An recently released report expects Berkshire Hills Bancorp to remain well-capitalized despite Berkshire Bank’s exposure to a $16 million loan default.

Berkshire Hills Bancorp revealed the loan default in an 8-K filing on Friday, Sept. 20. The lead lender in the arrangement has notified Berkshire Bank the loan recently defaulted “due to potentially fraudulent activity,” according to the filing.

“The incident appears to be isolated to one borrower and is not believed to be a sign of a systemic issue,” David Bishop, a senior research analyst with D.A. Davidson, said in a Sept. 23 report after receiving management commentary from Berkshire after Friday’s 8-K filing.

Berkshire Bank declined to release the names of the borrower and lead lender involved, but the Albany Business Journal and the Albany Times Union have linked Berkshire’s loan to the collapse of MyPayrollHr, a cloud-based payroll and human resources company that operated out of Clifton Park, New York, and shut down in early September. Pioneer Bank was the lead lender on the $36 million loan and reported a $16 million exposure in an 8-K filing on Sept. 11. Chemung Financial Corp., which Bishop said had a $4.2 million exposure, filed an 8-K form on Sept. 12.

Berkshire evaluated its exposure, potential cash flows from the business assets and its positioning relative to other creditors involved before announcing the loan default, Bishop said.

“That being said, we could see some choppiness in the shares given the delayed filing of the 8-K noting this exposure,” Bishop said in the report. “Management was aware of its exposure before last Friday’s filing, per our understanding.”

MyPayrollHr CEO Michael Mann was charged in criminal complaint in U.S. District Court for the Northern District of New York on Sept. 23. The complaint accuses Mann of kiting checks between accounts at Pioneer Bank and Bank of America, inflating the balances in the accounts and creating “the appearance that someone has more money than they actually have.”