0001108134bhlb:FairValueOfCollateralValuationTechniqueMemberus-gaap:MeasurementInputLossSeverityMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Membersrt:WeightedAverageMember2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~March 31,~~September 30, 2021


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

For the transition period from to

Commission File Number: 001-15781

BERKSHIRE HILLS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3510455

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

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:

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

Table of Contents

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 ~~51,203,211~~48,659,319 shares of common stock, $0.01 par value per share, outstanding

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

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 ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020

910

Notes to Consolidated Financial Statements (Unaudited)

Note 1

Basis of Presentation

1112

Note 2

Discontinued Operations ~~and Held for Sale~~

1314

Note 3

~~Trading Security~~Branch Sale and Sale of Insurance Operations

Note 4

Trading Security

Note 5

Securities Available for Sale, Held to Maturity, and Marketable Equity Securities

1516

Note 56

Loans and Allowance for Credit Losses

~~Note 6~~

~~Deposits~~

3121

Note 7

~~Borrowed Funds~~Deposits

Derivative Financial Instruments and Hedging Activities

Other Commitments, Contingencies, Off- Balance Sheet Activities, and Pandemic Impact

4145

Note 1112

Capital Ratios and Shareholders' Equity

~~Note 12~~

~~Earnings/(Loss) per Share~~

Note 13

~~Stock-Based Compensation Plans~~Earnings/(Loss) per Share

4750

Note 14

~~Fair Value Measurements~~Stock-Based Compensation Plans

4851

Note 15

Fair Value Measurements

Note 16

Net Interest Income after Provision for Credit Losses

5761

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

5862

Selected Financial Data

5862

Average Balances and Average Yields/Rates

6064

Non-GAAP Financial Measures

6266

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

7580

Item 4.

Controls and Procedures

7681

Table of Contents

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.

Table of Contents

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)

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

Table of Contents



	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.

Table of Contents

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)

910

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.

1011

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.

1112

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.

1213

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)

1314

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. BRANCH SALE AND SALE OF INSURANCE OPERATIONS

Mid-Atlantic Branch Sale

~~The~~On August 27, 2021 the Company ~~has entered into an agreement to sell its~~completed the sale of 8 Mid-Atlantic branches to Investors Bank of Short Hills, New ~~Jersey, subject~~Jersey. This sale was made pursuant to ~~customary regulatory approvals. The transfer is targeted for completion in~~a 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 ~~includes~~included all branch premises and equipment, and Investors also assumed related operations and the ~~agreement provides that the buyer intends to offer~~ employment ~~to all~~of associated staff. ~~Berkshire expects to complete the net transfer with funds from short-term investments.~~ The branch sale ~~will have no effect on~~is 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.

1415

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

1516

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.

1618

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

1719

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 ~~256~~255 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 ~~125~~124 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 ~~207~~216 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.

1820

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 ~~March~~September 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 ~~conditions~~conditions.

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

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

2023

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

2124

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.

2225

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
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









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

2326

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

2427

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

2528

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

2629

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

2730

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

2831

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

2932

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	$	~~690~~283
Post-modification outstanding recorded investment	$	~~690~~283

Three months ended ~~March 31,~~September 30, 2020
TDR:
Number of loans	310
Pre-modification outstanding recorded investment	$	~~902~~611
Post-modification outstanding recorded investment	$	~~902~~611

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.

3034

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. ~~NaN~~No 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 ~~March~~September 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.~~

3135

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.

3236

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.

3337

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.

3438

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.

3539

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

3640

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

3741

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

3842

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. ~~Variable~~Lease 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.

3943

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

4044

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 ~~337~~24 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.The~~deferral. The Company continues to accrue interest on these loans during the deferral period. In accordance with interagency guidance issued in March 2020 and Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty. In addition, the risk-ratings on COVID-19 modified loans did not automatically change as a result of payment deferrals, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume.

4145

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%.

4246

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)















Other comprehensive (loss)	$	(31,718)	$	8,096	$	(23,622)




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















Other comprehensive income	$	27,529	$	(7,096)	$	20,433

4347

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

4448

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


Total reclassifications for the period	Total reclassifications for the period	$	0	$	(1)	Net of tax	Total reclassifications for the period	$	—	$	4	Net of tax


					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

	—		(1)		Tax expense


	—		4		Net of tax


















Total reclassifications for the period	$	—	$	4	Net of tax

4549

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, ~~390~~402 thousand shares of unvested restricted stock and ~~all~~88 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.

4650

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 ~~three~~nine 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.

4751

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.

4852

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

March 31, 2021

Aggregate

Less Aggregate

September 30, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

(In thousands)

Fair Value

Unpaid Principal

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

Less Aggregate

(In thousands)

Fair Value

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

March 31, 2021

Aggregate

Less Aggregate

September 30, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

(In thousands)

Fair Value

Unpaid Principal

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

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

12,992

12,639

353

4953

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.

5054

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	$	—

5155

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

5357

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

(In thousands)

Inputs

(In thousands)

Inputs

Assets

Individually evaluated

21,762

28,028

March 2021

Individually evaluated

20,379

28,028

September 2021

Capitalized servicing rights

13,763

13,315

March 2021

Capitalized servicing rights

13,963

13,315

September 2021

Other real estate owned

149

March 2021

Other real estate owned

—

149

September 2021

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

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.

5559

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		—

5660

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

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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

5862

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		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.

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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

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		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) ~~Purchased~~Purchase 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.

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NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP adjusted earnings information set forth is not necessarily comparable to non- GAAP information which may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information.

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations. These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations. Discontinued operations are the Company’s national mortgage banking operations for which the Company ~~is pursuing sale opportunities.~~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.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following table summarizes the reconciliation of non-GAAP items recorded for the periods indicated:


			At or for the Three Months Ended 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

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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.

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GENERAL

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

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

The Bank has a goal of transforming what it means to bank its neighbors socially, humanly, and digitally to empower the financial potential of people, families, and businesses in its communities as it pursues its vision of being the leading socially responsible omni-channel community bank in the markets it serves. 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.

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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’s~~increase 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 $0.32~~to assess its performance. This measure excludes items not viewed as related to ongoing operations. Third quarter adjusted earnings per ~~share. Return~~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 ~~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 to~~year stemming from the onset of the COVID-19 global pandemic. ~~While operations returned to profitability~~Nine 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 remains~~improving 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 before~~most 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 ~~onset~~next 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 due~~authorized time, returning a total of nearly $69 million in excess capital to ~~changes~~shareholders.

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 first~~third quarter ~~of 2021~~related 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 completing~~continued to record strong deposit growth during the ~~sale of~~quarter and its ~~eight Mid-Atlantic branches targeted for the second quarter of 2021. These actions~~expanded banking teams are ~~planned to reduce the~~focused on building loan origination volumes. The Company reduced its total branch ~~count to 106~~banking offices from 130 offices at the start of ~~2021.~~

~~The second wave~~the year to 106 offices currently. This includes the sale of ~~COVID-19 disease appears to have peaked~~8 Mid-Atlantic offices and the consolidation of 16 offices in accordance with the plan announced in the ~~most recent~~fourth quarter ~~with many economic and social activities continuing to be restricted~~of 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.

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~~Compared to~~executing 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 are~~In 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% increase~~Berkshire 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 revenue~~Southern 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, stable~~MyBanker 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.

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COMPARISON OF FINANCIAL CONDITION AT ~~MARCH 31,~~SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

Summary: Total assets ~~remained steady at~~decreased to $11.8 billion from $12.8 billion induring the first ~~quarter, and there was further progress in improving~~nine months of 2021. This included the ~~structure and composition~~$0.6 billion impact of the ~~balance sheet. Proceeds~~sale 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 into~~run-off, which also contributed to higher short-term ~~investments. Growth in demand~~investment 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 used~~decreased to ~~paydown maturing wholesale funds. Asset~~66% 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 to~~nine 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 fund~~are 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 ~~quarter~~nine months of ~~2021 compared to~~ the ~~linked quarter. Securities purchases totaling $259 million were~~year. Growth was concentrated in agency ~~mortgage backed~~mortgage-related securities and ~~commercial mortgage backed~~municipal 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 weighted~~with 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 rated~~The 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:~~During~~Total loans decreased in the first ~~quarter~~nine 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 guaranteed~~decrease in Paycheck Protection Program (“PPP”) ~~loans. Through~~loans 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 with~~BEST 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 participated~~new commercial lending office in

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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. Loan~~ongoing low rate environment.Consumer loan balances decreased ~~in the other major loan categories reflecting~~by $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 $284~~run-off of $104 million in ~~Mid-Atlantic loan~~consumer balances ~~which are targeted~~primarily related to ~~be sold as part~~indirect automobile loans. Under the leadership of the ~~planned branch sale~~newly 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 first~~third 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 amortization~~included 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 million~~deferred PPP fees in ~~deferred revenue. The impact of this forgiveness on~~interest income when the ~~C&I yield was approximately 0.76% during~~related loans were forgiven by the ~~most recent quarter.~~SBA.

The Company has designated ~~certain~~the 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 hospitality~~period-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.

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Asset Quality and Credit Loss Allowance:~~Most loan performance~~Major asset quality metrics improved ~~during~~in the first ~~quarter~~nine 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 $9~~Accruing 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 $350~~compared 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 Firestone~~year. Period-end loan modifications ~~decreasing to $153 million from $225 million. More than 90% of~~were concentrated in hospitality loans, ~~with~~which had $51 million in modifications ~~were on interest-only payment terms~~ at ~~period-end and~~that date. Most of these loans were supported by interest ~~reserves. Further improvement in hospitality modifications is expected~~reserves and were granted full year principal payment deferrals for 2021 to ~~depend on the timing of recoveries in leisure~~allow 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 ~~return~~allow 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 criticized~~Criticized loans decreased to ~~$356~~$265 million at period-end, compared to $359 million at year-end ~~2020. Classified~~2020, measuring 3.9% of total period-end loans. This balance includes classified loans, which decreased to ~~$235~~$157 million, ~~from~~compared to $250 ~~over this time. At period-end, criticized loans measured 4.7%~~million at year-end 2020, measuring 2.3% of total ~~loans and~~period-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. Criticized~~exit 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. Due~~period-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 expected~~allowance for credit losses ~~at quarter-end resulted in a~~on 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 from~~compared to 1.58% at the start of the ~~quarter. Excluding~~year. The Company’s allowance methodology includes an assessment of the ~~$444 million balance~~risk 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 to~~remains higher than the ~~general range of the level before the pandemic at the time of~~0.94% 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

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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 $10.2~~increased by $150 million, or 1%, to $10.37 billion in the first ~~quarter~~nine months of ~~2021, as a $266 million increase~~the 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 deposits~~commercial checking balances and benefited from the ~~distribution~~further accumulation of liquidity from federal fiscal stimulus ~~payments, together with some proceeds from~~payments. NOW and money market balances shifted due to the ~~$206~~impact 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 account~~brokered 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 in~~into checking and savings accounts.

Most of the $1.5 billion balance of non-brokered time deposits ~~was primarily~~at 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 deposits~~the 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 in~~deposits and loans held for sale pursuant to the contract for the sale of the Mid-Atlantic branch ~~deposit balances which are targeted for~~operations. This sale was completed in the ~~second~~most 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. The~~nine 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 tax~~after-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 by~~first nine months of the ~~benefit~~year.

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-end~~the 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 measure~~first 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.

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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 Company~~Berkshire 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, compared~~the 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 to~~Company 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. First~~items not viewed as related to ongoing operations. Third quarter adjusted ~~net income measured $16~~earnings 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, compared~~due 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 expenses~~and 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 ~~first~~third quarter efficiency ratio ~~moved adversely~~increased 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 ~~first~~third quarter ~~2020~~2021 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 GAAP~~non-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.

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~~Revenue:~~ ~~Total first quarter~~The Company’s liability management strategies have been focused on supporting the net ~~revenue~~interest margin to offset asset yield compression. Deposit costs have been repriced down and the Company benefited from ~~continuing operations~~higher non-interest bearing checking account balances, which increased year-over-year ~~by $9 million due~~in the third quarter to ~~the $10 million loss on equity securities in 2020 that resulted~~29% 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:~~ ~~Following~~The Company has focused on paying down higher cost wholesale funds as well as lowering the ~~approximate 150 basis point downward parallel shock~~cost of maturing retail time deposits, which have been comparatively high sources of funding in ~~interest rates~~recent 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 in~~Additionally, 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 million~~time deposits at period-end represent further potential opportunity to ~~$7 million. Most of this balance is expected~~reduce 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: ~~First~~Non-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 ~~excluding~~before 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 ~~$26~~a 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. This~~elevated 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 ~~quarter~~half of 2021 from the pandemic emergency conditions in the first half of 2020, ~~these impacts~~which resulted in ~~a total of $5 million~~contractions in business activity, fee waivers, and charges ~~against non-interest income. In~~resulting 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 $206~~Company recorded $2 million in PPP ~~loan applications~~referral fees in the ~~most recent quarter generated a $1.5 million fee revenue benefit during~~first half of 2021 for its participation in the ~~quarter. The~~second round of the PPP program, channeling applications through a fintech partner rather than maintaining PPP loans on its balance sheet as it did in 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 ~~first~~third quarter provision ~~decreased year-over-year~~was a benefit of $4 million in 2021 compared to ~~$6.5~~an 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 decrease~~benefit in the ~~future if expectations for~~most 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 ~~increased~~decreased 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-year~~year-over year by $4$1 million, ~~to $75~~or 1%, for the third quarter and by $2 million, or 1%, for the first nine months of the year. Expense benefited from ~~$71 million. This~~the 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 ~~2021~~the first half of the year for legal, financial, and other advisory services related to management and board ~~matters during~~matters.

The Company has completed the ~~most recent quarter. A $2 million increase~~consolidation of 16 branch offices in ~~compensation expense was offset by a $2 million decrease in~~2021.The Company sold 8 offices as part of the ~~category of all other expense. Compensation expense increased due~~Mid-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

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~~During the most recent quarter, the Company completed the consolidation of nine branch offices, reducing~~pursues its ~~total branch count from 130 offices~~strategy 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 at~~loss 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 staff~~losses 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% due~~20% 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 decrease~~the 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 during~~benefits in the ~~quarter. In the first~~most recent quarter, which resulted in $0.01 in additional EPS net of ~~2020, the Company received an effective tax benefit on continuing operations~~related 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 ~~quarter~~nine 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 ~~source~~sources of cash in the first ~~quarter~~nine months of 2021 ~~was~~were the decrease in total loans and the increase in demand deposits, and the primary ~~use~~uses of cash ~~was~~were the reduction of wholesale funds and an increase in short-term ~~investments. Growth in demand deposits contributed to~~investments, as well as the ~~paydown~~settlement 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 $300~~anticipates 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 ~~rest~~next 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.

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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 expire~~priorities 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 of~~long 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 shares~~cost of its common ~~stock through April 30, 2022. This represents approximately 5% of its outstanding shares~~equity 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.

~~Table~~

In acting as a source of ~~Contents~~strength 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 quarter~~nine 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.

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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-dedicated~~community-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 Officer~~Launch 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 space~~kickoff to the ~~role~~Bank's "BEST Community Comeback," Berkshire Bank hosted its 5th annual "Xtraordinary Day of ~~Chief Diversity Officer. As Chief Diversity Officer, Dixon will be responsible~~Service." Berkshire Bank employees were deployed in a virtual setting, volunteering for ~~driving~~causes that support the ~~Company’s diversity,~~small business ecosystem, equity and inclusion ~~strategy~~and 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 the~~ESG 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

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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.

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Management has identified the Company's most critical accounting policies as related to:

•Allowance for Credit Losses

•Fair Value of Financial Instruments

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

ENTERPRISE RISK MANAGEMENT

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

~~The Company’s asset sensitivity increased in the first quarter~~As 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 year~~scenario 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, with~~models approximately a 4% increase in NII in the first year ~~one impact~~and a 13% increase in the second year. A scenario of ~~an up~~a 200 basis point upward shock ~~being~~results 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 net~~fair value of assets and liabilities under a series of interest ~~income~~rate shocks over a long-term horizon. At this time, EVE is positively sensitive to ~~a yield curve twist that results~~increases in ~~a steepening of the yield curve compared to conditions at first quarter period-end.~~interest rates.

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ITEM 4. CONTROLS AND PROCEDURES

a) Disclosure controls and procedures.

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

b) Changes in internal control over financial reporting.

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

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PART II

ITEM 1. LEGAL PROCEEDINGS

As of ~~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 ~~which~~dismiss 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 ~~who~~in this matter, and discussions have proceeded between the parties to find a mutually acceptable resolution. On July 28, 2021, a class action complaint was filed by the original 93A claimant against the Bank in the Massachusetts Superior Court for Suffolk County, pursuant to a pre-negotiated Memorandum of Understanding (“MOU”) between the parties.In accordance with the MOU, the parties have filed and the court has ~~responded~~preliminarily approved a settlement agreement, under which the Bank expects to pay damages of approximately $510,000 in exchange for the ~~demand letter~~dismissal with prejudice and ~~denied~~release of all claims that have been or could have been asserted in the filed class action lawsuit on behalf of the ~~Company~~plaintiff and all putative settlement class members, plus certain costs for administration of the ~~Bank. No~~ class action ~~or other lawsuit has been served on~~settlement and legal fees incurred by the ~~Company or~~named plaintiff up to the ~~Bank as~~amount 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.

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ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed ~~below~~herein and in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which could materially affect the Company's business, financial condition, or future operating results. Please also see the earlier discussion in this report about Enterprise Risk Management. The risks described in this ~~form~~report 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 ~~quarter~~nine months of 2021.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sales of Unregistered Securities

The Company occasionally engages in the practice of transferring unregistered securities for the purpose of completing business transactions. These shares are issued to vendors or other organizations as consideration for services performed in accordance with each contract. During the three months ended ~~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 ~~first~~third quarter of 2021:

~~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 as~~common 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.

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ITEM 6. EXHIBITS


3.1						Amended and Restated Certificate of Incorporation of Berkshire Hills Bancorp, Inc.(1)
3.2						Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
4.1						Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (3)
4.2						Certificate of Designations of Series B Non-Voting Preferred Stock of Berkshire Hills Bancorp, Inc. (4)
~~10.1~~						~~Employment Agreement between Berkshire Hills Bancorp, Inc., Berkshire Bank and Nitin J. Mhatre dated January 21, 2021 (5)~~
~~10.2~~						~~Cooperation Agreement, dated March 7, 2021, by and between Berkshire Hills Bancorp, Inc. and HoldCo Asset Management, LP. (6)~~
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101						The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~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.~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BERKSHIRE HILLS BANCORP, INC.


Dated: ~~May 10,~~November 9, 2021	By:	/s/ Nitin J. Mhatre
	Nitin J. Mhatre
	President and Chief Executive Officer


Dated: ~~May 10,~~November 9, 2021	By:	/s/ Subhadeep Basu
	Subhadeep Basu
	Senior Executive Vice President, Chief Financial Officer

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PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	7782
Item 1A.	Risk Factors	7883
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7984
Item 3.	Defaults Upon Senior Securities	7984
Item 4.	Mine Safety Disclosures	7984
Item 5.	Other Information	7984
Item 6.	Exhibits	8085
Signatures		8186