0001108134bhlb:FairValueOfCollateralValuationTechniqueMemberus-gaap:MeasurementInputLossSeverityMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Membersrt:WeightedAverageMember2021-09-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31,September 30, 2021
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☐ | 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
BERKSHIRE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 04-3510455 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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60 State Street | Boston | Massachusetts | | 02109 |
(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:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | BHLB | | The 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 May 6,November 5, 2021, the Registrant had 51,203,21148,659,319 shares of common stock, $0.01 par value per share, outstanding
BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q
INDEX
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| Consolidated Balance Sheets as of March 31,September 30, 2021 and December 31, 2020 | |
| Consolidated Statements of Operations for the Three and Nine Months Ended March 31,September 30, 2021 and 2020 | |
| Consolidated Statements of Comprehensive Income/(Loss) for the Three and Nine Months Ended March 31,September 30, 2021
and 2020 | |
| Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended March 31,September 30, 2021 and 2020 | |
| Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,September 30, 2021 and 2020 | |
| Notes to Consolidated Financial Statements (Unaudited) | |
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Item 2. | | |
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PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
| | | | March 31, 2021 | | December 31, 2020 | | | September 30, 2021 | | December 31, 2020 |
(In thousands, except share data) | (In thousands, except share data) | | (In thousands, except share data) | |
Assets | Assets | | | | | Assets | | | | |
Cash and due from banks | Cash and due from banks | | $ | 81,285 | | | $ | 91,219 | | Cash and due from banks | | $ | 153,185 | | | $ | 91,219 | |
Short-term investments | Short-term investments | | 1,818,323 | | | 1,466,656 | | Short-term investments | | 1,971,345 | | | 1,466,656 | |
Total cash and cash equivalents | Total cash and cash equivalents | | 1,899,608 | | | 1,557,875 | | Total cash and cash equivalents | | 2,124,530 | | | 1,557,875 | |
| Trading security, at fair value | Trading security, at fair value | | 9,350 | | | 9,708 | | Trading security, at fair value | | 8,574 | | | 9,708 | |
Marketable equity securities, at fair value | Marketable equity securities, at fair value | | 15,801 | | | 18,513 | | Marketable equity securities, at fair value | | 15,601 | | | 18,513 | |
Securities available for sale, at fair value | Securities available for sale, at fair value | | 1,627,330 | | | 1,695,232 | | Securities available for sale, at fair value | | 1,643,965 | | | 1,695,232 | |
Securities held to maturity (fair values of $627,297 and $491,855) | | 610,637 | | | 465,091 | | |
Securities held to maturity (fair values of $665,359 and $491,855) | | Securities held to maturity (fair values of $665,359 and $491,855) | | 651,863 | | | 465,091 | |
Federal Home Loan Bank stock and other restricted securities | Federal Home Loan Bank stock and other restricted securities | | 28,680 | | | 34,873 | | Federal Home Loan Bank stock and other restricted securities | | 12,041 | | | 34,873 | |
Total securities | Total securities | | 2,291,798 | | | 2,223,417 | | Total securities | | 2,332,044 | | | 2,223,417 | |
Less: Allowance for credit losses on held to maturity securities | Less: Allowance for credit losses on held to maturity securities | | (111) | | | (104) | | Less: Allowance for credit losses on held to maturity securities | | (125) | | | (104) | |
Net securities | Net securities | | 2,291,687 | | | 2,223,313 | | Net securities | | 2,331,919 | | | 2,223,313 | |
| Loans held for sale | Loans held for sale | | 18,377 | | | 17,748 | | Loans held for sale | | 5,176 | | | 17,748 | |
| | Total loans | Total loans | | 7,658,778 | | | 8,081,519 | | Total loans | | 6,836,235 | | | 8,081,519 | |
Less: Allowance for credit losses on loans | Less: Allowance for credit losses on loans | | (123,800) | | | (127,302) | | Less: Allowance for credit losses on loans | | (112,916) | | | (127,302) | |
Net loans | Net loans | | 7,534,978 | | | 7,954,217 | | Net loans | | 6,723,319 | | | 7,954,217 | |
| Premises and equipment, net | Premises and equipment, net | | 108,538 | | | 112,663 | | Premises and equipment, net | | 99,233 | | | 112,663 | |
Other real estate owned | Other real estate owned | | 149 | | | 149 | | Other real estate owned | | — | | | 149 | |
| Other intangible assets | Other intangible assets | | 33,500 | | | 34,819 | | Other intangible assets | | 30,907 | | | 34,819 | |
Cash surrender value of bank-owned life insurance policies | Cash surrender value of bank-owned life insurance policies | | 234,043 | | | 232,695 | | Cash surrender value of bank-owned life insurance policies | | 235,327 | | | 232,695 | |
| Other assets | Other assets | | 332,766 | | | 387,230 | | Other assets | | 291,722 | | | 387,230 | |
Assets held for sale | Assets held for sale | | 303,697 | | | 317,304 | | Assets held for sale | | 3,743 | | | 317,304 | |
| Total assets | Total assets | | $ | 12,757,343 | | | $ | 12,838,013 | | Total assets | | $ | 11,845,876 | | | $ | 12,838,013 | |
| Liabilities | Liabilities | | | | | Liabilities | | | | |
Demand deposits | Demand deposits | | $ | 2,750,393 | | | $ | 2,484,249 | | Demand deposits | | $ | 3,022,821 | | | $ | 2,484,249 | |
NOW and other deposits | NOW and other deposits | | 1,856,988 | | | 1,003,005 | | NOW and other deposits | | 1,982,089 | | | 1,003,005 | |
Money market deposits | Money market deposits | | 2,486,261 | | | 3,371,353 | | Money market deposits | | 2,438,832 | | | 3,371,353 | |
Savings deposits | Savings deposits | | 1,047,506 | | | 972,116 | | Savings deposits | | 1,095,959 | | | 972,116 | |
Time deposits | Time deposits | | 2,103,222 | | | 2,385,085 | | Time deposits | | 1,825,714 | | | 2,385,085 | |
Total deposits | Total deposits | | 10,244,370 | | | 10,215,808 | | Total deposits | | 10,365,415 | | | 10,215,808 | |
Short-term debt | Short-term debt | | 0 | | | 40,000 | | Short-term debt | | — | | | 40,000 | |
Long-term Federal Home Loan Bank advances and other | Long-term Federal Home Loan Bank advances and other | | 351,354 | | | 434,357 | | Long-term Federal Home Loan Bank advances and other | | 13,369 | | | 434,357 | |
Subordinated borrowings | Subordinated borrowings | | 97,338 | | | 97,280 | | Subordinated borrowings | | 97,454 | | | 97,280 | |
Total borrowings | Total borrowings | | 448,692 | | | 571,637 | | Total borrowings | | 110,823 | | | 571,637 | |
Other liabilities | Other liabilities | | 229,832 | | | 232,730 | | Other liabilities | | 191,563 | | | 232,730 | |
Liabilities held for sale | Liabilities held for sale | | 659,310 | | | 630,065 | | Liabilities held for sale | | — | | | 630,065 | |
Total liabilities | Total liabilities | | $ | 11,582,204 | | | $ | 11,650,240 | | Total liabilities | | $ | 10,667,801 | | | $ | 11,650,240 | |
(continued) | (continued) | (continued) |
| | March 31, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| Shareholders’ equity | Shareholders’ equity | | | | | Shareholders’ equity | | | | |
| Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 50,988,285 shares outstanding in 2021; 51,903,190 shares issued and 50,833,087 shares outstanding in 2020) | | 528 | | | 528 | | |
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 48,656,902 shares outstanding in 2021; 51,903,190 shares issued and 50,833,087 shares outstanding in 2020) | | Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 48,656,902 shares outstanding in 2021; 51,903,190 shares issued and 50,833,087 shares outstanding in 2020) | | 528 | | | 528 | |
Additional paid-in capital - common stock | Additional paid-in capital - common stock | | 1,424,349 | | | 1,427,239 | | Additional paid-in capital - common stock | | 1,423,321 | | | 1,427,239 | |
Unearned compensation | Unearned compensation | | (7,722) | | | (6,245) | | Unearned compensation | | (9,437) | | | (6,245) | |
Retained earnings (deficit) | | (226,516) | | | (233,344) | | |
Retained (deficit) | | Retained (deficit) | | (153,439) | | | (233,344) | |
Accumulated other comprehensive income | Accumulated other comprehensive income | | 10,721 | | | 30,871 | | Accumulated other comprehensive income | | 7,249 | | | 30,871 | |
Treasury stock, at cost (914,905 shares in 2021 and 1,070,103 shares in 2020) | | (26,221) | | | (31,276) | | |
Treasury stock, at cost (3,246,288 shares in 2021 and 1,070,103 shares in 2020) | | Treasury stock, at cost (3,246,288 shares in 2021 and 1,070,103 shares in 2020) | | (90,147) | | | (31,276) | |
Total shareholders’ equity | Total shareholders’ equity | | 1,175,139 | | | 1,187,773 | | Total shareholders’ equity | | 1,178,075 | | | 1,187,773 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 12,757,343 | | | $ | 12,838,013 | | Total liabilities and shareholders’ equity | | $ | 11,845,876 | | | $ | 12,838,013 | |
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | Three Months Ended March 31, | | | | Three Months Ended September 30, | | Nine Months Ended September 30 |
(In thousands, except per share data) | (In thousands, except per share data) | | 2021 | | 2020 | | | (In thousands, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 |
Interest and dividend income from continuing operations | Interest and dividend income from continuing operations | | | | | | | Interest and dividend income from continuing operations | | | | | | | | |
Loans | Loans | | $ | 75,933 | | | $ | 101,695 | | | | Loans | | $ | 68,018 | | | $ | 85,688 | | | $ | 217,872 | | | $ | 278,259 | |
Securities and other | Securities and other | | 12,220 | | | 14,500 | | | | Securities and other | | 11,670 | | | 12,080 | | | 35,333 | | | 39,392 | |
Total interest and dividend income | Total interest and dividend income | | 88,153 | | | 116,195 | | | | Total interest and dividend income | | 79,688 | | | 97,768 | | | 253,205 | | | 317,651 | |
Interest expense from continuing operations | Interest expense from continuing operations | | | | | | | Interest expense from continuing operations | | | | | |
Deposits | Deposits | | 9,583 | | | 23,838 | | | | Deposits | | 5,842 | | | 16,070 | | | 22,406 | | | 60,460 | |
Borrowings | Borrowings | | 3,477 | | | 5,929 | | | | Borrowings | | 2,478 | | | 4,643 | | | 8,945 | | | 16,118 | |
Total interest expense | Total interest expense | | 13,060 | | | 29,767 | | | | Total interest expense | | 8,320 | | | 20,713 | | | 31,351 | | | 76,578 | |
Net interest income from continuing operations | Net interest income from continuing operations | | 75,093 | | | 86,428 | | | | Net interest income from continuing operations | | 71,368 | | | 77,055 | | | 221,854 | | | 241,073 | |
Non-interest income from continuing operations | Non-interest income from continuing operations | | | | | | | Non-interest income from continuing operations | | | | | | | | |
Deposit related fees | Deposit related fees | | 7,126 | | | 7,947 | | | | Deposit related fees | | 7,657 | | | 7,062 | | | 22,291 | | | 20,382 | |
Loan fees and revenue | | Loan fees and revenue | | 8,285 | | | 4,988 | | | 25,962 | | | 12,007 | |
Insurance commissions and fees | Insurance commissions and fees | | 3,130 | | | 3,024 | | | | Insurance commissions and fees | | 1,581 | | | 2,660 | | | 7,003 | | | 8,451 | |
Wealth management fees | Wealth management fees | | 2,772 | | | 2,570 | | | | Wealth management fees | | 2,653 | | | 2,299 | | | 7,944 | | | 6,926 | |
Mortgage banking originations | Mortgage banking originations | | 802 | | | 959 | | | | Mortgage banking originations | | 461 | | | 2,044 | | | 1,797 | | | 4,647 | |
Loan fees and revenue | | 10,246 | | | 1,302 | | | | |
Total fee income | Total fee income | | 24,076 | | | 15,802 | | | | Total fee income | | 20,637 | | | 19,053 | | | 64,997 | | | 52,413 | |
Other, net | Other, net | | 2,148 | | | (436) | | | | Other, net | | 1,279 | | | 1,927 | | | 5,638 | | | 492 | |
(Loss) on securities, net | | (31) | | | (9,730) | | | | |
(Loss)/gain on securities, net | | (Loss)/gain on securities, net | | (166) | | | (1,017) | | | (681) | | | (9,925) | |
| Gain on sale of business operations and other assets, net | | Gain on sale of business operations and other assets, net | | 51,885 | | | — | | | 51,885 | | | — | |
| Total non-interest income | Total non-interest income | | 26,193 | | | 5,636 | | | | Total non-interest income | | 73,635 | | | 19,963 | | | 121,839 | | | 42,980 | |
Total net revenue from continuing operations | Total net revenue from continuing operations | | 101,286 | | | 92,064 | | | | Total net revenue from continuing operations | | 145,003 | | | 97,018 | | | 343,693 | | | 284,053 | |
Provision for credit losses | Provision for credit losses | | 6,500 | | | 34,807 | | | | Provision for credit losses | | (4,000) | | | 1,200 | | | 2,500 | | | 65,878 | |
Non-interest expense from continuing operations | Non-interest expense from continuing operations | | | | | | | Non-interest expense from continuing operations | | | | | |
Compensation and benefits | Compensation and benefits | | 38,735 | | | 36,909 | | | | Compensation and benefits | | 37,068 | | | 34,809 | | | 112,773 | | | 111,121 | |
Occupancy and equipment | Occupancy and equipment | | 11,024 | | | 11,132 | | | | Occupancy and equipment | | 10,421 | | | 11,084 | | | 32,044 | | | 32,411 | |
Technology and communications | Technology and communications | | 8,593 | | | 8,081 | | | | Technology and communications | | 8,397 | | | 8,540 | | | 25,204 | | | 24,376 | |
Marketing and promotion | Marketing and promotion | | 595 | | | 1,165 | | | | Marketing and promotion | | 860 | | | 1,002 | | | 1,973 | | | 3,069 | |
Professional services | Professional services | | 6,614 | | | 2,720 | | | | Professional services | | 3,180 | | | 2,567 | | | 13,495 | | | 7,852 | |
FDIC premiums and assessments | FDIC premiums and assessments | | 1,120 | | | 1,482 | | | | FDIC premiums and assessments | | 805 | | | 1,518 | | | 2,852 | | | 4,658 | |
Other real estate owned and foreclosures | Other real estate owned and foreclosures | | 2 | | | 27 | | | | Other real estate owned and foreclosures | | 41 | | | 40 | | | 17 | | | 81 | |
Amortization of intangible assets | Amortization of intangible assets | | 1,319 | | | 1,580 | | | | Amortization of intangible assets | | 1,296 | | | 1,530 | | | 3,912 | | | 4,668 | |
| Goodwill impairment | | Goodwill impairment | | — | | | — | | | — | | | 553,762 | |
Acquisition, restructuring, and other expenses | Acquisition, restructuring, and other expenses | | 3,486 | | | 0 | | | | Acquisition, restructuring, and other expenses | | 1,425 | | | 5,316 | | | 4,917 | | | 5,316 | |
Other | Other | | 6,666 | | | 8,229 | | | | Other | | 5,967 | | | 6,437 | | | 19,299 | | | 21,129 | |
Total non-interest expense | Total non-interest expense | | 78,154 | | | 71,325 | | | | Total non-interest expense | | 69,460 | | | 72,843 | | | 216,486 | | | 768,443 | |
| Income/(loss) from continuing operations before income taxes | Income/(loss) from continuing operations before income taxes | | $ | 16,632 | | | $ | (14,068) | | | | Income/(loss) from continuing operations before income taxes | | $ | 79,543 | | | $ | 22,975 | | | $ | 124,707 | | | $ | (550,268) | |
Income tax (benefit)/expense | | 3,601 | | | (1,996) | | | | |
Income tax expense/(benefit) | | Income tax expense/(benefit) | | 15,794 | | | (68) | | | 26,291 | | | (18,194) | |
Net income/(loss) from continuing operations | Net income/(loss) from continuing operations | | $ | 13,031 | | | $ | (12,072) | | | | Net income/(loss) from continuing operations | | $ | 63,749 | | | $ | 23,043 | | | $ | 98,416 | | | $ | (532,074) | |
| (Loss)/income from discontinued operations before income taxes | | $ | 0 | | | $ | (10,629) | | | | |
Income tax (benefit)/expense | | 0 | | | (2,831) | | | | |
Net (loss)/income from discontinued operations | | $ | 0 | | | $ | (7,798) | | | | |
(Loss) from discontinued operations before income taxes | | (Loss) from discontinued operations before income taxes | | $ | — | | | $ | (2,477) | | | $ | — | | | $ | (21,741) | |
Income tax (benefit) | | Income tax (benefit) | | — | | | (659) | | | — | | | (5,789) | |
Net (loss) from discontinued operations | | Net (loss) from discontinued operations | | $ | — | | | $ | (1,818) | | | $ | — | | | $ | (15,952) | |
| Net income/(loss) | Net income/(loss) | | $ | 13,031 | | | $ | (19,870) | | | | Net income/(loss) | | $ | 63,749 | | | $ | 21,225 | | | $ | 98,416 | | | $ | (548,026) | |
Preferred stock dividend | Preferred stock dividend | | 0 | | | 125 | | | | Preferred stock dividend | | — | | | 58 | | | — | | | 313 | |
Income/(loss) available to common shareholders | Income/(loss) available to common shareholders | | $ | 13,031 | | | $ | (19,995) | | | | Income/(loss) available to common shareholders | | $ | 63,749 | | | $ | 21,167 | | | $ | 98,416 | | | $ | (548,339) | |
(continued) | (continued) | (continued) |
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BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONCLUDED)
| | | Three Months Ended March 31, | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | | | 2021 | | 2020 | | 2021 | | 2020 |
Basic earnings/(loss) per common share: | Basic earnings/(loss) per common share: | | | | | | | Basic earnings/(loss) per common share: | | | | | | | | |
Continuing operations | Continuing operations | | $ | 0.26 | | | $ | (0.24) | | | | Continuing operations | | $ | 1.32 | | | $ | 0.46 | | | $ | 1.98 | | | $ | (10.58) | |
Discontinued operations | Discontinued operations | | 0 | | | (0.16) | | | | Discontinued operations | | — | | | (0.04) | | | — | | | (0.32) | |
Total | Total | | $ | 0.26 | | | $ | (0.40) | | | | Total | | $ | 1.32 | | | $ | 0.42 | | | $ | 1.98 | | | $ | (10.90) | |
| Diluted earnings/(loss) per common share: | Diluted earnings/(loss) per common share: | | | Diluted earnings/(loss) per common share: | |
Continuing operations | Continuing operations | | $ | 0.26 | | | $ | (0.24) | | | | Continuing operations | | $ | 1.31 | | | $ | 0.46 | | | $ | 1.97 | | | $ | (10.58) | |
Discontinued operations | Discontinued operations | | 0 | | | (0.16) | | | | Discontinued operations | | — | | | (0.04) | | | — | | | (0.32) | |
Total | Total | | $ | 0.26 | | | $ | (0.40) | | | | Total | | $ | 1.31 | | | $ | 0.42 | | | $ | 1.97 | | | $ | (10.90) | |
| Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | Weighted average shares outstanding: | | | | | |
Basic | Basic | | 50,330 | | | 50,204 | | | | Basic | | 48,395 | | | 50,329 | | | 49,672 | | | 50,256 | |
Diluted | Diluted | | 50,565 | | | 50,204 | | | | Diluted | | 48,744 | | | 50,329 | | | 49,963 | | | 50,256 | |
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
| | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | | 2020 | | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Net income/(loss) | Net income/(loss) | | $ | 13,031 | | | $ | (19,870) | | | Net income/(loss) | | $ | 63,749 | | | $ | 21,225 | | | $ | 98,416 | | | $ | (548,026) | |
Other comprehensive income, before tax: | Other comprehensive income, before tax: | | | | | | Other comprehensive income, before tax: | | | | | | | | |
Changes in unrealized gain on debt securities available-for-sale | | (27,013) | | | 25,614 | | | |
Changes in unrealized (loss)/gain on debt securities available-for-sale | | Changes in unrealized (loss)/gain on debt securities available-for-sale | | (10,098) | | | (1,085) | | | (31,718) | | | 27,529 | |
| Income taxes related to other comprehensive income: | Income taxes related to other comprehensive income: | | | | | | Income taxes related to other comprehensive income: | | | | | | |
Changes in unrealized gain on debt securities available-for-sale | | 6,863 | | | (6,590) | | | |
Changes in unrealized (loss)/gain on debt securities available-for-sale | | Changes in unrealized (loss)/gain on debt securities available-for-sale | | 2,575 | | | 272 | | | 8,096 | | | (7,096) | |
| Total other comprehensive (loss)/income | Total other comprehensive (loss)/income | | (20,150) | | | 19,024 | | | Total other comprehensive (loss)/income | | (7,523) | | | (813) | | | (23,622) | | | 20,433 | |
Total comprehensive (loss) | | $ | (7,119) | | | $ | (846) | | | |
Total comprehensive income/(loss) | | Total comprehensive income/(loss) | | $ | 56,226 | | | $ | 20,412 | | | $ | 74,794 | | | $ | (527,593) | |
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| | | | | Preferred stock | | Common stock | | Additional paid-in capital | | Unearned compensation | | Retained earnings (deficit) | | Accumulated other comprehensive income/(loss) | | Treasury stock | | | | Preferred stock | | Common stock | | Additional paid-in capital | | Unearned compensation | | Retained earnings (deficit) | | Accumulated other comprehensive income/(loss) | | Treasury stock | |
(In thousands) | (In thousands) | | Shares | | Amount | | Shares | | Amount | | Total | (In thousands) | | Shares | | Amount | | Shares | | Amount | | Total |
Balance at December 31, 2019 | | 522 | | | $ | 40,633 | | | 49,585 | | | $ | 517 | | | $ | 1,422,441 | | | $ | (8,465) | | | $ | 361,082 | | | $ | 11,993 | | | $ | (69,637) | | | $ | 1,758,564 | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | | 261 | | | $ | 20,325 | | | 50,192 | | | $ | 523 | | | $ | 1,427,728 | | | $ | (8,298) | | | $ | (257,352) | | | $ | 33,239 | | | $ | (52,025) | | | $ | 1,164,140 | |
Comprehensive income: | Comprehensive income: | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | |
Net (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (19,870) | | | — | | | — | | | (19,870) | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19,024 | | | — | | | 19,024 | | |
Total comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (19,870) | | | 19,024 | | | — | | | (846) | | |
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 | | | 0 | | |
Cash dividends declared on common shares ($0.24 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (12,050) | | | — | | | — | | | (12,050) | | |
Cash dividends declared on preferred shares ($0.48 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (125) | | | — | | | — | | | (125) | | |
Treasury shares repurchased | | — | | | — | | | (14) | | | — | | | — | | | — | | | — | | | — | | | (473) | | | (473) | | |
Net income | | Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 21,225 | | | — | | | — | | | 21,225 | |
Other comprehensive (loss) | | Other comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (813) | | | — | | | (813) | |
Total comprehensive income | | Total comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 21,225 | | | (813) | | | — | | | 20,412 | |
| Cash dividends declared on common shares ($0.12 per share) | | Cash dividends declared on common shares ($0.12 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (5,993) | | | — | | | — | | | (5,993) | |
Cash dividends declared on preferred shares ($0.24 per share) | | Cash dividends declared on preferred shares ($0.24 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (58) | | | — | | | — | | | (58) | |
| Forfeited shares | Forfeited shares | | — | | | — | | | (11) | | | — | | | (84) | | | 375 | | | — | | | — | | | (291) | | | — | | Forfeited shares | | — | | | — | | | (74) | | | — | | | (1,395) | | | 2,163 | | | — | | | — | | | (768) | | | — | |
Exercise of stock options | Exercise of stock options | | — | | | — | | | 24 | | | — | | | — | | | — | | | (215) | | | — | | | 734 | | | 519 | | Exercise of stock options | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Restricted stock grants | Restricted stock grants | | — | | | — | | | 108 | | | — | | | 52 | | | (3,133) | | | — | | | — | | | 3,081 | | | — | | Restricted stock grants | | — | | | — | | | 198 | | | — | | | (4,033) | | | (2,026) | | | — | | | — | | | 6,059 | | | — | |
Stock-based compensation | Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | 1,459 | | | — | | | — | | | — | | | 1,459 | | Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | 635 | | | — | | | — | | | — | | | 635 | |
| Other, net | Other, net | | — | | | — | | | (15) | | | — | | | — | | | — | | | — | | | — | | | (390) | | | (390) | | Other, net | | — | | | — | | | (10) | | | — | | | — | | | — | | | 3 | | | — | | | (114) | | | (111) | |
Balance at March 31, 2020 | | 261 | | | $ | 20,325 | | | 50,199 | | | $ | 523 | | | $ | 1,427,800 | | | $ | (9,764) | | | $ | 304,442 | | | $ | 31,017 | | | $ | (52,065) | | | $ | 1,722,278 | | |
Balance at September 30, 2020 | | Balance at September 30, 2020 | | 261 | | | $ | 20,325 | | | 50,306 | | | $ | 523 | | | $ | 1,422,300 | | | $ | (7,526) | | | $ | (242,175) | | | $ | 32,426 | | | $ | (46,848) | | | $ | 1,179,025 | |
| Balance at December 31, 2020 | | 0 | | | $ | 0 | | | 50,833 | | | $ | 528 | | | $ | 1,427,239 | | | $ | (6,245) | | | $ | (233,344) | | | $ | 30,871 | | | $ | (31,276) | | | $ | 1,187,773 | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | — | | | $ | — | | | 50,453 | | | $ | 528 | | | $ | 1,423,083 | | | $ | (11,006) | | | $ | (210,994) | | | $ | 14,772 | | | $ | (40,994) | | | $ | 1,175,389 | |
Comprehensive income: | Comprehensive income: | | | | | | | | | | | | | | | | Comprehensive income: | | | | | | | | | | | | | | | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 13,031 | | | — | | | — | | | 13,031 | | Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 63,749 | | | — | | | — | | | 63,749 | |
Other comprehensive (loss) | Other comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (20,150) | | | — | | | (20,150) | | Other comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,523) | | | — | | | (7,523) | |
Total comprehensive income | Total comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 13,031 | | | (20,150) | | | — | | | (7,119) | | Total comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 63,749 | | | (7,523) | | | — | | | 56,226 | |
| Cash dividends declared on common shares ($0.12 per share) | Cash dividends declared on common shares ($0.12 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (6,124) | | | — | | | — | | | (6,124) | | Cash dividends declared on common shares ($0.12 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (6,187) | | | — | | | — | | | (6,187) | |
| Treasury shares repurchased | | Treasury shares repurchased | | — | | | — | | | (1,755) | | | — | | | — | | | — | | | — | | | — | | | (47,961) | | | (47,961) | |
Forfeited shares | Forfeited shares | | — | | | — | | | (52) | | | — | | | (234) | | | 1,333 | | | — | | | — | | | (1,099) | | | — | | Forfeited shares | | — | | | — | | | (27) | | | — | | | 146 | | | 560 | | | — | | | — | | | (705) | | | 1 | |
Exercise of stock options | Exercise of stock options | | — | | | — | | | 5 | | | — | | | — | | | — | | | (79) | | | — | | | 148 | | | 69 | | Exercise of stock options | | — | | | — | | | 2 | | | — | | | — | | | — | | | (7) | | | — | | | 45 | | | 38 | |
Restricted stock grants | Restricted stock grants | | — | | | — | | | 210 | | | — | | | (2,660) | | | (3,485) | | | — | | | — | | | 6,145 | | | — | | Restricted stock grants | | — | | | — | | | 13 | | | — | | | 89 | | | (362) | | | — | | | — | | | 273 | | | — | |
Stock-based compensation | Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | 675 | | | — | | | — | | | — | | | 675 | | Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | 1,371 | | | — | | | — | | | — | | | 1,371 | |
| Other, net | Other, net | | — | | | — | | | (8) | | | — | | | 4 | | | — | | | — | | | — | | | (139) | | | (135) | | Other, net | | — | | | — | | | (29) | | | — | | | 3 | | | — | | | — | | | — | | | (805) | | | (802) | |
Balance at March 31, 2021 | | 0 | | | $ | 0 | | | 50,988 | | | $ | 528 | | | $ | 1,424,349 | | | $ | (7,722) | | | $ | (226,516) | | | $ | 10,721 | | | $ | (26,221) | | | $ | 1,175,139 | | |
Balance at September 30, 2021 | | Balance at September 30, 2021 | | — | | | $ | — | | | 48,657 | | | $ | 528 | | | $ | 1,423,321 | | | $ | (9,437) | | | $ | (153,439) | | | $ | 7,249 | | | $ | (90,147) | | | $ | 1,178,075 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Unearned compensation | | Retained earnings (deficit) | | Accumulated other comprehensive income/(loss) | | Treasury stock | | |
(In thousands) | | Shares | | Amount | | Shares | | Amount | | | | | | | Total |
Balance at December 31, 2019 | | 522 | | | $ | 40,633 | | | 49,585 | | | $ | 517 | | | $ | 1,422,441 | | | $ | (8,465) | | | $ | 361,082 | | | $ | 11,993 | | | $ | (69,637) | | | $ | 1,758,564 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | |
Net (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (548,026) | | | — | | | — | | | (548,026) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 20,433 | | | — | | | 20,433 | |
Total comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (548,026) | | | 20,433 | | | — | | | (527,593) | |
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 ($0.60 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (30,143) | | | — | | | — | | | (30,143) | |
Cash dividends declared on preferred shares ($1.20 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (313) | | | — | | | — | | | (313) | |
Treasury shares repurchased | | — | | | — | | | (14) | | | — | | | — | | | — | | | — | | | — | | | (473) | | | (473) | |
Forfeited shares | | — | | | — | | | (87) | | | — | | | (1,551) | | | 2,648 | | | — | | | — | | | (1,097) | | | — | |
Exercise of stock options | | — | | | — | | | 33 | | | — | | | — | | | — | | | (395) | | | — | | | 1,002 | | | 607 | |
Restricted stock grants | | — | | | — | | | 306 | | | — | | | (3,981) | | | (5,159) | | | — | | | — | | | 9,140 | | | — | |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | 3,450 | | | — | | | — | | | — | | | 3,450 | |
| | | | | | | | | | | | | | | | | | | | |
Other, net | | — | | | — | | | (39) | | | — | | | — | | | — | | | — | | | — | | | (694) | | | (694) | |
Balance at September 30, 2020 | | 261 | | | $ | 20,325 | | | 50,306 | | | $ | 523 | | | $ | 1,422,300 | | | $ | (7,526) | | | $ | (242,175) | | | $ | 32,426 | | | $ | (46,848) | | | $ | 1,179,025 | |
| | | | | | | | | | | | | | | | | | | | |
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 | | — | | | — | | | — | | | — | | | — | | | — | | | 98,416 | | | — | | | — | | | 98,416 | |
Other comprehensive (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (23,622) | | | — | | | (23,622) | |
Total comprehensive income | | — | | | — | | | — | | | — | | | — | | | — | | | 98,416 | | | (23,622) | | | — | | | 74,794 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Cash dividends declared on common shares ($0.36 per share) | | — | | | — | | | — | | | — | | | — | | | — | | | (18,411) | | | — | | | — | | | (18,411) | |
| | | | | | | | | | | | | | | | | | | | |
Treasury shares repurchased | | — | | | — | | | (2,500) | | | — | | | — | | | — | | | — | | | — | | | (68,712) | | | (68,712) | |
Forfeited shares | | — | | | — | | | (89) | | | — | | | (44) | | | 2,130 | | | — | | | — | | | (2,086) | | | — | |
Exercise of stock options | | — | | | — | | | 9 | | | — | | | — | | | — | | | (100) | | | — | | | 262 | | | 162 | |
Restricted stock grants | | — | | | — | | | 452 | | | — | | | (3,885) | | | (8,974) | | | — | | | — | | | 12,859 | | | — | |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | 3,652 | | | — | | | — | | | — | | | 3,652 | |
| | | | | | | | | | | | | | | | | | | | |
Other, net | | — | | | — | | | (48) | | | — | | | 11 | | | — | | | — | | | — | | | (1,194) | | | (1,183) | |
Balance at September 30, 2021 | | — | | | $ | — | | | 48,657 | | | $ | 528 | | | $ | 1,423,321 | | | $ | (9,437) | | | $ | (153,439) | | | $ | 7,249 | | | $ | (90,147) | | | $ | 1,178,075 | |
The accompanying notes are an integral part of these consolidated financial statements.
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Three Months Ended March 31, | | | Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | | 2020 | (In thousands) | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net income/(loss) from continuing operations | Net income/(loss) from continuing operations | | $ | 13,031 | | | $ | (12,072) | | Net income/(loss) from continuing operations | | $ | 98,416 | | | $ | (532,074) | |
Net (loss) from discontinued operations | Net (loss) from discontinued operations | | 0 | | | (7,798) | | Net (loss) from discontinued operations | | — | | | (15,952) | |
Net income/(loss) | Net income/(loss) | | $ | 13,031 | | | $ | (19,870) | | Net income/(loss) | | $ | 98,416 | | | $ | (548,026) | |
Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | | | | | Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | | | | |
Provision for credit losses | Provision for credit losses | | 6,500 | | | 34,807 | | Provision for credit losses | | 2,500 | | | 65,878 | |
Net amortization of securities | Net amortization of securities | | 389 | | | 762 | | Net amortization of securities | | 1,533 | | | 2,035 | |
Change in unamortized net loan costs and premiums | Change in unamortized net loan costs and premiums | | (2,755) | | | 386 | | Change in unamortized net loan costs and premiums | | (4,772) | | | 20,565 | |
Premises and equipment depreciation and amortization expense | Premises and equipment depreciation and amortization expense | | 2,839 | | | 2,680 | | Premises and equipment depreciation and amortization expense | | 8,406 | | | 8,944 | |
Stock-based compensation expense | Stock-based compensation expense | | 675 | | | 1,459 | | Stock-based compensation expense | | 3,652 | | | 3,450 | |
Accretion of purchase accounting entries, net | Accretion of purchase accounting entries, net | | (1,305) | | | (3,121) | | Accretion of purchase accounting entries, net | | (5,046) | | | (8,146) | |
Amortization of other intangibles | Amortization of other intangibles | | 1,319 | | | 1,580 | | Amortization of other intangibles | | 3,912 | | | 4,668 | |
| Income from cash surrender value of bank-owned life insurance policies | Income from cash surrender value of bank-owned life insurance policies | | (1,348) | | | (1,106) | | Income from cash surrender value of bank-owned life insurance policies | | (4,210) | | | (3,876) | |
Securities losses, net | Securities losses, net | | 31 | | | 9,730 | | Securities losses, net | | 681 | | | 9,925 | |
Net change in loans held-for-sale | Net change in loans held-for-sale | | 3,938 | | | 4,472 | | Net change in loans held-for-sale | | 6,752 | | | (7,130) | |
| Loss on disposition of assets | Loss on disposition of assets | | 2,811 | | | 0 | | Loss on disposition of assets | | 2,811 | | | 327 | |
| Gain on sale of real estate | | Gain on sale of real estate | | 6 | | | 13 | |
Amortization of interest in tax-advantaged projects | Amortization of interest in tax-advantaged projects | | 33 | | | 486 | | Amortization of interest in tax-advantaged projects | | 1,996 | | | 2,621 | |
| Goodwill impairment | | Goodwill impairment | | — | | | 553,762 | |
Gain on sale of business operations and other assets | | Gain on sale of business operations and other assets | | (51,885) | | | — | |
Prepayment penalties on repayment of Federal Home Loan Bank advances | | Prepayment penalties on repayment of Federal Home Loan Bank advances | | 862 | | | — | |
Net change in other | Net change in other | | (2,584) | | | (11,571) | | Net change in other | | 16,934 | | | (36,089) | |
Net cash provided by operating activities of continuing operations | Net cash provided by operating activities of continuing operations | | 23,574 | | | 28,492 | | Net cash provided by operating activities of continuing operations | | 82,548 | | | 84,873 | |
Net cash provided (used) by operating activities of discontinued operations | | 0 | | | 6,560 | | |
Net cash provided by operating activities of discontinued operations | | Net cash provided by operating activities of discontinued operations | | — | | | 109,897 | |
Net cash provided by operating activities | Net cash provided by operating activities | | 23,574 | | | 35,052 | | Net cash provided by operating activities | | 82,548 | | | 194,770 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Net decrease in trading security | Net decrease in trading security | | 192 | | | 181 | | Net decrease in trading security | | 578 | | | 546 | |
Purchases of marketable equity securities | Purchases of marketable equity securities | | 0 | | | (11,437) | | Purchases of marketable equity securities | | — | | | (17,631) | |
Proceeds from sales of marketable equity securities | Proceeds from sales of marketable equity securities | | 2,849 | | | 12,329 | | Proceeds from sales of marketable equity securities | | 2,880 | | | 18,458 | |
Purchases of securities available for sale | Purchases of securities available for sale | | (103,877) | | | (160,925) | | Purchases of securities available for sale | | (428,950) | | | (635,194) | |
Proceeds from sales of securities available for sale | Proceeds from sales of securities available for sale | | 0 | | | 3,520 | | Proceeds from sales of securities available for sale | | — | | | 71,844 | |
Proceeds from maturities, calls, and prepayments of securities available for sale | Proceeds from maturities, calls, and prepayments of securities available for sale | | 166,998 | | | 90,758 | | Proceeds from maturities, calls, and prepayments of securities available for sale | | 448,446 | | | 320,010 | |
Purchases of securities held to maturity | Purchases of securities held to maturity | | (155,417) | | | 0 | | Purchases of securities held to maturity | | (219,471) | | | (3,200) | |
Proceeds from maturities, calls, and prepayments of securities held to maturity | Proceeds from maturities, calls, and prepayments of securities held to maturity | | 9,377 | | | 20,372 | | Proceeds from maturities, calls, and prepayments of securities held to maturity | | 31,222 | | | 29,237 | |
Net change in loans | Net change in loans | | 412,255 | | | 217,429 | | Net change in loans | | 1,256,178 | | | 474,707 | |
Net change in Mid-Atlantic region loans held for sale | Net change in Mid-Atlantic region loans held for sale | | 16,830 | | | 0 | | Net change in Mid-Atlantic region loans held for sale | | 50,914 | | | — | |
Proceeds from surrender of bank-owned life insurance | Proceeds from surrender of bank-owned life insurance | | 0 | | | 553 | | Proceeds from surrender of bank-owned life insurance | | 1,578 | | | 553 | |
Purchase of Federal Home Loan Bank stock | Purchase of Federal Home Loan Bank stock | | 0 | | | (6,741) | | Purchase of Federal Home Loan Bank stock | | — | | | (6,741) | |
Proceeds from redemption of Federal Home Loan Bank stock | Proceeds from redemption of Federal Home Loan Bank stock | | 6,193 | | | 454 | | Proceeds from redemption of Federal Home Loan Bank stock | | 22,832 | | | 14,240 | |
Net investment in limited partnership tax credits | Net investment in limited partnership tax credits | | 0 | | | (2,783) | | Net investment in limited partnership tax credits | | (1,385) | | | (6,499) | |
| Purchase of premises and equipment, net | Purchase of premises and equipment, net | | (2,297) | | | (3,386) | | Purchase of premises and equipment, net | | (1,606) | | | (6,190) | |
| Proceeds from sales of seasoned commercial loan portfolios | | Proceeds from sales of seasoned commercial loan portfolios | | 17,480 | | | 37,988 | |
Proceeds from sale of other real estate | | Proceeds from sale of other real estate | | 187 | | | 171 | |
Cash outflows from sale of business operations and other assets | | Cash outflows from sale of business operations and other assets | | (352,814) | | | — | |
Net cash provided by investing activities | Net cash provided by investing activities | | 353,103 | | | 160,324 | | Net cash provided by investing activities | | 828,069 | | | 292,299 | |
Net investing cash flows from discontinued operations | | Net investing cash flows from discontinued operations | | — | | | — | |
(continued) | | (continued) |
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
| | | | Three Months Ended March 31, | | | Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | | 2020 | (In thousands) | | 2021 | | 2020 |
(continued) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
Net increase/(decrease) in deposits | | 28,562 | | | (262,203) | | |
Net increase in Mid-Atlantic region deposits held for sale | | 29,245 | | | 0 | | |
Net increase in deposits | | Net increase in deposits | | 142,410 | | | 133,031 | |
Net change in Mid-Atlantic region deposits held for sale | | Net change in Mid-Atlantic region deposits held for sale | | 20,953 | | | — | |
Proceeds from Federal Home Loan Bank advances and other borrowings | Proceeds from Federal Home Loan Bank advances and other borrowings | | 0 | | | 315,854 | | Proceeds from Federal Home Loan Bank advances and other borrowings | | — | | | 326,277 | |
Repayments of Federal Home Loan Bank advances and other borrowings | Repayments of Federal Home Loan Bank advances and other borrowings | | (123,022) | | | (102,382) | | Repayments of Federal Home Loan Bank advances and other borrowings | | (462,017) | | | (451,493) | |
Purchase of treasury stock | Purchase of treasury stock | | 0 | | | (473) | | Purchase of treasury stock | | (68,712) | | | (473) | |
Exercise of stock options | Exercise of stock options | | 69 | | | 519 | | Exercise of stock options | | 162 | | | 607 | |
Common and preferred stock cash dividends paid | Common and preferred stock cash dividends paid | | (6,124) | | | (12,175) | | Common and preferred stock cash dividends paid | | (18,411) | | | (30,456) | |
Settlement of derivative contracts with financial institution counterparties | Settlement of derivative contracts with financial institution counterparties | | 36,326 | | | (108,925) | | Settlement of derivative contracts with financial institution counterparties | | 41,653 | | | (109,099) | |
Net cash used by financing activities | Net cash used by financing activities | | (34,944) | | | (169,785) | | Net cash used by financing activities | | (343,962) | | | (131,606) | |
| Net change in cash and cash equivalents | Net change in cash and cash equivalents | | 341,733 | | | 25,591 | | Net change in cash and cash equivalents | | 566,655 | | | 355,463 | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 1,557,875 | | | 579,829 | | Cash and cash equivalents at beginning of period | | 1,557,875 | | | 579,829 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 1,899,608 | | | $ | 605,420 | | Cash and cash equivalents at end of period | | $ | 2,124,530 | | | $ | 935,292 | |
| Supplemental cash flow information: | Supplemental cash flow information: | | | | | Supplemental cash flow information: | | | | |
Interest paid on deposits | Interest paid on deposits | | $ | 10,149 | | | $ | 26,830 | | Interest paid on deposits | | $ | 23,769 | | | $ | 67,119 | |
Interest paid on borrowed funds | Interest paid on borrowed funds | | 3,655 | | | 6,033 | | Interest paid on borrowed funds | | 9,671 | | | 16,961 | |
Income taxes (refunded) paid, net | Income taxes (refunded) paid, net | | (2,386) | | | 178 | | Income taxes (refunded) paid, net | | 58 | | | 345 | |
| | Other non-cash changes: | Other non-cash changes: | | | | | Other non-cash changes: | | | | |
Other net comprehensive income | Other net comprehensive income | | $ | (20,150) | | | $ | 19,024 | | Other net comprehensive income | | $ | (23,622) | | | $ | 20,433 | |
| Impact to retained earnings from adoption of ASC 326, net of tax | Impact to retained earnings from adoption of ASC 326, net of tax | | 0 | | | 24,380 | | Impact to retained earnings from adoption of ASC 326, net of tax | | — | | | 24,380 | |
Unsettled transactions related to security purchases | | 22,126 | | | 0 | | |
| Reclass of seasoned loan portfolios to held-for-sale, net | Reclass of seasoned loan portfolios to held-for-sale, net | | 9,500 | | | 27,940 | | Reclass of seasoned loan portfolios to held-for-sale, net | | 11,660 | | | 10,048 | |
Reclass of Mid-Atlantic loans held-for-sale to portfolio loans, net | | Reclass of Mid-Atlantic loans held-for-sale to portfolio loans, net | | 29,418 | | | — | |
Reclass of Mid-Atlantic deposits held-for-sale to deposits, net | | Reclass of Mid-Atlantic deposits held-for-sale to deposits, net | | 7,197 | | | — | |
Real estate owned acquired in settlement of loans | Real estate owned acquired in settlement of loans | | 0 | | | 224 | | Real estate owned acquired in settlement of loans | | — | | | 224 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
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 1011 – 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.
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.
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 March 31,September 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 nine months ended March 31,September 30, 2021 and March 31,September 30, 2020:
| | | Three Months Ended March 31, | | | Three Months Ended September 30, | Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | | 2020 | | (In thousands) | | 2021 | | 2020 | 2021 | | 2020 |
Interest income | Interest income | | $ | 0 | | | $ | 729 | | | Interest income | | $ | — | | | $ | 23 | | $ | — | | | $ | 1,516 | |
Interest expense | Interest expense | | 0 | | | 282 | | | Interest expense | | — | | | 3 | | — | | | 390 | |
Net interest income | Net interest income | | 0 | | | 447 | | | Net interest income | | — | | | 20 | | — | | | 1,126 | |
Non-interest income | Non-interest income | | 0 | | | 1,358 | | | Non-interest income | | — | | | (286) | | — | | | (4,175) | |
Total net revenue | Total net revenue | | 0 | | | 1,805 | | | Total net revenue | | — | | | (266) | | — | | | (3,049) | |
Non-interest expense | Non-interest expense | | 0 | | | 12,434 | | | Non-interest expense | | — | | | 2,211 | | — | | | 18,692 | |
(Loss) from discontinued operations before income taxes | (Loss) from discontinued operations before income taxes | | 0 | | | (10,629) | | | (Loss) from discontinued operations before income taxes | | — | | | (2,477) | | — | | | (21,741) | |
Income tax (benefit) | Income tax (benefit) | | 0 | | | (2,831) | | | Income tax (benefit) | | — | | | (659) | | — | | | (5,789) | |
Net (loss) from discontinued operations | Net (loss) from discontinued operations | | $ | 0 | | | $ | (7,798) | | | Net (loss) from discontinued operations | | $ | — | | | $ | (1,818) | | $ | — | | | $ | (15,952) | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. BRANCH SALE AND SALE OF INSURANCE OPERATIONS
Mid-Atlantic Branch Sale
TheOn August 27, 2021 the Company has entered into an agreement to sell itscompleted the sale of 8 Mid-Atlantic branches to Investors Bank of Short Hills, New Jersey, subjectJersey. This sale was made pursuant to customary regulatory approvals. The transfer is targeted for completion ina purchase and assumption agreement entered into by the first half of 2021. The branch sale includes loans with a total balance of $284 million and deposit accounts with a total balance of $647 million as of March 31, 2021. These balances are included in assets held for sale and liabilities held for salebanks on the Consolidated Balance Sheets. The buyer has agreed to pay a premium equal to 3.0% of the final deposit balance transferred. December 2, 2020.
The sale includesincluded all branch premises and equipment, and Investors also assumed related operations and the agreement provides that the buyer intends to offer employment to allof associated staff. Berkshire expects to complete the net transfer with funds from short-term investments. The branch sale will have no effect onis not expected to impact Berkshire’s growing Mid-Atlantic specialized commercial lending operations, including SBA lending at its 44 Business Capital Division and its asset-based lending relationships.
The sale involved the assignment of deposits which totaled $631 million and loans which totaled $220 million as of August 27, 2021. These instruments were classified as held for sale in the financial statements and were not included in total deposits and total loans reported by the Company at December 31, 2020. Investors Bank paid a premium of 3.0% of the deposit balance transferred. The Company provided a settlement cash payment of $391 million as part of the sale for the assumption of covered deposit liabilities by Investors. The Company recorded a $14.7 million pre-tax gain related to this branch sale.
The following is a summary of the assets and liabilities held for sale related to the branch sale at March 31,September 30, 2021 and December 31, 2020:
| | | | | | | | | | | | | | |
(In thousands) | | March 31, 2021 | | December 31, 2020 |
Assets | | | | |
Loans | | $ | 283,769 | | | $ | 300,599 | |
Other assets | | 19,928 | | | 16,705 | |
| | | | |
| | | | |
| | | | |
Total assets | | $ | 303,697 | | | $ | 317,304 | |
Liabilities | | | | |
Deposits | | $ | 646,622 | | | $ | 617,377 | |
Other liabilities | | 12,688 | | | 12,688 | |
Total liabilities | | $ | 659,310 | | | $ | 630,065 | |
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2021 | | December 31, 2020 |
Assets | | | | |
Loans | | $ | — | | | $ | 300,599 | |
Other assets | | — | | | 16,705 | |
| | | | |
| | | | |
| | | | |
Total assets | | $ | — | | | $ | 317,304 | |
Liabilities | | | | |
Deposits | | $ | — | | | $ | 617,377 | |
Other liabilities | | — | | | 12,688 | |
Total liabilities | | $ | — | | | $ | 630,065 | |
Berkshire Insurance Group Sale of Operations
On September 1, 2021, the Company completed the sale of substantially all of the assets, and the assumption of certain liabilities, of Berkshire Insurance Group, Inc. (“BIG”) to Brown & Brown of Massachusetts, LLC ("Buyer"), a Massachusetts limited liability company. This sale was made pursuant to the Asset Purchase Agreement dated August 24, 2021. The Buyer paid BIG an aggregate purchase price of $41.5 million, minus $1.6 million for executive goodwill purchase price payments paid by the the Buyer at the Closing to certain executives of BIG. The Company recorded a $37.2 million pre-tax gain related to this sale.
NOTE 3.4. TRADING SECURITY
The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $8.5$8.1 million and $8.7 million, and a fair value of $9.3$8.6 million and $9.7 million, at March 31,September 30, 2021 and December 31, 2020, respectively. As discussed further in Note 89 - 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 March 31,September 30, 2021 or December 31, 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4.5. 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) | (In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance | (In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance |
March 31, 2021 | | | | | | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | | | | | | |
Securities available for sale | Securities available for sale | | | | | | | | | | Securities available for sale | | | | | | | | | |
Municipal bonds and obligations | Municipal bonds and obligations | | $ | 83,922 | | | $ | 6,378 | | | $ | 0 | | | $ | 90,300 | | | $ | 0 | | Municipal bonds and obligations | | $ | 75,546 | | | $ | 5,627 | | | $ | — | | | $ | 81,173 | | | $ | — | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | 713,215 | | | 14,922 | | | (3,583) | | | 724,554 | | | 0 | | Agency collateralized mortgage obligations | | 766,550 | | | 9,578 | | | (3,838) | | | 772,290 | | | — | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 453,042 | | | 2,813 | | | (8,659) | | | 447,196 | | | 0 | | Agency mortgage-backed securities | | 432,926 | | | 2,424 | | | (7,843) | | | 427,507 | | | — | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 267,596 | | | 4,020 | | | (3,101) | | | 268,515 | | | 0 | | Agency commercial mortgage-backed securities | | 259,742 | | | 4,866 | | | (2,430) | | | 262,178 | | | — | |
Corporate bonds | Corporate bonds | | 44,294 | | | 729 | | | (9) | | | 45,014 | | | 0 | | Corporate bonds | | 49,843 | | | 959 | | | (60) | | | 50,742 | | | — | |
Other bonds and obligations | Other bonds and obligations | | 50,691 | | | 1,068 | | | (8) | | | 51,751 | | | 0 | | Other bonds and obligations | | 48,833 | | | 1,250 | | | (8) | | | 50,075 | | | — | |
Total securities available for sale | Total securities available for sale | | 1,612,760 | | | 29,930 | | | (15,360) | | | 1,627,330 | | | 0 | | Total securities available for sale | | 1,633,440 | | | 24,704 | | | (14,179) | | | 1,643,965 | | | — | |
| Securities held to maturity | Securities held to maturity | | | | | | | | | | Securities held to maturity | | | | | | | | | |
Municipal bonds and obligations | Municipal bonds and obligations | | 266,609 | | | 16,884 | | | (592) | | | 282,901 | | | 71 | | Municipal bonds and obligations | | 283,736 | | | 16,263 | | | (2,233) | | | 297,766 | | | 87 | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | 151,092 | | | 4,764 | | | (1,054) | | | 154,802 | | | 0 | | Agency collateralized mortgage obligations | | 156,554 | | | 4,103 | | | (1,979) | | | 158,678 | | | — | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 65,052 | | | 155 | | | (1,682) | | | 63,525 | | | 0 | | Agency mortgage-backed securities | | 60,086 | | | 135 | | | (1,495) | | | 58,726 | | | — | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 124,379 | | | 398 | | | (2,288) | | | 122,489 | | | 0 | | Agency commercial mortgage-backed securities | | 148,304 | | | 632 | | | (1,948) | | | 146,988 | | | — | |
Tax advantaged economic development bonds | Tax advantaged economic development bonds | | 3,210 | | | 75 | | | 0 | | | 3,285 | | | 40 | | Tax advantaged economic development bonds | | 2,890 | | | 34 | | | (16) | | | 2,908 | | | 38 | |
Other bonds and obligations | Other bonds and obligations | | 295 | | | 0 | | | 0 | | | 295 | | | 0 | | Other bonds and obligations | | 293 | | | — | | | — | | | 293 | | | — | |
Total securities held to maturity | Total securities held to maturity | | 610,637 | | | 22,276 | | | (5,616) | | | 627,297 | | | 111 | | Total securities held to maturity | | 651,863 | | | 21,167 | | | (7,671) | | | 665,359 | | | 125 | |
| Marketable equity securities | Marketable equity securities | | 15,707 | | | 218 | | | (124) | | | 15,801 | | | — | | Marketable equity securities | | 15,690 | | | 105 | | | (194) | | | 15,601 | | | — | |
Total | Total | | $ | 2,239,104 | | | $ | 52,424 | | | $ | (21,100) | | | $ | 2,270,428 | | | $ | 111 | | Total | | $ | 2,300,993 | | | $ | 45,976 | | | $ | (22,044) | | | $ | 2,324,925 | | | $ | 125 | |
| |
| (In thousands) | (In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance | (In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance |
December 31, 2020 | December 31, 2020 | | | | | | | | | | | December 31, 2020 | | | | | | | | | | |
Securities available for sale | Securities available for sale | | | | | | | | | | Securities available for sale | | | | | | | | | |
Municipal bonds and obligations | Municipal bonds and obligations | | $ | 90,273 | | | $ | 7,530 | | | $ | 0 | | | $ | 97,803 | | | $ | 0 | | Municipal bonds and obligations | | $ | 90,273 | | | $ | 7,530 | | | $ | — | | | $ | 97,803 | | | $ | — | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | 740,225 | | | 16,836 | | | (235) | | | 756,826 | | | 0 | | Agency collateralized mortgage obligations | | 740,225 | | | 16,836 | | | (235) | | | 756,826 | | | — | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 433,311 | | | 4,954 | | | (133) | | | 438,132 | | | 0 | | Agency mortgage-backed securities | | 433,311 | | | 4,954 | | | (133) | | | 438,132 | | | — | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 278,990 | | | 9,835 | | | (175) | | | 288,650 | | | 0 | | Agency commercial mortgage-backed securities | | 278,990 | | | 9,835 | | | (175) | | | 288,650 | | | — | |
Corporate bonds | Corporate bonds | | 59,098 | | | 942 | | | (10) | | | 60,030 | | | 0 | | Corporate bonds | | 59,098 | | | 942 | | | (10) | | | 60,030 | | | — | |
| Other bonds and obligations | Other bonds and obligations | | 52,080 | | | 1,719 | | | (8) | | | 53,791 | | | 0 | | Other bonds and obligations | | 52,080 | | | 1,719 | | | (8) | | | 53,791 | | | — | |
Total securities available for sale | Total securities available for sale | | 1,653,977 | | | 41,816 | | | (561) | | | 1,695,232 | | | 0 | | Total securities available for sale | | 1,653,977 | | | 41,816 | | | (561) | | | 1,695,232 | | | — | |
| Securities held to maturity | Securities held to maturity | | | | | | | | | | Securities held to maturity | | | | | | | | | |
Municipal bonds and obligations | Municipal bonds and obligations | | 246,520 | | | 20,106 | | | 0 | | | 266,626 | | | 64 | | Municipal bonds and obligations | | 246,520 | | | 20,106 | | | — | | | 266,626 | | | 64 | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | 153,561 | | | 5,989 | | | (171) | | | 159,379 | | | 0 | | Agency collateralized mortgage obligations | | 153,561 | | | 5,989 | | | (171) | | | 159,379 | | | — | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 35,865 | | | 198 | | | (29) | | | 36,034 | | | 0 | | Agency mortgage-backed securities | | 35,865 | | | 198 | | | (29) | | | 36,034 | | | — | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 25,481 | | | 590 | | | (12) | | | 26,059 | | | 0 | | Agency commercial mortgage-backed securities | | 25,481 | | | 590 | | | (12) | | | 26,059 | | | — | |
Tax advantaged economic development bonds | Tax advantaged economic development bonds | | 3,369 | | | 93 | | | 0 | | | 3,462 | | | 40 | | Tax advantaged economic development bonds | | 3,369 | | | 93 | | | — | | | 3,462 | | | 40 | |
Other bonds and obligations | Other bonds and obligations | | 295 | | | 0 | | | 0 | | | 295 | | | 0 | | Other bonds and obligations | | 295 | | | — | | | — | | | 295 | | | — | |
Total securities held to maturity | Total securities held to maturity | | 465,091 | | | 26,976 | | | (212) | | | 491,855 | | | 104 | | Total securities held to maturity | | 465,091 | | | 26,976 | | | (212) | | | 491,855 | | | 104 | |
| Marketable equity securities | Marketable equity securities | | 18,061 | | | 767 | | | (315) | | | 18,513 | | | — | | Marketable equity securities | | 18,061 | | | 767 | | | (315) | | | 18,513 | | | — | |
Total | Total | | $ | 2,137,129 | | | $ | 69,559 | | | $ | (1,088) | | | $ | 2,205,600 | | | $ | 104 | | Total | | $ | 2,137,129 | | | $ | 69,559 | | | $ | (1,088) | | | $ | 2,205,600 | | | $ | 104 | |
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 nine months ended March 31,September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
(In thousands) | Municipal bonds and obligations | | Tax advantaged economic development bonds | | Total |
Balance at December 31, 2020 | $ | 64 | | | $ | 40 | | | $ | 104 | |
Provision for credit losses | 7 | | | 0 | | | 7 | |
Balance at March 31, 2021 | $ | 71 | | | $ | 40 | | | $ | 111 | |
| | | | | | | | | | | | | | | | | |
(In thousands) | Municipal bonds and obligations | | Tax advantaged economic development bonds | | Total |
Balance at June 30, 2021 | $ | 90 | | | $ | 40 | | | $ | 130 | |
Provision for credit losses - reversal | (3) | | | (2) | | | (5) | |
Balance at September 30, 2021 | $ | 87 | | | $ | 38 | | | $ | 125 | |
| | | | | | | | | | | | | | | | | |
(In thousands) | Municipal bonds and obligations | | Tax advantaged economic development bonds | | Total |
Balance at December 31, 2019 | $ | 0 | | | $ | 0 | | | $ | 0 | |
Impact of ASC 326 adoption | 83 | | | 226 | | | 309 | |
Provision for credit losses - reversal | 0 | | | (168) | | | (168) | |
Balance at March 31, 2020 | $ | 83 | | | $ | 58 | | | $ | 141 | |
| | | | | | | | | | | | | | | | | |
(In thousands) | Municipal bonds and obligations | | Tax advantaged economic development bonds | | Total |
Balance at June 30, 2020 | $ | 62 | | | $ | 51 | | | $ | 113 | |
Provision for credit losses - reversal | 5 | | | (22) | | | (17) | |
Balance at September 30, 2020 | $ | 67 | | | $ | 29 | | | $ | 96 | |
| | | | | | | | | | | | | | | | | |
(In thousands) | Municipal bonds and obligations | | Tax advantaged economic development bonds | | Total |
Balance at December 31, 2020 | $ | 64 | | | $ | 40 | | | $ | 104 | |
Impact of ASC 326 adoption | — | | | — | | | — | |
Provision for credit losses - reversal | 23 | | | (2) | | | 21 | |
Balance at September 30, 2021 | $ | 87 | | | $ | 38 | | | $ | 125 | |
| | | | | | | | | | | | | | | | | |
(In thousands) | Municipal bonds and obligations | | Tax advantaged economic development bonds | | Total |
Balance at December 31, 2019 | $ | — | | | $ | — | | | $ | — | |
Impact of ASC 326 adoption | 83 | | | 226 | | | 309 | |
Provision for credit losses - reversal | (16) | | | (197) | | | (213) | |
Balance at September 30, 2020 | $ | 67 | | | $ | 29 | | | $ | 96 | |
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 March 31,September 30, 2021, none of the Company's investment securities were delinquent or in non-accrual status.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at March 31,September 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.
| | | | Available for sale | | Held to maturity | | | Available for sale | | Held to maturity |
| | | Amortized | | Fair | | Amortized | | Fair | | | Amortized | | Fair | | Amortized | | Fair |
(In thousands) | (In thousands) | | Cost | | Value | | Cost | | Value | (In thousands) | | Cost | | Value | | Cost | | Value |
| Within 1 year | Within 1 year | | $ | 31,134 | | | $ | 31,147 | | | $ | 1,872 | | | $ | 1,874 | | Within 1 year | | $ | 31,218 | | | $ | 31,236 | | | $ | 1,756 | | | $ | 1,758 | |
Over 1 year to 5 years | Over 1 year to 5 years | | 7,206 | | | 7,331 | | | 4,270 | | | 4,317 | | Over 1 year to 5 years | | 4,741 | | | 4,815 | | | 3,874 | | | 3,909 | |
Over 5 years to 10 years | Over 5 years to 10 years | | 51,953 | | | 53,260 | | | 23,311 | | | 24,210 | | Over 5 years to 10 years | | 57,667 | | | 59,021 | | | 21,191 | | | 21,885 | |
Over 10 years | Over 10 years | | 88,614 | | | 95,327 | | | 240,661 | | | 256,080 | | Over 10 years | | 80,596 | | | 86,918 | | | 260,098 | | | 273,415 | |
Total bonds and obligations | Total bonds and obligations | | 178,907 | | | 187,065 | | | 270,114 | | | 286,481 | | Total bonds and obligations | | 174,222 | | | 181,990 | | | 286,919 | | | 300,967 | |
| Mortgage-backed securities | Mortgage-backed securities | | 1,433,853 | | | 1,440,265 | | | 340,523 | | | 340,816 | | Mortgage-backed securities | | 1,459,218 | | | 1,461,975 | | | 364,944 | | | 364,392 | |
Total | Total | | $ | 1,612,760 | | | $ | 1,627,330 | | | $ | 610,637 | | | $ | 627,297 | | Total | | $ | 1,633,440 | | | $ | 1,643,965 | | | $ | 651,863 | | | $ | 665,359 | |
During the three months ended March 31,September 30, 2021, purchases of AFS securities totaled $103.9$160.0 million. During the nine months ended September 30, 2021, purchases of AFS securities totaled $429.0 million. During the three and nine months ended March 31,September 30, 2021, there were 0 sales of AFS securities. During the three months ended March 31,September 30, 2020, purchases of AFS securities totaled $160.9$319.2 million and the proceeds from the sale of AFS securities totaled $3.5$64.2 million. During the nine months ended September 30, 2020, purchases of AFS securities totaled $635.2 million and the proceeds from the sale of AFS securities totaled $71.8 million. During the three and nine months ended March 31,September 30, 2021, there were 0 gross gains or losses on AFS securities. During the three months ended March 31,2020,September 30, 2020, there were 0$704.6 thousand gross gains on AFS securities and there were $698.6 thousand gross losses. During the nine months ended September 30, 2020, there were $705.4 thousand gross gains on AFS securities and gross losses totaled $1$699.9 thousand. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of operations.
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 Months | | Over Twelve Months | | Total | | | Less Than Twelve Months | | Over Twelve Months | | Total |
| | | Gross | | | | Gross | | | | Gross | | | | | Gross | | | | Gross | | | | Gross | | |
| | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair |
(In thousands) | (In thousands) | | Losses | | Value | | Losses | | Value | | Losses | | Value | (In thousands) | | Losses | | Value | | Losses | | Value | | Losses | | Value |
March 31, 2021 | | | | | | | | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | | | | | | | | |
| Securities available for sale | Securities available for sale | | | | | | | | | | | | | Securities available for sale | | | | | | | | | | | | |
| Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | $ | 3,583 | | | $ | 150,110 | | | $ | 0 | | | $ | 0 | | | $ | 3,583 | | | $ | 150,110 | | Agency collateralized mortgage obligations | | $ | 3,230 | | | $ | 305,788 | | | $ | 608 | | | $ | 13,050 | | | $ | 3,838 | | | $ | 318,838 | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 8,654 | | | 346,395 | | | 5 | | | 384 | | | 8,659 | | | 346,779 | | Agency mortgage-backed securities | | 7,037 | | | 334,368 | | | 806 | | | 26,641 | | | 7,843 | | | 361,009 | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 3,101 | | | 132,234 | | | 0 | | | 0 | | | 3,101 | | | 132,234 | | Agency commercial mortgage-backed securities | | 1,410 | | | 84,357 | | | 1,020 | | | 28,953 | | | 2,430 | | | 113,310 | |
Corporate bonds | Corporate bonds | | 0 | | | 0 | | | 9 | | | 4,876 | | | 9 | | | 4,876 | | Corporate bonds | | 60 | | | 6,596 | | | — | | | — | | | 60 | | | 6,596 | |
| Other bonds and obligations | Other bonds and obligations | | 0 | | | 0 | | | 8 | | | 981 | | | 8 | | | 981 | | Other bonds and obligations | | — | | | — | | | 8 | | | 831 | | | 8 | | | 831 | |
| Total securities available for sale | Total securities available for sale | | $ | 15,338 | | | $ | 628,739 | | | $ | 22 | | | $ | 6,241 | | | $ | 15,360 | | | $ | 634,980 | | Total securities available for sale | | $ | 11,737 | | | $ | 731,109 | | | $ | 2,442 | | | $ | 69,475 | | | $ | 14,179 | | | $ | 800,584 | |
| Securities held to maturity | Securities held to maturity | | | | | | | | | | | | | Securities held to maturity | | | | | | | | | | | | |
Municipal bonds and obligations | Municipal bonds and obligations | | $ | 592 | | | $ | 23,359 | | | $ | 0 | | | $ | 0 | | | $ | 592 | | | $ | 23,359 | | Municipal bonds and obligations | | $ | 2,233 | | | $ | 50,793 | | | $ | — | | | $ | — | | | $ | 2,233 | | | $ | 50,793 | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | 1,054 | | | 83,449 | | | 0 | | | 0 | | | 1,054 | | | 83,449 | | Agency collateralized mortgage obligations | | 1,979 | | | 64,395 | | | — | | | — | | | 1,979 | | | 64,395 | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 1,682 | | | 59,167 | | | 0 | | | 0 | | | 1,682 | | | 59,167 | | Agency mortgage-backed securities | | 1,495 | | | 55,261 | | | — | | | — | | | 1,495 | | | 55,261 | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 2,288 | | | 103,015 | | | 0 | | | 0 | | | 2,288 | | | 103,015 | | Agency commercial mortgage-backed securities | | 1,948 | | | 104,503 | | | — | | | — | | | 1,948 | | | 104,503 | |
| Tax advantaged economic development bonds | | Tax advantaged economic development bonds | | 16 | | | 1,288 | | | — | | | — | | | 16 | | | 1,288 | |
Total securities held to maturity | Total securities held to maturity | | 5,616 | | | 268,990 | | | 0 | | | 0 | | | 5,616 | | | 268,990 | | Total securities held to maturity | | 7,671 | | | 276,240 | | | — | | | — | | | 7,671 | | | 276,240 | |
| Total | Total | | $ | 20,954 | | | $ | 897,729 | | | $ | 22 | | | $ | 6,241 | | | $ | 20,976 | | | $ | 903,970 | | Total | | $ | 19,408 | | | $ | 1,007,349 | | | $ | 2,442 | | | $ | 69,475 | | | $ | 21,850 | | | $ | 1,076,824 | |
| December 31, 2020 | December 31, 2020 | | | | | | | | | | | | | December 31, 2020 | | | | | | | | | | | | |
| Securities available for sale | Securities available for sale | | | | | | | | | | | | | Securities available for sale | | | | | | | | | | | | |
| Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | $ | 235 | | | $ | 77,898 | | | $ | 0 | | | $ | 0 | | | $ | 235 | | | $ | 77,898 | | Agency collateralized mortgage obligations | | $ | 235 | | | $ | 77,898 | | | $ | — | | | $ | — | | | $ | 235 | | | $ | 77,898 | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 131 | | | 39,939 | | | 2 | | | 256 | | | 133 | | | 40,195 | | Agency mortgage-backed securities | | 131 | | | 39,939 | | | 2 | | | 256 | | | 133 | | | 40,195 | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 175 | | | 51,435 | | | 0 | | | 0 | | | 175 | | | 51,435 | | Agency commercial mortgage-backed securities | | 175 | | | 51,435 | | | — | | | — | | | 175 | | | 51,435 | |
Corporate bonds | Corporate bonds | | 10 | | | 4,875 | | | 0 | | | 0 | | | 10 | | | 4,875 | | Corporate bonds | | 10 | | | 4,875 | | | — | | | — | | | 10 | | | 4,875 | |
| Other bonds and obligations | Other bonds and obligations | | 0 | | | 0 | | | 8 | | | 1,030 | | | 8 | | | 1,030 | | Other bonds and obligations | | — | | | — | | | 8 | | | 1,030 | | | 8 | | | 1,030 | |
| Total securities available for sale | Total securities available for sale | | $ | 551 | | | $ | 174,147 | | | $ | 10 | | | $ | 1,286 | | | $ | 561 | | | $ | 175,433 | | Total securities available for sale | | $ | 551 | | | $ | 174,147 | | | $ | 10 | | | $ | 1,286 | | | $ | 561 | | | $ | 175,433 | |
| Securities held to maturity | Securities held to maturity | | | | | | | | | | | | | Securities held to maturity | | | | | | | | | | | | |
| Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | | $ | 171 | | | $ | 25,048 | | | $ | 0 | | | $ | 0 | | | $ | 171 | | | $ | 25,048 | | Agency collateralized mortgage obligations | | $ | 171 | | | $ | 25,048 | | | $ | — | | | $ | — | | | $ | 171 | | | $ | 25,048 | |
Agency mortgage-backed securities | Agency mortgage-backed securities | | 29 | | | 20,710 | | | 0 | | | 0 | | | 29 | | | 20,710 | | Agency mortgage-backed securities | | 29 | | | 20,710 | | | — | | | — | | | 29 | | | 20,710 | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | | 12 | | | 10,216 | | | 0 | | | 0 | | | 12 | | | 10,216 | | Agency commercial mortgage-backed securities | | 12 | | | 10,216 | | | — | | | — | | | 12 | | | 10,216 | |
| Total securities held to maturity | Total securities held to maturity | | 212 | | | 55,974 | | | 0 | | | 0 | | | 212 | | | 55,974 | | Total securities held to maturity | | 212 | | | 55,974 | | | — | | | — | | | 212 | | | 55,974 | |
Total | Total | | $ | 763 | | | $ | 230,121 | | | $ | 10 | | | $ | 1,286 | | | $ | 773 | | | $ | 231,407 | | Total | | $ | 763 | | | $ | 230,121 | | | $ | 10 | | | $ | 1,286 | | | $ | 773 | | | $ | 231,407 | |
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 March 31,September 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 March 31,September 30, 2021:
AFS collateralized mortgage obligations
At March 31,September 30, 2021, 2533 of the 256255 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.2%1.2% 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 March 31,September 30, 2021, 3330 of the 125124 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 2.4%2.1% 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 March 31,September 30, 2021, 13 of the 1416 securities in the Company’s portfolio of AFS corporate bonds was in an unrealized loss position. Aggregate unrealized losses represents 0.2%0.9% 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 March 31,September 30, 2021, 32 of the 6 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 0.9% 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 March 31,September 30, 2021, 1536 of the 207216 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.5%4.2% 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 March 31,September 30, 2021, 5 of the 1314 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 1.3%3.0% 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM commercial and residential mortgage-backed securities
At March 31,September 30, 2021, 1213 out of 1417 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 2.3%2.1% 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 September 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 1.3% 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 5.6. 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) | (In thousands) | | March 31, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2021 | | December 31, 2020 |
Construction | Construction | | $ | 454,388 | | | $ | 454,513 | | Construction | | $ | 383,425 | | | $ | 454,513 | |
Commercial multifamily | Commercial multifamily | | 483,646 | | | 483,350 | | Commercial multifamily | | 489,793 | | | 483,350 | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 556,286 | | | 552,413 | | Commercial real estate owner occupied | | 563,948 | | | 552,413 | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 2,129,572 | | | 2,119,263 | | Commercial real estate non-owner occupied | | 2,131,433 | | | 2,119,263 | |
Commercial and industrial | Commercial and industrial | | 1,719,304 | | | 1,943,164 | | Commercial and industrial | | 1,255,749 | | | 1,943,164 | |
| Residential real estate | Residential real estate | | 1,774,504 | | | 1,931,681 | | Residential real estate | | 1,546,308 | | | 1,931,681 | |
Home equity | Home equity | | 279,017 | | | 293,981 | | Home equity | | 263,746 | | | 293,981 | |
Consumer other | Consumer other | | 262,061 | | | 303,154 | | Consumer other | | 201,833 | | | 303,154 | |
Total loans | Total loans | | $ | 7,658,778 | | | $ | 8,081,519 | | Total loans | | $ | 6,836,235 | | | $ | 8,081,519 | |
| Allowance for credit losses | Allowance for credit losses | | 123,800 | | | 127,302 | | Allowance for credit losses | | 112,916 | | | 127,302 | |
Net loans | Net loans | | $ | 7,534,978 | | | $ | 7,954,217 | | Net loans | | $ | 6,723,319 | | | $ | 7,954,217 | |
As of MarchSeptember 30, 2021 and December 31, 2021,2020, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $444.2 million.$45.8 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 months ended March 31,September 30, 2021, there were no loans reclassified to held for sale. During the nine months ended September 30, 2021, the Company reclassified $9.5$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.value within loans held for sale on the Consolidated Balance Sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 conditionsconditions.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 which 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).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s activity in the allowance for credit losses for loans for the three and nine months ended March 31,September 30, 2021 and March 31,September 30, 2020 was as follows:
| (In thousands) | (In thousands) | | Balance at Beginning of Period | | Impact of Adopting ASC 326 | | Sub-total | | Charge-offs | | Recoveries | | Provision for Credit Losses | | Balance at End of Period | (In thousands) | | Balance at Beginning of Period | | | Sub-total | | Charge-offs | | Recoveries | | Provision for Credit Losses | | Balance at End of Period |
Three months ended March 31, 2021 | |
Three months ended September 30, 2021 | | Three months ended September 30, 2021 |
Construction | Construction | | $ | 5,111 | | | $ | 0 | | | $ | 5,111 | | | $ | 0 | | | $ | 0 | | | $ | (714) | | | $ | 4,397 | | Construction | | $ | 3,919 | | | | $ | 3,919 | | | $ | — | | | $ | — | | | $ | 714 | | | $ | 4,633 | |
Commercial multifamily | Commercial multifamily | | 5,916 | | | 0 | | | 5,916 | | | (124) | | | 62 | | | 497 | | | 6,351 | | Commercial multifamily | | 7,197 | | | | 7,197 | | | — | | | — | | | (46) | | | 7,151 | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 12,380 | | | 0 | | | 12,380 | | | (376) | | | 12 | | | 2,241 | | | 14,257 | | Commercial real estate owner occupied | | 13,242 | | | | 13,242 | | | (84) | | | 32 | | | (342) | | | 12,848 | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 35,850 | | | 0 | | | 35,850 | | | (6,658) | | | 126 | | | 5,243 | | | 34,561 | | Commercial real estate non-owner occupied | | 30,315 | | | | 30,315 | | | (1,676) | | | 267 | | | 2,870 | | | 31,776 | |
Commercial and industrial | Commercial and industrial | | 25,013 | | | 0 | | | 25,013 | | | (3,320) | | | 644 | | | 3,734 | | | 26,071 | | Commercial and industrial | | 28,225 | | | | 28,225 | | | (1,279) | | | 1,373 | | | (2,385) | | | 25,934 | |
| Residential real estate | Residential real estate | | 28,491 | | | 0 | | | 28,491 | | | (377) | | | 437 | | | (2,751) | | | 25,800 | | Residential real estate | | 23,643 | | | | 23,643 | | | (903) | | | 312 | | | (107) | | | 22,945 | |
Home equity | Home equity | | 6,482 | | | 0 | | | 6,482 | | | (77) | | | 24 | | | (680) | | | 5,749 | | Home equity | | 5,432 | | | | 5,432 | | | (12) | | | 80 | | | (845) | | | 4,655 | |
Consumer other | Consumer other | | 8,059 | | | 0 | | | 8,059 | | | (528) | | | 160 | | | (1,077) | | | 6,614 | | Consumer other | | 7,071 | | | | 7,071 | | | (380) | | | 137 | | | (3,854) | | | 2,974 | |
Total allowance for credit losses | Total allowance for credit losses | | $ | 127,302 | | | $ | 0 | | | $ | 127,302 | | | $ | (11,460) | | | $ | 1,465 | | | $ | 6,493 | | | $ | 123,800 | | Total allowance for credit losses | | $ | 119,044 | | | | $ | 119,044 | | | $ | (4,334) | | | $ | 2,201 | | | $ | (3,995) | | | $ | 112,916 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Balance at Beginning of Period | | | | Sub-total | | Charge-offs | | Recoveries | | Provision for Credit Losses | | Balance at End of Period |
Three months ended September 30, 2020 |
Construction | | $ | 7,779 | | | | | $ | 7,779 | | | $ | — | | | $ | — | | | $ | (1,122) | | | $ | 6,657 | |
Commercial multifamily | | 4,299 | | | | | 4,299 | | | — | | | — | | | (518) | | | 3,781 | |
Commercial real estate owner occupied | | 11,552 | | | | | 11,552 | | | (58) | | | 38 | | | (537) | | | 10,995 | |
Commercial real estate non-owner occupied | | 34,707 | | | | | 34,707 | | | — | | | 155 | | | (2,088) | | | 32,774 | |
Commercial and industrial | | 23,096 | | | | | 23,096 | | | (5,968) | | | 406 | | | 3,314 | | | 20,848 | |
| | | | | | | | | | | | | | |
Residential real estate | | 39,004 | | | | | 39,004 | | | (1,085) | | | 842 | | | 1,130 | | | 39,891 | |
Home equity | | 8,021 | | | | | 8,021 | | | (88) | | | 36 | | | 1,352 | | | 9,321 | |
Consumer other | | 10,936 | | | | | 10,936 | | | (577) | | | 102 | | | (314) | | | 10,147 | |
Total allowance for credit losses | | $ | 139,394 | | | | | $ | 139,394 | | | $ | (7,776) | | | $ | 1,579 | | | $ | 1,217 | | | $ | 134,414 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (In thousands) | (In thousands) | | Balance at Beginning of Period | | Impact of Adopting ASC 326 | | Sub-total | | Charge-offs | | Recoveries | | Provision for Credit Losses | | Balance at End of Period | (In thousands) | | Balance at Beginning of Period | | Impact of Adopting ASC 326 | | Sub-total | | Charge-offs | | Recoveries | | Provision for Credit Losses | | Balance at End of Period |
Three months ended March 31, 2020 | |
Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 |
Construction | Construction | | $ | 2,713 | | | $ | (342) | | | $ | 2,371 | | | $ | 0 | | | $ | 0 | | | $ | 2,202 | | | $ | 4,573 | | Construction | | $ | 5,111 | | | $ | — | | | $ | 5,111 | | | $ | — | | | $ | — | | | $ | (478) | | | $ | 4,633 | |
Commercial multifamily | Commercial multifamily | | 4,413 | | | (1,842) | | | 2,571 | | | 0 | | | 0 | | | 1,882 | | | 4,453 | | Commercial multifamily | | 5,916 | | | — | | | 5,916 | | | (239) | | | 157 | | | 1,317 | | | 7,151 | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 4,880 | | | 6,062 | | | 10,942 | | | (6,376) | | | 258 | | | 6,783 | | | 11,607 | | Commercial real estate owner occupied | | 12,380 | | | — | | | 12,380 | | | (686) | | | 83 | | | 1,071 | | | 12,848 | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 16,344 | | | 11,201 | | | 27,545 | | | (135) | | | 47 | | | 1,406 | | | 28,863 | | Commercial real estate non-owner occupied | | 35,850 | | | — | | | 35,850 | | | (10,896) | | | 571 | | | 6,251 | | | 31,776 | |
Commercial and industrial | Commercial and industrial | | 20,099 | | | (2,189) | | | 17,910 | | | (4,916) | | | 1,402 | | | 10,106 | | | 24,502 | | Commercial and industrial | | 25,013 | | | — | | | 25,013 | | | (8,184) | | | 3,284 | | | 5,821 | | | 25,934 | |
| Residential real estate | Residential real estate | | 9,970 | | | 6,799 | | | 16,769 | | | (171) | | | 70 | | | 9,389 | | | 26,057 | | Residential real estate | | 28,491 | | | — | | | 28,491 | | | (1,501) | | | 1,417 | | | (5,462) | | | 22,945 | |
Home equity | Home equity | | 1,470 | | | 4,884 | | | 6,354 | | | (77) | | | 2 | | | 1,501 | | | 7,780 | | Home equity | | 6,482 | | | — | | | 6,482 | | | (253) | | | 119 | | | (1,693) | | | 4,655 | |
Consumer other | Consumer other | | 3,686 | | | 861 | | | 4,547 | | | (758) | | | 180 | | | 1,706 | | | 5,675 | | Consumer other | | 8,059 | | | — | | | 8,059 | | | (1,283) | | | 546 | | | (4,348) | | | 2,974 | |
Total allowance for credit losses | Total allowance for credit losses | | $ | 63,575 | | | $ | 25,434 | | | $ | 89,009 | | | $ | (12,433) | | | $ | 1,959 | | | $ | 34,975 | | | $ | 113,510 | | Total allowance for credit losses | | $ | 127,302 | | | $ | — | | | $ | 127,302 | | | $ | (23,042) | | | $ | 6,177 | | | $ | 2,479 | | | $ | 112,916 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Balance at Beginning of Period | | Impact of Adopting ASC 326 | | Sub-total | | Charge-offs | | Recoveries | | Provision for Credit Losses | | Balance at End of Period |
Nine months ended September 30, 2020 |
Construction | | $ | 2,713 | | | $ | (342) | | | $ | 2,371 | | | $ | — | | | $ | — | | | $ | 4,286 | | | $ | 6,657 | |
Commercial multifamily | | 4,413 | | | (1,842) | | | 2,571 | | | (50) | | | — | | | 1,260 | | | 3,781 | |
Commercial real estate owner occupied | | 4,880 | | | 6,062 | | | 10,942 | | | (8,670) | | | 907 | | | 7,816 | | | 10,995 | |
Commercial real estate non-owner occupied | | 16,344 | | | 11,201 | | | 27,545 | | | (135) | | | 290 | | | 5,074 | | | 32,774 | |
Commercial and industrial | | 20,099 | | | (2,189) | | | 17,910 | | | (14,253) | | | 4,025 | | | 13,166 | | | 20,848 | |
| | | | | | | | | | | | | | |
Residential real estate | | 9,970 | | | 6,799 | | | 16,769 | | | (2,212) | | | 936 | | | 24,398 | | | 39,891 | |
Home equity | | 1,470 | | | 4,884 | | | 6,354 | | | (322) | | | 136 | | | 3,153 | | | 9,321 | |
Consumer other | | 3,686 | | | 861 | | | 4,547 | | | (1,840) | | | 502 | | | 6,938 | | | 10,147 | |
Total allowance for credit losses | | $ | 63,575 | | | $ | 25,434 | | | $ | 89,009 | | | $ | (27,482) | | | $ | 6,796 | | | $ | 66,091 | | | $ | 134,414 | |
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 nine months ended March 31,September 30, 2021 and March 31, 2020 was as follows:
| | | Three Months Ended March 31, | | Three Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | 2020 | (In thousands) | | 2021 | | 2020 | |
Balance at beginning of period | Balance at beginning of period | | $ | 7,629 | | $ | 100 | | Balance at beginning of period | | $ | 7,829 | | | $ | 8,593 | | |
Impact of adopting ASC 326 | | 0 | | 7,993 | | |
Sub-Total | | 7,629 | | 8,093 | | |
| Expense for credit losses | Expense for credit losses | | 200 | | 330 | | Expense for credit losses | | — | | | — | | |
Balance at end of period | Balance at end of period | | $ | 7,829 | | $ | 8,423 | | Balance at end of period | | $ | 7,829 | | | $ | 8,593 | | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In thousands) | | 2021 | | 2020 |
Balance at beginning of period | | $ | 7,629 | | | $ | 100 | |
Impact of adopting ASC 326 | | — | | | 7,993 | |
Sub-Total | | 7,629 | | | 8,093 | |
Expense for credit losses | | 200 | | | 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.
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) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total |
As of March 31, 2021 |
Construction | | | | | | | | | |
Risk rating | | | | | | | | | |
Pass | $ | 25,422 | | $ | 43,662 | | $ | 275,525 | | $ | 65,371 | | $ | 27,177 | | $ | 2,501 | | $ | 1,000 | | $ | 0 | | $ | 440,658 | |
Special Mention | 0 | | 0 | | 0 | | 313 | | 0 | | 0 | | 0 | | 0 | | 313 | |
Substandard | 0 | | 0 | | 0 | | 9,429 | | 3,988 | | 0 | | 0 | | 0 | | 13,417 | |
Total | $ | 25,422 | | $ | 43,662 | | $ | 275,525 | | $ | 75,113 | | $ | 31,165 | | $ | 2,501 | | $ | 1,000 | | $ | 0 | | $ | 454,388 | |
| | | | | | | | | |
Commercial multifamily: |
Risk rating | | | | | | | | | |
Pass | $ | 17,100 | | $ | 31,295 | | $ | 55,210 | | $ | 74,123 | | $ | 78,148 | | $ | 219,175 | | $ | 61 | | $ | 0 | | $ | 475,112 | |
Special Mention | 0 | | 0 | | 2,187 | | 0 | | 0 | | 0 | | 0 | | 0 | | 2,187 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 6,204 | | 143 | | 0 | | 6,347 | |
Total | $ | 17,100 | | $ | 31,295 | | $ | 57,397 | | $ | 74,123 | | $ | 78,148 | | $ | 225,379 | | $ | 204 | | $ | 0 | | $ | 483,646 | |
| | | | | | | | | |
Commercial real estate owner occupied: |
Risk rating | | | | | | | | | |
Pass | $ | 13,652 | | $ | 53,164 | | $ | 81,473 | | $ | 99,224 | | $ | 63,148 | | $ | 218,342 | | $ | 1,506 | | $ | 0 | | $ | 530,509 | |
Special Mention | 0 | | 535 | | 3,389 | | 1,136 | | 1,966 | | 2,432 | | 0 | | 0 | | 9,458 | |
Substandard | 0 | | 0 | | 1,266 | | 3,333 | | 1,627 | | 10,093 | | 0 | | 0 | | 16,319 | |
Total | $ | 13,652 | | $ | 53,699 | | $ | 86,128 | | $ | 103,693 | | $ | 66,741 | | $ | 230,867 | | $ | 1,506 | | $ | 0 | | $ | 556,286 | |
| | | | | | | | | |
Commercial real estate non-owner occupied: |
Risk rating | | | | | | | | | |
Pass | $ | 77,638 | | $ | 174,898 | | $ | 292,528 | | $ | 469,718 | | $ | 218,525 | | $ | 725,223 | | $ | 17,394 | | $ | 0 | | $ | 1,975,924 | |
Special Mention | 0 | | 231 | | 270 | | 2,971 | | 6,904 | | 58,403 | | 1,059 | | 0 | | 69,838 | |
Substandard | 0 | | 7,804 | | 3,529 | | 3,730 | | 20,135 | | 48,418 | | 194 | | 0 | | 83,810 | |
Total | $ | 77,638 | | $ | 182,933 | | $ | 296,327 | | $ | 476,419 | | $ | 245,564 | | $ | 832,044 | | $ | 18,647 | | $ | 0 | | $ | 2,129,572 | |
|
Commercial and industrial: |
Risk rating | | | | | | | | | |
Pass | $ | 25,240 | | $ | 563,757 | | $ | 131,781 | | $ | 203,153 | | $ | 110,240 | | $ | 182,949 | | $ | 372,075 | | $ | 0 | | $ | 1,589,195 | |
Special Mention | 0 | | 1,952 | | 9,887 | | 7,477 | | 3,881 | | 4,011 | | 10,806 | | 0 | | 38,014 | |
Substandard | 146 | | 8,807 | | 37,772 | | 22,909 | | 6,826 | | 7,857 | | 7,456 | | 0 | | 91,773 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 322 | | 0 | | 322 | |
Total | $ | 25,386 | | $ | 574,516 | | $ | 179,440 | | $ | 233,539 | | $ | 120,947 | | $ | 194,817 | | $ | 390,659 | | $ | 0 | | $ | 1,719,304 | |
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Residential real estate |
Risk rating | | | | | | | | | |
Pass | $ | 55,071 | | $ | 148,622 | | $ | 127,817 | | $ | 218,785 | | $ | 273,160 | | $ | 931,322 | | $ | 3,261 | | $ | 0 | | $ | 1,758,038 | |
Special Mention | 0 | | 0 | | 0 | | 0 | | 284 | | 814 | | 0 | | 0 | | 1,098 | |
Substandard | 0 | | 700 | | 31 | | 1,836 | | 2,434 | | 10,367 | | 0 | | 0 | | 15,368 | |
Total | $ | 55,071 | | $ | 149,322 | | $ | 127,848 | | $ | 220,621 | | $ | 275,878 | | $ | 942,503 | | $ | 3,261 | | $ | 0 | | $ | 1,774,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans Amortized Cost Basis by Origination Year | | | |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total |
As of September 30, 2021 |
Construction | | | | | | | | | |
Risk rating | | | | | | | | | |
Pass | $ | 43,325 | | $ | 53,385 | | $ | 193,833 | | $ | 64,502 | | $ | 16,845 | | $ | 1,793 | | $ | — | | $ | — | | $ | 373,683 | |
Special Mention | — | | — | | — | | 313 | | — | | — | | — | | — | | 313 | |
Substandard | — | | — | | — | | 9,429 | | — | | — | | — | | — | | 9,429 | |
Total | $ | 43,325 | | $ | 53,385 | | $ | 193,833 | | $ | 74,244 | | $ | 16,845 | | $ | 1,793 | | $ | — | | $ | — | | $ | 383,425 | |
| | | | | | | | | |
Commercial multifamily: |
Risk rating | | | | | | | | | |
Pass | $ | 30,214 | | $ | 31,016 | | $ | 81,868 | | $ | 65,882 | | $ | 77,066 | | $ | 198,651 | | $ | 44 | | $ | — | | $ | 484,741 | |
Special Mention | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | — | | — | | — | | — | | — | | 4,914 | | 138 | | — | | 5,052 | |
Total | $ | 30,214 | | $ | 31,016 | | $ | 81,868 | | $ | 65,882 | | $ | 77,066 | | $ | 203,565 | | $ | 182 | | $ | — | | $ | 489,793 | |
| | | | | | | | | |
Commercial real estate owner occupied: |
Risk rating | | | | | | | | | |
Pass | $ | 98,552 | | $ | 50,730 | | $ | 70,391 | | $ | 96,479 | | $ | 50,025 | | $ | 169,203 | | $ | 3,240 | | $ | — | | $ | 538,620 | |
Special Mention | — | | 531 | | 2,154 | | 2,037 | | 1,957 | | 1,771 | | — | | — | | 8,450 | |
Substandard | — | | — | | 1,882 | | 4,011 | | 1,416 | | 9,569 | | — | | — | | 16,878 | |
Total | $ | 98,552 | | $ | 51,261 | | $ | 74,427 | | $ | 102,527 | | $ | 53,398 | | $ | 180,543 | | $ | 3,240 | | $ | — | | $ | 563,948 | |
| | | | | | | | | |
Commercial real estate non-owner occupied: |
Risk rating | | | | | | | | | |
Pass | $ | 240,271 | | $ | 189,885 | | $ | 306,471 | | $ | 390,299 | | $ | 234,270 | | $ | 648,359 | | $ | 18,321 | | $ | — | | $ | 2,027,876 | |
Special Mention | — | | 226 | | 266 | | 7,761 | | 6,794 | | 33,409 | | — | | — | | 48,456 | |
Substandard | — | | 7,697 | | 3,229 | | 2,802 | | 12,085 | | 29,189 | | 99 | | — | | 55,101 | |
Total | $ | 240,271 | | $ | 197,808 | | $ | 309,966 | | $ | 400,862 | | $ | 253,149 | | $ | 710,957 | | $ | 18,420 | | $ | — | | $ | 2,131,433 | |
|
Commercial and industrial: |
Risk rating | | | | | | | | | |
Pass | $ | 100,332 | | $ | 153,232 | | $ | 113,815 | | $ | 174,674 | | $ | 72,581 | | $ | 155,535 | | $ | 385,180 | | $ | — | | $ | 1,155,349 | |
Special Mention | 661 | | 3,511 | | 10,811 | | 9,122 | | 1,872 | | 168 | | 23,282 | | — | | 49,427 | |
Substandard | 232 | | 1,619 | | 17,878 | | 5,893 | | 3,236 | | 4,086 | | 17,787 | | — | | 50,731 | |
Doubtful | — | | — | | — | | — | | — | | — | | 242 | | — | | 242 | |
Total | $ | 101,225 | | $ | 158,362 | | $ | 142,504 | | $ | 189,689 | | $ | 77,689 | | $ | 159,789 | | $ | 426,491 | | $ | — | | $ | 1,255,749 | |
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Residential real estate |
Risk rating | | | | | | | | | |
Pass | $ | 175,047 | | $ | 126,838 | | $ | 99,726 | | $ | 158,363 | | $ | 213,995 | | $ | 758,315 | | $ | 295 | | $ | — | | $ | 1,532,579 | |
Special Mention | — | | — | | — | | — | | — | | 401 | | — | | — | | 401 | |
Substandard | — | | — | | — | | 1,865 | | 1,583 | | 9,880 | | — | | — | | 13,328 | |
Total | $ | 175,047 | | $ | 126,838 | | $ | 99,726 | | $ | 160,228 | | $ | 215,578 | | $ | 768,596 | | $ | 295 | | $ | — | | $ | 1,546,308 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | Term Loans Amortized Cost Basis by Origination Year | | | Term Loans Amortized Cost Basis by Origination Year | |
(In thousands) | (In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | (In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total |
As of December 31, 2020 | As of December 31, 2020 | As of December 31, 2020 |
Construction | Construction | | Construction | |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 38,374 | | $ | 255,377 | | $ | 114,690 | | $ | 28,474 | | $ | 9,519 | | $ | 2,766 | | $ | 1,000 | | $ | 0 | | $ | 450,200 | | Pass | $ | 38,374 | | $ | 255,377 | | $ | 114,690 | | $ | 28,474 | | $ | 9,519 | | $ | 2,766 | | $ | 1,000 | | $ | — | | $ | 450,200 | |
Special Mention | Special Mention | 0 | | 0 | | 313 | | 0 | | 0 | | 0 | | 0 | | 0 | | 313 | | Special Mention | — | | — | | 313 | | — | | — | | — | | — | | — | | 313 | |
Substandard | Substandard | 0 | | 0 | | 0 | | 4,000 | | 0 | | 0 | | 0 | | 0 | | 4,000 | | Substandard | — | | — | | — | | 4,000 | | — | | — | | — | | — | | 4,000 | |
Total | Total | $ | 38,374 | | $ | 255,377 | | $ | 115,003 | | $ | 32,474 | | $ | 9,519 | | $ | 2,766 | | $ | 1,000 | | $ | 0 | | $ | 454,513 | | Total | $ | 38,374 | | $ | 255,377 | | $ | 115,003 | | $ | 32,474 | | $ | 9,519 | | $ | 2,766 | | $ | 1,000 | | $ | — | | $ | 454,513 | |
| Commercial multifamily: | Commercial multifamily: | Commercial multifamily: |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 31,438 | | $ | 57,659 | | $ | 74,932 | | $ | 77,746 | | $ | 81,066 | | $ | 153,818 | | $ | 20 | | $ | 0 | | $ | 476,679 | | Pass | $ | 31,438 | | $ | 57,659 | | $ | 74,932 | | $ | 77,746 | | $ | 81,066 | | $ | 153,818 | | $ | 20 | | $ | — | | $ | 476,679 | |
Special Mention | Special Mention | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | Special Mention | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | Substandard | 0 | | 0 | | 0 | | 0 | | 47 | | 6,479 | | 145 | | 0 | | 6,671 | | Substandard | — | | — | | — | | — | | 47 | | 6,479 | | 145 | | — | | 6,671 | |
Total | Total | $ | 31,438 | | $ | 57,659 | | $ | 74,932 | | $ | 77,746 | | $ | 81,113 | | $ | 160,297 | | $ | 165 | | $ | 0 | | $ | 483,350 | | Total | $ | 31,438 | | $ | 57,659 | | $ | 74,932 | | $ | 77,746 | | $ | 81,113 | | $ | 160,297 | | $ | 165 | | $ | — | | $ | 483,350 | |
| Commercial real estate owner occupied: | Commercial real estate owner occupied: | Commercial real estate owner occupied: |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 58,327 | | $ | 84,839 | | $ | 104,797 | | $ | 64,693 | | $ | 44,300 | | $ | 169,197 | | $ | 1,194 | | $ | 0 | | $ | 527,347 | | Pass | $ | 58,327 | | $ | 84,839 | | $ | 104,797 | | $ | 64,693 | | $ | 44,300 | | $ | 169,197 | | $ | 1,194 | | $ | — | | $ | 527,347 | |
Special Mention | Special Mention | 535 | | 2,569 | | 1,136 | | 1,009 | | 800 | | 2,579 | | 0 | | 0 | | 8,628 | | Special Mention | 535 | | 2,569 | | 1,136 | | 1,009 | | 800 | | 2,579 | | — | | — | | 8,628 | |
Substandard | Substandard | 0 | | 1,266 | | 3,597 | | 1,685 | | 1,439 | | 8,451 | | 0 | | 0 | | 16,438 | | Substandard | — | | 1,266 | | 3,597 | | 1,685 | | 1,439 | | 8,451 | | — | | — | | 16,438 | |
Total | Total | $ | 58,862 | | $ | 88,674 | | $ | 109,530 | | $ | 67,387 | | $ | 46,539 | | $ | 180,227 | | $ | 1,194 | | $ | 0 | | $ | 552,413 | | Total | $ | 58,862 | | $ | 88,674 | | $ | 109,530 | | $ | 67,387 | | $ | 46,539 | | $ | 180,227 | | $ | 1,194 | | $ | — | | $ | 552,413 | |
| Commercial real estate non-owner occupied: | Commercial real estate non-owner occupied: | Commercial real estate non-owner occupied: |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 180,520 | | $ | 292,386 | | $ | 435,440 | | $ | 223,935 | | $ | 303,221 | | $ | 497,066 | | $ | 15,393 | | $ | 0 | | $ | 1,947,961 | | Pass | $ | 180,520 | | $ | 292,386 | | $ | 435,440 | | $ | 223,935 | | $ | 303,221 | | $ | 497,066 | | $ | 15,393 | | $ | — | | $ | 1,947,961 | |
Special Mention | Special Mention | 0 | | 279 | | 2,068 | | 6,958 | | 11,798 | | 44,961 | | 1,068 | | 0 | | 67,132 | | Special Mention | — | | 279 | | 2,068 | | 6,958 | | 11,798 | | 44,961 | | 1,068 | | — | | 67,132 | |
Substandard | Substandard | 7,804 | | 3,529 | | 4,235 | | 19,632 | | 2,124 | | 66,651 | | 195 | | 0 | | 104,170 | | Substandard | 7,804 | | 3,529 | | 4,235 | | 19,632 | | 2,124 | | 66,651 | | 195 | | — | | 104,170 | |
Total | Total | $ | 188,324 | | $ | 296,194 | | $ | 441,743 | | $ | 250,525 | | $ | 317,143 | | $ | 608,678 | | $ | 16,656 | | $ | 0 | | $ | 2,119,263 | | Total | $ | 188,324 | | $ | 296,194 | | $ | 441,743 | | $ | 250,525 | | $ | 317,143 | | $ | 608,678 | | $ | 16,656 | | $ | — | | $ | 2,119,263 | |
| Commercial and industrial: | Commercial and industrial: | Commercial and industrial: |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 754,260 | | $ | 159,046 | | $ | 205,651 | | $ | 130,985 | | $ | 48,326 | | $ | 148,222 | | $ | 368,769 | | $ | 0 | | $ | 1,815,259 | | Pass | $ | 754,260 | | $ | 159,046 | | $ | 205,651 | | $ | 130,985 | | $ | 48,326 | | $ | 148,222 | | $ | 368,769 | | $ | — | | $ | 1,815,259 | |
Special Mention | Special Mention | 1,467 | | 5,753 | | 5,267 | | 2,851 | | 1,601 | | 65 | | 12,408 | | 0 | | 29,412 | | Special Mention | 1,467 | | 5,753 | | 5,267 | | 2,851 | | 1,601 | | 65 | | 12,408 | | — | | 29,412 | |
Substandard | Substandard | 7,392 | | 39,822 | | 24,951 | | 7,765 | | 3,504 | | 5,630 | | 9,099 | | 0 | | 98,163 | | Substandard | 7,392 | | 39,822 | | 24,951 | | 7,765 | | 3,504 | | 5,630 | | 9,099 | | — | | 98,163 | |
Doubtful | Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 330 | | 0 | | 330 | | Doubtful | — | | — | | — | | — | | — | | — | | 330 | | — | | 330 | |
Total | Total | $ | 763,119 | | $ | 204,621 | | $ | 235,869 | | $ | 141,601 | | $ | 53,431 | | $ | 153,917 | | $ | 390,606 | | $ | 0 | | $ | 1,943,164 | | Total | $ | 763,119 | | $ | 204,621 | | $ | 235,869 | | $ | 141,601 | | $ | 53,431 | | $ | 153,917 | | $ | 390,606 | | $ | — | | $ | 1,943,164 | |
| | | Residential real estate | Residential real estate | Residential real estate |
Risk rating | Risk rating | | Risk rating | |
Pass | Pass | $ | 150,583 | | $ | 146,142 | | $ | 272,399 | | $ | 320,384 | | $ | 333,159 | | $ | 691,078 | | $ | 3,281 | | $ | 0 | | $ | 1,917,026 | | Pass | $ | 150,583 | | $ | 146,142 | | $ | 272,399 | | $ | 320,384 | | $ | 333,159 | | $ | 691,078 | | $ | 3,281 | | $ | — | | $ | 1,917,026 | |
Special Mention | Special Mention | 384 | | 0 | | 454 | | 1,430 | | 0 | | 362 | | 0 | | 0 | | 2,630 | | Special Mention | 384 | | — | | 454 | | 1,430 | | — | | 362 | | — | | — | | 2,630 | |
Substandard | Substandard | 991 | | 39 | | 703 | | 902 | | 417 | | 8,964 | | 9 | | 0 | | 12,025 | | Substandard | 991 | | 39 | | 703 | | 902 | | 417 | | 8,964 | | 9 | | — | | 12,025 | |
Total | Total | $ | 151,958 | | $ | 146,181 | | $ | 273,556 | | $ | 322,716 | | $ | 333,576 | | $ | 700,404 | | $ | 3,290 | | $ | 0 | | $ | 1,931,681 | | Total | $ | 151,958 | | $ | 146,181 | | $ | 273,556 | | $ | 322,716 | | $ | 333,576 | | $ | 700,404 | | $ | 3,290 | | $ | — | | $ | 1,931,681 | |
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 | | | Term Loans Amortized Cost Basis by Origination Year | |
(In thousands) | (In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | (In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total |
As of March 31, 2021 | |
As of September 30, 2021 | | As of September 30, 2021 |
Home equity: | Home equity: | | Home equity: | |
Payment performance | Payment performance | | Payment performance | |
Performing | Performing | $ | 703 | | $ | 2,623 | | $ | 1,469 | | $ | 309 | | $ | 1,829 | | $ | 2,234 | | $ | 267,103 | | $ | 0 | | $ | 276,270 | | Performing | $ | 267 | | $ | 471 | | $ | — | | $ | — | | $ | — | | $ | 26 | | $ | 260,798 | | $ | — | | $ | 261,562 | |
Nonperforming | Nonperforming | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 2,747 | | 0 | | 2,747 | | Nonperforming | — | | — | | — | | — | | — | | — | | 2,184 | | — | | 2,184 | |
Total | Total | $ | 703 | | $ | 2,623 | | $ | 1,469 | | $ | 309 | | $ | 1,829 | | $ | 2,234 | | $ | 269,850 | | $ | 0 | | $ | 279,017 | | Total | $ | 267 | | $ | 471 | | $ | — | | $ | — | | $ | — | | $ | 26 | | $ | 262,982 | | $ | — | | $ | 263,746 | |
| Consumer other: | Consumer other: | | Consumer other: | |
Payment performance | Payment performance | | Payment performance | |
Performing | Performing | $ | 4,870 | | $ | 14,084 | | $ | 30,924 | | $ | 87,205 | | $ | 57,753 | | $ | 54,399 | | $ | 7,965 | | $ | 0 | | $ | 257,200 | | Performing | $ | 18,117 | | $ | 12,230 | | $ | 24,397 | | $ | 64,468 | | $ | 38,387 | | $ | 37,666 | | $ | 3,295 | | $ | — | | $ | 198,560 | |
Nonperforming | Nonperforming | 0 | | 69 | | 381 | | 1,325 | | 1,457 | | 1,619 | | 10 | | 0 | | 4,861 | | Nonperforming | 8 | | 75 | | 332 | | 898 | | 900 | | 1,053 | | 7 | | — | | 3,273 | |
Total | Total | $ | 4,870 | | $ | 14,153 | | $ | 31,305 | | $ | 88,530 | | $ | 59,210 | | $ | 56,018 | | $ | 7,975 | | $ | 0 | | $ | 262,061 | | Total | $ | 18,125 | | $ | 12,305 | | $ | 24,729 | | $ | 65,366 | | $ | 39,287 | | $ | 38,719 | | $ | 3,302 | | $ | — | | $ | 201,833 | |
| | | Term Loans Amortized Cost Basis by Origination Year | | | Term Loans Amortized Cost Basis by Origination Year | |
(In thousands) | (In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total | (In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total |
As of December 31, 2020 | As of December 31, 2020 | As of December 31, 2020 |
Home equity: | Home equity: | | Home equity: | |
Payment performance | Payment performance | | Payment performance | |
Performing | Performing | $ | 2,445 | | $ | 1,960 | | $ | 316 | | $ | 1,859 | | $ | 499 | | $ | 1,882 | | $ | 282,123 | | $ | 0 | | $ | 291,084 | | Performing | $ | 2,445 | | $ | 1,960 | | $ | 316 | | $ | 1,859 | | $ | 499 | | $ | 1,882 | | $ | 282,123 | | $ | — | | $ | 291,084 | |
Nonperforming | Nonperforming | 0 | | 0 | | 1 | | 0 | | 0 | | 0 | | 2,896 | | 0 | | 2,897 | | Nonperforming | — | | — | | 1 | | — | | — | | — | | 2,896 | | — | | 2,897 | |
Total | Total | $ | 2,445 | | $ | 1,960 | | $ | 317 | | $ | 1,859 | | $ | 499 | | $ | 1,882 | | $ | 285,019 | | $ | 0 | | $ | 293,981 | | Total | $ | 2,445 | | $ | 1,960 | | $ | 317 | | $ | 1,859 | | $ | 499 | | $ | 1,882 | | $ | 285,019 | | $ | — | | $ | 293,981 | |
| Consumer other: | Consumer other: | | Consumer other: | |
Payment performance | Payment performance | | Payment performance | |
Performing | Performing | $ | 15,193 | | $ | 35,317 | | $ | 101,730 | | $ | 69,366 | | $ | 35,421 | | $ | 31,327 | | $ | 9,339 | | $ | 0 | | $ | 297,693 | | Performing | $ | 15,193 | | $ | 35,317 | | $ | 101,730 | | $ | 69,366 | | $ | 35,421 | | $ | 31,327 | | $ | 9,339 | | $ | — | | $ | 297,693 | |
Nonperforming | Nonperforming | 39 | | 316 | | 1,511 | | 1,599 | | 1,585 | | 407 | | 4 | | 0 | | 5,461 | | Nonperforming | 39 | | 316 | | 1,511 | | 1,599 | | 1,585 | | 407 | | 4 | | — | | 5,461 | |
Total | Total | $ | 15,232 | | $ | 35,633 | | $ | 103,241 | | $ | 70,965 | | $ | 37,006 | | $ | 31,734 | | $ | 9,343 | | $ | 0 | | $ | 303,154 | | Total | $ | 15,232 | | $ | 35,633 | | $ | 103,241 | | $ | 70,965 | | $ | 37,006 | | $ | 31,734 | | $ | 9,343 | | $ | — | | $ | 303,154 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans by past due status at March 31,September 30, 2021 and December 31, 2020:
| (In thousands) | (In thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans | (In thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans |
March 31, 2021 | |
September 30, 2021 | | September 30, 2021 |
Construction | Construction | | $ | 3,988 | | | $ | 0 | | | $ | 0 | | | $ | 3,988 | | | $ | 450,400 | | | $ | 454,388 | | Construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 383,425 | | | $ | 383,425 | |
Commercial multifamily | Commercial multifamily | | 0 | | | 0 | | | 4,068 | | | 4,068 | | | 479,578 | | | 483,646 | | Commercial multifamily | | 87 | | | 69 | | | 360 | | | 516 | | | 489,277 | | | 489,793 | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 6,174 | | | 487 | | | 4,610 | | | 11,271 | | | 545,015 | | | 556,286 | | Commercial real estate owner occupied | | 627 | | | 1,082 | | | 7,318 | | | 9,027 | | | 554,921 | | | 563,948 | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 703 | | | 0 | | | 21,790 | | | 22,493 | | | 2,107,079 | | | 2,129,572 | | Commercial real estate non-owner occupied | | 4,821 | | | 694 | | | 7,718 | | | 13,233 | | | 2,118,200 | | | 2,131,433 | |
Commercial and industrial | Commercial and industrial | | 9,479 | | | 1,540 | | | 9,486 | | | 20,505 | | | 1,698,799 | | | 1,719,304 | | Commercial and industrial | | 3,269 | | | 398 | | | 7,252 | | | 10,919 | | | 1,244,830 | | | 1,255,749 | |
| Residential real estate | Residential real estate | | 2,990 | | | 1,098 | | | 14,476 | | | 18,564 | | | 1,755,940 | | | 1,774,504 | | Residential real estate | | 3,860 | | | 581 | | | 12,939 | | | 17,380 | | | 1,528,928 | | | 1,546,308 | |
Home equity | Home equity | | 647 | | | 159 | | | 2,747 | | | 3,553 | | | 275,464 | | | 279,017 | | Home equity | | 602 | | | 450 | | | 2,184 | | | 3,236 | | | 260,510 | | | 263,746 | |
Consumer other | Consumer other | | 1,052 | | | 248 | | | 4,764 | | | 6,064 | | | 255,997 | | | 262,061 | | Consumer other | | 1,579 | | | 246 | | | 3,179 | | | 5,004 | | | 196,829 | | | 201,833 | |
Total | Total | | $ | 25,033 | | | $ | 3,532 | | | $ | 61,941 | | | $ | 90,506 | | | $ | 7,568,272 | | | $ | 7,658,778 | | Total | | $ | 14,845 | | | $ | 3,520 | | | $ | 40,950 | | | $ | 59,315 | | | $ | 6,776,920 | | | $ | 6,836,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans |
December 31, 2020 |
Construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 454,513 | | | $ | 454,513 | |
Commercial multifamily | | — | | | — | | | 757 | | | 757 | | | 482,593 | | | 483,350 | |
Commercial real estate owner occupied | | 809 | | | 631 | | | 4,894 | | | 6,334 | | | 546,079 | | | 552,413 | |
Commercial real estate non-owner occupied | | 315 | | | 168 | | | 38,389 | | | 38,872 | | | 2,080,391 | | | 2,119,263 | |
Commercial and industrial | | 3,016 | | | 3,259 | | | 12,982 | | | 19,257 | | | 1,923,907 | | | 1,943,164 | |
| | | | | | | | | | | | |
Residential real estate | | 2,068 | | | 2,630 | | | 11,115 | | | 15,813 | | | 1,915,868 | | | 1,931,681 | |
Home equity | | 244 | | | 284 | | | 2,897 | | | 3,425 | | | 290,556 | | | 293,981 | |
Consumer other | | 2,109 | | | 777 | | | 5,364 | | | 8,250 | | | 294,904 | | | 303,154 | |
Total | | $ | 8,561 | | | $ | 7,749 | | | $ | 76,398 | | | $ | 92,708 | | | $ | 7,988,811 | | | $ | 8,081,519 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans |
December 31, 2020 |
Construction | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 454,513 | | | $ | 454,513 | |
Commercial multifamily | | 0 | | | 0 | | | 757 | | | 757 | | | 482,593 | | | 483,350 | |
Commercial real estate owner occupied | | 809 | | | 631 | | | 4,894 | | | 6,334 | | | 546,079 | | | 552,413 | |
Commercial real estate non-owner occupied | | 315 | | | 168 | | | 38,389 | | | 38,872 | | | 2,080,391 | | | 2,119,263 | |
Commercial and industrial | | 3,016 | | | 3,259 | | | 12,982 | | | 19,257 | | | 1,923,907 | | | 1,943,164 | |
| | | | | | | | | | | | |
Residential real estate | | 2,068 | | | 2,630 | | | 11,115 | | | 15,813 | | | 1,915,868 | | | 1,931,681 | |
Home equity | | 244 | | | 284 | | | 2,897 | | | 3,425 | | | 290,556 | | | 293,981 | |
Consumer other | | 2,109 | | | 777 | | | 5,364 | | | 8,250 | | | 294,904 | | | 303,154 | |
Total | | $ | 8,561 | | | $ | 7,749 | | | $ | 76,398 | | | $ | 92,708 | | | $ | 7,988,811 | | | $ | 8,081,519 | |
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 March 31,September 30, 2021 and December 31, 2020:
| | (In thousands) | (In thousands) | | | Nonaccrual Amortized Cost | | | Nonaccrual With No Related Allowance | | Past Due 90 Days or Greater and Accruing | | Interest Income Recognized on Nonaccrual | (In thousands) | | | Nonaccrual Amortized Cost | | | Nonaccrual With No Related Allowance | | Past Due 90 Days or Greater and Accruing | | Interest Income Recognized on Nonaccrual |
At or for the three months ended March 31, 2021 | | | | | | |
At or for the three months ended September 30, 2021 | | At or for the three months ended September 30, 2021 | | | | | |
Construction | Construction | | | $ | 0 | | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Construction | | | $ | — | | | | $ | — | | | $ | — | | | $ | — | |
Commercial multifamily | Commercial multifamily | | | 4,068 | | | | 4,068 | | | 0 | | | 0 | | Commercial multifamily | | | 360 | | | | 195 | | | — | | | — | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | | 4,232 | | | | 1,832 | | | 378 | | | 0 | | Commercial real estate owner occupied | | | 6,695 | | | | 5,053 | | | 623 | | | — | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | | 18,856 | | | | 11,691 | | | 2,934 | | | 0 | | Commercial real estate non-owner occupied | | | 7,193 | | | | 1,500 | | | 525 | | | — | |
Commercial and industrial | Commercial and industrial | | | 9,364 | | | | 3,005 | | | 122 | | | 0 | | Commercial and industrial | | | 7,140 | | | | 1,138 | | | 112 | | | — | |
| Residential real estate | Residential real estate | | | 11,941 | | | | 7,419 | | | 2,535 | | | 0 | | Residential real estate | | | 10,570 | | | | 6,301 | | | 2,369 | | | — | |
Home equity | Home equity | | | 2,599 | | | | 211 | | | 148 | | | 0 | | Home equity | | | 2,021 | | | | 144 | | | 163 | | | — | |
Consumer other | Consumer other | | | 4,757 | | | | 8 | | | 7 | | | 0 | | Consumer other | | | 3,168 | | | | 5 | | | 11 | | | — | |
Total | Total | | | $ | 55,817 | | | | $ | 28,234 | | | $ | 6,124 | | | $ | 0 | | Total | | | $ | 37,147 | | | | $ | 14,336 | | | $ | 3,803 | | | $ | — | |
The commercial and industrial loans nonaccrual amortized cost as of March 31,September 30, 2021 included medallion loans with a fair value of $1.4$1.0 million and a contractual balance of $45.0$35.4 million.
| | (In thousands) | (In thousands) | | | Nonaccrual Amortized Cost | | | Nonaccrual With No Related Allowance | | Past Due 90 Days or Greater and Accruing | | Interest Income Recognized on Nonaccrual | (In thousands) | | | Nonaccrual Amortized Cost | | | Nonaccrual With No Related Allowance | | Past Due 90 Days or Greater and Accruing | | Interest Income Recognized on Nonaccrual |
At or for the three months ended December 31, 2020 | At or for the three months ended December 31, 2020 | | | | | At or for the three months ended December 31, 2020 | | | | |
Construction | Construction | | | $ | 0 | | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Construction | | | $ | — | | | | $ | — | | | $ | — | | | $ | — | |
Commercial multifamily | Commercial multifamily | | | 757 | | | | 591 | | | 0 | | | 0 | | Commercial multifamily | | | 757 | | | | 591 | | | — | | | — | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | | 4,509 | | | | 2,290 | | | 385 | | | 0 | | Commercial real estate owner occupied | | | 4,509 | | | | 2,290 | | | 385 | | | — | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | | 29,572 | | | | 13,912 | | | 8,817 | | | 0 | | Commercial real estate non-owner occupied | | | 29,572 | | | | 13,912 | | | 8,817 | | | — | |
Commercial and industrial | Commercial and industrial | | | 12,441 | | | | 4,725 | | | 541 | | | 0 | | Commercial and industrial | | | 12,441 | | | | 4,725 | | | 541 | | | — | |
| Residential real estate | Residential real estate | | | 9,711 | | | | 5,739 | | | 1,404 | | | 0 | | Residential real estate | | | 9,711 | | | | 5,739 | | | 1,404 | | | — | |
Home equity | Home equity | | | 2,654 | | | | 159 | | | 243 | | | 0 | | Home equity | | | 2,654 | | | | 159 | | | 243 | | | — | |
Consumer other | Consumer other | | | 5,304 | | | | 2 | | | 60 | | | 0 | | Consumer other | | | 5,304 | | | | 2 | | | 60 | | | — | |
Total | Total | | | $ | 64,948 | | | | $ | 27,418 | | | $ | 11,450 | | | $ | 0 | | 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 March 31,September 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) | (In thousands) | | March 31, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2021 | | December 31, 2020 | |
Non-Accrual | Non-Accrual | | $ | 55,817 | | | $ | 64,948 | | Non-Accrual | | $ | 37,147 | | | $ | 64,948 | | |
Substandard Accruing | Substandard Accruing | | 179,150 | | | 185,207 | | Substandard Accruing | | 120,058 | | | 185,207 | | |
Total Classified | Total Classified | | 234,967 | | | 250,155 | | Total Classified | | 157,205 | | | 250,155 | | |
Special Mention | Special Mention | | 121,437 | | | 109,299 | | Special Mention | | 107,860 | | | 109,299 | | |
Total Criticized | Total Criticized | | $ | 356,404 | | | $ | 359,454 | | Total Criticized | | $ | 265,065 | | | $ | 359,454 | | |
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 | | Type of Collateral |
(In thousands) | (In thousands) | | Real Estate | | | Investment Securities/Cash | | | Other | (In thousands) | | Real Estate | | | Investment Securities/Cash | | | Other |
March 31, 2021 | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | |
Construction | Construction | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | Construction | | $ | — | | | | $ | — | | | | $ | — | |
Commercial multifamily | Commercial multifamily | | 4,070 | | | | 0 | | | | 0 | | Commercial multifamily | | 196 | | | | — | | | | — | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 5,351 | | | | 0 | | | | 0 | | Commercial real estate owner occupied | | 8,012 | | | | — | | | | — | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 20,805 | | | | 0 | | | | 0 | | Commercial real estate non-owner occupied | | 8,858 | | | | — | | | | — | |
Commercial and industrial | Commercial and industrial | | 1,361 | | | | 18 | | | | 977 | | Commercial and industrial | | 573 | | | | — | | | | 687 | |
| Residential real estate | Residential real estate | | 7,048 | | | | 0 | | | | 0 | | Residential real estate | | 6,255 | | | | — | | | | — | |
Home equity | Home equity | | 198 | | | | 0 | | | | 0 | | Home equity | | 279 | | | | — | | | | — | |
Consumer other | Consumer other | | 34 | | | | 0 | | | | 0 | | Consumer other | | 7 | | | | — | | | | — | |
Total loans | Total loans | | $ | 38,867 | | | | $ | 18 | | | | $ | 977 | | Total loans | | $ | 24,180 | | | | $ | — | | | | $ | 687 | |
| December 31, 2020 | December 31, 2020 | | | | | | December 31, 2020 | | | | | |
Construction | Construction | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | Construction | | $ | — | | | | $ | — | | | | $ | — | |
Commercial multifamily | Commercial multifamily | | 591 | | | | 0 | | | | 0 | | Commercial multifamily | | 591 | | | | — | | | | — | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 5,714 | | | | 0 | | | | 0 | | Commercial real estate owner occupied | | 5,714 | | | | — | | | | — | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 30,950 | | | | 0 | | | | 0 | | Commercial real estate non-owner occupied | | 30,950 | | | | — | | | | — | |
Commercial and industrial | Commercial and industrial | | 973 | | | | 36 | | | | 3,758 | | Commercial and industrial | | 973 | | | | 36 | | | | 3,758 | |
| Commercial and industrial - other | | Commercial and industrial - other | | — | | | | — | | | | — | |
Residential real estate | Residential real estate | | 5,081 | | | | 0 | | | | 0 | | Residential real estate | | 5,081 | | | | — | | | | — | |
Home equity | Home equity | | 145 | | | | 0 | | | | 0 | | Home equity | | 145 | | | | — | | | | — | |
Consumer other | Consumer other | | 51 | | | | 0 | | | | 0 | | Consumer other | | 51 | | | | — | | | | — | |
Total loans | Total loans | | $ | 43,505 | | | | $ | 36 | | | | $ | 3,758 | | Total loans | | $ | 43,505 | | | | $ | 36 | | | | $ | 3,758 | |
|
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 nine months ended March 31,September 30, 2021 and March 31,September 30, 2020:
| (In thousands) | (In thousands) | | Balance at Beginning of Period | | Principal Payments | | TDR Status Change | | Other Additions/(Reductions) | | Newly Identified TDRs | | Balance at End of Period | (In thousands) | | Balance at Beginning of Period | | Principal Payments | | TDR Status Change | | Other Additions/(Reductions) | | Newly Identified TDRs | | Balance at End of Period |
Three months ended March 31, 2021 | |
Three months ended September 30, 2021 | | Three months ended September 30, 2021 |
Construction | Construction | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial multifamily | Commercial multifamily | | 754 | | | (13) | | | 0 | | | 0 | | | 0 | | | 741 | | Commercial multifamily | | 728 | | | (11) | | | — | | | — | | | — | | | 717 | |
Commercial real estate owner occupied | Commercial real estate owner occupied | | 1,731 | | | (6) | | | 0 | | | 0 | | | 0 | | | 1,725 | | Commercial real estate owner occupied | | 2,962 | | | (33) | | | — | | | — | | | — | | | 2,929 | |
Commercial real estate non-owner occupied | Commercial real estate non-owner occupied | | 13,684 | | | (14) | | | 0 | | | 511 | | | 544 | | | 14,725 | | Commercial real estate non-owner occupied | | 24,488 | | | (67) | | | — | | | (10,967) | | | — | | | 13,454 | |
Commercial and industrial | Commercial and industrial | | 2,686 | | | (199) | | | 0 | | | 0 | | | 146 | | | 2,633 | | Commercial and industrial | | 6,810 | | | (387) | | | — | | | (3,105) | | | 283 | | | 3,601 | |
| Residential real estate | Residential real estate | | 1,524 | | | (31) | | | 0 | | | 0 | | | 0 | | | 1,493 | | Residential real estate | | 1,305 | | | (160) | | | — | | | — | | | — | | | 1,145 | |
Home equity | Home equity | | 133 | | | (3) | | | 0 | | | 0 | | | 0 | | | 130 | | Home equity | | 127 | | | (3) | | | — | | | — | | | — | | | 124 | |
Consumer other | Consumer other | | 36 | | | (2) | | | 0 | | | 0 | | | 0 | | | 34 | | Consumer other | | 37 | | | (2) | | | — | | | (1) | | | — | | | 34 | |
Total | Total | | $ | 20,548 | | | $ | (268) | | | $ | 0 | | | $ | 511 | | | $ | 690 | | | $ | 21,481 | | Total | | $ | 36,457 | | | $ | (663) | | | $ | — | | | $ | (14,073) | | | $ | 283 | | | $ | 22,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Balance at Beginning of Period | | Principal Payments | | TDR Status Change | | Other Additions/(Reductions) | | Newly Identified TDRs | | Balance at End of Period |
Three months ended March 31, 2020 |
Construction | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Commercial multifamily | | 793 | | | (14) | | | 0 | | | 0 | | | 0 | | | 779 | |
Commercial real estate owner occupied | | 13,331 | | | (5,693) | | | 0 | | | 0 | | | 0 | | | 7,638 | |
Commercial real estate non-owner occupied | | 1,373 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,373 | |
Commercial and industrial | | 1,449 | | | (37) | | | 0 | | | 0 | | | 902 | | | 2,314 | |
| | | | | | | | | | | | |
Residential real estate | | 2,045 | | | (22) | | | 0 | | | 0 | | | 0 | | | 2,023 | |
Home equity | | 277 | | | 1 | | | 0 | | | 0 | | | 0 | | | 278 | |
Consumer other | | 48 | | | (4) | | | 0 | | | 0 | | | 0 | | | 44 | |
Total | | $ | 19,316 | | | $ | (5,769) | | | $ | 0 | | | $ | 0 | | | $ | 902 | | | $ | 14,449 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Balance at Beginning of Period | | Principal Payments | | TDR Status Change | | Other Additions/(Reductions) | | Newly Identified TDRs | | Balance at End of Period |
Three months ended September 30, 2020 |
Construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial multifamily | | 779 | | | (12) | | | — | | | — | | | — | | | 767 | |
Commercial real estate owner occupied | | 2,919 | | | (19) | | | — | | | — | | | 18 | | | 2,918 | |
Commercial real estate non-owner occupied | | 11,166 | | | — | | | — | | | 1,241 | | | 194 | | | 12,601 | |
Commercial and industrial | | 2,563 | | | (127) | | | — | | | (58) | | | 399 | | | 2,777 | |
| | | | | | | | | | | | |
Residential real estate | | 1,968 | | | (57) | | | — | | | — | | | — | | | 1,911 | |
Home equity | | 275 | | | (3) | | | — | | | (72) | | | — | | | 200 | |
Consumer other | | 43 | | | (3) | | | — | | | — | | | — | | | 40 | |
Total | | $ | 19,713 | | | $ | (221) | | | $ | — | | | $ | 1,111 | | | $ | 611 | | | $ | 21,214 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Balance at Beginning of Period | | Principal Payments | | TDR Status Change | | Other Additions/(Reductions) | | Newly Identified TDRs | | Balance at End of Period |
Nine months ended September 30, 2021 |
Construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial multifamily | | 754 | | | (37) | | | — | | | — | | | — | | | 717 | |
Commercial real estate owner occupied | | 1,731 | | | (68) | | | — | | | — | | | 1,266 | | | 2,929 | |
Commercial real estate non-owner occupied | | 13,684 | | | (163) | | | — | | | (11,046) | | | 10,979 | | | 13,454 | |
Commercial and industrial | | 2,686 | | | (815) | | | — | | | (3,141) | | | 4,871 | | | 3,601 | |
| | | | | | | | | | | | |
Residential real estate | | 1,524 | | | (205) | | | — | | | (174) | | | — | | | 1,145 | |
Home equity | | 133 | | | (9) | | | — | | | — | | | — | | | 124 | |
Consumer other | | 36 | | | (7) | | | — | | | 5 | | | — | | | 34 | |
Total | | $ | 20,548 | | | $ | (1,304) | | | $ | — | | | $ | (14,356) | | | $ | 17,116 | | | $ | 22,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Balance at Beginning of Period | | Principal Payments | | TDR Status Change | | Other Additions/(Reductions) | | Newly Identified TDRs | | Balance at End of Period |
Nine months ended September 30, 2020 |
Construction | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial multifamily | | 793 | | | (26) | | | — | | | — | | | — | | | 767 | |
Commercial real estate owner occupied | | 13,331 | | | (5,721) | | | — | | | (4,710) | | | 18 | | | 2,918 | |
Commercial real estate non-owner occupied | | 1,373 | | | — | | | — | | | 1,241 | | | 9,987 | | | 12,601 | |
Commercial and industrial | | 1,449 | | | (198) | | | — | | | (60) | | | 1,586 | | | 2,777 | |
| | | | | | | | | | | | |
Residential real estate | | 2,045 | | | (134) | | | — | | | — | | | — | | | 1,911 | |
Home equity | | 277 | | | (5) | | | — | | | (72) | | | — | | | 200 | |
Consumer other | | 48 | | | (8) | | | — | | | — | | | — | | | 40 | |
Total | | $ | 19,316 | | | $ | (6,092) | | | $ | — | | | $ | (3,601) | | | $ | 11,591 | | | $ | 21,214 | |
The following table presents loans modified as TDRs that occurred during the three and nine months ended March 31,September 30, 2021 and March 31, 2020:
| | | | | | | | |
(dollars in thousands) | | Total |
Three months ended March 31,September 30, 2021 | | |
TDR: | | |
Number of loans | | 42 | |
Pre-modification outstanding recorded investment | | $ | 690283 | |
Post-modification outstanding recorded investment | | $ | 690283 | |
| | |
Three months ended March 31,September 30, 2020 | | |
TDR: | | |
Number of loans | | 310 | |
Pre-modification outstanding recorded investment | | $ | 902611 | |
Post-modification outstanding recorded investment | | $ | 902611 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | |
(dollars in thousands) | | Total |
Nine months ended September 30, 2021 | | |
TDR: | | |
Number of loans | | 15 | |
Pre-modification outstanding recorded investment | | $ | 17,116 | |
Post-modification outstanding recorded investment | | $ | 17,116 | |
| | |
Nine months ended September 30, 2020 | | |
TDR: | | |
Number of loans | | 15 | |
Pre-modification outstanding recorded investment | | $ | 11,591 | |
Post-modification outstanding recorded investment | | $ | 11,591 | |
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 nine months ended September 30, 2021:
| | | | | | | | | | | |
(in thousands) | Number of Loans | | Recorded Investment |
Three months ended September 30, 2021 | | | |
| | | |
| | | |
| | | |
Commercial real estate non-owner occupied | 1 | | $ | 10,435 | |
| | | |
| | | |
| | | |
| | | |
Total | 1 | | $ | 10,435 | |
| | | | | | | | | | | |
(in thousands) | Number of Loans | | Recorded Investment |
Nine months ended September 30, 2021 | | | |
| | | |
| | | |
| | | |
Commercial real estate non-owner occupied | 1 | | $ | 10,435 | |
Commercial and industrial | 2 | | $ | 71 | |
| | | |
| | | |
| | | |
Total | 3 | | $ | 10,506 | |
There were no TDRs for which there was a payment default within twelve months following the modification during the three and nine months ended March 31, 2021 and March 31,September 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 1011 - Other Commitments, Contingencies, and Off-Balance Sheet Activities for more information regarding these modifications.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6.7. DEPOSITS
A summary of time deposits is as follows:
| (In thousands) | (In thousands) | | March 31, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2021 | | December 31, 2020 |
Time less than $100,000 | Time less than $100,000 | | $ | 630,244 | | | $ | 663,324 | | Time less than $100,000 | | $ | 583,893 | | | $ | 663,324 | |
Time $100,000 through $250,000 | Time $100,000 through $250,000 | | 999,329 | | | 1,219,210 | | Time $100,000 through $250,000 | | 828,625 | | | 1,219,210 | |
Time more than $250,000 | Time more than $250,000 | | 473,649 | | | 502,551 | | Time more than $250,000 | | 413,196 | | | 502,551 | |
Total time deposits | Total time deposits | | $ | 2,103,222 | | | $ | 2,385,085 | | Total time deposits | | $ | 1,825,714 | | | $ | 2,385,085 | |
Included in total deposits are brokered deposits of $431.5$317.1 million and $610.6 million at March 31,September 30, 2021 and December 31, 2020, respectively. Included in total deposits are reciprocal deposits of $100.7$79.2 million and $119.0 million at March 31,September 30, 2021 and December 31, 2020, respectively.
NOTE 7.8. BORROWED FUNDS
Borrowed funds at March 31,September 30, 2021 and December 31, 2020 are summarized, as follows:
| | | | March 31, 2021 | | December 31, 2020 | | | September 30, 2021 | | December 31, 2020 |
| | | | | Weighted | | | | Weighted | | | | | Weighted | | | | Weighted |
| | | | | Average | | | | Average | | | | | Average | | | | Average |
(Dollars in thousands) | (Dollars in thousands) | | Principal | | Rate | | Principal | | Rate | (Dollars in thousands) | | Principal | | Rate | | Principal | | Rate |
Short-term borrowings: | Short-term borrowings: | | | | | | | | | Short-term borrowings: | | | | | | | | |
Advances from the FHLB | Advances from the FHLB | | $ | 0 | | | 0 | % | | $ | 40,000 | | | 1.05 | % | Advances from the FHLB | | $ | — | | | — | % | | $ | 40,000 | | | 1.05 | % |
| Total short-term borrowings: | Total short-term borrowings: | | 0 | | | 0 | | | 40,000 | | | 1.05 | | Total short-term borrowings: | | — | | | — | | | 40,000 | | | 1.05 | |
Long-term borrowings: | Long-term borrowings: | | | | | | | | | Long-term borrowings: | | | | | | | | |
Advances from the FHLB and other borrowings | Advances from the FHLB and other borrowings | | 351,354 | | | 1.88 | | | 434,357 | | | 1.89 | | Advances from the FHLB and other borrowings | | 13,369 | | | 1.75 | | | 434,357 | | | 1.89 | |
| Subordinated borrowings | Subordinated borrowings | | 74,455 | | | 7.00 | | | 74,411 | | | 7.00 | | Subordinated borrowings | | 74,544 | | | 7.00 | | | 74,411 | | | 7.00 | |
Junior subordinated borrowing - Trust I | Junior subordinated borrowing - Trust I | | 15,464 | | | 2.03 | | | 15,464 | | | 2.06 | | Junior subordinated borrowing - Trust I | | 15,464 | | | 1.98 | | | 15,464 | | | 2.06 | |
Junior subordinated borrowing - Trust II | Junior subordinated borrowing - Trust II | | 7,419 | | | 1.88 | | | 7,405 | | | 1.92 | | Junior subordinated borrowing - Trust II | | 7,446 | | | 1.82 | | | 7,405 | | | 1.92 | |
| Total long-term borrowings: | Total long-term borrowings: | | 448,692 | | | 2.73 | | | 531,637 | | | 2.61 | | Total long-term borrowings: | | 110,823 | | | 5.32 | | | 531,637 | | | 2.61 | |
Total | Total | | $ | 448,692 | | | 2.73 | % | | $ | 571,637 | | | 2.50 | % | Total | | $ | 110,823 | | | 5.32 | % | | $ | 571,637 | | | 2.50 | % |
During the three months ended September 30, 2021, the Company pre-paid Federal Home Loan Bank (“FHLB”) advances of $94.1 million resulting in pre-payment penalties of $862.2 thousand, which is included with acquisition, restructuring and other expenses on the Consolidated Statement of Operations.
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 0no outstanding balance on the FHLB line of credit for the periods ended March 31,September 30, 2021 and December 31, 2020. The Bank's available borrowing capacity with the FHLB was $1.4 billion and $1.6 billion for the periods ended March 31,September 30, 2021 and December 31, 2020, respectively.2020.
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. NaNNo borrowings with the Federal Reserve Bank under this arrangement took place for the periods ended March 31,September 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 MarchSeptember 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 $596.8 million and $815.6 million for the periods ended March 31, 2021 and December 31, 2020, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank's available borrowing capacity with the Federal Reserve Bank was $523.4 million and $815.6 million for the periods ended September 30, 2021 and December 31, 2020, respectively.
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 March 31,September 30, 2021 included callable advances totaling $10.0 million and amortizing advances totaling $4.8$3.4 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 March 31,September 30, 2021 is as follows:
| | | | March 31, 2021 | | | | September 30, 2021 | |
| | | | | Weighted Average | | | | | | Weighted Average | |
(In thousands, except rates) | (In thousands, except rates) | | Principal | | Rate | | (In thousands, except rates) | | Principal | | Rate | |
Fixed rate advances maturing: | Fixed rate advances maturing: | | | | | | Fixed rate advances maturing: | | | | | |
2021 | 2021 | | $ | 272,985 | | | 1.86 | % | | 2021 | | $ | — | | | — | % | |
2022 | 2022 | | 58,270 | | | 1.92 | | | 2022 | | 4,002 | | | 2.04 | | |
2023 | 2023 | | 10,659 | | | 2.16 | | | 2023 | | — | | | — | | |
2024 | 2024 | | 50 | | | 0 | | | 2024 | | 43 | | | — | | |
2025 and beyond | 2025 and beyond | | 9,390 | | | 1.63 | | | 2025 and beyond | | 9,324 | | | 1.63 | | |
Total FHLB advances | Total FHLB advances | | $ | 351,354 | | | 1.88 | % | | Total FHLB advances | | $ | 13,369 | | | 1.75 | % | |
The Company did not have variable-rate FHLB advances for the periods ended March 31,September 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 $184$123 thousand and $215 thousand for unamortized debt issuance costs as of March 31,September 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 2.03%1.98% and 2.06% at March 31,September 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 1.88%1.82% and 1.92% at March 31,September 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8.9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
As of March 31,September 30, 2021, the Company held derivatives with a total notional amount of $3.8$3.7 billion. The Company had economic hedges totaling $3.8$3.7 billion and $10.3$17.7 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 $3.4 billion, risk participation agreements with dealer banks of $0.3$0.4 billion, and $8.7$4.8 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 March 31,September 30, 2021.
The Company pledged collateral to derivative counterparties in the form of cash totaling $70.3$56.9 million and securities with an amortized cost of $36.9$35.4 million and a fair value of $37.1$35.6 million as of March 31,September 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 March 31,September 30, 2021, follows:
| | | | | Weighted | | Weighted Average Rate | | Estimated | | | | Weighted | | Weighted Average Rate | | Estimated |
| | Notional | | Average | | | | Contract | | Fair Value | | Notional | | Average | | | | Contract | | Fair Value |
| | Amount | | Maturity | | Received | | pay rate | | Asset (Liability) | | Amount | | Maturity | | Received | | pay rate | | Asset (Liability) |
| | (In thousands) | | (In years) | | | | | | (In thousands) | | (In thousands) | | (In years) | | | | | | (In thousands) |
| Economic hedges: | Economic hedges: | | | | | | | | | | Economic hedges: | | | | | | | | | |
Interest rate swap on tax advantaged economic development bond | Interest rate swap on tax advantaged economic development bond | $ | 8,463 | | | 8.7 | | 0.48 | % | | 5.09 | % | | $ | (1,432) | | Interest rate swap on tax advantaged economic development bond | $ | 8,077 | | | 8.2 | | 0.45 | % | | 5.09 | % | | $ | (1,316) | |
Interest rate swaps on loans with commercial loan customers | Interest rate swaps on loans with commercial loan customers | 1,720,659 | | | 6.0 | | 4.15 | % | | 1.92 | % | | 101,216 | | Interest rate swaps on loans with commercial loan customers | 1,677,953 | | | 5.8 | | 4.04 | % | | 1.89 | % | | 94,461 | |
Offsetting interest rate swaps on loans with commercial loan customers (1) | Offsetting interest rate swaps on loans with commercial loan customers (1) | 1,720,659 | | | 6.0 | | 1.92 | % | | 4.15 | % | | (40,670) | | Offsetting interest rate swaps on loans with commercial loan customers (1) | 1,677,953 | | | 5.8 | | 1.89 | % | | 4.04 | % | | (39,350) | |
Risk participation agreements with dealer banks | Risk participation agreements with dealer banks | 341,662 | | | 8.8 | | | | | | 336 | | Risk participation agreements with dealer banks | 355,417 | | | 6.6 | | | | | | 383 | |
Forward sale commitments | Forward sale commitments | 8,661 | | | 0.2 | | | | | | 326 | | Forward sale commitments | 4,814 | | | 0.2 | | | | | | 102 | |
Total economic hedges | Total economic hedges | 3,800,104 | | | | | | | | | 59,776 | | Total economic hedges | 3,724,214 | | | | | | | | | 54,280 | |
| Non-hedging derivatives: | Non-hedging derivatives: | | | | | | | | | | Non-hedging derivatives: | | | | | | | | | |
Commitments to lend | Commitments to lend | 10,316 | | | 0.2 | | | | | | 185 | | Commitments to lend | 17,669 | | | 0.2 | | | | | | 222 | |
Total non-hedging derivatives | Total non-hedging derivatives | 10,316 | | | | | | | | | 185 | | Total non-hedging derivatives | 17,669 | | | | | | | | | 222 | |
| Total | Total | $ | 3,810,420 | | | | | | | | | $ | 59,961 | | Total | $ | 3,741,883 | | | | | | | | | $ | 54,502 | |
(1) Fair value estimates include the impact of $61.3$56.0 million settled to market contract agreements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at December 31, 2020, follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighted | | Weighted Average Rate | | Estimated |
| Notional | | Average | | | | Contract | | Fair Value |
| Amount | | Maturity | | Received | | pay rate | | Asset (Liability) |
| (In thousands) | | (In years) | | | | | | (In thousands) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Economic hedges: | | | | | | | | | |
Interest rate swap on tax advantaged economic development bond | $ | 8,654 | | | 8.9 | | 0.52 | % | | 5.09 | % | | $ | (1,778) | |
Interest rate swaps on loans with commercial loan customers | 1,734,978 | | | 6.1 | | 4.15 | % | | 1.95 | % | | 159,016 | |
Offsetting interest rate swaps on loans with commercial loan customers (1) | 1,734,978 | | | 6.1 | | 1.95 | % | | 4.15 | % | | (64,645) | |
Risk participation agreements with dealer banks | 326,862 | | | 8.0 | | | | | | 665 | |
Forward sale commitments | 11,544 | | | 0.2 | | | | | | 320 | |
Total economic hedges | 3,817,016 | | | | | | | | | 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of March 31,September 30, 2021, the Company has an interest rate swap with a $8.5$8.1 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 $2.5$2.4 million as of March 31,September 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.
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 March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | (In thousands) | 2021 | | 2020 | | (In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Economic hedges | Economic hedges | | | | | Economic hedges | | | | | | | |
Interest rate swap on industrial revenue bond: | Interest rate swap on industrial revenue bond: | | | | | Interest rate swap on industrial revenue bond: | | | | | | | |
Unrealized gain/(loss) recognized in other non-interest income | Unrealized gain/(loss) recognized in other non-interest income | $ | 346 | | | $ | (563) | | | Unrealized gain/(loss) recognized in other non-interest income | $ | 106 | | | $ | 106 | | | $ | 462 | | | $ | (444) | |
| Interest rate swaps on loans with commercial loan customers: | Interest rate swaps on loans with commercial loan customers: | | | | | Interest rate swaps on loans with commercial loan customers: | | | | | | | |
Unrealized (loss)/gain recognized in other non-interest income | Unrealized (loss)/gain recognized in other non-interest income | (60,302) | | | 102,382 | | | Unrealized (loss)/gain recognized in other non-interest income | (17,164) | | | (10,219) | | | (66,949) | | | 104,434 | |
Favorable/(unfavorable) change in credit valuation adjustment recognized in other non-interest income | 2,502 | | | (2,538) | | | |
Favorable/(Unfavorable) change in credit valuation adjustment recognized in other non-interest income | | Favorable/(Unfavorable) change in credit valuation adjustment recognized in other non-interest income | 874 | | | 406 | | | 2,394 | | | (2,029) | |
| Offsetting interest rate swaps on loans with commercial loan customers: | Offsetting interest rate swaps on loans with commercial loan customers: | | | | | Offsetting interest rate swaps on loans with commercial loan customers: | | | | | | | |
Unrealized gain/(loss) recognized in other non-interest income | Unrealized gain/(loss) recognized in other non-interest income | 60,302 | | | (102,382) | | | Unrealized gain/(loss) recognized in other non-interest income | 17,164 | | | 10,219 | | | 66,949 | | | (104,434) | |
| | Risk participation agreements: | Risk participation agreements: | | | | | Risk participation agreements: | | | | | | | |
Unrealized (loss)/gain recognized in other non-interest income | Unrealized (loss)/gain recognized in other non-interest income | (329) | | | 266 | | | Unrealized (loss)/gain recognized in other non-interest income | (103) | | | (26) | | | (282) | | | 339 | |
| Forward commitments: | Forward commitments: | | | | | Forward commitments: | | | | | | | |
Unrealized gain/(loss) recognized in other non-interest income | Unrealized gain/(loss) recognized in other non-interest income | 6 | | | (4,263) | | | Unrealized gain/(loss) recognized in other non-interest income | 10 | | | (50) | | | (218) | | | 624 | |
Realized gain/(loss) in other non-interest income | Realized gain/(loss) in other non-interest income | (6) | | | (1,922) | | | Realized gain/(loss) in other non-interest income | — | | | 48 | | | — | | | (8,283) | |
| | Non-hedging derivatives | Non-hedging derivatives | | | | | Non-hedging derivatives | | | | | | | |
Commitments to lend | Commitments to lend | | | | | Commitments to lend | | | | | | | |
Unrealized (loss)/gain recognized in other non-interest income | Unrealized (loss)/gain recognized in other non-interest income | $ | (550) | | | $ | 2,208 | | | Unrealized (loss)/gain recognized in other non-interest income | $ | (39) | | | $ | 349 | | | $ | (513) | | | $ | (1,130) | |
| Realized gain in other non-interest income | Realized gain in other non-interest income | 1,352 | | | 9,300 | | | Realized gain in other non-interest income | 500 | | | 1,563 | | | 2,310 | | | 14,532 | |
|
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 $1.3$1.8 million and $1.0 million as of March 31,September 30, 2021 and December 31, 2020, respectively. The Company had net asset positions with its commercial banking counterparties totaling $103.8$95.6 million and $159.0 million as of March 31,September 30, 2021 and December 31, 2020, respectively. The Company had net liability positions with its financial institution counterparties totaling $43.0$40.8 million and $66.8 million as of March 31,September 30, 2021 and December 31, 2020, respectively. The Company had net liability positions with its commercial banking counterparties totaling $2.6$1.1 million as of March 31,September 30, 2021. The Company had 0no 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 March 31,September 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 | | | Gross Amounts of | | Gross Amounts Offset in the | | Net Amounts of Assets Presented in the | | Gross Amounts Not Offset in the Statements of Condition | |
| | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | | | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | |
(In thousands) | (In thousands) | | Assets | | Condition | | Condition | | Instruments | | Collateral Received | | Net Amount | (In thousands) | | Assets | | Condition | | Condition | | Instruments | | Collateral Received | | Net Amount |
March 31, 2021 | | | | | | | | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | | | | | | | | |
Interest Rate Swap Agreements: | Interest Rate Swap Agreements: | | | | | | | | | | | | | Interest Rate Swap Agreements: | | | | | | | | | | | | |
Institutional counterparties | Institutional counterparties | | $ | 3,086 | | | $ | (1,832) | | | $ | 1,254 | | | $ | 0 | | | $ | 0 | | | $ | 1,254 | | Institutional counterparties | | $ | 1,853 | | | $ | (46) | | | $ | 1,807 | | | $ | — | | | $ | — | | | $ | 1,807 | |
Commercial counterparties | Commercial counterparties | | 103,799 | | | 0 | | | 103,799 | | | 0 | | | 0 | | | 103,799 | | Commercial counterparties | | 95,587 | | | — | | | 95,587 | | | — | | | — | | | 95,587 | |
Total | Total | | $ | 106,885 | | | $ | (1,832) | | | $ | 105,053 | | | $ | 0 | | | $ | 0 | | | $ | 105,053 | | Total | | $ | 97,440 | | | $ | (46) | | | $ | 97,394 | | | $ | — | | | $ | — | | | $ | 97,394 | |
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 | | | Gross Amounts of | | Gross Amounts Offset in the | | Net Amounts of Liabilities Presented in the | | Gross Amounts Not Offset in the Statements of Condition | |
| | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | | | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | |
(In thousands) | (In thousands) | | Liabilities | | Condition | | Condition | | Instruments | | Collateral Pledged | | Net Amount | (In thousands) | | Liabilities | | Condition | | Condition | | Instruments | | Collateral Pledged | | Net Amount |
March 31, 2021 | | | | | | | | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | | | | | | | | |
Interest Rate Swap Agreements: | Interest Rate Swap Agreements: | | | | | | | | | | | | | Interest Rate Swap Agreements: | | | | | | | | | | | | |
Institutional counterparties | Institutional counterparties | | $ | (104,770) | | | $ | 61,750 | | | $ | (43,020) | | | $ | 37,116 | | | $ | 70,333 | | | $ | 64,429 | | Institutional counterparties | | $ | (96,810) | | | $ | 56,036 | | | $ | (40,774) | | | $ | 35,616 | | | $ | 56,893 | | | $ | 51,735 | |
Commercial counterparties | Commercial counterparties | | (2,582) | | | 0 | | | (2,582) | | | 0 | | | 0 | | | (2,582) | | Commercial counterparties | | (1,126) | | | — | | | (1,126) | | | — | | | — | | | (1,126) | |
Total | Total | | $ | (107,352) | | | $ | 61,750 | | | $ | (45,602) | | | $ | 37,116 | | | $ | 70,333 | | | $ | 61,847 | | Total | | $ | (97,936) | | | $ | 56,036 | | | $ | (41,900) | | | $ | 35,616 | | | $ | 56,893 | | | $ | 50,609 | |
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 | | | Gross Amounts of | | Gross Amounts Offset in the | | Net Amounts of Assets Presented in the | | Gross Amounts Not Offset in the Statements of Condition | |
| | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | | | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | |
(In thousands) | (In thousands) | | Assets | | Condition | | Condition | | Instruments | | Collateral Received | | Net Amount | (In thousands) | | Assets | | Condition | | Condition | | Instruments | | Collateral Received | | Net Amount |
December 31, 2020 | December 31, 2020 | | | | | | | | | | | | | December 31, 2020 | | | | | | | | | | | | |
Interest Rate Swap Agreements: | Interest Rate Swap Agreements: | | | | | | | | | | | | | Interest Rate Swap Agreements: | | | | | | | | | | | | |
Institutional counterparties | Institutional counterparties | | $ | 1,124 | | | $ | (78) | | | $ | 1,046 | | | $ | 0 | | | $ | 0 | | | $ | 1,046 | | Institutional counterparties | | $ | 1,124 | | | $ | (78) | | | $ | 1,046 | | | $ | — | | | $ | — | | | $ | 1,046 | |
Commercial counterparties | Commercial counterparties | | 159,016 | | | 0 | | | 159,016 | | | 0 | | | 0 | | | 159,016 | | Commercial counterparties | | 159,016 | | | — | | | 159,016 | | | — | | | — | | | 159,016 | |
Total | Total | | $ | 160,140 | | | $ | (78) | | | $ | 160,062 | | | $ | 0 | | | $ | 0 | | | $ | 160,062 | | 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 | | | Gross Amounts of | | Gross Amounts Offset in the | | Net Amounts of Liabilities Presented in the | | Gross Amounts Not Offset in the Statements of Condition | |
| | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | | | | Recognized | | Statements of | | Statements of | | Financial | | Cash | | |
(In thousands) | (In thousands) | | Liabilities | | Condition | | Condition | | Instruments | | Collateral Pledged | | Net Amount | (In thousands) | | Liabilities | | Condition | | Condition | | Instruments | | Collateral Pledged | | Net Amount |
December 31, 2020 | December 31, 2020 | | | | | | | | | | | | | December 31, 2020 | | | | | | | | | | | | |
Interest Rate Swap Agreements: | Interest Rate Swap Agreements: | | | | | | | | | | | | | Interest Rate Swap Agreements: | | | | | | | | | | | | |
Institutional counterparties | Institutional counterparties | | $ | (164,543) | | | $ | 97,740 | | | $ | (66,803) | | | $ | 37,815 | | | $ | 75,070 | | | $ | 46,082 | | Institutional counterparties | | $ | (164,543) | | | $ | 97,740 | | | $ | (66,803) | | | $ | 37,815 | | | $ | 75,070 | | | $ | 46,082 | |
Commercial counterparties | Commercial counterparties | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Commercial counterparties | | — | | | — | | | — | | | — | | | — | | | — | |
Total | Total | | $ | (164,543) | | | $ | 97,740 | | | $ | (66,803) | | | $ | 37,815 | | | $ | 75,070 | | | $ | 46,082 | | Total | | $ | (164,543) | | | $ | 97,740 | | | $ | (66,803) | | | $ | 37,815 | | | $ | 75,070 | | | $ | 46,082 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9.10. 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 March 31,September 30, 2021, lease expiration dates ranged from 1 month to 1918 years.
The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:
| (In thousands) | (In thousands) | | March 31, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2021 | | December 31, 2020 |
Lease Right-of-Use Assets | Lease Right-of-Use Assets | | Classification | | | Lease Right-of-Use Assets | | Classification | | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | Other assets | | $ | 56,704 | | | $ | 60,018 | | Operating lease right-of-use assets | | Other assets | | $ | 53,583 | | | $ | 60,018 | |
Finance lease right-of-use assets | Finance lease right-of-use assets | | Premises and equipment, net | | 7,066 | | | 7,197 | | Finance lease right-of-use assets | | Premises and equipment, net | | 6,805 | | | 7,197 | |
Total Lease Right-of-Use Assets | Total Lease Right-of-Use Assets | | $ | 63,770 | | | $ | 67,215 | | Total Lease Right-of-Use Assets | | $ | 60,388 | | | $ | 67,215 | |
| Lease Liabilities | Lease Liabilities | | Lease Liabilities | |
Operating lease liabilities | Operating lease liabilities | | Other liabilities | | $ | 61,481 | | | $ | 63,894 | | Operating lease liabilities | | Other liabilities | | $ | 57,144 | | | $ | 63,894 | |
Finance lease liabilities | Finance lease liabilities | | Other liabilities | | 10,252 | | | 10,383 | | Finance lease liabilities | | Other liabilities | | 9,996 | | | 10,383 | |
Total Lease Liabilities | Total Lease Liabilities | | $ | 71,733 | | | $ | 74,277 | | Total Lease Liabilities | | $ | 67,140 | | | $ | 74,277 | |
Supplemental information related to leases was as follows:
| | | March 31, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
Weighted-Average Remaining Lease Term (in years) | Weighted-Average Remaining Lease Term (in years) | | | | Weighted-Average Remaining Lease Term (in years) | | | |
Operating leases | Operating leases | 9.8 | | 9.8 | Operating leases | 9.7 | | 9.8 |
Finance leases | Finance leases | 13.6 | | 13.8 | Finance leases | 13.1 | | 13.8 |
| Weighted-Average Discount Rate | Weighted-Average Discount Rate | | Weighted-Average Discount Rate | |
Operating leases | Operating leases | 2.82 | % | | 2.81 | % | Operating leases | 2.84 | % | | 2.81 | % |
Finance leases | Finance leases | 5.00 | % | | 5.00 | % | Finance leases | 5.00 | % | | 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 March 31,September 30, 2021 was $2.8$2.6 million. Lease expense for operating leases for the nine months ended September 30, 2021 was $8.3 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 March 31,September 30, 2020 was $3.5$3.4 million, of which $0.5$0.2 million was related to discontinued operations. VariableLease expense for operating leases for the nine months ended September 30, 2020 was $10.2 million, of which $0.9 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:
| | | Three Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | | March 31, 2021 | | March 31, 2020 | (In thousands) | | September 30, 2021 | | September 30, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases (1) | Operating cash flows from operating leases (1) | | $ | 3,330 | | | $ | 3,628 | | Operating cash flows from operating leases (1) | | $ | 2,524 | | | $ | 2,441 | |
Operating cash flows from finance leases | Operating cash flows from finance leases | | 127 | | | 134 | | Operating cash flows from finance leases | | 126 | | | 133 | |
Financing cash flows from finance leases | Financing cash flows from finance leases | | 131 | | | 124 | | Financing cash flows from finance leases | | 132 | | | 125 | |
(1) There were operating cash flows from operating leases related to discontinued operations of $0.5$0.2 million at March 31,September 30, 2020.
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(In thousands) | | September 30, 2021 | | September 30, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases (1) | | $ | 8,358 | | | $ | 10,461 | |
Operating cash flows from finance leases | | 379 | | | 399 | |
Financing cash flows from finance leases | | 394 | | | 374 | |
(1) There were operating cash flows from operating leases related to discontinued operations of $0.9 million at September 30, 2020.
The following table presents a maturity analysis of the Company’s lease liability by lease classification at March 31,September 30, 2021:
| (In thousands) | (In thousands) | | Operating Leases | | Finance Leases | (In thousands) | | Operating Leases | | Finance Leases |
2021 | 2021 | | $ | 7,966 | | | $ | 766 | | 2021 | | $ | 2,536 | | | $ | 257 | |
2022 | 2022 | | 9,774 | | | 1,031 | | 2022 | | 9,686 | | | 1,031 | |
2023 | 2023 | | 8,549 | | | 1,037 | | 2023 | | 8,494 | | | 1,037 | |
2024 | 2024 | | 7,414 | | | 1,037 | | 2024 | | 7,451 | | | 1,037 | |
2025 | 2025 | | 5,727 | | | 1,037 | | 2025 | | 5,764 | | | 1,037 | |
Thereafter | Thereafter | | 31,593 | | | 9,223 | | Thereafter | | 32,049 | | | 9,223 | |
Total undiscounted lease payments | Total undiscounted lease payments | | 71,023 | | | 14,131 | | Total undiscounted lease payments | | 65,980 | | | 13,622 | |
Less amounts representing interest | Less amounts representing interest | | (9,542) | | | (3,879) | | Less amounts representing interest | | (8,836) | | | (3,626) | |
Lease liability | Lease liability | | $ | 61,481 | | | $ | 10,252 | | Lease liability | | $ | 57,144 | | | $ | 9,996 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10.11. 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 March 31,September 30, 2021, the Company had 33724 active modified loans outstanding with a carrying value of $173 million, which excluded loans returning to payment or awaiting evaluation for further deferral.$65 million. 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.Thedeferral. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11.12. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | Minimum Capital Requirement |
Company (consolidated) | | | | | | |
Total capital to risk weighted assets | | 16.6 | % | | 16.1 | % | | 8.0 | % |
Common equity tier 1 capital to risk weighted assets | | 14.2 | | | 13.8 | | | 4.5 | |
Tier 1 capital to risk weighted assets | | 14.4 | | | 14.1 | | | 6.0 | |
Tier 1 capital to average assets | | 9.5 | | | 9.4 | | | 4.0 | |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Minimum Capital Requirement |
Company (consolidated) | | | | | | |
Total capital to risk-weighted assets | | 17.7 | % | | 16.1 | % | | 8.0 | % |
Common equity tier 1 capital to risk-weighted assets | | 15.3 | | | 13.8 | | | 4.5 | |
Tier 1 capital to risk-weighted assets | | 15.6 | | | 14.1 | | | 6.0 | |
Tier 1 capital to average assets | | 9.9 | | | 9.4 | | | 4.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | Regulatory Minimum to be Adequately Capitalized | | Regulatory Minimum to be Well Capitalized |
Bank | | | | | | | | |
Total capital to risk weighted assets | | 15.4 | % | | 15.0 | % | | 8.0 | % | | 10.0 | % |
Common equity tier 1 capital to risk weighted assets | | 14.2 | | | 13.9 | | | 4.5 | | | 6.5 | |
Tier 1 capital to risk weighted assets | | 14.2 | | | 13.9 | | | 6.0 | | | 8.0 | |
Tier 1 capital to average assets | | 9.3 | | | 9.2 | | | 4.0 | | | 5.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Regulatory Minimum to be Adequately Capitalized | | Regulatory Minimum to be Well Capitalized |
Bank | | | | | | | | |
Total capital to risk-weighted assets | | 16.2 | % | | 15.0 | % | | 8.0 | % | | 10.0 | % |
Common equity tier 1 capital to risk-weighted assets | | 15.1 | | | 13.9 | | | 4.5 | | | 6.5 | |
Tier 1 capital to risk-weighted assets | | 15.1 | | | 13.9 | | | 6.0 | | | 8.0 | |
Tier 1 capital to average assets | | 9.6 | | | 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 March 31,September 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 March 31,September 30, 2021 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive income
Components of accumulated other comprehensive income is as follows:
| (In thousands) | (In thousands) | | March 31, 2021 | | December 31, 2020 | (In thousands) | | September 30, 2021 | | December 31, 2020 |
Other accumulated comprehensive income, before tax: | Other accumulated comprehensive income, before tax: | | | | | Other accumulated comprehensive income, before tax: | | | | |
Net unrealized holding gain on AFS securities | Net unrealized holding gain on AFS securities | | $ | 17,975 | | | $ | 44,988 | | Net unrealized holding gain on AFS securities | | $ | 13,270 | | | $ | 44,988 | |
| Net unrealized holding (loss) on pension plans | Net unrealized holding (loss) on pension plans | | (3,511) | | | (3,511) | | Net unrealized holding (loss) on pension plans | | (3,511) | | | (3,511) | |
| Income taxes related to items of accumulated other comprehensive income: | Income taxes related to items of accumulated other comprehensive income: | | | | | Income taxes related to items of accumulated other comprehensive income: | | | | |
Net unrealized tax (expense) on AFS securities | Net unrealized tax (expense) on AFS securities | | (4,667) | | | (11,530) | | Net unrealized tax (expense) on AFS securities | | (3,434) | | | (11,530) | |
| Net unrealized tax benefit on pension plans | Net unrealized tax benefit on pension plans | | 924 | | | 924 | | Net unrealized tax benefit on pension plans | | 924 | | | 924 | |
Accumulated other comprehensive income | Accumulated other comprehensive income | | $ | 10,721 | | | $ | 30,871 | | Accumulated other comprehensive income | | $ | 7,249 | | | $ | 30,871 | |
The following table presents the components of other comprehensive income for the three and nine months ended March 31,September 30, 2021 and 2020:
| (In thousands) | (In thousands) | | Before Tax | | Tax Effect | | Net of Tax | (In thousands) | | Before Tax | | Tax Effect | | Net of Tax |
Three Months Ended March 31, 2021 | | | | | | | |
Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 | | | | | | |
Net unrealized holding gain on AFS securities: | Net unrealized holding gain on AFS securities: | | x | | | Net unrealized holding gain on AFS securities: | | x | | |
Net unrealized (losses) arising during the period | Net unrealized (losses) arising during the period | | $ | (27,013) | | | $ | 6,863 | | | $ | (20,150) | | Net unrealized (losses) arising during the period | | $ | (10,098) | | | $ | 2,575 | | | $ | (7,523) | |
Less: reclassification adjustment for gains realized in net income | Less: reclassification adjustment for gains realized in net income | | 0 | | | 0 | | | 0 | | Less: reclassification adjustment for gains realized in net income | | — | | | — | | | — | |
Net unrealized holding (loss) on AFS securities | Net unrealized holding (loss) on AFS securities | | (27,013) | | | 6,863 | | | (20,150) | | Net unrealized holding (loss) on AFS securities | | (10,098) | | | 2,575 | | | (7,523) | |
| Other comprehensive (loss) | Other comprehensive (loss) | | $ | (27,013) | | | $ | 6,863 | | | $ | (20,150) | | Other comprehensive (loss) | | $ | (10,098) | | | $ | 2,575 | | | $ | (7,523) | |
| | Three Months Ended March 31, 2020 | | | | | | | |
Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2020 | | | | | | |
Net unrealized holding gain on AFS securities: | Net unrealized holding gain on AFS securities: | | | | | Net unrealized holding gain on AFS securities: | | | | |
Net unrealized gains arising during the period | | $ | 25,613 | | | $ | (6,590) | | | $ | 19,023 | | |
Less: reclassification adjustment for (losses) realized in net income | | (1) | | | 0 | | | (1) | | |
Net unrealized holding gain on AFS securities | | 25,614 | | | (6,590) | | | 19,024 | | |
Net unrealized (losses) arising during the period | | Net unrealized (losses) arising during the period | | $ | (1,079) | | | $ | 270 | | | $ | (809) | |
Less: reclassification adjustment for gains realized in net income | | Less: reclassification adjustment for gains realized in net income | | 6 | | | (2) | | | 4 | |
Net unrealized holding (loss) on AFS securities | | Net unrealized holding (loss) on AFS securities | | (1,085) | | | 272 | | | (813) | |
| Other comprehensive income | | $ | 25,614 | | | $ | (6,590) | | | $ | 19,024 | | |
Other comprehensive (loss) | | Other comprehensive (loss) | | $ | (1,085) | | | $ | 272 | | | $ | (813) | |
|
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Before Tax | | Tax Effect | | Net of Tax |
Nine Months Ended September 30, 2021 | | | | | | |
Net unrealized holding gain on AFS securities: | | x | | | | |
Net unrealized (losses) arising during the period | | $ | (31,718) | | | $ | 8,096 | | | $ | (23,622) | |
Less: reclassification adjustment for gains realized in net income | | — | | | — | | | — | |
Net unrealized holding (loss) on AFS securities | | (31,718) | | | 8,096 | | | (23,622) | |
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Other comprehensive (loss) | | $ | (31,718) | | | $ | 8,096 | | | $ | (23,622) | |
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| | | | | | |
Nine Months Ended September 30, 2020 | | | | | | |
Net unrealized holding gain on AFS securities: | | | | | | |
Net unrealized gains arising during the period | | $ | 27,534 | | | $ | (7,097) | | | $ | 20,437 | |
Less: reclassification adjustment for gains realized in net income | | 5 | | | (1) | | | 4 | |
Net unrealized holding gain on AFS securities | | 27,529 | | | (7,096) | | | 20,433 | |
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Other comprehensive income | | $ | 27,529 | | | $ | (7,096) | | | $ | 20,433 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive income, for the three and nine months ended March 31,September 30, 2021 and 2020:
| (In thousands) | (In thousands) | | Net unrealized holding loss on AFS Securities | | | | Net unrealized holding loss on pension plans | | Total | (In thousands) | | Net unrealized holding loss on AFS Securities | | | | Net unrealized holding loss on pension plans | | Total |
Three Months Ended March 31, 2021 | | | | | | | | | |
Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 | | | | | | | | |
Balance at Beginning of Period | Balance at Beginning of Period | | $ | 33,458 | | | | | $ | (2,587) | | | $ | 30,871 | | Balance at Beginning of Period | | $ | 17,359 | | | | | $ | (2,587) | | | $ | 14,772 | |
Other comprehensive income before reclassifications | Other comprehensive income before reclassifications | | (20,150) | | | | | 0 | | | (20,150) | | Other comprehensive income before reclassifications | | (7,523) | | | | | — | | | (7,523) | |
Less: amounts reclassified from accumulated other comprehensive income | Less: amounts reclassified from accumulated other comprehensive income | | 0 | | | | | 0 | | | 0 | | Less: amounts reclassified from accumulated other comprehensive income | | — | | | | | — | | | — | |
Total other comprehensive (loss) | Total other comprehensive (loss) | | (20,150) | | | | | 0 | | | (20,150) | | Total other comprehensive (loss) | | (7,523) | | | | | — | | | (7,523) | |
Balance at End of Period | Balance at End of Period | | $ | 13,308 | | | | | $ | (2,587) | | | $ | 10,721 | | Balance at End of Period | | $ | 9,836 | | | | | $ | (2,587) | | | $ | 7,249 | |
| Three Months Ended March 31, 2020 | | | | | | | | | |
Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2020 | | | | | | | | |
Balance at Beginning of Period | | Balance at Beginning of Period | | $ | 35,450 | | | | | $ | (2,211) | | | $ | 33,239 | |
Other comprehensive income before reclassifications | | Other comprehensive income before reclassifications | | (809) | | | | | — | | | (809) | |
Less: amounts reclassified from accumulated other comprehensive income | | Less: amounts reclassified from accumulated other comprehensive income | | 4 | | | | | — | | | 4 | |
Total other comprehensive (loss) | | Total other comprehensive (loss) | | (813) | | | | | — | | | (813) | |
| Balance at End of Period | | Balance at End of Period | | $ | 34,637 | | | | | $ | (2,211) | | | $ | 32,426 | |
| Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | | | | | | | |
Balance at Beginning of Period | | Balance at Beginning of Period | | $ | 33,458 | | | | | $ | (2,587) | | | $ | 30,871 | |
Other comprehensive income before reclassifications | | Other comprehensive income before reclassifications | | (23,622) | | | | | — | | | (23,622) | |
Less: amounts reclassified from accumulated other comprehensive income | | Less: amounts reclassified from accumulated other comprehensive income | | — | | | | | — | | | — | |
Total other comprehensive (loss) | | Total other comprehensive (loss) | | (23,622) | | | | | — | | | (23,622) | |
| Balance at End of Period | | Balance at End of Period | | $ | 9,836 | | | | | $ | (2,587) | | | $ | 7,249 | |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | | | | | | | |
Balance at Beginning of Period | Balance at Beginning of Period | | $ | 14,204 | | | | | $ | (2,211) | | | $ | 11,993 | | Balance at Beginning of Period | | $ | 14,204 | | | | | $ | (2,211) | | | $ | 11,993 | |
Other comprehensive income before reclassifications | Other comprehensive income before reclassifications | | 19,023 | | | | | 0 | | | 19,023 | | Other comprehensive income before reclassifications | | 20,437 | | | | | — | | | 20,437 | |
Less: amounts reclassified from accumulated other comprehensive income | Less: amounts reclassified from accumulated other comprehensive income | | (1) | | | | | 0 | | | (1) | | Less: amounts reclassified from accumulated other comprehensive income | | 4 | | | | | — | | | 4 | |
Total other comprehensive income | Total other comprehensive income | | 19,024 | | | | | 0 | | | 19,024 | | Total other comprehensive income | | 20,433 | | | | | — | | | 20,433 | |
| Balance at End of Period | Balance at End of Period | | $ | 33,228 | | | | | $ | (2,211) | | | $ | 31,017 | | Balance at End of Period | | $ | 34,637 | | | | | $ | (2,211) | | | $ | 32,426 | |
|
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 nine months ended March 31,September 30, 2021 and 2020:
| | | | | | | | Affected Line Item in the | | | | | | | Affected Line Item in the |
| | | Three Months Ended March 31, | | Statement where Net Income | | | Three Months Ended September 30, | | Statement where Net Income |
(In thousands) | (In thousands) | | 2021 | | 2020 | | is Presented | (In thousands) | | 2021 | | 2020 | | is Presented |
Realized gains on AFS securities: | Realized gains on AFS securities: | | | | | | | Realized gains on AFS securities: | | | | | | |
| | | $ | 0 | | | $ | (1) | | | Non-interest income | | | $ | — | | | $ | 6 | | | Non-interest income |
| | | | 0 | | | 0 | | | Tax expense | | | — | | | (2) | | | Tax expense |
| | | | 0 | | | (1) | | | Net of tax | | | — | | | 4 | | | Net of tax |
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| Total reclassifications for the period | Total reclassifications for the period | | $ | 0 | | | $ | (1) | | | Net of tax | Total reclassifications for the period | | $ | — | | | $ | 4 | | | Net of tax |
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| | | | | | Affected Line Item in the |
| | Nine Months Ended September 30, | | Statement where Net Income |
(In thousands) | | 2021 | | 2020 | | is Presented |
Realized gains on AFS securities: | | | | | | |
| | $ | — | | | $ | 5 | | | Non-interest income |
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| | — | | | (1) | | | Tax expense |
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| | — | | | 4 | | | Net of tax |
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Total reclassifications for the period | | $ | — | | | $ | 4 | | | Net of tax |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12.13. 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 March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands, except per share data) | (In thousands, except per share data) | 2021 | | 2020 | | (In thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Income/(loss) from continuing operations | Income/(loss) from continuing operations | $ | 13,031 | | | $ | (12,072) | | | Income/(loss) from continuing operations | $ | 63,749 | | | $ | 23,043 | | | $ | 98,416 | | | $ | (532,074) | |
(Loss)/income from discontinued operations | 0 | | | (7,798) | | | |
(Loss) from discontinued operations | | (Loss) from discontinued operations | — | | | (1,818) | | | — | | | (15,952) | |
Net income/(loss) | Net income/(loss) | $ | 13,031 | | | $ | (19,870) | | | Net income/(loss) | $ | 63,749 | | | $ | 21,225 | | | $ | 98,416 | | | $ | (548,026) | |
| Average number of common shares issued | Average number of common shares issued | 51,903 | | | 51,903 | | | Average number of common shares issued | 51,903 | | | 51,903 | | | 51,903 | | | 51,903 | |
Less: average number of treasury shares | Less: average number of treasury shares | 948 | | | 1,744 | | | Less: average number of treasury shares | 2,764 | | | 1,560 | | | 1,519 | | | 1,674 | |
Less: average number of unvested stock award shares | Less: average number of unvested stock award shares | 625 | | | 488 | | | Less: average number of unvested stock award shares | 744 | | | 536 | | | 712 | | | 499 | |
Plus: average participating preferred shares | Plus: average participating preferred shares | 0 | | | 533 | | | Plus: average participating preferred shares | — | | | 522 | | | — | | | 526 | |
Average number of basic shares outstanding | Average number of basic shares outstanding | 50,330 | | | 50,204 | | | Average number of basic shares outstanding | 48,395 | | | 50,329 | | | 49,672 | | | 50,256 | |
Plus: dilutive effect of unvested stock award shares | Plus: dilutive effect of unvested stock award shares | 235 | | | 0 | | | Plus: dilutive effect of unvested stock award shares | 342 | | | — | | | 286 | | | — | |
Plus: dilutive effect of stock options outstanding | Plus: dilutive effect of stock options outstanding | 0 | | | 0 | | | Plus: dilutive effect of stock options outstanding | 7 | | | — | | | 5 | | | — | |
Average number of diluted shares outstanding | Average number of diluted shares outstanding | 50,565 | | | 50,204 | | | Average number of diluted shares outstanding | 48,744 | | | 50,329 | | | 49,963 | | | 50,256 | |
| Basic earnings/(loss) per common share: | Basic earnings/(loss) per common share: | | | | | Basic earnings/(loss) per common share: | | | | |
Continuing operations | Continuing operations | $ | 0.26 | | | $ | (0.24) | | | Continuing operations | $ | 1.32 | | | $ | 0.46 | | | $ | 1.98 | | | $ | (10.58) | |
Discontinued operations | Discontinued operations | 0 | | | (0.16) | | | Discontinued operations | — | | | (0.04) | | | — | | | (0.32) | |
Total | Total | $ | 0.26 | | | $ | (0.40) | | | Total | $ | 1.32 | | | $ | 0.42 | | | $ | 1.98 | | | $ | (10.90) | |
| Diluted earnings/(loss) per common share: | Diluted earnings/(loss) per common share: | | | Diluted earnings/(loss) per common share: | |
Continuing operations | Continuing operations | $ | 0.26 | | | $ | (0.24) | | | Continuing operations | $ | 1.31 | | | $ | 0.46 | | | $ | 1.97 | | | $ | (10.58) | |
Discontinued operations | Discontinued operations | 0 | | | (0.16) | | | Discontinued operations | — | | | (0.04) | | | — | | | (0.32) | |
Total | Total | $ | 0.26 | | | $ | (0.40) | | | Total | $ | 1.31 | | | $ | 0.42 | | | $ | 1.97 | | | $ | (10.90) | |
For the three months ended March 31,September 30, 2021, 390402 thousand shares of unvested restricted stock and all88 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the nine months ended September 30, 2021, 425 thousand shares of unvested restricted stock and 93 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three and nine months ended March 31,September 30, 2020, all unvested restricted stock and options outstanding were considered anti-dilutive and therefore excluded from the earnings per share calculation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13.14. STOCK-BASED COMPENSATION PLANS
A combined summary of activity in the Company’s stock award and stock option plans for the threenine months ended March 31,September 30, 2021 is presented in the following table:
| | | | Non-Vested Stock Awards Outstanding | | Stock Options Outstanding | | | Non-Vested Stock Awards Outstanding | | Stock Options Outstanding |
(Shares in thousands) | (Shares in thousands) | | Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Exercise Price | (Shares in thousands) | | Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Exercise Price |
December 31, 2020 | December 31, 2020 | | 517 | | | $ | 28.35 | | | 112 | | | $ | 22.95 | | December 31, 2020 | | 517 | | | $ | 28.35 | | | 112 | | | $ | 22.95 | |
Granted | Granted | | 210 | | | 16.58 | | | 0 | | | 0 | | Granted | | 452 | | | 19.85 | | | — | | | — | |
Acquired | Acquired | | — | | | — | | | 0 | | | 0 | | Acquired | | — | | | — | | | — | | | — | |
Stock options exercised | Stock options exercised | | — | | | — | | | (5) | | | 13.70 | | Stock options exercised | | — | | | — | | | (9) | | | 17.85 | |
Stock awards vested | Stock awards vested | | (44) | | | 30.63 | | | — | | | — | | Stock awards vested | | (168) | | | 24.80 | | | — | | | — | |
Forfeited | Forfeited | | (52) | | | 25.82 | | | 0 | | | 0 | | Forfeited | | (89) | | | 23.97 | | | — | | | — | |
Expired | Expired | | — | | | — | | | (10) | | | 17.46 | | Expired | | — | | | — | | | (10) | | | 17.46 | |
March 31, 2021 | | 631 | | | $ | 20.09 | | | 97 | | | $ | 24.85 | | |
September 30, 2021 | | September 30, 2021 | | 712 | | | $ | 20.16 | | | 93 | | | $ | 24.91 | |
|
During the three and nine months ended March 31,September 30, 2021, proceeds from stock option exercises totaled $69 thousand.$38 thousand and $162 thousand, respectively. During the three and nine months ended March 31,September 30, 2020 proceeds from stock option exercises totaled $519 thousand.there were no options exercised . During the three and nine months ended March 31,September 30, 2021, there were 89 thousand and March 31,168 thousand shares vested in connection with stock awards, respectively. During the three and nine months ended September 30, 2020, there were 4437 thousand and 53133 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $0.7$1.4 million and $1.5$0.6 million during the three months ended March 31,September 30, 2021 and 2020, respectively. Stock-based compensation expense totaled $3.7 million and $3.5 million during the nine months ended September 30, 2021 and 2020, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14.15. 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 March 31,September 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
| | | March 31, 2021 | | September 30, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
(In thousands) | (In thousands) | Inputs | | Inputs | | Inputs | | Fair Value | (In thousands) | Inputs | | Inputs | | Inputs | | Fair Value |
Trading security | Trading security | $ | 0 | | | $ | 0 | | | $ | 9,350 | | | $ | 9,350 | | Trading security | $ | — | | | $ | — | | | $ | 8,574 | | | $ | 8,574 | |
Securities available for sale: | Securities available for sale: | | | Securities available for sale: | | |
Municipal bonds and obligations | Municipal bonds and obligations | 0 | | | 90,300 | | | 0 | | | 90,300 | | Municipal bonds and obligations | — | | | 81,173 | | | — | | | 81,173 | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | 0 | | | 724,554 | | | 0 | | | 724,554 | | Agency collateralized mortgage obligations | — | | | 772,290 | | | — | | | 772,290 | |
Agency residential mortgage-backed securities | Agency residential mortgage-backed securities | 0 | | | 447,196 | | | 0 | | | 447,196 | | Agency residential mortgage-backed securities | — | | | 427,507 | | | — | | | 427,507 | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | 0 | | | 268,515 | | | 0 | | | 268,515 | | Agency commercial mortgage-backed securities | — | | | 262,178 | | | — | | | 262,178 | |
Corporate bonds | Corporate bonds | 0 | | | 45,014 | | | 0 | | | 45,014 | | Corporate bonds | — | | | 50,742 | | | — | | | 50,742 | |
| Other bonds and obligations | Other bonds and obligations | 0 | | | 51,751 | | | 0 | | | 51,751 | | Other bonds and obligations | — | | | 50,075 | | | — | | | 50,075 | |
Marketable equity securities | Marketable equity securities | 15,129 | | | 672 | | | 0 | | | 15,801 | | Marketable equity securities | 14,946 | | | 655 | | | — | | | 15,601 | |
Loans held for investment at fair value | Loans held for investment at fair value | 0 | | | 0 | | | 1,448 | | | 1,448 | | Loans held for investment at fair value | — | | | — | | | 1,038 | | | 1,038 | |
Loans held for sale | Loans held for sale | 0 | | | 8,877 | | | 0 | | | 8,877 | | Loans held for sale | — | | | 5,176 | | | — | | | 5,176 | |
Derivative assets | Derivative assets | 0 | | | 106,665 | | | 511 | | | 107,176 | | Derivative assets | — | | | 96,802 | | | 324 | | | 97,126 | |
Capitalized servicing rights | Capitalized servicing rights | 0 | | | 0 | | | 2,968 | | | 2,968 | | Capitalized servicing rights | — | | | — | | | 2,146 | | | 2,146 | |
Derivative liabilities | Derivative liabilities | 0 | | | 47,215 | | | 0 | | | 47,215 | | Derivative liabilities | — | | | 42,624 | | | — | | | 42,624 | |
| | | December 31, 2020 | | December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
(In thousands) | (In thousands) | Inputs | | Inputs | | Inputs | | Fair Value | (In thousands) | Inputs | | Inputs | | Inputs | | Fair Value |
Trading security | Trading security | $ | 0 | | | $ | 0 | | | $ | 9,708 | | | $ | 9,708 | | Trading security | $ | — | | | $ | — | | | $ | 9,708 | | | $ | 9,708 | |
Securities available for sale: | Securities available for sale: | | Securities available for sale: | |
Municipal bonds and obligations | Municipal bonds and obligations | 0 | | | 97,803 | | | 0 | | | 97,803 | | Municipal bonds and obligations | — | | | 97,803 | | | — | | | 97,803 | |
Agency collateralized mortgage obligations | Agency collateralized mortgage obligations | 0 | | | 756,826 | | | 0 | | | 756,826 | | Agency collateralized mortgage obligations | — | | | 756,826 | | | — | | | 756,826 | |
Agency residential mortgage-backed securities | Agency residential mortgage-backed securities | 0 | | | 438,132 | | | 0 | | | 438,132 | | Agency residential mortgage-backed securities | — | | | 438,132 | | | — | | | 438,132 | |
Agency commercial mortgage-backed securities | Agency commercial mortgage-backed securities | 0 | | | 288,650 | | | 0 | | | 288,650 | | Agency commercial mortgage-backed securities | — | | | 288,650 | | | — | | | 288,650 | |
Corporate bonds | Corporate bonds | 0 | | | 45,030 | | | 15,000 | | | 60,030 | | Corporate bonds | — | | | 45,030 | | | 15,000 | | | 60,030 | |
| Other bonds and obligations | Other bonds and obligations | 0 | | | 53,791 | | | 0 | | | 53,791 | | Other bonds and obligations | — | | | 53,791 | | | — | | | 53,791 | |
Marketable equity securities | Marketable equity securities | 17,841 | | | 672 | | | 0 | | | 18,513 | | Marketable equity securities | 17,841 | | | 672 | | | — | | | 18,513 | |
Loans held for investment at fair value | Loans held for investment at fair value | 0 | | | 0 | | | 2,265 | | | 2,265 | | Loans held for investment at fair value | — | | | — | | | 2,265 | | | 2,265 | |
Loans held for sale | Loans held for sale | 0 | | | 12,992 | | | 4,756 | | | 17,748 | | Loans held for sale | — | | | 12,992 | | | 4,756 | | | 17,748 | |
Derivative assets | Derivative assets | 0 | | | 159,016 | | | 1,055 | | | 160,071 | | Derivative assets | — | | | 159,016 | | | 1,055 | | | 160,071 | |
Capitalized servicing rights | Capitalized servicing rights | 0 | | | 0 | | | 3,033 | | | 3,033 | | Capitalized servicing rights | — | | | — | | | 3,033 | | | 3,033 | |
Derivative liabilities | Derivative liabilities | 0 | | | 65,758 | | | 0 | | | 65,758 | | Derivative liabilities | — | | | 65,758 | | | — | | | 65,758 | |
There were no transfers between levels during the three months ended March 31,September 30, 2021.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trading Security at Fair Value. The Company holds 1 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 March 31,September 30, 2021.
| | | | | | | | Aggregate Fair Value | | | | | | | Aggregate Fair Value |
March 31, 2021 | | Aggregate | | Aggregate | | Less Aggregate | |
September 30, 2021 | | September 30, 2021 | | Aggregate | | Aggregate | | Less Aggregate |
(In thousands) | (In thousands) | | Fair Value | | Unpaid Principal | | Unpaid Principal | (In thousands) | | Fair Value | | Unpaid Principal | | Unpaid Principal |
Loans held for investment at fair value | Loans held for investment at fair value | | $ | 1,448 | | | $ | 44,969 | | | $ | (43,521) | | Loans held for investment at fair value | | $ | 1,038 | | | $ | 35,390 | | | $ | (34,352) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Aggregate Fair Value |
December 31, 2020 | | Aggregate | | Aggregate | | Less Aggregate |
(In thousands) | | Fair Value | | Unpaid Principal | | Unpaid 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 | | | | | | | Aggregate Fair Value |
March 31, 2021 | | Aggregate | | Aggregate | | Less Aggregate | |
September 30, 2021 | | September 30, 2021 | | Aggregate | | Aggregate | | Less Aggregate |
(In thousands) | (In thousands) | | Fair Value | | Unpaid Principal | | Unpaid Principal | (In thousands) | | Fair Value | | Unpaid Principal | | Unpaid Principal |
Loans held for sale | Loans held for sale | | $ | 8,877 | | | $ | 8,518 | | | $ | 359 | | Loans held for sale | | $ | 5,176 | | | $ | 5,040 | | | $ | 136 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Aggregate Fair Value |
December 31, 2020 | | Aggregate | | Aggregate | | Less Aggregate |
(In thousands) | | Fair Value | | Unpaid Principal | | Unpaid Principal |
Loans held for sale | | $ | 12,992 | | | $ | 12,639 | | | $ | 353 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in fair value of loans held for sale for the three and nine months ended March 31,September 30, 2021, were gains of $6 thousand.$17 thousand and losses of $217 thousand, respectively. During the three and nine months ended March 31,September 30, 2021, originations of loans held for sale totaled $44.0$24.0 million and $84.4 million and sales of loans originated for sale totaled $46.9 million.$22.5 million and $90.8 million respectively.
The changes in fair value of loans held for sale for the three months ended March 31,September 30, 2020, were losses of $49$6 thousand from continuing operations and gains of $0.5$0.9 million from discontinued operations. During the three months ended March 31,September 30, 2020, originations of loans held for sale from continuing operations totaled $16.6$70.6 million and sales of loans originated for sale from continuing operations totaled $21.1$74.1 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 March 31,September 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.
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 nine months ended March 31,September 30, 2021 and 2020.
| | | Assets (Liabilities) | | Assets (Liabilities) |
| | | | Securities | | Loans | | | | Capitalized | | | | Securities | | Loans | | | | Capitalized |
| | Trading | | Available | | Held for | | Commitments | | Forward | | Servicing | | Trading | | Available | | Held for | | Commitments | | Forward | | Servicing |
(In thousands) | (In thousands) | Security | | for Sale | | Investment | | to Lend | | Commitments | | Rights | (In thousands) | Security | | for Sale | | Investment | | to Lend | | Commitments | | Rights |
Three Months Ended March 31, 2021 | |
December 31, 2020 | $ | 9,708 | | | $ | 15,000 | | | $ | 2,265 | | | $ | 735 | | | $ | 320 | | | $ | 3,033 | | |
Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 |
June 30, 2021 | | June 30, 2021 | $ | 8,853 | | | $ | — | | | $ | 1,260 | | | $ | 261 | | | $ | 92 | | | $ | 2,356 | |
| Maturities, calls, and prepayments of AFS Security | — | | | (15,000) | | | — | | | — | | | — | | |
| | Unrealized (loss)/gain, net recognized in other non-interest income | Unrealized (loss)/gain, net recognized in other non-interest income | (166) | | | — | | | 414 | | | 818 | | | 6 | | | (65) | | Unrealized (loss)/gain, net recognized in other non-interest income | (85) | | | — | | | 509 | | | 440 | | | 10 | | | (210) | |
| Paydown of asset | Paydown of asset | (192) | | | — | | | (1,231) | | | — | | | — | | | — | | Paydown of asset | (194) | | | — | | | (731) | | | — | | | — | | | — | |
| Transfers to held for sale loans | Transfers to held for sale loans | — | | | — | | | — | | | (1,368) | | | — | | | — | | Transfers to held for sale loans | — | | | — | | | — | | | (479) | | | — | | | — | |
| March 31, 2021 | $ | 9,350 | | | $ | 0 | | | $ | 1,448 | | | $ | 185 | | | $ | 326 | | | $ | 2,968 | | |
September 30, 2021 | | September 30, 2021 | $ | 8,574 | | | $ | — | | | $ | 1,038 | | | $ | 222 | | | $ | 102 | | | $ | 2,146 | |
| Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
December 31, 2020 | | December 31, 2020 | $ | 9,708 | | | $ | 15,000 | | | $ | 2,265 | | | $ | 735 | | | $ | 320 | | | $ | 3,033 | |
| Maturity of AFS security | | Maturity of AFS security | — | | | (15,000) | | | — | | | — | | | — | | | — | |
| Unrealized (loss)/gain, net recognized in other non-interest income | | Unrealized (loss)/gain, net recognized in other non-interest income | (556) | | | — | | | 1,110 | | | 1,688 | | | (218) | | | (887) | |
| | | Paydown of asset | | Paydown of asset | (578) | | | — | | | (2,337) | | | — | | | — | | | — | |
Transfers to held for sale loans | | Transfers to held for sale loans | — | | | — | | | — | | | (2,201) | | | — | | | — | |
| September 30, 2021 | | September 30, 2021 | $ | 8,574 | | | $ | — | | | $ | 1,038 | | | $ | 222 | | | $ | 102 | | | $ | 2,146 | |
| Unrealized gain/(loss) relating to instruments still held at March 31, 2021 | $ | 887 | | | $ | — | | | $ | 0 | | | $ | 185 | | | $ | 326 | | | $ | — | | |
Unrealized gain relating to instruments still held at September 30, 2021 | | Unrealized gain relating to instruments still held at September 30, 2021 | $ | 497 | | | $ | — | | | $ | — | | | $ | 222 | | | $ | 102 | | | $ | — | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | Securities | | Loans | | | Capitalized | | | | Securities | | Loans | | | | Capitalized |
| | Trading | | Available | | Held for | | Commitments | | | Servicing | | Trading | | Available | | Held for | | Commitments | | Forward | | Servicing |
(In thousands) | (In thousands) | Security | | for Sale | | Investment | | to Lend (1) | | | Rights (1) | (In thousands) | Security | | for Sale | | Investment | | to Lend (1) | | Commitments (1) | | Rights (1) |
Three Months Ended March 31, 2020 | | | | | | | | | | |
December 31, 2019 | $ | 10,769 | | | $ | 42,966 | | | $ | 0 | | | $ | 2,628 | | | | $ | 12,299 | | |
Adoption of ASC 326 | — | | | — | | | 7660 | | — | | | | — | | |
Maturity of AFS security | — | | | (9,000) | | | — | | | — | | | | — | | |
Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2020 | | | | | | | | | | |
June 30, 2020 | | June 30, 2020 | $ | 9,519 | | | $ | 25,600 | | | $ | 3,140 | | | $ | 1,149 | | | $ | 447 | | | $ | 4,828 | |
| Unrealized gain, net recognized in other non-interest income | Unrealized gain, net recognized in other non-interest income | (759) | | | — | | | (2,216) | | | 0 | | | | 0 | | Unrealized gain, net recognized in other non-interest income | 190 | | | — | | | 1,189 | | | — | | | (50) | | | — | |
Unrealized gain included in accumulated other comprehensive loss | Unrealized gain included in accumulated other comprehensive loss | — | | | 538 | | | — | | | — | | | | — | | Unrealized gain included in accumulated other comprehensive loss | — | | | 225 | | | — | | | — | | | — | | | — | |
Unrealized gain/(loss), net recognized in discontinued operations | Unrealized gain/(loss), net recognized in discontinued operations | 0 | | | — | | | — | | | 11,039 | | | | (3,781) | | Unrealized gain/(loss), net recognized in discontinued operations | — | | | — | | | — | | | 2,124 | | | — | | | (973) | |
Paydown of asset | Paydown of asset | (181) | | | — | | | (549) | | | — | | | | — | | Paydown of asset | (184) | | | — | | | (1,555) | | | — | | | — | | | — | |
| Transfers to held for sale loans | Transfers to held for sale loans | — | | | — | | | — | | | (8,831) | | | | — | | Transfers to held for sale loans | — | | | — | | | — | | | (1,775) | | | — | | | — | |
Additions to servicing rights | Additions to servicing rights | — | | | — | | | — | | | — | | | | 0 | | Additions to servicing rights | — | | | — | | | — | | | — | | | — | | | — | |
March 31, 2020 | $ | 9,829 | | | $ | 34,504 | | | $ | 4,895 | | | $ | 4,836 | | | | $ | 8,518 | | |
September 30, 2020 | | September 30, 2020 | $ | 9,525 | | | $ | 25,825 | | | $ | 2,774 | | | $ | 1,498 | | | $ | 397 | | | $ | 3,855 | |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | | | | | | | |
December 31, 2020 | | December 31, 2020 | $ | 10,769 | | | $ | 42,966 | | | $ | — | | | $ | 2,628 | | | $ | — | | | $ | 12,299 | |
Adoption of ASC 326 | | Adoption of ASC 326 | — | | | — | | | 7,660 | | | — | | | — | |
Sale of AFS security | | Sale of AFS security | — | | | (17,000) | | | — | | | — | | | — | | | — | |
Unrealized gain, net recognized in other non-interest income | | Unrealized gain, net recognized in other non-interest income | (698) | | | — | | | (2,523) | | | — | | | 397 | | | — | |
Unrealized (loss) included in accumulated other comprehensive income | | Unrealized (loss) included in accumulated other comprehensive income | — | | | (141) | | | — | | | — | | | — | | | — | |
Unrealized gain/(loss), net recognized in discontinued operations | | Unrealized gain/(loss), net recognized in discontinued operations | — | | | — | | | — | | | 15,877 | | | — | | | (8,255) | |
| Paydown of trading security | | Paydown of trading security | (546) | | | — | | | (2,363) | | | — | | | — | | | — | |
Transfers to held for sale loans | | Transfers to held for sale loans | — | | | — | | | — | | | (17,007) | | | — | | | — | |
Additions to servicing rights | | Additions to servicing rights | — | | | — | | | — | | | — | | | — | | | (189) | |
September 30, 2020 | | September 30, 2020 | $ | 9,525 | | | $ | 25,825 | | | $ | 2,774 | | | $ | 1,498 | | | $ | 397 | | | $ | 3,855 | |
| Unrealized gains relating to instruments still held at March 31,2020 | $ | 620 | | | $ | 151 | | | $ | 0 | | | $ | 4,836 | | | | $ | 0 | | |
Unrealized gains relating to instruments still held at September 30,2020 | | Unrealized gains relating to instruments still held at September 30,2020 | $ | 682 | | | $ | (643) | | | $ | — | | | $ | 1,498 | | | $ | 397 | | | $ | — | |
(1) Classified as assets from discontinued operations on the consolidated balance sheets.
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 | | | Fair Value | | | | | | Significant Unobservable Input |
(In thousands) | (In thousands) | | March 31, 2021 | | Valuation Techniques | | Unobservable Inputs | | Value | (In thousands) | | September 30, 2021 | | Valuation Techniques | | Unobservable Inputs | | Value |
Assets (Liabilities) | Assets (Liabilities) | | | | | | | | | Assets (Liabilities) | | | | | | | | |
Trading security | Trading security | | $ | 9,350 | | | Discounted Cash Flow | | Discount Rate | | 2.66 | % | Trading security | | $ | 8,574 | | | Discounted Cash Flow | | Discount Rate | | 3.43 | % |
| Loan held for investment | | 1,448 | | | Discounted Cash Flow | | Discount Rate | | 25.00 | % | |
Loans held for investment | | Loans held for investment | | 1,038 | | | Discounted Cash Flow | | Discount Rate | | 25.00 | % |
| | Collateral Value | | $6.7 - $19.7 | | Collateral Value | | $6.7 - $16.9 |
Commitments to lend | Commitments to lend | | 185 | | | Historical Trend | | Closing Ratio | | 74.29 | % | Commitments to lend | | 222 | | | Historical Trend | | Closing Ratio | | 76.00 | % |
| | | | | Pricing Model | | Origination Costs, per loan | | $ | 3 | | | | | | Pricing Model | | Origination Costs, per loan | | $ | 3 | |
Forward commitments | Forward commitments | | 326 | | | Historical Trend | | Closing Ratio | | 74.29 | % | Forward commitments | | 102 | | | Historical Trend | | Closing Ratio | | 76.00 | % |
| | | | | Pricing Model | | Origination Costs, per loan | | $ | 3 | | | | | | Pricing Model | | Origination Costs, per loan | | $ | 3 | |
Capitalized servicing rights | Capitalized servicing rights | | 2,968 | | | Discounted cash flow | | Constant Prepayment Rate (CPR) | | 21.07 | % | Capitalized servicing rights | | 2,146 | | | Discounted cash flow | | Constant Prepayment Rate (CPR) | | 24.50 | % |
| | Discount Rate | | 10.00 | % | | Discount Rate | | 9.50 | % |
Total | Total | | $ | 14,277 | | | | | | | | Total | | $ | 12,082 | | | | | | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | | | | | Significant Unobservable Input |
(In thousands) | | December 31, 2020 | | Valuation Techniques | | Unobservable Inputs | | Value |
Assets (Liabilities) | | | | | | | | |
Trading security | | $ | 9,708 | | | Discounted Cash Flow | | Discount Rate | | 2.72 | % |
AFS Securities | | 15,000 | | | Indication from Market Maker | | Price | | 102.00 | % |
Loans held for investment | | 2,265 | | | Discounted Cash Flow | | Discount Rate | | 30.00 | % |
| | | | | | Collateral Value | | $8.1- $21.9 |
Commitments to lend | | 735 | | | Historical Trend | | Closing Ratio | | 74.54 | % |
| | | | Pricing Model | | Origination Costs, per loan | | $ | 3 | |
Forward commitments | | 320 | | | Historical Trend | | Closing Ratio | | 74.54 | % |
| | | | Pricing Model | | Origination Costs, per loan | | $ | 3 | |
Capitalized servicing rights | | 3,033 | | | Discounted Cash Flow | | Constant Prepayment Rate (CPR) | | 26.52 | % |
| | | | | | Discount Rate | | 10.00 | % |
Total | | $ | 31,061 | | | | | | | |
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.
| | | | March 31, 2021 | | December 31, 2020 | | | Fair Value Measurement Date as of March 31, 2021 | | | September 30, 2021 | | December 31, 2020 | | | Fair Value Measurement Date as of September 30, 2021 |
| | | Level 3 | | Level 3 | | | Level 3 | | | Level 3 | | Level 3 | | | Level 3 |
(In thousands) | (In thousands) | | Inputs | | Inputs | | | Inputs | (In thousands) | | Inputs | | Inputs | | | Inputs |
Assets | Assets | | | | | | | | Assets | | | | | | | |
Individually evaluated | Individually evaluated | | $ | 21,762 | | | $ | 28,028 | | | | March 2021 | Individually evaluated | | $ | 20,379 | | | $ | 28,028 | | | | September 2021 |
Capitalized servicing rights | Capitalized servicing rights | | 13,763 | | | 13,315 | | | | March 2021 | Capitalized servicing rights | | 13,963 | | | 13,315 | | | | September 2021 |
Other real estate owned | Other real estate owned | | 149 | | | 149 | | | | March 2021 | Other real estate owned | | — | | | 149 | | | | September 2021 |
Total | Total | | $ | 35,674 | | | $ | 41,492 | | | | | Total | | $ | 34,342 | | | $ | 41,492 | | | | |
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | | | | | |
(In thousands) | | March 31, 2021 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Average) (1) |
Assets | | | | | | | | |
Individually evaluated | | $ | 21,762 | | | Fair Value of Collateral | | Discounted Cash Flow - Loss Severity | | 0.32% to 100.00% (49.39%) |
| | | | | | Appraised Value | | $0 to $11,842 ($7,827) |
Capitalized servicing rights | | 13,763 | | | Discounted Cash Flow | | Constant Prepayment Rate (CPR) | | 11.32% to 19.49% (15.38%) |
| | | | | | Discount Rate | | 8.33% to 11.00% (9.12%) |
Other Real Estate Owned | | 149 | | | Fair Value of Collateral | | Appraised Value | | $182 |
Total | | $ | 35,674 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | | | | | |
(In thousands) | | September 30, 2021 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Average) (1) |
Assets | | | | | | | | |
Individually evaluated | | $ | 20,379 | | | Fair Value of Collateral | | Discounted Cash Flow - Loss Severity | | 0.08% to 100.00% (59.24%) |
| | | | | | Appraised Value | | $0 to $11,777 ($7,911) |
Capitalized servicing rights | | 13,963 | | | Discounted Cash Flow | | Constant Prepayment Rate (CPR) | | 6.99% to 17.30% (13.82%) |
| | | | | | Discount Rate | | 9.50% to 12.08% (11.17%) |
Other Real Estate Owned | | — | | | Fair Value of Collateral | | Appraised Value | | N/A |
Total | | $ | 34,342 | | | | | | | |
(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, 2020 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Average) (1) |
Assets | | | | | | | | |
Individually evaluated | | $ | 28,028 | | | Fair Value of Collateral | | Discounted Cash Flow - loss severity | | 0.07% to 100.00% (46.36%) |
| | | | | | Appraised Value | | $0 to $11,432 ($9,800) |
Capitalized servicing rights | | 13,315 | | | Discounted Cash Flow | | Constant Prepayment Rate (CPR) | | 14.49% to 23.29% (16.98%) |
| | | | | | Discount Rate | | 10.00% to 11.00% (10.56%) |
Other Real Estate Owned | | 149 | | | Fair Value of Collateral | | Appraised 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 March 31,September 30, 2021 and December 31, 2020.
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.
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.
| | | | March 31, 2021 | | | September 30, 2021 |
| | | Carrying | | Fair | | | | | | | | | Carrying | | Fair | | | | | | |
(In thousands) | (In thousands) | | Amount | | Value | | Level 1 | | Level 2 | | Level 3 | (In thousands) | | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | Financial Assets | | | | | | | | | | | Financial Assets | | | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 1,899,608 | | | $ | 1,899,608 | | | $ | 1,899,608 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | $ | 2,124,530 | | | $ | 2,124,530 | | | $ | 2,124,530 | | | $ | — | | | $ | — | |
Trading security | Trading security | | 9,350 | | | 9,350 | | | 0 | | | 0 | | | 9,350 | | Trading security | | 8,574 | | | 8,574 | | | — | | | — | | | 8,574 | |
Marketable equity securities | Marketable equity securities | | 15,801 | | | 15,801 | | | 15,129 | | | 672 | | | 0 | | Marketable equity securities | | 15,601 | | | 15,601 | | | 14,946 | | | 655 | | | — | |
Securities available for sale | Securities available for sale | | 1,627,330 | | | 1,627,330 | | | 0 | | | 1,627,330 | | | 0 | | Securities available for sale | | 1,643,965 | | | 1,643,965 | | | — | | | 1,643,965 | | | — | |
Securities held to maturity | Securities held to maturity | | 610,637 | | | 627,297 | | | 0 | | | 624,012 | | | 3,285 | | Securities held to maturity | | 651,863 | | | 665,359 | | | — | | | 662,452 | | | 2,907 | |
FHLB bank stock and restricted securities | FHLB bank stock and restricted securities | | 28,680 | | | N/A | | N/A | | N/A | | N/A | FHLB bank stock and restricted securities | | 12,041 | | | N/A | | N/A | | N/A | | N/A |
Net loans | Net loans | | 7,534,978 | | | 7,778,261 | | | 0 | | | 0 | | | 7,778,261 | | Net loans | | 6,723,319 | | | 6,930,827 | | | — | | | — | | | 6,930,827 | |
Loans held for sale | Loans held for sale | | 18,377 | | | 18,377 | | | 0 | | | 8,877 | | | 9,500 | | Loans held for sale | | 5,176 | | | 5,176 | | | — | | | 5,176 | | | — | |
Accrued interest receivable | Accrued interest receivable | | 45,990 | | | 45,990 | | | 0 | | | 45,990 | | | 0 | | Accrued interest receivable | | 36,006 | | | 36,006 | | | — | | | 36,006 | | | — | |
| Derivative assets | Derivative assets | | 107,176 | | | 107,176 | | | 0 | | | 106,665 | | | 511 | | Derivative assets | | 97,126 | | | 97,126 | | | — | | | 96,802 | | | 324 | |
| Financial Liabilities | Financial Liabilities | | | | | | | | | | | Financial Liabilities | | | | | | | | | | |
Total deposits | Total deposits | | $ | 10,244,370 | | | $ | 10,256,878 | | | $ | 0 | | | $ | 10,256,878 | | | $ | 0 | | Total deposits | | $ | 10,365,415 | | | $ | 10,371,701 | | | $ | — | | | $ | 10,371,701 | | | $ | — | |
Short-term debt | Short-term debt | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Short-term debt | | — | | | — | | | — | | | — | | | — | |
Long-term Federal Home Loan Bank advances and other | Long-term Federal Home Loan Bank advances and other | | 351,354 | | | 353,481 | | | 0 | | | 353,481 | | | 0 | | Long-term Federal Home Loan Bank advances and other | | 13,369 | | | 13,128 | | | — | | | 13,128 | | | — | |
Subordinated borrowings | Subordinated borrowings | | 97,338 | | | 95,729 | | | 0 | | | 95,729 | | | 0 | | Subordinated borrowings | | 97,454 | | | 96,144 | | | — | | | 96,144 | | | — | |
Derivative liabilities | Derivative liabilities | | 47,215 | | | 47,215 | | | 0 | | | 47,215 | | | 0 | | Derivative liabilities | | 42,624 | | | 42,624 | | | — | | | 42,624 | | | — | |
| | | | December 31, 2020 | | | December 31, 2020 |
| | | Carrying | | Fair | | | | | | | | | Carrying | | Fair | | | | | | |
(In thousands) | (In thousands) | | Amount | | Value | | Level 1 | | Level 2 | | Level 3 | (In thousands) | | Amount | | Value | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | Financial Assets | | | | | | | | | | | Financial Assets | | | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 1,557,875 | | | $ | 1,557,875 | | | $ | 1,557,875 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | $ | 1,557,875 | | | $ | 1,557,875 | | | $ | 1,557,875 | | | $ | — | | | $ | — | |
Trading security | Trading security | | 9,708 | | | 9,708 | | | 0 | | | 0 | | | 9,708 | | Trading security | | 9,708 | | | 9,708 | | | — | | | — | | | 9,708 | |
Marketable equity securities | Marketable equity securities | | 18,513 | | | 18,513 | | | 17,841 | | | 672 | | | 0 | | Marketable equity securities | | 18,513 | | | 18,513 | | | 17,841 | | | 672 | | | — | |
Securities available for sale and other | Securities available for sale and other | | 1,695,232 | | | 1,695,232 | | | 0 | | | 1,680,232 | | | 15,000 | | Securities available for sale and other | | 1,695,232 | | | 1,695,232 | | | — | | | 1,680,232 | | | 15,000 | |
Securities held to maturity | Securities held to maturity | | 465,091 | | | 491,855 | | | 0 | | | 488,393 | | | 3,462 | | Securities held to maturity | | 465,091 | | | 491,855 | | | — | | | 488,393 | | | 3,462 | |
FHLB bank stock and restricted securities | FHLB bank stock and restricted securities | | 34,873 | | | N/A | | N/A | | N/A | | N/A | FHLB bank stock and restricted securities | | 34,873 | | | N/A | | N/A | | N/A | | N/A |
Net loans | Net loans | | 7,954,217 | | | 8,243,437 | | | 0 | | | 0 | | | 8,243,437 | | Net loans | | 7,954,217 | | | 8,243,437 | | | — | | | — | | | 8,243,437 | |
Loans held for sale | Loans held for sale | | 17,748 | | | 17,748 | | | 0 | | | 12,992 | | | 4,756 | | Loans held for sale | | 17,748 | | | 17,748 | | | — | | | 12,992 | | | 4,756 | |
Accrued interest receivable | Accrued interest receivable | | 46,919 | | | 46,919 | | | 0 | | | 46,919 | | | 0 | | Accrued interest receivable | | 46,919 | | | 46,919 | | | — | | | 46,919 | | | — | |
| Derivative assets | Derivative assets | | 160,071 | | | 160,071 | | | 0 | | | 159,016 | | | 1,055 | | Derivative assets | | 160,071 | | | 160,071 | | | — | | | 159,016 | | | 1,055 | |
Assets held for sale | Assets held for sale | | 317,304 | | | 317,304 | | | 0 | | | 16,705 | | | 300,599 | | Assets held for sale | | 317,304 | | | 317,304 | | | — | | | 16,705 | | | 300,599 | |
| Financial Liabilities | Financial Liabilities | | | | | | | | | | | Financial Liabilities | | | | | | | | | | |
Total deposits | Total deposits | | $ | 10,215,808 | | | $ | 10,230,822 | | | $ | 0 | | | $ | 10,230,822 | | | $ | 0 | | Total deposits | | $ | 10,215,808 | | | $ | 10,230,822 | | | $ | — | | | $ | 10,230,822 | | | $ | — | |
Short-term debt | Short-term debt | | 40,000 | | | 40,025 | | | 0 | | | 40,025 | | | 0 | | Short-term debt | | 40,000 | | | 40,025 | | | — | | | 40,025 | | | — | |
Long-term Federal Home Loan Bank advances | Long-term Federal Home Loan Bank advances | | 434,357 | | | 438,064 | | | 0 | | | 438,064 | | | 0 | | Long-term Federal Home Loan Bank advances | | 434,357 | | | 438,064 | | | — | | | 438,064 | | | — | |
Subordinated borrowings | Subordinated borrowings | | 97,280 | | | 95,178 | | | 0 | | | 95,178 | | | 0 | | Subordinated borrowings | | 97,280 | | | 95,178 | | | — | | | 95,178 | | | — | |
Derivative liabilities | Derivative liabilities | | 65,758 | | | 65,758 | | | 0 | | | 65,758 | | | 0 | | Derivative liabilities | | 65,758 | | | 65,758 | | | — | | | 65,758 | | | — | |
Liabilities held for sale | Liabilities held for sale | | 630,065 | | | 631,268 | | | 0 | | | 631,268 | | | 0 | | Liabilities held for sale | | 630,065 | | | 631,268 | | | — | | | 631,268 | | | — | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15.16. NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
Presented below is net interest income after provision for credit losses for the three and nine months ended March 31,September 30, 2021 and 2020, respectively.
| | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | | 2020 | | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Net interest income from continuing operations | Net interest income from continuing operations | | $ | 75,093 | | | $ | 86,428 | | | Net interest income from continuing operations | | $ | 71,368 | | | $ | 77,055 | | | $ | 221,854 | | | $ | 241,073 | |
Provision for credit losses | Provision for credit losses | | 6,500 | | | 34,807 | | | Provision for credit losses | | (4,000) | | | 1,200 | | | 2,500 | | | 65,878 | |
Net interest income from continuing operations after provision for credit losses | Net interest income from continuing operations after provision for credit losses | | $ | 68,593 | | | $ | 51,621 | | | Net interest income from continuing operations after provision for credit losses | | $ | 75,368 | | | $ | 75,855 | | | $ | 219,354 | | | $ | 175,195 | |
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 the | | | At or for the | | At or for the |
Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 | | 2021 | | 2020 |
NOMINAL AND PER SHARE DATA | NOMINAL AND PER SHARE DATA | | | | | NOMINAL AND PER SHARE DATA | | | | | | | |
Net earnings/(loss) per common share, diluted | Net earnings/(loss) per common share, diluted | $ | 0.26 | | | $ | (0.40) | | | Net earnings/(loss) per common share, diluted | $ | 1.31 | | | $ | 0.42 | | | $ | 1.97 | | | $ | (10.90) | |
Adjusted earnings/(loss) per common share, diluted (1)(2) | Adjusted earnings/(loss) per common share, diluted (1)(2) | 0.32 | | | (0.07) | | | Adjusted earnings/(loss) per common share, diluted (1)(2) | 0.53 | | | 0.53 | | | 1.28 | | | 0.32 | |
Net income/(loss), (thousands) | Net income/(loss), (thousands) | 13,031 | | | (19,870) | | | Net income/(loss), (thousands) | 63,749 | | | 21,225 | | | 98,416 | | | (548,026) | |
Adjusted net income/(loss), (thousands) (1)(2) | Adjusted net income/(loss), (thousands) (1)(2) | 16,015 | | | (3,645) | | | Adjusted net income/(loss), (thousands) (1)(2) | 25,695 | | | 26,424 | | | 63,814 | | | 16,315 | |
Total common shares outstanding, (thousands) | Total common shares outstanding, (thousands) | 50,988 | | | 50,199 | | | Total common shares outstanding, (thousands) | 48,657 | | | 50,306 | | | 48,657 | | | 50,306 | |
Average diluted shares, (thousands) | Average diluted shares, (thousands) | 50,565 | | | 50,204 | | | Average diluted shares, (thousands) | 48,744 | | | 50,329 | | | 49,963 | | | 50,290 | |
Total book value per common share | Total book value per common share | 23.05 | | | 33.90 | | | Total book value per common share | 24.21 | | | 23.03 | | | 24.21 | | | 23.03 | |
Tangible book value per common share (2) | Tangible book value per common share (2) | 22.39 | | | 22.00 | | | Tangible book value per common share (2) | 23.58 | | | 22.22 | | | 23.58 | | | 22.22 | |
Dividends per common share | Dividends per common share | 0.12 | | | 0.24 | | | Dividends per common share | 0.12 | | | 0.12 | | | 0.36 | | | 0.60 | |
Full-time equivalent staff, continuing operations | Full-time equivalent staff, continuing operations | 1,467 | | | 1,548 | | | Full-time equivalent staff, continuing operations | 1,333 | | | 1,507 | | | 1,333 | | | 1,507 | |
| PERFORMANCE RATIOS (3) | PERFORMANCE RATIOS (3) | | | PERFORMANCE RATIOS (3) | |
Return on equity | Return on equity | 4.50 | % | | (4.58) | % | | Return on equity | 22.18 | % | | 7.50 | % | | 11.30 | % | | (48.26) | % |
Adjusted return on equity (1)(2) | Adjusted return on equity (1)(2) | 5.53 | | | (0.84) | | | Adjusted return on equity (1)(2) | 8.94 | | | 9.33 | | | 7.33 | | | 1.44 | |
Return on tangible common equity (1)(2) | Return on tangible common equity (1)(2) | 4.98 | | | (6.76) | | | Return on tangible common equity (1)(2) | 23.14 | | | 8.32 | | | 11.97 | | | (67.09) | |
Adjusted return on tangible common equity (1)(2) | Adjusted return on tangible common equity (1)(2) | 6.04 | | | (0.94) | | | Adjusted return on tangible common equity (1)(2) | 9.53 | | | 10.27 | | | 7.88 | | | 2.39 | |
Return on assets | Return on assets | 0.42 | | | (0.62) | | | Return on assets | 2.14 | | | 0.67 | | | 1.07 | | | (5.63) | |
Adjusted return on assets (1)(2) | Adjusted return on assets (1)(2) | 0.51 | | | (0.11) | | | Adjusted return on assets (1)(2) | 0.86 | | | 0.84 | | | 0.69 | | | 0.17 | |
Net interest margin, fully taxable equivalent (FTE) (4)(6) | Net interest margin, fully taxable equivalent (FTE) (4)(6) | 2.62 | | | 3.04 | | | Net interest margin, fully taxable equivalent (FTE) (4)(6) | 2.56 | | | 2.61 | | | 2.60 | | | 2.75 | |
Efficiency ratio (1)(2) | Efficiency ratio (1)(2) | 71.32 | | | 66.92 | | | Efficiency ratio (1)(2) | 68.76 | | | 65.39 | | | 69.32 | | | 67.72 | |
| | FINANCIAL DATA (in millions, end of period) | FINANCIAL DATA (in millions, end of period) | | | FINANCIAL DATA (in millions, end of period) | |
Total assets | Total assets | $ | 12,757 | | | $ | 13,122 | | | Total assets | $ | 11,846 | | | $ | 12,614 | | | $ | 11,846 | | | $ | 12,614 | |
Total earning assets | Total earning assets | 12,071 | | | 11,785 | | | Total earning assets | 11,145 | | | 11,832 | | | 11,145 | | | 11,832 | |
Total loans | Total loans | 7,659 | | | 9,303 | | | Total loans | 6,836 | | | 8,982 | | | 6,836 | | | 8,982 | |
Allowance for credit losses | 124 | | | 114 | | | |
| Total deposits | Total deposits | 10,244 | | | 10,072 | | | Total deposits | 10,365 | | | 10,467 | | | 10,365 | | | 10,467 | |
Loans/deposits (%) | Loans/deposits (%) | 75 | | | 92 | | | Loans/deposits (%) | 66 | % | | 86 | % | | 66 | % | | 86 | % |
| | ASSET QUALITY (5) | ASSET QUALITY (5) | | | | | ASSET QUALITY (5) | | | | | | | |
Allowance for credit losses, (millions) | Allowance for credit losses, (millions) | $ | 124 | | | $ | 114 | | | Allowance for credit losses, (millions) | $ | 113 | | | $ | 134 | | | $ | 113 | | | $ | 134 | |
Net charge-offs, (millions) | Net charge-offs, (millions) | (10) | | | (10) | | | Net charge-offs, (millions) | (2) | | | (6) | | | (17) | | | (21) | |
Net charge-offs (QTD annualized)/average loans | Net charge-offs (QTD annualized)/average loans | 0.51 | % | | 0.45 | % | | Net charge-offs (QTD annualized)/average loans | 0.12 | % | | 0.27 | % | | 0.30 | % | | 0.29 | % |
Provision expense, (millions) | $ | 7 | | | $ | 35 | | | |
Provision (benefit)/expense, (millions) | | Provision (benefit)/expense, (millions) | $ | (4) | | | $ | 1 | | | $ | 3 | | | $ | 66 | |
Non-performing assets, (millions) | Non-performing assets, (millions) | 58 | | | 53 | | | Non-performing assets, (millions) | 39 | | | 49 | | | 39 | | | 49 | |
Non-performing loans/total loans | Non-performing loans/total loans | 0.73 | % | | 0.55 | % | | Non-performing loans/total loans | 0.54 | % | | 0.53 | % | | 0.54 | % | | 0.53 | % |
Allowance for credit losses/non-performing loans | Allowance for credit losses/non-performing loans | 222 | | | 222 | | | Allowance for credit losses/non-performing loans | 304 | | | 284 | | | 304 | | | 284 | |
Allowance for credit losses/total loans | Allowance for credit losses/total loans | 1.62 | | | 1.22 | | | Allowance for credit losses/total loans | 1.65 | | | 1.50 | | | 1.65 | | | 1.50 | |
| CAPITAL RATIOS | CAPITAL RATIOS | | | CAPITAL RATIOS | |
Common equity tier 1 capital to risk weighted assets | 14.5 | % | | 12.0 | % | | |
Common equity tier 1 capital to risk-weighted assets | | Common equity tier 1 capital to risk-weighted assets | 15.3 | % | | 13.2 | % | | 15.3 | % | | 13.2 | % |
Tier 1 capital leverage ratio | Tier 1 capital leverage ratio | 9.5 | | | 9.4 | | | Tier 1 capital leverage ratio | 9.9 | | | 9.2 | | | 9.9 | | | 9.2 | |
Tangible common shareholders' equity/tangible assets (2) | Tangible common shareholders' equity/tangible assets (2) | 9.0 | | | 8.8 | | | Tangible common shareholders' equity/tangible assets (2) | 9.7 | | | 8.9 | | | 9.7 | | | 8.9 | |
| | | At or for the | | | At or for the | | At or for the |
Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 | | 2021 | | 2020 |
FOR THE PERIOD: (In thousands) | FOR THE PERIOD: (In thousands) | | | | | FOR THE PERIOD: (In thousands) | | | | | | | |
Net interest income from continuing operations | Net interest income from continuing operations | $ | 75,093 | | | $ | 86,428 | | | Net interest income from continuing operations | $ | 71,368 | | | $ | 77,055 | | | $ | 221,854 | | | $ | 241,073 | |
Non-interest income from continuing operations | Non-interest income from continuing operations | 26,193 | | | 5,636 | | | Non-interest income from continuing operations | 73,635 | | | 19,963 | | | 121,839 | | | 42,980 | |
Net revenue from continuing operations | Net revenue from continuing operations | 101,286 | | | 92,064 | | | Net revenue from continuing operations | 145,003 | | | 97,018 | | | 343,693 | | | 284,053 | |
Provision for credit losses | Provision for credit losses | 6,500 | | | 34,807 | | | Provision for credit losses | (4,000) | | | 1,200 | | | 2,500 | | | 65,878 | |
Non-interest expense from continuing operations | Non-interest expense from continuing operations | 78,154 | | | 71,325 | | | Non-interest expense from continuing operations | 69,460 | | | 72,843 | | | 216,486 | | | 768,443 | |
Net income/(loss) | Net income/(loss) | 13,031 | | | (19,870) | | | Net income/(loss) | 63,749 | | | 21,225 | | | 98,416 | | | (548,026) | |
Adjusted income (1)(2) | Adjusted income (1)(2) | 16,015 | | | (3,465) | | | Adjusted income (1)(2) | 25,695 | | | 26,424 | | | 63,814 | | | 16,315 | |
(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 March 31,September 30, 2021 and 2020 was 0.05%0.06% and 0.11%0.08%, respectively. The increase for the nine months ended September 30, 2021 and 2020 was 0.06% and 0.07%, respectively.
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 March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | 2020 | | | 2021 | 2020 | | 2021 | 2020 |
(Dollars in millions) | (Dollars in millions) | Average Balance | Yield/Rate (FTE basis) | Average Balance | Yield/Rate (FTE basis) | | (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 | Assets | | Assets | | |
Loans: | Loans: | | | Loans: | | |
Commercial real estate | Commercial real estate | $ | 3,630 | | 3.27 | % | $ | 4,000 | | 4.41 | % | | Commercial real estate | $ | 3,577 | | 3.40 | % | $ | 3,986 | | 3.52 | % | | $ | 3,611 | | 3.38 | % | $ | 3,997 | | 3.90 | % |
Commercial and industrial loans | Commercial and industrial loans | 1,865 | | 4.62 | | 1,796 | | 5.03 | | | Commercial and industrial loans | 1,370 | | 4.78 | | 2,192 | | 3.88 | | | 1,612 | | 4.71 | | 2,047 | | 4.31 | |
Residential mortgages | Residential mortgages | 1,740 | | 3.71 | | 2,654 | | 3.77 | | | Residential mortgages | 1,499 | | 3.65 | | 2,224 | | 3.78 | | | 1,613 | | 3.72 | | 2,444 | | 3.78 | |
Consumer loans | Consumer loans | 634 | | 3.79 | | 922 | | 4.28 | | | Consumer loans | 545 | | 3.95 | | 801 | | 3.59 | | | 587 | | 3.85 | | 863 | | 3.86 | |
Total loans (1) | Total loans (1) | 7,869 | | 3.73 | | 9,372 | | 4.33 | | | Total loans (1) | 6,991 | | 3.77 | | 9,203 | | 3.68 | | | 7,423 | | 3.78 | | 9,351 | | 3.95 | |
Investment securities (2) | Investment securities (2) | 2,195 | | 2.36 | | 1,745 | | 3.32 | | | Investment securities (2) | 2,312 | | 2.09 | | 1,874 | | 2.78 | | | 2,255 | | 2.21 | | 1,804 | | 3.06 | |
Short-term investments & loans held for sale (3) | Short-term investments & loans held for sale (3) | 1,351 | | 0.13 | | 375 | | 1.78 | | | Short-term investments & loans held for sale (3) | 1,762 | | 0.17 | | 766 | | 0.21 | | | 1,623 | | 0.13 | | 613 | | 0.83 | |
Mid-Atlantic region loans held for sale(4) | Mid-Atlantic region loans held for sale(4) | 295 | | | — | | | | Mid-Atlantic region loans held for sale(4) | 155 | | 3.82 | | — | | — | | | 239 | | 3.96 | | — | | — | |
Total interest-earning assets | Total interest-earning assets | 11,710 | | 3.07 | | 11,492 | | 4.08 | | | Total interest-earning assets | 11,220 | | 2.86 | | 11,843 | | 3.31 | | | 11,540 | | 2.96 | | 11,768 | | 3.63 | |
Intangible assets | Intangible assets | 34 | | X | 598 | | | | Intangible assets | 31 | | X | 41 | | | | 33 | | | 410 | | |
Other non-interest earning assets | Other non-interest earning assets | 724 | | | 663 | | | | Other non-interest earning assets | 674 | | | 760 | | | | 696 | | | 725 | | |
Assets from discontinued operations | Assets from discontinued operations | — | | | 99 | | | | Assets from discontinued operations | — | | | 16 | | | — | | | 75 | | |
Total assets | Total assets | $ | 12,468 | | | $ | 12,852 | | | | Total assets | $ | 11,925 | | | $ | 12,660 | | | | $ | 12,269 | | | $ | 12,978 | | |
| Liabilities and shareholders’ equity | Liabilities and shareholders’ equity | | Liabilities and shareholders’ equity | | |
Deposits: | Deposits: | | | Deposits: | | |
NOW and other | NOW and other | $ | 1,325 | | 0.15 | % | $ | 1,159 | | 0.46 | % | | NOW and other | $ | 1,316 | | 0.05 | % | $ | 1,243 | | 0.24 | % | | $ | 1,343 | | 0.09 | % | $ | 1,196 | | 0.34 | % |
Money market | Money market | 2,802 | | 0.27 | | 2,753 | | 0.98 | | | Money market | 2,716 | | 0.16 | | 2,674 | | 0.38 | | | 2,756 | | 0.20 | | 2,699 | | 0.65 | |
Savings | Savings | 1,003 | | 0.08 | | 847 | | 0.13 | | | Savings | 1,112 | | 0.04 | | 941 | | 0.10 | | | 1,056 | | 0.06 | | 896 | | 0.11 | |
Time | Time | 2,266 | | 1.12 | | 3,333 | | 1.87 | | | Time | 1,893 | | 0.86 | | 3,056 | | 1.63 | | | 2,056 | | 0.97 | | 3,263 | | 1.78 | |
Total interest-bearing deposits | Total interest-bearing deposits | 7,396 | | 0.48 | | 8,092 | | 1.18 | | | Total interest-bearing deposits | 7,037 | | 0.31 | | 7,914 | | 0.81 | | | 7,211 | | 0.38 | | 8,054 | | 1.00 | |
Borrowings and notes (5) | Borrowings and notes (5) | 500 | | 2.78 | | 949 | | 2.60 | | | Borrowings and notes (5) | 253 | | 3.89 | | 777 | | 2.36 | | | 377 | | 3.26 | | 890 | | 2.44 | |
Mid-Atlantic region interest-bearing deposits(4) | Mid-Atlantic region interest-bearing deposits(4) | 518 | | | — | | | | Mid-Atlantic region interest-bearing deposits(4) | 306 | | 0.51 | | — | | — | | | 447 | | 0.54 | | — | | — | |
Total interest-bearing liabilities | Total interest-bearing liabilities | 8,414 | | 0.63 | | 9,041 | | 1.33 | | | Total interest-bearing liabilities | 7,596 | | 0.43 | | 8,691 | | 0.95 | | | 8,035 | | 0.52 | | 8,944 | | 1.14 | |
Non-interest-bearing demand deposits | Non-interest-bearing demand deposits | 2,537 | | | 1,849 | | | | Non-interest-bearing demand deposits | 2,901 | | | 2,559 | | | | 2,742 | | | 2,250 | | |
Other non-interest earning liabilities | Other non-interest earning liabilities | 358 | | | 204 | | | | Other non-interest earning liabilities | 279 | | | 254 | | | | 331 | | | 245 | | |
Liabilities from discontinued operations | Liabilities from discontinued operations | — | | | 24 | | | | Liabilities from discontinued operations | — | | | 23 | | | — | | | 25 | | |
Total liabilities | Total liabilities | 11,309 | | | 11,118 | | | | Total liabilities | 10,776 | | | 11,527 | | | | 11,108 | | | 11,464 | | |
| Total preferred shareholders' equity | Total preferred shareholders' equity | — | | | 21 | | | | Total preferred shareholders' equity | — | | | 20 | | | — | | | 20 | | |
Total common shareholders' equity | Total common shareholders' equity | 1,159 | | | 1,713 | | | | Total common shareholders' equity | 1,149 | | | 1,113 | | | 1,161 | | | 1,494 | | |
Total shareholders’ equity (2) | Total shareholders’ equity (2) | 1,159 | | | 1,734 | | | | Total shareholders’ equity (2) | 1,149 | | | 1,133 | | | | 1,161 | | | 1,514 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 12,468 | | | $ | 12,852 | | | | Total liabilities and stockholders’ equity | $ | 11,925 | | | $ | 12,660 | | | | $ | 12,269 | | | $ | 12,978 | | |
|
| | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | 2020 | | | 2021 | 2020 | | 2021 | 2020 |
| | Average Balance | Yield/Rate (FTE basis) | Average Balance | Yield/Rate (FTE basis) | | | Average Balance | Yield/Rate (FTE basis) | Average Balance | Yield/Rate (FTE basis) | | Average Balance | Yield/Rate (FTE basis) | Average Balance | Yield/Rate (FTE basis) |
Net interest spread | Net interest spread | | 2.44 | % | | 2.75 | % | | Net interest spread | | 2.43 | % | | 2.36 | % | | | 2.44 | % | | 2.49 | % |
Net interest margin (6) | Net interest margin (6) | | 2.62 | | | 3.04 | | | Net interest margin (6) | | 2.56 | | | 2.61 | | | 2.60 | | | 2.75 | |
Cost of funds | Cost of funds | | 0.48 | | | 1.11 | | | Cost of funds | | 0.31 | | | 0.73 | | | 0.38 | | | 0.92 | |
Cost of deposits | Cost of deposits | | 0.36 | | | 0.96 | | | Cost of deposits | | 0.22 | | | 0.61 | | | 0.28 | | | 0.79 | |
| Supplementary data | Supplementary data | | | | Supplementary data | | | |
Total deposits (In millions) | Total deposits (In millions) | $ | 9,932 | | | $ | 9,941 | | | | Total deposits (In millions) | $ | 9,938 | | | $ | 10,473 | | | | $ | 9,953 | | | $ | 10,304 | | |
Fully taxable equivalent income adj. (In thousands) (7) | Fully taxable equivalent income adj. (In thousands) (7) | 1,494 | | | 1,824 | | | | Fully taxable equivalent income adj. (In thousands) (7) | 1,586 | | | 1,512 | | | | 4,739 | | | 4,917 | | |
(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.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) PurchasedPurchase accounting accretion totaled $1.3$1.7 and $3.1$2.5 million for the three months ended March 31,September 30, 2021 and 2020, respectively. Purchase accounting accretion totaled $5.1 and $7.7 million for the nine months ended September 30, 2021 and 2020, respectively.
(7) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.
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.completed the final wind-down of the operations during the fourth quarter of 2020. 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. For 2021, the net gains on sale of business operations and assets was related to the sale of the insurance subsidiary and the Mid-Atlantic branch operations.
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.
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 March 31, | | | | At or for the Three Months Ended September 30, | At or for the Nine Months Ended September 30, |
(In thousands) | (In thousands) | | 2021 | 2020 | | (In thousands) | | 2021 | 2020 | 2021 | 2020 |
GAAP Net income/(loss) | GAAP Net income/(loss) | | $ | 13,031 | | $ | (19,870) | | | GAAP Net income/(loss) | | $ | 63,749 | | $ | 21,225 | | $ | 98,416 | | $ | (548,026) | |
Adj: Net losses/(gains) on securities (1) | | 31 | | 9,730 | | | |
Adj: Net losses on securities (1) | | Adj: Net losses on securities (1) | | 166 | | 1,017 | | 681 | | 9,925 | |
| Adj: Net (gains) on sale of business operations and assets | | Adj: Net (gains) on sale of business operations and assets | | (51,885) | | — | | (51,885) | | — | |
Adj: Goodwill impairment | | Adj: Goodwill impairment | | — | | — | | — | | 553,762 | |
| Adj: Restructuring and other expense | Adj: Restructuring and other expense | | 3,486 | | — | | | Adj: Restructuring and other expense | | 1,425 | | 5,316 | | 4,917 | | 5,316 | |
| Adj: Loss/(income) from discontinued operations before income taxes | Adj: Loss/(income) from discontinued operations before income taxes | | — | | 10,629 | | | Adj: Loss/(income) from discontinued operations before income taxes | | — | | 2,477 | | — | | 21,741 | |
Adj: Income taxes | Adj: Income taxes | | (533) | | (4,134) | | | Adj: Income taxes | | 12,240 | | (3,611) | | 11,685 | | (26,403) | |
Total adjusted income/(loss) (non-GAAP) (2) | Total adjusted income/(loss) (non-GAAP) (2) | (A) | $ | 16,015 | | $ | (3,645) | | | Total adjusted income/(loss) (non-GAAP) (2) | (A) | $ | 25,695 | | $ | 26,424 | | $ | 63,814 | | $ | 16,315 | |
| GAAP Total revenue | GAAP Total revenue | | $ | 101,286 | | $ | 92,064 | | | GAAP Total revenue | | $ | 145,003 | | $ | 97,018 | | $ | 343,693 | | $ | 284,053 | |
Adj: Losses/(gains) on securities, net (1) | | 31 | | 9,730 | | | |
| Adj: Losses on securities, net (1) | | Adj: Losses on securities, net (1) | | 166 | | 1,017 | | 681 | | 9,925 | |
Adj: Net (gains) on sale of business operations and assets | | Adj: Net (gains) on sale of business operations and assets | | (51,885) | | — | | (51,885) | | — | |
Total operating revenue (non-GAAP) (2) | Total operating revenue (non-GAAP) (2) | (B) | $ | 101,317 | | $ | 101,794 | | | Total operating revenue (non-GAAP) (2) | (B) | $ | 93,284 | | $ | 98,035 | | $ | 292,489 | | $ | 293,978 | |
| GAAP Total non-interest expense | GAAP Total non-interest expense | | $ | 78,154 | | $ | 71,325 | | | GAAP Total non-interest expense | | $ | 69,460 | | $ | 72,843 | | $ | 216,486 | | $ | 768,443 | |
Less: Total non-operating expense (see above) | Less: Total non-operating expense (see above) | | (3,486) | | — | | | Less: Total non-operating expense (see above) | | (1,425) | | (5,316) | | (4,917) | | (5,316) | |
| Less: Goodwill impairment | | Less: Goodwill impairment | | — | | — | | — | | (553,762) | |
Operating non-interest expense (non-GAAP) (2) | Operating non-interest expense (non-GAAP) (2) | (C) | $ | 74,668 | | $ | 71,325 | | | Operating non-interest expense (non-GAAP) (2) | (C) | $ | 68,035 | | $ | 67,527 | | $ | 211,569 | | $ | 209,365 | |
| (In millions, except per share data) | (In millions, except per share data) | | | | (In millions, except per share data) | | | |
Total average assets | Total average assets | (D) | $ | 12,468 | | $ | 12,852 | | | Total average assets | (D) | $ | 11,925 | | $ | 12,660 | | $ | 12,268 | | $ | 13,001 | |
Total average shareholders’ equity | Total average shareholders’ equity | (E) | 1,159 | | 1,734 | | | Total average shareholders’ equity | (E) | 1,150 | | 1,133 | | 1,161 | | 1,513 | |
Total average tangible shareholders’ equity (2) | Total average tangible shareholders’ equity (2) | (F) | 1,125 | | 1,135 | | | Total average tangible shareholders’ equity (2) | (F) | 1,118 | | 1,091 | | 1,128 | | 1,104 | |
Total average tangible common shareholders' equity (2) | Total average tangible common shareholders' equity (2) | (G) | 1,125 | | 1,115 | | | Total average tangible common shareholders' equity (2) | (G) | 1,118 | | 1,071 | | 1,128 | | 1,083 | |
Total tangible shareholders’ equity, period-end (2)(3) | Total tangible shareholders’ equity, period-end (2)(3) | (H) | 1,142 | | 1,124 | | | Total tangible shareholders’ equity, period-end (2)(3) | (H) | 1,147 | | 1,138 | | 1,147 | | 1,138 | |
Total tangible common shareholders' equity, period-end (2)(3) | Total tangible common shareholders' equity, period-end (2)(3) | (I) | 1,142 | | 1,104 | | | Total tangible common shareholders' equity, period-end (2)(3) | (I) | 1,147 | | 1,118 | | 1,147 | | 1,118 | |
Total tangible assets, period-end (2)(3) | Total tangible assets, period-end (2)(3) | (J) | 12,724 | | 12,524 | | | Total tangible assets, period-end (2)(3) | (J) | 11,815 | | 12,574 | | 11,815 | | 12,574 | |
Total common shares outstanding, period-end (thousands) | Total common shares outstanding, period-end (thousands) | (K) | 50,988 | | 50,199 | | | Total common shares outstanding, period-end (thousands) | (K) | 48,657 | | 50,306 | | 48,657 | | 50,306 | |
Average diluted shares outstanding (thousands) | Average diluted shares outstanding (thousands) | (L) | 50,565 | | 50,204 | | | Average diluted shares outstanding (thousands) | (L) | 48,744 | | 50,329 | | 49,963 | | 50,290 | |
| Earnings per common share, diluted | Earnings per common share, diluted | | $ | 0.26 | | $ | (0.40) | | | Earnings per common share, diluted | | $ | 1.31 | | $ | 0.42 | | $ | 1.97 | | $ | (10.90) | |
Adjusted earnings per common share, diluted (2) | Adjusted earnings per common share, diluted (2) | (A/L) | 0.32 | | (0.07) | | | Adjusted earnings per common share, diluted (2) | (A/L) | 0.53 | | 0.53 | | 1.28 | | 0.32 | |
Book value per common share, period-end | Book value per common share, period-end | | 23.05 | | 33.90 | | | Book value per common share, period-end | | 24.21 | | 23.03 | | 24.21 | | 23.03 | |
Tangible book value per common share, period-end (2) | Tangible book value per common share, period-end (2) | (I/K) | 22.39 | | 22.00 | | | Tangible book value per common share, period-end (2) | (I/K) | 23.58 | | 22.22 | | 23.58 | | 22.22 | |
Total shareholders' equity/total assets | Total shareholders' equity/total assets | | 9.21 | | 13.13 | | | Total shareholders' equity/total assets | | 9.95 | | 9.35 | | 9.95 | | 9.35 | |
Total tangible shareholder's equity/total tangible assets (2) | Total tangible shareholder's equity/total tangible assets (2) | (H/J) | 8.98 | | 8.98 | | | Total tangible shareholder's equity/total tangible assets (2) | (H/J) | 9.71 | | 9.05 | | 9.71 | | 9.05 | |
| Performance ratios (4) | Performance ratios (4) | | | | Performance ratios (4) | | | |
GAAP return on equity | GAAP return on equity | | 4.50 | % | (4.58) | % | | GAAP return on equity | | 22.18 | % | 7.50 | % | 11.30 | % | (48.26) | % |
Adjusted return on equity (2) | Adjusted return on equity (2) | (A/E) | 5.53 | | (0.84) | | | Adjusted return on equity (2) | (A/E) | 8.94 | | 9.33 | | 7.33 | | 1.44 | |
Return on tangible common equity (2)(5) | Return on tangible common equity (2)(5) | | 4.98 | | (6.76) | | | Return on tangible common equity (2)(5) | | 23.14 | | 8.32 | | 11.97 | | (67.09) | |
Adjusted return on tangible common equity (2)(5) | (A+O)/(G) | 6.04 | | (0.94) | | | |
GAAP return on assets | | 0.42 | | (0.62) | | | |
Adjusted return on assets (2) | (A/D) | 0.51 | | (0.11) | | | |
Efficiency ratio (2) | (C-O)/(B+M+P) | 71.32 | | 66.92 | | | |
(in thousands) | | | | |
Supplementary data (In thousands) | | | | |
Tax benefit on tax-credit investments (6) | (M) | $ | 41 | | $ | 608 | | | |
Non-interest income charge on tax-credit investments (7) | (N) | (33) | | (486) | | | |
Net income on tax-credit investments | (M+N) | 8 | | 122 | | | |
| Intangible amortization | (O) | 1,319 | | 1,580 | | | |
Fully taxable equivalent income adjustment | (P) | 1,494 | | 1,824 | | | |
| | | | | | | | | | | | | | | | | |
Adjusted return on tangible common equity (2)(5) | (A+O)/(G) | 9.53 | | 10.27 | | 7.88 | | 2.39 | |
GAAP return on assets | | 2.14 | | 0.67 | | 1.07 | | (5.63) | |
Adjusted return on assets (2) | (A/D) | 0.86 | | 0.84 | | 0.69 | | 0.17 | |
Efficiency ratio (2) | (C-O)/(B+M+P) | 68.76 | | 65.39 | | 69.32 | | 67.72 | |
(in thousands) | | | | | |
Supplementary data (In thousands) | | | | | |
Tax benefit on tax-credit investments (6) | (M) | $ | 2,195 | | $ | 1,377 | | $ | 2,315 | | $ | 3,364 | |
Non-interest income charge on tax-credit investments (7) | (N) | (1,789) | | (1,090) | | (1,996) | | (2,673) | |
Net income on tax-credit investments | (M+N) | 406 | | 287 | | 319 | | 691 | |
| | | | | |
Intangible amortization | (O) | 1,296 | | 1,530 | | 3,912 | | 4,668 | |
Fully taxable equivalent income adjustment | (P) | 1,586 | | 1,512 | | 4,739 | | 4,917 | |
(1) Net securities losses/(gains) for the periods ending March 31,September 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.
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. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately $11.8 billion in assets and operates 106 branch offices 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 1995.1995, 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 Risk Factors included in our 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.
SUMMARY
Berkshire recorded first quarter 2021 net income of $13$64 million, or $0.26,$1.31 per share.dilutedshare, in the third quarter of 2021. This was an increase compared to $21 million, or $0.42 per share, in the third quarter of 2020. The Company’sincrease was primarily due to $38 million in after-tax gains, or $0.78 per share, recorded on the sale at the end of August 2021 of Berkshire’s insurance and Mid-Atlantic branch operations.
The Company uses the non-GAAP measure of adjusted earnings totaled $16 million, or $0.32to assess its performance. This measure excludes items not viewed as related to ongoing operations. Third quarter adjusted earnings per share. Returnshare was unchanged at $0.53 in both 2021 and 2020. Lower adjusted revenue in 2021 was offset by a favorable change in the provision for credit losses on tangible common equity measured 5.0%,loans. The above sale gains are excluded from adjusted revenue and the non-GAAP measure of adjusted return on tangible common equity measured 6.0%.earnings. Other major exclusions are merger, restructuring, and other expense.
InNine month results in 2020 were a $548 million loss due primarily to credit loss provision and goodwill charges in the first half of 2020, the Company posted losses due toyear stemming from the onset of the COVID-19 global pandemic. While operations returned to profitabilityNine month results in 2021 were a $98 million profit, with both GAAP and adjusted quarterly earnings reaching the highest level in the third quarter, including the benefit of 2020, it remainsimproving credit quality as pandemic economic recovery has strengthened.
Asset quality has improved during 2021, with credit losses and delinquencies declining below pre-pandemic levels in the levels achieved beforemost recent quarter. Berkshire’s measures of capital and liquidity remained high and strengthened during 2021. Berkshire’s measures of interest rate sensitivity show significant potential benefit from possible higher future market interest rates.The Company’s ongoing restructuring of liabilities has benefited its funding costs, with more potential benefit from maturing liabilities over the onsetnext year.Berkshire completed a 2.5 million, or 5%, share repurchase program in the second and third quarters of 2021.
THIRD QUARTER FINANCIAL HIGHLIGHTS (Comparisons are to the prior year unless otherwise stated):
•$52 million pre-tax net gain on the sale of insurance and Mid-Atlantic branch operations
•4% increase in total non-interest income excluding gains/(losses)
•66% decrease in net loan charge-offs to $2 million
•$4 million benefit to credit loss provision due to a release of credit loss allowance
•Reduction in wholesale funding to 4% of assets, including prepayment of most Federal Home Loan Bank borrowings
•Deposit costs down year-over-year to 0.22% from 0.61%
The most recent quarter was the first full quarter since Berkshire announced its Berkshire’s Exciting Strategic Transformation (BEST) plan. This comprehensive transformation plan, designed to enhance value for all stakeholders, is viewed as contributing to improved focus on Berkshire’s long-term efficiency, its customers, and its communities. Exiting its Mid-Atlantic and insurance operations was a step in improving the Company’s operations and produced $52 million in net sale gains which bolstered third-quarter income. The 2.5 million share repurchase program was completed far ahead of the pandemic dueauthorized time, returning a total of nearly $69 million in excess capital to changesshareholders.
In the third quarter, Berkshire also announced its BEST Community Comeback initiative that targets to lend and invest to strengthen the economic health of its communities, an industry-leading commitment given the relative size of the program and the Bank. The Company is positioned to support other BEST initiatives in development including its recently announced consumer lending partnership with the fintech Upstart. The Company also initiated certain restructuring activities in the operating environment. The Company consolidated nine branch offices in the firstthird quarter of 2021related to real estate consolidation, borrowings prepayments, and operations outsourcing as part of an announced plan to consolidate 16 branch offices in 2021. its optimization and efficiency strategies.
The Company also made progress towards completingcontinued to record strong deposit growth during the sale ofquarter and its eight Mid-Atlantic branches targeted for the second quarter of 2021. These actionsexpanded banking teams are planned to reduce thefocused on building loan origination volumes. The Company reduced its total branch count to 106banking offices from 130 offices at the start of 2021.
The second wavethe year to 106 offices currently. This includes the sale of COVID-19 disease appears to have peaked8 Mid-Atlantic offices and the consolidation of 16 offices in accordance with the plan announced in the most recentfourth quarter with many economic and social activities continuing to be restrictedof 2020. Additionally, the Company is considering the further consolidation of another 5-10 branches in the first quarter. Certain economic and social activities began to reopen in the second quarter of 2021. The Company’s market area generally was receiving COVID-19 vaccinations at a higher proportionate rate than many other regions at the beginning of the second quarter.upcoming year. Berkshire was active in channeling new rounds of federal stimulus to its markets during the quarter, supporting its customers and recognizing revenue and interest expense benefits from this support. Most key indicators of loan performance improved during the quarter, and provision expenses and the allowance for credit losses decreased. The heavy loss provisioning in the first half of 2020 is expected to absorb pandemic related credit losses that are expected to occur in upcoming quarters based on current conditions and forecasts.
In January 2021, Nitin J. Mhatre was appointed as President and Chief Executive Officer of the Company, following a national search undertaken by the Board after the separation of the previous CEO in August 2020. In March 2021, Subhadeep Basu was appointed as Senior Executive Vice President and Chief Financial Officer, following the resignation of the prior CFO. During the quarter, the Company also recruited teams and senior leadership in Mid-Atlantic asset based lending, Boston business banking, and Boston private banking, along with senior hires in investor relations and financial planning and analysis, together with a new chief diversity officer.
Also in March 2021, the Company entered into a Cooperation Agreement with HoldCo Asset Management, LP, an investment adviser owning approximately 3.3% of the Company’s outstanding shares. The Board nominated a principal of this shareholder, Michael Zeitzeff, for election as a director at the next annual meeting of shareholders. In connection with the Cooperation Agreement, the Board also nominated Deborah Bailey for election as a director. Ms. Bailey is a member of the Board of Governors of FINRA and previously served as Deputy Director of Banking Regulation and Supervision of the Board of Governors of the Federal Reserve.
In April 2021, the Company announced that the Board had approved a one year authorization for the repurchase of approximately 5% of the Company’s common stock. The Company also announced a planned investor strategic plan update on May 18, 2021 of its Berkshire Exciting Strategic Transformation (“BEST”) plans for improving Company performance over the next three years. This plan is targeted to make Berkshire’s purpose-driven community-dedicated bank better and stronger; with the goal of improving customer experience and enhancing value for shareholders.
Since the start of 2021, several significant local competitors have announced planned mergers and consolidations. These events may give rise to changes in competitive conditions and may in some cases create disruptions which could provide opportunities for market share gains as well as recruitment opportunities. Also, in the first quarter of 2021, long term interest rates increased as markets reacted to the economic stimulus provided by the federal government as well as higher growth expectations of the economy as it recovers from the pandemic. As a result unrealized gains on debt securities decreased, and expected lives of mortgage related assets increased. The stimulus is expected to result in record near-term economic growth.
Compared toexecuting this plan in conjunction with the linked quarter,expansion of its MyBanker concierge style bankers in affected markets. Deposit retention in the Company recorded a 13% decrease in GAAP net income, while adjusted net income increased by 14%. First quarter adjusted income excludes $3 million in restructuring and other expenses. Quarter-over-quarter results benefited from higher revenues and lower credit loss provision expense.consolidated branches is regarded as high including the benefit of this strategy.
FIRST QUARTER FINANCIAL HIGHLIGHTS (Comparisons areIn the most recent quarter, Berkshire announced further refreshment of its board of directors. Board Chair J. Williar Dunlaevy retired from the board, and Vice Chair David Brunelle was elected to the prior quarter unless otherwise stated)position of Board Chair.The Board also elected Jeffrey Kip as a new director. Mr. Kip, age 53, is Chief Executive Officer of Angi International which provides internet tools and resources for home improvement, maintenance, and repair projects.After quarter-end, Deborah Bailey resigned from her position as director of the Company and the Bank.
• 2% increaseBerkshire announced the recruitment of executive leaders during the quarter, following the previously announced resignation of Tami Gunsch, Senior EVP and Head of Consumer Banking. Ellen Steinfeld was hired as EVP, Head of Consumer Lending & Payments. Lucia "Lucy" Bellomia was hired as EVP, Head of Retail Banking. Berkshire hired veteran Connecticut banking professional Jeffrey Klaus as SVP, Regional President & Middle Market Team Leader in net revenueSouthern Connecticut, based in New Haven. Additionally, the Company announced hirings of experienced frontline bankers in its growing Wealth Management, SBA Lending, Commercial Banking, Private Banking, and 6% increase in net revenue excluding gains/(losses)
• 13% decrease in GAAP income; 14% increase in adjusted income (non-GAAP measure)
• 2.62% net interest margin, stableMyBanker units. The Company believes that merger activities among major local competitors provide opportunity for last four quarters
• 35% reduction in provision for credit losses on loans
• 42% reduction in annualized net loan charge-offs to 0.51% of loans from 0.80%
• 86% decrease in COVID-19 loan modifications compared to June 30, 2020
• 26% reduction in wholesale funding to 7% of assets
• $23.05 book value per share; $22.39 tangible book value per share (non-GAAP measure)customer and talent acquisition over the near and medium term.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31,SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
Summary: Total assets remained steady atdecreased to $11.8 billion from $12.8 billion induring the first quarter, and there was further progress in improvingnine months of 2021. This included the structure and composition$0.6 billion impact of the balance sheet. Proceedssale of the Mid-Atlantic branch operations, along with the impact of the $0.5 billion reduction in borrowings funded with proceeds from loan paydowns were primarily channeled intorun-off, which also contributed to higher short-term investments. Growth in demandinvestment balances. As a result, the Company’s liquidity strengthened further, as well as the sensitivity of its income to higher market interest rates which are anticipated by financial markets. The ratio of loans to deposits was useddecreased to paydown maturing wholesale funds. Asset66% from 79%, and the regulatory ratio of common equity tier 1 capital to risk-weighted assets increased to 15.3% from 13.8%. All major measures of asset quality liquidity, and capital metrics improved.strengthened as economic conditions improved from distressed pandemic conditions.
Investments: Short-term investments increased by $352$505 million to $1.82$1.97 billion in the first quarter due tonine months of the year. These funds inflows from loan paydowns. The Company is targeting to use some of these balances to complete the planned branch sale and also to fundare available for ongoing payoffs of maturing wholesale funds.brokered deposits, and are available to fund targeted net loan growth in 2022, as well as potential increases in the investment securities portfolio.Most short-term investments are held at the Federal Reserve Bank of Boston.
The portfolio of investment securities increased by $68$109 million, or 5%, to $2.29 billion. Amortizations and prepayments of higher yielding securities contributed to the decrease in the average portfolio yield to 2.36% from 2.69%$2.33 billion in the first quarternine months of 2021 compared to the linked quarter. Securities purchases totaling $259 million wereyear. Growth was concentrated in agency mortgage backedmortgage-related securities and commercial mortgage backedmunicipal 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 $187 million, or 40%, for the year-to-date.The portfolio is highly liquid, and the weightedwith an average life of 4.4 years for the bond portfolio was 3.7 years at period-end. All rated bonds are investment grade; unrated bonds totaling $26 million were all pass ratedThe portfolio yield decreased to 2.09% in the Company’s internal rating system. most recent quarter from 2.69% in the fourth quarter of 2020, due to ongoing compression of asset yields.The portfolio of investment securities had an unrealized gain of $31$24 million, or 1.4%1.0% 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 quarter.nine months of 2021. The Company continues to evaluate possible expansion of the securities portfolio to utilize a portion of excess short-term investments.investments, taking into consideration the outlook for interest rates, loan growth, and deposit behaviors.
Loans:DuringTotal loans decreased in the first quarternine months of 2021 total loans decreased by $423 million,$1.25 billion, or 5%15%, to $7.7 billion,
including$6.84 billion. This was primarily due to a $189$587 million reduction attributable to the forgiveness of SBA guaranteeddecrease in Paycheck Protection Program (“PPP”) loans. Throughloans which were prepaid through the SBA loan forgiveness program. The remaining balance of PPP loans was $46 million at period-end. All other commercial loans decreased by $153 million, or 3%. This was primarily due to a $134 million decrease in loans to COVID sensitive industries. The Company also has targeted runoff of selected commercial portfolios not contributing to its relationship withBEST strategic goals.Commercial line utilization decreased from 51% to 47% as businesses continued to accumulate liquidity resulting from federal support programs. Overall commercial loan demand has been muted as the Company’s markets recover from pandemic conditions.Berkshire is recruiting bankers to expand its loan originations. During the third quarter, the Company opened a funding third party, Berkshire participatednew commercial lending office in
New Haven to service the Southern Connecticut market and a new commercial office in Providence, Rhode Island to expand its current business in that market.
Residential mortgage balances decreased by $369 million, or 20%, for the year-to-date due to prepayments in the origination of $206 million of new PPP loans during the quarter, many of which provided further assistance to existing borrowers. Loanongoing low rate environment.Consumer loan balances decreased in the other major loan categories reflectingby $136 million, or 20%, primarily due to targeted runoff and impacts from the pandemic and government relief programs, which have resulted in prepayments and reduced borrowing demand. Included in assets held for sale are $284run-off of $104 million in Mid-Atlantic loanconsumer balances which are targetedprimarily related to be sold as partindirect automobile loans. Under the leadership of the planned branch salenewly recruited EVP of Consumer Lending and Payments, the Company is expanding its mortgage originations team and its in-market correspondent bank mortgage conduit relationships. The Company also recently announced a partnership with fintech Upstart to begin originating in-market unsecured consumer loans conforming to the Company’s underwriting and pricing parameters. The Company is pursuing additional consumer lending channels as it pursues the strategies and goals set out in the second quarter.its BEST and Berkshire Community Comeback programs.
The $444 million balance of PPP loans at period-end is expected to be largely repaid through forgiveness by the SBA during 2021. The $181 million balance of indirect auto loans is expected to be largely repaid through amortization during 2021 and 2022. The Company targets to mostly offset continuing runoff of residential mortgage loans through direct and indirect mortgage originations in its footprint. The Company’s origination of loans improved quarter-over quarter and year-over year, and lending pipelines were firming near the end of the quarter, with further expansion expected from newly recruited teams.
The firstthird quarter 2021 average loan portfolio yield was 3.73%.3.77%, compared to 3.62% in the fourth quarter of 2020. The improvement in yield on commercial real estate and residential mortgage loans decreased quarter-over-quarter due to ongoing prepayments and amortizationincluded the benefit of higher rate loans. The yield on commercial and industrial (“C&I”) loans increased quarter-over-quarter to 4.62% from 4.05% due to the forgiveness of PPP loans, which resulted in the recognition of $3.5 milliondeferred PPP fees in deferred revenue. The impact of this forgiveness oninterest income when the C&I yield was approximately 0.76% duringrelated loans were forgiven by the most recent quarter.SBA.
The Company has designated certainthe following industries as sensitive to direct and indirect COVID-19 impacts based on exposure, risk rating, and use of federally supported lending and loan modification programs. The Company has focused on impacts:hospitality, Firestone (specialty equipment lending), restaurants, and nursing/assisted living facilities, which collectively totaled $840$734 million at period-end. The Company’s greatest focus is on hospitalityperiod-end, compared to $868 million at the start of the year. Hospitality loans which totaled $302$308 million at period-end and Firestone loans by the Company’s Firestone specialty equipment lending subsidiary, which totaled $227$178 million at period-end.
Asset Quality and Credit Loss Allowance:Most loan performanceMajor asset quality metrics improved duringin the first quarternine months of 2021.2021, trending towards pre-pandemic levels. Total non-accruing loans decreased below the year-end 2019 pre-pandemic level, declining to $37 million and measuring 0.54% of period-end loans.
Accruing delinquent loans decreased to $22 million from $28 million, measuring 0.33% of total loans at period-end. Net loan charge-offs decreased to $2 million in the most recent quarter. Nine month net loan charge-offs decreased by 42%year-over-year from $21 million to $10 million from $17 million, measuring 0.30% of average loans in the prior quarter. Annualized net loan charge-offs measured 0.51% of first quarter average loans. First quarter charge-offs were comprised principally of loans to businesses in industries designated as COVID sensitive by the Company – hospitality, skilled nursing/assisted living, and Firestone equipment loans.2021.
Total non-performing loans decreased by $9Accruing troubled debt restructurings totaled $19 million or 14%, to $56 million due primarily to loans exited during the quarter. At period-end, the ratio of non-performing loans to total loans decreased to 0.73% from 0.80%. The decrease in non-performing loans was due to the exit of a hospitality loanat quarter-end, which was sold for approximately $10 million. Non-performing loans to COVID sensitive industries decreased to $24 million from $36 million due to this loan sale, with total hospitality and Firestone nonaccruals decreasing to $4 millionlittle changed from $18 million.million at year-end 2020.
Total COVID-19 related loan modifications, including in-process modifications decreased to $214$65 million at period-end, or 2.8%0.95% of total loans, from $350compared to $316 million or 4.3% of total loans, at the start of the quarter. Modifications to COVID sensitive industries decreased to $176 million from $275 million, with total hospitality and Firestoneyear. Period-end loan modifications decreasing to $153 million from $225 million. More than 90% ofwere concentrated in hospitality loans, withwhich had $51 million in modifications were on interest-only payment terms at period-end andthat date. Most of these loans were supported by interest reserves. Further improvement in hospitality modifications is expectedreserves and were granted full year principal payment deferrals for 2021 to depend on the timing of recoveries in leisureallow seasonal properties to recover and business travel activities. More than 90% of Firestone modifications were on interest-only payment terms at period-end and most were expected to returnallow newer properties additional time to regular payment schedules in the second quarter based on easing of various state restrictions.achieve targeted stabilized income targets.
Delinquent accruing loans increased to $35 million, or 0.45% of total loans from $28 million, or 0.34% of total loans during the first quarter of 2021. This increase was due to payment delays for SBA loans under the CARES act as a result of delay at the SBA payment processor at quarter-end, which are expected to be resolved in the second quarter.
Period-end criticizedCriticized loans decreased to $356$265 million at period-end, compared to $359 million at year-end 2020. Classified2020, measuring 3.9% of total period-end loans. This balance includes classified loans, which decreased to $235$157 million, fromcompared to $250 over this time. At period-end, criticized loans measured 4.7%million at year-end 2020, measuring 2.3% of total loans andperiod-end loans. Loans to COVID sensitive industries comprised approximately 44% of criticized balances.Recent reductions in classified loans measured 3.1%were due to a combination of total loans. Criticizedexit strategies and upgrades of hospitality loans to COVID-19 sensitive industries decreased to $208 million from $223 million over the first quarter of 2021. Included in these totals were criticized loans to hospitality and Firestone borrowers, which declined to $146 million from $158 million.
.
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 $179$120 million at period-end. Dueperiod-end, compared to the circumstances of the pandemic, the Company also views deferred special mention loans as having elevated risk of deterioration. These loans totaled $46$185 million at period-end.year-end 2020.
The Company’s estimate of expectedallowance for credit losses at quarter-end resulted in aon loans decreased by $14 million, or 11%, to $113 million during the first nine months of the year.The ratio of the allowance to total loans measuring 1.62%measured 1.65%, which was little changed fromcompared to 1.58% at the start of the quarter. Excludingyear. The Company’s allowance methodology includes an assessment of the $444 million balancerisk of PPP loans, the allowance was also little changed, measuring 1.72%adverse developments and consideration of total loans at quarter-end.qualitative factors. The outlook for expected credit losses as a result of improved economic forecasts was offset under the Company’s reserve calculation methodology by the continuing emergence of credit losses and the level of commercial loans with ongoing modifications. If economic forecasts remain stable or improve, and based on other conditions remaining unchanged, it is anticipated that COVID-related charge-offs could largely be absorbed by the current credit loss allowance. Under the above assumptions, the Company anticipates that the1.65% ratio of the allowance to total loans would decrease in 2022 toremains higher than the general range of the level before the pandemic at the time of0.94% ratio following the adoption of CECL and prior to the Current Expected Credit Losses (“CECL”) accounting methodology.emergence of the pandemic. The Company anticipates that the allowance ratio will decline in the coming year, depending on economic and qualitative factors, and depending on the portfolio mix.
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. In the third quarter, the Company also
prepaid most borrowings from the Federal Home Loan Bank of Boston (“FHLBB”). For the year-to-date, total wholesale funds decreased by 64% from $1.182 billion to $428 million. Included in this total are brokered deposits, which decreased from $611 million to $317 million, most of which is scheduled to mature over the next year.
Deposits and Borrowings:
Total deposits were unchanged at $10.2increased by $150 million, or 1%, to $10.37 billion in the first quarternine months of 2021, as a $266 million increasethe year. Excluding the above change in demand deposits offset paydowns of maturing brokered deposits, total deposits increased by $443 million, or 5%. Non-interest bearing checking accounts increased by $539 million, or 22%. This included growth of both personal and lower payroll related balances. The growth in demand depositscommercial checking balances and benefited from the distributionfurther accumulation of liquidity from federal fiscal stimulus payments, together with some proceeds frompayments. NOW and money market balances shifted due to the $206impact of the calendar on daily payroll deposits. Time deposits decreased by $559 million, consisting mostly of the reduction in PPP loans facilitated by the Company in the first quarter. Personal checking accountbrokered time deposits, and savings balances increased by $98 million to $1.1 billion. Commercial checking account balances increased by $173 million to $1.6 billion. Payroll balances shifted from money market accounts to NOW accounts due to calendar impacts related to payroll cycles. These balances fluctuate daily and ended the period at $965 million. Someas maturing higher cost retail time deposits shifted to other lower rate deposit products. The $282 million reduction ininto checking and savings accounts.
Most of the $1.5 billion balance of non-brokered time deposits was primarilyat period-end is scheduled to mature in the next twelve months. These balances comprise approximately 15% of total non-brokered deposits. The higher costs of these older time accounts are targeted to be replaced with lower costing balances reflecting current lower interest rates. The total cost of deposits decreased to 0.22% in the most recent quarter from 0.47% in the fourth quarter of 2020. The cost of borrowings increased to 3.89% from 2.50% due to a $179 million reduction in brokered depositsthe impact of remaining higher cost subordinated debt as shorter term borrowings matured or were prepaid. The total cost of funds decreased to $431 million at period-end. 0.31% from 0.60%.
At period-end,year-end 2020, liabilities held for sale and assets held for sale included $647 million indeposits and loans held for sale pursuant to the contract for the sale of the Mid-Atlantic branch deposit balances which are targeted foroperations. This sale was completed in the secondmost recent quarter. Borrowings decreased in the first quarter by $123 million to $449 million, as maturing FHLBB borrowings were repaid from liquid assets. Wholesale funds, which include brokered deposits and borrowings, decreased during the quarter by $303 million, or 26%, to $880 million from $1.183 billion.
Derivative Financial Instruments: There were no material changes in the portfolio of outstanding derivative financial instruments, which totaled $3.8$3.7 billion in notional amount at period-end. The estimated fair value of these instruments was an asset of $60$55 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 $13$10 million, or 1%, to $1.175$1.18 billion during the first quarter. Thenine months of 2021. Berkshire earned $98 million in income during this period, including the $38 million after-tax gain on the sale of operations. Berkshire paid out $87 million to shareholders through stock repurchases and dividend payments. Additionally, the Company recorded a $20$24 million decrease in accumulated other comprehensive income due to the after taxafter-tax impact of a reduction in unrealized debt security gains resulting from the increase in medium term interest rates during the quarter. This was partially offset byfirst nine months of the benefityear.
During the second quarter, Berkshire announced a board authorization for the repurchase of $72.5 million shares, or approximately 5% of outstanding shares. The Company completed this repurchase in retained earnings. Quarter-endthe third quarter, paying an average price of $27.48 per share, totaling $69 million, for the repurchase of the 2.5 million shares.
Total risk-weighted assets decreased year-to-date, reflecting a decline in total assets and the impact of the temporary shift towards lower risk assets as loan balances have shifted into short-term investments. As a result, capital metrics improved over the nine months. The common equity tier 1 capital ratio improved to 15.3% from 13.8% at the start of the year, and is viewed as comparatively very strong in relation to peer institutions.
Period-end book value per share totaled $23.05$24.21 and the non-GAAP measure of tangible book value per share measured $22.39. Capital metrics remained strong, with equity/assets measuring 9.2% and$23.58. Both of these measures increased by 4% over the non-GAAP measurefirst nine months of tangible equity/tangible assets was 9.0%. The Common Equity Tier 1 Ratio improved to 14.2% from 13.8% during the quarter.year.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2021 and MARCH 31,AND SEPTEMBER 30, 2020
Summary: The CompanyBerkshire recorded first quarter net income of $13$64 million, or $0.26$1.31 per diluted share, in the third quarter of 2021. This was an increase compared to $21 million, or $0.42 per share, in 2021, comparedthe third quarter of 2020. The increase was primarily due to a loss of $20$38 million in after-tax gains, or $0.40$0.78 per share, in 2020. recorded on the sale at the end of August 2021 of Berkshire’s insurance operations and Mid-Atlantic branch operations.
The largest contributor toCompany uses the $31 million improvement in pre-tax income from continuing operations was a $28 million reduction in the provision of credit losses on loans compared to the large provision made in the first quarter of 2020 reflecting the emergence of expected future pandemic related credit losses. Additionally, a $10 million charge was recorded in the first quarter of 2020 due to unrealized losses on equity securities as a result of the severe stock market contraction that initially resulted from the pandemic. While this charge did not recur in 2021, the income benefit was partially offset by a $7 million year-over-year increase in expenses related to branch restructuring and professional services. The total net loss in the first quarter of 2020 also reflected an $8 million loss on discontinued national mortgage banking operations. The Company’s non-GAAP measure of adjusted earnings to assess its performance. This measure excludes discontinued operations, securities gains and losses, and restructuring expenses. Firstitems not viewed as related to ongoing operations. Third quarter adjusted net income measured $16earnings per share was unchanged at $0.53 in both 2021 and 2020. Lower adjusted revenue in 2021 was offset by a favorable change in the provision for credit losses on loans. The above sale gains are excluded from adjusted revenue and earnings. Other major exclusions are merger, restructuring, and other expense.
Nine month results in 2020 were a loss of $548 million, or $0.32$10.90 per share, in 2021, compareddue primarily to an adjusted loss of $4 million, or $0.07 per share, in 2020. This $20 million improvement was primarily due to the $21 million after-tax reduction in the credit loss provision offset by higher operating expensesand goodwill charges in 2021.the first half of the year stemming from the onset of the COVID-19 global pandemic.Nine month results in 2021 were profitable, with net income of $98 million, or $1.97 per share.In 2021, both GAAP and adjusted quarterly earnings reaching the highest level in the third quarter, including the benefit of improving credit quality as pandemic economic recovery has strengthened.
The firstthird quarter efficiency ratio moved adverselyincreased year-over-year to 71%68.8% from 65.4%, and the nine month ratio increased to 69.3% from 67.7%.This primarily reflected lower revenue from net interest income.Return on assets and return on tangible equity improved year-over-year from the first half 2020 loss, and benefited from the sale gains and the credit to the loan loss provision in 2021 compared to 67% in 2020. the third quarter of 2021.The firstthird quarter 20202021 return on assets was a loss due primarily to the credit loss provision.2.14% and return on equity was 22.2%. The first quarter 2021 GAAPnon-GAAP measure of adjusted return on assets measured 0.42%,was 0.86% and the non-GAAP measure of adjusted return on assets measured 0.51%tangible equity was 9.5%.
Revenue: Total net revenue increased year-over-year by $48 million, or 49%, in the third quarter and by $60 million, or 21%, in the first nine months of the year. This included the benefit of the $52 million in net gains on the sale of insurance and branch operations. The Company’s non-GAAP measure of adjusted revenue excludes gains and losses on securities and on sales of operations. Adjusted net revenue decreased year-over-year by $5 million, or 5%, in the third quarter and by $1 million, or 1%, in the first nine months of the year. Lower net interest income was partially offset by higher fee revenue. Revenue in 2021 included the approximate impact of the loss of approximately $2 million in revenues from insurance and branch operations which were sold at the end of August 2021.
Net Interest Income: Net interest income decreased year-over-year by $6 million, or 7%, in the third quarter and by $19 million, or 8%, in the first nine months of the year. The third quarter change was primarily due to a decrease in average earning assets, which decreased by 5% year-over-year. This reflected the use of funds from loan run-off to paydown higher cost wholesale funds, together with the reduction in assets related to the branch sale.Additionally, the third quarter net interest margin decreased year-over-year by 5 basis points to 2.56%, due to the shift towards lower risk and shorter duration assets.
The decrease in nine month net interest income was primarily due to a decrease in the net interest margin to 2.60% from 2.75%.This primarily reflected the ongoing impact from the42 basis point contraction in the net interest margin in the second quarter of 2020 following the approximate 150 basis downward parallel shock in interest rates in March 2020 due to pandemic related emergency federal monetary interventions.
The yield on earning assets has decreased steadily over the last five quarters, reflecting ongoing yield compression in the low rate environment, together with the shift in mix with lower loans and higher short-term investments.This has been partially offset by higher income on PPP loans in the last three quarters due to the recognition of deferred revenues when PPP loans were forgiven by the SBA. These loans contributed 11 basis points to the margin in the first and second quarters of 2021, falling to 5 basis points in the most recent quarter. There was no remaining material balance of deferred PPP revenue at period-end.
Revenue: Total first quarterThe Company’s liability management strategies have been focused on supporting the net revenueinterest margin to offset asset yield compression. Deposit costs have been repriced down and the Company benefited from continuing operationshigher non-interest bearing checking account balances, which increased year-over-year by $9 million duein the third quarter to the $10 million loss on equity securities in 2020 that resulted29% of averagedeposits from the stock market decline as the pandemic led to widespread shutdowns. Excluding securities gains and losses, net revenue from continuing operations was unchanged at $101 million. An $11 million decrease in net interest income was offset by an $11 million increase in non-interest income excluding securities gains and losses.24%.
Net Interest Income: FollowingThe Company has focused on paying down higher cost wholesale funds as well as lowering the approximate 150 basis point downward parallel shockcost of maturing retail time deposits, which have been comparatively high sources of funding in interest ratesrecent years. The Company expects to benefit from the prepayment of FHLBB borrowings which occurred near the end of the first quarter of 2020, net interest income decreased by 10% from $86 million in the first quarter of 2020 to $76 million in the following quarter. The net interest margin decreased from 3.04% to 2.62% for these respective periods. The quarterly net interest margin has remained generally stable since the second quarter of 2020, measuring 2.62% in the most recent quarter. For this period, net interest income decreased 3% to $75 million inAdditionally, the most recent quarter. Net interest income in the most recent period included a $3.5 million benefit from the recognition of deferred origination revenue related to PPP loans that were forgiven during the period. The$1.8 billion remaining balance of unamortized deferred PPP revenue decreased from $13 milliontime deposits at period-end represent further potential opportunity to $7 million. Most of this balance is expectedreduce funding costs compared to be recognized in income as additional PPP loans are forgiven in upcoming quarters. The total impact of PPP loans on the net interest margin, including the 1% coupon on the loans, was an increase in the margin of 11 basis points in the most recent quarter. The effect of purchase accounting accretion from past bank acquisitions was to provide 5 basis points of margin benefit in the most recent quarter.
Over the last year, the yield on earning assets has declined steadily from 4.08% in the first quarter of 2020 to 3.07% in the first quarter of 2021, due to asset yield compression in the low rate environment as well as to a shift in mix from loans towards low yielding short-term investments. The cost of funds decreased from 1.11% to 0.48% over this time and the cost of deposits decreased from 0.96% to 0.36%. The cost of deposits has benefited from growth in demand deposits and decreases in higher cost brokered deposits and maturing retail time deposits. The cost of funds has also benefited from the paydown of borrowings. The quarterly cost of borrowings increased slightly due to the higher remaining proportional impact of subordinated debt as shorter term FHLBB borrowings are paid down.peer institutions.
Non-Interest Income: FirstNon-interest income increased year-over-year by $54 million in the third quarter and by $79 million in the first nine months of the year. This includes the $52 million benefit of net gain on sales of business operations in the most recent quarter, and the cost of $10 million in securities losses in the first half of 2020.
Total non-interest income excludingbefore gains and losses increased year-over-year by $11$1 million, or 4%, in the third quarter and by $18 million, or 34%, in the first nine months of the year. For the third quarter, SBA loan originations related income increased year-over-year by $3 million to $26a record level of $5 million, compared to pandemic depressed business volumes in 2020. Third quarter deposit related fees increased year-over-year by 8% and wealth management fees increased 15% due to improved business conditions. This growth helped offset a 41% reduction in insurance commissions due to the sale of insurance operations, along with a 77% decrease in mortgage banking revenue from $15 million. Thiselevated business volumes in 2020.
The nine month improvement in non-interest income before gains and losses was primarily due to an $8 million swing in changes in the fair value of financial instruments related to mortgage servicing rights, outstanding interest rate swap derivatives, and fair valued loans. Due to the decrease in interest ratesimprovements in the first quarterhalf of 2021 from the pandemic emergency conditions in the first half of 2020, these impactswhich resulted in a total of $5 millioncontractions in business activity, fee waivers, and charges against non-interest income. Inresulting from negative price movements in fair valued financial instruments, including derivative financial instruments and other fair valued assets.Additionally, the most recent quarter, due to the increase in interest rates, these impacts provided a $3 million benefit to non-interest income. Fees related to the $206Company recorded $2 million in PPP loan applicationsreferral fees in the most recent quarter generated a $1.5 million fee revenue benefit duringfirst half of 2021 for its participation in the quarter. Thesecond round of the PPP program, channeling applications through a fintech partner rather than maintaining PPP loans on its balance sheet as it did in 2021 is scheduled to be completed in May, and the Company does not expect material revenue from this program after the first quarter. Higher volumes in other lending related activities offset lower overdraft fees as a result of lower overdraft activity, which reflects consumer benefits from stimulus payments received during the quarter and previously.2020.
Credit Loss Provision Expense: The firstthird quarter provision decreased year-over-yearwas a benefit of $4 million in 2021 compared to $6.5an expense of $1 million from $35 million.in 2020. For the first nine months of the year, the provision expense was $3 million in 2021 compared to $66 million in 2020. The provision was elevated in the first half of 2020, as the Company estimated expected loan losses in the context of the global pandemic. The Company continues to maintain an elevated allowance compared to loans based on its methodology. Because of the decline in the loan portfolio, there has been little need for additional provision expense in 2020 reflected the initial recognition of expected credit losses from the emergence of the pandemic. In the first quarter of 2021, the allowance balance decreased and the ratio of the allowance to loans was little changed.2021. The amount of the provision could decreasebenefit in the future if expectations formost recent quarter reflected a further reduction in loans as well as the improving economic factors and/or loan performance improve. The amount of the provision could increase if these expectations worsen. The provision may also be affected by changes in the size or mix of the loan portfolio.outlook.
Non-Interest Expense and Tax Expense:Total first quarter non-interest Non-interest expense increaseddecreased year-over-year by $7 million to $78 million from $71 million. Excluding $3 million, inor 5%, for the third quarter and by $552 million for the first nine months of the year. The third quarter decrease was due to lower merger, restructuring and other expense,non-operating expenses. These costs in 2020 were primarily related to the CEO separation and in 2021 were primarily related to net restructuring costs including borrowings prepayment fees, real estate consolidation plans, and severance. The $552 million nine month decrease was primarily due to the $554 million goodwill write-off in the second quarter of 2020.
The Company’s non-GAAP measure of adjusted non-interest expense excludes the above costs, which are not viewed as related to ongoing operations. Adjusted non-interest expense increased year-over-yearyear-over year by $4$1 million, to $75or 1%, for the third quarter and by $2 million, or 1%, for the first nine months of the year. Expense benefited from $71 million. Thisthe sale of insurance and branch operations at the end of August 2021. Third quarter expense was up primarily due to a 6% increase in salary expense including the impact of the Company’s investment in front line bankers. The nine month increase in expense primarily reflected higher professional services expense which included $3 million in 2021the first half of the year for legal, financial, and other advisory services related to management and board matters duringmatters.
The Company has completed the most recent quarter. A $2 million increaseconsolidation of 16 branch offices in compensation expense was offset by a $2 million decrease in2021.The Company sold 8 offices as part of the category of all other expense. Compensation expense increased dueMid-Atlantic branch sale. Total branch offices declined from 130 to higher business development accruals and severance expense. The decrease in all other expense was primarily related to lower loan workout and other commercial lending expense.106 for the year-to-date, as the Company
During the most recent quarter, the Company completed the consolidation of nine branch offices, reducingpursues its total branch count from 130 officesstrategy for front-line bankers in managing expansion and market positioning. This includes a focus on its MyBankers who provide dedicated relationship support to customers with committed banking relationships. Full time equivalent staff totaled 1,333 positions at period-end, compared to 1,505 positions at the start of the year. This decrease included 79 positions which were transferred in conjunction with the sale of insurance and branch operations. The Company designated ten real estate properties as held for sale in the third quarter as it pursues its efficiency strategies for reducing overhead and evolving a hybrid work environment. A severance accrual was recorded during the quarter in conjunction with planned efficiencies in servicing customer accounts in partnership with third parties.
The Company received income tax expense benefits in 2020 due to 121 offices atloss carrybacks resulting from the end of the quarter. Full-time equivalent staff decreased to 1,467 positions at March 31, 2021, compared to 1,505 positions at year-end 2020. Full-time equivalent stafflosses reported in continuing operations totaled 1,548 positions at the end of the first quarter of 2020. The first quarter 2021 effective tax rate was 22% due20% in the third quarter of 2021 and 21% for the first nine months of the year. The effective tax rate on adjusted pre-tax income was 12% in the third quarter of 2021 and 19% for the first nine months of the year. The higher GAAP tax rate reflected the higher GAAP pre-tax income primarily related to a seasonal decreasethe net sale gains for the sale of the insurance and branch operations. Berkshire invested in two historic rehabilitation tax credit projects in the most recent quarter, resulting from increased rehabilitation project activity which had declined following the onset of the pandemic.These programs serve community needs in Albany, NY and Westerly, RI. They provided $2 million in tax credit investments recorded duringbenefits in the quarter. In the firstmost recent quarter, which resulted in $0.01 in additional EPS net of 2020, the Company received an effective tax benefit on continuing operationsrelated amortization charges included as a component of 14% due to the $14 million pre-tax loss on continuing operations recorded in that period.non-interest income.
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 $8$2 million was recorded in the third quarter and $16 million was recorded in the first quarternine months 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 $19$20 million in other net after-tax nine month comprehensive income and the increase in medium term interest rates in 2021 resulted in a $20$24 million nine month other net comprehensive loss.
Liquidity and Cash Flows: The primary sourcesources of cash in the first quarternine months of 2021 waswere the decrease in total loans and the increase in demand deposits, and the primary useuses of cash waswere the reduction of wholesale funds and an increase in short-term investments. Growth in demand deposits contributed toinvestments, as well as the paydownsettlement of maturing wholesale funds.the branch sale. As a result, liquidity improved,increased, with short-term investments increasing to 14%17% of total assets and total investments increasing to 32%36% of assets at period-end, from 11% and 29%, respectively, at the start of the year. The ratio of loans to deposits decreased to 75%66% from 79%. The ratio of wholesale funds to assets decreased to 7%4% from 9%.
The Company expects to use approximately $300anticipates repaying most of the $428 million in liquidity to close the planned branch sale in the second quarter. The Company also expects that the majority of the remaining $444 million of outstanding PPP loans are expected to be repaid by the SBA through loan forgiveness in the coming months. The Company expects to repay approximately $475 million in maturing wholesale funds over the restnext twelve months. The Company is targeting to resume loan growth in 2022, and to shift some funds from short-term investments into investment securities. The Company anticipates that excess liquidity will decline in 2022 based on these targeted events. The Company regularly stress tests its liquidity and views its stressed liquidity profile as sound including the benefit of the year.current excess levels of liquidity.
At period-end, unused borrowing capacity at the FHLBB was $1.4$1.6 billion compared to $1.0 billion at, which was unchanged from the start of the year. Borrowing availability at the Fed discount window was $0.6$0.5 billion and $0.8 billion for these dates respectively. Total cash held by the holding company was $92 $77 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 potential 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 strategic plans, and compared to peers. The Company’s last stock repurchase authorization was allowed to expirepriorities for uses of it capital are based on maintaining strong capital, supporting organic growth and its BEST strategic plan, paying a dividend yield that in 2020 without completion, due to the emergence of the pandemic. This authorization had been approved to facilitate the return oflong run is competitive and targets a 30-40% payout ratio, and distributing excess capital to shareholders as a result of planned reductions in the balance sheet which released capital that had been used to support loans and other assets which were no longer viewed as contributing to the Company’s strategic direction.through stock repurchases.
On April 28, 2021,The Company’s long term goal is to maintain a competitive capital stack and to provide a return in excess of the Company announced that its Board had approved a stock repurchase program pursuant to which the Company may repurchase up to 2,500,000 sharescost of its common stock through April 30, 2022. This represents approximately 5% of its outstanding sharesequity capital.The Company’s tier 2 capital includes a $75 million subordinated note which converts to a convertible rate and becomes callable as of March 31, 2021. The authorization does not constitute a commitment to repurchase shares.September 2022. The Company may conduct the repurchases through open market purchases, block trades, unsolicited negotiated transactions, pursuant to a trading plan that may be adopted in accordance with Securities and Exchange Commission (“SEC”) Rule 10b5-1, or in any other manner that complies with the provisions of the Securities Exchange Act of 1934, as amended.will monitor capital markets conditions while assessing future plans for this capital.
72The Company and Bank are investment grade rated by the KBRA bond rating service and the Company views itself as having good access to current capital markets. The Company performs capital stress testing at least annually and has a general goal to remain qualifying for the “well capitalized” designation in the severely stressed scenario. The Company views its current stressed capital position as sound and conforming to its objectives, including the benefit of current excess levels of capital.
In acting as a source of Contentsstrength for the Bank, the Company relies in the long term on capital distributions from the Bank in order to provide operating and capital service for the Company, which in turn can access national financial markets to provide financial support to the Bank.Capital distributions from the Bank to the parent company presently require approval by the FDIC and the Massachusetts Division of Banking.
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 quarternine months of 2021 except for the completion of the agreement to sell the Mid-Atlantic branch operations, which was completed at the end of August 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 $243 million, or 3.2% 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-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 program off of LIBOR were discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) 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 Company has no material LIBOR based contracts requiring remediation prior to year-end 2021.
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. The Company has begun incorporating SOFR in place of LIBOR in new contracts and contract proposals. The Company continues to monitor additional index rates as they become available or are requested by customers or other counterparties.
CORPORATE RESPONSIBILITY UPDATE
Berkshire Bank is committed to purpose-driven, community-dedicatedcommunity-centered banking that enhances value for all stakeholders as it pursues its stakeholders.vision of being the leading socially responsible community bank. Learn more about the steps Berkshire is taking at www.berkshirebank.com/berkshirebank.com/csr and in its most recent Corporate Responsibility Report.
Key developments in the quarter include:
•Corporate Responsibility Report- Earlier this month, the Company released its 2020 Corporate Responsibility Report, Meaningful Moments: Answering the Call. The report highlights how the Company’s 175 year heritage guided its response to the COVID-19 pandemic as well as its environmental, social, and governance performance. Berkshire seeks to enhance its purpose-driven, community-dedicated approach to banking to be the leading socially responsible bank in the communities it serves.
•Chief Diversity OfficerLaunch of the BEST Community Comeback:- Berkshire announced its "BEST Community Comeback" a $5 billion multi-year ESG and community commitment to fuel resilience and strengthen local communities. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability.
The program includes $1.5 billion in small business lending; $2.5 billion in mortgage lending inclusive of $200 million in lending for minority mortgage borrowers; $2.5 billion in lending in low-moderate income neighborhoods; and $300 million in lending for low-carbon projects. Additionally, the Bank plans to transition its electricity supply to 100% renewables and reduce its greenhouse gas emissions by the end of 2024.
•Xtraordinary Day: As the Bank continues to build on its efforts to be a diverse, inclusive and equitable Company, it has appointed Angela Dixon, a 30-year veteran in the Human Resources and the Diversity, Equity, Inclusion spacekickoff to the roleBank's "BEST Community Comeback," Berkshire Bank hosted its 5th annual "Xtraordinary Day of Chief Diversity Officer. As Chief Diversity Officer, Dixon will be responsibleService." Berkshire Bank employees were deployed in a virtual setting, volunteering for drivingcauses that support the Company’s diversity,small business ecosystem, equity and inclusion strategyand basic community needs. More than 75% of Berkshires workforce participated in collaboration with executive management and each of Berkshire’s business lines. She will also work to enhance the impact of Berkshire’s existing diversity initiatives and programs.day.
•Current ESG Performance: The Company continued to improve its Environmental, Social and Governance (ESG) ratings, generally outperforming peers. As of September 30, 2021 the Company received ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 2, Social: 1, Governance: 2; and Bloomberg Gender Equality Index – Berkshire Bank's focus on diversity, ensuring gender equality and pay equity was highlighted as Bloomberg announced theESG Disclosure- 47.81. The company would be included in the 2021 Bloomberg Gender-Equality Index (GEI) for the second consecutive year. The GEI tracks the performance of public companies committed to disclosing their efforts to support gender equality through policy development, representation and transparency and rewards the top performing companies with inclusion in the index.is also rated by Sustainalytics.
•Human Rights Campaign Best Places to Work for LGBTQ Equality- Berkshire received the top adjusted score of 100 on the Human Rights Campaign Foundation’s 2021 Corporate Equality Index (CEI), the nation’s foremost benchmarking survey and report measuring corporate policies and practices related to LGBTQ workplace equality. The CEI rates employers providing these crucial protections across four central pillars including non-discrimination policies; equitable benefits for LGBTQ workers and their families; supporting an inclusive culture; and corporate social responsibility
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 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.
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 Company’s asset sensitivity increased in the first quarterAs of 2021. This reflected the impact of loan portfolio runoff reinvested in short-term investments, as well as the increase in demand deposits which were used to paydown short-term wholesale borrowings. The percentage change inSeptember 30, 2021, net interest income is expected to benefit from upward changes in interest rates. In the second yearscenario of a 200 basis point upward parallel ramp, in interest rates increased to 10.8%, compared to 4.0% at the end of 2020. At period-end, the Company was positively sensitive to upward shocks, withmodels approximately a 4% increase in NII in the first year one impactand a 13% increase in the second year. A scenario of an upa 200 basis point upward shock beingresults in a 13% increase in the first year, with a further small increase in the second year. Upward ramps and shocks of 100 basis points result in slightly less than half of the modeled benefit of 200 basis point rate increase scenarios. Under an implied forward curve scenario, net interest income benefits by 1% and 3% in the first and second years, respectively, primarily driven by improvement in earning asset yields. The Company’s net income is also modeled to increase in the event of interest rate increases. The dollar amount of net income at risk was modeled to generally be the same range as the year two ramp impact cited above. Additionally,amount of net-interest income at risk. Economic value of Equity (EVE) sensitivity is a discounted cash flow model designed to estimate the Company’s model indicates that netfair value of assets and liabilities under a series of interest incomerate shocks over a long-term horizon. At this time, EVE is positively sensitive to a yield curve twist that resultsincreases in a steepening of the yield curve compared to conditions at first quarter period-end.interest rates.
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.
PART II
ITEM 1. LEGAL PROCEEDINGS
As of March 31,September 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 whichdismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank is in the process of responding.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 whoin 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 have filed and the court has respondedpreliminarily approved a settlement agreement, under which the Bank expects to pay damages of approximately $510,000 in exchange for the demand letterdismissal with prejudice and deniedrelease of all claims that have been or could have been asserted in the filed class action lawsuit on behalf of the Companyplaintiff and all putative settlement class members, plus certain costs for administration of the Bank. No class action or other lawsuit has been served onsettlement and legal fees incurred by the Company ornamed plaintiff up to the Bank asamount of the date of this filing.$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.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed belowherein 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 formreport and in the Annual Report on Form 10-K 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 quarternine months of 2021.
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 March 31,September 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 firstthird quarter of 2021:
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| | Total number of | | Average price | | Total number of shares purchased as part of publicly announced | | Maximum number of shares that may yet be purchased under |
Period | | shares purchased | | paid per share | | plans or programs | | the plans or programs |
January 1-31, 2021 | | — | | | $ | — | | | — | | | — | |
February 1-28, 2021 | | — | | | — | | | — | | | — | |
March 1-31, 2021 | | — | | | — | | | — | | | — | |
Total | | — | | | $ | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total number of | | Average price | | Total number of shares purchased as part of publicly announced | | Maximum number of shares that may yet be purchased under |
Period | | shares purchased | | paid per share | | plans or programs | | the plans or programs |
July 1-31, 2021 | | 1,177,224 | | | $ | 27.34 | | | 1,177,224 | | | 577,834 | |
August 1-31, 2021 | | 490,574 | | | 27.64 | | | 490,574 | | | 87,260 | |
September 1-30, 2021 | | 87,260 | | | 25.41 | | | 87,260 | | | — | |
Total | | 1,755,058 | | | $ | 27.33 | | | 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. This represents approximately 5%On September 13, 2021, the Company announced that it had completed this stock repurchase program. The Company repurchased 2,500,000 shares of its outstanding shares ascommon stock at an aggregate price of March 31, 2021.$68.7 million, or an average price of $27.48 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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3.1 | | |
3.2 | | |
4.1 | | |
4.2 | | |
10.1 | | |
10.2 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101 | | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,September 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. |
104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,September 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.
(5) Incorporated herein by reference from Exhibit 10.1 to the Form 8-K as filed on January 26, 2021.
(6) Incorporated herein by reference from Exhibit 10.1 to the Form 8-K as filed on March 8, 2021.
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.
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| BERKSHIRE HILLS BANCORP, INC. |
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Dated: May 10,November 9, 2021 | By: | /s/ Nitin J. Mhatre |
| Nitin J. Mhatre |
| President and Chief Executive Officer |
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Dated: May 10,November 9, 2021 | By: | /s/ Subhadeep Basu |
| Subhadeep Basu |
| Senior Executive Vice President, Chief Financial Officer |