive but are not  exercisable  by Executive and the value of any restricted
stock awards which have been granted to Executive,  but in which  Executive does
not  have  a  non-forfeitable  or  fully-  vested  interest  as of the  Date  of
Termination;  plus (iii) the value of all employee benefits that would have been
provided to Executive for the remaining  term of this  Agreement had an Event of
Termination  not  occurred,  based on the  most  recent  level of  contribution,
accrual or other participation by or on behalf of Executive.  At the election of
Executive,  which election is to be made prior to the Date of Termination,  such
payments  shall be made in a lump sum.  In the event that no  election  is made,
payment to  Executive  will be made on a monthly  basis in  approximately  equal
installments during the remaining unexpired term of the Agreement. Such payments
shall not be reduced in the event Executive  obtains other employment  following
termination of employment.


 
                                      - 4 -

      



(c) In addition to the payments provided for in paragraph (b) of this Section 4,
upon Executive's  termination of employment in accordance with the provisions of
paragraph  (a) of this Section 4, to the extent that the Holding  Company or the
Bank  continues  to offer  any  life,  medical,  health,  disability  or  dental
insurance plan or arrangement in which Executive participates in on the last day
of his  employment  (each  being a "Welfare  Plan"),  Executive  and his covered
dependents shall continue  participating  in such Welfare Plans,  subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of  Termination  until the  earlier of (i) his death (ii) his
employment by another  employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank  does  not  offer  the  Welfare  Plans at any time  after  the  Event of
Termination,  then the Holding  Company shall provide  Executive  with a payment
equal to the  premiums  for such  benefits  for the period  which runs until the
earlier of (i) his death (ii) his employment by another  employer other than one
of which he is the majority owner or (iii) the end of the remaining term of this
Agreement.

5.       CHANGE IN CONTROL

(a) For purposes of this Agreement, a "Change in Control" 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 Bank 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
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 Holding  Company  representing  20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding  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 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 Bank or the Holding Company
or similar  transaction  occurs in which the Bank or Holding  Company is not the
resulting  entity;  or (D) solicitations of shareholders of the Holding Company,
by someone other than the current

 
                                      - 5 -

      



management of the Holding  Company,  seeking  stockholder  approval of a plan of
reorganization,  merger  or  consolidation  of the  Holding  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 Holding  Company  shall be  distributed;  or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.

(b)  If any of the  events  described  in  paragraph  (a)  of  this  Section  5,
constituting  a Change in  Control,  have  occurred  or the  Board of  Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon his termination of employment at any time during the term of this Agreement
on or  after  the date the  Change  in  Control  occurs  due to (1)  Executive's
dismissal or (2) Executive's  resignation following any demotion, loss of title,
office  or  significant   authority  or  responsibility,   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,  unless  such  termination  is  because  of  his  death  or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this Agreement.

(c)  Upon  the  occurrence  of a  Change  in  Control  followed  by  Executive's
termination of  employment,  as provided in paragraph (b) of this Section 5, the
Holding  Company shall pay Executive,  or in the event of his subsequent  death,
his  beneficiary  or  beneficiaries,  or his  estate,  as the  case  may be,  as
severance pay or liquidated  damages, or both, a sum equal to the greater of: 1)
the  payments and benefits  due for the  remaining  term of the  Agreement or 2)
three  (3)  times  Executive's  average  annual  compensation  from the  Holding
Company,  the Bank or their affiliates for the five (5) preceding  taxable years
or such lesser number of years in the event that  Executive  shall have actually
been  employed by the Holding  Company or the Bank for less than five (5) years.
In determining  Executive's  average annual  compensation,  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 (whether paid or accrued for
the applicable  period), as well as, severance  payments,  retirement  benefits,
director or committee  fees and fringe  benefits paid or to be paid to Executive
or paid for Executive's  benefit during any such year, profit sharing,  employee
stock ownership plan and other retirement  contributions or benefits,  including
to any  tax-qualified  plan or  arrangement  (whether  or not  taxable)  made or
accrued on behalf of Executive of such year. At the election of Executive, which
election  is to be made  prior  to or  within  thirty  (30)  days of the Date of
Termination  on or following a Change in Control,  such payment may be made in a
lump sum (without  discount for early payment) on or  immediately  following the
Date of Termination  (which may be the date a Change in Control  occurs) or paid
in equal monthly installments during the sixty (60) months following Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly  basis  during the sixty  (60)  months  following  Executive's
termination.

(d) Upon the  occurrence of a Change in Control,  Executive  will be entitled to
receive benefits due him under or contributed by the Bank or the Holding Company
on his behalf pursuant to any

 
                                      - 6 -

      



retirement,  incentive, profit sharing or other retirement,  bonus, performance,
disability or other employee  benefit plan  maintained by the Holding Company or
the Bank on  Executive's  behalf to the extent such  benefits are not  otherwise
paid to Executive under a separate provision of this Agreement. In addition, for
purposes of determining his vested accrued benefit,  Executive shall be credited
either under any defined  benefit pension plan maintained by the Bank or, if not
permitted  under such plan,  under a separate  arrangement,  with the additional
"years of service"  that he would have  earned for  vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  his  employment  not
terminated.

(e) Upon the  occurrence of a Change in Control and  Executive's  termination of
employment  in  connection  therewith,  the  Holding  Company  will  cause to be
continued life, medical and disability coverage  substantially  identical to the
coverage  maintained by the Holding Company or the Bank for Executive and any of
his  dependents  covered  under such plans prior to the Change in Control.  Such
coverage and payments  shall cease upon the  expiration of thirty-six  (36) full
calendar  months  following the Date of  Termination.  In the event  Executive's
participation  in any such plan or program is barred,  the Holding Company shall
arrange to provide  Executive and his  dependents  with  benefits  substantially
similar to those of which Executive and his dependents would otherwise have been
entitled to receive  under such plans and  programs  from which their  continued
participation is barred or provide their economic equivalent.

(f) The use or provision of any  membership,  license,  automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place  immediately  prior to the
Change in  Control.  To the extent that any item  referred to in this  paragraph
will,  at the end of the term of this  Agreement,  no  longer  be  available  to
Executive,  Executive  will have the option to purchase  all rights then held by
the Holding  Company or the Bank to such item for a price equal to the then fair
market value of the item.

(g) In the event that  Executive  is  receiving  monthly  payments  pursuant  to
Section  5(c)  hereof,  on an annual  basis,  thereafter,  between  the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount  payable  under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis  pursuant to such  section.  Such  election  shall be
irrevocable for the year for which such election is made.

6.       CHANGE IN CONTROL RELATED PROVISIONS

(a) Notwithstanding the preceding provisions of Section 5 of this Agreement, for
any taxable year in which Executive shall be liable for the payment of an excise
tax under Section 4999 of the Code (or any successor  provision  thereto),  with
respect to any  payment in the nature of the  compensation  made by the  Holding
Company or its  subsidiaries  to (or for the benefit of)  Executive  pursuant to
this  Agreement or otherwise,  the Holding  Company (or any  successor  thereto)
shall pay to Executive an amount determined under the following formula:



 
                                      - 7 -

      



         An amount equal to:  (E x P) + X

WHERE:

         X    =                                  E x P  
                           ----------------------------------------- 
                           1 - [(FI x (1 - SLI)) + SLI + E + M + PO]
  
         E    =            the rate  at which the  excise  tax is assessed under
                           Section 4999 of the Code;

         P    =            the amount with  respect to which  such excise tax is
                           assessed, determined  without regard to  this Section
                           6;
                           
        FI   =            the   highest   marginal  rate  of   federal  income,
                           employment, and other taxes (other than taxes imposed
                           under  Section  4999  of  the  Code)   applicable  to
                           Executive for the taxable year in question (including
                           any  effective   increase  in  Executive's  tax  rate
                           attributable to the disallowance of any deduction);

         SLI  =            the sum of  the highest  marginal rates of income and
                           payroll tax applicable to Executive under  applicable
                           state and local laws for the taxable year in question
                           (including any effective  increase in Executive's tax
                           rate   attributable   to  the   disallowance  of  any
                           deduction);

         M    =            highest marginal rate of Medicare tax; and

         PO   =            adjustment  for phase out of  or loss  of  deduction,
                           personal exemption or other similar items.

With  respect to any payment in the nature of  compensation  that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under  Section  4999 of the Code may or will be assessed,
the payment  determined  under this  Section 6 shall be made to Executive on the
earliest of (i) the date the Holding  Company is required to withhold  such tax,
(ii) the date the tax is required to be paid by Executive,  or (iii) at the time
of the Change in Control.  It is the  intention  of the parties that the Holding
Company provide  Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax  basis,  the result to Executive  shall be
the same as if the excise tax under Section 4999 (or any  successor  provisions)
of the Code had not been imposed.  The payment may be adjusted,  as appropriate,
if alternative minimum tax rules under the Code are applicable to Executive.

(b)  Notwithstanding  the  foregoing,  if it is (i) initially  determined by the
Holding Company's tax advisors that no excise tax under Section 4999 is due with
respect to any payment or benefit  described  in the first  paragraph of Section
6(a) and,  thereafter,  it is determined in a final judicial  determination or a
final  administrative  settlement  that the Section  4999 excise tax is due with
respect to such payments or benefits or (ii) subsequently  determined in a final
judicial determination or a

 
                                      - 8 -

      



final  administrative  settlement to which  Executive is a party that the excise
tax under Section 4999 is due or that the excess parachute payment as defined in
Section 4999 of the Code is more than the amount  determined as "P", above (such
revised  determination  under (i) or (ii) above being thereafter  referred to as
the  "Determinative  Excess  Parachute  Payment"),  then the tax advisors of the
Holding  Company (or any  successor  thereto)  shall  determine  the amount (the
"Adjustment  Amount"),  the  Holding  Company  (or its  successor)  must  pay to
Executive,  in order to put  Executive in the same  position as Executive  would
have  been  if the  amount  determined  as  "P"  above  had  been  equal  to the
Determinative  Excess Parachute  Payment.  In determining the Adjustment Amount,
the tax  advisors  shall  take into  account  any and all taxes  (including  any
penalties of any nature and interest) paid or payable by Executive in connection
with such final judicial  determination or final administrative  settlement.  As
soon as  practicable  after the Adjustment  Amount has been so  determined,  the
Holding Company shall pay the Adjustment Amount to Executive.

(c) The Holding  Company (or its successor)  shall  indemnify and hold Executive
harmless  from  any  and all  losses,  costs  and  expenses  (including  without
limitation,  reasonable attorney's fees, reasonable accountant's fees, interest,
fines and  penalties  of any  kind)  which  Executive  incurs as a result of any
administrative or judicial review of Executive's liability under Section 4999 of
the Code by the Internal  Revenue Service or any comparable state agency through
and including a final judicial determination or final administrative  settlement
of any dispute arising out of Executive's  liability for the Section 4999 excise
tax or otherwise  relating to the classification for purposes of Section 280G of
the Code of any  payment  or  benefit  in the  nature  of  compensation  made or
provided to Executive by the Holding Company or any successor thereto. Executive
shall promptly notify the Holding Company in writing whenever Executive receives
notice of the commencement of any judicial or administrative proceeding,  formal
or informal,  in which the federal tax treatment  under Section 4999 of the Code
of any  amount  paid or  payable  under  this  Supplemental  Agreement  is being
reviewed  or is in  dispute  (including  a notice  of  audit  or  other  inquiry
concerning  the reporting of  Executive's  liability  under Section  4999).  The
Holding  Company (or its  successor)  may assume control at its expense over all
legal and accounting  matters  pertaining to such federal or state tax treatment
(except to the extent necessary or appropriate for Executive to resolve any such
proceeding  with  respect to any  matter  unrelated  to amounts  paid or payable
pursuant to this contract) and Executive  shall cooperate fully with the Holding
Company in any such proceeding. Executive shall not enter into any compromise or
settlement  or  otherwise  prejudice  any rights  the  Holding  Company  (or its
successor) may have in connection therewith without prior consent to the Holding
Company  (or its  successor).  In the event  that the  Holding  Company  (or any
successor  thereto) elects not to assume control over such matters,  the Holding
Company (or any successor  thereto) shall promptly  reimburse  Executive for all
expenses  related thereto as and when incurred upon  presentation of appropriate
documentation relating thereto.



 
                                      - 9 -

      



7.       TERMINATION FOR CAUSE

         The term  "Termination  for Cause"  shall mean  termination  because of
Executive's  personal  dishonesty,  willful misconduct,  any 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.  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  three-fourths
(3/4) of the  members  of the Board of  Directors  at a meeting  of the Board of
Directors 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
of Directors), finding that in the good faith opinion of the Board of Directors,
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 pursuant to
Section 8 hereof  through  the Date of  Termination,  stock  options  granted to
Executive  under any stock  option plan shall not be  exercisable  nor shall any
unvested  awards granted to Executive  under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination,  such stock options and any such unvested  awards shall become null
and void and shall not be  exercisable  by or delivered to Executive at any time
subsequent to such Termination for Cause.

8.       NOTICE

(a) Any purported  termination by the Holding  Company or by Executive  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 case of a Termination for Cause,  shall not be less
than thirty (30) days from the date such Notice of Termination is given).

(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,  except upon the  occurrence of a
Change in Control and voluntary  termination by Executive in which case the Date
of  Termination  shall  be  the  date  specified  in the  Notice,  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

 
                                     - 10 -

      



with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding  Company will continue to pay Executive his full  compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation,  benefit
and insurance plans in which he was participating when the notice of dispute was
given,  until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section 8 are in addition to all other amounts due under
this  Agreement and shall not be offset  against or reduce any other amounts due
under this Agreement.

9.       POST-TERMINATION OBLIGATIONS

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section  9 for one (1) full  year  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Holding Company.  Executive shall,  upon reasonable  notice,
furnish such information and assistance to the Holding Company as may reasonably
be required by the Holding Company in connection with any litigation in which it
or any of its subsidiaries or affiliates is, or may become, a party.

10.      NON-COMPETITION AND NON-DISCLOSURE

(a) Upon any termination of Executive's employment hereunder pursuant to Section
4 hereof,  Executive  agrees  not to  compete  with the  Holding  Company or its
subsidiaries  for a period of one (1) year  following  such  termination  in any
city, town or county in which Executive's  normal business office is located and
the  Holding  Company or any of 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 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 Holding  Company or its  subsidiaries.  The parties
hereto,  recognizing that irreparable  injury will result to the Holding Company
or its  subsidiaries,  its  business  and  property in the event of  Executive's
breach of this  Subsection  10(a)  agree that in the event of any such breach by
Executive,  the  Holding  Company  or its  subsidiaries,  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  pursuant  to  Section  4  of  this  Agreement,  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 or its  subsidiaries  from
pursuing any other remedies available to the Holding Company or its subsidiaries
for such breach or  threatened  breach,  including  the recovery of damages from
Executive.


 
                                     - 11 -

      



(b) Executive  recognizes  and  acknowledges  that the knowledge of the business
activities  and plans for  business  activities  of the Holding  Company and its
subsidiaries  as it may exist  from time to time,  is a  valuable,  special  and
unique  asset of the  business  of the  Holding  Company  and its  subsidiaries.
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 and subsidiaries  thereof 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.  In the event of a
breach or threatened  breach by Executive of the  provisions of this Section 10,
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,  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 any other  remedies  available to the Holding  Company for
such  breach or  threatened  breach,  including  the  recovery  of damages  from
Executive.

11.      DEATH AND DISABILITY

(a)  Death.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  in the event of Executive's  death during the term of this Agreement,
the  Holding  Company  shall  immediately  pay his  estate  any salary and bonus
accrued  but  unpaid as of the date of his death,  and,  for a period of six (6)
months after  Executive's  death,  the Holding Company shall continue to provide
medical  insurance  benefits  existing  on the date of his  death  and shall pay
Executive's  designated  beneficiary  all  compensation  that would otherwise be
payable to him pursuant to Section 3 of this Agreement. This provision shall not
negate any rights  Executive  or his  beneficiaries  may have to death  benefits
under any employee benefit plan of the Holding Company or the Bank.

(b)      Disability

         (i) Existing Condition.  As of the date of this Agreement Executive has
been determined to be entitled to receive disability benefits under the terms of
the long-term disability  insurance policy ("Disability  Policy") maintained for
him by the  Bank.  As a result  of such  determination,  the  Holding  Company's
obligation  to pay  Executive  his Base  Salary  has been  reduced  to equal the
difference  between  Executive's  Base Salary and amounts  received from time to
time under the  long-term  disability  policy,  to the extent  that such  salary
payments do not result in a reduction in disability payments.

         (ii)  Incremental  Disability.   If  during  the  term  of  Executive's
employment,  he begins  to  receive  additional  disability  benefits  under the
Disability  Policy  as a  result  of an  incremental  or  additional  disability
("Incremental Disability"), then the Holding Company's obligation to pay

 
                                     - 12 -

      



Executive his Base Salary shall, as of the date additional benefits first become
payable under such Disability Policy on account of such Incremental  Disability,
be further reduced to equal the difference  between  Executive's Base Salary and
amounts  received under all long-term  disability  policies,  to the extent that
such salary payments do not result in a reduction in disability payments.

         (iii) Incapacity. If as a result of an Incremental Disability Executive
is  determined  by a  physician  chosen by the  Holding  Company or the Bank and
reasonably  acceptable to Executive or Executive's personal  representatives not
to be capable of fulfilling  Executive's  responsibilities  as an officer of the
Holding Company ("Incapacity Determination"), (i) Executive shall continue to be
covered by the Bank's medical  insurance and life  insurance  policies until the
third  anniversary  of  the  Incapacity  Determination,  and  (ii)  the  Holding
Company's  and Bank's  obligation  to provide  Executive  with other  employment
related fringe benefits  hereunder shall cease as of the date of such Incapacity
Determination   ("Incapacity  Determination  Date").  Prior  to  the  Incapacity
Determination  Date,  the Holding  Company  shall  continue to pay Executive his
annual salary in usual  installments and Executive shall continue to receive all
other  employment-related  fringe benefits due Executive in accordance with this
Agreement.  The Holding Company's or Bank's obligation to provide Executive with
the benefits  described  in Section 4(a) shall not be affected by an  Incapacity
Determination  unless  the terms of the  separate  arrangements  governing  such
benefits so provide.

         (iv)  Termination  of Employment by Reason of  Incapacity.  At any time
from and after the Incapacity Determination Date, the Board of Directors, in its
discretion,  may elect to  terminate  Executive's  employment  by reason of such
incapacity.  Any such  termination as a result of incapacity shall be considered
to be an Event of Termination in accordance with Section 4 of this Agreement.

12.      SOURCE OF PAYMENTS

(a) All  payments  provided  in this  Agreement  shall be timely paid in cash or
check from the general funds of the Holding Company or subject to Section 12(b).

(b)  Notwithstanding  any provision  herein to the contrary,  to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive  under an  employment  agreement in effect  between  Executive and the
Bank,  such  compensation  payments  and  benefits  paid  by the  Bank  will  be
subtracted  from any  amount  due  simultaneously  to  Executive  under  similar
provisions of this Agreement.  Payments  pursuant to this Agreement and the Bank
agreement shall be allocated in proportion to the level of activity and the time
expended on such  activities by Executive as  determined by the Holding  Company
and the Bank.






  
                                     - 13 -

      



13.      EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding  between the parties hereto and
supersedes any prior  employment  agreement  between the Holding  Company or any
predecessor  of the Holding  Company 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.

14.      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
and the Holding Company and their respective successors and assigns.

15.      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 as to any act other than that specifically waived.

16.      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.


 
                                     - 14 -

      



17.      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.

18.      GOVERNING LAW

This  Agreement  shall be governed by the laws of the State of Delaware  without
regard to principles of conflicts of law of that state.

19.      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,  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.

In the event any dispute or  controversy  arising  under or in  connection  with
Executive's termination is resolved in favor of Executive,  whether by judgment,
arbitration  or  settlement,  Executive  shall be entitled to the payment of all
back-pay,  including  salary,  bonuses and any other cash  compensation,  fringe
benefits and any compensation and benefits due Executive under this Agreement.

20.      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.

21.      INDEMNIFICATION

(a) 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 cost of reasonable settlements.

  
                                     - 15 -

      


(b) Any payments  made to  Executive  pursuant to this Section 21 are subject to
and conditioned  upon  compliance  with 12 U.S.C.  Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.

22.      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 Bank or 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.


                                   SIGNATURES


         IN WITNESS  WHEREOF,  Berkshire  Hills  Bancorp,  Inc.  has caused this
Agreement  to be  executed  and its  seal to be  affixed  hereunto  by its  duly
authorized  officer and Executive has signed this Agreement,  on the 9th day of
August, 2000.


ATTEST:                         BERKSHIRE HILLS BANCORP, INC.



/s/Rose A. Borotto                  By:  /s/James A. Cunningham, Jr.  
-------------------                      --------------------------  
Rose A. Borotto                          James A. Cunningham, Jr. 
Corporate Secretary                      For the Entire Board of Directors



                  [SEAL]


WITNESS:                        EXECUTIVE



/s/Rose A. Borotto                  By:  /s/Robert A. Wells   
-------------------                      ------------------
Rose A. Borotto                          Robert A. Wells
Corporate Secretary                      

 
                                     - 16 -


(Back To Top)

Section 9: EX-10.8




 

                          BERKSHIRE HILLS BANCORP, INC.
                              EMPLOYMENT AGREEMENT


         This EMPLOYMENT  AGREEMENT  ("Agreement")  is made effective as of June
27, 2000 (the "Effective  Time"), by and between  Berkshire Hills Bancorp,  Inc.
(the "Holding  Company"),  a corporation  organized  under the laws of Delaware,
with its principal offices at 24 North Street, Pittsfield, Massachusetts, 01202,
and Susan M. Santora  ("Executive").  Any  reference to the "Bank"  herein shall
mean Berkshire Bank or any successor to Berkshire Bank.

         WHEREAS, the Holding Company believes that the assurance of Executive's
employment by the Holding Company for the term of this Agreement and the benefit
of her business experience are of material importance; and

         WHEREAS,  Executive  desires  to serve  in the  employ  of the  Holding
Company on a full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties to this Agreement hereby agree as follows:

1.       POSITIONS AND RESPONSIBILITIES

(a) During the term of this  Agreement  Executive  agrees to serve as  Executive
Vice President of the Holding Company. Executive shall render administrative and
management services to the Holding Company such as are customarily  performed by
persons in a similar  executive  capacity.  During  the term of this  Agreement,
Executive also agrees to serve, if appointed, as an officer of any subsidiary of
the  Holding  Company  and in such  capacity  will  carry  out such  duties  and
responsibilities reasonably appropriate to that office.

(b) During the term of Executive's  employment under this Agreement,  except for
periods of absence occasioned by illness,  vacation, and other reasonable leaves
of  absence,  Executive  shall  devote  substantially  all  her  business  time,
attention,  skill,  and efforts to the faithful  performance of her duties under
this Agreement,  including  activities and services related to the organization,
operation and management of the Holding Company and its subsidiaries, as well as
participation  in community,  professional  and civic  organizations;  provided,
however,  that,  with the  approval  of the Board of  Directors  of the  Holding
Company (the "Board of Directors"), as evidenced by a resolution of the Board of
Directors,  from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations,  which,  in the  judgment  of the  Board of  Directors,  will not
present any conflict of interest with the Holding  Company or its  subsidiaries,
or materially  affect the  performance  of Executive's  duties  pursuant to this
Agreement.

         (c) Notwithstanding  anything herein contained to the contrary,  either
Executive or the Holding

 
                                      - 1 -

      



Company may terminate  Executive's  employment  with the Holding  Company at any
time during the term of this  Agreement,  subject to the terms and conditions of
this Agreement.

2.       TERM OF EMPLOYMENT

Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective  Time and shall  continue for a period of thirty-six  (36) full
calendar months from the Effective Time.  Commencing on the date of execution of
this  Agreement,  the term of this  Agreement  shall extend for one day each day
until such time as the Board of Directors or Executive  elects not to extend the
term of the Agreement by giving written notice to the other party, in which case
the term of this  Agreement  shall  become  fixed  and  shall  end on the  third
anniversary of the date of such written notice.

3.       COMPENSATION, BENEFITS AND REIMBURSEMENT

(a) Base Salary. The Holding Company shall pay Executive an annual salary of not
less than $125,510 ("Base Salary").  Executive's Base Salary shall be payable in
accordance with the normal payroll  practices of the Holding  Company.  Whenever
used in this  Agreement,  Base Salary shall include any amounts of  compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Holding Company
or the Bank.  During the term of this  Agreement,  the Board of  Directors  or a
committee  appointed by the Board of Directors  shall  review  Executive's  Base
Salary  at least  annually  and the  Board of  Directors  or the  committee  may
increase  Executive's  Base Salary at any time. Any increase in Executive's Base
Salary shall become a term of this  Agreement and shall be the new "Base Salary"
for purposes of this Agreement.

(b) Incentive Compensation.  In addition to her Base Salary,  Executive shall be
entitled  to  participate  in and shall  receive  payments  under any  incentive
compensation  bonus  program  sponsored  by the  Holding  Company  or the  Bank.
Executive's incentive compensation shall be determined by the Board of Directors
or a committee  appointed by the Board of Directors at a level  appropriate  for
executive officers.

(c) Vacation;  Holidays;  Sick Time.  Executive shall be entitled to vacation in
accordance  with the standard  vacation  policies of the Holding  Company or the
Bank for  senior  executive  officers,  but in no event less than four (4) weeks
vacation during each year of employment. Executive shall take vacation at a time
mutually agreed upon by the Holding Company or the Bank and Executive. Executive
shall  receive her Base Salary and other  benefits  during  periods of vacation.
Executive  shall also be entitled to paid legal holidays in accordance  with the
policies of the Holding Company or the Bank. Executive shall also be entitled to
sick leave in  accordance  with the policies of the Holding  Company or the Bank
for senior executive  officers,  but in no event less than the number of days of
sick leave per year to which Executive was entitled at the Effective Time.


 
                                      - 2 -

      



(d) Other Employee  Benefits.  In addition to any other compensation or benefits
provided for under this  Agreement,  Executive  shall be entitled to continue to
participate in any employee  benefit plans,  arrangements and perquisites of the
Holding  Company  or the  Bank in  which  she  participates  or is  eligible  to
participate  at  the  Effective  Time.  Executive  shall  also  be  entitled  to
participate in any employee  benefits or perquisites  the Holding Company or the
Bank offers to full-time  employees or executive  management in the future.  The
Holding Company or the Bank will not, without Executive's prior written consent,
make  any  changes  in such  plans,  arrangements  or  perquisites  which  would
adversely affect  Executive's  rights or benefits  thereunder without separately
providing for an arrangement that ensures Executive receives or will receive the
economic value that Executive  would  otherwise lose as a result of such adverse
effect,   unless   such   change  is  general   in  nature  and   applies  in  a
nondiscriminatory  manner to all employees  covered by the plan,  arrangement or
perquisite.  Without limiting the generality of the foregoing provisions of this
paragraph,  Executive  shall be entitled to participate  in or receive  benefits
under all plans  relating  to stock  options,  restricted  stock  awards,  stock
purchases,  pension,  profit  sharing,  employee  stock  ownership,  group  life
insurance, medical and other health and welfare coverage that are made available
by the Holding  Company or the Bank at the Effective  Time or at any time in the
future during the term of this Agreement,  subject to and on a basis  consistent
with  the  terms,  conditions  and  overall  administration  of such  plans  and
arrangements.  Nothing  paid to Executive  under any such plans or  arrangements
will be  deemed  to be in lieu of  other  compensation  to  which  Executive  is
entitled under this Agreement.

4.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

(a) Upon the  occurrence of an Event of  Termination  (as defined  herein below)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination of
Executive's full-time employment under this Agreement by the Holding Company for
any reason other than a termination governed by Section 7 of this Agreement;  or
(ii) Executive's  resignation from her employment with the Holding Company upon,
any (A) failure to re-appoint  Executive to her positions set forth in Section 1
of this Agreement,  unless Executive consents to such event, (B) material change
in Executive's  functions,  duties, or responsibilities with the Holding Company
or its subsidiaries,  which change would cause Executive's position(s) to become
one of lesser responsibility, importance, or scope, unless Executive consents to
such event, (C) relocation of Executive's  principal place of employment by more
than  twenty-five  (25) miles from its location at the  Effective  Time,  unless
Executive  consents to such event, (D) material  reduction (except to the extent
provided for in Section 3(d) of this  Agreement) in the benefits and perquisites
provided to Executive from those being provided as of the Effective Time of this
Agreement,   unless  Executive  consents  to  such  event,  (E)  liquidation  or
dissolution of the Holding  Company or the Bank, or (F) breach of this Agreement
by the Holding  Company.  Upon the occurrence of any event  described in clauses
(A),  (B),  (C),  (D),  (E) or (F),  above,  Executive  shall  have the right to
terminate her employment  under this Agreement by resignation upon not less than
sixty (60) days prior written  notice given within six (6) full calendar  months
after  the  applicable  event  giving  rise to  Executive's  right  to  elect to
terminate her employment.

 
                                      - 3 -

      



(b) Upon  Executive's  termination  from employment in accordance with paragraph
(a) of this  Section 4, on the Date of  Termination,  as defined in Section 8 of
the Agreement,  the Holding Company shall be obligated to pay Executive,  or, in
the event of her death  following the Date of  Termination,  her  beneficiary or
beneficiaries, or her estate, as the case may be, an amount equal to the sum of:
(i) the Base  Salary  and  incentive  compensation  that would have been paid to
Executive for the remaining  term of this Agreement had the Event of Termination
not occurred  (based on  Executive's  then current Base Salary and most recently
paid or accrued  bonus at the time of the Event of  Termination);  plus (ii) the
value, as calculated by a recognized firm customarily performing such valuation,
of any stock options which as of the Date of  Termination,  have been granted to
Executive but are not  exercisable  by Executive and the value of any restricted
stock awards which have been granted to Executive,  but in which  Executive does
not  have  a  non-forfeitable  or  fully-  vested  interest  as of the  Date  of
Termination;  plus (iii) the value of all employee benefits that would have been
provided to Executive for the remaining  term of this  Agreement had an Event of
Termination  not  occurred,  based on the  most  recent  level of  contribution,
accrual or other participation by or on behalf of Executive.  At the election of
Executive,  which election is to be made prior to the Date of Termination,  such
payments  shall be made in a lump sum.  In the event that no  election  is made,
payment to  Executive  will be made on a monthly  basis in  approximately  equal
installments during the remaining unexpired term of the Agreement. Such payments
shall not be reduced in the event Executive  obtains other employment  following
termination of employment.

(c) In addition to the payments provided for in paragraph (b) of this Section 4,
upon Executive's  termination of employment in accordance with the provisions of
paragraph  (a) of this Section 4, to the extent that the Holding  Company or the
Bank  continues  to offer  any  life,  medical,  health,  disability  or  dental
insurance plan or arrangement in which Executive participates in on the last day
of her  employment  (each  being a "Welfare  Plan"),  Executive  and her covered
dependents shall continue  participating  in such Welfare Plans,  subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of  Termination  until the  earlier of (i) her death (ii) her
employment by another employer other than one of which she is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank  does  not  offer  the  Welfare  Plans at any time  after  the  Event of
Termination,  then the Holding  Company shall provide  Executive  with a payment
equal to the  premiums  for such  benefits  for the period  which runs until the
earlier of (i) her death (ii) her employment by another  employer other than one
of which she is the  majority  owner or (iii) the end of the  remaining  term of
this Agreement.

5.       CHANGE IN CONTROL

(a) For purposes of this Agreement, a "Change in Control" 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 Bank 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)

 
                                      - 4 -

      



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 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  Holding  Company
representing  20% or more of the  Bank's or the  Holding  Company's  outstanding
securities  except  for any  securities  of the Bank  purchased  by the  Holding
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  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 she 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  Holding  Company  or  similar
transaction  occurs in which the Bank 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 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 Holding  Company shall be  distributed;
or (E) a tender  offer is made for 20% or more of the voting  securities  of the
Bank or the Holding Company.

(b)  If any of the  events  described  in  paragraph  (a)  of  this  Section  5,
constituting  a Change in  Control,  have  occurred  or the  Board of  Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon her termination of employment at any time during the term of this Agreement
on or  after  the date the  Change  in  Control  occurs  due to (1)  Executive's
dismissal or (2) Executive's  resignation following any demotion, loss of title,
office  or  significant   authority  or  responsibility,   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,  unless  such  termination  is  because  of  her  death  or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this Agreement.

(c)  Upon  the  occurrence  of a  Change  in  Control  followed  by  Executive's
termination of  employment,  as provided in paragraph (b) of this Section 5, the
Holding  Company shall pay Executive,  or in the event of her subsequent  death,
her  beneficiary  or  beneficiaries,  or her  estate,  as the  case  may be,  as
severance pay or liquidated  damages, or both, a sum equal to the greater of: 1)
the  payments and benefits  due for the  remaining  term of the  Agreement or 2)
three (3) times

 
                                      - 5 -

      



Executive's  average annual  compensation from the Holding Company,  the Bank or
their affiliates for the five (5) preceding  taxable years or such lesser number
of years in the event that  Executive  shall have  actually been employed by the
Holding  Company  or the Bank for less  than  five  (5)  years.  In  determining
Executive's average annual compensation,  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  (whether  paid or  accrued  for  the  applicable
period),  as well as,  severance  payments,  retirement  benefits,  director  or
committee  fees and fringe  benefits paid or to be paid to Executive or paid for
Executive's  benefit  during  any such  year,  profit  sharing,  employee  stock
ownership plan and other retirement contributions or benefits,  including to any
tax-qualified  plan or  arrangement  (whether or not taxable) made or accrued on
behalf of Executive of such year. At the election of Executive,  which  election
is to be made prior to or within thirty (30) days of the Date of  Termination on
or  following  a  Change  in  Control,  such  payment  may be made in a lump sum
(without  discount for early  payment) on or  immediately  following the Date of
Termination  (which may be the date a Change in Control occurs) or paid in equal
monthly  installments  during  the  sixty  (60)  months  following   Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly  basis  during the sixty  (60)  months  following  Executive's
termination.

(d) Upon the  occurrence of a Change in Control,  Executive  will be entitled to
receive benefits due her under or contributed by the Bank or the Holding Company
on her behalf  pursuant to any  retirement,  incentive,  profit sharing or other
retirement,  bonus,  performance,  disability  or other  employee  benefit  plan
maintained  by the  Holding  Company  or the Bank on  Executive's  behalf to the
extent  such  benefits  are not  otherwise  paid to  Executive  under a separate
provision of this Agreement. In addition, for purposes of determining her vested
accrued  benefit,  Executive  shall be credited either under any defined benefit
pension plan maintained by the Bank or, if not permitted under such plan,  under
a separate  arrangement,  with the additional  "years of service" that she would
have earned for vesting and benefit  accrual  purposes for the remaining term of
the Agreement had her employment not terminated.

(e) Upon the  occurrence of a Change in Control and  Executive's  termination of
employment  in  connection  therewith,  the  Holding  Company  will  cause to be
continued life, medical and disability coverage  substantially  identical to the
coverage  maintained by the Holding Company or the Bank for Executive and any of
her  dependents  covered  under such plans prior to the Change in Control.  Such
coverage and payments  shall cease upon the  expiration of thirty-six  (36) full
calendar  months  following the Date of  Termination.  In the event  Executive's
participation  in any such plan or program is barred,  the Holding Company shall
arrange to provide  Executive and her  dependents  with  benefits  substantially
similar to those of which Executive and her dependents would otherwise have been
entitled to receive  under such plans and  programs  from which their  continued
participation is barred or provide their economic equivalent.

(f) The use or provision of any  membership,  license,  automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place  immediately  prior to the
Change in Control. To the extent that any item

 
                                      - 6 -

      



referred to in this paragraph will, at the end of the term of this Agreement, no
longer be available to Executive, Executive will have the option to purchase all
rights  then held by the  Holding  Company  or the Bank to such item for a price
equal to the then fair market value of the item.

(g) In the event that  Executive  is  receiving  monthly  payments  pursuant  to
Section  5(c)  hereof,  on an annual  basis,  thereafter,  between  the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount  payable  under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis  pursuant to such  section.  Such  election  shall be
irrevocable for the year for which such election is made.

6.       CHANGE IN CONTROL RELATED PROVISIONS

(a) Notwithstanding the preceding provisions of Section 5 of this Agreement, for
any taxable year in which Executive shall be liable for the payment of an excise
tax under Section 4999 of the Code (or any successor  provision  thereto),  with
respect to any  payment in the nature of the  compensation  made by the  Holding
Company or its  subsidiaries  to (or for the benefit of)  Executive  pursuant to
this  Agreement or otherwise,  the Holding  Company (or any  successor  thereto)
shall pay to Executive an amount determined under the following formula:


         An amount equal to:  (E x P) + X

WHERE:

         X        =                           E x P 
                           ----------------------------------------- 
                           1 - [(FI x (1 - SLI)) + SLI + E + M + PO]

         E        =        the rate at which  the excise tax  is  assessed under
                           Section 4999 of the Code;

         P        =        the amount with respect  to which  such excise tax is
                           assessed, determined without regard to this Section 
                           6;
                           
        FI       =         the   highest  marginal   rate   of  federal  income,
                           employment, and other taxes (other than taxes imposed
                           under  Section  4999  of  the  Code)   applicable  to
                           Executive for the taxable year in question (including
                           any  effective   increase  in  Executive's  tax  rate
                           attributable to the disallowance of any deduction);

         SLI      =        the sum of  the highest marginal  rates of income and
                           payroll tax applicable to Executive under  applicable
                           state and local laws for the taxable year in question
                           (including any effective  increase in Executive's tax
                           rate   attributable   to  the   disallowance  of  any
                           deduction);

         M        =        highest marginal rate of Medicare tax; and

  
                                      - 7 -

      



         PO       =        adjustment  for  phase  out of or loss of  deduction,
                           personal exemption or other similar items.

With  respect to any payment in the nature of  compensation  that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under  Section  4999 of the Code may or will be assessed,
the payment  determined  under this  Section 6 shall be made to Executive on the
earliest of (i) the date the Holding  Company is required to withhold  such tax,
(ii) the date the tax is required to be paid by Executive,  or (iii) at the time
of the Change in Control.  It is the  intention  of the parties that the Holding
Company provide  Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax  basis,  the result to Executive  shall be
the same as if the excise tax under Section 4999 (or any  successor  provisions)
of the Code had not been imposed.  The payment may be adjusted,  as appropriate,
if alternative minimum tax rules under the Code are applicable to Executive.

(b)  Notwithstanding  the  foregoing,  if it is (i) initially  determined by the
Holding Company's tax advisors that no excise tax under Section 4999 is due with
respect to any payment or benefit  described  in the first  paragraph of Section
6(a) and,  thereafter,  it is determined in a final judicial  determination or a
final  administrative  settlement  that the Section  4999 excise tax is due with
respect to such payments or benefits or (ii) subsequently  determined in a final
judicial  determination or a final administrative  settlement to which Executive
is a party  that the  excise  tax under  Section  4999 is due or that the excess
parachute payment as defined in Section 4999 of the Code is more than the amount
determined  as "P",  above (such revised  determination  under (i) or (ii) above
being thereafter referred to as the "Determinative  Excess Parachute  Payment"),
then the tax advisors of the Holding  Company (or any successor  thereto)  shall
determine  the amount (the  "Adjustment  Amount"),  the Holding  Company (or its
successor) must pay to Executive, in order to put Executive in the same position
as  Executive  would  have been if the amount  determined  as "P" above had been
equal  to  the  Determinative  Excess  Parachute  Payment.  In  determining  the
Adjustment  Amount,  the tax advisors  shall take into account any and all taxes
(including  any  penalties  of any  nature  and  interest)  paid or  payable  by
Executive  in  connection  with  such  final  judicial  determination  or  final
administrative  settlement.  As soon as practicable  after the Adjustment Amount
has been so determined,  the Holding Company shall pay the Adjustment  Amount to
Executive.

(c) The Holding  Company (or its successor)  shall  indemnify and hold Executive
harmless  from  any  and all  losses,  costs  and  expenses  (including  without
limitation,  reasonable attorney's fees, reasonable accountant's fees, interest,
fines and  penalties  of any  kind)  which  Executive  incurs as a result of any
administrative or judicial review of Executive's liability under Section 4999 of
the Code by the Internal  Revenue Service or any comparable state agency through
and including a final judicial determination or final administrative  settlement
of any dispute arising out of Executive's  liability for the Section 4999 excise
tax or otherwise  relating to the classification for purposes of Section 280G of
the Code of any  payment  or  benefit  in the  nature  of  compensation  made or
provided to Executive by the Holding Company or any successor thereto. Executive
shall promptly notify the Holding Company in writing whenever Executive receives
notice of the commencement of any judicial or administrative proceeding,  formal
or informal, in which the federal tax treatment under

 
                                      - 8 -

      



Section 4999 of the Code of any amount paid or payable  under this  Supplemental
Agreement  is being  reviewed or is in dispute  (including  a notice of audit or
other inquiry  concerning the reporting of Executive's  liability  under Section
4999).  The Holding Company (or its successor) may assume control at its expense
over all legal and  accounting  matters  pertaining to such federal or state tax
treatment  (except to the extent  necessary  or  appropriate  for  Executive  to
resolve any such proceeding with respect to any matter unrelated to amounts paid
or payable  pursuant to this contract) and Executive  shall cooperate fully with
the Holding Company in any such  proceeding.  Executive shall not enter into any
compromise or settlement or otherwise  prejudice any rights the Holding  Company
(or its successor) may have in connection therewith without prior consent to the
Holding  Company (or its  successor).  In the event that the Holding Company (or
any  successor  thereto)  elects not to assume  control over such  matters,  the
Holding Company (or any successor  thereto) shall promptly  reimburse  Executive
for all expenses  related  thereto as and when  incurred  upon  presentation  of
appropriate documentation relating thereto.

7.       TERMINATION FOR CAUSE

         The term  "Termination  for Cause"  shall mean  termination  because of
Executive's  personal  dishonesty,  willful misconduct,  any 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.  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  three-fourths
(3/4) of the  members  of the Board of  Directors  at a meeting  of the Board of
Directors 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
of Directors), finding that in the good faith opinion of the Board of Directors,
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 pursuant to
Section 8 hereof  through  the Date of  Termination,  stock  options  granted to
Executive  under any stock  option plan shall not be  exercisable  nor shall any
unvested  awards granted to Executive  under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination,  such stock options and any such unvested  awards shall become null
and void and shall not be  exercisable  by or delivered to Executive at any time
subsequent to such Termination for Cause.

8.       NOTICE

(a) Any purported  termination by the Holding  Company or by Executive  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.

 
                                      - 9 -

      



(b)  "Date of  Termination"  shall  mean the date  specified  in the  Notice  of
Termination  (which,  in the case of a Termination for Cause,  shall not be less
than thirty (30) days from the date such Notice of Termination is given).

(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,  except upon the  occurrence of a
Change in Control and voluntary  termination by Executive in which case the Date
of  Termination  shall  be  the  date  specified  in the  Notice,  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,  the Holding  Company  will
continue to pay Executive her full compensation in effect when the notice giving
rise to the dispute was given  (including,  but not limited to, Base Salary) and
continue her as a participant in all  compensation,  benefit and insurance plans
in which she was participating  when the notice of dispute was given,  until the
dispute is finally  resolved in  accordance  with this  Agreement.  Amounts paid
under  this  Section 8 are in  addition  to all  other  amounts  due under  this
Agreement and shall not be offset  against or reduce any other amounts due under
this Agreement.

9.       POST-TERMINATION OBLIGATIONS

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section  9 for one (1) full  year  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Holding Company.  Executive shall,  upon reasonable  notice,
furnish such information and assistance to the Holding Company as may reasonably
be required by the Holding Company in connection with any litigation in which it
or any of its subsidiaries or affiliates is, or may become, a party.

10.      NON-COMPETITION AND NON-DISCLOSURE

(a) Upon any termination of Executive's employment hereunder pursuant to Section
4 hereof,  Executive  agrees  not to  compete  with the  Holding  Company or its
subsidiaries  for a period of one (1) year  following  such  termination  in any
city, town or county in which Executive's  normal business office is located and
the  Holding  Company or any of 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 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 Holding  Company or its  subsidiaries.  The parties
hereto,  recognizing that irreparable  injury will result to the Holding Company
or its  subsidiaries,  its  business  and  property in the event of  Executive's
breach

 
                                     - 10 -

      



of this  Subsection  10(a)  agree  that  in the  event  of any  such  breach  by
Executive,  the  Holding  Company  or its  subsidiaries,  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  pursuant  to  Section  4  of  this  Agreement,  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 or its  subsidiaries  from
pursuing any other remedies available to the Holding Company or its subsidiaries
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 and its
subsidiaries  as it may exist  from time to time,  is a  valuable,  special  and
unique  asset of the  business  of the  Holding  Company  and its  subsidiaries.
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 and subsidiaries  thereof 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.  In the event of a
breach or threatened  breach by Executive of the  provisions of this Section 10,
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,  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 any other  remedies  available to the Holding  Company for
such  breach or  threatened  breach,  including  the  recovery  of damages  from
Executive.

11.      DEATH AND DISABILITY

(a)  Death.  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  in the event of Executive's  death during the term of this Agreement,
the  Holding  Company  shall  immediately  pay her  estate  any salary and bonus
accrued  but  unpaid as of the date of her death,  and,  for a period of six (6)
months after  Executive's  death,  the Holding Company shall continue to provide
medical  insurance  benefits  existing  on the date of her  death  and shall pay
Executive's  designated  beneficiary  the Base  Salary that would  otherwise  be
payable to her pursuant to Section 3 of this Agreement. This provision shall not
negate any rights  Executive  or her  beneficiaries  may have to death  benefits
under any employee benefit plan of the Holding Company or the Bank.


 
                                     - 11 -

      



(b)      Disability

         (i) Disability.  If during the term of Executive's employment Executive
begins to receive disability benefits under the long-term  disability  insurance
policy  maintained  by the Bank  (the  "Disability  Policy"),  then the  Holding
Company's obligation to pay Executive her Base Salary shall, as of the date such
benefits  first  become  payable  under  the  Disability  Policy on  account  of
Executive's  disability,  be reduced to equal the difference between Executive's
Base Salary and amounts received under all long-term disability policies, to the
extent that such salary  payments  do not result in a  reduction  in  disability
payments.

         (ii) Incapacity. If, as a result of Disability, Executive is determined
by a  physician  chosen  by the  Holding  Company  or the  Bank  and  reasonably
acceptable  to  Executive  or  Executive's  personal  representatives  not to be
capable of fulfilling Executive's  responsibilities as an officer of the Holding
Company ("Incapacity Determination"), (1) Executive shall continue to be covered
by the Bank's  medical  insurance and life  insurance  policies  until the third
anniversary of the Incapacity  Determination,  and (2) the Holding  Company's or
the Bank's obligation to provide Executive with other employment-related  fringe
benefits  hereunder shall cease as of the date of such Incapacity  Determination
("Incapacity  Determination Date"). Prior to the Incapacity  Determination Date,
the Holding  Company shall  continue to pay Executive her annual salary in usual
installments    and   Executive    shall   continue   to   receive   all   other
employment-related  fringe  benefits due to Executive  in  accordance  with this
Agreement.

         (iii)  Termination of Employment by Reason of  Incapacity.  At any time
from and after the Incapacity Determination Date, the Board of Directors, in its
discretion,  may elect to  terminate  Executive's  employment  by reason of such
incapacity.  Any such  termination as a result of incapacity shall be considered
to be an Event of Termination in accordance with Section 4 of this Agreement.

12.      SOURCE OF PAYMENTS

(a) All  payments  provided  in this  Agreement  shall be timely paid in cash or
check from the general funds of the Holding Company or subject to Section 12(b).

(b)  Notwithstanding  any provision  herein to the contrary,  to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive  under an  employment  agreement in effect  between  Executive and the
Bank,  such  compensation  payments  and  benefits  paid  by the  Bank  will  be
subtracted  from any  amount  due  simultaneously  to  Executive  under  similar
provisions of this Agreement.  Payments  pursuant to this Agreement and the Bank
agreement shall be allocated in proportion to the level of activity and the time
expended on such  activities by Executive as  determined by the Holding  Company
and the Bank.


 
                                     - 12 -

      



13.      EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS

This Agreement contains the entire understanding  between the parties hereto and
supersedes any prior  employment  agreement  between the Holding  Company or any
predecessor  of the Holding  Company 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.

14.      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
and the Holding Company and their respective successors and assigns.

15.      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 as to any act other than that specifically waived.

16.      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 -

      



17.      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.

18.      GOVERNING LAW

This  Agreement  shall be governed by the laws of the State of Delaware  without
regard to principles of conflicts of law of that state.

19.      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,  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.

In the event any dispute or  controversy  arising  under or in  connection  with
Executive's termination is resolved in favor of Executive,  whether by judgment,
arbitration  or  settlement,  Executive  shall be entitled to the payment of all
back-pay,  including  salary,  bonuses and any other cash  compensation,  fringe
benefits and any compensation and benefits due Executive under this Agreement.

20.      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.

21.      INDEMNIFICATION

(a) 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 her  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 cost of reasonable settlements.

 
                                     - 14 -

      


(b) Any payments  made to  Executive  pursuant to this Section 21 are subject to
and conditioned  upon  compliance  with 12 U.S.C.  Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.

22.      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 Bank or 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.


                                   SIGNATURES


         IN WITNESS  WHEREOF,  Berkshire  Hills  Bancorp,  Inc.  has caused this
Agreement  to be  executed  and its  seal to be  affixed  hereunto  by its  duly
authorized  officer and Executive has signed this Agreement,  on the 16th day of
August, 2000.


ATTEST:                               BERKSHIRE HILLS BANCORP, INC.



/s/Rose A. Borotto                  By:        /s/James A. Cunningham, Jr.
-------------------                            ---------------------------------
Rose A. Borotto                                James A. Cunningham, Jr.
Corporate Secretary                            For the Entire Board of Directors



                  [SEAL]


WITNESS:                              EXECUTIVE



/s/Rose A. Borotto                     By:     /s/Susan M. Santora 
--------------------                           ------------------- 
Rose A. Borotto                                Susan M. Santora
Corporate Secretary                            


                                     - 15 -


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Section 10: EX-10.9



 




         Mr.  Daly's  Employment  is the  same as the  Employment  Agreement  in
Exhibit 10.8,  which is incorporated  herein by reference  except as to: (i) the
name of the Executive, which is Michael P. Daly; (ii) the position in Section 1,
which is Executive  Vice  President;  and (iii) the amount of the base salary in
Section 3(a), which is $139,250.

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Section 11: EX-10.10





         Mr.  Plungis's  Employment is the same as the  Employment  Agreement in
Exhibit 10.3,  which is incorporated  herein by reference  except as to: (i) the
name of the  Executive,  which is Charles F. Plungis,  Jr.; (ii) the position in
Section  1,  which is Senior  Vice  President,  Treasurer  and  Chief  Financial
Officer;  and (iii) the  amount of the base  salary in  Section  3(a),  which is
$140,750.



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Section 12: EX-23






              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




The Board of Directors
Berkshire Hills Bancorp, Inc.

We consent to the  incorporation  by reference  in  Registration  Statement  No.
333-41766  (dated July 19, 2000,  on form S-8) and  Registration  Statement  No.
333-56446  (dated March 2, 2001,  on Form S-8) of our report  dated  January 31,
2001, 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, 2000.



/s/Wolf & Company, P.C.
-----------------------
Wolf & Company, P.C. 

Boston, Massachusette
March 23, 2001

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