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Berkshire Hills Bancorp
BHLB
#4598
Rank
$2.20 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$26.13
Share price
-0.65%
Change (1 day)
1.83%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Berkshire Hills Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q2

Berkshire Hills Bancorp - 10-Q quarterly report FY2021 Q2


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: June 30, 2021
☐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: 001-15781
bhlb-20210630_g1.jpg  
BERKSHIRE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware04-3510455
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
   
60 State StreetBoston Massachusetts02109
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code: (800) 773-5601, ext. 133773

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareBHLBThe New York Stock Exchange

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 ý  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý   No o
    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    o    Accelerated filer        ý     
Non-accelerated filer    o     Smaller reporting company    ☐
    Emerging growth company    ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐  No ☒
 
As of August 6, 2021, the Registrant had 48,928,716 shares of common stock, $0.01 par value per share, outstanding

BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q
 
INDEX 
  Page
   
 
 
 Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020
4
 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020
5
 Consolidated Statements of Comprehensive Income/(Loss) for the Three and Six Months Ended June 30, 2021 and 2020
7
 Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020
8
 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020
10
 Notes to Consolidated Financial Statements (Unaudited) 
  
12
14
  
15
  
16
21
  
35
  
35
  
37
43
45
46
  
50
  
51
  
52
  
61
Item 2.
62
 
62
 
64
 
66
81
82
2

3
PART I
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
 June 30,
2021		December 31,
2020
(In thousands, except share data)
Assets  
Cash and due from banks$98,262 $91,219 
Short-term investments1,728,419 1,466,656 
Total cash and cash equivalents1,826,681 1,557,875 
Trading security, at fair value8,853 9,708 
Marketable equity securities, at fair value15,709 18,513 
Securities available for sale, at fair value1,640,512 1,695,232 
Securities held to maturity (fair values of $685,370 and $491,855)
665,786 465,091 
Federal Home Loan Bank stock and other restricted securities19,638 34,873 
Total securities2,350,498 2,223,417 
Less: Allowance for credit losses on held to maturity securities(130)(104)
Net securities2,350,368 2,223,313 
Loans held for sale6,494 17,748 
Total loans7,232,591 8,081,519 
Less: Allowance for credit losses on loans (119,044)(127,302)
Net loans7,113,547 7,954,217 
Premises and equipment, net104,680 112,663 
Other real estate owned85 149 
Other intangible assets32,203 34,819 
Cash surrender value of bank-owned life insurance policies235,426 232,695 
Other assets327,265 387,230 
Assets held for sale276,576 317,304 
Total assets$12,273,325 $12,838,013 
Liabilities  
Demand deposits$2,819,012 $2,484,249 
NOW and other deposits1,696,762 1,003,005 
Money market deposits2,398,256 3,371,353 
Savings deposits1,065,428 972,116 
Time deposits1,934,442 2,385,085 
Total deposits9,913,900 10,215,808 
Short-term debt— 40,000 
Long-term Federal Home Loan Bank advances and other217,847 434,357 
Subordinated borrowings97,396 97,280 
Total borrowings315,243 571,637 
Other liabilities222,105 232,730 
Liabilities held for sale646,688 630,065 
Total liabilities$11,097,936 $11,650,240 
(continued)
June 30,
2021		December 31,
2020
Shareholders’ equity  
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 50,452,740 shares outstanding in 2021; 51,903,190 shares issued and 50,833,087 shares outstanding in 2020)
528 528 
Additional paid-in capital - common stock1,423,083 1,427,239 
Unearned compensation(11,006)(6,245)
Retained earnings (deficit)(210,994)(233,344)
Accumulated other comprehensive income 14,772 30,871 
Treasury stock, at cost (1,450,450 shares in 2021 and 1,070,103 shares in 2020)
(40,994)(31,276)
Total shareholders’ equity1,175,389 1,187,773 
Total liabilities and shareholders’ equity$12,273,325 $12,838,013 
The accompanying notes are an integral part of these consolidated financial statements.
4
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands, except per share data)2021202020212020
Interest and dividend income from continuing operations  
Loans$73,921 $90,876 $149,854 $192,571 
Securities and other11,443 12,812 23,663 27,312 
Total interest and dividend income85,364 103,688 173,517 219,883 
Interest expense from continuing operations  
Deposits6,981 20,552 16,564 44,390 
Borrowings2,990 5,546 6,467 11,475 
Total interest expense9,971 26,098 23,031 55,865 
Net interest income from continuing operations75,393 77,590 150,486 164,018 
Non-interest income from continuing operations    
Deposit related fees7,508 5,373 14,634 13,320 
Loan fees and revenue7,431 5,717 17,677 7,019 
Insurance commissions and fees2,292 2,767 5,422 5,791 
Wealth management fees2,519 2,057 5,291 4,627 
Mortgage banking originations534 1,644 1,336 2,603 
Total fee income20,284 17,558 44,360 33,360 
Other, net2,211 (999)4,359 (1,435)
(Loss)/gain on securities, net(484)822 (515)(8,908)
Total non-interest income22,011 17,381 48,204 23,017 
Total net revenue from continuing operations97,404 94,971 198,690 187,035 
Provision for credit losses — 29,871 6,500 64,678 
Non-interest expense from continuing operations  
Compensation and benefits36,970 39,403 75,705 76,312 
Occupancy and equipment10,599 10,195 21,623 21,327 
Technology and communications8,214 7,755 16,807 15,836 
Marketing and promotion518 902 1,113 2,067 
Professional services3,701 2,565 10,315 5,285 
FDIC premiums and assessments927 1,658 2,047 3,140 
Other real estate owned and foreclosures(26)14 (24)41 
Amortization of intangible assets1,297 1,558 2,616 3,138 
Goodwill impairment— 553,762 — 553,762 
Acquisition, restructuring, and other expenses6 — 3,492 — 
Other6,666 6,463 13,332 14,692 
Total non-interest expense68,872 624,275 147,026 695,600 
Income/(loss) from continuing operations before income taxes$28,532 $(559,175)$45,164 $(573,243)
Income tax expense/(benefit)6,896 (16,130)10,497 (18,126)
Net income/(loss) from continuing operations$21,636 $(543,045)$34,667 $(555,117)
(Loss) from discontinued operations before income taxes$— $(8,635)$— $(19,264)
Income tax (benefit)— (2,299)— (5,130)
Net (loss) from discontinued operations$— $(6,336)$— $(14,134)
Net income/(loss)$21,636 $(549,381)$34,667 $(569,251)
Preferred stock dividend— 130 — 255 
Income/(loss) available to common shareholders$21,636 $(549,511)$34,667 $(569,506)
(continued)
5
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONCLUDED)
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Basic earnings/(loss) per common share:  
Continuing operations$0.43 $(10.80)$0.69 $(11.05)
Discontinued operations— (0.13)— (0.28)
Total$0.43 $(10.93)$0.69 $(11.33)
Diluted earnings/(loss) per common share:
Continuing operations$0.43 $(10.80)$0.69 $(11.05)
Discontinued operations— (0.13)— (0.28)
Total$0.43 $(10.93)$0.69 $(11.33)
Weighted average shares outstanding:  
Basic50,321 50,246 50,327 50,228 
Diluted50,608 50,246 50,588 50,228 
The accompanying notes are an integral part of these consolidated financial statements.
6
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2021202020212020
Net income/(loss)$21,636 $(549,381)$34,667 $(569,251)
Other comprehensive income, before tax:    
Changes in unrealized gain on debt securities available-for-sale5,394 2,999 (21,619)28,614 
Income taxes related to other comprehensive income:   
Changes in unrealized gain on debt securities available-for-sale(1,343)(777)5,520 (7,368)
Total other comprehensive income/(loss) 4,051 2,222 (16,099)21,246 
Total comprehensive income/(loss)$25,687 $(547,159)$18,568 $(548,005)
The accompanying notes are an integral part of these consolidated financial statements.

7
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 Preferred stockCommon stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive income/(loss)		Treasury stock
(In thousands)SharesAmountSharesAmountTotal
Balance at March 31, 2020261 $20,325 50,199 $523 $1,427,800 $(9,764)$304,442 $31,017 $(52,065)$1,722,278 
Comprehensive income:       
Net (loss)— — — — — — (549,381)— — (549,381)
Other comprehensive income— — — — — — — 2,222 — 2,222 
Total comprehensive (loss)— — — — — — (549,381)2,222 — (547,159)
Cash dividends declared on common shares ($0.24 per share)
— — — — — — (12,100)— — (12,100)
Cash dividends declared on preferred shares ($0.48 per share)
— — — — — — (130)— — (130)
Forfeited shares— — (3)— (72)110 — — (38)— 
Exercise of stock options— — 9 — — — (180)— 268 88 
Restricted stock grants— — — — — — — — — — 
Stock-based compensation— — — — — 1,356 — — — 1,356 
Other, net— — (13)— — — (3)— (190)(193)
Balance at June 30, 2020261 $20,325 50,192 $523 $1,427,728 $(8,298)$(257,352)$33,239 $(52,025)$1,164,140 
Balance at March 31, 2021— $— 50,988 $528 $1,424,349 $(7,722)$(226,516)$10,721 $(26,221)$1,175,139 
Comprehensive income:       
Net income— — — — — — 21,636 — — 21,636 
Other comprehensive income— — — — — — — 4,051 — 4,051 
Total comprehensive income— — — — — — 21,636 4,051 — 25,687 
Cash dividends declared on common shares ($0.12 per share)
— — — — — — (6,100)— — (6,100)
Treasury shares repurchased— — (745)— — — — — (20,750)(20,750)
Forfeited shares— — (11)— 45 238 — — (283)— 
Exercise of stock options— — 2 — — — (14)— 69 55 
Restricted stock grants— — 229 — (1,314)(5,127)— — 6,441 — 
Stock-based compensation— — — — — 1,605 — — — 1,605 
Other, net— — (10)— 3 — — — (250)(247)
Balance at June 30, 2021— $— 50,453 $528 $1,423,083 $(11,006)$(210,994)$14,772 $(40,994)$1,175,389 
8
 Preferred stockCommon stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive income/(loss)		Treasury stock
(In thousands)SharesAmountSharesAmountTotal
Balance at December 31, 2019522 $40,633 49,585 $517 $1,422,441 $(8,465)$361,082 $11,993 $(69,637)$1,758,564 
Comprehensive income:       
Net (loss)— — — — — — (569,251)— — (569,251)
Other comprehensive income— — — — — — — 21,246 — 21,246 
Total comprehensive (loss)— — — — — — (569,251)21,246 — (548,005)
Impact of ASC 326 Adoption— — — — — — (24,380)— — (24,380)
Conversion of preferred stock to common stock(261)(20,308)522 6 5,391 — — — 14,911 — 
Cash dividends declared on common shares ($0.48 per share)
— — — — — — (24,150)— — (24,150)
Cash dividends declared on preferred shares ($0.96 per share)
— — — — — — (255)— — (255)
Treasury shares repurchased— — (14)— — — — — (473)(473)
Forfeited shares— — (14)— (156)485 — — (329)— 
Exercise of stock options— — 33 — — — (395)— 1,002 607 
Restricted stock grants— — 108 — 52 (3,133)— — 3,081 — 
Stock-based compensation— — — — — 2,815 — — — 2,815 
Other, net— — (28)— — — (3)— (580)(583)
Balance at June 30, 2020261 $20,325 50,192 $523 $1,427,728 $(8,298)$(257,352)$33,239 $(52,025)$1,164,140 
Balance at December 31, 2020— $— 50,833 $528 $1,427,239 $(6,245)$(233,344)$30,871 $(31,276)$1,187,773 
Comprehensive income:       
Net income— — — — — — 34,667 — — 34,667 
Other comprehensive (loss)— — — — — — — (16,099)— (16,099)
Total comprehensive income— — — — — — 34,667 (16,099)— 18,568 
Cash dividends declared on common shares ($0.24 per share)
— — — — — — (12,224)— — (12,224)
Treasury shares repurchased— — (745)— — — — — (20,750)(20,750)
Forfeited shares— — (62)— (190)1,570 — — (1,380)— 
Exercise of stock options— — 7 — — — (93)— 217 124 
Restricted stock grants— — 439 — (3,974)(8,612)— — 12,586 — 
Stock-based compensation— — — — — 2,281 — — — 2,281 
Other, net— — (19)— 8 — — — (391)(383)
Balance at June 30, 2021— $— 50,453 $528 $1,423,083 $(11,006)$(210,994)$14,772 $(40,994)$1,175,389 
The accompanying notes are an integral part of these consolidated financial statements.
9
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended
June 30,
(In thousands)20212020
Cash flows from operating activities:  
Net income/(loss) from continuing operations$34,667 $(555,117)
Net (loss) from discontinued operations— (14,134)
Net income/(loss)$34,667 $(569,251)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:  
Provision for credit losses6,500 64,678 
Net amortization of securities748 1,363 
Change in unamortized net loan costs and premiums(5,410)19,486 
Premises and equipment depreciation and amortization expense5,636 5,908 
Stock-based compensation expense2,281 2,815 
Accretion of purchase accounting entries, net(3,555)(5,555)
Amortization of other intangibles2,616 3,138 
Income from cash surrender value of bank-owned life insurance policies(2,731)(2,471)
Securities losses, net515 8,908 
Net change in loans held-for-sale8,164 (10,668)
Loss on disposition of assets2,811 — 
Gain on sale of real estate(33)13 
Amortization of interest in tax-advantaged projects207 1,586 
Goodwill impairment— 553,762 
Net change in other11,319 (24,022)
Net cash provided by operating activities of continuing operations63,735 63,824 
Net cash provided by operating activities of discontinued operations— 113,332 
Net cash provided by operating activities63,735 177,156 
Cash flows from investing activities:  
Net decrease in trading security384 363 
Purchases of marketable equity securities— (17,631)
Proceeds from sales of marketable equity securities2,849 18,458 
Purchases of securities available for sale(268,923)(315,949)
Proceeds from sales of securities available for sale— 7,646 
Proceeds from maturities, calls, and prepayments of securities available for sale305,361 190,348 
Purchases of securities held to maturity(219,004)(1,372)
Proceeds from maturities, calls, and prepayments of securities held to maturity17,320 23,179 
Net change in loans831,505 85,908 
Net change in Mid-Atlantic region loans held for sale47,131 — 
Proceeds from surrender of bank-owned life insurance— 553 
Purchase of Federal Home Loan Bank stock— (6,741)
Proceeds from redemption of Federal Home Loan Bank stock15,235 8,621 
Net investment in limited partnership tax credits— (5,854)
Purchase of premises and equipment, net(1,606)(4,493)
Proceeds from sales of seasoned commercial loan portfolios14,749 — 
Proceeds from sale of other real estate142 171 
Net cash provided by investing activities745,143 (16,793)
10
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
 Six Months Ended
June 30,
(In thousands)20212020
(continued)
Net investing cash flows from discontinued operations— — 
Cash flows from financing activities:  
Net (decrease)/increase in deposits(301,908)442,380 
Net increase in Mid-Atlantic region deposits held for sale15,590 — 
Proceeds from Federal Home Loan Bank advances and other borrowings— 326,277 
Repayments of Federal Home Loan Bank advances and other borrowings(256,555)(337,287)
Purchase of treasury stock(20,750)(473)
Exercise of stock options124 607 
Common and preferred stock cash dividends paid(6,124)(12,175)
Settlement of derivative contracts with financial institution counterparties29,551 (115,369)
Net cash used by financing activities(540,072)303,960 
Net change in cash and cash equivalents268,806 464,323 
Cash and cash equivalents at beginning of period1,557,875 579,829 
Cash and cash equivalents at end of period$1,826,681 $1,044,152 
Supplemental cash flow information:  
Interest paid on deposits$18,515 $50,037 
Interest paid on borrowed funds6,864 12,168 
Income taxes (refunded) paid, net(1,110)396 
Other non-cash changes:  
Other net comprehensive income$(16,099)$21,246 
Change in shareholder dividend payable6,100 12,230 
Impact to retained earnings from adoption of ASC 326, net of tax— 24,380 
Reclass of seasoned loan portfolios to held-for-sale, net11,660 15,549 
Real estate owned acquired in settlement of loans— 224 
The accompanying notes are an integral part of these consolidated financial statements.
11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.           BASIS OF PRESENTATION

The Consolidated Financial Statements (the “financial statements”) of Berkshire Hills Bancorp, Inc. and its subsidiaries (the “Company” or “Berkshire”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is a Delaware corporation, headquartered in Boston, Massachusetts, and the holding company for Berkshire Bank (the “Bank”), a Massachusetts-chartered trust company headquartered in Pittsfield, Massachusetts, and Berkshire Insurance Group, Inc. These financial statements include the accounts of the Company, its wholly-owned subsidiaries and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless GAAP requires otherwise.

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these financial statements were issued.

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and disclosures Berkshire Hills Bancorp, Inc. previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates.

Refer to Note 10 – Other Commitments, Contingencies, and Off-Balance Sheet Activities for pandemic related risks and uncertainties.

Recently Adopted Accounting Principles
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. As ASU No. 2018-14 only revises disclosure requirements, the adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU No. 2019-12 removes specific exceptions to the general principles in FASB ASC Topic 740. It eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial statement preparers’ application of income tax-related guidance and simplifies: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The adoption of ASU No. 2019-12 did not have a material impact on the Company's Consolidated Financial Statements.
12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)”. ASU No. 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, this ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The amendments are to be applied prospectively. The adoption of ASU No. 2020-01 did not have a material impact on the Company's Consolidated Financial Statements.

In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU No. 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU No. 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact the Company’s Consolidated Financial Statements.

Future Application of Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. For instance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Finally, entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. It is anticipated that this ASU will simplify any modifications that are executed between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements.


13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2.           DISCONTINUED OPERATIONS AND HELD FOR SALE

During the first quarter of 2019, the Company reached the decision to pursue the sale of the national mortgage banking operations of First Choice Loan Services, Inc. (“FCLS”), – a subsidiary of the Bank. The decision was based on a number of strategic priorities and other factors, including the competitiveness of the mortgage industry. FCLS continued to operate and serve its customers as the Company initiated the process of identifying a buyer. As a result of these actions, the Company classified the operations of FCLS as discontinued under ASC 205-20. The Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows present discontinued operations retrospectively for current and prior periods.

On May 7, 2020, the Company completed a transaction to sell certain assets and liabilities related to the operations of FCLS. During the fourth quarter of 2020, the Company completed the final wind-down of the operations of FCLS. Operating results for the year ended December 31, 2020, include expenses related to the wind-down of operations.

As of June 30, 2021 and December 31, 2020, there were no assets or liabilities related to the discontinued operations of FCLS.

The following presents operating results of the discontinued operations of FCLS for the three and six months ended June 30, 2021 and June 30, 2020:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2021202020212020
Interest income$— $764 $— $1,493 
Interest expense— 105 — 387 
Net interest income— 659 — 1,106 
Non-interest income— (5,247)— (3,889)
Total net revenue— (4,588)— (2,783)
Non-interest expense— 4,047 — 16,481 
(Loss) from discontinued operations before income taxes— (8,635)— (19,264)
Income tax (benefit)— (2,299)— (5,130)
Net (loss) from discontinued operations$— $(6,336)$— $(14,134)


14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mid-Atlantic Branch Sale
The Company has entered into an agreement to sell its eight Mid-Atlantic branches to Investors Bank of Short Hills, New Jersey, subject to customary regulatory approvals. The sale is targeted for completion in the second half of 2021. The branch sale includes loans with a total balance of $253 million and deposit accounts with a total balance of $633 million as of June 30, 2021. These balances are included in assets held for sale and liabilities held for sale on the Consolidated Balance Sheets. The buyer has agreed to pay a premium equal to 3.0% of the final deposit balance transferred. The sale includes all branch premises and equipment, and the agreement provides that the buyer intends to offer employment to all associated staff. Berkshire expects to complete the net transfer with funds from short-term investments. The branch sale will have no effect on Berkshire’s Mid-Atlantic specialized commercial lending operations, including SBA lending at its 44 Business Capital Division and its asset-based lending relationships.

The following is a summary of the assets and liabilities held for sale at June 30, 2021 and December 31, 2020:
(In thousands)June 30, 2021December 31, 2020
Assets
Loans$253,468 $300,599 
Other assets23,108 16,705 
Total assets$276,576 $317,304 
Liabilities
Deposits$632,967 $617,377 
Other liabilities13,721 12,688 
Total liabilities$646,688 $630,065 


NOTE 3.           TRADING SECURITY

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $8.3 million and $8.7 million, and a fair value of $8.9 million and $9.7 million, at June 30, 2021 and December 31, 2020, respectively. As discussed further in Note 8 - Derivative Financial Instruments and Hedging Activities, the Company entered into a swap contract to swap-out the fixed rate of the security in exchange for a variable rate. The Company does not purchase securities with the intent of selling them in the near term, and there were no other securities in the trading portfolio at June 30, 2021 or December 31, 2020.
15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SECURITIES AVAILABLE FOR SALE, HELD TO MATURITY, AND MARKETABLE
        EQUITY SECURITIES

The following is a summary of securities available for sale, held to maturity, and marketable equity securities:
(In thousands)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
June 30, 2021    
Securities available for sale    
Municipal bonds and obligations
$79,341 $6,300 $— $85,641 $— 
Agency collateralized mortgage obligations
755,840 12,266 (3,007)765,099 — 
Agency mortgage-backed securities
427,307 2,650 (4,915)425,042 — 
Agency commercial mortgage-backed securities
258,204 5,988 (1,573)262,619 — 
Corporate bonds
50,054 1,152 (49)51,157 — 
Other bonds and obligations
49,473 1,489 (8)50,954 — 
Total securities available for sale1,620,219 29,845 (9,552)1,640,512 — 
Securities held to maturity    
Municipal bonds and obligations
288,130 18,629 (507)306,252 90 
Agency collateralized mortgage obligations
161,841 4,703 (2,014)164,530 — 
Agency mortgage-backed securities
62,900 125 (1,022)62,003 — 
Agency commercial mortgage-backed securities
149,571 1,017 (1,378)149,210 — 
Tax advantaged economic development bonds
3,050 40 (9)3,081 40 
Other bonds and obligations
294 — — 294 — 
Total securities held to maturity665,786 24,514 (4,930)685,370 130 
Marketable equity securities15,707 126 (124)15,709 — 
Total$2,301,712 $54,485 $(14,606)$2,341,591 $130 
(In thousands)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
December 31, 2020    
Securities available for sale    
Municipal bonds and obligations
$90,273 $7,530 $— $97,803 $— 
Agency collateralized mortgage obligations
740,225 16,836 (235)756,826 — 
Agency mortgage-backed securities
433,311 4,954 (133)438,132 — 
Agency commercial mortgage-backed securities
278,990 9,835 (175)288,650 — 
Corporate bonds
59,098 942 (10)60,030 — 
Other bonds and obligations
52,080 1,719 (8)53,791 — 
Total securities available for sale1,653,977 41,816 (561)1,695,232 — 
Securities held to maturity    
Municipal bonds and obligations
246,520 20,106 — 266,626 64 
Agency collateralized mortgage obligations
153,561 5,989 (171)159,379 — 
Agency mortgage-backed securities
35,865 198 (29)36,034 — 
Agency commercial mortgage-backed securities
25,481 590 (12)26,059 — 
Tax advantaged economic development bonds
3,369 93 — 3,462 40 
Other bonds and obligations
295 — — 295 — 
Total securities held to maturity465,091 26,976 (212)491,855 104 
Marketable equity securities18,061 767 (315)18,513 — 
Total$2,137,129 $69,559 $(1,088)$2,205,600 $104 

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the three and six months ended June 30, 2021 and 2020:
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at March 31, 2021$71 $40 $111 
Provision for credit losses19 — 19 
Balance at June 30, 2021$90 $40 $130 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at March 31, 2020$83 $58 $141 
Provision for credit losses - reversal(21)(7)(28)
Balance at June 30, 2020$62 $51 $113 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2020$64 $40 $104 
Impact of ASC 326 adoption— — — 
Provision for credit losses 26 — 26 
Balance at June 30, 2021$90 $40 $130 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2019$— $— $— 
Impact of ASC 326 adoption83 226 309 
Provision for credit losses - reversal(21)(175)(196)
Balance at June 30, 2020$62 $51 $113 

Credit Quality Information
The Company monitors the credit quality of held to maturity securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization.

As of June 30, 2021, none of the Company's investment securities were delinquent or in non-accrual status.

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at June 30, 2021 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Available for saleHeld to maturity
 AmortizedFairAmortizedFair
(In thousands)CostValueCostValue
Within 1 year$31,834 $31,860 $1,764 $1,766 
Over 1 year to 5 years4,984 5,093 4,292 4,334 
Over 5 years to 10 years57,108 58,596 23,379 24,183 
Over 10 years84,942 92,203 262,039 279,344 
Total bonds and obligations178,868 187,752 291,474 309,627 
Mortgage-backed securities1,441,351 1,452,760 374,312 375,743 
Total$1,620,219 $1,640,512 $665,786 $685,370 

During the three months ended June 30, 2021, purchases of AFS securities totaled $165.0 million. During the six months ended June 30, 2021, purchases of AFS securities totaled $268.9 million. During the three and six months ended June 30, 2021, there were no sales of AFS securities. During the three months ended June 30, 2020, purchases of AFS securities totaled $155.0 million and the proceeds from the sale of AFS securities totaled $4.1 million. During the six months ended June 30, 2020, purchases of AFS securities totaled $315.9 million and the proceeds from the sale of AFS securities totaled $7.6 million. During the three and six months ended June 30, 2021, there were no gross gains or losses on AFS securities. During the three months ended June 30, 2020, there were $1 thousand gross gains on AFS securities and there were no gross losses. During the six months ended June 30, 2020, there were $1 thousand gross gains on AFS securities and gross losses totaled $1 thousand. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of operations.
18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities available for sale and held to maturity with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
 Less Than Twelve MonthsOver Twelve MonthsTotal
 Gross Gross Gross 
 UnrealizedFairUnrealizedFairUnrealizedFair
(In thousands)LossesValueLossesValueLossesValue
June 30, 2021      
Securities available for sale      
Agency collateralized mortgage obligations
$3,007 $262,830 $— $— $3,007 $262,830 
Agency mortgage-backed securities
4,907 297,679 8 334 4,915 298,013 
Agency commercial mortgage-backed securities1,383 94,708 190 7,713 1,573 102,421 
Corporate bonds
49 9,115 — — 49 9,115 
Other bonds and obligations
— — 8 903 8 903 
Total securities available for sale$9,346 $664,332 $206 $8,950 $9,552 $673,282 
Securities held to maturity      
Municipal bonds and obligations$507 $30,801 $— $— $507 $30,801 
Agency collateralized mortgage obligations2,014 81,140 — — 2,014 81,140 
Agency mortgage-backed securities1,022 58,170 — — 1,022 58,170 
Agency commercial mortgage-backed securities1,378 92,573 — — 1,378 92,573 
Tax advantaged economic development bonds
9 1,329 — — 9 1,329 
Total securities held to maturity4,930 264,013 — — 4,930 264,013 
Total$14,276 $928,345 $206 $8,950 $14,482 $937,295 
December 31, 2020      
Securities available for sale      
Agency collateralized mortgage obligations
$235 $77,898 $— $— $235 $77,898 
Agency mortgage-backed securities
131 39,939 2 256 133 40,195 
Agency commercial mortgage-backed securities175 51,435 — — 175 51,435 
Corporate bonds
10 4,875 — — 10 4,875 
Other bonds and obligations
— — 8 1,030 8 1,030 
Total securities available for sale$551 $174,147 $10 $1,286 $561 $175,433 
Securities held to maturity      
Agency collateralized mortgage obligations
$171 $25,048 $— $— $171 $25,048 
Agency mortgage-backed securities
29 20,710 — — 29 20,710 
Agency commercial mortgage-backed securities
12 10,216 — — 12 10,216 
Total securities held to maturity212 55,974 — — 212 55,974 
Total$763 $230,121 $10 $1,286 $773 $231,407 

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of June 30, 2021, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at June 30, 2021:

AFS collateralized mortgage obligations
At June 30, 2021, 27 of the 258 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 1.1% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s collateralized mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS commercial and residential mortgage-backed securities
At June 30, 2021, 29 of the 125 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 1.6% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS corporate bonds
At June 30, 2021, 4 of the 16 securities in the Company’s portfolio of AFS corporate bonds was in an unrealized loss position. Aggregate unrealized losses represents 0.5% of the amortized cost of the bond in an unrealized loss position. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities.

AFS other bonds and obligations
At June 30, 2021, 2 of the 6 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 0.8% of the amortized cost of securities in unrealized loss positions. The securities are all investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.
 
HTM municipal bonds and obligations
At June 30, 2021, 23 of the 221 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 1.6% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

HTM collateralized mortgage obligations
At June 30, 2021, 6 of the 14 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.4% of the amortized cost of the securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM commercial and residential mortgage-backed securities
At June 30, 2021, 12 out of 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 1.6% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

HTM tax-advantaged economic development bonds
At June 30, 2021, 1 out of 3 securities in the Company’s portfolio of tax-advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 0.7% of the amortized cost of the security in an unrealized loss position. The Company believes that more likely than not all the principal outstanding will be collected. All securities are performing.

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following is a summary of total loans by regulatory call report code with sub-segmentation based on underlying collateral for certain loan types:
(In thousands)June 30, 2021December 31, 2020
Construction$428,596 $454,513 
Commercial multifamily499,391 483,350 
Commercial real estate owner occupied558,483 552,413 
Commercial real estate non-owner occupied2,150,608 2,119,263 
Commercial and industrial1,436,207 1,943,164 
Residential real estate1,659,481 1,931,681 
Home equity269,610 293,981 
Consumer other230,215 303,154 
Total loans$7,232,591 $8,081,519 
Allowance for credit losses119,044 127,302 
Net loans$7,113,547 $7,954,217 

As of June 30, 2021 and December 31, 2020, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $173.2 million and $633.3 million, respectively. These loans are 100% guaranteed by the SBA and the full principal amount of the loan may qualify for forgiveness. These loans are included in commercial and industrial.

During the three and six months ended June 30, 2021, the Company reclassified $2.2 million and $11.7 million of commercial loans, reflecting its intent to sell these loans. These loans are not contained in the balances within this note and are accounted for at the lower of carrying value or fair market value within loans held for sale on the Consolidated Balance Sheet.

Risk characteristics relevant to each portfolio segment are as follows:
Construction - Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property or long term financing at completion. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial real estate multifamily, owner occupied and non-owner - Loans in these segments are primarily owner-occupied or income-producing properties throughout New England and Northeastern New York. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans.
21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commercial and industrial loans - Loans in this segment are made to businesses and are generally secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Repayment is expected from the cash flows of the business. Loans in this segment include asset based loans which generally have no scheduled repayment and which are closely monitored against formula based collateral advance ratios. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Residential real estate - All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Home equity and other consumer loans - Loans in this segment are primarily home equity lines of credit, automobile loans and other consumer loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Allowance for Credit Losses for Loans
The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for loan losses, and the allowance for unfunded commitments is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon:
•the existence and growth of concentrations of credit;
•the volume and severity of past due financial assets, including nonaccrual assets;
•the institutions lending and credit review as well as the experience and ability of relevant management and staff and;
•the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters;
•the effect of other economic factors such as economic stimulus and customer forbearance programs.
The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit).


22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s activity in the allowance for credit losses for loans for the three and six months ended June 30, 2021 and June 30, 2020 was as follows:
(In thousands)Balance at Beginning of PeriodImpact of Adopting ASC 326Sub-totalCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Three months ended June 30, 2021
Construction$4,397 $— $4,397 $— $— $(478)$3,919 
Commercial multifamily6,351 — 6,351 (115)95 866 7,197 
Commercial real estate owner occupied14,257 — 14,257 (227)40 (828)13,242 
Commercial real estate non-owner occupied34,561 — 34,561 (2,561)178 (1,863)30,315 
Commercial and industrial26,071 — 26,071 (3,585)1,266 4,473 28,225 
Residential real estate25,800 — 25,800 (220)667 (2,604)23,643 
Home equity5,749 — 5,749 (164)15 (168)5,432 
Consumer other6,614 — 6,614 (375)249 583 7,071 
Total allowance for credit losses$123,800 $— $123,800 $(7,247)$2,510 $(19)$119,044 
(In thousands)Balance at Beginning of PeriodImpact of Adopting ASC 326Sub-totalCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Three months ended June 30, 2020
Construction$4,573 $— $4,573 $— $— $3,206 $7,779 
Commercial multifamily4,453 — 4,453 (50)— (104)4,299 
Commercial real estate owner occupied11,607 — 11,607 (2,237)610 1,572 11,552 
Commercial real estate non-owner occupied28,863 — 28,863 — 88 5,756 34,707 
Commercial and industrial24,502 — 24,502 (3,370)2,218 (254)23,096 
Residential real estate26,057 — 26,057 (959)125 13,781 39,004 
Home equity7,780 — 7,780 (157)97 301 8,021 
Consumer other5,675 — 5,675 (501)121 5,641 10,936 
Total allowance for credit losses$113,510 $— $113,510 $(7,274)$3,259 $29,899 $139,394 

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Balance at Beginning of PeriodImpact of Adopting ASC 326Sub-totalCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Six months ended June 30, 2021
Construction$5,111 $— $5,111 $— $— $(1,192)$3,919 
Commercial multifamily5,916 — 5,916 (239)157 1,363 7,197 
Commercial real estate owner occupied12,380 — 12,380 (603)52 1,413 13,242 
Commercial real estate non-owner occupied35,850 — 35,850 (9,220)304 3,381 30,315 
Commercial and industrial25,013 — 25,013 (6,905)1,911 8,206 28,225 
Residential real estate28,491 — 28,491 (598)1,104 (5,354)23,643 
Home equity6,482 — 6,482 (240)39 (849)5,432 
Consumer other8,059 — 8,059 (903)409 (494)7,071 
Total allowance for credit losses$127,302 $— $127,302 $(18,708)$3,976 $6,474 $119,044 
(In thousands)Balance at Beginning of PeriodImpact of Adopting ASC 326Sub-totalCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Six months ended June 30, 2020
Construction$2,713 $(342)$2,371 $— $— $5,408 $7,779 
Commercial multifamily4,413 (1,842)2,571 (50)— 1,778 4,299 
Commercial real estate owner occupied4,880 6,062 10,942 (8,613)868 8,355 11,552 
Commercial real estate non-owner occupied16,344 11,201 27,545 (135)135 7,162 34,707 
Commercial and industrial20,099 (2,189)17,910 (8,284)3,620 9,850 23,096 
Residential real estate9,970 6,799 16,769 (1,131)221 23,145 39,004 
Home equity1,470 4,884 6,354 (234)99 1,802 8,021 
Consumer other3,686 861 4,547 (1,259)274 7,374 10,936 
Total allowance for credit losses$63,575 $25,434 $89,009 $(19,706)$5,217 $64,874 $139,394 


24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liability on consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the consolidated statement of operations. The Company’s activity in the allowance for credit losses on unfunded commitments for the three and six months ended June 30, 2021 was as follows:

Three Months Ended
June 30,
(In thousands)20212020
Balance at beginning of period$7,829 $8,593 
Expense for credit losses— — 
Balance at end of period$7,829 $8,593 

Six Months Ended
June 30,
(In thousands)20212020
Balance at beginning of period$7,629 $100 
Impact of adopting ASC 326— 7,993 
Sub-Total7,629 8,093 
Expense for credit losses200 500 
Balance at end of period$7,829 $8,593 

Credit Quality Information
The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential weaknesses and are evaluated closely by management. Substandard, including non-accruing loans, are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annual, semiannually, or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations.

The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention, and Substandard. Loans that are current within 59 days are rated Pass. Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status. 


25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s loans by risk category:
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of June 30, 2021
Construction
Risk rating
Pass$35,596 $51,635 $223,937 $74,435 $30,941 $2,060 $250 $— $418,854 
Special Mention— — — 313 — — — — 313 
Substandard— — — 9,429 — — — — 9,429 
Total$35,596 $51,635 $223,937 $84,177 $30,941 $2,060 $250 $— $428,596 
Commercial multifamily:
Risk rating
Pass$23,414 $31,156 $82,932 $73,546 $77,790 $207,898 $53 $— $496,789 
Special Mention— — — — — — — — — 
Substandard— — — — — 2,462 140 — 2,602 
Total$23,414 $31,156 $82,932 $73,546 $77,790 $210,360 $193 $— $499,391 
Commercial real estate owner occupied:
Risk rating
Pass$40,337 $51,325 $79,894 $96,160 $60,192 $205,099 $2,139 $— $535,146 
Special Mention— 535 2,859 1,136 2,677 1,793 — — 9,000 
Substandard— — 1,266 2,463 1,519 9,089 — — 14,337 
Total$40,337 $51,860 $84,019 $99,759 $64,388 $215,981 $2,139 $— $558,483 
Commercial real estate non-owner occupied:
Risk rating
Pass$179,475 $181,339 $313,489 $403,612 $216,824 $693,480 $17,595 $— $2,005,814 
Special Mention— 231 268 13,932 6,849 44,141 — — 65,421 
Substandard— 7,751 3,529 2,888 19,956 45,056 193 — 79,373 
Total$179,475 $189,321 $317,286 $420,432 $243,629 $782,677 $17,788 $— $2,150,608 
Commercial and industrial:
Risk rating
Pass$72,627 $302,687 $122,607 $201,428 $83,270 $172,671 $353,839 $— $1,309,129 
Special Mention— 2,753 15,473 10,882 16,214 900 10,519 — 56,741 
Substandard3,352 6,513 28,671 12,497 5,381 6,156 7,518 — 70,088 
Doubtful— — — — — — 249 — 249 
Total$75,979 $311,953 $166,751 $224,807 $104,865 $179,727 $372,125 $— $1,436,207 
Residential real estate
Risk rating
Pass$148,842 $138,615 $112,993 $163,659 $242,739 $835,932 $3,450 $— $1,646,230 
Special Mention— — — — — 363 — — 363 
Substandard— 697 — 1,313 1,611 9,267 — — 12,888 
Total$148,842 $139,312 $112,993 $164,972 $244,350 $845,562 $3,450 $— $1,659,481 
26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2020
Construction
Risk rating
Pass$38,374 $255,377 $114,690 $28,474 $9,519 $2,766 $1,000 $— $450,200 
Special Mention— — 313 — — — — — 313 
Substandard— — — 4,000 — — — — 4,000 
Total$38,374 $255,377 $115,003 $32,474 $9,519 $2,766 $1,000 $— $454,513 
Commercial multifamily:
Risk rating
Pass$31,438 $57,659 $74,932 $77,746 $81,066 $153,818 $20 $— $476,679 
Special Mention— — — — — — — — — 
Substandard— — — — 47 6,479 145 — 6,671 
Total$31,438 $57,659 $74,932 $77,746 $81,113 $160,297 $165 $— $483,350 
Commercial real estate owner occupied:
Risk rating
Pass$58,327 $84,839 $104,797 $64,693 $44,300 $169,197 $1,194 $— $527,347 
Special Mention535 2,569 1,136 1,009 800 2,579 — — 8,628 
Substandard— 1,266 3,597 1,685 1,439 8,451 — — 16,438 
Total$58,862 $88,674 $109,530 $67,387 $46,539 $180,227 $1,194 $— $552,413 
Commercial real estate non-owner occupied:
Risk rating
Pass$180,520 $292,386 $435,440 $223,935 $303,221 $497,066 $15,393 $— $1,947,961 
Special Mention— 279 2,068 6,958 11,798 44,961 1,068 — 67,132 
Substandard7,804 3,529 4,235 19,632 2,124 66,651 195 — 104,170 
Total$188,324 $296,194 $441,743 $250,525 $317,143 $608,678 $16,656 $— $2,119,263 
Commercial and industrial:
Risk rating
Pass$754,260 $159,046 $205,651 $130,985 $48,326 $148,222 $368,769 $— $1,815,259 
Special Mention1,467 5,753 5,267 2,851 1,601 65 12,408 — 29,412 
Substandard7,392 39,822 24,951 7,765 3,504 5,630 9,099 — 98,163 
Doubtful— — — — — — 330 — 330 
Total$763,119 $204,621 $235,869 $141,601 $53,431 $153,917 $390,606 $— $1,943,164 
Residential real estate
Risk rating
Pass$150,583 $146,142 $272,399 $320,384 $333,159 $691,078 $3,281 $— $1,917,026 
Special Mention384 — 454 1,430 — 362 — — 2,630 
Substandard991 39 703 902 417 8,964 9 — 12,025 
Total$151,958 $146,181 $273,556 $322,716 $333,576 $700,404 $3,290 $— $1,931,681 

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For home equity and consumer other loan portfolio segments, Berkshire evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an ongoing basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost based on payment activity:
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of June 30, 2021
Home equity:
Payment performance
Performing$1,355 $2,858 $1,418 $318 $1,800 $2,206 $257,227 $— $267,182 
Nonperforming— — — — — — 2,428 — 2,428 
Total$1,355 $2,858 $1,418 $318 $1,800 $2,206 $259,655 $— $269,610 
Consumer other:
Payment performance
Performing$11,635 $12,856 $27,449 $74,896 $46,928 $44,842 $7,712 $— $226,318 
Nonperforming— 92 383 1,034 1,095 1,284 9 — 3,897 
Total$11,635 $12,948 $27,832 $75,930 $48,023 $46,126 $7,721 $— $230,215 
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20202019201820172016PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2020
Home equity:
Payment performance
Performing$2,445 $1,960 $316 $1,859 $499 $1,882 $282,123 $— $291,084 
Nonperforming— — 1 — — — 2,896 — 2,897 
Total$2,445 $1,960 $317 $1,859 $499 $1,882 $285,019 $— $293,981 
Consumer other:
Payment performance
Performing$15,193 $35,317 $101,730 $69,366 $35,421 $31,327 $9,339 $— $297,693 
Nonperforming39 316 1,511 1,599 1,585 407 4 — 5,461 
Total$15,232 $35,633 $103,241 $70,965 $37,006 $31,734 $9,343 $— $303,154 

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans by past due status at June 30, 2021 and December 31, 2020:
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
June 30, 2021
Construction$— $— $— $— $428,596 $428,596 
Commercial multifamily589 — 364 953 498,438 499,391 
Commercial real estate owner occupied1,569 961 3,963 6,493 551,990 558,483 
Commercial real estate non-owner occupied953 — 18,655 19,608 2,131,000 2,150,608 
Commercial and industrial2,168 3,973 9,515 15,656 1,420,551 1,436,207 
Residential real estate2,762 363 12,008 15,133 1,644,348 1,659,481 
Home equity468 114 2,428 3,010 266,600 269,610 
Consumer other1,300 262 3,801 5,363 224,852 230,215 
Total$9,809 $5,673 $50,734 $66,216 $7,166,375 $7,232,591 
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
December 31, 2020
Construction$— $— $— $— $454,513 $454,513 
Commercial multifamily— — 757 757 482,593 483,350 
Commercial real estate owner occupied809 631 4,894 6,334 546,079 552,413 
Commercial real estate non-owner occupied315 168 38,389 38,872 2,080,391 2,119,263 
Commercial and industrial3,016 3,259 12,982 19,257 1,923,907 1,943,164 
Residential real estate2,068 2,630 11,115 15,813 1,915,868 1,931,681 
Home equity244 284 2,897 3,425 290,556 293,981 
Consumer other2,109 777 5,364 8,250 294,904 303,154 
Total$8,561 $7,749 $76,398 $92,708 $7,988,811 $8,081,519 



29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans on nonaccrual status and loans past due 90 days or more and still accruing as of June 30, 2021 and December 31, 2020:
(In thousands)Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended June 30, 2021
Construction$— $— $— $— 
Commercial multifamily364 199 — — 
Commercial real estate owner occupied3,588 1,781 375 — 
Commercial real estate non-owner occupied18,130 11,451 525 — 
Commercial and industrial9,427 2,507 88 — 
Residential real estate10,011 6,220 1,997 — 
Home equity2,292 92 136 — 
Consumer other3,793 10 8 — 
Total$47,605 $22,260 $3,129 $— 
The commercial and industrial loans nonaccrual amortized cost as of June 30, 2021 included medallion loans with a fair value of $1.3 million and a contractual balance of $39.1 million.
(In thousands) Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended December 31, 2020
Construction$— $— $— $— 
Commercial multifamily757 591 — — 
Commercial real estate owner occupied4,509 2,290 385 — 
Commercial real estate non-owner occupied29,572 13,912 8,817 — 
Commercial and industrial12,441 4,725 541 — 
Residential real estate9,711 5,739 1,404 — 
Home equity2,654 159 243 — 
Consumer other5,304 2 60 — 
Total$64,948 $27,418 $11,450 $— 

The commercial and industrial loans nonaccrual amortized cost as of December 31, 2020 included medallion loans with a fair value of $2.3 million and a contractual balance of $53.9 million.

The following table summarizes information about total loans rated Special Mention or lower at June 30, 2021 and December 31, 2020. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.

(In thousands)June 30, 2021December 31, 2020
Non-Accrual$47,605 $64,948 
Substandard Accruing 147,685 185,207 
Total Classified195,290 250,155 
Special Mention 132,337 109,299 
Total Criticized$327,627 $359,454 


30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of individually analyzed collateral-dependent loans by loan portfolio segment:
Type of Collateral
(In thousands)Real EstateInvestment Securities/CashOther
June 30, 2021
Construction$— $— $— 
Commercial multifamily200 — — 
Commercial real estate owner occupied4,796 — — 
Commercial real estate non-owner occupied20,392 — — 
Commercial and industrial1,633 — 748 
Residential real estate5,632 — — 
Home equity81 — — 
Consumer other31 — — 
Total loans$32,765 $— $748 
December 31, 2020
Construction$— $— $— 
Commercial multifamily591 — — 
Commercial real estate owner occupied5,714 — — 
Commercial real estate non-owner occupied30,950 — — 
Commercial and industrial973 36 3,758 
Commercial and industrial - other— — — 
Residential real estate5,081 — — 
Home equity145 — — 
Consumer other51 — — 
Total loans$43,505 $36 $3,758 



31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.

The following table presents activity in TDRs for the three and six months ended June 30, 2021 and June 30, 2020:
(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Three months ended June 30, 2021
Construction$— $— $— $— $— $— 
Commercial multifamily741 (13)— — — 728 
Commercial real estate owner occupied1,725 (29)— — 1,266 2,962 
Commercial real estate non-owner occupied14,725 (81)— (590)10,434 24,488 
Commercial and industrial2,633 (229)— (37)4,443 6,810 
Residential real estate1,493 (14)— (174)— 1,305 
Home equity130 (3)— — — 127 
Consumer other34 (3)— 6 — 37 
Total$21,481 $(372)$— $(795)$16,143 $36,457 

(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Three months ended June 30, 2020
Construction$— $— $— $— $— $— 
Commercial multifamily779 — — — — 779 
Commercial real estate owner occupied7,638 (9)— (4,710)— 2,919 
Commercial real estate non-owner occupied1,373 — — — 9,793 11,166 
Commercial and industrial2,314 (34)— (2)285 2,563 
Residential real estate2,023 (55)— — — 1,968 
Home equity278 (3)— — — 275 
Consumer other44 (1)— — — 43 
Total$14,449 $(102)$— $(4,712)$10,078 $19,713 

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Six months ended June 30, 2021
Construction$— $— $— $— $— $— 
Commercial multifamily754 (26)— — — 728 
Commercial real estate owner occupied1,731 (35)— — 1,266 2,962 
Commercial real estate non-owner occupied13,684 (95)— (80)10,979 24,488 
Commercial and industrial2,686 (428)— (37)4,589 6,810 
Residential real estate1,524 (46)— (173)— 1,305 
Home equity133 (6)— — — 127 
Consumer other36 (5)— 6 — 37 
Total$20,548 $(641)$— $(284)$16,834 $36,457 

(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Six months ended June 30, 2020
Construction$— $— $— $— $— $— 
Commercial multifamily793 (14)— — — 779 
Commercial real estate owner occupied13,331 (5,702)— (4,710)— 2,919 
Commercial real estate non-owner occupied1,373 — — — 9,793 11,166 
Commercial and industrial1,449 (71)— (2)1,187 2,563 
Residential real estate2,045 (77)— — — 1,968 
Home equity277 (2)— — — 275 
Consumer other48 (5)— — — 43 
Total$19,316 $(5,871)$— $(4,712)$10,980 $19,713 

The following table presents loans modified as TDRs that occurred during the three and six months ended June 30, 2021 and 2020:
(dollars in thousands)Total
Three months ended June 30, 2021
TDR:
Number of loans9 
Pre-modification outstanding recorded investment$16,143 
Post-modification outstanding recorded investment$16,143 
Three months ended June 30, 2020
TDR:
Number of loans2 
Pre-modification outstanding recorded investment$10,078 
Post-modification outstanding recorded investment$10,078 


33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)Total
Six months ended June 30, 2021
TDR:
Number of loans13 
Pre-modification outstanding recorded investment$16,834 
Post-modification outstanding recorded investment$16,834 
Six months ended June 30, 2020
TDR:
Number of loans5 
Pre-modification outstanding recorded investment$10,980 
Post-modification outstanding recorded investment$10,980 

The following table presents loans by portfolio segment modified as TDRs for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2021:
(in thousands)Number of LoansRecorded Investment
Three months ended June 30, 2021
Commercial and industrial1$53 
Total1$53 

(in thousands)Number of LoansRecorded Investment
Six months ended June 30, 2021
Commercial and industrial2$71 
Total2$71 

There were no TDRs for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2020.

Beginning in March 2020, the Company has offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. Refer to Note 10 - Other Commitments, Contingencies, and Off-Balance Sheet Activities for more information regarding these modifications.
34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.               DEPOSITS

A summary of time deposits is as follows:
(In thousands)June 30,
2021		December 31,
2020
Time less than $100,000$607,050 $663,324 
Time $100,000 through $250,000894,706 1,219,210 
Time more than $250,000432,686 502,551 
Total time deposits$1,934,442 $2,385,085 

Included in total deposits are brokered deposits of $358.4 million and $610.6 million at June 30, 2021 and December 31, 2020, respectively. Included in total deposits are reciprocal deposits of $99.6 million and $119.0 million at June 30, 2021 and December 31, 2020, respectively.

NOTE 7.               BORROWED FUNDS

Borrowed funds at June 30, 2021 and December 31, 2020 are summarized, as follows:
 June 30, 2021December 31, 2020
  Weighted Weighted
  Average Average
(Dollars in thousands)PrincipalRatePrincipalRate
Short-term borrowings:    
Advances from the FHLB $— — %$40,000 1.05 %
Total short-term borrowings:— — 40,000 1.05 
Long-term borrowings:    
Advances from the FHLB and other borrowings217,847 1.92 434,357 1.89 
Subordinated borrowings74,500 7.00 74,411 7.00 
Junior subordinated borrowing - Trust I15,464 2.00 15,464 2.06 
Junior subordinated borrowing - Trust II7,432 1.82 7,405 1.92 
Total long-term borrowings:315,243 3.12 531,637 2.61 
Total$315,243 3.12 %$571,637 2.50 %

Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year and a short-term line-of-credit drawdown through a correspondent bank. The Bank also maintains a $3.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was no outstanding balance on the FHLB line of credit for the periods ended June 30, 2021 and December 31, 2020. The Bank's available borrowing capacity with the FHLB was $1.5 billion and $1.6 billion for the periods ended June 30, 2021 and December 31, 2020, respectively.

The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank under this arrangement took place for the periods ended June 30, 2021 and December 31, 2020. As a participant in the SBA Paycheck Protection Program ("PPP"), the Bank may pledge originated loans as collateral at face value to the Federal Reserve Bank of Boston for term financings. As of June 30, 2021 and December 31, 2021, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $550.4 million and $815.6 million for the periods ended June 30, 2021 and December 31, 2020, respectively.


35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term FHLB advances consist of advances with an original maturity of more than one year and are subject to prepayment penalties. The advances outstanding at June 30, 2021 included callable advances totaling $10.0 million and amortizing advances totaling $4.5 million. The advances outstanding at December 31, 2020 included callable advances totaling $10.0 million and amortizing advances totaling $5.2 million. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

A summary of maturities of FHLB advances as of June 30, 2021 is as follows:
 June 30, 2021
  Weighted Average
(In thousands, except rates)PrincipalRate
Fixed rate advances maturing:  
2021$139,993 1.92 %
202258,050 1.92 
202310,401 2.14 
202446 — 
2025 and beyond9,357 1.63 
Total FHLB advances$217,847 1.92 %

The Company did not have variable-rate FHLB advances for the periods ended June 30, 2021 and December 31, 2020.

In September 2012, the Company issued fifteen year subordinated notes in the amount of $75.0 million at a discount of 1.15%. The interest rate is fixed at 6.875% for the first ten years. After ten years, the notes become callable and convert to an interest rate of three-month LIBOR rate plus 5.113%. The subordinated note includes reduction to the note principal balance of $154 thousand and $215 thousand for unamortized debt issuance costs as of June 30, 2021 and December 31, 2020, respectively.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million. The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85% and had a rate of 2.00% and 2.06% at June 30, 2021 and December 31, 2020, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.

The Company holds 100% of the common stock of SI Capital Trust II (“Trust II”) which is included in other assets with a cost of $0.2 million. The sole asset of Trust II is $8.2 million of the Company’s junior subordinated debentures due in 2036. These debentures bear interest at a variable rate equal to LIBOR plus 1.70% and had a rate of 1.82% and 1.92% at June 30, 2021 and December 31, 2020, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust II is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust II is not consolidated into the Company’s financial statements.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of June 30, 2021, the Company held derivatives with a total notional amount of $3.9 billion. The Company had economic hedges totaling $3.9 billion and $19.1 million non-hedging derivatives, which are not designated as hedges for accounting purposes with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling $3.5 billion, risk participation agreements with dealer banks of $0.4 billion, and $3.7 million in forward commitment contracts.

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management and Capital Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at June 30, 2021.

The Company pledged collateral to derivative counterparties in the form of cash totaling $53.9 million and securities with an amortized cost of $35.9 million and a fair value of $36.2 million as of June 30, 2021. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

Information about derivative assets and liabilities at June 30, 2021, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$8,271 8.40.46 %5.09 %$(1,422)
Interest rate swaps on loans with commercial loan customers1,759,309 6.04.08 %1.91 %110,750 
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,759,309 6.01.91 %4.08 %(44,411)
Risk participation agreements with dealer banks353,474 6.9  486 
Forward sale commitments 3,664 0.2  92 
Total economic hedges3,884,027    65,495 
Non-hedging derivatives:     
Commitments to lend 19,142 0.2  261 
Total non-hedging derivatives19,142    261 
Total$3,903,169    $65,756 
(1) Fair value estimates include the impact of $68.1 million settled to market contract agreements.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at December 31, 2020, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$8,654 8.90.52 %5.09 %$(1,778)
Interest rate swaps on loans with commercial loan customers1,734,978 6.14.15 %1.95 %159,016 
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,734,978 6.11.95 %4.15 %(64,645)
Risk participation agreements with dealer banks326,862 8.0  665 
Forward sale commitments 11,544 0.2  320 
Total economic hedges3,817,016    93,578 
Non-hedging derivatives:     
Commitments to lend 40,099 0.2  735 
Total non-hedging derivatives 40,099    735 
Total$3,857,115    $94,313 
(1) Fair value estimates include the impact of $97.6 million settled to market contract agreements.
38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of June 30, 2021, the Company has an interest rate swap with a $8.3 million notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of 5.09%, currently within the Company’s trading portfolio under the fair value option, in exchange for a LIBOR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the 21-year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.

The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. Credit valuation loss adjustments arising from the difference in credit worthiness of the commercial loan and financial institution counterparties totaled $1.2 million as of June 30, 2021. The interest income and expense on these mirror image swaps exactly offset each other.

The Company has risk participation agreements with dealer banks. Risk participation agreements occur when the Company participates on a loan and a swap where another bank is the lead. The Company gets paid a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default. Changes in fair value are recorded in current period earnings.

The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings.

The Company uses the following types of forward sale commitments contracts:
•Best efforts loan sales,
•Mandatory delivery loan sales, and
•To Be Announced (“TBA”) mortgage-backed securities sales.

A best efforts contract refers to a loan sale agreement where the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. The Company may enter into a best efforts contract once the price is known, which is shortly after the potential borrower’s interest rate is locked.

A mandatory delivery contract is a loan sale agreement where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.

The Company may sell TBA mortgage-backed securities to hedge the changes in fair value of interest rate lock commitments and held for sale loans, which do not have corresponding best efforts or mandatory delivery contracts. These security sales transactions are closed once mandatory contracts are written. On the closing date the price of the security is locked-in, and the sale is paired-off with a purchase of the same security. Settlement of the security purchase/sale transaction is done with cash on a net-basis.
39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-hedging derivatives
The Company enters into interest rate lock commitments (“IRLCs”), or commitments to lend, for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in non-interest income in the Company’s consolidated statements of operations. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:
 Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2021202020212020
Economic hedges    
Interest rate swap on industrial revenue bond:    
Unrealized gain/(loss) recognized in other non-interest income$10 $13 $355 $(550)
Interest rate swaps on loans with commercial loan customers:    
Unrealized gain/(loss) recognized in other non-interest income10,516 9,733 (49,785)114,653 
(Unfavorable)/favorable change in credit valuation adjustment recognized in other non-interest income(982)103 1,520 (2,435)
Offsetting interest rate swaps on loans with commercial loan customers:    
Unrealized (loss)/gain recognized in other non-interest income(10,516)(9,733)49,785 (114,653)
Risk participation agreements:    
Unrealized gain/(loss) recognized in other non-interest income150 99 (179)365 
Forward commitments:    
Unrealized (loss)/gain recognized in other non-interest income(234)4,937 (228)674 
Realized (loss) in other non-interest income— (6,408)— (8,330)
Non-hedging derivatives    
Commitments to lend    
Unrealized gain/(loss) recognized in other non-interest income$76 $(3,687)$(474)$(1,479)
Realized gain in other non-interest income457 3,669 1,810 12,970 
40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Subject to Enforceable Master Netting Arrangements
Interest Rate Swap Agreements (“Swap Agreements”)
The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.

The Company had net asset positions with its financial institution counterparties totaling $0.7 million and $1.0 million as of June 30, 2021 and December 31, 2020, respectively. The Company had net asset positions with its commercial banking counterparties totaling $111.6 million and $159.0 million as of June 30, 2021 and December 31, 2020, respectively. The Company had net liability positions with its financial institution counterparties totaling $46.1 million and $66.8 million as of June 30, 2021 and December 31, 2020, respectively. The Company had net liability positions with its commercial banking counterparties totaling $0.8 million as of June 30, 2021. The Company had no net liability positions with its commercial banking counterparties as of December 31, 2020. The Company has collateral pledged to cover this liability.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of June 30, 2021 and December 31, 2020:

Offsetting of Financial Assets and Derivative Assets
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Assets
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)AssetsConditionConditionInstrumentsCollateral ReceivedNet Amount
June 30, 2021      
Interest Rate Swap Agreements:      
Institutional counterparties$780 $(52)$728 $— $— $728 
Commercial counterparties111,597 — 111,597 — — 111,597 
Total$112,377 $(52)$112,325 $— $— $112,325 

Offsetting of Financial Liabilities and Derivative Liabilities
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Liabilities
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)LiabilitiesConditionConditionInstrumentsCollateral PledgedNet Amount
June 30, 2021      
Interest Rate Swap Agreements:      
Institutional counterparties$(115,134)$69,060 $(46,074)$36,158 $53,882 $43,966 
Commercial counterparties(846)— (846)— — (846)
Total$(115,980)$69,060 $(46,920)$36,158 $53,882 $43,120 
41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Offsetting of Financial Assets and Derivative Assets
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Assets
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)AssetsConditionConditionInstrumentsCollateral ReceivedNet Amount
December 31, 2020      
Interest Rate Swap Agreements:      
Institutional counterparties$1,124 $(78)$1,046 $— $— $1,046 
Commercial counterparties159,016 — 159,016 — — 159,016 
Total$160,140 $(78)$160,062 $— $— $160,062 

Offsetting of Financial Liabilities and Derivative Liabilities
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Liabilities
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)LiabilitiesConditionConditionInstrumentsCollateral PledgedNet Amount
December 31, 2020      
Interest Rate Swap Agreements:      
Institutional counterparties$(164,543)$97,740 $(66,803)$37,815 $75,070 $46,082 
Commercial counterparties— — — — — — 
Total$(164,543)$97,740 $(66,803)$37,815 $75,070 $46,082 
42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LEASES

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space. Most of the Company’s leases are classified as operating leases. At June 30, 2021, lease expiration dates ranged from 1 month to 19 years.

The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:
(In thousands)June 30, 2021December 31, 2020
Lease Right-of-Use AssetsClassification
Operating lease right-of-use assets Other assets$55,327 $60,018 
Finance lease right-of-use assetsPremises and equipment, net6,936 7,197 
Total Lease Right-of-Use Assets$62,263 $67,215 
Lease Liabilities
Operating lease liabilitiesOther liabilities$61,168 $63,894 
Finance lease liabilitiesOther liabilities10,127 10,383 
Total Lease Liabilities$71,295 $74,277 

Supplemental information related to leases was as follows:
June 30, 2021December 31, 2020
Weighted-Average Remaining Lease Term (in years)
Operating leases9.99.8
Finance leases13.313.8
Weighted-Average Discount Rate
Operating leases2.80 %2.81 %
Finance leases5.00 %5.00 %

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.

The Company does not have any material sub-lease agreements.

Lease expense for operating leases for the three months ended June 30, 2021 was $2.9 million. Lease expense for operating leases for the six months ended June 30, 2021 was $5.7 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

Lease expense for operating leases for the three months ended June 30, 2020 was $3.3 million, of which $0.3 million was related to discontinued operations. Lease expense for operating leases for the six months ended June 30, 2020 was $6.8 million, of which $0.7 million was related to discontinued operations.Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.


43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:
Three Months Ended
(In thousands)June 30, 2021June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)
$2,668 $3,423 
Operating cash flows from finance leases126 133 
Financing cash flows from finance leases131 125 
(1) There were operating cash flows from operating leases related to discontinued operations of $0.3 million at June 30, 2020.

Six Months Ended
(In thousands)June 30, 2021June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)
$5,911 $7,050 
Operating cash flows from finance leases253 267 
Financing cash flows from finance leases263 249 
(1) There were operating cash flows from operating leases related to discontinued operations of $0.7 million at June 30, 2020.

The following table presents a maturity analysis of the Company’s lease liability by lease classification at June 30, 2021:
(In thousands)Operating LeasesFinance Leases
2021$5,093 $514 
20229,838 1,031 
20238,650 1,037 
20247,607 1,037 
20255,920 1,037 
Thereafter33,569 9,223 
Total undiscounted lease payments 70,677 13,879 
Less amounts representing interest (9,509)(3,752)
Lease liability $61,168 $10,127 
44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. OTHER COMMITMENTS, CONTINGENCIES, OFF-BALANCE SHEET ACTIVITIES, AND PANDEMIC IMPACT

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in China and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The impact of the COVID-19 pandemic is fluid and continues to evolve, which is adversely affecting some of the Company’s clients. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets and has had an adverse effect on the Company’s business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets, and our clients, employees, and vendors.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Company’s borrowers to repay their loans, the value of collateral underlying the Company’s secured loans, and demand for loans and other products and services the Company offers, which are highly dependent on the business environment in the Company’s primary markets where it operates and in the United States as a whole.

At this time, it is difficult to quantify the impact COVID-19 will continue to have on the Company during the current year. These circumstances could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, results of operations and prospects. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, lease right-of-use assets, or counter-party risk derivatives.

Beginning in March 2020, the Company has offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. As of June 30, 2021, the Company had 71 active modified loans outstanding with a carrying value of $98 million, which excluded loans returning to payment or awaiting evaluation for further deferral. As of December 31, 2020, the Company had 746 active modified loans outstanding with a carrying value of $316 million, which excluded loans returning to payment or awaiting evaluation for further deferral. The Company continues to accrue interest on these loans during the deferral period. In accordance with interagency guidance issued in March 2020 and Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty. In addition, the risk-ratings on COVID-19 modified loans did not automatically change as a result of payment deferrals, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume.
45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11.           CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:
June 30,
2021		December 31,
2020
Minimum Capital Requirement
Company (consolidated)  
Total capital to risk weighted assets16.7 %16.1 %8.0 %
Common equity tier 1 capital to risk weighted assets14.3 13.8 4.5 
Tier 1 capital to risk weighted assets14.6 14.1 6.0 
Tier 1 capital to average assets9.5 9.4 4.0 
June 30,
2021		December 31,
2020		Regulatory Minimum to be Adequately CapitalizedRegulatory
Minimum to be
Well Capitalized
Bank
Total capital to risk weighted assets15.0 %15.0 %8.0 %10.0 %
Common equity tier 1 capital to risk weighted assets13.8 13.9 4.5 6.5 
Tier 1 capital to risk weighted assets13.8 13.9 6.0 8.0 
Tier 1 capital to average assets8.9 9.2 4.0 5.0 

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Failure to meet capital requirements can initiate regulatory action. At each date shown, the Company met the minimum capital requirements and the Bank met the conditions to be classified as “well capitalized” under the relevant regulatory framework. 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 table above.

Effective January 1, 2015, the Company and the Bank became subject to the Basel III rule that requires the Company and the Bank to assess their Common equity Tier 1 capital to risk weighted assets. The Bank's Common equity Tier 1 capital to risk weighted assets exceeds the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of Common equity Tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the Common equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio, and the Total risk-based capital ratio. As of January 1, 2019, banking organizations must maintain a minimum Common equity Tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5%, and a minimum Total risk-based capital ratio of 10.5%. The final capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum capital conservation buffer is not met.

At June 30, 2021, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at June 30, 2021 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.
46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive income
Components of accumulated other comprehensive income is as follows:
(In thousands)June 30,
2021		December 31,
2020
Other accumulated comprehensive income, before tax:  
Net unrealized holding gain on AFS securities$23,369 $44,988 
Net unrealized holding (loss) on pension plans(3,511)(3,511)
Income taxes related to items of accumulated other comprehensive income:  
Net unrealized tax (expense) on AFS securities(6,010)(11,530)
Net unrealized tax benefit on pension plans924 924 
Accumulated other comprehensive income$14,772 $30,871 

The following table presents the components of other comprehensive income for the three and six months ended June 30, 2021 and 2020:
(In thousands)Before TaxTax EffectNet of Tax
Three Months Ended June 30, 2021
   
Net unrealized holding gain on AFS securities:x 
Net unrealized gains arising during the period$5,394 $(1,343)$4,051 
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding gain on AFS securities5,394 (1,343)4,051 
Other comprehensive income$5,394 $(1,343)$4,051 
Three Months Ended June 30, 2020
   
Net unrealized holding gain on AFS securities:  
Net unrealized gains arising during the period$3,000 $(777)$2,223 
Less: reclassification adjustment for gains realized in net income1 — 1 
Net unrealized holding gain on AFS securities2,999 (777)2,222 
Other comprehensive income$2,999 $(777)$2,222 
(In thousands)Before TaxTax EffectNet of Tax
Six Months Ended June 30, 2021
   
Net unrealized holding gain on AFS securities:x 
Net unrealized (losses) arising during the period$(21,619)$5,520 $(16,099)
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding (loss) on AFS securities(21,619)5,520 (16,099)
Other comprehensive (loss)$(21,619)$5,520 $(16,099)
Six Months Ended June 30, 2020
   
Net unrealized holding gain on AFS securities:  
Net unrealized gains arising during the period$28,613 $(7,368)$21,245 
Less: reclassification adjustment for (losses) realized in net income(1)— (1)
Net unrealized holding gain on AFS securities28,614 (7,368)21,246 
Other comprehensive income$28,614 $(7,368)$21,246 

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive income, for the three and six months ended June 30, 2021 and 2020:
(In thousands)Net unrealized
holding loss
on AFS Securities		Net unrealized
holding loss
on pension plans		Total
Three Months Ended June 30, 2021   
Balance at Beginning of Period$13,308 $(2,587)$10,721 
Other comprehensive income before reclassifications4,051 — 4,051 
Less: amounts reclassified from accumulated other comprehensive income — — — 
Total other comprehensive income4,051 — 4,051 
Balance at End of Period$17,359 $(2,587)$14,772 
Three Months Ended June 30, 2020   
Balance at Beginning of Period$33,228 $(2,211)$31,017 
Other comprehensive income before reclassifications2,223 — 2,223 
Less: amounts reclassified from accumulated other comprehensive income 1 — 1 
Total other comprehensive income2,222 — 2,222 
Balance at End of Period$35,450 $(2,211)$33,239 
Six Months Ended June 30, 2021   
Balance at Beginning of Period$33,458 $(2,587)$30,871 
Other comprehensive income before reclassifications(16,099)— (16,099)
Less: amounts reclassified from accumulated other comprehensive (loss)— — — 
Total other comprehensive (loss)(16,099)— (16,099)
Balance at End of Period$17,359 $(2,587)$14,772 
Six Months Ended June 30, 2020   
Balance at Beginning of Period$14,204 $(2,211)$11,993 
Other comprehensive income before reclassifications21,245 — 21,245 
Less: amounts reclassified from accumulated other comprehensive income(1)— (1)
Total other comprehensive income21,246 — 21,246 
Balance at End of Period$35,450 $(2,211)$33,239 

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amounts reclassified out of each component of accumulated other comprehensive income for the three and six months ended June 30, 2021 and 2020:
   Affected Line Item in the
 Three Months Ended June 30,Statement where Net Income
(In thousands)20212020is Presented
Realized gains on AFS securities:  
 $— $1 Non-interest income
 — — Tax expense
 — 1 Net of tax
   
Total reclassifications for the period$— $1 Net of tax

   Affected Line Item in the
 Six Months Ended June 30,Statement where Net Income
(In thousands)20212020is Presented
Realized gains on AFS securities:  
 $— $(1)Non-interest income
 — — Tax expense
 — (1)Net of tax
   
Total reclassifications for the period$— $(1)Net of tax


49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. EARNINGS/(LOSS) PER SHARE

Earnings/(loss) per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
 Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2021202020212020
Income/(loss) from continuing operations$21,636 $(543,045)$34,667 $(555,117)
(Loss) from discontinued operations— (6,336)— (14,134)
Net income/(loss)$21,636 $(549,381)$34,667 $(569,251)
Average number of common shares issued51,903 51,903 51,903 51,903 
Less: average number of treasury shares822 1,718 885 1,731 
Less: average number of unvested stock award shares760 461 691 472 
Plus: average participating preferred shares— 522 — 528 
Average number of basic shares outstanding50,321 50,246 50,327 50,228 
Plus: dilutive effect of unvested stock award shares280 — 257 — 
Plus: dilutive effect of stock options outstanding7 — 4 — 
Average number of diluted shares outstanding50,608 50,246 50,588 50,228 
Basic earnings/(loss) per common share:  
Continuing operations$0.43 $(10.80)$0.69 $(11.05)
Discontinued operations— (0.13)— (0.28)
Total$0.43 $(10.93)$0.69 $(11.33)
Diluted earnings/(loss) per common share:
Continuing operations$0.43 $(10.80)$0.69 $(11.05)
Discontinued operations— (0.13)— (0.28)
Total$0.43 $(10.93)$0.69 $(11.33)

For the three months ended June 30, 2021, 480 thousand shares of unvested restricted stock and 96 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the six months ended June 30, 2021, 434 thousand shares of unvested restricted stock and 94 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three and six months ended June 30, 2020, all unvested restricted stock and options outstanding were considered anti-dilutive and therefore excluded from the earnings per share calculation.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the six months ended June 30, 2021 is presented in the following table:
 Non-Vested Stock Awards OutstandingStock Options Outstanding
(Shares in thousands)Number of SharesWeighted-Average Grant Date Fair ValueNumber of SharesWeighted-Average Exercise Price
December 31, 2020517 $28.35 112 $22.95 
Granted439 19.61 — — 
Acquired— — — — 
Stock options exercised— — (7)16.67 
Stock awards vested(79)33.61 — — 
Forfeited(62)25.19 — — 
Expired— — (10)17.46 
June 30, 2021815 $20.02 95 $24.88 

During the three and six months ended June 30, 2021, proceeds from stock option exercises totaled $55 thousand and $124 thousand, respectively. During the three and six months ended June 30, 2020, proceeds from stock option exercises totaled $87 thousand and $607 thousand, respectively. During the three and six months ended June 30, 2021, there were 35 thousand and 79 thousand shares vested in connection with stock awards, respectively. During the three and six months ended June 30, 2020, there were 44 thousand and 97 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $1.6 million and $1.4 million during the three months ended June 30, 2021 and 2020, respectively. Stock-based compensation expense totaled $2.3 and $2.8 million during the six months ended June 30, 2021 and 2020, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
 June 30, 2021
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading security$— $— $8,853 $8,853 
Securities available for sale: 
Municipal bonds and obligations— 85,641 — 85,641 
Agency collateralized mortgage obligations— 765,099 — 765,099 
Agency residential mortgage-backed securities— 425,042 — 425,042 
Agency commercial mortgage-backed securities— 262,619 — 262,619 
Corporate bonds— 51,157 — 51,157 
Other bonds and obligations— 50,954 — 50,954 
Marketable equity securities15,037 672 — 15,709 
Loans held for investment at fair value— — 1,260 1,260 
Loans held for sale — 4,334 — 4,334 
Derivative assets — 112,508 353 112,861 
Capitalized servicing rights — — 2,356 2,356 
Derivative liabilities — 47,105 — 47,105 
 December 31, 2020
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading security$— $— $9,708 $9,708 
Securities available for sale:
Municipal bonds and obligations— 97,803 — 97,803 
Agency collateralized mortgage obligations— 756,826 — 756,826 
Agency residential mortgage-backed securities— 438,132 — 438,132 
Agency commercial mortgage-backed securities— 288,650 — 288,650 
Corporate bonds— 45,030 15,000 60,030 
Other bonds and obligations— 53,791 — 53,791 
Marketable equity securities17,841 672 — 18,513 
Loans held for investment at fair value— — 2,265 2,265 
Loans held for sale — 12,992 4,756 17,748 
Derivative assets — 159,016 1,055 160,071 
Capitalized servicing rights — — 3,033 3,033 
Derivative liabilities — 65,758 — 65,758 
 

There were no transfers between levels during the three months ended June 30, 2021.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trading Security at Fair Value. The Company holds one security designated as a trading security. It is a tax-advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The fair value of this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.

Securities Available for Sale and Marketable Equity Securities. Marketable equity securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. Marketable equity securities classified as Level 2 consist of securities with infrequent trades in active exchange markets, and pricing is primarily sourced from third party pricing services. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. Level 3 pricing includes inputs unobservable to market participants.

Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing an $11.2 million fair value write-down charged to Retained Earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of June 30, 2021.
   Aggregate Fair Value
June 30, 2021AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$1,260 $39,101 $(37,841)

   Aggregate Fair Value
December 31, 2020AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$2,265 $53,945 $(51,680)

Loans Held for Sale. The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
   Aggregate Fair Value
June 30, 2021AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale$4,334 $4,215 $119 
   Aggregate Fair Value
December 31, 2020AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale $12,992 $12,639 $353 
53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in fair value of loans held for sale for the three and six months ended June 30, 2021, were losses of $240 thousand and $234 thousand, respectively. During the three and six months ended June 30, 2021, originations of loans held for sale totaled $16.3 million and $60.4 million and sales of loans originated for sale totaled $20.3 million and $68.3 million respectively.

The changes in fair value of loans held for sale for the three months ended June 30, 2020, were gains of $341 thousand from continuing operations and losses of $4.5 million from discontinued operations. During the three months ended June 30, 2020, originations of loans held for sale from continuing operations totaled $62.3 million and sales of loans originated for sale from continuing operations totaled $47.5 million.

Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments are classified as Level 3 measurements.

Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To Be Announced (“TBA”) mortgage-backed securities forward commitment sales are used as the hedging instrument, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.

Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and six months ended June 30, 2021 and 2020.
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securityfor SaleInvestmentto LendCommitments Rights
Three Months Ended June 30, 2021
March 31, 2021$9,350 $— $1,448 $185 $326 $2,968 
Unrealized (loss)/gain, net recognized in other non-interest income(305)— 187 430 (234)(612)
Paydown of asset(192)— (375)— — — 
Transfers to held for sale loans— — — (354)— — 
June 30, 2021$8,853 $— $1,260 $261 $92 $2,356 
Six Months Ended June 30, 2021
December 31, 2020$9,708 $15,000 $2,265 $735 $320 $3,033 
Maturity of AFS security— (15,000)— — — — 
Unrealized (loss)/gain, net recognized in other non-interest income(471)— 601 — (228)— 
Unrealized gain/(loss), net recognized in discontinued operations— — — 1,248 — (677)
Paydown of asset(384)— (1,606)— — — 
Transfers to held for sale loans— — — (1,722)— — 
June 30, 2021$8,853 $— $1,260 $261 $92 $2,356 
Unrealized gain/(loss) relating to instruments still held at June 30, 2021$581 $— $— $261 $92 $— 
55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securityfor SaleInvestmentto Lend (1)Commitments (1)Rights (1)
Three Months Ended June 30, 2020    
March 31, 2020$9,829 $34,504 $4,895 $4,836 $— $8,518 
Adoption of ASC 326— — — — — — 
Maturity of AFS security— (8,000)— — — — 
Unrealized gain, net recognized in other non-interest income(128)— (1,496)— 447 — 
Unrealized gain included in accumulated other comprehensive loss— (904)— — — — 
Unrealized gain/(loss), net recognized in discontinued operations— — — 2,714 — (3,690)
Paydown of asset(182)— (259)— — — 
Transfers to held for sale loans— — — (6,401)— — 
Additions to servicing rights— — — — — — 
June 30, 2020$9,519 $25,600 $3,140 $1,149 $447 $4,828 
Six Months Ended June 30, 2020    
December 31, 2020$10,769 $42,966 $— $2,628 $— $12,299 
Adoption of ASC 326— — 7,660 — — 
Sale of AFS security— (17,000)— — — — 
Unrealized gain, net recognized in other non-interest income(887)— (3,712)— 447 — 
Unrealized (loss) included in accumulated other comprehensive income— (366)— — — — 
Unrealized gain/(loss), net recognized in discontinued operations— — — 13,753 — (7,471)
Transfers to Level 2— — — — — — 
Paydown of trading security(363)— (808)— — — 
Transfers to held for sale loans— — — (15,232)— — 
Additions to servicing rights— $— — — — — 
June 30, 2020$9,519 $25,600 $3,140 $1,149 $447 $4,828 
Unrealized gains relating to instruments still held at June 30,2020$491 $(850)$— $1,149 $447 $— 
(1) Classified as assets from discontinued operations on the consolidated balance sheets.
















56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:
 Fair Value  Significant
Unobservable Input
(In thousands)June 30, 2021Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading security$8,853 Discounted Cash FlowDiscount Rate3.38 %
Loan held for investment1,260 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$6.7 - $18.3
Commitments to lend 261 Historical TrendClosing Ratio79.15 %
  Pricing ModelOrigination Costs, per loan$3 
Forward commitments 92 Historical TrendClosing Ratio79.15 %
  Pricing ModelOrigination Costs, per loan$3 
Capitalized servicing rights 2,356 Discounted cash flowConstant Prepayment Rate (CPR)23.87 %
Discount Rate9.50 %
Total$12,822    

 Fair Value  Significant
Unobservable Input
(In thousands)December 31, 2020Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading security$9,708 Discounted Cash FlowDiscount Rate2.72 %
AFS Securities15,000 Indication from Market MakerPrice102.00 %
Loans held for investment2,265 Discounted Cash FlowDiscount Rate30.00 %
Collateral Value
$8.1- $21.9
Commitments to lend 735 Historical TrendClosing Ratio74.54 %
  Pricing ModelOrigination Costs, per loan$3 
Forward commitments 320 Historical TrendClosing Ratio74.54 %
  Pricing ModelOrigination Costs, per loan$3 
Capitalized servicing rights3,033 Discounted Cash FlowConstant Prepayment Rate (CPR)26.52 %
Discount Rate10.00 %
Total$31,061    
57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.
 June 30, 2021December 31, 2020Fair Value Measurement Date as of June 30, 2021
 Level 3Level 3Level 3
(In thousands)InputsInputsInputs
Assets  
Individually evaluated$21,135 $28,028 June 2021
Capitalized servicing rights13,835 13,315 June 2021
Other real estate owned85 149 June 2021
Total$35,055 $41,492 

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
 Fair Value   
(In thousands)June 30, 2021Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$21,135 Fair Value of CollateralDiscounted Cash Flow - Loss Severity
1.39% to 100.00% (57.51%)
   Appraised Value
$0 to $11,810 ($8,089)
Capitalized servicing rights13,835 Discounted Cash FlowConstant Prepayment Rate (CPR)
7.69% to 18.25% (14.57%)
   Discount Rate
9.06% to 10.50% (9.34%)
Other Real Estate Owned85 Fair Value of CollateralAppraised Value
 $120
Total$35,055    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
 Fair Value   
(In thousands)December 31, 2020Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$28,028 Fair Value of CollateralDiscounted Cash Flow - loss severity
0.07% to 100.00% (46.36%)
   Appraised Value
$0 to $11,432 ($9,800)
Capitalized servicing rights13,315 Discounted Cash FlowConstant Prepayment Rate (CPR)
14.49% to 23.29% (16.98%)
   Discount Rate
10.00% to 11.00% (10.56%)
Other Real Estate Owned149 Fair Value of CollateralAppraised Value
$94 - $182
Total$41,492    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended June 30, 2021 and December 31, 2020.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. 

Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 June 30, 2021
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$1,826,681 $1,826,681 $1,826,681 $— $— 
Trading security8,853 8,853 — — 8,853 
Marketable equity securities15,709 15,709 15,037 672 — 
Securities available for sale 1,640,512 1,640,512 — 1,640,512 — 
Securities held to maturity665,786 685,370 — 682,288 3,082 
FHLB bank stock and restricted securities19,638 N/AN/AN/AN/A
Net loans7,113,547 7,333,820 — — 7,333,820 
Loans held for sale 6,494 6,494 — 4,334 2,160 
Accrued interest receivable41,152 41,152 — 41,152 — 
Derivative assets 112,861 112,861 — 112,508 353 
Financial Liabilities     
Total deposits$9,913,900 $9,923,159 $— $9,923,159 $— 
Short-term debt— — — — — 
Long-term Federal Home Loan Bank advances and other217,847 218,953 — 218,953 — 
Subordinated borrowings97,396 95,906 — 95,906 — 
Derivative liabilities 47,105 47,105 — 47,105 — 
 December 31, 2020
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$1,557,875 $1,557,875 $1,557,875 $— $— 
Trading security9,708 9,708 — — 9,708 
Marketable equity securities18,513 18,513 17,841 672 — 
Securities available for sale and other1,695,232 1,695,232 — 1,680,232 15,000 
Securities held to maturity465,091 491,855 — 488,393 3,462 
FHLB bank stock and restricted securities34,873 N/AN/AN/AN/A
Net loans7,954,217 8,243,437 — — 8,243,437 
Loans held for sale 17,748 17,748 — 12,992 4,756 
Accrued interest receivable46,919 46,919 — 46,919 — 
Derivative assets 160,071 160,071 — 159,016 1,055 
Assets held for sale317,304 317,304 — 16,705 300,599 
Financial Liabilities     
Total deposits$10,215,808 $10,230,822 $— $10,230,822 $— 
Short-term debt40,000 40,025 — 40,025 — 
Long-term Federal Home Loan Bank advances434,357 438,064 — 438,064 — 
Subordinated borrowings97,280 95,178 — 95,178 — 
Derivative liabilities 65,758 65,758 — 65,758 — 
Liabilities held for sale630,065 631,268 — 631,268 — 
60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

Presented below is net interest income after provision for credit losses for the three and six months ended June 30, 2021 and 2020, respectively.
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2021202020212020
Net interest income from continuing operations$75,393 $77,590 $150,486 $164,018 
Provision for credit losses— 29,871 6,500 64,678 
Net interest income from continuing operations after provision for credit losses$75,393 $47,719 $143,986 $99,340 
61
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL DATA
The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Forms 10-Q. Stock price information is for Berkshire’s common shares traded on the New York Stock exchange under the symbol “BHLB”.
At or for theAt or for the
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
NOMINAL AND PER SHARE DATA    
Net earnings/(loss) per common share, diluted$0.43 $(10.93)$0.69 $(11.33)
Adjusted earnings/(loss) per common share, diluted (1)(2)
0.44 (0.13)0.75 (0.20)
Net income/(loss), (thousands)21,636 (549,381)34,667 (569,251)
Adjusted net income/(loss), (thousands) (1)(2)
22,104 (6,464)38,119 (10,109)
Total common shares outstanding, (thousands) 50,453 50,192 50,453 50,192 
Average diluted shares, (thousands)50,608 50,246 50,588 50,228 
Total book value per common share23.30 22.79 23.33 22.79 
Tangible book value per common share (2)
22.66 21.94 22.66 21.94 
Dividends per common share0.12 0.24 0.24 0.48 
Full-time equivalent staff, continuing operations1,417 1,511 1,417 1,511 
PERFORMANCE RATIOS (3)
Return on equity7.37 %(131.17)%5.95 %(66.79)%
Adjusted return on equity (1)(2)
7.53 (1.54)6.54 (1.19)
Return on tangible common equity (1)(2)
7.92 (206.08)6.46 (104.08)
Adjusted return on tangible common equity (1)(2)
8.08 (2.05)7.07 (1.48)
Return on assets0.70 (16.38)0.56 (8.67)
Adjusted return on assets (1)(2)
0.71 (0.19)0.61 (0.15)
Net interest margin, fully taxable equivalent (FTE) (4)(6)
2.62 2.62 2.62 2.82 
Efficiency ratio (1)(2)
67.82 71.01 69.60 69.89 
FINANCIAL DATA (in millions, end of period)
Total assets$12,273 $13,063 $12,273 $13,063 
Total earning assets11,571 12,267 11,571 12,267 
Total loans7,233 9,370 7,233 9,370 
Total deposits9,914 10,776 9,914 10,776 
Loans/deposits (%)
73 %87 %73 %87 %
ASSET QUALITY (5)
    
Allowance for credit losses, (millions)$119 $139 $119 $139 
Net charge-offs, (millions)(5)(4)(15)(14)
Net charge-offs (QTD annualized)/average loans0.26 %0.17 %0.39 %0.31 %
Provision expense, (millions)$— $35 $7 $65 
Non-performing assets, (millions)49 47 49 47 
Non-performing loans/total loans0.66 %0.48 %0.66 %0.48 %
Allowance for credit losses/non-performing loans250 311 250 311 
Allowance for credit losses/total loans1.65 1.49 1.65 1.49 
CAPITAL RATIOS
Common equity tier 1 capital to risk weighted assets14.3 %12.7 %14.3 %12.7 %
Tier 1 capital leverage ratio9.5 8.6 9.5 8.6 
Tangible common shareholders' equity/tangible assets (2)
9.3 8.5 9.3 8.5 
62
At or for theAt or for the
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
FOR THE PERIOD: (In thousands)
    
Net interest income from continuing operations$75,393 $77,590 $150,486 $164,018 
Non-interest income from continuing operations22,011 17,381 48,204 23,017 
Net revenue from continuing operations97,404 94,971 198,690 187,035 
Provision for credit losses— 29,871 6,500 64,678 
Non-interest expense from continuing operations68,872 624,275 147,026 695,600 
Net income/(loss)21,636 (549,381)34,667 (569,251)
Adjusted income (1)(2)
22,104 (6,464)38,116 (10,109)
____________________________________________________________________________________________
(1)  Adjusted measurements are non-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions and restructuring activities. Refer to the Reconciliation of non-GAAP Financial Measures for additional information.
(2)     Non-GAAP financial measure. Refer to the Reconciliation of non-GAAP Financial Measures for additional information.
(3)  All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
(4) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.
(5)    The effect of purchase accounting accretion for loans, time deposits, and borrowings on the net interest margin was an increase in all periods presented. The increase for the three months ended June 30, 2021 and 2020 was 0.08% and 0.07%, respectively. The increase for the six months ended June 30, 2021 and 2020 was 0.06% and 0.09%, respectively.
63
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included:
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
(Dollars in millions)Average
Balance		Yield/Rate
(FTE basis)		Average
Balance		Yield/Rate
(FTE basis)		Average
Balance		Yield/Rate
(FTE basis)		Average
Balance		Yield/Rate
(FTE basis)
Assets
Loans:    
Commercial real estate$3,625 3.46 %$4,005 3.78 %$3,628 3.37 %$4,003 4.09 %
Commercial and industrial loans1,605 4.74 2,153 4.02 1,735 4.68 1,974 4.52 
Residential mortgages1,604 3.79 2,453 3.78 1,672 3.75 2,553 3.77 
Consumer loans582 3.80 865 3.72 608 3.80 894 4.00 
Total loans (1)
7,416 3.84 9,476 3.83 7,643 3.78 9,424 4.08 
Investment securities (2)
2,259 2.17 1,793 3.07 2,227 2.27 1,769 3.20 
Short-term investments & loans held for sale (3)
1,750 0.10 697 0.50 1,551 0.11 574 1.14 
Mid-Atlantic region loans held for sale(4)
269 3.96 — — 282 4.03 — — 
Total interest-earning assets11,694 2.96 11,966 3.50 11,703 3.01 11,767 3.79 
Intangible assets33 X591  33 594 
Other non-interest earning assets690  752  707 708 
Assets from discontinued operations— 110 — 104 
Total assets$12,417  $13,419  $12,443 $13,173 
Liabilities and shareholders’ equity
Deposits:    
NOW and other$1,389 0.07 %$1,184 0.30 %$1,357 0.11 %$1,172 0.38 %
Money market2,751 0.18 2,672 0.58 2,776 0.23 2,712 0.78 
Savings1,054 0.05 901 0.10 1,029 0.06 874 0.12 
Time2,013 0.94 3,399 1.84 2,140 1.03 3,366 1.86 
Total interest-bearing deposits7,207 0.35 8,156 1.01 7,302 0.42 8,124 1.10 
Borrowings and notes (5)
381 3.12 942 2.38 441 2.95 946 2.49 
Mid-Atlantic region interest-bearing deposits(4)
517 0.51 — — 517 0.56 — — 
Total interest-bearing liabilities8,105 0.49 9,098 1.16 8,260 0.56 9,070 1.24 
Non-interest-bearing demand deposits2,787  2,343  2,662 2,096 
Other non-interest earning liabilities351  274  355 276 
Liabilities from discontinued operations— 29 — 27 
Total liabilities11,243  11,744  11,277 11,469 
Total preferred shareholders' equity— 20 — 20 
Total common shareholders' equity1,174 1,655 1,166 1,684 
Total shareholders’ equity (2)
1,174  1,675  1,166 1,704 
Total liabilities and stockholders’ equity$12,417  $13,419  $12,443 $13,173 
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Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Average
Balance		Yield/Rate
(FTE basis)		Average
Balance		Yield/Rate
(FTE basis)		Average BalanceYield/Rate (FTE basis)Average BalanceYield/Rate (FTE basis)
Net interest spread2.47 % 2.34 %2.45 %2.54 %
Net interest margin (6)
2.62  2.62 2.62 2.83 
Cost of funds0.36  0.92 0.42 1.01 
Cost of deposits0.25  0.79 0.31 0.88 
Supplementary data  
Total deposits (In millions)$9,994 $10,500  $9,964 $10,220 
Fully taxable equivalent income adj. (In thousands) (7)
1,660 1,580  3,154 3,404 
____________________________________
(1)     The average balances of loans include nonaccrual loans and deferred fees and costs.
(2)     The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.
(3)     Interest income on loans held for sale is included in loan interest income on the income statement.
(4)    The Mid-Atlantic region loans are not included in the loan yields; however they are included in the total earning assets yield and the net interest margin. The Mid-Atlantic region deposits are not included in the deposit costs; however, they are included in the total interest-bearing liabilities cost and the net interest margin.
(5)     The average balances of borrowings includes the capital lease obligation presented under other liabilities on the consolidated balance sheet.
(6)     Purchase accounting accretion totaled $2.2 and $2.1 million for the three months ended June 30, 2021 and 2020, respectively. Purchase accounting accretion totaled $3.5 and $5.2 million for the six months ended June 30, 2021 and 2020, respectively.
(7)    Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.
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NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP adjusted earnings information set forth is not necessarily comparable to non- GAAP information which may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information.

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations. These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations. Discontinued operations are the Company’s national mortgage banking operations for which the Company is pursuing sale opportunities. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees. Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales. Restructuring costs also include severance and consulting expenses related to the Company’s strategic review.

The Company also calculates adjusted earnings per share based on its measure of adjusted earnings and diluted common shares. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s performance. Management believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items recorded for the periods indicated:
  At or for the Three Months Ended June 30,At or for the Six Months Ended June 30,
(In thousands) 2021202020212020
GAAP Net income/(loss)  $21,636 $(549,381)$34,667 $(569,251)
Adj: Net losses/(gains) on securities (1)
 484 (822)515 8,908 
Adj: Goodwill impairment— 553,762 — 553,762 
Adj: Restructuring and other expense 6 — 3,492 — 
Adj: Loss/(income) from discontinued operations before income taxes— 8,635 — 19,264 
Adj: Income taxes (22)(18,658)(555)(22,792)
Total adjusted income/(loss) (non-GAAP) (2)
(A)$22,104 $(6,464)$38,119 $(10,109)
GAAP Total revenue  $97,404 $94,971 $198,690 $187,035 
Adj: Losses/(gains) on securities, net (1)
 484 (822)515 8,908 
Total operating revenue (non-GAAP) (2)
(B)$97,888 $94,149 $199,205 $195,943 
GAAP Total non-interest expense $68,872 $624,275 $147,026 $695,600 
Less: Total non-operating expense (see above) (6)— (3,492)— 
Less: Goodwill impairment— (553,762)— (553,762)
Operating non-interest expense (non-GAAP) (2)
(C)$68,866 $70,513 $143,534 $141,838 
(In millions, except per share data)    
Total average assets(D)$12,417 $13,419 $12,442 $13,173 
Total average shareholders’ equity(E)1,174 1,675 1,166 1,705 
Total average tangible shareholders’ equity (2)
(F)1,141 1,085 1,133 1,110 
Total average tangible common shareholders' equity (2)
(G)1,141 1,064 1,133 1,090 
Total tangible shareholders’ equity, period-end (2)(3)
(H)1,143 1,122 1,143 1,122 
Total tangible common shareholders' equity, period-end (2)(3)
(I)1,143 1,101 1,143 1,101 
Total tangible assets, period-end (2)(3)
(J)12,241 13,021 12,241 13,021 
Total common shares outstanding, period-end (thousands)(K)50,453 50,192 50,453 50,192 
Average diluted shares outstanding (thousands)(L)50,608 50,246 50,588 50,228 
Earnings per common share, diluted$0.43 $(10.93)$0.69 $(11.33)
Adjusted earnings per common share, diluted (2)
(A/L)0.44 (0.13)0.75 (0.20)
Book value per common share, period-end23.30 22.79 23.30 22.79 
Tangible book value per common share, period-end (2)
(I/K)22.66 21.94 22.66 21.94 
Total shareholders' equity/total assets9.57 8.91 9.57 8.91 
Total tangible shareholder's equity/total tangible assets (2)
(H/J)9.34 8.61 9.34 8.61 
Performance ratios (4)
    
GAAP return on equity7.37 %(131.17)%5.95 %(66.79)%
Adjusted return on equity (2)
(A/E)7.53 (1.54)6.54 (1.19)
Return on tangible common equity (2)(5)
7.92 (206.08)6.46 (104.08)
Adjusted return on tangible common equity (2)(5)
(A+O)/(G)8.08 (2.05)7.07 (1.48)
GAAP return on assets0.70 (16.38)0.56 (8.67)
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Adjusted return on assets (2)
(A/D)0.71 (0.19)0.61 (0.15)
Efficiency ratio (2)
(C-O)/(B+M+P)67.82 71.01 69.60 68.89 
(in thousands) 
Supplementary data (In thousands)
    
Tax benefit on tax-credit investments (6)
(M)$79 $1,379 $120 $1,987 
Non-interest income charge on tax-credit investments (7)
(N)(175)(1,097)(207)(1,583)
Net income on tax-credit investments(M+N)(96)282 (87)404 
Intangible amortization(O)1,297 1,558 2,616 3,138 
Fully taxable equivalent income adjustment(P)1,660 1,580 3,154 3,404 
_________________________________________________________________________________________
(1)     Net securities losses/(gains) for the periods ending June 30, 2021 and 2020 include the change in fair value of the Company's equity securities in compliance with the Company's adoption of ASU 2016-01.
(2)    Non-GAAP financial measure.
(3)    Total tangible shareholders’ equity is computed by taking total shareholders’ equity less the intangible assets at period-end. Total tangible assets is computed by taking total assets less the intangible assets at period-end.
(4)     Ratios are annualized and based on average balance sheet amounts, where applicable.
(5)     Adjusted return on tangible common equity is computed by dividing the total adjusted income adjusted for the tax-affected amortization of intangible assets, assuming a 27% marginal rate, by tangible equity.
(6)     The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation and low-income housing.
(7)     The non-interest income charge is the reduction to the tax-advantaged commercial project investments, which are incurred as the tax credits are generated.

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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 following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2020 Annual Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2021 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.

Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is a Delaware corporation headquartered in Boston and the holding company for Berkshire Bank (“the Bank”) and Berkshire Insurance Group, Inc. Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter.

The Bank has a goal of transforming what it means to bank its neighbors socially, humanly and digitally to empower the financial potential of people, families and businesses in its communities as it pursues its vision of being the leading socially responsible omni-channel community bank in the markets it serves. Headquartered in Boston, Berkshire has $12.3 billion in assets and operates 115 banking offices primarily in New England and New York.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our outlook for earnings, net interest margin, fees, expenses, tax rates, capital and liquidity levels and other matters regarding or affecting Berkshire and its future busines or operations. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “outlook,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Risk Factors in Item 1A of this report. Additionally, the COVID-19 pandemic may have further adverse impacts on the Company, its customers, and the communities where it operates, with possible adverse impacts on the Company’s business, results of operations and financial condition for an indefinite period of time. Because of these and other uncertainties, Berkshire’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire’s past results of operations do not necessarily indicate Berkshire’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Berkshire is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Berkshire qualifies all of its forward-looking statements by these cautionary statements.

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SUMMARY

Berkshire recorded net income of $22 million, or $0.43 per share, in the second quarter and net income of $35 million, or $0.69 per share, in the first six months of 2021. The Company recorded losses in the comparable periods of 2020 due to the impacts of the COVID-19 pandemic which resulted in goodwill impairment and elevated provisions for credit losses on loans. The 2020 second quarter loss was $549 million, or $10.93 per share, and the first half loss was $569 million, or $11.33 per share. The efficiency ratio, which is unaffected by the above charges, improved year over year in the second quarter to 67.8% from 71.0%, as revenue recovered and expenses decreased from the effects of pandemic impacts in 2020. Second quarter 2021 return on tangible common equity measured 7.9% as the Company pursues strategies to strengthen its profitability.

SECOND QUARTER FINANCIAL HIGHLIGHTS (comparisons are year-over-year unless otherwise specified):

•27% increase in non-interest income
•89% decrease in non-interest expense; 2% decrease in operating non-interest expense (non-GAAP measure)
•Stable net interest margin and net interest income in recent quarters
•No provision for credit losses on loans, compared to $30 million in the second quarter of 2020
•52% reduction in net loan charge-offs from prior quarter, while relatively flat to the second quarter of 2020
•43% reduction in wholesale funding to 5% of assets during first half of 2021
•Deposit costs down to 25 basis points compared to 79 basis points in the second quarter of 2020
•Stock repurchases of 745,000 shares (1.5% of outstanding stock)
•Returned $26.8 million of capital to shareholders through buybacks and dividends amounting to 124% of second quarter GAAP net income

In the first half of 2021, Berkshire’s asset quality significantly improved towards pre-pandemic levels. Most major credit related metrics improved compared to conditions at year-end 2020. The Company recorded no provision for credit losses on loans in the most recent quarter.

The Company continued to build liquidity during the first half of 2021, reflecting strong growth in non-interest bearing demand deposits which benefited from federal stimulus, together with funds provided from the repayment of Paycheck Protection Program (“PPP”) loans through SBA loan forgiveness procedures. The Company achieved further progress on its goal of reducing higher cost wholesale funds to 5% of assets from 9% of total assets at year-end 2020. Additionally, higher cost customer time deposits decreased to 13% of assets from 14% of assets.

Loan originations volumes for non-PPP loans increased in 2021, and total commercial loans increased modestly before the impact of PPP loan repayments and runoff of targeted COVID-19 sensitive loan balances. Including the impact of these payoffs and ongoing runoff of residential mortgages and consumer loans, total loans decreased by 11% in the first half of 2021.

During the most recent quarter, the Company’s board approved an authorization for the repurchase of 2.5 million common shares, equivalent to approximately 5% of outstanding shares. The Company initiated share repurchases during the quarter, resulting in the repurchase of 745,000 shares, totaling about 1.5% of outstanding shares. The Company maintained its quarterly cash dividend of $0.12 per share in the first half of 2021. Including the share repurchases, the Company returned capital to shareholders in the second quarter equivalent to 124% of net income for that period. The Company’s long-term goal is to reduce excess capital through a combination of organic growth and capital strategies.

For 2021 year to date, the Company substantially completed the previously announced plan for the consolidation of branch offices. Total branches decreased to 115 offices from 130 offices at the start of the year. The Company executed this plan in conjunction with the expansion of its MyBanker concierge style bankers in affected markets. Deposit retention in the consolidated branches is regarded as high based on this strategy. The Company is considering the further consolidation of another 5-10 branches in the upcoming year. In addition, the Company has
70
an agreement for the pending sale of its 8 Mid-Atlantic branch offices, which is expected to be completed in the third quarter of 2021.

The Company recruited a new CEO, Nitin Mhatre, in January 2021 at the conclusion of a search process which began following the resignation of the prior CEO in August 2020. In March 2021, the CFO resigned and a new CFO, Subhadeep Basu, was recruited. The Company nominated two new directors, Deborah Bailey and Michael Zaitzeff, who were elected by shareholders at the May annual meeting to replace two retiring directors.

In May 2021, the Company announced its new strategic plan, called BEST – Berkshire’s Exciting Strategic Transformation. This plan is targeted to improve profitability to exceed the cost of capital over a three year period ending in midyear 2024. The plan focuses on strategies to Optimize, Digitize, and Enhance operations while pursuing Berkshire's vision of being the leading socially responsible omni-channel community bank in the markets it serves. The Company has established 16 individual workflows in the context of the BEST plan, which are being managed through a Transformation Office under the leadership of newly appointed Chief Transformation and Strategy officer, Sumant Pustake. The Company has established five high level success metric goals for the three year BEST plan:

•Return on Tangible Common Equity (ROTCE): 10-12%
•Return on Assets (ROA): 1.00 – 1.05%
•Pre-tax Pre-Provision Net Revenue (“PPNR” – non GAAP): $180 – 200 million
•Top Quartile Bank for ESG ratings
•Top Quartile NPS (Net Promoter Score) bank in New England

The Company made progress in all of these key success areas in the most recent quarter. Additionally, the Company believes that market disruption resulting from several announced bank mergers in its markets will provide opportunities for customer and talent acquisition in future periods. The Company onboarded several significant commercial relationships during the quarter and announced the recruitment of several experienced bankers from larger competitors during the period. The Company plans to significantly expand its market facing bankers outside of the branches during the BEST plan period. Additionally, the Company has announced the recruitment of an accomplished professional to lead its new Procurement Office, as part of its goal to self-fund investments in revenue generation through other operating expense savings, under the BEST plan.

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COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2021 AND DECEMBER 31, 2020
Summary: Total assets decreased to $12.3 billion from $12.8 billion. Funds from loan paydowns and demand deposit growth were used to reduce borrowings and time deposits, with excess cash held in short-term investments. Asset quality measures improved as economic conditions improved from distressed pandemic conditions. Measures of capital adequacy strengthened.

Investments: Short-term investments increased by $262 million to $1.73 billion in the first half of the year. These funds are available to settle the branch sale targeted for the third quarter, as well as to fund planned payoffs of maturing wholesale funds in the second half of the year.

The portfolio of investment securities increased by $127 million, or 6%, to $2.35 billion in the first half of the year. Growth was concentrated in agency mortgage backed and commercial mortgage backed securities. Emphasis has been placed on the held to maturity designation to limit impacts on equity if rates rise and bond prices decline. Total held to maturity securities increased by $200 million, or 43%, in the first half of 2021. The portfolio is highly liquid, and the weighted average life of the bond portfolio was 4.7 years at period-end, compared to 4.0 years at year-end 2020. All rated bonds are investment grade. The portfolio of investment securities had an unrealized gain of $40 million, or 1.7% of cost, at period-end, compared to $68 million, or 3.2% of cost at the start of the year, due to the rise in medium term interest rates during the first half of 2021. The Company continues to evaluate possible expansion of the securities portfolio to utilize a portion of excess short-term investments, taking into consideration the outlook for interest rates, loan growth, and deposit behaviors.

Loans: Total loans decreased in the first half of 2021 by $849 million, or 11%, to $7.23 billion. This was primarily due to a $460 million decrease in PPP loans which were prepaid through the SBA loan forgiveness program. All other commercial loans decreased by $35 million, or 1%, primarily due to reductions of COVID-19 sensitive loan balances. Also commercial line of credit borrowings decreased by $21 million in the first half of the year. Commercial loan demand was muted during the period, as pandemic disease conditions did not abate until the second quarter and business liquidity was bolstered by federal support payments distributed during the period. Most of the $173 million midyear balance of PPP loans was expected to be repaid through SBA forgiveness during the third quarter. In 2021, Berkshire participated in the new PPP program via a referral arrangement with a third party and did not originate new PPP loans for its own balance sheet in the current year.

Residential mortgage balances decreased by $254 million, or 14%, in the first half due to prepayments in the ongoing low rate environment. Consumer loan balances decreased by $100 million, or 15%, primarily due to the targeted runoff of the indirect auto portfolio, which decreased to $146 million from $211 million at the start of the year.

Total loan originations increased sequentially over the last three quarters, more than doubling since the third quarter of 2020. In the most recent quarter, the Company announced the recruitment of commercial relationship managers in middle market, business banking, and asset based lending. The Company is also pursuing correspondent relationships for mortgage originations and fintech partnerships for consumer loan generation.

The second quarter 2021 average loan portfolio yield was 3.84%, compared to 3.62% in the fourth quarter of 2020. The improvement in yield was primarily due to the recognition of deferred PPP fees in interest income when the related loans were forgiven. The loan yield excluding PPP loans was approximately 3.73%, and included the benefit of approximately $2 million of purchased loan accretion, compared to $1 million in the prior quarter.

The Company has designated the following industries as sensitive to direct and indirect COVID-19 impacts: hospitality, Firestone (specialty equipment lending), restaurants, and nursing/assisted living facilities, which collectively totaled $822 million at period-end, compared to $868 million at the start of the year. The Company’s greatest focus is on hospitality loans, which totaled $317 million at period-end and loans by the Company’s Firestone specialty equipment lending subsidiary, which totaled $207 million at period-end.

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Asset Quality and Credit Loss Allowance: : Most major asset quality metrics improved at midyear 2021, compared to the start of the year, trending towards pre-pandemic levels. Accruing delinquent loans decreased to $19 million from $28 million, measuring 0.26% of total loans at midyear. Non-accruing loans decreased to $48 million from $65 million, measuring 0.66% of total midyear loans. First half net loan charge-offs totaled $15 million, or 0.39% of average loans, which is down from 0.80% in the fourth quarter of 2020. Troubled debt restructurings increased to 0.50% of total midyear loans primarily due to one non-accruing commercial loan.

Total COVID-19 loan modifications decreased to $98 million, or 1.4% of loans, compared to $350 million of closed and in process modifications at the start of the year. Midyear 2021 loan modifications were concentrated in hospitality loans, which had $68 million in modifications at that date. Most of these loans were supported by interest reserves and were granted full year principal payment deferrals for 2021 to allow seasonal properties to recover and to allow newer properties additional time to achieve targeted stabilized income targets. Total active loan modifications decreased further to $77 million from $98 million during July 2021.

Criticized loans decreased to $328 million at midyear, compared to $359 million at year-end 2020, measuring 4.6% of total loans excluding PPP loans at midyear. Classified loans decreased to $195 million at midyear, compared to $250 million at year-end 2020, measuring 2.8% of total loans excluding PPP loans at midyear. Recent reductions were primarily due to exit workout strategies. Approximately 54% of COVID-19 loan modifications were rated as criticized, with 46% maintained as pass rated due to collateral strength, strong sponsors, and/or interest-only payment terms. Commercial loans to COVID-19 sensitive industries comprised $178 million of the criticized loans, including $125 million in outstandings to hospitality and Firestone borrowers. The Company is targeting further reduction of criticized ratings in the third quarter of 2021 as full payment histories are established for COVID-19 modified loans that were returned to contractual payment schedules in the second quarter.

The Company has traditionally viewed its potential problem loans as those loans from business activities which are rated as classified and continue to accrue interest. These loans have a possibility of loss if weaknesses are not corrected. Accruing classified loans totaled $148 million at period-end, compared to $185 million at year-end 2020. Due to the circumstances of the pandemic, the Company also views deferred special mention loans as having elevated risk of deterioration. These loans totaled $24 million at period-end, compared to $49 million at year-end 2020.

The Company’s estimate of expected credit losses on loans at quarter-end resulted in a ratio of the allowance to total loans measuring 1.65%, compared to 1.58% at the start of the year. Excluding PPP loans, the allowance ratio was little changed, measuring 1.69% of total loans at midyear 2021. The amount of the allowance decreased by $8 million, or 6%, reflecting the decrease in loans excluding the SBA guaranteed PPP loans. The reduction in the allowance also reflects improvements in the performance and condition of the portfolio, together with improvements in the economic outlook.

The company continues to monitor elevated risk related to uncertainty about the COVID-19 pandemic, COVID-19 variants, and the rate and effectiveness of vaccination programs. The Company’s allowance methodology includes an assessment of the risk of adverse developments and the qualitative factors in its allowance include its assessment of these risks. The 1.65% ratio of the allowance to total loans remains higher than the 0.94% ratio following the adoption of CECL and prior to the emergence of the pandemic.
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Deposits and Borrowings: Berkshire has been pursuing a course of reducing higher cost wholesale funds by paying off brokered time deposits and FHLB borrowings as they mature. For the first half of 2021, brokered deposits decreased by $253 million to $358 million and borrowings decreased by $256 million to $315 million. Total wholesale funds decreased by 43% to $673 million, and the Company targets to continue to payoff maturing funds over the next several quarters. Wholesale funds maturing or repricing in the next twelve months totaled $493 million at midyear, including $293 million of maturing brokered deposits and $200 million of borrowings. The cost of brokered time deposits was 1.48% in the most recent quarter, and the cost of borrowings was 3.12% during that period.

Total deposits decreased by $302 million in the first half of the year, including a $253 million decrease in brokered deposits. Additionally, daily fluctuating payroll deposits decreased by $325 million to $676 million. Excluding brokered deposits and payroll deposits, total deposits increased by $276 million, or 3% during the first half of the year. This was driven by a $335 million, or 13%, increase in demand deposits which primarily reflected increased customer liquidity resulting from federal stimulus payments and another round of PPP loan fundings. Commercial accounts represented $253 million of the demand deposit increase, totaling $1.78 billion at period-end. Consumer balances increased by $82 million, totaling $1.045 billion at period-end.

Customer time deposit balances (excluding brokered deposits) decreased by $191 million as higher cost time accounts matured and in some cases moved to other deposit account types. There was a $1.56 billion remaining balance of these customer time deposits at midyear, with a 0.81% average cost. At midyear, total time deposits, including brokered balances, maturing in the third quarter measured $446 million. Total time deposits maturing in one year measured $1.52 billion. The cost of these accounts is expected to significantly improve; new and renewing customer time accounts are currently being written at lower rates than prior rates. Of note, there was a shift of balances between NOW and Money Market accounts between period-end and the start of the period due to payroll balances which shift depending on the day of the week.

The cost of deposits decreased to 0.25% in the most recent quarter from 0.47% in the fourth quarter of 2020 due to the decrease in higher cost time accounts and the increase in non-interest bearing demand deposits. Additionally, rates paid on all major categories decreased due to ongoing low interest rates. The cost of borrowings increased to 3.12% from 2.50% due to the impact of remaining higher cost subordinated debt and longer term borrowings as shorter term borrowings matured and were paid off. The total cost of funds decreased to 0.36% from 0.60%.

At period-end, liabilities held for sale included $633 million in Mid-Atlantic branch deposit balances which are targeted for sale in the third quarter. The cost of these deposits was 0.41% in the most recent quarter.

Derivative Financial Instruments: There were no material changes in the portfolio of outstanding derivative financial instruments, which totaled $3.9 billion in notional amount at period-end. The estimated fair value of these instruments was an asset of $66 million at period-end, which decreased from $94 million at year-end 2020 due to the impact of rising medium term interest rates on the value of outstanding commercial loan interest rate swaps.

Shareholders' Equity: Total shareholders’ equity decreased by $12 million, or 1%, to $1.175 billion during the first half of 2021. The Company earned $35 million in net income and returned $33 million in capital to shareholders through dividends and stock buybacks. Additionally, the Company recorded a $16 million decrease in accumulated other comprehensive income due to the after-tax impact of a reduction in unrealized debt security gains resulting from the increase in medium term interest rates during the first half of the year.

During the second quarter, Berkshire announced a board authorization for the repurchase of 2.5 million shares. As of quarter end, the Company had repurchased 745 thousand shares, or 1.5% of outstanding shares, at an average price of $27.85, totaling $20.8 million. Berkshire declared a regular quarterly dividend of $0.12 per share in each of the first two quarters of the year.

Period-end book value per share totaled $23.30 and the non-GAAP measure of tangible book value per share measured $22.66. Capital metrics remained strong, with equity/assets measuring 9.6% and the non-GAAP measure
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of tangible equity/tangible assets was 9.3%. The Common Equity Tier 1 Ratio improved to 14.3% from 13.8% during the first half of the year, due to the shift in assets from loans and into lower risk investments.

COMPARISON OF OPERATING RESULTS FOR THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2021 and JUNE 30, 2020

Summary: Berkshire recorded net income of $22 million, or $0.43 per share, in the second quarter and net income of $35 million, or $0.69 per share, in the first six months of 2021. The Company recorded losses in the comparable periods of 2020 due to the impacts of the COVID-19 pandemic which resulted in goodwill impairment and elevated provisions for credit losses on loans. The 2020 second quarter loss was $549 million, or $10.93 per share, and the first half loss was $569 million, or $11.33 per share. Results in the most recent quarter benefited from the absence of a provision for credit losses on loans. Earnings in 2021 also benefited from the completion of the liquidation of discontinued national mortgage banking operations at the end of 2020. These operations generated 2020 losses of $6 million in the second quarter and $14 million in the first half of the year.

The efficiency ratio, which is unaffected by the above charges, improved year over year in the second quarter to 67.8% from 71.0%, as revenue recovered and expenses decreased from pandemic impacts in 2020. Second quarter 2021 return on tangible common equity measured 7.9% as the Company pursues strategies to strengthen its profitability.

Revenue: Total revenue increased year over year by $2 million, or 3%, in the second quarter and by $12 million, or 6%, in the first six months of the year. This is primarily due to higher fee income related to the recovery of business activity and resumption of certain waived charges from conditions that prevailed during the height of the pandemic in the first half of 2020. Revenue also improved from 2020 due to fair value related charges to income recorded in the first half of 2020 as a result of changes in the value of financial instruments during the sharp economic downturn in that period.

Net Interest Income: Net interest income decreased year over year by $2 million, or 3%, in the second quarter and by $14 million, or 8%, in the first half of the year. These decreases were due to both the decrease in loan balances as well as to a decrease in the net interest margin. Loan balances decreased due to lower demand in the pandemic conditions, improved borrower liquidity from federal stimulus, and higher prepayments due to the approximate 150 basis point parallel downward shift in interest rates at the end of the first quarter of 2020. The margin change reflected the asset mix shift from loans towards short term investments, together with a lengthening of certain liability maturities for risk management in the volatile 2020 market conditions. Additionally, the Company’s interest sensitive assets reprice more quickly than interest sensitive liabilities in the initial months of an interest rate change. The Company’s net interest income and net interest margin have been generally stable since the third quarter of 2020, as the strategy to reduce higher cost wholesale funding balances helped to offset the impact of further loan runoff and tighter market loan pricing conditions.

Net interest income in 2021 has also benefited from the recognition of deferred PPP fees as a result of loan forgiveness through SBA repayments. Most of this forgiveness occurred in the first half of 2021, and the net interest margin benefited by 0.11% in each of the first two quarters of 2021. Total gross interest income on PPP loans, including the 1% interest coupon, totaled $6.6 million in the first quarter of 2021 and $5.1 million in the second quarter of 2021. There was a $2 million unamortized balance of deferred PPP fees as of midyear 2021, and the Company expected most of the $173 million remaining PPP loans to be forgiven in the third quarter of 2021. Net interest income also included the benefit of $2.2 million in purchased loan accretion in the second quarter and $1.3 million in the prior quarter, which contributed 0.08% and 0.05% to the net interest margin in these respective periods.

Mid-Atlantic branch operations held for sale at midyear included $253 million in loans and $633 million in deposits, which are not recorded within total loans and total deposits. Net interest income related to these loans and deposits totaled about $2 million during the most recent quarter.

Non-Interest Income: Non-interest income increased year over year by $5 million, or 27%, in the second quarter and by $25 million, or 109%, in the first six months of the year. The six month improvement was due in part to a $9
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million securities loss posted in the first quarter of 2020 due to the pandemic impact on the prices of the Bank’s equity securities portfolio. Additionally, there were $5 million in charges posted against non-interest income in the same quarter due to the pandemic impacts on fair valued financial instruments. Most of the remaining $11 million improvement in first half non-interest income was due to the resumption of more normal business activity from the depressed levels during the pandemic shutdowns in 2020. Origination related revenue for SBA loans increased by $5 million over this period, reaching a quarterly record of $5.3 million in the most recent quarter due to expansion of the SBA team as well as interim revisions in the SBA guaranty program. Second quarter deposit related fees increased by $2 million due to increased customer activity and the expiration of fee waivers instituted in 2020 due to the pandemic. Six month wealth management fees increased by $1 million due to account growth and improved market conditions. Additionally, the Company recorded $2 million in PPP referral fees in the first half of 2021 for its participation in the second round of the PPP program, channeling applications through a fintech partner rather than maintaining PPP loans on its balance sheet as it did in 2020.

Credit Loss Provision Expense: The provision was elevated in 2020, totaling $30 million in the second quarter and $65 million for the first half, as the Company estimated future loan losses in the context of a global pandemic. The extended economic contraction did not fully materialize as expected, due to the benefit of unprecedented federal fiscal and monetary actions, and the rapid development of vaccines. Loan loss provision expense declined in 2021, totaling $6 million in the first quarter and there was no provision expense in the most recent quarter. The amount of the credit loss allowance on loans decreased and loan outstandings have decreased.

Non-Interest Expense and Tax Expense: Non-interest expense in 2020 included a $554 million charge for the full impairment of goodwill reflecting market changes resulting from the pandemic. As a result, non-interest expense in 2020 totaled $624 million for the second quarter and $696 million for the first half of the year. Comparable expense in 2021 was $69 million and $147 million for these respective periods.

The Company utilizes the non-GAAP measure of operating non-interest expense, which excludes items not viewed as related to ongoing operations from non-interest expense. Goodwill impairment is excluded from this measure, along with merger, restructuring, and other non-operating expenses. These expenses primarily consisted of costs related to branch consolidation totaling $3 million which were recorded in the first quarter of 2021.

Operating non-interest expense decreased year-over-year by $2 million to $69 million for the second quarter and increased by $2 million to $144 million in the first half of 2021. The first half increase was primarily due to $3 million in professional expenses recorded in the first quarter of 2021 for legal, financial, and other advisory services related to management and board matters. The second quarter year-over-year decrease was primarily due to processing expenses recorded in 2020 related to PPP loan originations. Direct expenses related to the MidAtlantic branch operations will be eliminated when those operations and staff are transferred to the buyer with the completion of the pending sale transaction, currently targeted for the third quarter.

The Company has completed the consolidation of 15 branch offices in the first half of 2021, reducing the total branch count to 115 branch offices from 130 at the start of the year. Berkshire has a strong record of staff retention for in-footprint branch consolidations through managed attrition across it operations. Full time equivalent staff totaled 1,417 positions at midyear, compared to 1,505 positions at the start of the year. The 2021 effective tax rate was 24% in the second quarter and 23% for the first six months of the year. New tax credit investments closed in July 2021 are targeted to benefit the effective rate and net income in the second half of the year. The Company received income tax expense benefits in 2020 due to loss carrybacks resulting from the losses reported in 2020.

Discontinued Operations: In the fourth quarter of 2020, the Company completed the exit of its national mortgage banking operations. These operations generated a net loss of $20 million in 2020, of which $6 million was recorded in the second quarter and $14 million was recorded in the first half of 2020. These operations are excluded from the Company’s measures of adjusted income.

Total Comprehensive Income: Total comprehensive income includes net income together with other comprehensive income, which primarily consists of unrealized gains/losses on debt securities available for sale, after tax. The decrease in interest rates in 2020 resulted in $21 million in other net comprehensive income and the increase in medium term interest rates in 2021 resulted in a $16 million other net comprehensive loss.

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Liquidity and Cash Flows: The primary sources of cash in the first half of 2021 were the decrease in total loans and the increase in demand deposits, and the primary use of cash were the reduction of wholesale funds and an increase in short-term investments. As a result, liquidity increased, with short-term investments increasing to 14% of total assets and total investments increasing to 33% of assets, from 11% and 29%, respectively, at the start of the year. The ratio of loans to deposits decreased to 73% from 79%. The ratio of wholesale funds to assets decreased to 5% from 9%.

The Company expects to use approximately $350 million in liquidity to complete the planned branch sale in the third quarter. The Company also expects that the majority of the remaining $173 million of outstanding PPP loans will be repaid by the SBA through loan forgiveness in the coming months. As previously noted, the Company expects to repay most of the $493 million in maturing wholesale funds over the next twelve months. The Company anticipates that excess liquidity will decline in the second half of 2021 based on these anticipated events.

At period-end, unused borrowing capacity at the FHLBB was $1.5 billion, compared to $1.0 billion at the start of the year. Borrowing availability at the Fed discount window was $0.6 billion and $0.8 billion for these dates respectively. Total cash held by the holding company was $141 million and $84 million for these respective dates. The Company targets to use cash at the holding company together with dividends from the Bank to fund dividends and stock repurchases over the coming year.

Capital Resources: Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the note on Shareholders' Equity in the consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.

The Company views its regulatory capital measures as providing it with a cushion of excess capital in relation to its operating condition and risk profile, and compared to peers. Having achieved four consecutive quarters of positive retained earnings, the Company is no longer required to seek nonobjection from the Federal Reserve Board for the routine payment of dividends. Any additional future stock repurchase authorizations require preapproval by the Federal Reserve Board. Payments of capital distributions from the Bank to the parent, including dividends, continue to require preapproval by the FDIC and the State of Massachusetts. Over the long term, the Company relies on these distributions from the Bank to the Company to fund dividend payments to shareholders and stock repurchase transactions.

Off-Balance Sheet Arrangements and Contractual Obligations: In the normal course of operations, Berkshire engages in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in the Company’s financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. Further information about the Company’s off-balance sheet arrangements and information relating to payments due under contractual obligations is presented in the most recent Form 10-K. Changes in the fair value of derivative financial instruments and hedging activities are included on the balance sheet and information related to these matters is reported in the related footnote to the consolidated financial statements, and was included in management’s discussion of changes in financial condition. There were no major changes in off-balance sheet arrangements and contractual obligations during the first half of 2021.

Fair Value Measurements: Fair value measurements are discussed in the related financial statement footnote. The most significant measurements of recurring fair values of financial instruments primarily relate to securities available for sale, loans held for sale, and derivative instruments. These measurements were generally based on Level 2 market-based inputs. The premium or discount value of loans has historically been the most significant element of this period-end presentation. This premium or discount is a Level 3 estimate and reflects management’s subjective judgments. At period-end, the premium value of the loan portfolio was estimated at $220 million, or 3.1% of loans, compared to $289 million, or 3.6% of loans, at year-end 2020. The decrease in the premium value was primarily due to the increase in medium term interest rates during the period. Of note, the fair value of non-
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maturity deposits is made equal to their cost basis under accounting guidelines, and this value does not reflect any factors related to market and economic conditions as of the measurement date.

LIBOR BASED INSTRUMENTS

The Company’s use of LIBOR based instruments and the industry-wide transition off of LIBOR were discussed in item 1-A of the Company’s most recent report on Form 10-K. The Company has in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations. These include loans priced off of LIBOR, as well as interest rate swap contacts including customer, dealer, and risk participation agreements.

The Financial Conduct Authority (“FCA”) presently intends to continue publishing most LIBOR indices through June 2023 for use with legacy instruments contracted in 2021 or before. The Company continues to develop and execute plans to transition instruments associated with LIBOR to alternative reference rates. The Company expects that LIBOR based instruments issued after year-end 2021 will utilize a different pricing index, and it is working actively with customers and its core systems provider to prepare for this transition.


CORPORATE RESPONSIBILITY UPDATE

Berkshire is committed to purpose-driven, community-dedicated banking that enhances value for all its stakeholders. Learn more about the steps Berkshire is taking at www.berkshirebank.com/csr and in its most recent Corporate Responsibility Report.

Our Approach to Environmental, Social, Governance (ESG) & Corporate Responsibility
Berkshire Bank is committed to purpose-driven, community-dedicated banking that enhances value for all stakeholders in pursuit of its vision of being the leading socially responsible community bank in the markets it serves. We’re a bank with a purpose; to empower the financial potential of people, families and businesses in our communities. We provide an ecosystem of socially responsible financial solutions, actively engage with our communities and harness our entire business to fuel the economy, create thriving neighborhoods, ensure banking access for all and power a low-carbon future.

Our Be FIRST values of Belonging, Focusing, Inclusion, Respect, Service, and Teamwork along with our 175 year heritage guide us as we transform our performance to create a meaningful impact on our communities. Berkshire continues to navigate the effects of the global COVID-19 pandemic as the country begins to return to more normalized conditions. During the height of the pandemic, Berkshire created the You FIRST employee assistance fund to help staff impacted by unexpected financial hardships, provided additional paid sick time, flexible work schedules for remote staff, and maintained full pay for those with reduced schedules as a result of the pandemic. Small businesses and consumers were helped with loan forbearances and government assistance programs, and we launched a fund to assist Black, Brown and LGBTQIA+ owned businesses. The goal of Berkshire’s collective efforts was to ensure the health and economic resiliency of all its stakeholders.

Environmental, Social, and Governance factors are central to Berkshire’s vision, mission, risk management practices, competitive position and transformation. Our strong foundation of governance systems, including our Corporate Responsibility & Culture Committee of our Board of Directors, Diversity Equity & Inclusion Committee, Responsible & Sustainable Business Policy, and Social & Environmental Responsibility risk management practices collectively integrate social, environmental and reputational considerations into all business decision making. Our suite of financial solutions, lending activities, community investments and environmental programs are powering economic activity and creating thriving neighborhoods.

We engage directly with our stakeholders and populate several communications channels with strategic content related to our ESG performance, including our Corporate Responsibility website, annual report, and proxy statement. Our annual Corporate Responsibility Report, Meaningful Moments: Answering the Call, which is aligned
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with Sustainability Accounting Standards Board (“SASB”) commercial bank disclosure topics, details the Company's programs and progress on environmental, social and governance matters. We’re proud to be recognized for our leadership and performance with local, regional, national, and international awards. Among these honors The North American Inspiring Workplaces Award, Communitas Award for Leadership in Corporate Social Responsibility, listing in the Bloomberg Gender-Equality Index, and achieving a perfect score in the Human Rights Campaign Corporate Equality Index as a Best Place to Work for LGBTQ equality.

Key developments in the most recent quarter include:

•Launch of new socially responsible financial solutions: In support of Berkshire’s Exciting Strategic Transformation (BEST), the Bank launched two new financial solutions which are now part of its socially responsible banking ecosystem.

◦MyCheck, Berkshire’s new check cashing service helps individuals cash checks at any one of its branches or MyTeller ITM locations for a fraction of the cost of traditional services. The offering provides an on-ramp for underbanked consumers to access a full banking relationship with Berkshire.

◦MyFreedom, provides a safe, transparent, affordable, and accessible checking account as part of its socially responsible banking ecosystem. The account has no charges for overdrafts or monthly maintenance fees and offers free Mobile Banking with Mobile Deposit as well as access to Berkshire Bank's Greenpath Financial Wellness programs. MyFreedom recently received national certification from the Cities for Financial Empowerment Fund through their BankOn program.

•Continued Commitment to Equity, Inclusion & Culture: Berkshire’s Be FIRST culture continues to play an important role in the Company’s transformation. Its PRIDE LGBTQIA+ Employee Resource Group celebrated Pride Month and Berkshire joined the Human Rights Campaign’s Business Coalition for the Equality Act. Its Health & Wellness and Multicultural Employee Resource Groups hosted programming for Mental Health awareness month and Berkshire came together again to celebrate the impactful significance of Black history in America on Juneteenth National Independence Day. Employees received a paid floating holiday to commemorate the day for the second consecutive year. The Company also recognized six of its employees for their commitment to volunteerism with its Volunteer Service X-ellence Awards while naming an additional 18 employees to its volunteering honor roll.

•Awards & Recognition: Berkshire was honored for the fourth consecutive year with the Communitas Award for Leadership in Corporate Social Responsibility. In addition, the Company was named a finalist for the North American Inspiring Workplaces Award for culture and social responsibility and was named a leader in Diversity, Equity and Inclusion by the Albany Business Review.

•Current ESG Performance: The Company continued to improve its Environmental, Social and Governance (ESG) ratings, generally outperforming peers. As of June 30, 2021 the Company received ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 2, Social: 1, Governance: 2; and Bloomberg ESG Disclosure- 47.81. The company is also rated by Sustainalytics.


APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in its most recent Annual Report on Form 10-K. Modifications to significant accounting policies made during the year are described in Note 1 to the consolidated financial statements included in Item 1 of this report. The preparation of the consolidated financial statements in accordance with GAAP and practices generally applicable to the financial services industry requires management to make estimates and assumptions that affect the reported
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amounts of assets, liabilities, revenues, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.

Management has identified the Company's most critical accounting policies as related to:
• Allowance for Credit Losses
• Fair Value of Financial Instruments

These particular significant accounting policies are considered most critical in that they are important to the Company’s financial condition and results, and they require management’s subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. Both of these most critical accounting policies were significant in determining income and financial condition based on events in 2021.


ENTERPRISE RISK MANAGEMENT
Following sections of this report on Form 10-Q include discussion of market risk and risk factors. Risk management is overseen by the Company’s Chief Risk Officer, who reports directly to the CEO. This position oversees risk management policy, credit, compliance, and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management and Capital Committee. The high level corporate risk assessment focuses on the following material business risks: credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk, with the credit risk category having the highest weighting. Based on management's recent review, all risks were within corporate appetites. Increases in risks were noted for credit risk and compliance risk over the past year due largely to the pandemic; liquidity risks were declining due to elevated liquid assets. For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company.

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ITEM 3.                 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For additional discussion about the Company’s Quantitative and Qualitative Aspects of Market Risk, please review Item 7A of the most recent report on Form 10-K which sets forth the methodologies employed by the Company and the various aspects of its analysis of its interest rate sensitivity. Berkshire’s objective is to maintain a neutral or asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes.

The percentage change in net interest income in the second year of a 200 basis point upward parallel ramp in interest rates measured 11% at midyear 2021. At period-end, the Company was positively sensitive to upward shocks, with the year one impact of an up 200 basis point shock being in the same general range as the year two ramp impact cited above. Compared to the base case of flat rates, net interest income increases approximately 3% under the scenario of the implied forward rates as of midyear. Additionally, the Company’s model indicates that net interest income is positively sensitive to a yield curve twist that results in a steepening of the yield curve compared to conditions at midyear. Net income is also positively sensitive to an increase in interest rates, compared to the base case of flat rates. The Company’s analysis of interest income at risk includes recognition of the planned sale of the Mid-Atlantic branches.


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ITEM 4.           CONTROLS AND PROCEDURES
a)  Disclosure controls and procedures.
The principal executive officers, including the principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures were effective.

b)  Changes in internal control over financial reporting.
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
ITEM 1.            LEGAL PROCEEDINGS
As of June 30, 2021, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations. 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. A summary of certain legal matters involving unsettled litigation or pertaining to pending transactions are as follows:

On February 4, 2020, the Bank filed a complaint in the New York State Supreme Court for the County of Albany against Pioneer Bank (“Pioneer”) seeking damages of approximately $16.0 million. The complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s breach of loan participation agreements in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation. Pioneer has filed a motion to dismiss aspects of the Bank’s complaint, which motion was allowed in part by the court to dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed. The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a partial recovery of $1.7 million early in the second quarter of 2020. The Company has not accrued for any additional anticipated recovery at this time.

On September 11, 2020, the Company received notice of a demand letter served on the Company and the Bank by a former mortgagee of the Bank pursuant to the Massachusetts Consumer Protection Act, M.G.L Ch. 93A (“Chapter 93A). The demand letter alleges that a mortgage payoff statement tendered by the Bank to the mortgagee included a mortgage discharge preparation fee that is purportedly impermissible under Massachusetts law. The demand letter also claims that the Bank failed to provide a copy of the recorded mortgage discharge to the mortgagee in a timely manner. The demand letter further purports to state claims on behalf of a putative class of similarly situated Massachusetts mortgage customers of the Bank, who allegedly may have suffered similar violations of Massachusetts law. The demand letter seeks monetary damages for the original mortgagee claimant and the putative class, plus double or treble damages and reasonable attorneys’ fees, as may be allowed under Chapter 93A. The Company and the Bank have retained outside litigation counsel in this matter, and discussions have proceeded between the parties to find a mutually acceptable resolution. On July 28, 2021, a class action complaint was filed by the original 93A claimant against the Bank in the Massachusetts Superior Court for Suffolk County, pursuant to a pre-negotiated Memorandum of Understanding (“MOU”) between the parties. In accordance with the MOU, the parties will file a motion for court approval of a mutually agreed upon settlement agreement, under to which the Bank expects to pay damages of approximately $510,000 in exchange for the dismissal with prejudice and release of all claims that have been or could have been asserted in the filed class action lawsuit on behalf of the plaintiff and all putative settlement class members, plus certain costs for administration of the class action settlement and legal fees incurred by the named plaintiff up to the amount of $85,000.

On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc. (“FCLS”) filed a complaint in the Court of Common Pleas, Bucks County Pennsylvania against FCLS and two of its former senior corporate officers generally alleging wrongful termination as a result of purported whistleblower retaliation and other violations of New Jersey state employment law. The complaint also purports to name the Bank and the Company as additional defendants, even though neither entity ever employed, paid wages to or contracted with the plaintiff. On November 16, 2020, the plaintiff filed a First Amended Complaint reiterating the same claims against the same defendants. The Company's liability insurer has provided outside litigation counsel to defend the Company and the Bank in this matter, as well as FCLS and its former senior corporate officers. On December 7, 2020, defense counsel filed Preliminary Objections on behalf of the Company, the Bank, FCLS and FCLS’s former senior corporate officers denying the plaintiff’s claims and seeking dismissal of the case and an order that the plaintiff’s claims must proceed through arbitration in accordance with contractual obligations set forth in plaintiff’s previous employment agreement with FCLS. On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration.
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ITEM 1A.               RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed herein and in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which could materially affect the Company's business, financial condition, or future operating results. Please also see the earlier discussion in this report about Enterprise Risk Management. The risks described in this form are not the only risks presently facing the Company. Additional risks and uncertainties not currently known to the Company, or currently deemed to be immaterial, also may materially adversely affect the Company's business, financial condition, and/or operating results. There were no other major changes in risk factors identified during the first half of 2021.


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ITEM 2.               UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)                Recent Sales of Unregistered Securities
The Company occasionally engages in the practice of transferring unregistered securities for the purpose of completing business transactions. These shares are issued to vendors or other organizations as consideration for services performed in accordance with each contract. During the three months ended June 30, 2021 and 2020 there were no shares transferred.

(b)                 Not applicable.

(c)                 The following table provides certain information with regard to shares repurchased by the Company in the second quarter of 2021:
Total number ofAverage priceTotal number of shares
purchased as part of
publicly announced		Maximum number of
shares that may yet
be purchased under
Period shares purchasedpaid per shareplans or programsthe plans or programs
April 1-30, 2021— $— — 2,500,000 
May 1-31, 2021— — — 2,500,000 
June 1-30, 2021744,942 — 744,942 1,755,058 
Total744,942 $— 744,942 1,755,058 

On April 28, 2021, the Company announced that its Board of Directors has approved a stock repurchase program pursuant to which the Company may repurchase up to 2,500,000 shares of its common stock through April 30, 2022. As of June 30, 2021, there were 744,942 shares repurchased under this program.


ITEM 3.                DEFAULTS UPON SENIOR SECURITIES
None.


ITEM 4.                  MINE SAFETY DISCLOSURES
Not applicable.


ITEM 5.                OTHER INFORMATION
None.
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Table of Contents
ITEM 6.                   EXHIBITS
3.1 
Amended and Restated Certificate of Incorporation of Berkshire Hills Bancorp, Inc.(1)
3.2 
Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
4.1 
Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (3)
4.2
Certificate of Designations of Series B Non-Voting Preferred Stock of Berkshire Hills Bancorp, Inc. (4)
31.1 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and including detailed tags. 
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL.
_______________________________________
(1)     Incorporated herein by reference from the Exhibits to the Form 10-Q as filed on August 9, 2018.
(2)    Incorporated herein by reference from the Exhibits to the Form 8-K as filed on June 26, 2017.
(3)    Incorporated herein by reference from the Exhibits to the Form S-1, Registration Statement and amendments thereto, initially filed on March 10, 2000, Registration No. 333-32146.
(4)    Incorporated herein by reference from the Exhibits to the Form 8-K as filed on October 16, 2017.

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SIGNATURES
 
Pursuant to the requirements 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.
  
   
Dated: August 9, 2021By:/s/ Nitin J. Mhatre
 Nitin J. Mhatre
 President and Chief Executive Officer
  
   
Dated: August 9, 2021By:/s/ Subhadeep Basu
 Subhadeep Basu
 Senior Executive Vice President, Chief Financial Officer

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What is the market capitalization of a company?

The market capitalization sometimes referred as Marketcap, is the value of a publicly listed company.
In most cases it can be easily calculated by multiplying the share price with the amount of outstanding shares.

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