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Berkshire Hills Bancorp
BHLB
#4597
Rank
$2.20 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$26.13
Share price
-0.65%
Change (1 day)
1.83%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Berkshire Hills Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q2

Berkshire Hills Bancorp - 10-Q quarterly report FY2022 Q2


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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: June 30, 2022
☐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
bhlb-20220630_g1.jpg  
BERKSHIRE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware04-3510455
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
   
60 State StreetBoston Massachusetts02109
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareBHLBThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý   No o
    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ý    Accelerated filer        o     
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 August 5, 2022, the Registrant had 45,670,565 shares of common stock, $0.01 par value per share, outstanding

BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q
 
INDEX 
  Page
   
 
 
 Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
4
 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021
5
 Consolidated Statements of Comprehensive (Loss)/Income for the Three and Six Months Ended June 30, 2022 and 2021
6
 Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021
7
 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021
9
 Notes to Consolidated Financial Statements (Unaudited) 
  
11
  
12
  
13
18
  
33
  
33
  
35
41
43
44
  
48
  
49
  
50
  
59
Item 2.
60
 
60
 
62
 
64
78
80
2

3
PART I
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
 June 30,
2022		December 31,
2021
(In thousands, except share data)
Assets  
Cash and due from banks$156,470 $109,350 
Short-term investments714,547 1,518,457 
Total cash and cash equivalents871,017 1,627,807 
Trading security, at fair value7,040 8,354 
Marketable equity securities, at fair value14,154 15,453 
Securities available for sale, at fair value1,697,019 1,877,585 
Securities held to maturity (fair values of $544,065 and $647,236)
602,611 636,503 
Federal Home Loan Bank stock and other restricted securities9,365 10,800 
Total securities2,330,189 2,548,695 
Less: Allowance for credit losses on held to maturity securities(94)(105)
Net securities2,330,095 2,548,590 
Loans held for sale1,062 6,110 
Total loans7,803,451 6,825,847 
Less: Allowance for credit losses on loans (99,021)(106,094)
Net loans7,704,430 6,719,753 
Premises and equipment, net89,657 94,383 
Other intangible assets27,046 29,619 
Cash surrender value of bank-owned life insurance policies237,545 235,690 
Other assets312,730 288,384 
Assets held for sale5,386 4,577 
Total assets$11,578,968 $11,554,913 
Liabilities  
Demand deposits$2,921,347 $3,008,461 
NOW and other deposits2,247,544 976,401 
Money market deposits2,327,004 3,293,526 
Savings deposits1,143,352 1,111,625 
Time deposits1,475,417 1,678,940 
Total deposits10,114,664 10,068,953 
Short-term debt50,000 — 
Long-term Federal Home Loan Bank advances and other8,542 13,331 
Subordinated borrowings195,659 97,513 
Total borrowings254,201 110,844 
Other liabilities196,053 192,681 
Total liabilities$10,564,918 $10,372,478 
(continued)
June 30,
2022		December 31,
2021
Shareholders’ equity  
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 45,787,618 shares outstanding in 2022; 51,903,190 shares issued and 48,667,110 shares outstanding in 2021)
528 528 
Additional paid-in capital - common stock1,424,081 1,423,445 
Unearned compensation(12,824)(9,056)
Retained (deficit)(106,997)(139,383)
Accumulated other comprehensive (loss) (122,999)(3,243)
Treasury stock, at cost (6,115,572 shares in 2022 and 3,236,080 shares in 2021)
(167,739)(89,856)
Total shareholders’ equity1,014,050 1,182,435 
Total liabilities and shareholders’ equity$11,578,968 $11,554,913 
The accompanying notes are an integral part of these consolidated financial statements.
4
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
June 30,		Six Months Ended
June 30
(In thousands, except per share data)2022202120222021
Interest and dividend income   
Loans$74,843 $73,921 $137,317 $149,854 
Securities and other12,536 11,443 24,885 23,663 
Total interest and dividend income87,379 85,364 162,202 173,517 
Interest expense   
Deposits4,170 6,981 8,344 16,564 
Borrowings1,851 2,990 3,437 6,467 
Total interest expense6,021 9,971 11,781 23,031 
Net interest income81,358 75,393 150,421 150,486 
Non-interest income
Deposit related fees8,005 7,508 15,356 14,634 
Loan fees and revenue4,623 7,431 12,888 17,677 
Insurance commissions and fees— 2,292 — 5,422 
Wealth management fees2,775 2,519 5,400 5,291 
Mortgage banking originations109 534 128 1,336 
Total fee income15,512 20,284 33,772 44,360 
Other, net1,812 2,211 4,978 4,359 
(Loss) on securities, net(973)(484)(1,718)(515)
Total non-interest income16,351 22,011 37,032 48,204 
Total net revenue 97,709 97,404 187,453 198,690 
(Benefit)/provision for credit losses — — (4,000)6,500 
Non-interest expense  
Compensation and benefits37,830 36,970 75,351 75,705 
Occupancy and equipment9,438 10,599 19,505 21,623 
Technology and communications8,611 8,214 17,138 16,807 
Marketing and promotion1,472 518 2,583 1,113 
Professional services2,913 3,701 5,605 10,315 
FDIC premiums and assessments658 927 1,645 2,047 
Other real estate owned and foreclosures23 (26)23 (24)
Amortization of intangible assets1,286 1,297 2,572 2,616 
Acquisition, restructuring, and other expenses35 6 53 3,492 
Other6,209 6,666 12,550 13,332 
Total non-interest expense68,475 68,872 137,025 147,026 
Income before income taxes$29,234 $28,532 $54,428 $45,164 
Income tax expense6,119 6,896 11,117 10,497 
Net income$23,115 $21,636 $43,311 $34,667 
Basic earnings per common share$0.50 $0.43 $0.93 $0.69 
Diluted earnings per common share$0.50 $0.43 $0.92 $0.69 
Weighted average shares outstanding:  
Basic45,818 50,321 46,733 50,327 
Diluted46,102 50,608 47,074 50,588 
The accompanying notes are an integral part of these consolidated financial statements.
5
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
Three Months Ended
June 30,		Six Months Ended
June 30,
(In thousands)2022202120222021
Net income$23,115 $21,636 $43,311 $34,667 
Other comprehensive (loss)/income, before tax:    
Changes in unrealized (loss)//gain on debt securities available-for-sale(60,487)5,394 (161,860)(21,619)
Income taxes related to other comprehensive (loss)/income:   
Changes in unrealized (loss)/gain on debt securities available-for-sale15,725 (1,343)42,104 5,520 
Total other comprehensive (loss)/income(44,762)4,051 (119,756)(16,099)
Total comprehensive (loss)/income$(21,647)$25,687 $(76,445)$18,568 
The accompanying notes are an integral part of these consolidated financial statements.

6
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 Common stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive income/(loss)		Treasury stock
(In thousands)SharesAmountTotal
Balance at March 31, 202150,988 $528 $1,424,349 $(7,722)$(226,516)$10,721 $(26,221)$1,175,139 
Comprehensive income:       
Net income— — — — 21,636 — — 21,636 
Other comprehensive income— — — — — 4,051 — 4,051 
Total comprehensive income— — — — 21,636 4,051 — 25,687 
Cash dividends declared on common shares ($0.12 per share)
— — — — (6,100)— — (6,100)
Treasury shares repurchased(745)— — — — — (20,750)(20,750)
Forfeited shares(11)— 45 238 — — (283)— 
Exercise of stock options2 — — — (14)— 69 55 
Restricted stock grants229 — (1,314)(5,127)— — 6,441 — 
Stock-based compensation— — — 1,605 — — — 1,605 
Other, net(10)— 3 — — — (250)(247)
Balance at June 30, 202150,453 $528 $1,423,083 $(11,006)$(210,994)$14,772 $(40,994)$1,175,389 
Balance at March 31, 202247,792 $528 $1,423,679 $(10,284)$(125,343)$(78,237)$(116,482)$1,093,861 
Comprehensive (loss):       
Net income— — — — 23,115 — — 23,115 
Other comprehensive (loss)— — — — — (44,762)— (44,762)
Total comprehensive (loss)— — — — 23,115 (44,762)— (21,647)
Cash dividends declared on common shares ($0.12 per share)
— — — — (4,769)— — (4,769)
Treasury shares repurchased(2,147)— — — — — (55,040)(55,040)
Forfeited shares(15)— 9 375 — — (384)— 
Exercise of stock options— — — — — — — — 
Restricted stock grants175 — 391 (5,035)— — 4,644 — 
Stock-based compensation— — — 2,120 — — — 2,120 
Other, net(17)— 2 — — — (477)(475)
Balance at June 30, 202245,788 $528 $1,424,081 $(12,824)$(106,997)$(122,999)$(167,739)$1,014,050 

7
 Common stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive income/(loss)		Treasury stock
(In thousands)SharesAmountTotal
Balance at December 31, 202050,833 $528 $1,427,239 $(6,245)$(233,344)$30,871 $(31,276)$1,187,773 
Comprehensive income:       
Net income— — — — 34,667 — — 34,667 
Other comprehensive (loss)— — — — — (16,099)— (16,099)
Total comprehensive income— — — — 34,667 (16,099)— 18,568 
Cash dividends declared on common shares ($0.24 per share)
— — — — (12,224)— — (12,224)
Treasury shares repurchased(745)— — — — — (20,750)(20,750)
Forfeited shares(62)— (190)1,570 — — (1,380)— 
Exercise of stock options7 — — — (93)— 217 124 
Restricted stock grants439 — (3,974)(8,612)— — 12,586 — 
Stock-based compensation— — — 2,281 — — — 2,281 
Other, net(19)— 8 — — — (391)(383)
Balance at June 30, 202150,453 $528 $1,423,083 $(11,006)$(210,994)$14,772 $(40,994)$1,175,389 
Balance at December 31, 202148,667 $528 $1,423,445 $(9,056)$(139,383)$(3,243)$(89,856)$1,182,435 
Comprehensive (loss):       
Net income— — — — 43,311 — — 43,311 
Other comprehensive (loss)— — — — — (119,756)— (119,756)
Total comprehensive (loss)— — — — 43,311 (119,756)— (76,445)
Cash dividends declared on common shares ($0.24 per share)
— — — — (10,921)— — (10,921)
Treasury shares repurchased(3,119)— — — — — (84,295)(84,295)
Forfeited shares(51)— 79 1,358 — — (1,437)— 
Exercise of stock options1 — — — (4)— 29 25 
Restricted stock grants314 — 552 (9,052)— — 8,500 — 
Stock-based compensation— — — 3,926 — — — 3,926 
Other, net(24)— 5 — — — (680)(675)
Balance at June 30, 202245,788 $528 $1,424,081 $(12,824)$(106,997)$(122,999)$(167,739)$1,014,050 

The accompanying notes are an integral part of these consolidated financial statements.
8
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended
June 30,
(In thousands)20222021
Cash flows from operating activities:  
Net income$43,311 $34,667 
Adjustments to reconcile net income to net cash provided by operating activities:  
(Benefit)/provision for credit losses(4,000)6,500 
Net amortization of securities1,383 748 
Change in unamortized net loan costs and premiums2,471 (5,410)
Premises and equipment depreciation and amortization expense4,907 5,636 
Stock-based compensation expense3,926 2,281 
Accretion of purchase accounting entries, net(1,464)(3,555)
Amortization of other intangibles2,572 2,616 
Income from cash surrender value of bank-owned life insurance policies(2,697)(2,731)
Securities losses, net1,718 515 
Net change in loans held-for-sale4,442 8,164 
Loss on disposition of assets— 2,811 
Gain on sale of real estate— (33)
Amortization of interest in tax-advantaged projects708 207 
Net change in other(42,990)11,319 
Net cash provided by operating activities14,287 63,735 
Cash flows from investing activities:  
Net decrease in trading security404 384 
Proceeds from sales of marketable equity securities— 2,849 
Purchases of securities available for sale(386,637)(268,923)
Proceeds from sales of securities available for sale149,994 — 
Proceeds from maturities, calls, and prepayments of securities available for sale255,045 305,361 
Purchases of securities held to maturity(575)(219,004)
Proceeds from maturities, calls, and prepayments of securities held to maturity33,514 17,320 
Net change in loans(981,062)831,505 
Net change in Mid-Atlantic region loans held for sale— 47,131 
Proceeds from surrender of bank-owned life insurance842 — 
Purchase of Federal Home Loan Bank stock(32,466)— 
Proceeds from redemption of Federal Home Loan Bank stock33,901 15,235 
Net investment in limited partnership tax credits(721)— 
Purchase of premises and equipment, net(730)(1,606)
Proceeds from sales of seasoned commercial loan portfolios— 14,749 
Proceeds from sale of other real estate— 142 
Net cash (used)/provided by investing activities(928,491)745,143 
(continued)
9
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
 Six Months Ended
June 30,
(In thousands)20222021
Cash flows from financing activities:  
Net increase/(decrease) in deposits45,711 (301,908)
Net change in Mid-Atlantic region deposits held for sale— 15,590 
Proceeds from Federal Home Loan Bank advances and other borrowings51,275 — 
Repayments of Federal Home Loan Bank advances and other borrowings(6,096)(256,555)
Proceeds from issuance of subordinated debt98,032 — 
Purchase of treasury stock(84,295)(20,750)
Exercise of stock options25 124 
Common stock cash dividends paid(10,921)(6,124)
Settlement of derivative contracts with financial institution counterparties63,683 29,551 
Net cash provided/(used) by financing activities157,414 (540,072)
Net change in cash and cash equivalents(756,790)268,806 
Cash and cash equivalents at beginning of period1,627,807 1,557,875 
Cash and cash equivalents at end of period$871,017 $1,826,681 
Supplemental cash flow information:  
Interest paid on deposits$8,810 $18,515 
Interest paid on borrowed funds3,396 6,864 
Income taxes (refunded) paid, net12,590 (1,110)
Other non-cash changes:  
Other net comprehensive income$(119,756)$(16,099)
Change in shareholder dividend payable— 6,100 
Reclass of seasoned loan portfolios to held-for-sale, net— 11,660 
Reclass of held-for-sale loans to held-for-investment, net606 — 
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. 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, 2021. 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 9 – Other Commitments, Contingencies, Off-Balance Sheet Activities, and Pandemic Impact for pandemic related risks and uncertainties.

Recently Adopted Accounting Principles
There were no new applicable material accounting pronouncements adopted by the Company since December 31, 2021.


11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future Application of Accounting Pronouncements
In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.” The guidance expands the current last-of-layer method to allow multiple hedge layers of a single closed portfolio (renamed to portfolio layer method) and expands the portfolio layer method to include nonprepayable financial assets. The ASU specifies eligible hedging instruments in a single-layer hedge and provides additional guidance on accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method. Further, hedge basis adjustments should be considered when determining credit losses for assets included in the closed portfolio. The amendments in this ASU are effective for fiscal years ending after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating; however, the adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The ASU eliminates the troubled debt restructuring (“TDR”) accounting model that was adopted with Topic 326, “Financial Instruments – Credit Losses” and enhances disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. The ASU requires prospective disclosure of current-period gross write-offs by year of origination. The amendments in this ASU are effective for fiscal years ending after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted and the Company can elect to adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is still evaluating; however, the adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

NOTE 2.           TRADING SECURITY

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $7.5 million and $7.9 million, and a fair value of $7.0 million and $8.4 million, at June 30, 2022 and December 31, 2021, respectively. As discussed further in Note 7 - 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 June 30, 2022 or December 31, 2021.
12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. 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)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
June 30, 2022    
Securities available for sale    
U.S Treasuries$99,920 $— $(71)$99,849 
Municipal bonds and obligations
66,980 608 (2,425)65,163 — 
Agency collateralized mortgage obligations
692,079 3 (65,695)626,387 — 
Agency mortgage-backed securities
679,422 6 (72,651)606,777 — 
Agency commercial mortgage-backed securities
280,266 26 (23,828)256,464 — 
Corporate bonds
43,786 119 (1,526)42,379 — 
Total securities available for sale1,862,453 762 (166,196)1,697,019 — 
Securities held to maturity    
Municipal bonds and obligations
270,219 1,450 (21,929)249,740 66 
Agency collateralized mortgage obligations
137,778 18 (13,550)124,246 — 
Agency mortgage-backed securities
53,630 — (7,872)45,758 — 
Agency commercial mortgage-backed securities
138,419 — (16,633)121,786 — 
Tax advantaged economic development bonds
2,400 5 (35)2,370 28 
Other bonds and obligations
165 — — 165 — 
Total securities held to maturity602,611 1,473 (60,019)544,065 94 
Marketable equity securities15,690 66 (1,602)14,154 — 
Total$2,480,754 $2,301 $(227,817)$2,255,238 $94 
(In thousands)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
December 31, 2021    
Securities available for sale    
U.S Treasuries$59,972 $1 $— $59,973 $— 
Municipal bonds and obligations
71,822 5,355 — 77,177 — 
Agency collateralized mortgage obligations
693,782 5,566 (11,012)688,336 — 
Agency mortgage-backed securities
711,154 2,347 (7,642)705,859 — 
Agency commercial mortgage-backed securities
300,259 3,949 (3,628)300,580 — 
Corporate bonds
44,824 950 (114)45,660 — 
Total securities available for sale1,881,813 18,168 (22,396)1,877,585 — 
Securities held to maturity    
Municipal bonds and obligations
281,515 16,151 (693)296,973 70 
Agency collateralized mortgage obligations
149,195 3,203 (3,513)148,885 — 
Agency mortgage-backed securities
57,327 95 (1,498)55,924 — 
Agency commercial mortgage-backed securities
145,573 266 (3,289)142,550 — 
Tax advantaged economic development bonds
2,728 26 (15)2,739 35 
Other bonds and obligations
165 — — 165 — 
Total securities held to maturity636,503 19,741 (9,008)647,236 105 
Marketable equity securities15,689 67 (303)15,453 — 
Total$2,534,005 $37,976 $(31,707)$2,540,274 $105 

13

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 six months ended June 30, 2022 and 2021:
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at March 31, 2022$67 $32 $99 
(Benefit)/provision for credit losses(1)(4)(5)
Balance at June 30, 2022$66 $28 $94 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at March 31, 2021$71 $40 $111 
(Benefit)/provision for credit losses19 — 19 
Balance at June 30, 2021$90 $40 $130 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2021$70 $35 $105 
(Benefit)/provision for credit losses(4)(7)(11)
Balance at June 30, 2022$66 $28 $94 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2020$64 $40 $104 
(Benefit)/provision for credit losses26 — 26 
Balance at June 30, 2021$90 $40 $130 

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 June 30, 2022, none of the Company's investment securities were delinquent or in non-accrual status.

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at June 30, 2022 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.
14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Available for saleHeld to maturity
 AmortizedFairAmortizedFair
(In thousands)CostValueCostValue
Within 1 year$100,364 $100,292 $1,796 $1,795 
Over 1 year to 5 years7,900 7,969 2,693 2,700 
Over 5 years to 10 years48,271 47,315 24,614 24,932 
Over 10 years54,151 51,815 243,681 222,848 
Total bonds and obligations210,686 207,391 272,784 252,275 
Mortgage-backed securities1,651,767 1,489,628 329,827 291,790 
Total$1,862,453 $1,697,019 $602,611 $544,065 

During the three months ended June 30, 2022, there were no purchases of AFS securities. During the six months ended June 30, 2022, purchases of AFS securities totaled $386.6 million. During the three and six months ended June 30, 2022 sales of AFS securities totaled $150 million. During the three and six months ended June 30, 2021, purchases of AFS securities totaled $165.0 million and $268.9 million, respectively. During the three and six months ended June 30, 2021, there were no sales of AFS securities. During the three and six months ended June 30, 2022, gross gains totaled $6 thousand and there were no gross losses. During the three and six months ended June 30, 2021, there were no gross gains or losses on AFS securities. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of income.
15

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 MonthsOver Twelve MonthsTotal
 Gross Gross Gross 
 UnrealizedFairUnrealizedFairUnrealizedFair
(In thousands)LossesValueLossesValueLossesValue
June 30, 2022      
Securities available for sale      
U.S Treasuries$71 $99,849 $— $— $71 $99,849 
Municipal bonds and obligations
2,425 31,835 — — 2,425 31,835 
Agency collateralized mortgage obligations
45,768 509,510 19,927 114,042 65,695 623,552 
Agency mortgage-backed securities
36,357 384,388 36,294 221,502 72,651 605,890 
Agency commercial mortgage-backed securities13,730 180,796 10,098 71,060 23,828 251,856 
Corporate bonds
1,415 31,437 111 1,969 1,526 33,406 
Total securities available for sale$99,766 $1,237,815 $66,430 $408,573 $166,196 $1,646,388 
Securities held to maturity      
Municipal bonds and obligations$11,356 $129,839 $10,573 $23,320 $21,929 $153,159 
Agency collateralized mortgage obligations4,219 60,827 9,331 48,927 13,550 109,754 
Agency mortgage-backed securities185 2,625 7,687 43,132 7,872 45,757 
Agency commercial mortgage-backed securities8,368 73,652 8,265 48,134 16,633 121,786 
Tax advantaged economic development bonds
— — 35 1,164 35 1,164 
Total securities held to maturity24,128 266,943 35,891 164,677 60,019 431,620 
Total$123,894 $1,504,758 $102,321 $573,250 $226,215 $2,078,008 
December 31, 2021      
Securities available for sale      
Agency collateralized mortgage obligations
$9,626 $375,132 $1,386 $27,025 $11,012 $402,157 
Agency mortgage-backed securities
3,179 222,887 4,463 175,941 7,642 398,828 
Agency commercial mortgage-backed securities1,609 103,354 2,019 49,313 3,628 152,667 
Corporate bonds
114 11,115 — — 114 11,115 
Total securities available for sale$14,528 $712,488 $7,868 $252,279 $22,396 $964,767 
Securities held to maturity      
Municipal bonds and obligations
$693 $36,981 $— $— $693 $36,981 
Agency collateralized mortgage obligations
1,808 49,308 1,705 36,212 3,513 85,520 
Agency mortgage-backed securities
839 26,656 659 26,025 1,498 52,681 
Agency commercial mortgage-backed securities
1,255 80,406 2,034 51,654 3,289 132,060 
Tax advantaged economic development bonds
15 1,255 — — 15 1,255 
Total securities held to maturity4,610 194,606 4,398 113,891 9,008 308,497 
Total$19,138 $907,094 $12,266 $366,170 $31,404 $1,273,264 

16

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 June 30, 2022, 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 June 30, 2022:

AFS U.S Treasuries
At June 30, 2022, 4 of the 4 securities in the Company’s portfolio of U.S Treasuries were in unrealized loss positions. Aggregate unrealized losses represented 0.1% 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.

AFS municipal bonds and obligations
At June 30, 2022, 32 of the 97 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 7.1% 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.

AFS collateralized mortgage obligations
At June 30, 2022, 240 of the 251 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 9.5% 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 June 30, 2022, 121 of the 139 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 10.1% 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 June 30, 2022, 10 of the 14 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. Aggregate unrealized losses represents 4.1% 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.

 

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM municipal bonds and obligations
At June 30, 2022, 114 of the 197 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 12.5% 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 June 30, 2022, 11 of the 13 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 11.0% 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.

HTM commercial and residential mortgage-backed securities
At June 30, 2022, 17 of the 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 12.8% 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 June 30, 2022, 1 of the 3 securities in the Company’s portfolio of tax-advantaged economic development bonds was in an unrealized loss position. Aggregate unrealized losses represented 2.9% 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.


18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. 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)June 30, 2022December 31, 2021
Construction$323,969 $324,282 
Commercial multifamily667,427 515,817 
Commercial real estate owner occupied624,869 606,477 
Commercial real estate non-owner occupied2,295,298 2,156,929 
Commercial and industrial1,435,739 1,284,429 
Residential real estate1,917,227 1,489,248 
Home equity240,874 252,366 
Consumer other298,048 196,299 
Total loans$7,803,451 $6,825,847 
Allowance for credit losses99,021 106,094 
Net loans$7,704,430 $6,719,753 

As of June 30, 2022 and December 31, 2021, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $13.9 million and $29.9 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 and six months ended June 30, 2022, there were no loans reclassified to held for sale. During the three and six months ended June 30, 2021, the Company reclassified $2.2 million and $11.7 million of commercial loans to held for sale, reflecting its intent to sell these loans. Held for sale loans are not contained in the balances within this note and are accounted for at the lower of carrying value or fair market value within loans held for sale on the Consolidated Balance Sheet.


19

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.

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.

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 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) and is included in other liabilities on the consolidated balance sheet.


20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s activity in the allowance for credit losses for loans for the three and six months ended June 30, 2022 and June 30, 2021 was as follows:
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Three months ended June 30, 2022
Construction$2,505 $— $— $(795)$1,710 
Commercial multifamily5,771 — — (1,150)4,621 
Commercial real estate owner occupied11,498 (298)97 (609)10,688 
Commercial real estate non-owner occupied25,814 — 46 305 26,165 
Commercial and industrial22,949 (752)584 133 22,914 
Residential real estate17,816 (216)199 (1,389)16,410 
Home equity3,303 — 112 (587)2,828 
Consumer other9,819 (332)101 4,097 13,685 
Total allowance for credit losses$99,475 $(1,598)$1,139 $5 $99,021 
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Three months ended June 30, 2021
Construction$4,397 $— $— $(478)$3,919 
Commercial multifamily6,351 (115)95 866 7,197 
Commercial real estate owner occupied14,257 (227)40 (828)13,242 
Commercial real estate non-owner occupied34,561 (2,561)178 (1,863)30,315 
Commercial and industrial26,071 (3,585)1,266 4,473 28,225 
Residential real estate25,800 (220)667 (2,604)23,643 
Home equity5,749 (164)15 (168)5,432 
Consumer other6,614 (375)249 583 7,071 
Total allowance for credit losses$123,800 $(7,247)$2,510 $(19)$119,044 
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Six months ended June 30, 2022
Construction$3,206 $— $— $(1,496)$1,710 
Commercial multifamily6,120 — — (1,499)4,621 
Commercial real estate owner occupied12,752 (428)306 (1,942)10,688 
Commercial real estate non-owner occupied32,106 (4,884)1,312 (2,369)26,165 
Commercial and industrial22,584 (1,405)1,872 (137)22,914 
Residential real estate22,406 (380)587 (6,203)16,410 
Home equity4,006 — 246 (1,424)2,828 
Consumer other2,914 (548)238 11,081 13,685 
Total allowance for credit losses$106,094 $(7,645)$4,561 $(3,989)$99,021 
21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Six months ended June 30, 2021
Construction$5,111 $— $— $(1,192)$3,919 
Commercial multifamily5,916 (239)157 1,363 7,197 
Commercial real estate owner occupied12,380 (603)52 1,413 13,242 
Commercial real estate non-owner occupied35,850 (9,220)304 3,381 30,315 
Commercial and industrial25,013 (6,905)1,911 8,206 28,225 
Residential real estate28,491 (598)1,104 (5,354)23,643 
Home equity6,482 (240)39 (849)5,432 
Consumer other8,059 (903)409 (494)7,071 
Total allowance for credit losses$127,302 $(18,708)$3,976 $6,474 $119,044 




22

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 income. The Company’s activity in the allowance for credit losses on unfunded commitments for the three and six months ended June 30, 2022 and 2021 was as follows:

Three Months Ended
June 30,
(In thousands)20222021
Balance at beginning of period$7,043 $7,829 
Expense for credit losses— — 
Balance at end of period$7,043 $7,829 
Six Months Ended
June 30,
(In thousands)20222021
Balance at beginning of period$7,043 $7,629 
Expense for credit losses— 200 
Balance at end of period$7,043 $7,829 


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. 


23

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)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of June 30, 2022
Construction
Risk rating
Pass$66,278 $125,071 $29,805 $75,853 $2,321 $4,871 $49 $— $304,248 
Special Mention— — — — — — — — — 
Substandard— — — — 19,721 — — — 19,721 
Total$66,278 $125,071 $29,805 $75,853 $22,042 $4,871 $49 $— $323,969 
Commercial multifamily:
Risk rating
Pass$182,663 $61,261 $27,878 $117,448 $71,908 $195,751 $756 $— $657,665 
Special Mention— — 2,664 — 5,554 — — — 8,218 
Substandard— — — — — 1,413 131 — 1,544 
Total$182,663 $61,261 $30,542 $117,448 $77,462 $197,164 $887 $— $667,427 
Commercial real estate owner occupied:
Risk rating
Pass$75,279 $144,338 $48,354 $85,734 $76,968 $181,968 $1,615 $— $614,256 
Special Mention— — — — — — — — — 
Substandard1,053 — 35 554 1,432 7,539 — — 10,613 
Total$76,332 $144,338 $48,389 $86,288 $78,400 $189,507 $1,615 $— $624,869 
Commercial real estate non-owner occupied:
Risk rating
Pass$384,990 $427,922 $173,393 $269,140 $323,077 $600,342 $18,031 $— $2,196,895 
Special Mention— — — 7,669 13,568 27,563 — — 48,800 
Substandard— — 7,421 — 2,911 39,175 96 — 49,603 
Total$384,990 $427,922 $180,814 $276,809 $339,556 $667,080 $18,127 $— $2,295,298 
Commercial and industrial:
Risk rating
Pass$133,144 $172,622 $106,743 $87,963 $138,263 $133,896 $607,388 $— $1,380,019 
Special Mention— — — 1,757 1,257 — — — 3,014 
Substandard6 353 2,207 8,989 2,770 3,639 34,623 — 52,587 
Doubtful— — — — — 21 98 — 119 
Total$133,150 $172,975 $108,950 $98,709 $142,290 $137,556 $642,109 $— $1,435,739 
Residential real estate
Risk rating
Pass$503,499 $290,620 $103,521 $75,910 $159,577 $767,805 $288 $— $1,901,220 
Special Mention— — — 345 — 823 — — 1,168 
Substandard— 599 — 304 1,955 11,981 — — 14,839 
Total$503,499 $291,219 $103,521 $76,559 $161,532 $780,609 $288 $— $1,917,227 
24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2021
Construction
Risk rating
Pass$71,784 $52,725 $117,784 $66,950 $3,839 $1,721 $50 $— $314,853 
Special Mention— — — — — — — — — 
Substandard— — — 9,429 — — — — 9,429 
Total$71,784 $52,725 $117,784 $76,379 $3,839 $1,721 $50 $— $324,282 
Commercial multifamily:
Risk rating
Pass$63,630 $28,172 $98,455 $59,720 $76,699 $176,020 $457 $— $503,153 
Special Mention— 2,700 — 5,598 — — — — 8,298 
Substandard— — — — — 4,230 136 — 4,366 
Total$63,630 $30,872 $98,455 $65,318 $76,699 $180,250 $593 $— $515,817 
Commercial real estate owner occupied:
Risk rating
Pass$154,434 $50,236 $85,687 $91,316 $45,995 $157,346 $3,206 $— $588,220 
Special Mention— 525 869 1,668 1,405 1,157 — — 5,624 
Substandard— — 2,113 1,593 838 8,089 — — 12,633 
Total$154,434 $50,761 $88,669 $94,577 $48,238 $166,592 $3,206 $— $606,477 
Commercial real estate non-owner occupied:
Risk rating
Pass$426,086 $176,172 $296,985 $349,947 $204,043 $585,044 $19,511 $— $2,057,788 
Special Mention— 221 3,472 7,632 2,302 27,268 — — 40,895 
Substandard— 7,588 — 2,784 33,472 14,303 99 — 58,246 
Total$426,086 $183,981 $300,457 $360,363 $239,817 $626,615 $19,610 $— $2,156,929 
Commercial and industrial:
Risk rating
Pass$187,257 $130,520 $114,153 $156,443 $54,190 $136,837 $424,393 $— $1,203,793 
Special Mention661 1,691 10,824 5,092 1,433 488 22,468 — 42,657 
Substandard211 2,494 9,609 3,145 2,020 2,330 17,935 — 37,744 
Doubtful— — — — — 15 220 — 235 
Total$188,129 $134,705 $134,586 $164,680 $57,643 $139,670 $465,016 $— $1,284,429 
Residential real estate
Risk rating
Pass$214,306 $114,536 $86,997 $169,537 $189,980 $697,401 $293 $— $1,473,050 
Special Mention— — — 120 502 1,557 — — 2,179 
Substandard1,239 — 142 1,849 2,161 8,628 — — 14,019 
Total$215,545 $114,536 $87,139 $171,506 $192,643 $707,586 $293 $— $1,489,248 

25

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
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of June 30, 2022
Home equity:
Payment performance
Performing$— $119 $460 $— $— $20 $238,524 $— $239,123 
Nonperforming— — — — — — 1,751 — 1,751 
Total$— $119 $460 $— $— $20 $240,275 $— $240,874 
Consumer other:
Payment performance
Performing$150,411 $33,080 $9,563 $16,460 $40,622 $38,197 $7,864 $— $296,197 
Nonperforming49 108 23 297 621 745 8 — 1,851 
Total$150,460 $33,188 $9,586 $16,757 $41,243 $38,942 $7,872 $— $298,048 
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2021
Home equity:
Payment performance
Performing$125 $469 $— $— $— $24 $249,590 $— $250,208 
Nonperforming— — — — — — 2,158 — 2,158 
Total$125 $469 $— $— $— $24 $251,748 $— $252,366 
Consumer other:
Payment performance
Performing$37,994 $11,189 $21,548 $55,577 $30,632 $28,797 $7,505 $— $193,242 
Nonperforming8 46 290 797 746 1,139 31 — 3,057 
Total$38,002 $11,235 $21,838 $56,374 $31,378 $29,936 $7,536 $— $196,299 

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans by past due status at June 30, 2022 and December 31, 2021:
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
June 30, 2022
Construction$— $— $— $— $323,969 $323,969 
Commercial multifamily— — 174 174 667,253 667,427 
Commercial real estate owner occupied58 53 3,963 4,074 620,795 624,869 
Commercial real estate non-owner occupied154 25,000 4,915 30,069 2,265,229 2,295,298 
Commercial and industrial1,314 165 6,841 8,320 1,427,419 1,435,739 
Residential real estate5,534 1,168 14,237 20,939 1,896,288 1,917,227 
Home equity520 545 1,751 2,816 238,058 240,874 
Consumer other1,351 322 1,762 3,435 294,613 298,048 
Total$8,931 $27,253 $33,643 $69,827 $7,733,624 $7,803,451 
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
December 31, 2021
Construction$— $— $— $— $324,282 $324,282 
Commercial multifamily82 306 187 575 515,242 515,817 
Commercial real estate owner occupied— 400 4,221 4,621 601,856 606,477 
Commercial real estate non-owner occupied25,420 653 9,049 35,122 2,121,807 2,156,929 
Commercial and industrial2,700 709 6,836 10,245 1,274,184 1,284,429 
Residential real estate5,529 2,015 13,264 20,808 1,468,440 1,489,248 
Home equity258 108 2,158 2,524 249,842 252,366 
Consumer other1,363 320 2,882 4,565 191,734 196,299 
Total$35,352 $4,511 $38,597 $78,460 $6,747,387 $6,825,847 



27

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 June 30, 2022 and December 31, 2021:
(In thousands)Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended June 30, 2022
Construction$— $— $— $— 
Commercial multifamily174 174 — — 
Commercial real estate owner occupied3,370 2,336 593 — 
Commercial real estate non-owner occupied4,444 4,184 471 — 
Commercial and industrial4,856 441 1,985 — 
Residential real estate10,889 6,413 3,348 — 
Home equity1,521 127 230 — 
Consumer other1,630 3 132 — 
Total$26,884 $13,678 $6,759 $— 
The commercial and industrial loans nonaccrual amortized cost as of June 30, 2022 included medallion loans with a fair value of $1.0 million and a contractual balance of $20.6 million.
(In thousands) Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended December 31, 2021
Construction$— $— $— $— 
Commercial multifamily187 187 — — 
Commercial real estate owner occupied4,221 2,413 — — 
Commercial real estate non-owner occupied8,877 8,412 172 — 
Commercial and industrial6,747 1,506 89 — 
Residential real estate10,698 6,511 2,566 — 
Home equity1,901 141 257 — 
Consumer other2,695 4 187 — 
Total$35,326 $19,174 $3,271 $— 

The commercial and industrial loans nonaccrual amortized cost as of December 31, 2021 included medallion loans with a fair value of $1.2 million and a contractual balance of $31.4 million.

The following table summarizes information about total loans rated Special Mention or lower at June 30, 2022 and December 31, 2021. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.

(In thousands)June 30, 2022December 31, 2021
Non-Accrual$26,884 $35,326 
Substandard Accruing 125,307 106,560 
Total Classified152,191 141,886 
Special Mention 62,060 100,071 
Total Criticized$214,251 $241,957 


28

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
(In thousands)Real EstateInvestment Securities/CashOther
June 30, 2022
Construction$— $— $— 
Commercial multifamily175 — — 
Commercial real estate owner occupied3,472 — — 
Commercial real estate non-owner occupied4,628 — — 
Commercial and industrial290 — 2,528 
Residential real estate5,919 — — 
Home equity247 — — 
Consumer other5 — — 
Total loans$14,736 $— $2,528 
December 31, 2021
Construction$9,429 $— $— 
Commercial multifamily188 — — 
Commercial real estate owner occupied4,466 — — 
Commercial real estate non-owner occupied9,501 — — 
Commercial and industrial526 — 1,040 
Residential real estate7,035 — — 
Home equity262 — — 
Consumer other2 — — 
Total loans$31,409 $— $1,040 



29

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 six months ended June 30, 2022 and June 30, 2021:
(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Three months ended June 30, 2022
Construction$9,429 $— $— $(9,429)$— $— 
Commercial multifamily694 (17)— — — 677 
Commercial real estate owner occupied2,724 (23)— — — 2,701 
Commercial real estate non-owner occupied998 (12)— — — 986 
Commercial and industrial3,592 (290)— (137)1,486 4,651 
Residential real estate1,109 (23)— (67)— 1,019 
Home equity169 (7)— — — 162 
Consumer other32 (2)— — — 30 
Total$18,747 $(374)$— $(9,633)$1,486 $10,226 

(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Three months ended June 30, 2021
Construction$— $— $— $— $— $— 
Commercial multifamily741 (13)— — — 728 
Commercial real estate owner occupied1,725 (29)— — 1,266 2,962 
Commercial real estate non-owner occupied14,725 (81)— (590)10,434 24,488 
Commercial and industrial2,633 (229)— (37)4,443 6,810 
Residential real estate1,493 (14)— (174)— 1,305 
Home equity130 (3)— — — 127 
Consumer other34 (3)— 6 — 37 
Total$21,481 $(372)$— $(795)$16,143 $36,457 
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Six months ended June 30, 2022
Construction$9,429 $— $— $(9,429)$— $— 
Commercial multifamily703 (26)— — — 677 
Commercial real estate owner occupied2,733 (32)— — — 2,701 
Commercial real estate non-owner occupied9,310 (13)— (8,311)— 986 
Commercial and industrial3,656 (341)— (150)1,486 4,651 
Residential real estate1,117 (31)— (67)— 1,019 
Home equity121 (9)— — 50 162 
Consumer other33 (3)— — — 30 
Total$27,102 $(455)$— $(17,957)$1,536 $10,226 
(In thousands)Balance at Beginning of PeriodPrincipal PaymentsTDR Status ChangeOther Additions/(Reductions)Newly Identified TDRsBalance at End of Period
Six months ended June 30, 2021
Construction$— $— $— $— $— $— 
Commercial multifamily754 (26)— — — 728 
Commercial real estate owner occupied1,731 (35)— — 1,266 2,962 
Commercial real estate non-owner occupied13,684 (95)— (80)10,979 24,488 
Commercial and industrial2,686 (428)— (37)4,589 6,810 
Residential real estate1,524 (46)— (173)— 1,305 
Home equity133 (6)— — — 127 
Consumer other36 (5)— 6 — 37 
Total$20,548 $(641)$— $(284)$16,834 $36,457 




31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents loans modified as TDRs that occurred during the three and six months ended June 30, 2022 and 2021:
(dollars in thousands)Total
Three months ended June 30, 2022
TDR:
Number of loans1 
Pre-modification outstanding recorded investment$1,486 
Post-modification outstanding recorded investment$1,486 
Three months ended June 30, 2021
TDR:
Number of loans9 
Pre-modification outstanding recorded investment$16,143 
Post-modification outstanding recorded investment$16,143 
(dollars in thousands)Total
Six months ended June 30, 2022
TDR:
Number of loans2 
Pre-modification outstanding recorded investment$1,536 
Post-modification outstanding recorded investment$1,536 
Six months ended June 30, 2021
TDR:
Number of loans13 
Pre-modification outstanding recorded investment$16,834 
Post-modification outstanding recorded investment$16,834 

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ending June 30, 2022. 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 six months ended June 30, 2022:

(in thousands)Number of LoansRecorded Investment
Six months ended June 30, 2022
Commercial and industrial1$105 
Total1$105 

There were no TDRs for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2021.

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 9 - Other Commitments, Contingencies, and Off-Balance Sheet Activities, and Pandemic Impact for more information regarding these modifications.
32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.               DEPOSITS

A summary of time deposits is as follows:
(In thousands)June 30,
2022		December 31,
2021
Time less than $100,000$531,023 $676,979 
Time $100,000 through $250,000573,967 610,174 
Time more than $250,000370,427 391,787 
Total time deposits$1,475,417 $1,678,940 

Included in total deposits were brokered deposits of $112.9 million and $228.1 million at June 30, 2022 and December 31, 2021, respectively. Included in total deposits were reciprocal deposits of $79.9 million and $89.2 million at June 30, 2022 and December 31, 2021, respectively.

NOTE 6.               BORROWED FUNDS

Borrowed funds at June 30, 2022 and December 31, 2021 are summarized as follows:
 June 30, 2022December 31, 2021
  Weighted Weighted
  Average Average
(Dollars in thousands)PrincipalRatePrincipalRate
Short-term borrowings:    
Advances from the FHLB $50,000 1.28 %$— — %
Total short-term borrowings:50,000 1.28 — — 
Long-term borrowings:    
Advances from the FHLB and other borrowings8,542 1.33 13,331 1.75 
Subordinated borrowings172,711 6.15 74,590 7.00 
Junior subordinated borrowing - Trust I15,464 3.35 15,464 2.01 
Junior subordinated borrowing - Trust II7,484 3.53 7,459 1.90 
Total long-term borrowings:204,201 5.64 110,844 5.33 
Total$254,201 4.78 %$110,844 5.33 %

Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year. 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 no outstanding balance on the FHLB line of credit for the periods ended June 30, 2022 and December 31, 2021. The Bank's available borrowing capacity with the FHLB was $1.3 billion and $1.5 billion for the periods ended June 30, 2022 and December 31, 2021.

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. No borrowings with the Federal Reserve Bank under this arrangement took place for the periods ended June 30, 2022 and December 31, 2021. 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 June 30, 2022 and December 31, 2021, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $590.5 million and $511.0 million for the periods ended June 30, 2022 and December 31, 2021, respectively.


33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2022 included callable advances totaling $4.0 million and amortizing advances totaling $4.5 million. The advances outstanding at December 31, 2021 included callable advances totaling $10.0 million and amortizing advances totaling $3.4 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 June 30, 2022 is as follows:
 June 30, 2022
  Weighted Average
(In thousands, except rates)PrincipalRate
Fixed rate advances maturing:  
2022$53,998 1.34 %
2023— — 
202432 — 
2025— — 
2025 and beyond4,512 0.72 
Total FHLB advances$58,542 1.29 %

The Company did not have variable-rate FHLB advances for the periods ended June 30, 2022 and December 31, 2021, respectively.

In June 2022, the Company issued ten year subordinated notes in the amount of $100.0 million. The interest rate is fixed at 5.50% for the first five years. After five years, the notes become callable and will bear interest at a floating rate per annum equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), plus 249 basis points. The subordinated note includes reduction to the note principal balance of $2.0 million for unamortized debt issuance costs as of June 30, 2022.

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 $31 thousand and $92 thousand for unamortized debt issuance costs as of June 30, 2022 and December 31, 2021, respectively.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets at 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 3.35% and 2.01% at June 30, 2022 and December 31, 2021, 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 at 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 3.53% and 1.90% at June 30, 2022 and December 31, 2021, 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.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of June 30, 2022, the Company held derivatives with a total notional amount of $3.8 billion. The Company had economic hedges totaling $3.8 billion and $3.0 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 billion, and $1.0 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 June 30, 2022.

The Company pledged collateral to derivative counterparties in the form of cash totaling $11.1 million and securities with an amortized cost of $37.6 million and a fair value of $37.5 million as of June 30, 2022. 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 June 30, 2022, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$7,475 7.45.09 %3.22 %$(509)
Interest rate swaps on loans with commercial loan customers1,714,537 5.83.98 %2.88 %(47,467)
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,714,537 5.82.88 %3.98 %29,488 
Risk participation agreements with dealer banks326,765 5.7  32 
Forward sale commitments 984 0.2  18 
Total economic hedges3,764,298    (18,438)
Non-hedging derivatives:     
Commitments to lend 2,957 0.2  26 
Total non-hedging derivatives2,957    26 
Total$3,767,255    $(18,412)
(1) Fair value estimates include the impact of $18.0 million settled to market contract agreements.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at December 31, 2021, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$7,879 7.90.47 %5.09 %$(1,158)
Interest rate swaps on loans with commercial loan customers1,684,238 5.83.99 %1.91 %74,348 
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,684,238 5.81.91 %3.99 %(30,454)
Risk participation agreements with dealer banks320,981 5.8  432 
Forward sale commitments 6,377 0.2  134 
Total economic hedges3,703,713    43,302 
Non-hedging derivatives:     
Commitments to lend 8,192 0.2  124 
Total non-hedging derivatives 8,192    124 
Total$3,711,905    $43,426 
(1) Fair value estimates include the impact of $45.7 million settled to market contract agreements.
36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of June 30, 2022, the Company has an interest rate swap with a $7.5 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. There was no credit valuation loss adjustment arising from the difference in credit worthiness of the commercial loan and financial institution counterparties as of June 30, 2022. 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.
37

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 June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Economic hedges    
Interest rate swap on industrial revenue bond:    
Unrealized gain recognized in other non-interest income$217 $10 $649 $355 
Interest rate swaps on loans with commercial loan customers:    
Unrealized (loss) recognized in other non-interest income(44,927)10,516 (123,625)(49,785)
Favorable change in credit valuation adjustment recognized in other non-interest income— (982)1,809 1,520 
Offsetting interest rate swaps on loans with commercial loan customers:    
Unrealized gain recognized in other non-interest income44,927 (10,516)123,625 49,785 
Risk participation agreements:    
Unrealized (loss) recognized in other non-interest income(292)150 (400)(179)
Forward commitments:    
Unrealized (loss)/gain recognized in other non-interest income11 (234)(116)(228)
Non-hedging derivatives    
Commitments to lend    
Unrealized (loss) recognized in other non-interest income$8 $76 $(98)$(474)
Realized gain in other non-interest income90 457 342 1,810 
38

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 $54.1 million and $2.2 million as of June 30, 2022 and December 31, 2021, respectively. The Company had net asset positions with its commercial banking counterparties totaling $4.4 million and $76.8 million as of June 30, 2022 and December 31, 2021, respectively. The Company had net liability positions with its financial institution counterparties totaling $24.9 million and $33.3 million as of June 30, 2022 and December 31, 2021, respectively. The Company had net liability positions with its commercial banking counterparties totaling $51.9 million and $2.5 million as of June 30, 2022 and December 31, 2021. 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 June 30, 2022 and December 31, 2021:

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
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)AssetsConditionConditionInstrumentsCollateral ReceivedNet Amount
June 30, 2022      
Interest Rate Swap Agreements:      
Institutional counterparties$54,445 $(370)$54,075 $— $— $54,075 
Commercial counterparties4,434 — 4,434 — — 4,434 
Total$58,879 $(370)$58,509 $— $— $58,509 

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
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)LiabilitiesConditionConditionInstrumentsCollateral PledgedNet Amount
June 30, 2022      
Interest Rate Swap Agreements:      
Institutional counterparties$(7,010)$(17,930)$(24,940)$37,453 $11,079 $23,592 
Commercial counterparties(51,901)— (51,901)— — (51,901)
Total$(58,911)$(17,930)$(76,841)$37,453 $11,079 $(28,309)
39

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
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)AssetsConditionConditionInstrumentsCollateral ReceivedNet Amount
December 31, 2021      
Interest Rate Swap Agreements:      
Institutional counterparties$2,223 $(75)$2,148 $— $— $2,148 
Commercial counterparties76,809 — 76,809 — — 76,809 
Total$79,032 $(75)$78,957 $— $— $78,957 

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
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)LiabilitiesConditionConditionInstrumentsCollateral PledgedNet Amount
December 31, 2021      
Interest Rate Swap Agreements:      
Institutional counterparties$(78,146)$44,814 $(33,332)$34,896 $43,694 $45,258 
Commercial counterparties(2,461)— (2,461)— — (2,461)
Total$(80,607)$44,814 $(35,793)$34,896 $43,694 $42,797 
40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. 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 June 30, 2022, lease expiration dates ranged from 1 month to 18 years.

The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:
(In thousands)June 30, 2022December 31, 2021
Lease Right-of-Use AssetsClassification
Operating lease right-of-use assets Other assets$52,594 $52,180 
Finance lease right-of-use assetsPremises and equipment, net6,413 6,674 
Total Lease Right-of-Use Assets$59,007 $58,854 
Lease Liabilities
Operating lease liabilitiesOther liabilities$55,988 $55,674 
Finance lease liabilitiesOther liabilities9,587 9,862 
Total Lease Liabilities$65,575 $65,536 

Supplemental information related to leases was as follows:
June 30, 2022December 31, 2021
Weighted-Average Remaining Lease Term (in years)
Operating leases9.39.5
Finance leases12.312.8
Weighted-Average Discount Rate
Operating leases2.60 %2.77 %
Finance leases5.00 %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 June 30, 2022 was $2.6 million. Lease expense for operating leases for the six months ended June 30, 2022 was $5.1 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 June 30, 2021 was $2.9 million. Lease expense for operating leases for the six months ended June 30, 2021 was $5.7 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.


41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:
Three Months Ended
(In thousands)June 30, 2022June 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,533 $2,668 
Operating cash flows from finance leases120 126 
Financing cash flows from finance leases138 131 
Six Months Ended
(In thousands)June 30, 2022June 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$5,149 $5,911 
Operating cash flows from finance leases240 253 
Financing cash flows from finance leases276 263 

The following table presents a maturity analysis of the Company’s lease liability by lease classification at June 30, 2022:
(In thousands)Operating LeasesFinance Leases
2022$5,002 $514 
20239,825 1,037 
20248,243 1,037 
20256,271 1,037 
20265,046 1,037 
Thereafter28,796 8,187 
Total undiscounted lease payments 63,183 12,849 
Less amounts representing interest (7,195)(3,262)
Lease liability $55,988 $9,587 
42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OTHER COMMITMENTS, CONTINGENCIES, OFF-BALANCE SHEET ACTIVITIES, AND PANDEMIC IMPACT

In March 2020, the World Health Organization declared a novel strain of coronavirus ("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 continuing 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.

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 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 June 30, 2022, the Company had 7 active modified loans outstanding with a carrying value of $13.4 million. As of December 31, 2021, the Company had 19 active modified loans outstanding with a carrying value of $14.4 million, which excluded loans returning to payment or awaiting evaluation for further 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. Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act expired on December 31, 2021.
43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10.           CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:
June 30,
2022		December 31,
2021
Minimum Capital Requirement
Company (consolidated)  
Total capital to risk-weighted assets16.1 %17.3 %8.0 %
Common equity tier 1 capital to risk-weighted assets12.9 15.0 4.5 
Tier 1 capital to risk-weighted assets13.2 15.3 6.0 
Tier 1 capital to average assets10.2 10.5 4.0 
June 30,
2022		December 31,
2021		Regulatory Minimum to be Adequately CapitalizedRegulatory
Minimum to be
Well Capitalized
Bank
Total capital to risk-weighted assets14.1 %15.9 %8.0 %10.0 %
Common equity tier 1 capital to risk-weighted assets13.1 14.8 4.5 6.5 
Tier 1 capital to risk-weighted assets13.1 14.8 6.0 8.0 
Tier 1 capital to average assets10.2 10.1 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 June 30, 2022, 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 June 30, 2022 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.
44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive (loss)
Components of accumulated other comprehensive (loss) is as follows:
(In thousands)June 30,
2022		December 31,
2021
Other accumulated comprehensive income, before tax:  
Net unrealized holding loss on AFS securities$(163,666)$(1,806)
Net unrealized holding (loss) on pension plans(2,518)(2,518)
Income taxes related to items of accumulated other comprehensive income:  
Net unrealized tax benefit on AFS securities42,511 407 
Net unrealized tax benefit on pension plans674 674 
Accumulated other comprehensive loss$(122,999)$(3,243)

The following table presents the components of other comprehensive (loss) for the three and six months ended June 30, 2022 and 2021:
(In thousands)Before TaxTax EffectNet of Tax
Three Months Ended June 30, 2022   
Net unrealized holding loss on AFS securities:x 
Net unrealized (losses) arising during the period$(60,481)$15,723 $(44,758)
Less: reclassification adjustment for gains realized in net income6 (2)4 
Net unrealized holding (loss) on AFS securities(60,487)15,725 (44,762)
Other comprehensive (loss)$(60,487)$15,725 $(44,762)
Three Months Ended June 30, 2021   
Net unrealized holding loss on AFS securities:  
Net unrealized gains arising during the period$5,394 $(1,343)$4,051 
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding gain on AFS securities5,394 (1,343)4,051 
Other comprehensive income$5,394 $(1,343)$4,051 
(In thousands)Before TaxTax EffectNet of Tax
Six Months Ended June 30, 2022   
Net unrealized holding loss on AFS securities: 
Net unrealized (losses) arising during the period$(161,854)$42,102 $(119,752)
Less: reclassification adjustment for gains realized in net income6 (2)4 
Net unrealized holding (loss) on AFS securities(161,860)42,104 (119,756)
Other comprehensive (loss)$(161,860)$42,104 $(119,756)
Six Months Ended June 30, 2021   
Net unrealized holding loss on AFS securities:  
Net unrealized (losses) arising during the period$(21,619)$5,520 $(16,099)
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding (loss) on AFS securities(21,619)5,520 (16,099)
Other comprehensive (loss)$(21,619)$5,520 $(16,099)


45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive (loss), for the three and six months ended June 30, 2022 and 2021:
(In thousands)Net unrealized
holding loss
on AFS Securities		Net unrealized
holding loss
on pension plans		Total
Three Months Ended June 30, 2022   
Balance at Beginning of Period$(76,392)$(1,845)$(78,237)
Other comprehensive loss before reclassifications(44,758)— (44,758)
Less: amounts reclassified from accumulated other comprehensive (loss)4 — 4 
Total other comprehensive (loss)(44,762)— (44,762)
Balance at End of Period$(121,154)$(1,845)$(122,999)
Three Months Ended June 30, 2021   
Balance at Beginning of Period$13,308 $(2,587)$10,721 
Other comprehensive gain before reclassifications4,051 — 4,051 
Less: amounts reclassified from accumulated other comprehensive (loss) — — — 
Total other comprehensive income4,051 — 4,051 
Balance at End of Period$17,359 $(2,587)$14,772 
Six Months Ended June 30, 2022   
Balance at Beginning of Period$(1,398)$(1,845)$(3,243)
Other comprehensive loss before reclassifications(119,752)— (119,752)
Less: amounts reclassified from accumulated other comprehensive income4 — 4 
Total other comprehensive (loss)(119,756)— (119,756)
Balance at End of Period$(121,154)$(1,845)$(122,999)
Six Months Ended June 30, 2021   
Balance at Beginning of Period$33,458 $(2,587)$30,871 
Other comprehensive loss before reclassifications(16,099)(16,099)
Less: amounts reclassified from accumulated other comprehensive income— — — 
Total other comprehensive (loss)(16,099)— (16,099)
Balance at End of Period$17,359 $(2,587)$14,772 


46

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 six months ended June 30, 2022 and 2021:

   Affected Line Item in the
 Three Months Ended June 30,Statement where Net Income
(In thousands)20222021is Presented
Realized gains on AFS securities:  
 $6 $— Non-interest income
— — Retained earnings
 (2)— Tax expense
 4 — Net of tax
Total reclassifications for the period$4 $— Net of tax
   Affected Line Item in the
 Six Months Ended June 30,Statement where Net Income
(In thousands)20222021is Presented
Realized gains on AFS securities:  
 $6 Non-interest income
 (2)— Tax expense
 4 — Net of tax
   
Total reclassifications for the period$4 $— Net of tax





47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. EARNINGS PER SHARE

Earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
 Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2022202120222021
Net income$23,115 $21,636 $43,311 $34,667 
Average number of common shares issued51,903 51,903 51,903 51,903 
Less: average number of treasury shares5,247 822 4,375 885 
Less: average number of unvested stock award shares838 760 795 691 
Average number of basic shares outstanding45,818 50,321 46,733 50,327 
Plus: dilutive effect of unvested stock award shares283 280 337 257 
Plus: dilutive effect of stock options outstanding1 7 4 4 
Average number of diluted shares outstanding46,102 50,608 47,074 50,588 
Basic earnings per common share:$0.50 $0.43 $0.93 $0.69 
Diluted earnings per common share:$0.50 $0.43 $0.92 $0.69 

For the three months ended June 30, 2022, 555 thousand shares of unvested restricted stock and 74 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the six months ended June 30, 2022, 445 thousand shares of unvested restricted stock and 75 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended June 30, 2021, 480 thousand shares of unvested restricted stock and 96 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the six months ended June 30, 2021, 434 thousand shares of unvested restricted stock and 94 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation.
48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the six months ended June 30, 2022 is presented in the following table:
 Non-Vested Stock Awards OutstandingStock Options Outstanding
(Shares in thousands)Number of SharesWeighted-Average Grant Date Fair ValueNumber of SharesWeighted-Average Exercise Price
December 31, 2021710 $20.16 80 $25.21 
Granted314 28.86 — — 
Acquired— — — — 
Stock options exercised— — (1)23.30 
Stock awards vested(111)22.22 — — 
Forfeited(51)26.43 — — 
Expired— — (6)24.30 
June 30, 2022862 $23.07 73 $25.31 

During the three and six months ended June 30, 2022, proceeds from stock option exercises totaled $25 thousand. During the three and six months ended June 30, 2021, proceeds from stock option exercises totaled $55 thousand and $124 thousand, respectively. During the three and six months ended June 30, 2022, there were 63 thousand and 111 thousand shares vested in connection with stock awards, respectively. During the three and six months ended June 30, 2021, there were 35 thousand and 79 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $2.1 million and $1.6 million during the three months ended June 30, 2022 and 2021, respectively. Stock-based compensation expense totaled $3.9 million and $2.3 million during the six months ended June 30, 2022 and 2021, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. 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 June 30, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
 June 30, 2022
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading security$— $— $7,040 $7,040 
Securities available for sale: 
U.S Treasuries— 99,849 — 99,849 
Municipal bonds and obligations— 65,163 — 65,163 
Agency collateralized mortgage obligations— 626,387 — 626,387 
Agency residential mortgage-backed securities— 606,777 — 606,777 
Agency commercial mortgage-backed securities— 256,464 — 256,464 
Corporate bonds— 38,359 4,020 42,379 
Marketable equity securities13,499 655 — 14,154 
Loans held for investment at fair value— — 1,049 1,049 
Loans held for sale — 1,062 — 1,062 
Derivative assets — 58,616 44 58,660 
Capitalized servicing rights — — 1,906 1,906 
Derivative liabilities — 77,073 — 77,073 
 December 31, 2021
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading security$— $— $8,354 $8,354 
Securities available for sale:
U.S Treasuries— 59,973 — 59,973 
Municipal bonds and obligations— 77,177 — 77,177 
Agency collateralized mortgage obligations— 688,336 — 688,336 
Agency residential mortgage-backed securities— 705,859 — 705,859 
Agency commercial mortgage-backed securities— 300,580 — 300,580 
Corporate bonds— 41,630 4,030 45,660 
Marketable equity securities14,798 655 — 15,453 
Loans held for investment at fair value— — 1,200 1,200 
Loans held for sale — 6,110 — 6,110 
Derivative assets — 79,270 258 79,528 
Capitalized servicing rights — — 1,966 1,966 
Derivative liabilities — 35,194 — 35,194 
 

There were no transfers between levels during the three and six months ended June 30, 2022.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trading Security at Fair Value. The Company holds one 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 June 30, 2022.
   Aggregate Fair Value
June 30, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$1,049 $20,603 $(19,554)

   Aggregate Fair Value
December 31, 2021AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$1,200 $31,430 $(30,230)

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
June 30, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale$1,062 $1,039 $23 
   Aggregate Fair Value
December 31, 2021AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale $6,110 $5,926 $184 
51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in fair value of loans held for sale for the three and six months ended June 30, 2022, were gains of $14 thousand and losses of $161 thousand, respectively. During the three and six months ended June 30, 2022, originations of loans held for sale totaled $2.7 million and $10.1 million, respectively. During the three and six months ended June 30, 2022, sales of loans originated for sale totaled $2.0 million and $15.1 million, respectively.

The changes in fair value of loans held for sale for the three and six months ended June 30, 2021, were losses of $240 thousand and $234 thousand, respectively. During the three and six months ended June 30, 2021, originations of loans held for sale totaled $16.3 million and $60.4 million, respectively. During the three and six months ended June 30, 2021, sales of loans originated for sale totaled $20.3 million and $68.3 million, respectively.

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 June 30, 2022, 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.
52

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 six months ended June 30, 2022 and 2021.
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securityfor SaleInvestmentto LendCommitments Rights
Three Months Ended June 30, 2022
March 31, 2022$7,798 $4,020 $1,197 $18 $7 $1,786 
Unrealized (loss)/gain, net recognized in other non-interest income(556)— 259 60 11 120 
Unrealized gain included in accumulated other comprehensive income— — — — — — 
Paydown of asset(202)— (407)— — — 
Transfers to held for sale loans— — — (52)— — 
June 30, 2022$7,040 $4,020 $1,049 $26 $18 $1,906 
Six Months Ended June 30, 2022
December 31, 2021$8,354 $4,030 $1,200 $124 $134 $1,966 
Unrealized (loss)/gain, net recognized in other non-interest income(910)— 468 130 (116)(60)
Unrealized (loss) included in accumulated other comprehensive income— (10)— — — — 
Paydown of asset(404)— (619)— — — 
Transfers to held for sale loans— — — (228)— — 
June 30, 2022$7,040 $4,020 $1,049 $26 $18 $1,906 
Unrealized gain relating to instruments still held at June 30, 2022$(436)$20 $— $26 $18 $— 
53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securityfor SaleInvestmentto LendCommitmentsRights
Three Months Ended June 30, 2021   
March 31, 2021$9,350 $— $1,448 $185 $326 $2,968 
Unrealized (loss)/gain, net recognized in other non-interest income(305)— 187 430 (234)(612)
Paydown of asset(192)— (375)— — — 
Transfers to held for sale loans— — — (354)— — 
June 30, 2021$8,853 $— $1,260 $261 $92 $2,356 
Six Months Ended June 30, 2021    
December 31, 2020$9,708 $15,000 $2,265 $735 $320 $3,033 
Maturity of AFS security— (15,000)— — — — 
Unrealized gain, net recognized in other non-interest income(471)— 601 — (228)— 
Unrealized gain/(loss), net recognized in other non-interest income— — — 1,248 — (677)
Paydown of asset(384)— (1,606)— — — 
Transfers to held for sale loans— — — (1,722)— — 
June 30, 2021$8,853 $— $1,260 $261 $92 $2,356 
Unrealized gains relating to instruments still held at June 30,2021$581 $— $— $261 $92 $— 





























54

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
(In thousands)June 30, 2022Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading security$7,040 Discounted Cash FlowDiscount Rate4.32 %
AFS Securities4,020 Indication from Market MakerPrice
101.00%
Loans held for investment1,049 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$6.3 - $22.2
Commitments to lend 26 Historical TrendClosing Ratio83.49 %
  Pricing ModelOrigination Costs, per loan$3 
Forward commitments 18 Historical TrendClosing Ratio83.49 %
  Pricing ModelOrigination Costs, per loan$3 
Capitalized servicing rights 1,906 Discounted cash flowConstant Prepayment Rate (CPR)12.26 %
Discount Rate9.04 %
Total$14,059    

 Fair Value  Significant
Unobservable Input
(In thousands)December 31, 2021Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading security$8,354 Discounted Cash FlowDiscount Rate3.35 %
AFS Securities4,030 Indication from Market MakerPrice101.00 %
Loans held for investment1,200 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$6.3- $19.8
Commitments to lend 124 Historical TrendClosing Ratio82.09 %
  Pricing ModelOrigination Costs, per loan$3 
Forward commitments 134 Historical TrendClosing Ratio82.09 %
  Pricing ModelOrigination Costs, per loan$3 
Capitalized servicing rights1,966 Discounted Cash FlowConstant Prepayment Rate (CPR)19.41 %
Discount Rate9.50 %
Total$15,808    
55

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.
 June 30, 2022December 31, 2021Fair Value Measurement Date as of June 30, 2022
 Level 3Level 3Level 3
(In thousands)InputsInputsInputs
Assets  
Individually evaluated$3,026 $12,482 June 2022
Capitalized servicing rights12,510 14,056 June 2022
Total$15,536 $26,538 

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
 Fair Value   
(In thousands)June 30, 2022Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$3,026 Fair Value of CollateralDiscounted Cash Flow - Loss Severity
(100.00)% to 15.31% ((49.34)%)
   Appraised Value
$0 to $734 ($485)
Capitalized servicing rights12,510 Discounted Cash FlowConstant Prepayment Rate (CPR)
5.90% to 13.24% (10.99%)
   Discount Rate
9.09% to 11.74% (10.80%)
Total$15,536    
(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, 2021Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$12,482 Fair Value of CollateralDiscounted Cash Flow - loss severity
(35.96)% to 133.09% ((49.14)%)
   Appraised Value
$0 to $405 ($256)
Capitalized servicing rights14,056 Discounted Cash FlowConstant Prepayment Rate (CPR)
6.24% to 17.73% (13.29%)
   Discount Rate
9.59% to 13.11% (11.97%)
Total$26,538    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended June 30, 2022 and December 31, 2021.


56

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.

57

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.
 June 30, 2022
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$871,017 $871,017 $871,017 $— $— 
Trading security7,040 7,040 — — 7,040 
Marketable equity securities14,154 14,154 13,499 655 — 
Securities available for sale 1,697,019 1,697,019 — 1,692,999 4,020 
Securities held to maturity602,611 544,065 — 541,695 2,370 
FHLB bank stock and restricted securities9,365 N/AN/AN/AN/A
Net loans7,704,430 7,708,139 — — 7,708,139 
Loans held for sale 1,062 1,062 — 1,062 — 
Accrued interest receivable36,203 36,203 — 36,203 — 
Derivative assets 58,660 58,660 — 58,616 44 
Financial Liabilities     
Total deposits$10,114,664 $10,087,181 $— $10,087,181 $— 
Short-term debt50,000 49,996 — 49,996 — 
Long-term Federal Home Loan Bank advances and other8,542 7,214 — 7,214 — 
Subordinated borrowings195,659 190,048 — 190,048 — 
Derivative liabilities 77,073 77,073 — 77,073 — 
 December 31, 2021
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$1,627,807 $1,627,807 $1,627,807 $— $— 
Trading security8,354 8,354 — — 8,354 
Marketable equity securities15,453 15,453 14,798 655 — 
Securities available for sale and other1,877,585 1,877,585 — 1,873,555 4,030 
Securities held to maturity636,503 647,236 — 644,497 2,739 
FHLB bank stock and restricted securities10,800 N/AN/AN/AN/A
Net loans6,719,753 6,850,975 — — 6,850,975 
Loans held for sale 6,110 6,110 — 6,110 — 
Accrued interest receivable33,534 33,534 — 33,534 — 
Derivative assets 79,528 79,528 — 79,270 258 
Financial Liabilities     
Total deposits$10,068,953 $10,073,217 $— $10,073,217 $— 
Short-term debt— — — — — 
Long-term Federal Home Loan Bank advances13,331 13,053 — 13,053 — 
Subordinated borrowings97,513 95,006 — 95,006 — 
Derivative liabilities 35,194 35,194 — 35,194 — 
58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. NET INTEREST INCOME AFTER BENEFIT/PROVISION FOR CREDIT LOSSES

Presented below is net interest income after provision for credit losses for the three and six months ended June 30, 2022 and 2021, respectively.
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Net interest income$81,358 $75,393 $150,421 $150,486 
(Benefit)/provision for credit losses— — (4,000)6,500 
Net interest after provision for credit losses$81,358 $75,393 $154,421 $143,986 
59
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.
At or for theAt or for the
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
NOMINAL AND PER SHARE DATA    
Net earnings per common share, diluted$0.50 $0.43 $0.92 $0.69 
Adjusted earnings per common share, diluted (1)(2)0.51 0.44 0.94 0.75 
Net income, (thousands)23,115 21,636 43,311 34,667 
Adjusted net income, (thousands) (1)(2)23,562 22,104 44,351 38,119 
Total common shares outstanding, (thousands) 45,788 50,453 45,788 50,453 
Average diluted shares, (thousands)46,102 50,608 47,074 50,588 
Total book value per common share22.15 23.30 22.15 23.30 
Tangible book value per common share (2)21.56 22.66 21.56 22.66 
Dividends per common share0.12 0.12 0.24 0.24 
Full-time equivalent staff, continuing operations1,322 1,417 1,322 1,417 
PERFORMANCE RATIOS (3)
Return on equity7.82 %7.37 %7.31 %5.95 %
Adjusted return on equity (1)(2)7.97 7.53 7.49 6.54 
Return on tangible common equity (1)(2)8.33 7.92 7.81 6.46 
Adjusted return on tangible common equity (1)(2)8.48 8.08 7.99 7.07 
Return on assets0.82 0.70 0.76 0.56 
Adjusted return on assets (1)(2)0.84 0.71 0.78 0.61 
Net interest margin, fully taxable equivalent (FTE) (4)(5)3.11 2.62 2.86 2.62 
Efficiency ratio (1)(2)66.60 67.82 69.48 69.60 
FINANCIAL DATA (in millions, end of period)
Total assets$11,579 $12,273 $11,579 $12,273 
Total earning assets10,849 11,571 10,849 11,571 
Total loans7,803 7,233 7,803 7,233 
Total deposits10,115 9,914 10,115 9,914 
Loans/deposits (%)77 %73 %77 %73 %
ASSET QUALITY    
Allowance for credit losses, (millions)$99 $119 $99 $119 
Net charge-offs, (millions)— (5)(3)(15)
Net charge-offs (QTD annualized)/average loans0.02 %0.26 %0.08 %0.39 %
Provision (benefit)/expense, (millions)$— $— $(4)$7 
Non-accruing loans/total loans0.34 %0.66 %0.34 %0.66 %
Allowance for credit losses/non-accruing loans368 250 368 250 
Allowance for credit losses/total loans1.27 1.65 1.27 1.65 
CAPITAL RATIOS
Common equity tier 1 capital to risk-weighted assets12.9 %14.3 %12.9 %14.3 %
Tier 1 capital leverage ratio10.2 9.5 10.2 9.5 
Tangible common shareholders' equity/tangible assets (2)8.5 9.3 8.5 9.3 
60
At or for theAt or for the
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
FOR THE PERIOD: (In thousands)
    
Net interest income $81,358 $75,393 $150,421 $150,486 
Non-interest income 16,351 22,011 37,032 48,204 
Net revenue 97,709 97,404 187,453 198,690 
(Benefit)/provision for credit losses— — (4,000)6,500 
Non-interest expense 68,475 68,872 137,025 147,026 
Net income23,115 21,636 43,311 34,667 
Adjusted income (1)(2)23,562 22,104 44,351 38,116 
____________________________________________________________________________________________
(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 "Reconciliation of Non-GAAP Financial Measures" for additional information.
(2)     Non-GAAP financial measure. Refer to "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 June 30, 2022 and 2021 was 0.03% and 0.08%, respectively. The increase for the six months ended June 30, 2022 and 2021 was 0.03% and 0.06%, respectively.
61
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 June 30,Six Months Ended June 30,
 2022202120222021
(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
Loans:    
Commercial real estate$3,831 3.79 %$3,625 3.46 %$3,741 3.57 %$3,628 3.37 %
Commercial and industrial loans1,447 4.46 1,605 4.74 1,410 4.30 1,735 4.68 
Residential mortgages1,652 3.57 1,604 3.79 1,545 3.57 1,672 3.75 
Consumer loans562 5.41 582 3.80 538 4.82 608 3.80 
Total loans (1)
7,492 3.99 7,416 3.84 7,234 3.80 7,643 3.78 
Investment securities (2)
2,621 1.97 2,259 2.17 2,635 1.96 2,227 2.27 
Short-term investments & loans held for sale (3)
476 0.57 1,750 0.10 837 0.37 1,551 0.11 
Mid-Atlantic region loans held for sale (4)
— — 269 3.96 — — 282 4.03 
Total interest-earning assets10,589 3.34 11,694 2.96 10,706 3.08 11,703 3.01 
Intangible assets27 33  28 33 
Other non-interest earning assets644  690  642 707 
Total assets$11,260  $12,417  $11,376 $12,443 
Liabilities and shareholders’ equity
Deposits:    
NOW and other$1,454 0.12 %$1,389 0.07 %$1,455 0.08 %$1,357 0.11 %
Money market2,811 0.19 2,751 0.18 2,841 0.17 2,776 0.23 
Savings1,127 0.03 1,054 0.05 1,122 0.03 1,029 0.06 
Time1,460 0.64 2,013 0.94 1,542 0.67 2,140 1.03 
Total interest-bearing deposits6,852 0.24 7,207 0.35 6,960 0.24 7,302 0.42 
Borrowings and notes (5)
160 4.61 381 3.12 132 4.91 441 2.95 
Mid-Atlantic region interest-bearing deposits (4)
— — 517 0.51 — — 517 0.56 
Total interest-bearing liabilities7,012 0.34 8,105 0.49 7,092 0.33 8,260 0.56 
Non-interest-bearing demand deposits2,903  2,787  2,935 2,662 
Other non-interest earning liabilities163  351  164 355 
Liabilities from discontinued operations— — — — 
Total liabilities10,078  11,243  10,191 11,277 
Total common shareholders' equity1,182 1,174 1,185 1,166 
Total shareholders’ equity (2)
1,182  1,174  1,185 1,166 
Total liabilities and stockholders’ equity$11,260  $12,417  $11,376 $12,443 
62
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Average
Balance		Yield/Rate
(FTE basis)		Average
Balance		Yield/Rate
(FTE basis)		Average BalanceYield/Rate (FTE basis)Average BalanceYield/Rate (FTE basis)
Net interest spread3.00 % 2.47 %2.75 %2.45 %
Net interest margin (6)
3.11  2.62 2.86 2.62 
Cost of funds0.24  0.36 0.23 0.42 
Cost of deposits0.17  0.25 0.17 0.31 
Supplementary data  
Total deposits (In millions)$9,755 $9,994  $9,895 $9,964 
Fully taxable equivalent income adj. (In thousands) (7)
1,560 1,660  3,084 3,154 
____________________________________
(1)     The average balances of loans include nonaccrual loans and deferred fees and costs. As of June 30, 2022, deferred fees related to PPP loans was not considered material. As of June 30, 2021, deferred fees related to PPP loans totaled $0.2 million.
(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 Bank sold its Mid-Atlantic branch operations and insurance operations in the third quarter of 2021. 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 and the net interest margin.
(5)     The average balances of borrowings include the capital lease obligation presented under other liabilities on the consolidated balance sheet.
(6)     Purchase accounting accretion totaled $0.7 million and $2.2 million for the three months ended June 30, 2022 and 2021, respectively. Purchase accounting accretion totaled $1.5 million and $3.5 million for the three months ended June 30, 2022 and 2021, respectively.
(7)    Fully taxable equivalent considers the impact of tax advantaged investment securities and loans. The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.
63
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. 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.

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. Expense adjustments in 2021 were primarily related to branch consolidations. Net losses on securities in 2022 were primarily due to unrealized equity securities losses due to changes in market conditions.

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 June 30,At or for the Six Months Ended June 30,
(In thousands) 2022202120222021
GAAP Net income  $23,115 $21,636 $43,311 $34,667 
Adj: Net losses on securities (1)
 973 484 1,718 515 
Adj: Restructuring and other expense 35 6 53 3,492 
Adj: Income taxes (561)(22)(731)(555)
Total adjusted income/(loss) (non-GAAP) (2)
(A)$23,562 $22,104 $44,351 $38,119 
GAAP Total revenue  $97,709 $97,404 $187,453 $198,690 
Adj: Losses on securities, net (1)
 973 484 1,718 515 
Total operating revenue (non-GAAP) (2)
(B)$98,682 $97,888 $189,171 $199,205 
GAAP Total non-interest expense $68,475 $68,872 $137,025 $147,026 
Less: Total non-operating expense (see above) (35)(6)(53)(3,492)
Operating non-interest expense (non-GAAP) (2)
(C)$68,440 $68,866 $136,972 $143,534 
(In millions, except per share data)    
Total average assets(D)$11,260 $12,417 $11,376 $12,442 
Total average shareholders’ equity(E)1,182 1,174 1,185 1,166 
Total average tangible shareholders’ equity (2)
(F)1,155 1,141 1,157 1,133 
Total average tangible common shareholders' equity (2)
(G)1,155 1,141 1,157 1,133 
Total tangible shareholders’ equity, period-end (2)(3)
(H)987 1,143 987 1,143 
Total tangible common shareholders' equity, period-end (2)(3)
(I)987 1,143 987 1,143 
Total tangible assets, period-end (2)(3)
(J)11,552 12,241 11,552 12,241 
Total common shares outstanding, period-end (thousands)(K)45,788 50,453 45,788 50,453 
Average diluted shares outstanding (thousands)(L)46,102 50,608 47,074 50,588 
Earnings per common share, diluted$0.50 $0.43 $0.92 $0.69 
Adjusted earnings per common share, diluted (2)
(A/L)0.51 0.44 0.94 0.75 
Book value per common share, period-end22.15 23.30 22.15 23.30 
Tangible book value per common share, period-end (2)
(I/K)21.56 22.66 21.56 22.66 
Total shareholders' equity/total assets8.76 9.57 8.76 9.57 
Total tangible shareholder's equity/total tangible assets (2)
(H/J)8.54 9.34 8.54 9.34 
Performance ratios (4)
    
GAAP return on equity7.82 %7.37 %7.31 %5.95 %
Adjusted return on equity (2)
(A/E)7.97 7.53 7.49 6.54 
Return on tangible common equity (2)(5)
8.33 7.92 7.81 6.46 
Adjusted return on tangible common equity (2)(5)
(A+O)/(G)8.48 8.08 7.99 7.07 
GAAP return on assets0.82 0.70 0.76 0.56 
Adjusted return on assets (2)
(A/D)0.84 0.71 0.78 0.61 
Efficiency ratio (2)
(C-O)/(B+M+P)66.60 67.82 69.48 69.60 
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(in thousands) 
Supplementary data (In thousands)
    
Tax benefit on tax-credit investments (6)
(M)$595 $79 $1,191 $120 
Non-interest income charge on tax-credit investments (7)
(N)(351)(175)(708)(207)
Net income on tax-credit investments(M+N)244 (96)483 (87)
Intangible amortization(O)1,286 1,297 2,572 2,616 
Fully taxable equivalent income adjustment(P)1,560 1,660 3,084 3,154 
_________________________________________________________________________________________
(1)     Net securities losses for the periods ending June 30, 2022 and 2021 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 2021 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 2022 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. References to loan categories in the financial statements are based on collateralization.

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”). Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter. The Bank seeks to transform 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 a leading socially responsible omni-channel community bank in New England and beyond. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately $11.6 billion in assets and operates 105 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, 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 business 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. Such statements further include statements about expectations regarding inflation and interest rates, economic activity, supply chains, the Russian invasion of Ukraine, market conditions, and stock repurchases.

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, inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market, legislative and regulatory change, changes in the financial markets, the effects of the COVID-19 pandemic, including impacts on the Company, its customers, and the communities where it operates, international conflict in Europe and elsewhere, 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, 2021, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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’s revenue and earnings advanced in the most recent quarter as the Company has begun to generate improved growth and profitability under its BEST strategic plan which was initiated at midyear 2021. Results have also benefited from a strong credit environment and from market interest rate increases which began after the start of 2022. The Company’s interest rate risk profile is positioned to benefit earnings from further interest rate increases expected by the markets through the rest of the year.

The BEST plan targeted getting better before getting bigger, and this was a primary focus in the second half of 2021 as various expense and profitability initiatives were undertaken and less strategic operations were ended, including the sale of Mid-Atlantic branch operations and insurance operations in the third quarter of 2021. The refocus on core markets and operations and the reinvestment of resources into frontline bankers and technology contributed to the resumption of loan growth in 2022. Share repurchases over the last year to return excess capital to shareholders produced a 9% decrease in outstanding shares over the last twelve months, which has further supported growth in per share earnings and return on equity.

Earnings per share (on a diluted basis) increased year-over-year by 16% to $0.50 in the second quarter and by 33% to $0.92 in the first half of the year. The key profitability metrics tracked by the Company under its BEST plan improved year-over-year in the second quarter. Second quarter 2022 return on assets measured 0.82% and return on tangible common equity measured 8.3%. The measure of pre-tax pre-provision net revenue increased year-over-year by 2% and totaled $117 million on an annualized basis in the most recent quarter.

Second quarter 2022 financial highlights are shown below. Comparisons are year-over-year unless otherwise noted:

•16% increase in EPS
•Broad-based increase in total loans since year-end 2021 based on both end-of-period and average balances
•3.11% net interest margin, increased from 2.62%
•8% increase in net interest income
•1% decrease in non-interest expense (generally stable over last five quarters)
•0.02% net charge-offs/average loans
•0.25% non-performing assets/assets – sixth sequential quarterly improvement
•$100 million investment grade subordinated debt issuance - first Sustainability Bond issued by a public U.S. community bank
•9% reduction in period-end shares outstanding year-over-year reflecting stock buybacks

Credit metrics remained strong and improving, and earnings benefited from a release of the credit loss allowance in the first quarter of 2022, and no provision expense in the most recent quarter. The allowance continues to provide comparatively strong coverage of the loan portfolio. The Company’s balance sheet positioning includes:

•Significant liquidity available through short and long term investments and off-balance sheet sources. Loans/deposits measured 77% at midyear
•Positive asset sensitivity to rising interest rates, with a 4% modeled benefit to first year net interest income compared to a static scenario in the event of a 100 basis point upward shock to net interest income
•Stock repurchase plan approved for up to $140 million in repurchases, with $84 million completed in the first half of 2022
•Strong regulatory capital metrics, with a 12.9% period-end common equity tier 1 capital ratio

During the second quarter of 2022, Moody’s Investors Service assigned first time issuer ratings with an investment grade rating of Baa3 to Berkshire Hills Bancorp and Berkshire Bank, with a positive outlook. Moody’s assigned an A3 long-term deposit rating to the Bank. Also, in the second quarter, KBRA (Kroll Bond Rating Agency) affirmed senior unsecured investment grade ratings of BBB for Berkshire Hills Bancorp and BBB+ for Berkshire Bank, with a stable outlook. KBRA affirmed a BBB+ deposit rating for the Bank. In conjunction with the issuance of its subordinated Sustainability Bond, the Company implemented its Sustainable Financing Framework, which received a favorable rating from Sustainalytics, a leading ESG ratings firm.

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In accordance with its BEST plan, Berkshire continued recruiting front line bankers and developing technology initiatives in the first half of 2022. The Company continues to promote employees from within the organization and to bring on board knowledgeable bankers to deepen long-term relationships with its customers. Berkshire Bank recently announced an expanded partnership with fintech Narmi to create a best-in-class digital banking experience for consumers and small businesses, which is targeted for implementation in 2023. For more information about the BEST plan, please see Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s most recent report on Form 10-K.

Since year-end 2021, inflation has continued to accelerate, reaching 9.1% for the twelve months ended June 2022. In response, the Federal Reserve Bank has embarked on monetary tightening policies, resulting in increased interest rates. The Federal Reserve has indicated that further tightening is anticipated.

As of July 28, 2022, GDP was reported as declining for the first two quarters of 2022. Business conditions remained relatively favorable through midyear 2022 in the Company’s markets. The Company is pursuing its plans for growth under its BEST plan based on its favorable niche in a consolidating regional market and its distinctive strategy based on its DigitouchSM approach to customer engagement and its community service message that where you bank matters.


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COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2022 AND DECEMBER 31, 2021

Summary: Total assets were unchanged at $11.6 billion at midyear 2022, compared to year-end 2021. A $1.0 billion increase in loans was funded by a $0.8 billion reduction in cash and equivalents and a $0.2 billion reduction in investment securities. Cash and cash equivalents decreased to 8% of assets from 14%. Major measures of asset quality continued to strengthen and generally were improved over pre-pandemic levels.

Total deposits were stable and the loan/deposit ratio increased to 77% from 68%.

Berkshire issued an investment grade rate $100 million subordinated note offering which was the first public community bank Sustainability Bond issued in the U.S. Shareholders’ equity decreased by $168 million including the impact of $120 million in after-tax unrealized bond losses and $84 million in common stock repurchases. The ratio of tangible common equity to tangible assets decreased to 8.5% from 10.0%. The ratio of common equity tier one capital to risk weighted assets decreased to 12.9% from 15.0%. The Company views its liquidity and capital, including the contribution of retained earnings, as well positioned to support ongoing organic growth and shareholder distributions.

Sustainability Bond Issuance: On June 30, 2022, Berkshire completed the sale at par of $100 million in subordinated notes bearing interest at a fixed rate of 5.5% for the first five years. The notes will then reset quarterly to a floating rate per annum equal to a benchmark rate which is expected to be the Three-Month Term SOFR, plus 249 basis points. The notes have a ten year final maturity and generally may be called at par after five years. The Company has $75 million in existing subordinated notes bearing interest at 6.875% which are callable at par on September 28, 2022, which the Company intends to call.

Berkshire is the first public U.S. community bank holding company with under $150 billion in total assets to issue a Sustainability Bond. The Company intends to use an amount equal to the net proceeds of its sustainability bond issuance to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework. Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, has independently verified that Berkshire’s Sustainable Financing Framework" is credible and impactful and in alignment with” International Capital Market Association (ICMA) guidelines and principles.

Investments: The portfolio of investment securities decreased by $219 million, or 9%, to $2.33 billion during the first half of the year primarily due to the decrease in the fair value of available for sale securities resulting from interest rate increases in the first half of 2022. The unrealized loss on securities available for sale increased from $4 million, or 0.2% of book value, at year-end 2021 to $165 million, or 8.9% of book value, at midyear 2022. The average life of the bond portfolio increased to 6.5 years from 4.6 years due primarily to slower prepayments of mortgage related securities in the rising rate environment. The investment portfolio is viewed as a significant source of liquidity for the Bank, as 93% of the $1.7 billion available for sale portfolio consists of Agency mortgage related products and Treasury notes. The investment portfolio yield was 1.97% in the second quarter of 2022, which was down from 2.04% in the fourth quarter of 2021, including the impact of treasury securities held pending planned loan growth.

Loans: Total loans increased by $978 million, or 14%, to $7.8 billion in the first half of 2022, including 7% growth in each of the two quarters. This increase offset attrition in the second half of 2021, with the result that second quarter average loans increased by 1% year-over-year. Loans increased in all major categories as a result of the Company’s BEST initiatives in the second half of 2021 which included stronger production from frontline bankers, talent recruitment, and channel expansion. Prepayments slowed in the rising rate environment. The Company anticipates that loan growth may moderate in the second half of the year compared to the first half.

Commercial real estate loans increased in the first half by $322 million, or 9%, including a $116 million increase in multifamily loans and a $171 million increase in non-owner occupied property loans. Commercial and industrial loans grew by $141 million, or 11%, which was driven by increased asset-based lending which reflected both account growth and higher line usage. The Company continues to maintain its commercial underwriting standards and growth is managed within a detailed system of hold limits based on industry and loan type. Variable rate loan underwriting includes a test of debt service coverage for up to a 300 basis point upward interest rate shock, and many commercial borrowers use interest rate swaps to reduce the risk of rising interest rates. After the end of the most recent quarter, the Company announced that it will cease originating new loans in its Firestone Financial
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specialty lending operation and allow the portfolio to run-off. This was a strategic decision in the context of Berkshire’s BEST plan to focus on core markets and products. The Firestone portfolio stood at $165 million at midyear 2022 and continues to have strong credit performance in line with its long history.

Residential mortgage loans increased by $427 million, or 31%, in the first half of the year. In accordance with its BEST initiative, Berkshire invested in expanding its retail originations team and its correspondent platform. The Company also purchased residential mortgages from area lenders. Most mortgage originations were held for investment; the Company targets to expand the retail origination of loans held for sale in the second half of the year.

Consumer loans increased by $87 million, or 17%, in the first half of the year. Growth was driven by consumer unsecured loans originated through the Company’s partnership with the fintech Upstart. This portfolio totaled $152 million at midyear, and most of these loans were originated during the first half of the year and were generally subject to the Company’s prime underwriting standards. In July 2022 the Company announced that, due to the prevailing economic uncertainty, it will cease new originations through this partnership. Credit performance of this portfolio has exceeded the Company’s expectations.

The yield on the loan portfolio increased to 3.99% in the second quarter of 2022 from 3.76% in the fourth quarter of 2021 due primarily to the impact of rising interest rates on prime and LIBOR indexed loans. Loans repricing within three months totaled $3.3 billion, or 42% of total loans at midyear 2022. The Company anticipates that further increases in market interest rates will lead to higher loan yields in future periods.

Asset Quality and Credit Loss Allowance: Major asset quality metrics improved in the first half of 2022, with many metrics improving to better levels than pre-pandemic. Non-accruing loans decreased to 0.34% of total loans at midyear, totaling $27 million, of which $8 million was added in the first half of the year. Annualized net loan charge-offs declined to 0.02% of average loans in the most recent quarter. Accruing delinquent loans measured 0.55% of total loans at midyear, compared to 0.63% at year-end 2021. At midyear, accruing troubled debt restructurings totaled $9 million and accruing loans over 90 days delinquent totaled $7 million. Total criticized loans decreased to 2.7% of loans from 3.5% of loans, including classified loans which decreased to 2.0% of loans from 2.1% of loans. Classified loans include accruing substandard loans, which are regarded as potential problem loans and which remained unchanged at 1.6% of total loans.

The allowance for credit losses on loans decreased in the first half of 2022 to $99 million from $106 million. The ratio of the allowance to total loans decreased to 1.27% from 1.55%. This decline was primarily due to improvements in the qualitative factors of the allowance methodology mainly as a result of improved asset quality metrics. It also reflected a reduction in the potential losses from economic and social disruptions related to COVID-19 conditions. Considering loan and allowance balances, the magnitude of the improvement was most reflected in the allowances related to residential mortgages, commercial non-owner occupied property loans, multifamily loans, and construction loans. This was partially offset by higher consumer reserves related to the consumer unsecured lending during the period.

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Deposits and Borrowings: Total deposits of $10.1 billion were unchanged at midyear 2022 compared to year-end 2021. A mix shift between NOW and money market balances was primarily due to the timing of payroll cycles as they affect the Company’s payroll deposit business. Payroll deposits totaled $1.3 billion at midyear 2022 compared to $1.0 billion at year-end 2021. The Company has been reducing its brokered deposits, which decreased to $113 million from $228 million on these respective dates. The Company evaluates its total deposits adjusted to exclude payroll and brokered deposits in evaluating its market activities. These adjusted deposits totaled $8.7 billion at midyear 2022, which was a 1% decrease from $8.8 billion at year-end 2021. This includes the impact of increased customer spending rates as well as market competition from higher yielding investment instruments in the rising interest rate environment. The cost of deposits decreased to 0.17% in the second quarter of 2022 from 0.19% in the fourth quarter of 2021. This included the benefit of maturing higher cost time deposits, including brokered deposits. The Company anticipates that further increases in market interest rates will lead to higher deposit costs in future periods. Borrowings increased primarily due to the subordinated note offering previously described. This offering was completed on June 30, 2022, and the proceeds were held in cash and cash equivalents at that date. The Company has a $75 million subordinated debt obligation bearing interest at 6.875% which becomes callable in September 2022. The Company expects to call this instrument at par after it becomes callable.

Derivative Financial Instruments: There were no material changes in the portfolio of outstanding derivative financial instruments, which totaled $3.8 billion in notional amount at period-end. The estimated fair value of these instruments was a liability of $18 million at period-end, which decreased from an asset of $43 million at year-end 2021 due to the impact of changes in interest rates on the value of outstanding commercial loan interest rate swaps.

Please see the Company’s most recent report on Form 10-K for additional information regarding the LIBOR transition.

Shareholders' Equity: Total shareholders’ equity decreased by $168 million, or 14%, to $1.01 billion during the first half of 2022. This included the impact of $84 million in stock repurchases pursuant to the Company’s $140 million authorized repurchase program, leaving $56 million in remaining repurchases authorized by year-end 2022.

Shareholders’ equity also decreased due to the impact of fair market value discounts on the available for sale securities portfolio as previously described. The after-tax impact of these charges totaled $120 million for the first six months of 2022, which was recorded to the accumulated other comprehensive loss component of shareholders’ equity. Of note, the charge for bond discounts is accreted back into equity as the related securities amortize over the 6.5 year average life of the related securities.

The Company’s 7.3% return on equity in the first half of 2022 partially offset the reductions described above, net of $0.12 per share in quarterly common dividends, which represented a 25% payout of first half earnings.

The 2022 first half decrease to 8.5% from 10.0% in the ratio of tangible common equity to tangible assets reflected the reduction in equity compared to stable assets. The charge to equity related to bond value discounts is not included as a component of the calculation of regulatory equity, which is the Company’s primary focus in capital management. The increase in loans in 2022 had an impact of increasing the regulatory measure of risk weighted assets. Including this impact, together with stock repurchase impact, the ratio of common equity tier one capital to risk weighted assets decreased to 12.9% from 15.0%. The Company monitors the impacts of rising rates, credit stress scenarios, and organic growth in assessing its capital adequacy and plans. The Company’s capital ratios were viewed by management as strong at midyear 2022. At that date, book value per share totaled $22.15 and tangible book value per share totaled $21.56.

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COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021

Summary: Berkshire’s second quarter net income increased year-over-year by 7% to $23 million. Net interest income increased by 8% year-over-year reflecting the Company’s BEST strategy to reinvest resources into balance sheet growth which has also benefited from the rising interest rate environment.

First half net income increased year-over-year by 25% to $43 million due primarily to a $7 million year-over-year improvement in first quarter results. This reflected a benefit recorded to the first quarter 2022 credit loss provision as well as a decline in non-interest expense from elevated costs in the first quarter of 2021.

On a per share basis, second quarter net income increased by 16% to $0.50. First half per share results increased by 33% to $0.92 per diluted share. Per share earnings benefited from share repurchases over these periods, with average diluted shares decreasing year-over-year by 9% in the second quarter and by 7% for the first half of the year.

Non-GAAP financial measures are discussed above in the section of "Non-GAAP Financial Measures". Quarterly adjusted EPS was $0.01 higher than GAAP results in 2021 and 2022 except for the first quarter of 2021, which had elevated restructuring charges. First half adjusted EPS increased by 25% to $0.94 in 2022.

Total second quarter net revenue was unchanged year-over-year at approximately $97.5 million, and second quarter non-interest expense decreased by 1% to $68.5 million. For the first half of the year, total revenue decreased by 6%, to $187 million and non-interest expense decreased by 7% to $137 million. Year-over-year changes in revenue and expense include the impact of insurance and branch operations sold near the end of the third quarter of 2021. The second quarter efficiency ratio in 2022 measured 66.6%, compared to 67.8% in 2021. The Company’s overall strategy is to reinvest expense savings into bankers and technology to support higher future revenue in the context of its BEST plan.

Net Interest Income: Second quarter net interest income increased year-over-year by 8%, to $81 million. First half net interest income was unchanged at $150 million in both years. Due primarily to loan runoff, this income decreased sequentially in the quarters following the second quarter of 2021, declining to $69 million in the first quarter of 2022 before rebounding in the most recent quarter due primarily to 2022 loan growth and market interest rate increases.

The net interest margin increased to 3.11% in the second quarter of 2022, compared to 2.62% in the second quarter of 2021. This reflected a 38 basis point improvement in the earning asset yield and a 12 basis point reduction in the cost of funds. The earning asset yield improvement reflected a 15 basis point improvement in the loan yield due primarily to rising interest rates, as well as the reduction in low yielding short-term investments. The cost of funds improvement was primarily due to reductions of higher cost wholesale funds, along with a shift in retail deposits from higher cost time accounts into other lower cost deposit accounts.

Second quarter 2022 net interest income increased by 18% over the linked quarter, mirroring the 19% quarter-over-quarter change in the net interest margin to 3.11% from 2.61%. Net interest income responded rapidly to the market rate increases, while also benefiting from stable deposit costs and from loan growth. At midyear 2022, the Company remained asset sensitive and was positioned to benefit from further increases in market interest rates in 2022 based on market forecasts. This is discussed below in Item 3 “Quantitative and Qualitative Disclosures About Market Risk”.

Non-Interest Income: Non-interest income decreased year-over-year by 26% to $16 million in the second quarter and by 23% to $37 million for the year-to-date. This decrease included the elimination of insurance revenue in 2022 following the sale of these operations in the third quarter of 2021. The decrease was also impacted by a decline in loan fees and revenues from elevated levels in 2021. Higher loan related revenues in 2021 included elevated SBA related income which benefited from pandemic related SBA program changes. 2021 first quarter results also benefited from PPP referral fees earned during the second round of the PPP loan program that operated in the first half of last year.

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Despite the sale of the Mid-Atlantic branch operations in the third quarter of 2021, first half deposit related fees advanced year-over-year by 5%, and wealth management fees grew by 2%. Mortgage banking revenue declined as 2022 originations were mostly held for investment. Higher securities losses in 2022 primarily related to fair market value discounts on bond instruments held in mutual funds.

Provision for Credit Losses on Loans: There was no provision for credit losses on loans recorded in the second quarter of 2022 and 2021. As a result of first quarter activity, for six months the provision was a benefit of $4 million in 2022 and an expense of $6 million in 2021. The year-over-year improvement reflects the improved credit performance and outlook as previously discussed regarding the allowance for credit losses on loans. If
significant recession conditions emerge, under the current expected credit losses methodology, the potential emergent future losses could be reflected in future provision expense.

Non-Interest Expense and Tax Expense: Non-interest expense decreased year-over-year by 1% to $68.5 million in the second quarter and by 7% to $137 million in the first half. First quarter 2021 expenses included $3 million in non-operating related restructuring charges, and $3 million in elevated professional services expense for legal, financial, and other advisory services related to management and board matters in that period. Excluding the above items, first half non-interest expense decreased by 2% year-over-year.

Expense spending in 2022 has benefited from branch consolidations and restructuring activities, as well as the sale of the Mid-Atlantic branch operations and insurance operations in the third quarter of 2021. Second quarter spending changes illustrate disciplined growth in compensation and technology expense which was offset by lower occupancy expense. This is in alignment with the BEST plan to reinvest savings from efficiency initiatives into bankers and technology. The Company is in the process of consolidating 5 of the current 105 branch offices during the second half of 2022, and is moving forward with plans to reduce other real estate properties as part of its hybrid workforce initiative to reduce occupancy costs in conjunction with its work from home initiatives.

Full-time equivalent staff totaled 1,322 positions at period-end, compared to 1,319 positions at the start of the 2022 and 1,505 positions at the start of 2021.

The first half effective tax rate was 20% in 2022 compared to 23% in 2021 and compared to 20% for the full year 2021. The higher rate in the first half of 2021 reflected a delay in the initiation of tax credit investments which benefited the tax rate in the second half of the year. The full year rate in 2021 included the impact of the pre-tax income from the sale of business operations in the third quarter. In 2022, higher pre-tax income in the first half relates to organic growth in earnings.

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. Total first half comprehensive income was a loss of $76 million in 2022, compared to income of $19 million in 2021, reflecting the impact in both periods of rising medium term interest rates on the bond portfolio.

Liquidity and Cash Flows: Please see ““Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Cash Flows” in the most recent report on Form10-K for a more expansive discussion of these topics.

For the first half of 2022, loan growth was the primary use of cash, which was primarily sourced from short-term investments and investment securities. The ratio of cash and cash equivalents decreased to 8% from 14% over this period. Cash included $100 million raised through the subordinated note offering at period-end. The Company expects to call its preexisting $75 million subordinated notes at par after they become callable.

Brokered deposits were reduced by $115 million in the first half, and had a $113 million remaining balance at midyear. The Company borrowed $50 million in FHLBB advances near the end of the period. Unused FHLBB borrowing availability stood at $1.3 billion at midyear. Cash at the parent company stood at $173 million at midyear 2022.

The Company continues to view itself as having sufficient liquidity with a high quality and liquid securities portfolio and well-positioned wholesale funding sources. The new Moody’s ratings introduced during the quarter, including the A3 long-term bank deposit rating, support Berkshire’s liquidity profile. The stability of deposit costs
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during the first half of the year has also been positive as an indicator of core funding stability in the Company’s markets.

Capital Resources: Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with Note 10 – Capital Ratios and Shareholders' Equity in the notes to the consolidated financial statements. Additional information about capital resources and regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.

The Company’s BEST plan includes the optimization of capital, including reducing excess capital through organic growth and capital returns to shareholders. The operation of this plan was evidenced in the first half of the year through the 14% loan growth and $84 million in share repurchases. Capital optimization was also supported through the subordinated debt issuance, reducing the coupon compared to the present debt which is planned to be repaid later in 2022.

The Company primarily focuses on regulatory capital measures in assessing capital, including the common equity Tier 1 capital ratio. This ratio stood at 12.9% at midyear, compared to the general 11% target established in the BEST plan. Including its improved profitability, the Company continues to pursue its capital management goals within its BEST strategy. This also includes ongoing assessment of the shareholder cash dividend in relationship to earnings and to competitive practices.

In acting as a source of 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. Increased distributions from the Company to shareholders require notice to and nonobjection from the Federal Reserve Bank.

CORPORATE RESPONSIBILITY UPDATE

Our Commitment to Environmental, Social, Governance (ESG) & Corporate Responsibility

Berkshire is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being a high-performing, leading socially responsible community bank in New England and beyond. Berkshire provides an ecosystem of socially responsible financial solutions, actively engages with its communities, and harnesses the power of its business to support the economy, empower financial access and success, and invest in a low-carbon future.

ESG factors are integral to our vision, mission, risk management practices, and Berkshire’s Exciting Strategic Transformation (BEST). Because our vision is to be a high-performing, leading socially responsible community bank in New England and beyond, we were one of the first banks in the country to establish a dedicated committee of our Board of Directors to oversee ESG matters and the a leader among community banks in integrating ESG standards into our business strategy and operations.

We continue to engage directly with our stakeholders to share information about the progress we’ve made in our ESG performance, including through our Corporate Responsibility website, corporate annual report, and proxy statement. Additionally, our annual Corporate Responsibility Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) commercial bank disclosure topics, details the Company's ESG efforts and programs.

Climate Change & Sustainability

Climate change poses unprecedented risks and opportunities to the world. Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks and impacts associated with climate change, and finance the transition will allow it to strengthen its positioning as a high-performing, leading socially responsible community bank. The Company continues to evolve its practices to reflect its community bank mission as well as the size, scope, and complexity of its operations.

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Key ESG & Corporate Responsibility Quarterly Developments

•Sustainability Bond: Berkshire completed the public offering and sale of its inaugural $100 million Sustainability Bond becoming the first U.S. community bank holding company with under $150 billion in assets to issue a Sustainability Bond. The Company intends to use an amount equal to the amount of the offering to finance or refinance projects consistent with the Company’s Sustainable Financing Framework including renewable electricity generation; green buildings; renewable energy technology, storage and manufacturing; energy efficiency in commercial, residential and public buildings; affordable housing; workforce housing; and financial inclusion and access activities.

•BEST Community Comeback & Comeback Tour: Company executives completed visits to each of its markets across five states including every branch meeting with stakeholders to highlight its “BEST Community Comeback” commitment. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability. As a result of the collective efforts of its employees, Berkshire is making steady progress towards the achievement of its goals. Additional information can be found at berkshirebank.com/comeback.

•Launch of the Center for Women, Wellness and Wealth: Berkshire launched the Center for Women, Wellness, and Wealth (CWWW) to provide tools that instill greater confidence and create a future for women enriched with financial stability, balance and growth. The Center, through partnerships with community organizations, specialized experts and thought leaders, will offer events on wellness and financial planning, philanthropic coaching and development support, and complimentary portfolio reviews through Berkshire Bank Wealth Management.

•Xtraordinary Day: The Company completed its signature Xtraordinary Day of service on June 8 during which the Bank closed its offices for the afternoon to give back to the community. This year, Berkshire Bank partnered with 39 non-profit organizations and over 1,000 Berkshire Bankers, 80% of the Company, invested the afternoon volunteering for 46 community projects across MA, NY, CT, RI, and VT. In total, employees contributed over 5,000 hours of service.

•Current ESG Performance: The Company maintained its top 22% performance in leading ESG indexes in the U.S. for its Environmental, Social and Governance (ESG) ratings. As of June 30, 2022 the Company has ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 2, Social: 1, Governance: 2; and Bloomberg ESG Disclosure- 59.62. The Company is also rated by Sustainalytics. Berkshire’s increased score from Bloomberg moved it into the top ranking for U.S. banks.


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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.

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

• Allowance for Credit Losses on Loans

• Fair Value Measurements

These 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 policies were significant in determining income and financial condition in the financial statements. There is further discussion of the application of these policies in the Form 10-K.


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, loan review, 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, Capital, and Compliance Committee. The high level corporate risk assessment includes 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.


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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.

As of June 30, 2022, Berkshire’s balance sheet remained well-positioned for the forecast rising rate environment. Shown below is a chart of the modeled change in net interest income from a static base case in the event of interest rate shocks for the scenarios illustrated.
    CHANGE IN NET INTEREST INCOME
1-12 Months 13-24 Months
Parallel Interest Rate Shock – Basis Points% Change% Change
At June 30, 2022  
+2008.2%12.4%
+1004.0%5.9%
-100(8.2)%(9.6)%
At December 31, 2021
+20013.1%16.1%
+1005.6%6.5%
-100(0.1)%(1.2)%

The shock information above shows that the Company has become less asset sensitive in the first half of 2022 due primarily to the reinvestment of cash into loans, some of which are longer duration. The Company remained asset sensitive and therefore was positioned to further benefit from expected interest rate increases in the second half of 2022. The Company’s sensitivity to decreases in interest rates has become more pronounced as current higher levels of interest rates are reflected in current net interest income. The downward sensitivity has not been significant during the near-zero interest rate environment in recent years. The Company is monitoring its downward sensitivity and has interest rate risk management options available to limit downward sensitivity which can be assessed within the total context of its strategic management.

The Company also models net interest income sensitivity to twelve month interest rate ramps. At period-end, the year one sensitivity to a +100 basis point interest rate ramp was 2.1% and the year two sensitivity was 5.3%. The Company also models sensitivity to yield curve twists, and sensitivity remained positive for both widening and narrowing of the yield curve scenarios.

While the sensitivity of net interest income is the primary driver of the sensitivity of net income, the latter is more sensitive than the former since it is net of expenses. In the case of the first year of a +100 basis point scenario, the modeled shock sensitivity of net income is 9.6%.

Economic value of equity sensitivity to changes in market rates was positive at midyear 2022, measuring 3.3%
for a +200% basis point shock.

A critical component of modeling is the assumption of deposit interest rate sensitivity. The Company continues to model the non-maturity deposit beta of approximately 40% for purposes of interest rate risk simulations. Due to the low level of interest rates, the modeled sensitivity of a downward shift in interest rates is affected by assumptions related to market influences on spreads and floors. Prime, mortgage rates, and deposits are floored. All other rates are zero bound.


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Modeled interest rate sensitivity depends on other material assumptions. Market risk exposure is affected by the level and shape of the yield curve in markets for financial instruments including U.S. Treasury obligations, forward interest rate derivatives, the U.S. prime interest rate, and LIBOR related rates. Also, the economic impact on customer and market behaviors of the COVID-19 pandemic remains uncertain and may cause actual events to differ from assumptions. The behavior of markets under the historically unusual conditions currently prevailing may be different from modeling assumptions, and the Company continues to monitor the markets and the assumptions in its model.

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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 June 30, 2022, 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 dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed. Discovery is now underway in this action. 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 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. The parties have mutually agreed on an arbitrator to hear the case and are preparing for arbitration proceedings that are expected to occur in the fourth quarter of 2022.
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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 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 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 have been no material changes in risk factors from those identified in the Form 10-K.


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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 June 30, 2022 and 2021 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 second quarter of 2022:
Total number ofAverage priceTotal number of shares
purchased as part of
publicly announced		Maximum number of
shares that may yet
be purchased under
Period shares purchasedpaid per shareplans or programsthe plans or programs
April 1-30, 2022631,900 $27.66 631,900 3,764,284 
May 1-31, 20221,515,379 24.79 1,515,379 2,248,905 
June 1-30, 2022— — — 2,248,905 
Total2,147,279 $25.63 2,147,279 2,248,905 

On January 19, 2022, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $140 million through December 31, 2022. This would result in the repurchase of approximately 9% of then outstanding shares based on the share price when the plan was approved. The maximum number of shares that may be purchased under this program has been estimated based on the June 30, 2022 closing price per share of Company common stock of $24.77.



ITEM 3.                DEFAULTS UPON SENIOR SECURITIES
None.


ITEM 4.                  MINE SAFETY DISCLOSURES
Not applicable.


ITEM 5.                OTHER INFORMATION
None.
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Table of Contents
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)
4.3
Indenture, dated June 30, 2022, between Berkshire Hills Bancorp, Inc. and Wilmington Trust National Association, as Trustee (5)
4.4
First Supplemental Indenture, dated June 30, 2022, between Berkshire Hills Bancorp, Inc. and Wilmington Trust National Association, as Trustee (5)
4.5
Form of 5.50% Fixed-to-Floating Rate Subordinated Notes due 2032
10.1
Berkshire Hills Bancorp, Inc. 2022 Equity Incentive Plan (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 June 30, 2022, 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. 
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, 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 the Exhibits to the Form 8-K as filed on June 30, 2022.
(6) Incorporated herein by reference from Appendix A to the Definitive Proxy Statement as filed on April 8, 2022.


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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: August 9, 2022By:/s/ Nitin J. Mhatre
 Nitin J. Mhatre
 President and Chief Executive Officer
  
   
Dated: August 9, 2022By:/s/ Subhadeep Basu
 Subhadeep Basu
 Senior Executive Vice President, Chief Financial Officer

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