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Berkshire Hills Bancorp
BHLB
#4594
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 FY2023 Q1

Berkshire Hills Bancorp - 10-Q quarterly report FY2023 Q1


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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: March 31, 2023
☐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
newlogoa10.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 May 9, 2023, the Registrant had 44,277,178 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 March 31, 2023 and December 31, 2022
3
 Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022
4
 Consolidated Statements of Comprehensive Income/(Loss) for the Three Months Ended March 31, 2023 and 2022
5
 Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2023 and 2022
6
 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022
7
 Notes to Consolidated Financial Statements (Unaudited) 
  
9
  
10
  
10
16
  
28
  
28
  
30
38
40
  
43
  
44
  
45
  
53
Item 2.
54
 
54
 
56
 
57
69
71

2
PART I
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
 March 31,
2023		December 31,
2022
(In thousands, except share data)
Assets  
Cash and due from banks$121,589 $145,342 
Short-term investments884,973 540,013 
Total cash and cash equivalents1,006,562 685,355 
Trading securities, at fair value6,584 6,708 
Equity securities, at fair value13,072 12,856 
Securities available for sale, at fair value1,407,271 1,423,200 
Securities held to maturity (fair values of $507,091 and $507,464)
574,606 583,453 
Federal Home Loan Bank stock 44,245 7,219 
Total securities2,045,778 2,033,436 
Less: Allowance for credit losses on held to maturity securities(71)(91)
Net securities2,045,707 2,033,345 
Loans held for sale1,906 4,311 
Total loans8,681,967 8,335,309 
Less: Allowance for credit losses on loans (97,991)(96,270)
Net loans8,583,976 8,239,039 
Premises and equipment, net78,710 85,217 
Other intangible assets23,279 24,483 
Cash surrender value of bank-owned life insurance policies239,896 238,919 
Other assets331,720 348,935 
Assets held for sale8,220 3,260 
Total assets$12,319,976 $11,662,864 
Liabilities  
Demand deposits$2,650,937 $2,852,127 
NOW and other deposits959,417 1,054,596 
Money market deposits3,274,630 3,723,570 
Savings deposits1,069,915 1,063,269 
Time deposits2,112,646 1,633,707 
Total deposits10,067,545 10,327,269 
Short-term debt900,000 — 
Long-term Federal Home Loan Bank advances and other4,395 4,445 
Subordinated borrowings121,176 121,064 
Total borrowings1,025,571 125,509 
Other liabilities231,380 256,024 
Total liabilities$11,324,496 $10,708,802 
(continued)
March 31,
2023		December 31,
2022
Shareholders’ equity  
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 44,411,346 shares outstanding in 2023; 51,903,190 shares issued and 44,361,222 shares outstanding in 2022)
528 528 
Additional paid-in capital - common stock1,424,563 1,424,183 
Unearned compensation(10,920)(8,598)
Retained (deficit)(51,398)(71,428)
Accumulated other comprehensive (loss) (159,066)(181,052)
Treasury stock, at cost (7,491,844 shares in 2023 and 7,541,968 shares in 2022)
(208,227)(209,571)
Total shareholders’ equity995,480 954,062 
Total liabilities and shareholders’ equity$12,319,976 $11,662,864 
The accompanying notes are an integral part of these consolidated financial statements.
3
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
(In thousands, except per share data)20232022
Interest and dividend income   
Loans$117,493 $62,474 
Securities and other14,823 12,349 
Total interest and dividend income132,316 74,823 
Interest expense   
Deposits26,082 4,174 
Borrowings8,701 1,586 
Total interest expense34,783 5,760 
Net interest income97,533 69,063 
Non-interest income
Deposit related fees8,311 7,351 
Loan fees and other2,469 4,939 
Gain on SBA loan sales2,494 3,345 
Wealth management fees2,739 2,625 
Total fee income16,013 18,260 
Other, net359 3,166 
Gain/(loss) on securities, net234 (745)
Total non-interest income16,606 20,681 
Total net revenue 114,139 89,744 
Provision expense/(benefit) for credit losses 8,999 (4,000)
Non-interest expense  
Compensation and benefits39,071 37,521 
Occupancy and equipment9,379 10,067 
Technology and communications9,471 8,527 
Marketing and promotion1,208 1,111 
Professional services3,277 2,692 
FDIC premiums and assessments1,426 987 
Amortization of intangible assets1,205 1,286 
Acquisition, restructuring, and other expenses(36)18 
Other6,954 6,341 
Total non-interest expense71,955 68,550 
Income before income taxes$33,185 $25,194 
Income tax expense5,548 4,998 
Net income$27,637 $20,196 
Basic earnings per common share$0.63 $0.42 
Diluted earnings per common share$0.63 $0.42 
Weighted average shares outstanding:  
Basic43,693 47,668 
Diluted44,036 48,067 
The accompanying notes are an integral part of these consolidated financial statements.
4
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Three Months Ended
March 31,
(In thousands)20232022
Net income$27,637 $20,196 
Other comprehensive income/(loss), before tax:  
Changes in unrealized gain/(loss) on debt securities available-for-sale23,968 (101,373)
Changes in unrealized gain on derivative hedges5,798 — 
Income taxes related to other comprehensive (loss):  
Changes in unrealized gain/(loss) on debt securities available-for-sale(6,224)26,379 
Changes in unrealized gain on derivative hedges(1,556)— 
Total other comprehensive income/(loss)21,986 (74,994)
Total comprehensive income/(loss)$49,623 $(54,798)
The accompanying notes are an integral part of these consolidated financial statements.

5
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 Common stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive (loss)		Treasury stock
(In thousands)SharesAmountTotal
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— — — — 20,196 — — 20,196 
Other comprehensive (loss)— — — — — (74,994)— (74,994)
Total comprehensive income/(loss)— — — — 20,196 (74,994)— (54,798)
Cash dividends declared on common shares ($0.12 per share)
— — — — (6,152)— — (6,152)
Treasury shares repurchased(972)— — — — — (29,254)(29,254)
Forfeited shares(36)— 70 983 — — (1,053)— 
Exercise of stock options1 — — — (4)— 29 25 
Restricted stock grants139 — 161 (4,016)— — 3,855 — 
Stock-based compensation— — — 1,805 — — — 1,805 
Other, net(7)— 3 — — — (203)(200)
Balance at March 31, 202247,792 $528 $1,423,679 $(10,284)$(125,343)$(78,237)$(116,482)$1,093,861 
Balance at December 31, 202244,361 $528 $1,424,183 $(8,598)$(71,428)$(181,052)$(209,571)$954,062 
Comprehensive income:       
Net income— — — — 27,637 — — 27,637 
Other comprehensive income— — — — — 21,986 — 21,986 
Total comprehensive income— — — — 27,637 21,986 — 49,623 
Impact of ASU No. 2022-02 Adoption— — — — 401 — — 401 
Cash dividends declared on common shares ($0.18 per share)
— — — — (8,008)— — (8,008)
Treasury shares repurchased(47)— — — — — (1,190)(1,190)
Forfeited shares(31)— 87 834 — — (921)— 
Exercise of stock options— — — — — — — — 
Restricted stock grants143 — 446 (4,352)— — 3,906 — 
Stock-based compensation— — — 1,196 — — — 1,196 
Other, net(15)— (153)— — — (451)(604)
Balance at March 31, 202344,411 $528 $1,424,563 $(10,920)$(51,398)$(159,066)$(208,227)$995,480 

The accompanying notes are an integral part of these consolidated financial statements.
6
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended
March 31,
(In thousands)20232022
Cash flows from operating activities:  
Net income$27,637 $20,196 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision/(benefit) for credit losses8,999 (4,000)
Net (accretion)/amortization of securities(42)668 
Change in unamortized net loan costs and premiums309 560 
Premises and equipment depreciation and amortization expense2,223 2,479 
Stock-based compensation expense1,196 1,805 
Accretion of purchase accounting entries, net(47)(677)
Amortization of other intangibles1,205 1,286 
Income from cash surrender value of bank-owned life insurance policies(977)(1,332)
(Gain) on SBA loan sales (1)
(2,494)(3,345)
Securities (gains)/losses, net(234)745 
Net change in loans held-for-sale2,405 5,204 
Amortization of interest in tax-advantaged projects2,285 357 
Net change in other(5,151)(10,595)
Net cash provided by operating activities37,314 13,351 
Cash flows from investing activities:  
Net decrease in trading security212 202 
Purchases of securities available for sale(28,899)(386,636)
Proceeds from maturities, calls, and prepayments of securities available for sale69,404 130,118 
Proceeds from maturities, calls, and prepayments of securities held to maturity8,380 23,853 
Net change in loans (1)
(351,311)(440,012)
Proceeds from surrender of bank-owned life insurance— 429 
Purchase of Federal Home Loan Bank stock(183,155)(116)
Proceeds from redemption of Federal Home Loan Bank stock146,129 87 
Purchase of premises and equipment, net(753)— 
Net cash (used) by investing activities(339,993)(672,075)
7
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
 Three Months Ended
March 31,
(In thousands)20232022
(continued)
Cash flows from financing activities:  
Net (decrease)/increase in deposits(259,724)630,255 
Proceeds from Federal Home Loan Bank advances and other borrowings3,555,000 1,275 
Repayments of Federal Home Loan Bank advances and other borrowings(2,655,050)(46)
Purchase of treasury stock(1,190)(29,254)
Exercise of stock options— 25 
Common stock cash dividends paid(8,008)(6,152)
Settlement of derivative contracts with financial institution counterparties(7,142)42,065 
Net cash provided by financing activities623,886 638,168 
Net change in cash and cash equivalents321,207 (20,556)
Cash and cash equivalents at beginning of period685,355 1,627,807 
Cash and cash equivalents at end of period$1,006,562 $1,607,251 
Supplemental cash flow information:  
Interest paid on deposits$25,267 $3,965 
Interest paid on borrowed funds6,163 1,588 
Income taxes paid, net4,412 2,694 
Other non-cash changes:  
Other net comprehensive income$21,986 $(74,994)
Impact to retained earnings from adoption of ASU 2022-02401 — 
Properties transferred to held for sale4,960 — 
Reclassification of held-for-sale loans to held-for-investment, net— 606 
(1)    As of March 31, 2023, the (gain) on SBA loan sales is included in operating activities. For March 31, 2022, the (gain) on SBA loan sales was reclassified from net change in loans.


The accompanying notes are an integral part of these consolidated financial statements.
8

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, 2022. 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.

Recently Adopted Accounting Principles
Effective January 1, 2023, the Company adopted ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

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. Refer to Note 4 – Loans and Allowance for Credit Losses for the new financial statement disclosures applicable under this update.

Future Application of Accounting Pronouncements
In March 2023, the FASB issued ASU No. 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force).” The guidance is intended to improve the accounting and disclosures for investments in tax credit structures. The ASU allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying investments in low-income housing tax credit structures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, 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.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.           TRADING SECURITIES

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $6.9 million and $7.1 million, and a fair value of $6.6 million and $6.7 million, at March 31, 2023 and December 31, 2022, 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 March 31, 2023 or December 31, 2022.

NOTE 3. SECURITIES AVAILABLE FOR SALE, HELD TO MATURITY, AND
        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
March 31, 2023    
Securities available for sale    
U.S Treasuries$8,981 $— $— $8,981 
Municipal bonds and obligations
65,849 749 (1,981)64,617 — 
Agency collateralized mortgage obligations 612,727 — (86,778)525,949 — 
Agency mortgage-backed securities
628,243 1 (88,647)539,597 — 
Agency commercial mortgage-backed securities
261,167 — (33,759)227,408 — 
Corporate bonds
43,349 66 (3,352)40,063 — 
Other bonds and obligations
655 67 (66)656 — 
Total securities available for sale1,620,971 883 (214,583)1,407,271 — 
Securities held to maturity    
Municipal bonds and obligations
263,818 1,174 (19,260)245,732 49 
Agency collateralized mortgage obligations 124,335 — (18,041)106,294 — 
Agency mortgage-backed securities
50,152 — (8,511)41,641 — 
Agency commercial mortgage-backed securities
134,180 — (22,781)111,399 — 
Tax advantaged economic development bonds
1,830 7 (103)1,734 22 
Other bonds and obligations
291 — — 291 — 
Total securities held to maturity574,606 1,181 (68,696)507,091 71 
Marketable equity securities15,036 — (1,964)13,072 — 
Total$2,210,613 $2,064 $(285,243)$1,927,434 $71 
10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
December 31, 2022    
Securities available for sale    
U.S Treasuries$11,972 $1 $— $11,973 $— 
Municipal bonds and obligations
65,943 422 (3,030)63,335 — 
Agency collateralized mortgage obligations 631,732 — (99,787)531,945 — 
Agency mortgage-backed securities
643,308 1 (96,996)546,313 — 
Agency commercial mortgage-backed securities
264,218 — (35,750)228,468 — 
Corporate bonds
43,368 80 (2,938)40,510 — 
Other bonds and obligations
655 67 (66)656 — 
Total securities available for sale1,661,196 571 (238,567)1,423,200 — 
Securities held to maturity    
Municipal bonds and obligations
266,793 691 (23,704)243,780 66 
Agency collateralized mortgage obligations 128,136 — (20,420)107,716 — 
Agency mortgage-backed securities
50,958 — (9,240)41,718 — 
Agency commercial mortgage-backed securities
135,206 — (23,203)112,003 — 
Tax advantaged economic development bonds
2,069 8 (121)1,956 25 
Other bonds and obligations
291 — — 291 — 
Total securities held to maturity583,453 699 (76,688)507,464 91 
Marketable equity securities15,035 — (2,179)12,856 — 
Total$2,259,684 $1,270 $(317,434)$1,943,520 $91 

The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the three months ended March 31, 2023 and 2022:
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2022$66 $25 $91 
(Benefit)/provision for credit losses(17)(3)(20)
Balance at March 31, 2023$49 $22 $71 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2021$70 $35 $105 
(Benefit)/provision for credit losses(3)(3)(6)
Balance at March 31, 2022$67 $32 $99 

Credit Quality Information
The Company monitors the credit quality of held to maturity securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization.

As of March 31, 2023, none of the Company's investment securities were delinquent or in non-accrual status.

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at March 31, 2023 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
 Available for saleHeld to maturity
 AmortizedFairAmortizedFair
(In thousands)CostValueCostValue
Within 1 year$9,800 $9,801 $802 $803 
Over 1 year to 5 years10,863 10,694 2,222 2,218 
Over 5 years to 10 years52,127 49,259 34,563 34,659 
Over 10 years46,044 44,563 228,352 210,077 
Total bonds and obligations118,834 114,317 265,939 247,757 
Mortgage-backed securities1,502,137 1,292,954 308,667 259,334 
Total$1,620,971 $1,407,271 $574,606 $507,091 

During the three months ended March 31, 2023, purchases of AFS securities totaled $28.9 million. During the three months ended March 31, 2023, there were no sales of AFS securities. During the three months ended March 31, 2022, purchases of AFS securities totaled $386.6 million. During the three months ended March 31, 2022, there were no sales of AFS securities.
12

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
March 31, 2023      
Securities available for sale      
Municipal bonds and obligations
$356 $13,295 $1,625 $15,813 $1,981 $29,108 
Agency collateralized mortgage obligations
250 9,999 86,528 515,950 86,778 525,949 
Agency mortgage-backed securities
142 4,110 88,505 535,398 88,647 539,508 
Agency commercial mortgage-backed securities911 10,783 32,848 216,624 33,759 227,407 
Corporate bonds
1,301 24,063 2,051 15,089 3,352 39,152 
Other bonds and obligations
— — 66 295 66 295 
Total securities available for sale$2,960 $62,250 $211,623 $1,299,169 $214,583 $1,361,419 
Securities held to maturity      
Municipal bonds and obligations$633 $46,988 $18,627 $78,012 $19,260 $125,000 
Agency collateralized mortgage obligations1,065 37,271 16,976 69,023 18,041 106,294 
Agency mortgage-backed securities— — 8,511 41,641 8,511 41,641 
Agency commercial mortgage-backed securities— — 22,781 111,399 22,781 111,399 
Tax advantaged economic development bonds
— — 103 989 103 989 
Total securities held to maturity1,698 84,259 66,998 301,064 68,696 385,323 
Total$4,658 $146,509 $278,621 $1,600,233 $283,279 $1,746,742 
December 31, 2022      
Securities available for sale      
Municipal bonds and obligations
$2,406 $36,696 $624 $2,763 $3,030 $39,459 
Agency collateralized mortgage obligations
23,052 247,509 76,735 284,434 99,787 531,943 
Agency mortgage-backed securities
3,124 37,540 93,872 508,683 96,996 546,223 
Agency commercial mortgage-backed securities9,885 96,396 25,865 132,043 35,750 228,439 
Corporate bonds
1,709 25,657 1,229 9,929 2,938 35,586 
Other bonds and obligations
— — 66 295 66 295 
Total securities available for sale$40,176 $443,798 $198,391 $938,147 $238,567 $1,381,945 
Securities held to maturity      
Municipal bonds and obligations
$5,476 $125,494 $18,228 $38,341 $23,704 $163,835 
Agency collateralized mortgage obligations
2,734 49,539 17,686 58,177 20,420 107,716 
Agency mortgage-backed securities
300 2,419 8,940 39,299 9,240 41,718 
Agency commercial mortgage-backed securities
447 9,713 22,756 102,290 23,203 112,003 
Tax advantaged economic development bonds
1 142 120 1,008 121 1,150 
Total securities held to maturity8,958 187,307 67,730 239,115 76,688 426,422 
Total$49,134 $631,105 $266,121 $1,177,262 $315,255 $1,808,367 

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2023, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at March 31, 2023:

AFS municipal bonds and obligations
At March 31, 2023, 30 of the 94 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 6.4% 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 March 31, 2023, 243 of the 245 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 14.2% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s collateralized mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS commercial and residential mortgage-backed securities
At March 31, 2023, 136 of the 139 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 13.8% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS corporate bonds
At March 31, 2023, 14 of the 15 securities in the Company’s portfolio of AFS corporate bonds were in unrealized loss positions. Aggregate unrealized losses represents 7.9% of the amortized cost of the bonds in unrealized loss positions. 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. All securities are performing.

AFS other bonds and obligations
At March 31, 2023, 2 of the 3 securities in the Company’s portfolio of AFS other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represents 18.3% of the amortized cost of the bonds in unrealized loss positions. 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. All securities are performing.

 

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM municipal bonds and obligations
At March 31, 2023, 94 of the 186 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 13.4% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

HTM collateralized mortgage obligations
At March 31, 2023, 13 of the 13 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 14.5% 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 March 31, 2023, 17 of the 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 17.0% 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 March 31, 2023, 1 of the 2 securities in the Company’s portfolio of tax-advantaged economic development bonds was in unrealized loss positions. Aggregate unrealized losses represented 9.4% of the amortized cost of the security in unrealized loss positions. The Company believes that more likely than not all the principal outstanding will be collected. All securities are performing.

15

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)March 31, 2023December 31, 2022
Construction$373,953 $319,452 
Commercial multifamily618,073 620,088 
Commercial real estate owner occupied695,890 640,489 
Commercial real estate non-owner occupied2,531,946 2,496,237 
Commercial and industrial1,517,556 1,445,236 
Residential real estate2,463,981 2,312,447 
Home equity222,393 227,450 
Consumer other258,175 273,910 
Total loans$8,681,967 $8,335,309 
Allowance for credit losses97,991 96,270 
Net loans$8,583,976 $8,239,039 

During the three months ended March 31, 2023 and March 31, 2022, there were no loans reclassified to held for sale. 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.


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.

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.

The Company’s activity in the allowance for credit losses for loans for the three ended March 31, 2023 and March 31, 2022 was as follows:
(In thousands)Balance at Beginning of PeriodAdoption of ASU No. 2022-02Charge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Three months ended March 31, 2023
Construction$1,227 $— $— $— $309 $1,536 
Commercial multifamily1,810 — — 6 (118)1,698 
Commercial real estate owner occupied10,739 24 (70)45 (460)10,278 
Commercial real estate non-owner occupied30,724 — — 95 2,589 33,408 
Commercial and industrial18,743 (23)(6,033)305 7,172 20,164 
Residential real estate18,666 2 (31)387 (1,434)17,590 
Home equity2,173 — (10)26 131 2,320 
Consumer other12,188 (404)(1,793)176 830 10,997 
Total allowance for credit losses$96,270 $(401)$(7,937)$1,040 $9,019 $97,991 
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Three months ended March 31, 2022
Construction$3,206 $— $— $(701)$2,505 
Commercial multifamily6,120 — — (349)5,771 
Commercial real estate owner occupied12,752 (130)209 (1,333)11,498 
Commercial real estate non-owner occupied32,106 (4,884)1,266 (2,674)25,814 
Commercial and industrial22,584 (653)1,288 (270)22,949 
Residential real estate22,406 (164)388 (4,814)17,816 
Home equity4,006 — 134 (837)3,303 
Consumer other2,914 (216)137 6,984 9,819 
Total allowance for credit losses$106,094 $(6,047)$3,422 $(3,994)$99,475 

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the 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 months ended March 31, 2023 and 2022 was as follows:

Three Months Ended
March 31,
(In thousands)20232022
Balance at beginning of period$8,588 $7,043 
Expense for credit losses99 — 
Balance at end of period$8,687 $7,043 

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. 

18

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)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of March 31, 2023
Construction
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Risk rating
Pass$14,566 $177,174 $152,773 $26,327 $2,967 $145 $— $— $373,952 
Special Mention— — — — — 1 — — 1 
Substandard— — — — — — — — — 
Total$14,566 $177,174 $152,773 $26,327 $2,967 $146 $— $— $373,953 
Commercial multifamily:
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Risk rating
Pass$3,938 $204,570 $57,851 $27,427 $99,583 $215,608 $990 $— $609,967 
Special Mention— — — — — — — — — 
Substandard— — — 2,609 — 5,497 — — 8,106 
Total$3,938 $204,570 $57,851 $30,036 $99,583 $221,105 $990 $— $618,073 
Commercial real estate owner occupied:
Current period gross write-offs$— $— $— $— $— $70 $— $— $70 
Risk rating
Pass$25,216 $124,314 $127,750 $57,507 $102,523 $238,771 $3,002 $— $679,083 
Special Mention— 4,281 — 387 3,855 — — — 8,523 
Substandard— 972 122 493 241 6,456 — — 8,284 
Total$25,216 $129,567 $127,872 $58,387 $106,619 $245,227 $3,002 $— $695,890 
Commercial real estate non-owner occupied:
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Risk rating
Pass$114,007 $630,920 $409,821 $173,271 $290,200 $818,573 $17,253 $— $2,454,045 
Special Mention— — — — 7,669 23,821 — — 31,490 
Substandard— — 660 7,137 5,890 32,724 — — 46,411 
Total$114,007 $630,920 $410,481 $180,408 $303,759 $875,118 $17,253 $— $2,531,946 
Commercial and industrial:
Current period gross write-offs$— $— $191 $669 $580 $4,593 $— $— $6,033 
Risk rating
Pass$56,776 $279,856 $142,925 $49,172 $60,597 $169,281 $699,241 $— $1,457,848 
Special Mention175 — 1,210 1,290 2,597 1,805 6,342 — 13,419 
Substandard— 549 5,425 3,566 7,496 14,571 10,332 — 41,939 
Doubtful— — — — — 51 4,299 — 4,350 
Total$56,951 $280,405 $149,560 $54,028 $70,690 $185,708 $720,214 $— $1,517,556 
19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Residential real estate
Current period gross write-offs$— $25 $— $— $— $6 $— $— $31 
Risk rating
Pass$136,527 $1,008,711 $276,189 $94,488 $71,237 $862,274 $161 $— $2,449,587 
Special Mention— 43 371 — — 694 — — 1,108 
Substandard— 159 331 434 1,485 10,877 — — 13,286 
Total$136,527 $1,008,913 $276,891 $94,922 $72,722 $873,845 $161 $— $2,463,981 
20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2022
Construction
Risk rating
Pass$153,393 $133,708 $25,634 $3,432 $1,361 $1,924 $— $— $319,452 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total$153,393 $133,708 $25,634 $3,432 $1,361 $1,924 $— $— $319,452 
Commercial multifamily:
Risk rating
Pass$205,124 $61,032 $27,583 $100,696 $67,675 $149,633 $205 $— $611,948 
Special Mention— — 2,628 — — — — — 2,628 
Substandard— — — — 5,512 — — — 5,512 
Total$205,124 $61,032 $30,211 $100,696 $73,187 $149,633 $205 $— $620,088 
Commercial real estate owner occupied:
Risk rating
Pass$131,096 $127,270 $58,835 $82,576 $75,322 $154,056 $3,464 $— $632,619 
Special Mention— — 387 — — — — — 387 
Substandard1,003 122 31 282 1,056 4,989 — — 7,483 
Total$132,099 $127,392 $59,253 $82,858 $76,378 $159,045 $3,464 $— $640,489 
Commercial real estate non-owner occupied:
Risk rating
Pass$621,685 $410,359 $175,456 $333,783 $313,124 $530,322 $17,846 $— $2,402,575 
Special Mention— — — — 20,000 18,462 — — 38,462 
Substandard— — 7,237 13,623 15,610 18,730 — — 55,200 
Total$621,685 $410,359 $182,693 $347,406 $348,734 $567,514 $17,846 $— $2,496,237 
Commercial and industrial:
Risk rating
Pass$282,781 $147,070 $56,880 $67,975 $83,223 $99,367 $648,956 $— $1,386,252 
Special Mention— 5,811 1,290 1,332 11,502 912 2,632 — 23,479 
Substandard204 496 3,640 8,139 1,981 2,799 10,581 — 27,840 
Doubtful— — — — — 56 7,609 — 7,665 
Total$282,985 $153,377 $61,810 $77,446 $96,706 $103,134 $669,778 $— $1,445,236 
Residential real estate
Risk rating
Pass$997,981 $280,308 $96,548 $70,845 $138,894 $713,744 $165 $— $2,298,485 
Special Mention— 364 — 861 202 707 — — 2,134 
Substandard— 284 448 267 1,857 8,972 — — 11,828 
Total$997,981 $280,956 $96,996 $71,973 $140,953 $723,423 $165 $— $2,312,447 

21

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)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of March 31, 2023
Home equity:
Current period gross write-offs$— $— $— $— $— $— $10 $— $10 
Payment performance
Performing$— $— $111 $450 $— $2,423 $217,685 $— $220,669 
Nonperforming— — — — — — 1,724 — 1,724 
Total$— $— $111 $450 $— $2,423 $219,409 $— $222,393 
Consumer other:
Current period gross write-offs$— $1,510 $181 $7 $21 $74 $— $— $1,793 
Payment performance
Performing$11,962 $148,658 $26,235 $7,661 $11,125 $41,923 $9,556 $— $257,120 
Nonperforming— 52 84 34 190 673 22 — 1,055 
Total$11,962 $148,710 $26,319 $7,695 $11,315 $42,596 $9,578 $— $258,175 
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2022
Home equity:
Payment performance
Performing$— $114 $454 $— $— $17 $224,746 $— $225,331 
Nonperforming— — — — — — 2,119 — 2,119 
Total$— $114 $454 $— $— $17 $226,865 $— $227,450 
Consumer other:
Payment performance
Performing$161,157 $28,279 $8,312 $12,670 $27,608 $24,682 $9,070 $— $271,778 
Nonperforming588 137 44 280 477 567 39 — 2,132 
Total$161,745 $28,416 $8,356 $12,950 $28,085 $25,249 $9,109 $— $273,910 

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans by past due status at March 31, 2023 and December 31, 2022:
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
March 31, 2023
Construction$— $1 $— $1 $373,952 $373,953 
Commercial multifamily— 208 — 208 617,865 618,073 
Commercial real estate owner occupied265 — 2,785 3,050 692,840 695,890 
Commercial real estate non-owner occupied127 660 176 963 2,530,983 2,531,946 
Commercial and industrial2,174 2,555 13,596 18,325 1,499,231 1,517,556 
Residential real estate3,278 1,108 13,185 17,571 2,446,410 2,463,981 
Home equity599 172 2,093 2,864 219,529 222,393 
Consumer other1,982 1,082 2,093 5,157 253,018 258,175 
Total$8,425 $5,786 $33,928 $48,139 $8,633,828 $8,681,967 
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
December 31, 2022
Construction$— $— $— $— $319,452 $319,452 
Commercial multifamily— 214 — 214 619,874 620,088 
Commercial real estate owner occupied122 — 3,302 3,424 637,065 640,489 
Commercial real estate non-owner occupied143 — 191 334 2,495,903 2,496,237 
Commercial and industrial1,173 1,438 18,658 21,269 1,423,967 1,445,236 
Residential real estate3,694 2,134 11,724 17,552 2,294,895 2,312,447 
Home equity168 57 2,119 2,344 225,106 227,450 
Consumer other1,990 1,028 2,158 5,176 268,734 273,910 
Total$7,290 $4,871 $38,152 $50,313 $8,284,996 $8,335,309 



23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans on nonaccrual status and loans past due 90 days or more and still accruing as of March 31, 2023 and December 31, 2022:
(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 March 31, 2023
Construction$— $— $— $— 
Commercial multifamily— — — — 
Commercial real estate owner occupied2,192 1,058 593 — 
Commercial real estate non-owner occupied176 66 — — 
Commercial and industrial12,124 7,917 1,472 — 
Residential real estate9,720 6,120 3,465 — 
Home equity1,724 461 369 — 
Consumer other1,055 — 1,038 — 
Total$26,991 $15,622 $6,937 $— 
The commercial and industrial loans nonaccrual amortized cost as of March 31, 2023 included medallion loans with a fair value of $0.5 million and a contractual balance of $10.2 million.
(In thousands) Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended December 31, 2022
Construction$— $— $— $— 
Commercial multifamily— — — — 
Commercial real estate owner occupied2,202 1,411 1,100 — 
Commercial real estate non-owner occupied191 73 — — 
Commercial and industrial16,992 14,223 1,666 — 
Residential real estate8,901 5,307 2,823 — 
Home equity1,568 388 551 — 
Consumer other1,260 2 898 — 
Total$31,114 $21,404 $7,038 $— 

The commercial and industrial loans nonaccrual amortized cost as of December 31, 2022 included medallion loans with a fair value of $0.6 million and a contractual balance of $10.9 million.

The following table summarizes information about total loans rated Special Mention or lower at March 31, 2023 and December 31, 2022. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.

(In thousands)March 31, 2023December 31, 2022
Non-Accrual$26,991 $31,114 
Substandard Accruing 99,551 88,665 
Total Classified126,542 119,779 
Special Mention 55,751 68,127 
Total Criticized$182,293 $187,906 


24

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
March 31, 2023
Construction$— $— $— 
Commercial multifamily— — 
Commercial real estate owner occupied1,066 — — 
Commercial real estate non-owner occupied373 — — 
Commercial and industrial185 — 8,946 
Residential real estate4,746 — — 
Home equity462 — — 
Consumer other— — — 
Total loans$6,832 $— $8,946 
December 31, 2022
Construction$— $— $— 
Commercial multifamily— — — 
Commercial real estate owner occupied2,793 — — 
Commercial real estate non-owner occupied384 — — 
Commercial and industrial288 — 16,931 
Residential real estate3,910 — — 
Home equity501 — — 
Consumer other2 — — 
Total loans$7,878 $— $16,931 



25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Modified Loans
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension and principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following table presents the amortized cost basis of loans at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

(In thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionTotal Class of Financing Receivable
Three months ended March 31, 2023
Construction$— $— $— $— $— $— — %
Commercial multifamily— — — — — — — 
Commercial real estate owner occupied— 387 — — — — 0.06 
Commercial real estate non-owner occupied— — — — — — — 
Commercial and industrial— — — — 10 — — 
Residential real estate— — — — — — — 
Home equity— — — — — — — 
Consumer other— — — — — — — 
Total$— $387 $— $— $10 $— — %

The Company has not committed to lend additional amounts to the borrowers included in the previous table.


26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months.
(In thousands)30 - 59 Days Past Due60 - 89 Days Past DueGreater Than 89 Days Past DueTotal Past Due
March 31, 2023
Construction$— $— $— $— 
Commercial multifamily— — — — 
Commercial real estate owner occupied— — — — 
Commercial real estate non-owner occupied— — — — 
Commercial and industrial— — — — 
Residential real estate— — — — 
Home equity— — — — 
Consumer other— — — — 
Total$— $— $— $— 

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2023:
(In thousands)Principal ForgivenessWeighted Average Interest Rate ReductionWeighted Average Term Extension (months)
March 31, 2023
Construction$— — %0
Commercial multifamily— — 0
Commercial real estate owner occupied— — 120
Commercial real estate non-owner occupied— — 0
Commercial and industrial— 1.25 87
Residential real estate— — 0
Home equity— — 0
Consumer other— — 0

There were no loans that had a payment default during the three months ended March 31, 2023 that were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.               DEPOSITS

A summary of time deposits is as follows:
(In thousands)March 31,
2023		December 31,
2022
Time less than $100,000$621,894 $549,265 
Time $100,000 through $250,000877,486 642,600 
Time more than $250,000613,266 441,842 
Total time deposits$2,112,646 $1,633,707 

NOTE 6.               BORROWED FUNDS

Borrowed funds at March 31, 2023 and December 31, 2022 are summarized as follows:
 March 31, 2023December 31, 2022
  Weighted Weighted
  Average Average
(Dollars in thousands)PrincipalRatePrincipalRate
Short-term borrowings:    
Advances from the FHLB $900,000 5.13 %$— — %
Total short-term borrowings:900,000 5.13 — — 
Long-term borrowings:    
Advances from the FHLB and other borrowings4,395 0.71 4,445 0.71 
Subordinated borrowings98,188 5.50 98,089 5.50 
Junior subordinated borrowing - Trust I15,464 6.77 15,464 6.54 
Junior subordinated borrowing - Trust II7,524 6.57 7,511 6.47 
Total long-term borrowings:125,571 5.55 125,509 5.52 
Total$1,025,571 5.18 %$125,509 5.52 %

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 March 31, 2023 and December 31, 2022. The Bank's available borrowing capacity with the FHLB was $1.7 billion and $1.5 billion for the periods ended March 31, 2023 and December 31, 2022.

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 March 31, 2023 and December 31, 2022. The Bank's available borrowing capacity with the Federal Reserve Bank was $1.4 billion and $0.6 billion for the periods ended March 31, 2023 and December 31, 2022, respectively.


28

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. There were no callable advances outstanding at March 31, 2023. The advances outstanding at March 31, 2023 included amortizing advances totaling $4.4 million. There were no callable advances outstanding at December 31, 2022. The advances outstanding at December 31, 2022 included amortizing advances totaling $4.4 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 March 31, 2023 is as follows:
 March 31, 2023
  Weighted Average
(In thousands, except rates)PrincipalRate
Fixed rate advances maturing:  
2023$900,000 5.13 %
202421 — 
2025— — 
2026548 2.20 
2027 and beyond3,826 0.50 
Total FHLB advances$904,395 5.11 %

The Company did not have variable-rate FHLB advances for the periods ended March 31, 2023 and December 31, 2022, 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 a 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 $1.4 million for unamortized debt issuance costs as of March 31, 2023.
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 6.77% and 6.54% at March 31, 2023 and December 31, 2022, 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 6.57% and 6.47% at March 31, 2023 and December 31, 2022, 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.

29

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

As of March 31, 2023, the Company held derivatives with a total notional amount of $4.5 billion. That amount included $0.8 billion in interest rate swap derivatives that were designated as cash flow hedges for accounting purposes. The Company also had economic hedges totaling $3.7 billion and $6.6 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 $3.3 billion, risk participation agreements with dealer banks of $0.4 billion, and $1.5 million in forward commitment contracts.

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management and Capital Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at March 31, 2023.

The Company had no pledged collateral to derivative counterparties in the form of cash as of March 31, 2023. The Company had pledged securities to derivative counterparties with an amortized cost of $11.4 million and a fair value of $11.2 million as of March 31, 2023. 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.


30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at March 31, 2023, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Cash flow hedges:     
Interest rate swaps on commercial loans(1)
$600,000 2.64.64 %3.64 %$1,704 
Interest rate collars on commercial loans200,000 3.32,618 
Total cash flow hedges800,000    4,322 
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$6,850 6.73.96 %5.09 %$(261)
Interest rate swaps on loans with commercial loan customers (1)
1,682,955 5.44.10 %5.93 %(68,090)
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,682,955 5.45.93 %4.10 %33,841 
Risk participation agreements with dealer banks356,227 6.3  (106)
Forward sale commitments 1,505 0.2  15 
Total economic hedges3,730,492    (34,601)
Non-hedging derivatives:     
Commitments to lend 6,587 0.2  26 
Total non-hedging derivatives6,587    26 
Total$4,537,079    $(30,253)
(1) Fair value estimates include the impact of $31.2 million settled to market contract agreements.

Information about derivative assets and liabilities at December 31, 2022, follows:
31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Cash flow hedges:     
Interest rate swaps on commercial loans$400,000 2.74.09 %3.51 %$— 
Forward-starting interest rate swaps on commercial loans200,000 3.3— %3.90 %— 
Interest rate collars on commercial loans200,000 3.51,937 
800,000    1,937 
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$7,062 6.94.49 %5.09 %$(193)
Interest rate swaps on loans with commercial loan customers1,685,263 5.74.11 %5.55 %(95,114)
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,685,263 5.75.55 %4.11 %50,267 
Risk participation agreements with dealer banks341,885 6.8  (89)
Forward sale commitments 927 0.2  8 
Total economic hedges3,720,400    (45,121)
Non-hedging derivatives:     
Commitments to lend 4,114 0.2  17 
Total non-hedging derivatives 4,114    17 
Total$4,524,514    $(43,167)
(1) Fair value estimates include the impact of $38.3 million settled to market contract agreements.


32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flow hedges
The effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges is reported in other comprehensive income and subsequently reclassified to earnings in the same period or periods during which the hedged transaction is forecasted to affect earnings. Each quarter, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The ineffective portion of changes in the fair value of the derivatives is recognized directly in earnings. All cash flow hedges are considered
highly effective.

As of March 31, 2023, the Company had eight interest rate swap contracts with a notional value of $800.0 million as of March 31, 2023. The interest rate swaps have durations of two to three years. This hedge strategy converts commercial variable rate loans to fixed interest rates, thereby protecting the Company from floating interest rate variability.

As of March 31, 2023, the Company had two interest rate collars. The first interest rate collar has a 3.00% floor and a 5.75% cap with a notional value of $100.0 million. The second interest rate collar has a 3.25% floor and a 5.75% cap with a notional value of $100.0 million. The interest rate collars have durations of three to four years. The structure of these instruments is such that the Company pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, the Company receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates.

Amounts included in the Consolidated Statements of Income and in the other comprehensive income section of the Consolidated Statements of Comprehensive Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:
Three Months Ended March 31,
(In thousands)20232022
Interest rate swaps on commercial loans:
Unrealized (loss) recognized in accumulated other comprehensive loss$5,955 $— 
Less: Reclassification of unrealized (loss) from accumulated other comprehensive loss to interest expense(157)— 
Net tax benefit on items recognized in accumulated other comprehensive income(1,556)— 
Other comprehensive loss recorded in accumulated other comprehensive income, net of reclassification adjustments and tax effects$4,242 $— 
Net interest expense recognized on hedged commercial loans$1,293 $— 
33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of March 31, 2023, the Company has an interest rate swap with a $6.9 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 March 31, 2023. 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.
34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-hedging derivatives
The Company enters into interest rate lock commitments (“IRLCs”), or commitments to lend, for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in non-interest income in the Company’s consolidated statements of operations. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:
 Three Months Ended March 31,
(In thousands)20232022
Economic hedges  
Interest rate swap on industrial revenue bond:  
Unrealized (loss)/gain recognized in other non-interest income$(68)$432 
Interest rate swaps on loans with commercial loan customers:  
Unrealized gain/(loss) recognized in other non-interest income27,024 (78,698)
Favorable change in credit valuation adjustment recognized in other non-interest income— 867 
Offsetting interest rate swaps on loans with commercial loan customers:  
Unrealized (loss)/gain recognized in other non-interest income(27,024)78,698 
Risk participation agreements:  
Unrealized (loss) recognized in other non-interest income(16)(108)
Forward commitments:  
Unrealized gain/(loss) recognized in other non-interest income7 (127)
Non-hedging derivatives  
Commitments to lend  
Unrealized gain/(loss) recognized in other non-interest income$9 $(106)
Realized gain in other non-interest income39 252 
35

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 $37.0 million and $51.2 million as of March 31, 2023 and December 31, 2022, respectively. The Company had net asset positions with its commercial banking counterparties totaling $7.3 million and $1.0 million as of March 31, 2023 and December 31, 2022, respectively. The Company had net liability positions with its financial institution counterparties totaling $3.3 million and $1.2 million as of March 31, 2023 and December 31, 2022, respectively. The Company had net liability positions with its commercial banking counterparties totaling $71.1 million and $96.1 million as of March 31, 2023 and December 31, 2022. The Company has collateral pledged to cover this liability.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of March 31, 2023 and December 31, 2022:

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
March 31, 2023      
Interest Rate Swap Agreements:      
Institutional counterparties$71,303 $(34,283)$37,020 $— $— $37,020 
Commercial counterparties7,283 — 7,283 — — 7,283 
Total$78,586 $(34,283)$44,303 $— $— $44,303 

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
March 31, 2023      
Interest Rate Swap Agreements:      
Institutional counterparties$(3,290)$6 $(3,284)$11,199 $— $7,915 
Commercial counterparties(74,104)3,052 (71,052)— — (71,052)
Total$(77,394)$3,058 $(74,336)$11,199 $— $(63,137)
36

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, 2022      
Interest Rate Swap Agreements:      
Institutional counterparties$96,295 $(45,046)$51,249 $— $— $51,249 
Commercial counterparties975 — 975 — — 975 
Total$97,270 $(45,046)$52,224 $— $— $52,224 

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, 2022      
Interest Rate Swap Agreements:      
Institutional counterparties$(1,271)$36 $(1,235)$11,973 $— $10,738 
Commercial counterparties(102,595)6,507 (96,088)— — (96,088)
Total$(103,866)$6,543 $(97,323)$11,973 $— $(85,350)
37

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 March 31, 2023, lease expiration dates ranged from 1 month to 17 years.

The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:
(In thousands)March 31, 2023December 31, 2022
Lease Right-of-Use AssetsClassification
Operating lease right-of-use assets Other assets$49,074 $46,411 
Finance lease right-of-use assetsPremises and equipment, net5,988 6,151 
Total Lease Right-of-Use Assets$55,062 $52,562 
Lease Liabilities
Operating lease liabilitiesOther liabilities$55,261 $53,736 
Finance lease liabilitiesOther liabilities9,127 9,306 
Total Lease Liabilities$64,388 $63,042 

Supplemental information related to leases was as follows:
March 31, 2023December 31, 2022
Weighted-Average Remaining Lease Term (in years)
Operating leases8.99.3
Finance leases11.611.8
Weighted-Average Discount Rate
Operating leases2.72 %2.56 %
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 March 31, 2023 was $2.3 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

Lease expense for operating leases for the three months ended March 31, 2022 was $2.6 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.


38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:
Three Months Ended
(In thousands)March 31, 2023March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,273 $2,614 
Operating cash flows from finance leases113 120 
Financing cash flows from finance leases147 138 

The following table presents a maturity analysis of the Company’s lease liability by lease classification at March 31, 2023:
(In thousands)Operating LeasesFinance Leases
2023$7,226 $777 
20249,023 1,039 
20257,371 1,039 
20266,439 1,039 
20275,821 1,039 
Thereafter25,889 7,077 
Total undiscounted lease payments 61,769 12,010 
Less amounts representing interest (6,508)(2,883)
Lease liability $55,261 $9,127 
39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9.           CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:
March 31,
2023		December 31,
2022
Minimum Capital Requirement
Company (consolidated)  
Total capital to risk-weighted assets14.4 %14.6 %8.0 %
Common equity tier 1 capital to risk-weighted assets12.1 12.4 4.5 
Tier 1 capital to risk-weighted assets12.4 12.6 6.0 
Tier 1 capital to average assets9.9 10.2 4.0 
March 31,
2023		December 31,
2022		Regulatory Minimum to be Adequately CapitalizedRegulatory
Minimum to be
Well Capitalized
Bank
Total capital to risk-weighted assets13.2 %13.6 %8.0 %10.0 %
Common equity tier 1 capital to risk-weighted assets12.2 12.6 4.5 6.5 
Tier 1 capital to risk-weighted assets12.2 12.6 6.0 8.0 
Tier 1 capital to average assets9.8 10.2 4.0 5.0 

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Failure to meet capital requirements can initiate regulatory action. At each date shown, the Company met the minimum capital requirements and the Bank met the conditions to be classified as “well capitalized” under the relevant regulatory framework. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.

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%, including a 2.5% capital conservation buffer. Capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the capital conservation buffer is not met.

At March 31, 2023, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at March 31, 2023 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.
40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive (loss)
Components of accumulated other comprehensive (loss) is as follows:
(In thousands)March 31,
2023		December 31,
2022
Other accumulated comprehensive income, before tax:  
Net unrealized holding (loss) on AFS securities$(212,919)$(236,887)
Net unrealized (loss) on cash flow hedging derivatives(869)(6,667)
Net unrealized holding (loss) on pension plans(844)(844)
Income taxes related to items of accumulated other comprehensive income:  
Net unrealized tax benefit on AFS securities55,105 61,329 
Net unrealized tax benefit on cash flow hedging derivatives233 1,789 
Net unrealized tax benefit on pension plans228 228 
Accumulated other comprehensive loss$(159,066)$(181,052)

The following table presents the components of other comprehensive (loss) for the three months ended March 31, 2023 and 2022:
(In thousands)Before TaxTax EffectNet of Tax
Three Months Ended March 31, 2023   
Net unrealized holding gain on AFS securities:x 
Net unrealized gains arising during the period$23,968 $(6,224)$17,744 
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding gain on AFS securities23,968 (6,224)17,744 
Net unrealized gain on cash flow hedging derivatives:   
Net unrealized gain arising during the period5,955 (1,598)4,357 
Less: reclassification adjustment for (losses) realized in net income157 (42)115 
Net unrealized gain on cash flow hedging derivatives5,798 (1,556)4,242 
Other comprehensive income$29,766 $(7,780)$21,986 
Three Months Ended March 31, 2022   
Net unrealized holding loss on AFS securities:  
Net unrealized (losses) arising during the period$(101,373)$26,379 $(74,994)
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding (loss) on AFS securities(101,373)26,379 (74,994)
Net unrealized loss on cash flow hedging derivatives:  
Net unrealized (loss) arising during the period— — — 
Less: reclassification adjustment for (losses) realized in net income— — — 
Net unrealized gain on cash flow hedging derivatives— — — 
Other comprehensive (loss)$(101,373)$26,379 $(74,994)



41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive (loss), for the three months ended March 31, 2023 and 2022:
(In thousands)Net unrealized
holding loss
on AFS Securities		Net loss on
effective cash
flow hedging derivatives		Net unrealized
holding loss
on pension plans		Total
Three Months Ended March 31, 2023    
Balance at Beginning of Period$(175,557)$(4,878)$(617)$(181,052)
Other comprehensive (loss) before reclassifications17,744 4,357 — 22,101 
Less: amounts reclassified from accumulated other comprehensive (loss)— 115 — 115 
Total other comprehensive (loss)17,744 4,242 — 21,986 
Balance at End of Period$(157,813)$(636)$(617)$(159,066)
Three Months Ended March 31, 2022    
Balance at Beginning of Period$(1,398)$(1,845)$— $(3,243)
Other comprehensive (loss) before reclassifications(74,994)— — (74,994)
Less: amounts reclassified from accumulated other comprehensive (loss) — — — — 
Total other comprehensive income(74,994)— — (74,994)
Balance at End of Period$(76,392)$(1,845)$— $(78,237)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive
income for the three months ended March 31, 2023 and 2022:

   Affected Line Item in the
 Three Months Ended March 31,Statement where Net Income
(In thousands)20232022is Presented
Realized (losses) on cash flow hedging derivatives:   
 157 — Interest expense
— — Non-interest expense
 (42)— Tax benefit
Total reclassifications for the period$115 $— Net of tax







42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. 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 March 31,
(In thousands, except per share data)20232022
Net income$27,637 $20,196 
Average number of common shares issued51,903 51,903 
Less: average number of treasury shares7,488 3,494 
Less: average number of unvested stock award shares722 741 
Average number of basic shares outstanding43,693 47,668 
Plus: dilutive effect of unvested stock award shares343 392 
Plus: dilutive effect of stock options outstanding— 7 
Average number of diluted shares outstanding44,036 48,067 
Basic earnings per common share:$0.63 $0.42 
Diluted earnings per common share:$0.63 $0.42 

For the three months ended March 31, 2023, 380 thousand shares of unvested restricted stock and 49 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended March 31, 2022, 366 thousand shares of unvested restricted stock and 71 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation.
43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the three months ended March 31, 2023 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, 2022704 $22.85 49 $26.46 
Granted143 30.36 — — 
Acquired— — — — 
Stock options exercised— — — — 
Stock awards vested(96)23.00 — — 
Forfeited(31)26.82 — — 
Expired— — — — 
March 31, 2023720 $24.56 49 $26.46 

During the three months ended March 31, 2023, there were no stock option exercises. During the three months ended March 31, 2022, proceeds from stock option exercises totaled $25 thousand. During the three months ended March 31, 2023 and March 31, 2022, there were 96 thousand and 63 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $1.2 million and $1.8 million during the three months ended March 31, 2023 and 2022, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
 March 31, 2023
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading securities$— $— $6,584 $6,584 
Securities available for sale: 
U.S Treasuries8,981 — — 8,981 
Municipal bonds and obligations— 64,617 — 64,617 
Agency collateralized mortgage obligations— 525,949 — 525,949 
Agency residential mortgage-backed securities— 539,597 — 539,597 
Agency commercial mortgage-backed securities— 227,408 — 227,408 
Corporate bonds— 36,263 3,800 40,063 
Other bonds and obligations— 656 — 656 
Equity securities13,072 — — 13,072 
Loans held for investment at fair value— — 460 $460 
Loans held for sale — 1,906 — 1,906 
Derivative assets — 43,615 41 43,656 
Capitalized servicing rights — — 1,666 1,666 
Derivative liabilities — 73,909 — 73,909 
 December 31, 2022
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading securities$— $— $6,708 $6,708 
Securities available for sale:
U.S Treasuries11,973 — — 11,973 
Municipal bonds and obligations— 63,335 — 63,335 
Agency collateralized mortgage obligations— 531,945 — 531,945 
Agency residential mortgage-backed securities— 546,313 — 546,313 
Agency commercial mortgage-backed securities— 228,468 — 228,468 
Corporate bonds— 36,510 4,000 40,510 
Equity securities12,856 — — 12,856 
Loans held for investment at fair value— — 605 605 
Loans held for sale — 942 — 942 
Derivative assets — 54,216 25 54,241 
Capitalized servicing rights — — 1,846 1,846 
Derivative liabilities — 97,030 — 97,030 
 

There were no transfers between levels during the three months ended March 31, 2023.
45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trading Securities 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 Equity Securities. 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. 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 1 consist of U.S. Treasury securities. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. Level 3 pricing includes inputs unobservable to market participants.

Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing an $11.2 million fair value write-down charged to retained earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of March 31, 2023.
   Aggregate Fair Value
March 31, 2023AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$460 $10,213 $(9,753)

   Aggregate Fair Value
December 31, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$605 $10,948 $(10,343)

Loans Held for Sale. The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
   Aggregate Fair Value
March 31, 2023AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale$1,906 $1,882 $24 
46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Aggregate Fair Value
December 31, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale $942 $927 $15 
The changes in fair value of loans held for sale for the three months ended March 31, 2023, were gains of $9 thousand. During the three months ended March 31, 2023, originations of loans held for sale totaled $7.0 million and sales of loans originated for sale totaled $6.4 million.

The changes in fair value of loans held for sale for the three months ended March 31, 2022, were losses of $175 thousand. During the three months ended March 31, 2022, originations of loans held for sale totaled $7.4 million and sales of loans originated for sale totaled $13.1 million.

Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2023, 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
47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.

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 months ended March 31, 2023 and 2022.
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securitiesfor SaleInvestmentto LendCommitments Rights
Three Months Ended March 31, 2023
December 31, 2022$6,708 $4,000 $605 $17 $8 $1,846 
Unrealized (loss)/gain, net recognized in other non-interest income88 — (129)34 7 (180)
Unrealized gain included in accumulated other comprehensive income— (200)— — — — 
Paydown of asset(212)— (16)— — — 
Transfers to held for sale loans— — — (25)— — 
March 31, 2023$6,584 $3,800 $460 $26 $15 $1,666 
Unrealized (loss)/gain relating to instruments still held at March 31, 2023$(266)$(200)$— $26 $15 $— 
 
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securitiesfor SaleInvestmentto LendCommitmentsRights
Three Months Ended March 31, 2022   
December 31, 2021$8,354 $4,030 $1,200 $124 $134 $1,966 
Unrealized (loss)/gain, net recognized in other non-interest income(354)— 209 70 (127)(180)
Unrealized gain included in accumulated other comprehensive loss— (10)— — — — 
Paydown of asset(202)— (212)— — — 
Transfers to held for sale loans— — — (176)— — 
March 31, 2022$7,798 $4,020 $1,197 $18 $7 $1,786 
Unrealized gain relating to instruments still held at March 31,2022$121 $20 $— $18 $7 $— 













48

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)March 31, 2023Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading Securities$6,584 Discounted Cash FlowDiscount Rate5.47 %
AFS Securities3,800 Indication from Market MakerPrice
95.00%
Loans held for investment460 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$0.0 - $20.3
Commitments to lend 26 Historical TrendClosing Ratio80.43 %
  Pricing ModelOrigination Costs, per loan$2 
Forward commitments 15 Historical TrendClosing Ratio80.43 %
  Pricing ModelOrigination Costs, per loan$2 
Capitalized servicing rights 1,666 Discounted cash flowConstant Prepayment Rate (CPR)11.15 %
Discount Rate9.56 %
Total$12,551    

 Fair Value  Significant
Unobservable Input
(In thousands)December 31, 2022Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading Securities$6,708 Discounted Cash FlowDiscount Rate5.92 %
AFS Securities4,000 Indication from Market MakerPrice101.00 %
Loans held for investment605 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$0.0- $20.4
Commitments to lend 17 Historical TrendClosing Ratio80.63 %
  Pricing ModelOrigination Costs, per loan$2 
Forward commitments 8 Historical TrendClosing Ratio80.63 %
  Pricing ModelOrigination Costs, per loan$2 
Capitalized servicing rights1,846 Discounted Cash FlowConstant Prepayment Rate (CPR)11.07 %
Discount Rate9.56 %
Total$13,184    
49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.
 March 31, 2023Fair Value Measurement Date December 31, 2022Fair Value Measurement Date
 Level 3Level 3Level 3Level 3
(In thousands)InputsInputsInputsInputs
Assets  
Individually evaluated$6,139 March 2023$14,571 December 2022
Loans held for sale— March 20233,369 December 2022
Capitalized servicing rights11,436 March 202311,201 December 2022
Total$17,575 $29,141 

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
 Fair Value   
(In thousands)March 31, 2023Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$6,139 Fair Value of CollateralDiscounted Cash Flow - Loss Severity
(100.00)% to 77.72% ((53.93)%)
   Appraised Value
$0 to $2,160 ((-828.74))
Capitalized servicing rights11,436 Discounted Cash FlowConstant Prepayment Rate (CPR)
5.81% to 13.18% (11.15%)
   Discount Rate
9.60% to 17.77% (14.83%)
Total$17,575    
(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, 2022Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$14,571 Fair Value of CollateralDiscounted Cash Flow - loss severity
(100.00)% to 74.74% ((40.02)%)
   Appraised Value
$0 to $2,160 ($643)
Loans held for sale3,369 Fair Value of CollateralAppraised Value$3,369
Capitalized servicing rights11,201 Discounted Cash FlowConstant Prepayment Rate (CPR)
5.81% to 13.18% (10.94%)
   Discount Rate
9.59% to 22.70% (16.83%)
Total$29,141    
(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 March 31, 2023 and December 31, 2022.


50

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. 

Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale, these loans are transferred into the held for sale category and carried at the lower of cost or fair value. 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. 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. 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.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 March 31, 2023
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$1,006,562 $1,006,562 $1,006,562 $— $— 
Trading securities6,584 6,584 — — 6,584 
Equity securities13,072 13,072 13,072 — — 
Securities available for sale 1,407,271 1,407,271 8,981 1,394,490 3,800 
Securities held to maturity574,606 507,091 — 505,357 1,734 
Federal Home Loan Bank stock44,245 N/AN/AN/AN/A
Net loans8,583,976 8,553,066 — — 8,553,066 
Loans held for sale 1,906 1,906 — 1,906 — 
Accrued interest receivable49,464 49,464 — 49,464 — 
Derivative assets 43,656 43,656 — 43,615 41 
Financial Liabilities     
Total deposits$10,067,545 $10,034,068 $— $10,034,068 $— 
Short-term debt900,000 900,141 — 900,141 — 
Long-term Federal Home Loan Bank advances and other4,395 2,895 — 2,895 — 
Subordinated borrowings121,176 97,742 — 97,742 — 
Derivative liabilities 73,909 73,909 — 73,909 — 
 December 31, 2022
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$685,355 $685,355 $685,355 $— $— 
Trading securities6,708 6,708 — — 6,708 
Equity securities12,856 12,856 12,856 — — 
Securities available for sale and other1,423,200 1,423,200 11,973 1,407,227 4,000 
Securities held to maturity583,453 507,464 — 505,508 1,956 
Federal Home Loan Bank stock7,219 N/AN/AN/AN/A
Net loans8,239,039 8,194,110 — — 8,194,110 
Loans held for sale 4,311 4,311 — 942 3,369 
Accrued interest receivable46,868 46,868 — 46,868 — 
Derivative assets 54,241 54,241 — 54,216 25 
Financial Liabilities     
Total deposits$10,327,269 $10,283,543 $— $10,283,543 $— 
Short-term debt— — — — — 
Long-term Federal Home Loan Bank advances4,445 2,782 — 2,782 — 
Subordinated borrowings121,064 110,853 — 110,853 — 
Derivative liabilities 97,030 97,030 — 97,030 — 
52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. NET INTEREST INCOME AFTER PROVISION/(BENEFIT) FOR CREDIT LOSSES

Presented below is net interest income after provision for credit losses for the three months ended March 31, 2023 and 2022, respectively.
Three Months Ended March 31,
(In thousands)20232022
Net interest income$97,533 $69,063 
Provision/(benefit) for credit losses8,999 (4,000)
Net interest after provision for credit losses$88,534 $73,063 
53
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 the
Three Months Ended March 31,
 20232022
NOMINAL AND PER SHARE DATA  
Net earnings per common share, diluted$0.63 $0.42 
Operating earnings per common share, diluted (1)(2)0.63 0.43 
Net income, (thousands)27,637 20,196 
Operating net income, (thousands) (1)(2)27,608 20,789 
Net interest income, non FTE97,533 69,063 
Net interest income, FTE (4)99,441 70,587 
Total common shares outstanding, (thousands) 44,411 47,792 
Average diluted shares, (thousands)44,036 48,067 
Total book value per common share22.42 22.89 
Tangible book value per common share (2)21.89 22.30 
Dividends per common share0.18 0.12 
Dividend payout ratio28.98 %30.46 %
PERFORMANCE RATIOS (3)
Return on equity9.11 %6.79 %
Operating return on equity (1)(2)9.10 6.99 
Return on tangible common equity (1)(2)9.59 7.29 
Operating return on tangible common equity (1)(2)9.59 7.49 
Return on assets0.94 0.70 
Operating return on assets (1)(2)0.94 0.72 
Net interest margin, FTE (4)3.58 2.61 
Efficiency ratio (1)(2)59.51 72.61 
FINANCIAL DATA (in millions, end of period)
Total assets$12,320 $12,097 
Total earning assets11,615 11,401 
Total loans8,682 7,267 
Total deposits10,068 10,699 
Loans/deposits (%)86 %68 %
Total shareholders' equity995 1,094 
ASSET QUALITY 
Allowance for credit losses, (millions)$98 $99 
Net charge-offs, (millions)(7)(3)
Net charge-offs (QTD annualized)/average loans0.32 %0.15 %
Provision expense/(benefit), (millions)$9 $(4)
Non-accruing loans/total loans0.31 %0.41 %
Allowance for credit losses/non-accruing loans363 335 
Allowance for credit losses/total loans1.13 1.37 
CAPITAL RATIOS
Common equity tier 1 capital to risk-weighted assets12.1 %13.9 %
Tier 1 capital leverage ratio9.9 10.3 
Tangible common shareholders' equity/tangible assets (2)7.9 8.8 

54
____________________________________________________________________________________________
(1)  Operating 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.

55
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included:
 Three Months Ended March 31,
 20232022
(Dollars in millions)Average
Balance		Interest (FTE basis)Yield/Rate
(FTE basis)		Average
Balance		Interest (FTE basis)Yield/Rate
(FTE basis)
Assets
Loans:    
Commercial real estate$4,166 $61 5.88 %$3,651 $31 3.35 %
Commercial and industrial loans1,527 26 6.92 1,373 14 4.14 
Residential mortgages2,283 21 3.70 1,436 13 3.56 
Consumer loans539 10 7.24 514 5 4.24 
Total loans (1)
8,515 118 5.57 6,974 63 3.61 
Investment securities (2)
2,261 13 2.23 2,649 13 1.95 
Short-term investments & loans held for sale (3)
313 3 4.24 1,202 — 0.17 
Total interest-earning assets11,089 134 4.85 10,825 76 2.82 
Intangible assets24 x29 X
Other non-interest earning assets692 x639 
Total assets$11,805  $11,493 
Liabilities and shareholders’ equity
Deposits:    
Non-interest-bearing demand deposits$2,706 $— — %$2,968 $— — %
NOW and other1,456 6 1.64 1,456 — 0.04 
Money market2,659 10 1.59 2,871 1 0.16 
Savings1,047 — 0.10 1,117 — 0.03 
Time1,808 10 2.13 1,624 3 0.71 
Total deposits9,676 26 1.09 10,036 4 0.17 
Borrowings and notes (4)
688 9 5.06 122 2 5.21 
Total funding liabilities10,364 35 1.36 10,158 6 0.23 
Other non-interest earning liabilities227  146 
Total liabilities10,591  10,304 
Total common shareholders' equity1,214 1,189 
Total shareholders’ equity (2)
1,214  1,189 
Total liabilities and stockholders’ equity$11,805  $11,493 
Net interest margin, FTE3.58 2.61 
Total average non-maturity deposits7,868 8,412 
Supplementary data
Net Interest Income, non FTE$97.533 $69.063 
FTE income adjustment (5)
1.908 1.524 
Net Interest Income, FTE$99.441 $70.587 
(1)     The average balances of loans include nonaccrual loans and deferred fees and costs.
(2)     The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.
(3)     Interest income on loans held for sale is included in loan interest income on the income statement.
(4)     The average balances of borrowings include the capital lease obligation presented under other liabilities on the consolidated balance sheet.
(5)    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%.
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NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP operating earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP operating 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 operating 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 merger costs, restructuring costs, goodwill impairment, and discontinued operations. 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.

The Company also calculates operating earnings per share based on its measure of operating 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 2023 and 2022 were primarily related to branch consolidations. For 2022, net losses on securities were primarily due to unrealized equity securities losses due to changes in market conditions. As of March 31, 2023 securities gains/(losses) are included in operating income.

Management believes that the computation of non-GAAP operating earnings and operating earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.


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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items recorded for the periods indicated:
  At or for the Three Months Ended March 31,
(In thousands) 20232022
GAAP Net income  $27,637 $20,196 
Adj: Net losses on securities (1)
 — 745 
Adj: Restructuring and other expense (36)18 
Adj: Income taxes 7 (170)
Total operating income (non-GAAP) (2)
(A)$27,608 $20,789 
GAAP Total revenue  $114,139 $89,744 
Adj: Losses on securities, net (1)
 — 745 
Total operating revenue (non-GAAP) (2)
(B)$114,139 $90,489 
GAAP Total non-interest expense $71,955 $68,550 
Less: Total non-operating expense (see above) 36 (18)
Operating non-interest expense (non-GAAP) (2)
(C)$71,991 $68,532 
(In millions, except per share data)  
Total average assets(D)$11,805 $11,493 
Total average shareholders’ equity(E)1,214 1,189 
Total average tangible shareholders’ equity (2)
(F)1,190 1,160 
Total tangible shareholders’ equity, period-end (2)(3)
(H)972 1,066 
Total tangible assets, period-end (2)(3)
(J)12,297 12,069 
Total common shares outstanding, period-end (thousands)(K)44,411 47,792 
Average diluted shares outstanding (thousands)(L)44,036 48,067 
Earnings per common share, diluted$0.63 $0.42 
Operating earnings per common share, diluted (2)
(A/L)0.63 0.43 
Book value per common share, period-end22.42 22.89 
Tangible book value per common share, period-end (2)
(H/K)21.89 22.30 
Total shareholders' equity/total assets8.08 9.04 
Total tangible shareholder's equity/total tangible assets (2)
(H/J)7.91 8.83 
x
Performance ratios (4)
 x
GAAP return on equity9.11 %6.79 %
Operating return on equity (2)
(A/E)9.10 6.99 
Return on tangible common equity (2)(5)
9.59 7.29 
Operating return on tangible common equity (2)(5)
(A+O)/(F)9.59 7.49 
GAAP return on assets0.94 0.70 
Operating return on assets (2)
(A/D)0.94 0.72 
Efficiency ratio (2)
(C-O)/(B+M+P)59.51 72.61 
(in thousands) 
Supplementary data (In thousands)
 xx
Tax benefit on tax-credit investments (6)
(M)$2,897 $596 
Non-interest income tax-credit investments amortization (7)
(N)(2,285)(357)
Net income on tax-credit investments(M+N)612 239 
Intangible amortization(O)1,205 1,286 
Fully taxable equivalent income adjustment(P)1,908 1,524 
_____________________________________________________________________________________________
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(1)     As of March 31, 2023, securities gains/(losses) are included in operating income. Net securities losses for the period ending March 31, 2022 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)     Operating return on tangible common equity is computed by dividing the total operating 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, low-income housing, new markets and solar.
(7)     The non-interest income amortization is the reduction to the tax-advantaged commercial project investments, which are incurred as the tax credits are generated.

59
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 2022 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 2023 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.

Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is a Delaware corporation headquartered in Boston and the holding company for Berkshire Bank (“the Bank”). 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 $12.3 billion in assets and operates 100 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. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment and inflation, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission, including the Risk Factors in Item 1A of this report.

Because of these and other uncertainties, Berkshire’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire’s past results of operations do not necessarily indicate Berkshire’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Berkshire is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Berkshire qualifies all of its forward-looking statements by these cautionary statements.


60
SUMMARY

Berkshire recorded first quarter net income in 2023 of $27.6 million, or $0.63 per share, compared to $20.2 million, or $0.42 per share, in 2022. Year-over-year improvement included the benefit of loan growth, higher market interest rates, meaningful expense control, and share repurchases.

The Company’s first quarter return on assets improved year-over-year to 0.94% from 0.70%. Return on tangible common equity rose to 9.6% from 7.3%. First quarter FTE net interest income improved to $99.4 million from $70.6 million. The net interest margin increased by 97 basis points to 3.58% from 2.61%.

Average total earning assets increased year-over-year in the first quarter by $264 million, reflecting a $1.5 billion increase in average loans which was partially offset by decreases of $388 million in average investment securities and $889 million in average short-term investments and loans held for sale. Average total funding liabilities increased $206 million, reflecting a $566 million increase in average borrowings which was partially offset by a $360 million reduction in average deposits.

Compared to the year-ago quarter, non-interest income decreased by $4.1 million and non-interest expense increased by $3.4 million. The first quarter efficiency ratio was 59.5% in 2023 compared to 72.6% in 2022.

The first quarter provision for credit losses on loans totaled $9.0 million in 2023, compared to a benefit totaling $4.0 million in 2022. The first quarter annualized ratio of net loan charge-offs to average loans was 0.32% in 2023 compared to 0.15% in 2022. The allowance for credit losses on loans was $98.0 million at March 31, 2023, a $1.7 million increase from December 31, 2022. Non-performing assets totaled $29.5 million March 31, 2023, a $3.9 million decrease from December 31, 2022. At March 31, 2023, the allowance for credit losses on loans measured 1.13% of total loans in 2023 compared to 1.15% at December 31, 2022.

Berkshire’s total stockholders’ equity was $995 million at March 31, 2023, a $41 million increase from December 31, 2022. Stockholders’ equity as a percentage of total assets was 8.1% at March 31, 2023 compared to 8.2% at December 31, 2022. For these dates, tangible common equity as a percentage of tangible assets was 7.9% and 8.0% respectively. The total risk-based capital was 14.4% at March 31, 2023, compared to 14.6% at December 31, 2022.
61
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND MARCH 31, 2022

Net Interest Income

Net interest income and net interest margin are affected by many factors, including: changes in average balances; interest rate fluctuations and the slope of the yield curve; sales of loans and securities; residential mortgage loan and mortgage-backed security prepayment rates; product pricing; competitive forces; the relative mix, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities; non-interest-bearing sources of funds; hedging activities; and asset quality.

In response to persistent high inflation, the Federal Reserve Board increased the target federal funds rate over the last five quarters. The target rate averaged 4.69% in the first quarter of 2023, compared to 0.30% in the same quarter of 2022. The average five-year treasury rate was 3.80% and 1.83% for these respective periods.

The first quarter net interest margin increased year-over-year by 97 basis points to 3.58% from 2.61%. This improvement reflected the reinvestment of funds from lower yielding investments into higher yielding loans, along with the positive interest rate sensitivity of the Company’s interest rate risk profile in the environment of rising market interest rates.

First quarter FTE net interest income increased year-over-year by $28.9 million. Total interest income increased $57.5 million and total interest expense increased $29.0 million. The FTE interest adjustment increased $384 thousand.

In the first quarter, average total earning assets increased year-over-year by $264 million, reflecting a $1.5 billion increase in average loans which was partially offset by decreases of $388 million in average investment securities and $889 million in average short-term investments and loans held for sale. The increase in average loans was primarily due to a $515 million increase in average commercial real estate loans and an $847 million increase in average residential mortgages, reflecting growth in originations staff and increased market demand for commercial loans.

Average total loans, average securities and average short-term investments and loans held for sale comprised 77%, 20% and 3%, respectively, of average total earning assets in the first quarter of 2023, compared to 64%, 25% and 11%, respectively, in the first quarter of 2022. In the current quarter, the yields on these portfolios were 5.57%, 2.23%, and 4.24% respectively, compared to 3.61%, 1.95%, and 0.17% in the same quarter of 2022. At March 31, 2023, approximately 41% of the Company’s loan portfolio was comprised of loans repricing within three months.

Average total funding liabilities increased $206 million, reflecting a $566 million increase in average borrowings which was partially offset by a $360 million reduction in average deposits. The increase in borrowings was primarily due to higher borrowings from the Federal Home Loan Bank of Boston, including further fortifying on-balance sheet liquidity with higher cash balances due to market conditions in March 2023.

Average non-interest bearing deposits decreased $262 million, average NOW and other interest-bearing transaction accounts were stable, average money market deposits decreased $212 million, and average savings deposits decreased $70 million. Average time deposits increased $184 million. Deposit shifts reflected the migration of some balances from lower yielding accounts to higher yielding accounts in and out of the Bank, as well as the spend-down by customers of excess liquidity accumulated during the pandemic.

Average total deposits comprised 93% and 99% of average total funding liabilities in the first quarters of 2023 and 2022, respectively. As a percentage of average deposits, in the first quarter of 2023, average non-interest bearing deposits measured 28%, average NOW and other interest-bearing transaction accounts measured 15%, average money market deposits were 27%, average savings accounts were 11%, and average time deposits were 19%. The comparable percentages in the year-ago quarter were respectively 30%, 14%, 29%, 11%, and 16% respectively.

62
The 113 basis point increase to 1.36% in the rate paid on average total funding liabilities in the first quarter of 2023 compared to 2022 primarily reflects the increase in market interest rates. The rate paid on average total deposits increased 92 basis points, reflecting higher interest rates paid and the shift in the mix of deposits. Higher deposit costs included increases of 160 basis points in the cost of NOW and other interest-bearing transaction deposits, 7 basis points in the cost of savings deposits, 143 basis points in the cost of money market deposits, and 142 basis points in the cost of time deposits.

Non-Interest Income

Total first quarter non-interest income decreased $4.1 million year-over-year. This was primarily due to a $2.5 million decrease in loan related fees and a $2.8 million decrease in the category of other non-interest income. The decrease in loan related fees was primarily due to a $2.6 million decrease in commercial loan interest rate swap fee income. The decrease in other non-interest income was primarily due to a $1.9 million increase in the amortization of tax credit investments which was more than offset by credits benefiting income tax expense reflecting increased tax credit investments.

Deposit related fee income increased year-over-year by $960 thousand. SBA loan sale gains decreased by $851 thousand reflecting lower volume and premiums. The Company recorded $234 thousand in securities gains in the first quarter of 2023 compared to losses of $745 thousand in the first quarter of 2022. These items primarily reflected the impact of changes in interest rates on the fair values of the bond portfolio during these periods.

Provision for Credit Losses

The provision was a charge of $9.0 million in the first quarter of 2023 compared to a benefit of $4.0 million in the first quarter of 2022. The provision in 2023 included the impact on the allowance for expected credit losses on loans related to loan portfolio growth. The benefit in 2022 reflected lower expected credit losses last year as a result of an improved outlook as pandemic related credit loss expectations declined. The Company recorded first quarter net loan charge-offs of $6.9 million in 2023 compared to $2.6 million in 2022.

Non-Interest Expense

Total first quarter non-interest expense increased year-over-year by $3.4 million. Compensation and benefits expense increased by $1.6 million due primarily to higher salary expense, including increased front-line bankers. Occupancy and equipment costs decreased $688 thousand reflecting benefits from real estate rationalization initiatives. Technology and communications expense increased $944 thousand including higher core system costs and increased software license and support costs as the Company invests in an enhanced digital customer experience. Professional services expense increased $585 thousand primarily due to consulting and other professional costs. Increases in other costs included $439 thousand in higher FDIC insurance expense due to higher premium rates in 2023 and $359 thousand in higher loan workout costs. The first quarter efficiency ratio improved year-over-year to 59.5% from 72.6% reflecting positive operating leverage driven by growth in net interest income.

Income Tax Expense

The Company’s effective income tax rate was 16.7% in the current quarter, compared to 18.7% for the full-year of 2022. This primarily reflected benefit from increased tax credit investments. Differences arising between Berkshire’s effective income tax rate and the U.S. federal statutory rate of 21% are generally attributable to: (i) tax-exempt interest earned on certain investments; (ii) tax-exempt income from BOLI; (iii) tax credit investment benefits; and (iv) state income taxes.
63
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2023 AND DECEMBER 31, 2022

General

Total assets at March 31, 2023 were $12.3 billion, a $657 million increase from December 31, 2022, primarily reflecting increases of $321 million in cash and equivalents and $347 million in total loans. The Company increased cash and equivalents, primarily through borrowing, due to market conditions near the end of the quarter. The increase in loans included commercial real estate, commercial and industrial, and residential mortgage loans. The portfolio of investment securities increased $12 million from December 31, 2022.

Total liabilities at March 31, 2023 were $11.3 billion, a $616 million increase from December 31, 2022, primarily reflecting $900 million in higher borrowings, which were partially offset by a $260 million decrease in deposits.

Total stockholders’ equity was $995 million at March 31, 2023, a $41 million increase from December 31, 2022. As a percentage of total assets, stockholders’ equity was 8.1% and 8.2% at those respective dates. Tangible common equity as a percentage of tangible assets was 7.9% and 8.0% for those dates. The Company’s Common Equity Tier 1 (“CET1”) ratio measured 12.1% at quarter-end, compared to 12.4% at year-end 2022.

Loans

Total loans measured $8.7 billion at March 31, 2022, increasing by $347 million during the quarter across most major categories except consumer loans. Loan growth reflected ongoing originations and increased lending under commercial credit commitments.

Commercial loans totaled $5.7 billion at March 31, 2023, a $216 million increase from December 31, 2022. Commercial real estate loans increased by $144 million, including construction loans which increased by $55 million. Commercial and industrial loans increased by $72 million. The ratio of non-accrual commercial loans to total commercial loans was 0.25% at March 31, 2023 compared to 0.35% at December 31, 2022. Non-performing commercial loans totaled $14.5 million at March 31, 2023 compared to $19.4 million at December 31, 2022.

Retail loans include residential mortgage loans and consumer loans. Retail loans totaled $2.9 billion at March 31, 2023, an increase of $131 million from year-end 2022. Residential mortgage loans totaled $2.5 billion at March 31, 2023, a $152 million increase from December 31, 2022. Consumer loans totaled $481 million at March 31, 2023, a $21 million decrease from December 31, 2022. The ratio of non-accrual residential mortgage loans to residential mortgage loans was 0.39% at March 31, 2023 compared to 0.38% at December 31, 2022. The ratio of non-accrual consumer loans to consumer loans was 0.58% at March 31, 2023 compared to 0.56% at December 31, 2022.

Allowance for Credit Losses on Loans

The allowance totaled $98.0 million at March 31, 2023, an increase of $1.7 million from December 31, 2022, reflecting growth in the loan portfolio. The ratio of the allowance to total loans decreased to 1.13% from 1.15% for these respective dates.

For the commercial loan portfolio, the allowance for credit losses as a percentage of commercial loans was 1.17% at March 31, 2023, compared to 1.15% at December 31, 2022. The commercial allowance for credit losses represented 463% of non-accrual commercial loans at March 31, 2023 compared to 326% at December 31, 2022.

For the retail loan portfolio, the allowance for credit losses as a percentage of retail loans was 1.05% at March 31, 2023 compared to 1.17% at December 31, 2022. The retail allowance for credit losses represented 247% of non-accrual retail loans at March 31, 2023 compared to 282% at December 31, 2022.



64
Deposits and Borrowings

Total deposits were $10.1 billion at March 31, 2023, a $260 million decrease from year-end 2022. Excluding deposits related to the Company’s payroll deposit business line, total deposits were $8.8 billion, decreasing by $79 million during the quarter. The decline in deposits reflected customers utilizing excess liquidity and, in some cases, reinvesting surplus funds in higher yielding government securities.

Non-interest bearing deposits totaled $2.7 billion at March 31, 2023, a $201 million decrease from December 31, 2022. Non-maturity interest-bearing deposits totaled $5.3 billion, a $537 million decrease during the current quarter. Time deposits totaled $2.1 billion, increasing $479 million during this period.

Borrowings totaled $1.0 billion at quarter-end, increasing $900 million from year-end 2022. The increase was due to the utilization of Federal Home Loan Bank of Boston advances. The Company did not utilize any of its other funding sources from the Federal Reserve Bank of Boston or federal funds lines during the quarter aside from deminimus activity related to maintaining the operational readiness of these sources.

Derivative Financial Instruments

The notional amount of derivative financial instruments totaled $4.5 billion at quarter-end, increasing $13 million from year-end 2022. The net fair value of these instruments at March 31, 2023 was a liability of $30 million, decreasing $13 million from December 31, 2022 due primarily to a reduction in the net fair value liability related to economic hedges recorded for commercial loan interest rate swaps as a result of lower medium term interest rates at period-end.

Shareholders’ Equity and Dividends

Total stockholders’ equity was $995 million at March 31, 2023, a $41 million increase from December 31, 2022. This primarily reflects net income of $28 million and a $22 million improvement in the accumulated other comprehensive loss reflecting improved bond prices due to a decrease in period-end medium term interest rates. The Company paid $8 million in common stock dividends at $0.18 per share. The Company repurchased 47 thousand shares at a total cost of $1.2 million during the quarter.

Liquidity and Cash Flows

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs for the Company, including the Bank. Liquidity management addresses both the Company’s ability to fund new loans and investments as opportunities arise, to meet customer deposit withdrawals and to repay borrowings and subordinated notes as they mature. During the first quarter, the Company increased its on-balance sheet and off-balance sheet liquidity sources and the Company views its liquidity as satisfactory for current conditions as well as for stressed scenarios in its liquidity testing models.

At March 31, 2023, cash and equivalents totaled $1.0 billion and securities available for sale totaled $1.4 billion. Unused borrowing availability at that date from the Federal Home Loan Bank of Boston “FHLBB” and the Federal Reserve Bank of Boston discount window (“FRB”) totaled $3.1 billion. Borrowings from these sources are supported by collateral, to the extent utilized. Unsecured borrowing facilities from correspondent banks totaled $519 million, all of which was unused at that date.

During the first quarter, the primary source of cash was borrowings from the FHLB and the primary uses were loan growth and deposit reductions, as well as an overall increase in cash equivalent balances amid heightened stress in the banking industry. Cash balances at the holding company totaled $107 million at period-end.


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Capital Resources

Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the note on Shareholders' Equity in the consolidated financial statements. Additional information about 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 goal is to maintain sound capitalization and use capital generation to support organic growth and shareholder distributions in the form of dividends and stock repurchases. The Company’s goal is to maintain a “well-capitalized” regulatory designation under projected and stressed financial projections.

In recent periods, the Company has returned excess capital to shareholders through stock repurchases. Additionally, the Company increased the quarterly stock dividend by 50% in the fourth quarter of 2022. The Company’s long-term goal is to maintain an efficient capital structure and to provide a return in excess of the cost of its common equity capital. The return on tangible common equity measured 9.6% in the most recent quarter.

As a result of rising interest rates, available for sale bond portfolios in banks are subject to unrealized losses which result in charges against other comprehensive income (“AOCI”) and reduce the book value of shareholders’ equity. Like many of its peers, the Company utilizes an option in reporting its regulatory equity which excludes changes in AOCI in the calculation of regulatory capital.

Reductions in bond valuations due to changes in market interest rates are reversed as bonds approach maturity. These reversals are accreted to AOCI over time, restoring the book value of equity. Tangible common equity totaling $972 million at period-end and was net of an accumulated other comprehensive loss totaling $159 million.

While the Company monitors the book value of equity and related metrics, it primarily manages capital based on regulatory capital measures, with a focus on the common equity tier 1 capital ratio. The Company continues to view itself as having excess capital which it plans to utilize in accordance with its capital management objectives.

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.
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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.


ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) & COMMITMENT TO SOCIAL RESPONSIBILITY

Since its founding in 1846, Berkshire Bank continues to be a purpose-driven, values-guided, community-centered bank working to achieve its vision of becoming a high-performing, leading socially responsible community bank. Berkshire empowers the financial potential of its stakeholders by making banking available where, when, and how it's needed through a dedicated focus on exceptional customer service, digital banking, and positive community impact. It provides a wide range of accessible, affordable, safe, responsible and sustainable financial solutions through its consumer banking, commercial banking and wealth management divisions.

ESG factors are central to the company’s vision, mission, business practices, and Berkshire’s Exciting Strategic Transformation (BEST). Berkshire focuses its ESG strategy on material topics impacting its business and stakeholders including leadership & governance, human capital management, equity & inclusion, responsible banking & cybersecurity, financial access & affordability, environmental sustainability & climate change and community investment. It was one of the first banks in the country to establish a dedicated committee of our Board of Directors to oversee ESG matters. Berkshire also was the first U.S. community bank holding company with under $150 billion in assets to issue a Sustainability Bond. The Bank is a leader among community banks in integrating ESG standards into its business strategy and operations. This helps manage risk and unlock new business opportunities to create an ecosystem of value, which in turn supports Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.

Berkshire regularly engages directly with its stakeholders to share information about the progress it’s made in its ESG performance, including through its ESG and Corporate Responsibility website, corporate annual report, and proxy statement. Additionally, Berkshire’s annual ESG Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure (TCFD) disclosure standards, details the Company's ESG efforts and programs.


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Climate Change & Sustainability

Climate Change manifesting in the form of both physical or transition risks could, either directly or indirectly, affect Berkshire’s operations, businesses, customers, communities, and its stakeholders. As the transition to a low-carbon economy accelerates, new policy emerges, and market dynamics shift, Berkshire targets that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support 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.

Key Developments in the Quarter:

•Release of 2022 ESG Report: The Company released its 2022 ESG Report, Purpose & Performance that Matters which highlights Berkshire's performance across environmental, social, and governance dimensions of its business along with its progress on its BEST Community Comeback program. The report can be viewed in its totality at berkshirebank.com/esg2022

•Ongoing Third-Party Recognition: Berkshire was again listed in the Bloomberg Gender Equality Index, named by Newsweek as one of America’s Most Trustworthy Companies, and was included in Forbes’ America’s Best Midsize Employers. Additionally, Berkshire’s ESG activities and BEST Community Comeback received a 2023 Communitas Award for Leadership in Corporate Responsibility, and the Company maintained its top quartile ESG rating performance.

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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.

Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes in interest rates and equity prices. The only significant market risk exposure for the Company is Interest Rate Risk (“IRR”). This is a result of the Company’s core business activities of making loans and accepting deposits.

The effective management of IRR is essential to achieving the Company’s financial objectives. The Company’s goal is to support the net interest margin and net interest income over entire interest rate cycles regardless of changes in either short- or long-term interest rates. The Company manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles of the Company.

Net Interest Income at Risk Simulation is used to measure the sensitivity of net interest income to changes in market rates over a period of time, such as 12 or 24 months. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) future balance sheet volume and mix assumptions; (ii) prepayment projections for loans and securities; (iii) new business loan spreads; and (iv) deposit pricing assumptions. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.

The Company uses two sets of standard scenarios to measure net interest income at risk compared to a base case with a static balance sheet and interest rates. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Yield curve twist scenarios assume the shape of the curve flattens or steepens instantaneously.

The following tables set forth the estimated percent change in the Company’s net interest income at risk over one-year simulation periods beginning March 31, 2023 and December 31, 2022.

Estimated Percent Change in Net Interest Income
Parallel Interest Rate Shock (basis points)March 31, 2023December 31, 2022
+2001.61.8
1000.80.8
-100(1.3)(1.6)
-200(3.8)(5.2)
Estimated Percent Change in Net Interest Income
Yield Curve Twist Interest Rate Shock
(basis points)		March 31, 2023December 31, 2022
Short End +100—0.1
Short End -100(0.9)(1.3)
Long End +1001.11.0
Long End -100(1.2)(1.2)


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The net interest income at risk simulation results indicate that at both March 31, 2023 and December 31, 2022, the Company was modestly asset sensitive to parallel shock rate changes over the twelve-month forecast horizon (i.e. net interest income will increase if market rates rise). Falling rate exposure declined due to upward pressure on deposit costs, which provide relief due to a decline in interest expense (i.e., less flooring). The benefit to up shocks decreased slightly driven by short FHLB maturities; significant FHLB repricing occurs with instantaneous shock scenarios, which increases interest expense. During the current quarter, there was no significant change in modeled interest rate risk shown above in either the parallel shock or yield curve twist scenarios.

Economic Value of Equity at Risk Simulation is conducted in tandem with net interest income simulations, to ascertain a longer-term view of the Company’s IRR position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. Economic value of equity at risk simulation values only the current balance sheet. As with net interest income modeling, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. All key assumptions are subject to periodic review.

Base case economic value of equity at risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The current spot interest rate curve is shocked up and down to generate new interest rate curves for parallel rate shock scenarios. These new curves are then used to recalculate economic value of equity at risk for these rate shock scenarios.

The following table sets forth the estimated percent change in the Company’s economic value of equity at risk, assuming various instantaneous parallel shocks in interest rates.
Estimated Percent Change in Economic Value of Equity
Parallel Shock Rate Change (basis points)March 31, 2023December 31, 2022
+200(1.9)—
100(0.9)—
-100(0.3)(1.5)
-200(2.9)(5.4)

The Company’s economic value of equity at risk profile indicates that at both March 31, 2023 and December 31, 2022, the Company’s economic value of equity was modestly negatively sensitive in rising or falling environments. EVE Sensitivity to the +200bps shock scenario increased from prior quarter to (1.9%), primarily driven by longer duration due to extension of residential assets.

Management utilizes both interest rate measures in the normal course of measuring and managing IRR and believes that each measure is valuable in understanding the Company’s IRR position.

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ITEM 4.           CONTROLS AND PROCEDURES
a)  Disclosure controls and procedures.
The principal executive officers, including the principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures were effective.

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

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PART II
ITEM 1.            LEGAL PROCEEDINGS
As of March 31, 2023, 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 breaches of a series of loan participation agreements executed in 2017, 2018 and 2019 in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation. Pioneer 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. 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. Extensive discovery has taken place in this action. On November 30, 2022, the Bank filed an amended complaint in its action against Pioneer setting forth more detailed allegations of Pioneer’s breaches of the loan participation agreements and stating additional claims for fraudulent inducement to cause Berkshire to join the loan participation agreements, constructive fraud and fraudulent concealment. On January 30, 2023, as part of its response to the Bank’s amended complaint, Pioneer filed a counterclaim against the Bank alleging (i) certain breaches by the Bank of the 2019 loan participation agreement stemming from actions that the Bank took to protect its interests after it learned of the facts and circumstances that caused the underlying credit loss, and (ii) that as a result of accepting the partial recovery of approximately $1.7 million in Q2 2020 the Bank should be deemed to have ratified the 2019 loan participation agreement and mooted its claims against Pioneer. Further discovery is now ongoing.

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 second half of 2023. Discovery is currently ongoing among the parties.
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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. 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 other than as set forth below.

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Systemic impacts may have a material adverse effect on our financial condition and results of operations.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation. On March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. Impacts on our liquidity, deposits, capital levels and interest rate risk may have a material adverse effect on our financial condition and results of operations.

The premiums of the FDIC’s deposit insurance program are expected to increase, and banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies. Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and the impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, each of which could have a material impact on our business.
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ITEM 2.               UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)                Recent Sales of Unregistered Securities
The Company occasionally engages in the practice of transferring unregistered securities for the purpose of completing business transactions. These shares are issued to vendors or other organizations as consideration for services performed in accordance with each contract. During the three months ended March 31, 2023 and 2022 there were no shares transferred.

(b)                 Not applicable.

(c)                 The following table provides certain information with regard to shares repurchased by the Company in the first quarter of 2023:
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
January 1-31, 2023— $— — 1,995,211 
February 1-28, 2023— — — 1,995,211 
March 1-31, 202347,275 25.17 47,275 1,947,936 
Total47,275 $25.17 47,275 1,947,936 

On January 25, 2023, 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 $50 million through December 31, 2023. The maximum number of shares that may be purchased under this program has been estimated based on the March 31, 2023 closing price per share of Company common stock of $25.06.



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)
31.1 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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 March 31, 2023, 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.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 BERKSHIRE HILLS BANCORP, INC.
  
   
Dated: May 10, 2023By:/s/ Nitin J. Mhatre
 Nitin J. Mhatre
 President and Chief Executive Officer
  
   
Dated: May 10, 2023By:/s/ R. David Rosato
 R. David Rosato
 Senior Executive Vice President and Chief Financial Officer

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