Company Quick10K Filing
Quick10K
Berkshire Hills Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$30.20 45 $1,370
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-30 Officers, Exhibits
8-K 2019-05-17 M&A, Other Events, Exhibits
8-K 2019-05-16 Regulation FD, Exhibits
8-K 2019-05-15 Shareholder Vote, Other Events, Exhibits
8-K 2019-05-14 Regulation FD, Exhibits
8-K 2019-04-29 Earnings, Regulation FD, Other Events, Exhibits
8-K 2019-04-05 Other Events, Exhibits
8-K 2019-03-15 Officers, Exhibits
8-K 2019-02-21 Officers, Exhibits
8-K 2019-01-30 Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Other Events, Exhibits
8-K 2019-01-23 Earnings, Other Events, Exhibits
8-K 2018-12-11 Enter Agreement, Regulation FD, Other Events, Exhibits
8-K 2018-12-04 Other Events, Exhibits
8-K 2018-11-26 Officers, Exhibits
8-K 2018-10-17 Earnings, Other Events, Exhibits
8-K 2018-08-14 Regulation FD, Exhibits
8-K 2018-07-18 Earnings, Other Events, Exhibits
8-K 2018-05-30 Amend Bylaw, Exhibits
8-K 2018-05-17 Shareholder Vote
8-K 2018-05-14 Other Events, Exhibits
8-K 2018-05-09 Regulation FD, Exhibits
8-K 2018-04-23 Earnings, Other Events, Exhibits
8-K 2018-03-22 Officers
8-K 2018-01-31 Regulation FD, Exhibits
8-K 2018-01-25 Earnings, Other Events, Exhibits
8-K 2018-01-04 Other Events, Exhibits
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STC Stewart Information Services 1,000
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SDI Standard Diversified 349
AUMN Golden Minerals 25
SBOT Stellar Biotechnologies 6
LAZEX Lazex 0
BOTY Lingerie Fighting Championships 0
HDHC High Desert Holding 0
BHLB 2019-03-31
Part I
Item 1. Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
Note 3. Trading Security
Note 4. Securities Available for Sale, Held To Maturity, and Marketable
Note 5. Loans
Note 6. Loan Loss Allowance
Note 7. Deposits
Note 8. Borrowed Funds
Note 9. Derivative Financial Instruments and Hedging Activities
Note 10. Leases
Note 11. Capital Ratios and Shareholders' Equity
Note 12. Earnings per Share
Note 13. Stock-Based Compensation Plans
Note 14. Fair Value Measurements
Note 15. Net Interest Income After Provision for Loan Losses
Note 16. Pending Acquisition
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex311.htm
EX-31.2 ex312.htm
EX-32.1 ex321.htm
EX-32.2 ex322.htm

Berkshire Hills Bancorp Earnings 2019-03-31

BHLB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 bhlb-2019331x10q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: March 31, 2019
o
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
newlogoa07.jpg  
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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý  No o
    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filers,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ý    Accelerated filer        o     
Non-accelerated filer    o     Smaller reporting company    o
Emerging growth company    o



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 o  No ý
 
As of May 7, 2019, the Registrant had 45,468,952 shares of common stock, $0.01 par value per share, outstanding

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
 
New York Stock Exchange
        
 



BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q
 
INDEX 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




3


PART I
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
 
 
March 31,
2019

December 31,
2018
(In thousands, except share data)
 

Assets
 
 

 
 

Cash and due from banks
 
$
98,689

 
$
100,972

Short-term investments
 
68,930

 
82,217

Total cash and cash equivalents
 
167,619

 
183,189

Trading security, at fair value
 
11,164

 
11,212

Marketable equity securities, at fair value
 
59,121

 
56,638

Securities available for sale, at fair value
 
1,386,768

 
1,399,647

Securities held to maturity (fair values of $375,980 and $371,224)
 
369,331

 
373,763

Federal Home Loan Bank stock and other restricted securities
 
54,624

 
77,344

Total securities
 
1,881,008

 
1,918,604

Loans held for sale, at fair value
 
4,773

 
2,183

Commercial real estate loans
 
3,388,139

 
3,400,221

Commercial and industrial loans
 
1,957,339

 
1,980,046

Residential mortgages
 
2,544,824

 
2,566,424

Consumer loans
 
1,057,193

 
1,096,562

Total loans
 
8,947,495

 
9,043,253

Less: Allowance for loan losses
 
(62,038
)
 
(61,469
)
Net loans
 
8,885,457

 
8,981,784

Premises and equipment, net
 
105,651

 
106,500

Goodwill
 
518,325

 
518,325

Other intangible assets
 
32,219

 
33,418

Cash surrender value of bank-owned life insurance policies
 
191,768

 
190,609

Deferred tax assets, net
 
38,783

 
42,434

Other assets
 
182,720

 
120,926

Assets from discontinued operations
 
165,078

 
114,259

Total assets
 
$
12,173,401

 
$
12,212,231

 
 
 
 
 
Liabilities
 
 

 
 

Demand deposits
 
$
1,526,584

 
$
1,603,019

NOW and other deposits
 
820,177

 
1,122,321

Money market deposits
 
2,743,448

 
2,245,195

Savings deposits
 
731,711

 
724,129

Time deposits
 
3,344,495

 
3,287,717

Total deposits
 
9,166,415

 
8,982,381

Short-term debt
 
861,349

 
1,118,832

Long-term Federal Home Loan Bank advances
 
258,840

 
309,466

Subordinated borrowings
 
89,562

 
89,518

Total borrowings
 
1,209,751

 
1,517,816

Other liabilities
 
204,725

 
149,519

Liabilities from discontinued operations
 
15,505

 
9,597

Total liabilities
 
$
10,596,396

 
$
10,659,313

(continued)
 
 
 
 
 
March 31,
2019
 
December 31,
2018
 
 
 
Shareholders’ equity
 
 

 
 

Preferred Stock (Series B non-voting convertible preferred stock - $0.01 par value; 2,000,000 shares authorized, 521,607 shares issued and outstanding in 2019; 2,000,000 shares authorized, 521,607 shares issued and outstanding in 2018
 
40,633

 
40,633

Common stock ($.01 par value; 100,000,000 shares authorized and 46,211,894 shares issued and 45,521,962 shares outstanding in 2019; 100,000,000 shares authorized, 46,211,894 shares issued and 45,416,855 shares outstanding in 2018)
 
460

 
460

Additional paid-in capital - common stock
 
1,244,975

 
1,245,013

Unearned compensation
 
(8,825
)
 
(6,594
)
Retained earnings
 
321,759

 
308,839

Accumulated other comprehensive (loss)
 
(2,906
)
 
(13,470
)
Treasury stock, at cost (689,932 shares in 2019 and 795,039 shares in 2018)
 
(19,091
)
 
(21,963
)
Total shareholders’ equity
 
1,577,005

 
1,552,918

Total liabilities and shareholders’ equity
 
$
12,173,401

 
$
12,212,231

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

4


BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME 
 
 
Three Months Ended
March 31,
(In thousands, except per share data)
 
2019
 
2018
Interest and dividend income from continuing operations
 
 

 
 

Loans
 
$
105,651

 
$
91,741

Securities and other
 
15,458

 
14,405

Total interest and dividend income
 
121,109

 
106,146

Interest expense from continuing operations
 
 

 
 

Deposits
 
26,622

 
15,325

Borrowings
 
9,028

 
6,064

Total interest expense
 
35,650

 
21,389

Net interest income from continuing operations
 
85,459

 
84,757

Non-interest income from continuing operations
 
 

 
 

Mortgage banking originations
 
46

 
138

Loan related income
 
6,003

 
4,819

Deposit related fees
 
6,858

 
8,066

Insurance commissions and fees
 
2,853

 
3,025

Wealth management fees
 
2,441

 
2,597

Total fee income
 
18,201

 
18,645

Other, net
 
970

 
1,268

Gain/(loss) on securities, net
 
2,551

 
(1,502
)
Gain on sale of business operations and other assets, net
 

 
481

Total non-interest income
 
21,722

 
18,892

Total net revenue from continuing operations
 
107,181

 
103,649

Provision for loan losses
 
4,001

 
5,575

Non-interest expense from continuing operations
 
 

 
 

Compensation and benefits
 
33,500

 
33,847

Occupancy and equipment
 
9,446

 
9,192

Technology and communications
 
6,257

 
6,484

Marketing and promotion
 
1,267

 
1,222

Professional services
 
2,275

 
1,696

FDIC premiums and assessments
 
1,639

 
1,195

Other real estate owned and foreclosures
 
2

 
67

Amortization of intangible assets
 
1,200

 
1,268

Acquisition, restructuring, and other expenses
 
7,015

 
5,093

Other
 
9,390

 
5,302

Total non-interest expense
 
71,991

 
65,366

 
 
 
 
 
Income from continuing operations before income taxes
 
$
31,189

 
$
32,708

Income tax expense
 
6,917

 
7,337

Net income from continuing operations
 
$
24,272

 
$
25,371

 
 
 
 
 
(Loss) from discontinued operations before income taxes
 
$
(854
)
 
$
(162
)
Income tax (benefit)
 
(217
)
 
(39
)
Net (loss) from discontinued operations
 
$
(637
)
 
$
(123
)
 
 
 
 
 
Net income
 
$
23,635

 
$
25,248

Preferred stock dividend
 
240

 
230

Income available to common shareholders
 
$
23,395


$
25,018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

5


Basic earnings per common share:
 
 

 
 

Continuing operations
 
$
0.52

 
$
0.55

Discontinued operations
 
(0.01
)
 

Total
 
$
0.51

 
$
0.55

 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
Continuing operations
 
$
0.52

 
$
0.55

Discontinued operations
 
(0.01
)
 

Total
 
$
0.51

 
$
0.55

 
 
 
 
 
Weighted average shares outstanding:
 
 

 
 

Basic
 
46,113

 
45,966

Diluted
 
46,261

 
46,200

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

6


BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Three Months Ended
March 31,
(In thousands)
 
2019
 
2018
Net income
 
$
23,635

 
$
25,248

Other comprehensive income, before tax:
 
 

 
 

Changes in unrealized loss on debt securities available-for-sale
 
14,215

 
(19,162
)
Income taxes related to other comprehensive income:
 
 

 
 

Changes in unrealized loss on debt securities available-for-sale
 
(3,651
)
 
4,931

Total other comprehensive income/(loss)
 
10,564

 
(14,231
)
Total comprehensive income
 
$
34,199

 
$
11,017

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


7


BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
Preferred stock
 
Common stock
 
Additional
paid-in
 
Unearned
 
Retained
 
other
comprehensive
 
Treasury
 
 
(In thousands)
 
Shares
 
Amount
 
Shares
 
Amount
 
capital
 
compensation
 
earnings
 
income/(loss)
 
stock
 
Total
Balance at December 31, 2017
 
522

 
40,633

 
45,290

 
$
460

 
$
1,242,487

 
$
(6,531
)
 
$
239,179

 
$
4,161

 
$
(24,125
)
 
$
1,496,264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 

 

 

 

 

 

 
25,248

 

 

 
25,248

Other comprehensive loss
 

 

 

 

 

 

 

 
(14,231
)
 

 
(14,231
)
Total comprehensive income
 

 

 

 

 

 

 
25,248

 
(14,231
)
 

 
11,017

Adoption of ASU No 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Liabilities
 

 

 

 

 

 

 
6,253

 
(6,253
)
 

 

Adoption of ASU No 2018-01, Income Statement - Reporting Comprehensive Income ( Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 

 

 

 

 

 

 
(896
)
 
896

 

 

Cash dividends declared on common shares ($0.22 per share)
 

 

 

 

 

 

 
(9,982
)
 

 

 
(9,982
)
Cash dividends declared ($0.44 per share)
 

 

 

 

 

 

 
(230
)
 

 

 
(230
)
Forfeited shares
 

 

 
(4
)
 

 
31

 
125

 

 

 
(156
)
 

Exercise of stock options
 

 

 
5

 

 

 

 
(73
)
 

 
149

 
76

Restricted stock grants
 

 

 
92

 

 
1,056

 
(3,452
)
 

 

 
2,396

 

Stock-based compensation
 

 

 

 

 

 
1,382

 

 

 

 
1,382

Other, net
 

 

 
(23
)
 

 
16

 

 

 

 
(886
)
 
(870
)
Balance at March 31, 2018
 
522

 
40,633

 
45,360

 
$
460

 
$
1,243,590

 
$
(8,476
)
 
$
259,499

 
$
(15,427
)
 
$
(22,622
)
 
$
1,497,657

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
522

 
$
40,633

 
45,417

 
$
460

 
$
1,245,013

 
$
(6,594
)
 
$
308,839

 
$
(13,470
)
 
$
(21,963
)
 
$
1,552,918

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 

 

 

 

 

 

 
23,635

 

 

 
23,635

Other comprehensive income
 

 

 

 

 

 

 

 
10,564

 

 
10,564

Total comprehensive income
 

 

 

 

 

 

 
23,635

 
10,564

 

 
34,199

Cash dividends declared on common shares ($0.23 per share)
 

 

 

 

 

 

 
(10,475
)
 

 

 
(10,475
)
Cash dividends declared on preferred shares ($0.46 per share)
 

 

 

 

 

 

 
(240
)
 

 

 
(240
)
Forfeited shares
 

 

 
(13
)
 

 
(41
)
 
444

 

 

 
(403
)
 

Exercise of stock options
 

 

 

 

 

 

 

 

 

 

Restricted stock grants
 

 

 
131

 

 
3

 
(3,664
)
 

 

 
3,661

 

Stock-based compensation
 

 

 

 

 

 
989

 

 

 

 
989

Other, net
 

 

 
(13
)
 

 

 

 

 

 
(386
)
 
(386
)
Balance at March 31, 2019
 
522

 
$
40,633

 
45,522

 
$
460

 
$
1,244,975

 
$
(8,825
)
 
$
321,759

 
$
(2,906
)
 
$
(19,091
)
 
$
1,577,005

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

8


BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Three Months Ended
March 31,
(In thousands)
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net income
 
$
23,635

 
$
25,248

Net (loss) from discontinued operations
 
(637
)
 
(123
)
Net income from continuing operations
 
24,272

 
25,371

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Provision for loan losses
 
4,001

 
5,575

Net amortization of securities
 
624

 
743

Change in unamortized net loan costs and premiums
 
2,161

 
(577
)
Premises and equipment depreciation and amortization expense
 
2,184

 
2,520

Stock-based compensation expense
 
989

 
1,382

Accretion of purchase accounting entries, net
 
(1,338
)
 
(3,838
)
Amortization of other intangibles
 
1,200

 
1,268

Income from cash surrender value of bank-owned life insurance policies
 
(1,160
)
 
(1,158
)
Securities (gains) losses, net
 
(2,551
)
 
1,502

Net (decrease) in loans held-for-sale
 
(2,590
)
 
(1,158
)
Change in right-of-use lease assets
 
3,815

 

Change in lease liabilities
 
(3,981
)
 

Loss on disposition of assets
 
1,615

 

Amortization of interest in tax-advantaged projects
 
579

 
506

Net change in other
 
(5,158
)
 
(1,193
)
Net cash provided by operating activities of continuing operations
 
24,662

 
30,943

Net cash (used) provided by operating activities of discontinued operations
 
(44,911
)
 
53,535

Net cash (used) provided by operating activities
 
(20,249
)
 
84,478

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Net decrease in trading security
 
174

 
165

Purchases of marketable equity securities
 
(11,900
)
 
(12,688
)
Proceeds from sales of marketable equity securities
 
11,896

 
26,096

Purchases of securities available for sale
 
(15,180
)
 
(116,423
)
Proceeds from sales of securities available for sale
 
2,587

 

Proceeds from maturities, calls, and prepayments of securities available for sale
 
39,542

 
44,069

Purchases of securities held to maturity
 
(159
)
 
(1,618
)
Proceeds from maturities, calls, and prepayments of securities held to maturity
 
4,111

 
2,885

Net change in loans
 
87,553

 
(148,619
)
Purchase of Federal Home Loan Bank stock
 
(15,930
)
 
(17,614
)
Proceeds from sale of Federal Home Loan Bank stock
 
38,650

 
16,661

Net investment in limited partnership tax credits
 
505

 

Purchase of premises and equipment, net
 
(2,382
)
 
(4,376
)
Net cash provided (used) by investing activities
 
139,467

 
(211,462
)
(continued)

9


 
 
Three Months Ended
March 31,
(In thousands)
 
2019
 
2018
Cash flows from financing activities:
 
 

 
 

Net increase in deposits
 
184,034

 
(65,870
)
Proceeds from Federal Home Loan Bank advances and other borrowings
 
1,292,517

 
1,235,892

Repayments of Federal Home Loan Bank advances and other borrowings
 
(1,600,624
)
 
(1,157,778
)
Exercise of stock options
 

 
76

Common and preferred stock cash dividends paid
 
(10,715
)
 
(10,212
)
Net cash (provided) used by financing activities
 
(134,788
)
 
2,108

 
 
 
 
 
Net change in cash and cash equivalents
 
(15,570
)
 
(124,876
)
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
183,189

 
248,763

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
167,619

 
$
123,887

 
 
 
 
 
Supplemental cash flow information:
 
 

 
 

Interest paid on deposits
 
$
26,118

 
$
15,345

Interest paid on borrowed funds
 
10,656

 
6,725

Income taxes paid, net
 
794

 
1,065

 
 
 
 
 
Other non-cash changes:
 
 

 
 

Other net comprehensive income
 
10,564

 
(14,231
)
Real estate owned acquired in settlement of loans
 

 

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

10


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 consolidated 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 note 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, 2018. In management’s opinion, all adjustment’s necessary for a fair statement are reflected in the interim periods presented.

Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation.

Recently Adopted Accounting Principles
Effective January 1, 2019, the following new accounting guidance was adopted by the Company:
ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities;
ASU No. 2016-02, Leases (Topic 842)(additional information is disclosed in Note 10 - Leases of the Consolidated Financial Statements)

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU No. 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the Consolidated Balance Sheets as of the date of adoption. ASU No. 2017-12 became effective for the Company on January 1, 2019. The adoption was not material to the financial statements.


11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The pronouncement affects all entities that are participants to leasing agreements. From a lessee accounting perspective, the ASU requires a lessee to recognize assets and liabilities on the balance sheet for operating leases and changes many key definitions, including the definition of a lease. The ASU includes a short-term lease exception for leases with a term of twelve months or less, in which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases, using classification criteria that are substantially similar to the previous guidance. For lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. From a lessor accounting perspective, the guidance is largely unchanged, except for targeted improvements to align with new terminology under lessee accounting and with the updated revenue recognition guidance in Topic 606. For sale-leaseback transactions, for a sale to occur the transfer must meet the sale criteria under the new revenue standard, Topic 606. Entities will not be required to reassess transactions previously accounted under then existing guidance.

The ASU includes additional quantitative and qualitative disclosures required by lessees and lessors to help users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years beginning after December 31, 2018, and interim periods within those fiscal years. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842) - Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard. Specifically, under the amendments in ASU No. 2018-11 entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and lessors may elect not to separate lease and non-lease components when certain conditions are met. As the Company elected the transition option provided in ASU No. 2018-11, the modified retrospective approach was applied on January 1, 2019 (as opposed to January 1, 2017). The Company also elected certain practical expedients provided under ASU No. 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. In December 2018, the FASB issued ASU No. 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which provides targeted improvements and clarification to guidance with FASB ASC Topic 842 specific to lessors. The amendments of ASU No. 2018-20 have the same effective date as ASU 2016-02 and may be applied either retrospectively or prospectively to all new and existing leases. The Company obtained a third-party software application which provides lease accounting under the guidelines of FASB ASC Topic 842. The amendments of ASU No. 2016-02 and subsequently issued ASUs, which provided additional guidance and clarifications to various aspects of FASB ASC Topic 842, became effective for the Company on January 1, 2019. The Company recognized right-of-use lease assets and related lease liabilities totaling $79.6 million and $82.8 million respectively as of January 1, 2019. The right-of-use lease assets and related lease liabilities recognized at January 1, 2019 include right-of-use lease assets and lease liabilities classified as discontinued operations. See Note 10 - Leases for more information.


12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future Application of Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. The ASU requires companies to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Forward-looking information will now be used in credit loss estimates. The ASU requires enhanced disclosures to provide better understanding surrounding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of a company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Most debt instruments will require a cumulative-effect adjustment to retained earnings on the statement of financial position as of the beginning of the first reporting period in which the guidance is adopted (modified retrospective approach). However, there is instrument-specific transition guidance. ASU No. 2016-13 is effective for interim and annual periods beginning after December 15, 2019. Early application will be permitted for interim and annual periods beginning after December 15, 2018.

The Company is evaluating the provisions of ASU No. 2016-13, and will closely monitor developments and additional guidance to determine the potential impact on the Company's Consolidated Financial Statements. A cross-functional working group has been formed and is comprised of individuals from various functional areas including credit, risk management, finance and information technology, among others. Management is working through its implementation plan which includes assessment and documentation of processes and internal controls; model development and documentation; and system configuration. Management is also in the process of implementing a third-party vendor solution to assist us in the application of ASU No. 2016-13. The Company expects the primary changes to be the application of the new expected credit loss model from the incurred model. In addition, the Company expects the guidance to change the presentation of credit losses within the available-for-sale fixed maturities portfolio through an allowance method rather than as a direct write-down. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. The allowance method for available-for-sale debt securities will allow the Company to record reversals of credit losses if the estimate of credit losses declines. The Company is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles: Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The ASU simplifies the test for goodwill impairment by eliminating the second step of the current two-step method. Under the new accounting guidance, entities will compare the fair value of a reporting unit with its carrying amount. If the carrying amount exceeds the reporting unit’s fair value, the entity is required to recognize an impairment charge for this amount. Current guidance requires an entity to proceed to a second step, whereby the entity would determine the fair value of its assets and liabilities. The new method applies to all reporting units. The performance of a qualitative assessment is still allowable. This accounting guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect adoption to have a material effect on its Consolidated Financial Statements.


13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. Entities are also allowed to elect early adoption for the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on its Consolidated Financial Statements.

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. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As ASU No. 2018-14 only revises disclosure requirements, it will not have a material impact on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU No. 2018-15 clarifies certain aspects of ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU No. 2018-15 does not affect the accounting for the service element of a hosting arrangement that is a service contract. ASU No. 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. While the Company continues to assess all potential impacts of the standard, we currently do not expect adoption to have a material impact on its Consolidated Financial Statements.


14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.           DISCONTINUED OPERATIONS

During the period ended March 31, 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 continues to operate and serve its customers as the Company initiates the process of identifying a buyer. The potential transaction is expected to close within 12 months. 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 Income, and Consolidated Statements of Cash Flows present discontinued operations retrospectively for current and prior periods.

The following is a summary of the assets and liabilities of the discontinued operations of FCLS at March 31, 2019 and December 31, 2018:
(in thousands)
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
Loans held for sale, at fair value
 
136,821

 
94,050

Premises and equipment, net
 
1,858

 
1,867

Other assets
 
26,399

 
18,342

Total assets
 
165,078

 
114,259

Liabilities
 
 
 
 
Other liabilities
 
15,505

 
9,597

Total liabilities
 
15,505

 
9,597


FCLS funds its lending operations and maintains working capital through an intercompany line-of-credit with the Bank. Although the sale of FCLS will contemplate settlement of these borrowings, debt was not allocated to discontinued operations due to the intercompany nature of the borrowings. When the transaction closes, the Company will reallocate these funds to various purposes, including but not limited to, pay-down of short-term debt with the Federal Home Loan Bank.

The following presents operating results of the discontinued operations of FCLS for the three months ended March 31, 2019 and March 31, 2018:
 
 
Three Months Ended March 31,
(in thousands)
 
2019
 
2018
Interest income
 
1,044

 
1,094

Interest expense
 
584

 
381

Net interest income
 
460

 
713

Non-interest income
 
8,813

 
10,628

Total net revenue
 
9,273

 
11,341

Non-interest expense
 
10,127

 
11,503

Loss from discontinued operations before income taxes
 
(854
)
 
(162
)
Income tax (benefit)
 
(217
)
 
(39
)
Net loss from discontinued operations
 
(637
)
 
(123
)

FCLS also originates mortgages designated as held-for-investment. This component of FCLS’s operations was not considered discontinued, since the Company expects to continue to originate mortgages designated as held-for-investment in its footprint on a small scale through processes considered as continuing operations.

15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.           TRADING SECURITY

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $9.9 million and $10.1 million, and a fair value of $11.2 million and $11.2 million, at March 31, 2019 and December 31, 2018, respectively. As discussed further in Note 9 - 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, 2019.

16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. SECURITIES AVAILABLE FOR SALE, HELD TO MATURITY, AND MARKETABLE
EQUITY SECURITIES

The Company adopted ASU-2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" in the first quarter of 2018. All changes in the fair value of marketable equity securities, including other-than-temporary impairment, are immediately recognized in earnings.

The following is a summary of securities available for sale, held to maturity, and marketable equity securities:
(In thousands)
 
Amortized  Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
March 31, 2019
 
 

 
 

 
 

 
 

Securities available for sale
 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
$
113,521

 
$
4,088

 
$
(142
)
 
$
117,467

Agency collateralized mortgage obligations
 
913,263

 
1,964

 
(7,313
)
 
907,914

Agency mortgage-backed securities
 
168,914

 
78

 
(2,876
)
 
166,116

Agency commercial mortgage-backed securities
 
61,914

 

 
(2,536
)
 
59,378

Corporate bonds
 
119,893

 
434

 
(1,060
)
 
119,267

Trust preferred securities
 
8,319

 
283

 

 
8,602

Other bonds and obligations
 
8,016

 
30

 
(22
)
 
8,024

Total securities available for sale
 
1,393,840

 
6,877

 
(13,949
)
 
1,386,768

Securities held to maturity
 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
260,968

 
7,149

 
(136
)
 
267,981

Agency collateralized mortgage obligations
 
71,226

 
1,445

 
(346
)
 
72,325

Agency mortgage-backed securities
 
7,074

 

 
(174
)
 
6,900

Agency commercial mortgage-backed securities
 
10,401

 

 
(199
)
 
10,202

Tax advantaged economic development bonds
 
19,363

 
95

 
(1,185
)
 
18,273

Other bonds and obligations
 
299

 

 

 
299

Total securities held to maturity
 
369,331

 
8,689

 
(2,040
)
 
375,980

 
 
 
 
 
 
 
 
 
Marketable equity securities
 
55,409

 
5,217

 
(1,505
)
 
59,121

Total
 
$
1,818,580

 
$
20,783

 
$
(17,494
)
 
$
1,821,869


17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands)
 
Amortized  Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
December 31, 2018
 
 

 
 

 
 

 
 

Securities available for sale
 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
$
109,648

 
$
2,272

 
$
(713
)
 
$
111,207

Agency collateralized mortgage obligations
 
944,946

 
1,130

 
(15,192
)
 
930,884

Agency mortgage-backed securities
 
175,406

 
36

 
(5,121
)
 
170,321

Agency commercial mortgage-backed securities
 
62,200

 

 
(3,275
)
 
58,925

Corporate bonds
 
112,404

 
342

 
(1,256
)
 
111,490

Trust preferred securities
 
8,314

 
251

 
(99
)
 
8,466

Other bonds and obligations
 
8,355

 
34

 
(35
)
 
8,354

Total securities available for sale
 
1,421,273

 
4,065

 
(25,691
)
 
1,399,647

Securities held to maturity
 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
264,524

 
3,569

 
(3,601
)
 
264,492

Agency collateralized mortgage obligations
 
71,637

 
533

 
(778
)
 
71,392

Agency mortgage-backed securities
 
7,219

 

 
(297
)
 
6,922

Agency commercial mortgage-backed securities
 
10,417

 

 
(289
)
 
10,128

Tax advantaged economic development bonds
 
19,718

 
22

 
(1,698
)
 
18,042

Other bonds and obligations
 
248

 

 

 
248

Total securities held to maturity
 
373,763

 
4,124

 
(6,663
)
 
371,224

 
 
 
 
 
 
 
 
 
Marketable equity securities
 
55,471

 
4,370

 
(3,203
)
 
56,638

Total
 
$
1,850,507

 
$
12,559

 
$
(35,557
)
 
$
1,827,509


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, 2019 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
 
 
Amortized
 
Fair
 
Amortized
 
Fair
(In thousands)
 
Cost
 
Value
 
Cost
 
Value
Within 1 year
 
$
7,747

 
$
7,759

 
$
2,614

 
$
2,614

Over 1 year to 5 years
 
26,687

 
26,837

 
14,799

 
14,865

Over 5 years to 10 years
 
82,660

 
83,351

 
13,494

 
13,577

Over 10 years
 
132,655

 
135,413

 
249,723

 
255,497

Total bonds and obligations
 
249,749

 
253,360

 
280,630

 
286,553

Mortgage-backed securities
 
1,144,091

 
1,133,408

 
88,701

 
89,427

Total
 
$
1,393,840

 
$
1,386,768

 
$
369,331

 
$
375,980


18


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended March 31, 2019, purchases of AFS securities totaled $15.2 million and the proceeds from the sale of AFS securities totaled $2.6 million. During the three months ended March 31, 2019, gross gains on sale of AFS securities totaled $6 thousand and there were no gross losses. These gains are included in Gain/(loss) on securities, net on the consolidated statements of income. During the three months ended March 31, 2018, purchases of AFS securities totaled $116.4 million. There were no sales of AFS securities during the three months ended March 31, 2018.

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
 
 
Gross
 
 
 
Gross
 
 
 
Gross
 
 
 
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
(In thousands)
 
Losses
 
Value
 
Losses
 
Value
 
Losses
 
Value
March 31, 2019
 
 

 
 

 
 

 
 

 
 

 
 

Securities available for sale
 
 

 
 

 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
$
7

 
$
323

 
$
135

 
$
8,971

 
$
142

 
$
9,294

Agency collateralized mortgage obligations
 
121

 
67,340

 
7,192

 
612,951

 
7,313

 
680,291

Agency mortgage-backed securities
 
27

 
10,306

 
2,849

 
146,416

 
2,876

 
156,722

Agency commercial mortgage-backed securities
 
30

 
4,002

 
2,506

 
55,375

 
2,536

 
59,377

Corporate bonds
 
1,040

 
76,670

 
20

 
980

 
1,060

 
77,650

Other bonds and obligations
 

 

 
22

 
3,039

 
22

 
3,039

Total securities available for sale
 
1,225

 
158,641

 
12,724

 
827,732

 
13,949

 
986,373

 
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity
 
 

 
 

 
 

 
 

 
 

 
 

Municipal bonds and obligations
 

 

 
136

 
13,308

 
136

 
13,308

Agency collateralized mortgage obligations
 

 

 
346

 
10,858

 
346

 
10,858

Agency mortgage-backed securities
 

 

 
174

 
6,900

 
174

 
6,900

Agency commercial mortgage-backed securities
 

 

 
199

 
10,202

 
199

 
10,202

Tax advantaged economic development bonds
 

 

 
1,185

 
6,884

 
1,185

 
6,884

Total securities held to maturity
 

 

 
2,040

 
48,152

 
2,040

 
48,152

Total
 
$
1,225

 
$
158,641

 
$
14,764

 
$
875,884

 
$
15,989

 
$
1,034,525

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

Securities available for sale
 
 

 
 

 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
$
55

 
$
3,186

 
$
658

 
$
11,787

 
$
713

 
$
14,973

Agency collateralized mortgage obligations
 
76

 
39,114

 
15,116

 
755,528

 
15,192

 
794,642

Agency mortgage-backed securities
 
53

 
5,500

 
5,068

 
162,439

 
5,121

 
167,939

Agency commercial mortgage-backed securities
 
44

 
1,503

 
3,231

 
57,422

 
3,275

 
58,925

Corporate bonds
 
1,249

 
74,434

 
7

 
2,561

 
1,256

 
76,995

Trust preferred securities
 
99

 
7,068

 

 

 
99

 
7,068

Other bonds and obligations
 

 

 
35

 
3,030

 
35

 
3,030

Total securities available for sale
 
1,576

 
130,805

 
24,115

 
992,767

 
25,691

 
1,123,572

 
 
 
 
 
 
 
 
 
 
 
 
 
Securities held to maturity
 
 

 
 

 
 

 
 

 
 

 
 

Municipal bonds and obligations
 
127

 
17,596

 
3,474

 
103,759

 
3,601