Berkshire Hills Bancorp(BHLB) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2021, along with market risk disclosures and controls Item 1. Consolidated Financial Statements (unaudited) This section presents the unaudited consolidated financial statements of Berkshire Hills Bancorp, Inc. for the quarter ended March 31, 2021, including the balance sheets, statements of operations, comprehensive loss, changes in shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and shareholders' equity at specific reporting dates Consolidated Balance Sheet Highlights (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Assets | | | | Total cash and cash equivalents | $1,899,608 | $1,557,875 | | Net securities | $2,291,687 | $2,223,313 | | Net loans | $7,534,978 | $7,954,217 | | Assets held for sale | $303,697 | $317,304 | | Total assets | $12,757,343 | $12,838,013 | | Liabilities | | | | Total deposits | $10,244,370 | $10,215,808 | | Total borrowings | $448,692 | $571,637 | | Liabilities held for sale | $659,310 | $630,065 | | Total liabilities | $11,582,204 | $11,650,240 | | Shareholders' Equity | | | | Total shareholders' equity | $1,175,139 | $1,187,773 | Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net income or loss from continuing operations for the reported periods Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Total interest and dividend income | $88,153 | $116,195 | | Total interest expense | $13,060 | $29,767 | | Net interest income from continuing operations | $75,093 | $86,428 | | Total non-interest income | $26,193 | $5,636 | | Total net revenue from continuing operations | $101,286 | $92,064 | | Provision for credit losses | $6,500 | $34,807 | | Total non-interest expense | $78,154 | $71,325 | | Net income/(loss) from continuing operations | $13,031 | $(12,072) | | Net income/(loss) | $13,031 | $(19,870) | | Income/(loss) available to common shareholders | $13,031 | $(19,995) | Earnings/(Loss) Per Common Share (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :----- | :------------- | :------------- | | Basic EPS (Total) | $0.26 | $(0.40) | | Diluted EPS (Total) | $0.26 | $(0.40) | Consolidated Statements of Comprehensive (Loss) This section details the company's net income or loss and other comprehensive income or loss components, leading to total comprehensive loss Consolidated Statements of Comprehensive (Loss) Highlights (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net income/(loss) | $13,031 | $(19,870) | | Total other comprehensive (loss)/income | $(20,150) | $19,024 | | Total comprehensive (loss) | $(7,119) | $(846) | Consolidated Statements of Changes in Shareholders' Equity This section tracks the changes in the company's total shareholders' equity over the reporting period, including net income and other comprehensive loss - Total shareholders' equity decreased from $1,187,773 thousand at December 31, 2020, to $1,175,139 thousand at March 31, 2021, primarily due to a $20,150 thousand other comprehensive loss, partially offset by $13,031 thousand in net income[11][17] Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the reported periods Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net cash provided by operating activities | $23,574 | $35,052 | | Net cash provided by investing activities | $353,103 | $160,324 | | Net cash used by financing activities | $(34,944) | $(169,785) | | Net change in cash and cash equivalents | $341,733 | $25,591 | | Cash and cash equivalents at end of period | $1,899,608 | $605,420 | Notes to Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements, including accounting policies and specific financial instrument details Note 1 Basis of Presentation This note describes the basis of financial statement preparation, compliance with GAAP, and the impact of recently adopted accounting principles - The financial statements are prepared in conformity with GAAP, with certain information and footnote disclosures omitted as per Form 10-Q and Article 10 of Regulation S-X. Interim results are not necessarily indicative of full-year results[20][21][22] - Recently adopted accounting principles (ASU No. 2018-14, ASU No. 2019-12, ASU No. 2020-01, ASU No. 2021-01) did not have a material impact on the Company's Consolidated Financial Statements[24][25][26][27] - The Company is evaluating the impact of ASU No. 2020-04 (Reference Rate Reform) on its financial statements, which is anticipated to simplify modifications related to LIBOR transition[28] Note 2 Discontinued Operations and Held for Sale This note details the financial impact of discontinued operations and assets/liabilities classified as held for sale - The Company completed the final wind-down of First Choice Loan Services, Inc. (FCLS) operations in Q4 2020, with no related assets or liabilities as of March 31, 2021[30][31] Operating Results of Discontinued Operations (FCLS) (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net interest income | $— | $447 | | Total net revenue | $— | $1,805 | | Net (loss) from discontinued operations | $— | $(7,798) | - The Company entered an agreement to sell its eight Mid-Atlantic branches, including $284 million in loans and $647 million in deposits as of March 31, 2021, with completion targeted for H1 2021[34][35] Note 3 Trading Security This note provides information on the company's trading securities, including fair value and changes over the period - The Company holds one tax-advantaged economic development bond as a trading security, with a fair value of $9.3 million at March 31, 2021, down from $9.7 million at December 31, 2020[36] Note 4 Securities Available for Sale, Held to Maturity, and Marketable Equity Securities This note details the company's investment securities portfolio, including available-for-sale, held-to-maturity, and marketable equity securities Total Securities Portfolio (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total securities available for sale (Fair Value) | $1,627,330 | $1,695,232 | | Total securities held to maturity (Fair Value) | $627,297 | $491,855 | | Marketable equity securities (Fair Value) | $15,801 | $18,513 | | Total Fair Value | $2,270,428 | $2,205,600 | - The allowance for credit losses on held-to-maturity securities increased slightly to $111 thousand at March 31, 2021, from $104 thousand at December 31, 2020[40] - As of March 31, 2021, none of the Company's investment securities were delinquent or in non-accrual status, and the Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios[42][45] Note 5 Loans and Allowance for Credit Losses This note provides detailed information on the company's loan portfolio, including the allowance for credit losses and loan quality metrics Total Loans and Allowance for Credit Losses (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total loans | $7,658,778 | $8,081,519 | | Allowance for credit losses on loans | $123,800 | $127,302 | | Net loans | $7,534,978 | $7,954,217 | - Outstanding SBA Paycheck Protection Program (PPP) loans totaled $444.2 million as of March 31, 2021, fully guaranteed by the SBA[53] - The allowance for credit losses for loans decreased to $123,800 thousand at March 31, 2021, from $127,302 thousand at December 31, 2020, with a provision for credit losses of $6,493 thousand for the quarter[60] - Total criticized loans decreased slightly to $356,404 thousand at March 31, 2021, from $359,454 thousand at December 31, 2020[89] - Troubled Debt Restructuring (TDR) loans increased to $21,481 thousand at March 31, 2021, from $20,548 thousand at the beginning of the period, with 4 newly identified TDRs totaling $690 thousand[94][96] Note 6 Deposits This note details the composition of the company's deposits, including time deposits and brokered deposits Time Deposits (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Time less than $100,000 | $630,244 | $663,324 | | Time $100,000 through $250,000 | $999,329 | $1,219,210 | | Time more than $250,000 | $473,649 | $502,551 | | Total time deposits | $2,103,222 | $2,385,085 | - Brokered deposits decreased to $431.5 million at March 31, 2021, from $610.6 million at December 31, 2020[99] Note 7 Borrowed Funds This note outlines the company's borrowed funds, including short-term and long-term borrowings and available borrowing capacity Borrowed Funds (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 Principal | March 31, 2021 Wtd. Avg. Rate | December 31, 2020 Principal | December 31, 2020 Wtd. Avg. Rate | | :-------------------- | :----------------------- | :---------------------------- | :-------------------------- | :------------------------------- | | Short-term borrowings | $— | —% | $40,000 | 1.05% | | Long-term borrowings | $448,692 | 2.73% | $531,637 | 2.61% | | Total | $448,692 | 2.73% | $571,637 | 2.50% | - The Bank's available borrowing capacity with the FHLB was $1.4 billion at March 31, 2021, down from $1.6 billion at December 31, 2020[100] - The Bank's available borrowing capacity with the Federal Reserve Bank was $596.8 million at March 31, 2021, down from $815.6 million at December 31, 2020[101] Note 8 Derivative Financial Instruments and Hedging Activities This note describes the company's derivative instruments, their notional amounts, fair values, and collateral arrangements - As of March 31, 2021, the Company held derivatives with a total notional amount of $3.8 billion, including $3.8 billion in economic hedges and $10.3 million in non-hedging derivatives[108] Derivative Assets and Liabilities (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 Fair Value | December 31, 2020 Fair Value | | :-------------------- | :------------------------ | :--------------------------- | | Total economic hedges | $59,776 | $93,578 | | Total non-hedging derivatives | $185 | $735 | | Total Fair Value | $59,961 | $94,313 | - The Company pledged $70.3 million in cash and $37.1 million in securities as collateral to derivative counterparties as of March 31, 2021[110] Note 9 Leases This note provides details on the company's lease right-of-use assets, lease liabilities, and operating lease expenses Lease Right-of-Use Assets and Liabilities (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total Lease Right-of-Use Assets | $63,770 | $67,215 | | Total Lease Liabilities | $71,733 | $74,277 | - Operating lease expense for the three months ended March 31, 2021, was $2.8 million, down from $3.5 million in the prior year, with a weighted-average remaining lease term of 9.8 years[135][136] Note 10 Other Commitments, Contingencies, Off- Balance Sheet Activities, and Pandemic Impact This note discusses the company's other commitments, contingencies, off-balance sheet activities, and the ongoing impact of the COVID-19 pandemic - The COVID-19 pandemic continues to impact the Company's clients and operations, with the ultimate extent of the impact remaining uncertain[140][141][142] - As of March 31, 2021, the Company had 337 active COVID-19 modified loans outstanding with a carrying value of $173 million, a significant decrease from 746 loans totaling $316 million at December 31, 2020[143] Note 11 Capital Ratios and Shareholders' Equity This note presents the company's regulatory capital ratios, compliance status, and components of shareholders' equity Company Capital Ratios (March 31, 2021 vs. December 31, 2020) | Metric | March 31, 2021 | December 31, 2020 | Minimum Capital Requirement | | :----- | :------------- | :---------------- | :-------------------------- | | 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% | - Both the Company and the Bank exceeded all regulatory capital requirements and the Bank was classified as 'well capitalized' at March 31, 2021[146][148] Accumulated Other Comprehensive Income (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Accumulated other comprehensive income | $10,721 | $30,871 | - Net unrealized holding loss on AFS securities of $(20,150) thousand was recognized during the three months ended March 31, 2021, compared to a gain of $19,024 thousand in the prior year[150][151] Note 12 Earnings/(Loss) per Share This note details the calculation of basic and diluted earnings per common share for the reported periods Earnings/(Loss) Per Common Share (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :----- | :------------- | :------------- | | Basic EPS (Total) | $0.26 | $(0.40) | | Diluted EPS (Total) | $0.26 | $(0.40) | | Average number of basic shares outstanding (thousands) | 50,330 | 50,204 | | Average number of diluted shares outstanding (thousands) | 50,565 | 50,204 | Note 13 Stock-Based Compensation Plans This note provides information on the company's stock-based compensation expense and activity under its stock award and option plans - Stock-based compensation expense totaled $0.7 million for the three months ended March 31, 2021, a decrease from $1.5 million in the prior year[156] Stock Award and Stock Option Plan Activity (Three Months Ended March 31, 2021) | Metric (in thousands) | Non-Vested Stock Awards | Stock Options | | :-------------------- | :---------------------- | :------------ | | Balance at Dec 31, 2020 | 517 | 112 | | Granted | 210 | — | | Exercised | — | (5) | | Vested | (44) | — | | Forfeited | (52) | — | | Expired | — | (10) | | Balance at Mar 31, 2021 | 631 | 97 | Note 14 Fair Value Measurements This note describes the company's fair value measurements for financial instruments, categorized by valuation input levels Recurring Fair Value Measurements (March 31, 2021) | Instrument (in thousands) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :------------------------ | :------ | :------ | :------ | :--------------- | | Trading security | $— | $— | $9,350 | $9,350 | | Securities available for sale | $— | $1,627,330 | $— | $1,627,330 | | Marketable equity securities | $15,129 | $672 | $— | $15,801 | | Loans held for investment at fair value | $— | $— | $1,448 | $1,448 | | Loans held for sale | $— | $8,877 | $— | $8,877 | | Derivative assets | $— | $106,665 | $511 | $107,176 | | Capitalized servicing rights | $— | $— | $2,968 | $2,968 | | Derivative liabilities | $— | $47,215 | $— | $47,215 | - The fair value of loans held for investment decreased from $2,265 thousand at December 31, 2020, to $1,448 thousand at March 31, 2021, with all these loans being nonperforming[163][164] - Non-recurring fair value measurements for individually evaluated loans, capitalized servicing rights, and other real estate owned totaled $35,674 thousand at March 31, 2021[179] Note 15 Net Interest Income after Provision for Credit Losses This note presents the company's net interest income from continuing operations after accounting for the provision for credit losses Net Interest Income After Provision for Credit Losses (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net interest income from continuing operations | $75,093 | $86,428 | | Provision for credit losses | $6,500 | $34,807 | | Net interest income from continuing operations after provision for credit losses | $68,593 | $51,621 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion of Berkshire Hills Bancorp, Inc.'s financial condition and operating results for the three months ended March 31, 2021, compared to December 31, 2020, and March 31, 2020. It highlights key financial data, performance ratios, asset quality, and the impact of strategic initiatives and the COVID-19 pandemic Selected Financial Data This section presents key financial and performance metrics for the company over the reported periods Key Financial and Performance Data (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :------------------------------------ | :------------- | :------------- | | Net earnings/(loss) per common share, diluted | $0.26 | $(0.40) | | Adjusted earnings/(loss) per common share, diluted (non-GAAP) | $0.32 | $(0.07) | | Net income/(loss) (thousands) | $13,031 | $(19,870) | | Total assets (millions) | $12,757 | $13,122 | | Total loans (millions) | $7,659 | $9,303 | | Total deposits (millions) | $10,244 | $10,072 | | Return on equity | 4.50% | (4.58)% | | Net interest margin, fully taxable equivalent (FTE) | 2.62% | 3.04% | | Efficiency ratio | 71.32% | 66.92% | | Non-performing loans/total loans | 0.73% | 0.55% | Average Balances and Average Yields/Rates This section provides average balances for interest-earning assets and interest-bearing liabilities, along with their corresponding yields and rates Average Balances and Yields/Rates (Three Months Ended March 31) | Metric (in millions) | March 31, 2021 Average Balance | March 31, 2021 Yield/Rate (FTE) | March 31, 2020 Average Balance | March 31, 2020 Yield/Rate (FTE) | | :------------------- | :----------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | | Total loans | $7,869 | 3.73% | $9,372 | 4.33% | | Total interest-earning assets | $11,710 | 3.07% | $11,492 | 4.08% | | Total interest-bearing deposits | $7,396 | 0.48% | $8,092 | 1.18% | | Total interest-bearing liabilities | $8,414 | 0.63% | $9,041 | 1.33% | | Net interest spread | | 2.44% | | 2.75% | | Net interest margin | | 2.62% | | 3.04% | | Cost of funds | | 0.48% | | 1.11% | | Cost of deposits | | 0.36% | | 0.96% | Non-GAAP Financial Measures This section reconciles GAAP financial measures to non-GAAP measures, providing supplemental insights into the company's operating performance - The Company uses non-GAAP measures like adjusted earnings and adjusted EPS to provide supplemental perspectives on operating results, excluding items such as securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations[199][200][201] Reconciliation of GAAP to Non-GAAP Financial Measures (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | GAAP Net income/(loss) | $13,031 | $(19,870) | | Total adjusted income/(loss) (non-GAAP) | $16,015 | $(3,645) | | GAAP Total revenue | $101,286 | $92,064 | | Total operating revenue (non-GAAP) | $101,317 | $101,794 | | GAAP Total non-interest expense | $78,154 | $71,325 | | Operating non-interest expense (non-GAAP) | $74,668 | $71,325 | | Adjusted earnings per common share, diluted (non-GAAP) | $0.32 | $(0.07) | Summary of Financial Performance and Strategic Initiatives This section summarizes the company's financial performance for the quarter and outlines key strategic initiatives and leadership changes - Berkshire recorded first quarter 2021 net income of $13 million ($0.26 per share) and adjusted earnings of $16 million ($0.32 per share), with a return on tangible common equity of 5.0% (adjusted 6.0%)[210] - The Company consolidated nine branch offices in Q1 2021 and is progressing on the sale of eight Mid-Atlantic branches, aiming to reduce total branch count from 130 to 106 offices[211] - Key leadership changes include the appointment of Nitin J. Mhatre as President and CEO in January 2021 and Subhadeep Basu as SEVP and CFO in March 2021[213] - The Board approved a one-year authorization for the repurchase of approximately 5% of common stock in April 2021 and plans an investor strategic plan update (BEST) on May 18, 2021[215] First Quarter Financial Highlights This section lists key financial achievements and performance indicators for the first quarter - 2% increase in net revenue; 6% increase excluding gains/(losses) - 13% decrease in GAAP income; 14% increase in adjusted income (non-GAAP) - Net interest margin stable at 2.62% for the 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 - 86% decrease in COVID-19 loan modifications compared to June 30, 2020 - 26% reduction in wholesale funding to 7% of assets - Book value per share: $23.05; Tangible book value per share (non-GAAP): $22.39 Comparison of Financial Condition (March 31, 2021 vs. December 31, 2020) This section compares the company's financial position, including assets, liabilities, and equity, between the two reporting periods - Total assets remained steady at $12.8 billion, with improvements in balance sheet structure, asset quality, liquidity, and capital metrics[219] - Short-term investments increased by $352 million to $1.82 billion, while the investment securities portfolio grew by $68 million to $2.29 billion[220][221] - Total loans decreased by $423 million (5%) to $7.7 billion, including a $189 million reduction from PPP loan forgiveness. $284 million in Mid-Atlantic loans are held for sale[222] - Net loan charge-offs decreased by 42% to $10 million, and non-performing loans decreased by $9 million (14%) to $56 million[226][227] - Total deposits were unchanged at $10.2 billion, with a $266 million increase in demand deposits offsetting reductions in brokered and maturing retail time deposits. Borrowings decreased by $123 million to $449 million[233] - Total shareholders' equity decreased by $13 million (1%) to $1.175 billion, primarily due to a $20 million decrease in accumulated other comprehensive income[235] Comparison of Operating Results (Three Months Ended March 31, 2021 vs. 2020) This section analyzes the company's operating performance, including net income, revenue, and expenses, for the reported quarterly periods - Net income improved by $31 million year-over-year, from a $20 million loss in Q1 2020 to a $13 million profit in Q1 2021, driven by a $28 million reduction in credit loss provision[236] - Total net revenue from continuing operations increased by $9 million year-over-year, primarily due to the absence of a $10 million loss on equity securities recorded in Q1 2020[238] - Net interest income decreased by 10% from $86 million in Q1 2020 to $76 million in Q2 2020, remaining stable at 2.62% since then. Q1 2021 net interest income was $75 million, including a $3.5 million benefit from PPP loan forgiveness[239] - Non-interest income, excluding gains and losses, increased by $11 million year-over-year to $26 million, mainly due to an $8 million swing in fair value changes of financial instruments[241] - Credit loss provision expense decreased significantly to $6.5 million in Q1 2021 from $35 million in Q1 2020[242] - Total non-interest expense increased by $7 million year-over-year to $78 million, with adjusted expense rising by $4 million to $75 million, mainly due to higher professional services and compensation[243] - The Company completed the exit of its national mortgage banking operations in Q4 2020, which generated an $8 million loss in Q1 2020[245] - Liquidity improved, with short-term investments increasing to 14% of total assets and total investments to 32% of assets. The loans to deposits ratio decreased to 75% from 79%[247] Off-Balance Sheet Arrangements and Contractual Obligations This section discusses the company's off-balance sheet transactions and contractual obligations, primarily related to loan commitments - Berkshire engages in off-balance sheet transactions, primarily loan commitments and lines of credit, to manage customer funding requests. No major changes occurred in Q1 2021[252] Fair Value Measurements This section details the company's fair value measurements for financial instruments and the valuation inputs used - The most significant recurring fair value measurements relate to securities available for sale, loans held for sale, and derivative instruments, generally based on Level 2 market-based inputs[253] - The premium value of the loan portfolio decreased to $243 million (3.2% of loans) at March 31, 2021, from $289 million (3.6% of loans) at year-end 2020, due to rising medium-term interest rates[253] Corporate Responsibility Update This section provides an update on the company's corporate responsibility initiatives and achievements - Released 2020 Corporate Responsibility Report, 'Meaningful Moments: Answering the Call' - Appointed Angela Dixon as Chief Diversity Officer - Included in the 2021 Bloomberg Gender-Equality Index for the second consecutive year - Received top adjusted score of 100 on the Human Rights Campaign Foundation's 2021 Corporate Equality Index for LGBTQ equality Application of Critical Accounting Policies This section highlights the company's critical accounting policies, particularly those requiring significant management judgment - The Company's most critical accounting policies are related to the Allowance for Credit Losses and Fair Value of Financial Instruments, both requiring significant management judgment due to inherent uncertainties[257] Enterprise Risk Management This section describes the company's enterprise risk management framework and the assessment of various risk categories - Enterprise risk management, overseen by the Chief Risk Officer, focuses on credit, interest rate, price, liquidity, operational, compliance, strategic, and reputation risks. All risks were within corporate appetites, with credit and compliance risks increasing due to the pandemic, while liquidity risks declined[258] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's market risk, particularly interest rate risk, and its objective to maintain a neutral or asset-sensitive profile. It highlights an increase in asset sensitivity during Q1 2021 due to loan portfolio runoff and increased demand deposits - The Company's asset sensitivity increased in Q1 2021, with the percentage change in net interest income in the second year of a 200 basis point upward parallel ramp in interest rates increasing to 10.8% (from 4.0% at year-end 2020)[260] - The Company is positively sensitive to upward interest rate shocks and a steepening yield curve[260] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2021, and reports no material changes in internal control over financial reporting during the last fiscal quarter - The Company's disclosure controls and procedures were effective as of March 31, 2021[262] - There were no material changes in the Company's internal control over financial reporting during the last fiscal quarter[263] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, and a list of exhibits filed with the report Item 1. Legal Proceedings This section details ongoing legal proceedings involving the Company, including a complaint against Pioneer Bank for approximately $16.0 million in credit losses, a demand letter under the Massachusetts Consumer Protection Act regarding mortgage fees, and a wrongful termination complaint against a former subsidiary and its officers - The Company is involved in a lawsuit against Pioneer Bank seeking approximately $16.0 million for breach of loan participation agreements, with a partial recovery of $1.7 million recognized in Q2 2020[265] - A demand letter was served under the Massachusetts Consumer Protection Act alleging impermissible mortgage discharge preparation fees and untimely provision of discharge copies, potentially on behalf of a putative class[266] - A former employee of the Bank's subsidiary FCLS filed a wrongful termination complaint alleging whistleblower retaliation and New Jersey state employment law violations[267] Item 1A. Risk Factors This section refers to the comprehensive risk factors discussed in the Company's most recent Annual Report on Form 10-K, noting no other major changes in identified risk factors during the first quarter of 2021 - No other major changes in risk factors were identified during the first quarter of 2021, beyond those discussed in the most recent Annual Report on Form 10-K[269] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities during the three months ended March 31, 2021, and details the Company's newly approved stock repurchase program authorizing the repurchase of up to 2,500,000 shares through April 30, 2022 - No shares were transferred as unregistered securities during the three months ended March 31, 2021 and 2020[271] - The Board approved a stock repurchase program on April 28, 2021, authorizing the repurchase of up to 2,500,000 shares (approximately 5% of outstanding shares) through April 30, 2022[272] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[273] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[273] Item 5. Other Information This section states that there is no other information to report - No other information to report[273] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, cooperation agreements, certifications, and XBRL formatted financial statements - Amended and Restated Certificate of Incorporation and Bylaws - Employment Agreement with Nitin J. Mhatre dated January 21, 2021 - Cooperation Agreement with HoldCo Asset Management, LP dated March 7, 2021 - Certifications of CEO and CFO pursuant to Sections 302 and 906 of Sarbanes-Oxley Act of 2002 - Financial statements formatted in Inline XBRL