What changed in this filing

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Item 1. Business

2023-03-01 compared with 2022-03-01 · 196 added, 176 removed, 576 unchanged (39% of the section changed)

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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, 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.

Further, the ongoing COVID-19 pandemic and the related local and national economic disruption may continue to result in a decline in demand for our products and services;

increased levels of loan delinquencies, problem assets and foreclosures;

an increase in our allowance for loan losses;

a decline in the value of loan collateral, including real estate;

a greater decline in the yield on our interest-earning assets than the decline in the cost of our interest-bearing liabilities;

and increased cybersecurity risks, as employees continue to work remotely.

Additionally, financial markets and/or Company operations may be adversely affected by the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.

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.

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Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services.

At year-end 2021, the Bank had 106 full-service banking offices in its New England and New York footprint.

During 2021, the Company opened commercial banking offices in New Haven, CT and Providence, RI.

During the year 2021, the Company sold its 8 Mid-Atlantic banking offices and related operations, while maintaining a commercial lending office with an asset-based lending focus.

Also during the year, the Bank consolidated 16 branch offices in its New England/New York footprint.

and sold its insurance operations.

The emergence of the global COVID-19 pandemic in the first quarter of 2020 affected many aspects of the Company’s operations and financial condition through 2020 and 2021, as further described in other sections of this report.

The Company’s markets were initially among the hardest hit areas in the world.

Beginning in the first

quarter of 2021, the Company’s markets were among the leading areas of the country in achieving high rates of vaccination with new vaccines that were deployed.

At year-end 2022, the Bank had 100 full-service financial centers its New England and New York footprint.

The emergence of the global COVID-19 pandemic in the first quarter of 2020 affected many aspects of the Company’s operations and financial condition through 2022, as further described in other sections of this report.

Information regarding the Company is available through the Investor Relations tab at berkshirebank.com.

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Due to recent mergers of in-market bank competitors, the Company is pursuing opportunities to expand its market share and talent recruitment.

The Company seeks to differentiate itself with its Digitouch SM approach to personal service and user-friendly technology, as well as its commitment to corporate social responsibility.

The Company recently introduced its new brand theme of “Where You Bank Matters” to highlight these differentiating factors.

LENDING ACTIVITIES

The Bank originates loans in the four basic portfolio categories discussed below.

The Bank originates loans in the basic portfolio categories discussed below.

Lending activities are limited by federal and state laws and regulations.

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Adjustable-rate loan products generally reduce interest rate risk but may produce higher loan losses in the event of sustained rate increases.

The Bank generally originates loans for investment except for residential mortgages, which are generally originated for sale on a servicing released basis.

The Bank generally originates loans for investment except for residential mortgages, which are sometimes originated for sale on a servicing released basis.

Additionally, the Bank also originates Small Business Administration ("SBA") 7A loans for sale to investors.

The Bank also conducts wholesale purchases and sales of loans and loan participations generally with other banks doing business in its markets, including selected national banks.

The Bank also conducts loan participations generally with other banks doing business in its markets, including selected national banks.

The information discussed below describes the Company’s ongoing lending activities.

The COVID-19 pandemic conditions that affected the Company’s activities in 2021 and 2020 are discussed in Management’s Discussion and Analysis in Item 7 of this report.

Lending activities were affected by the emergence of the COVID-19 pandemic in 2020 and subsequent government interventions and support, as well as economic and monetary disruptions resulting from these conditions.

Loan Portfolio Analysis.

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Allowance for credit losses (96) (106) (127)

(106) (127) (64)

Net loans $ 8,239 $ 6,720 $ 7,954

(1) Beginning January 1, 2020, the allowance calculation is based on current expected loss methodology.

Prior to January 1, 2020, the allowance calculation was based on the incurred loss model.

Commercial Real Estate.

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Most commercial real estate loans are originated with final maturities of 10 years or less.

As part of its business activities, the Bank also enters into commercial loan participations.

As part of its business activities, the Bank also enters into commercial loan participations and interest rate swaps.

Commercial real estate is generally managed within federal regulatory monitoring guidelines of 300% of risk based capital for non-owner occupied commercial real estate and 100% for construction loans.

Total commercial real estate loans measured 259% of regulatory capital at year-end 2022 and construction real estate loans measured 26% of regulatory capital.

The Bank has hold limits for numerous categories of commercial specialty lending including healthcare, hospitality, designated franchises, and leasing.

Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk and lending spreads.

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Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals.

Credit enhancements in the form of additional collateral or guarantees are normally considered for start-up businesses without a qualifying cash flow history.

The Bank offers interest rate swaps to certain larger commercial mortgage borrowers.

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The maximum loan to value limits for construction loans follow Federal Deposit Insurance Corporation ("FDIC") supervisory limits, up to a maximum of 85 percent.

The Bank commits to provide the permanent mortgage

financing on most of its construction loans on income-producing property.

The Bank commits to provide the permanent mortgage financing on most of its construction loans on income-producing property.

Advances on construction loans are made in accordance with a schedule reflecting the cost of the improvements.

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Commercial and Industrial Loans ("C&I").

C&I loans are mostly managed through the Bank’s commercial middle market banking organization.

The Bank offers secured commercial term loans with repayment terms which are normally limited to the expected useful life of the asset being financed, and generally not exceeding ten years.

C&I loans are mostly managed through the Bank’s commercial middle market banking organization, as well as its Asset Based Lending Group, its Small Business Banking Group, and 44 Business Capital The Bank offers secured commercial term loans with repayment terms which are normally limited to the expected useful life of the asset being financed, and generally not exceeding ten years.

The Bank also offers revolving loans, lines of credit, letters of credit, time notes and SBA guaranteed loans.

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Commercial and industrial loans are generally secured by a variety of collateral such as accounts receivable, inventory and equipment, and are generally supported by personal guarantees.

Loan-to-value ratios depend on the collateral type and generally do not exceed 80 percent of orderly liquidation value.

Loan-to-value ratios depend on the collateral type and generally do not exceed 80 percent of orderly liquidation value or net book value as reported on the borrower’s financial statements.

Some commercial loans may also be secured by liens on real estate.

The Bank generally does not make unsecured commercial loans.

Commercial loans are of higher risk and are made primarily on the basis of the borrower’s ability to make repayment from the cash flows of its business.

Commercial and industrial loans are of higher risk and are made primarily on the basis of the borrower’s ability to make repayment from the cash flows of its business.

Further, any collateral securing such loans may depreciate over time, may be difficult to monitor and appraise and may fluctuate in value.

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Additionally, the Bank uses loan structures including shorter terms, amortizations, and advance rate limitations to additionally mitigate credit risk.

The Company considers these loans, together with its owner-occupied commercial real estate loans, as constituting the primary relationship based component of its commercial lending activities.

Credit enhancements in the form of additional collateral or guarantees are normally considered for start-up businesses without a qualifying cash flow history.

The Company considers commercial and industrial loans, together with its owner-occupied commercial real estate loans, as constituting the primary relationship based component of its commercial lending activities.

The loans originated through the Company’s participation in the SBA’s Paycheck Protection Program (“PPP”) lending program in 2020 were classified as C&I loans.

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These loans were viewed as zero credit risk due to the related SBA guarantee.

These loans totaled $633 million at year-end 2020.

Most of these loans were repaid via SBA forgiveness in 2021.

The balance of these PPP loans was $30 million at year-end 2021, compared to $633 million at year-end 2020.

Asset Based Lending.

The Asset Based Lending Group serves the commercial middle market in New England, as well as the Bank’s market in northeastern New York and in the Mid-Atlantic.

The group expands the Bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets to manufacturers, distributors and select service companies experiencing seasonal working capital needs, rapid sales growth, a turnaround, buyout or recapitalization with credit needs generally ranging from $2 to $25 million.

Asset based lending involves monitoring loan collateral so that outstanding balances are always properly secured by business assets, which reduces the risks associated with these loans.

Small Business Banking.

This group is also referred to as Business Banking, and handles most business relationships which are smaller than the middle market category.

Asset based lending involves monitoring loan collateral so that outstanding balances are properly margined by business asset collateral, which reduces the risks associated with these loans.

Small Business Banking Group is also referred to as Business Banking, and handles most business relationships which are smaller than the middle market category.

Additionally, some smaller business needs are handled through the Bank’s retail branch system.

Berkshire Bank also owns 44 Business Capital, a dedicated SBA 7A program lending team based in the Philadelphia area.

Berkshire Bank also owns Firestone Financial Corp.

("Firestone"), which originated loans secured by business-essential equipment throughout the U.S.

Key customer segments included the fitness, carnival, gaming, and entertainment industries.

The origination of loans by Firestone was terminated in mid-2022 and the remaining $133 million portfolio at year-end 2022 is being run-off.

44 Business Capital is a dedicated SBA 7A program lending team based in the Philadelphia area.

This team originates loans in the Northeast, Mid-Atlantic and nationally.

44 Business Capital also works with business banking and small business teams to provide SBA guaranteed loans to Business Banking Customers in Berkshire’s footprint.

This team sells the guaranteed portions of these loans with servicing retained and the Bank retains the unguaranteed portions of the loans in its C&I loan portfolio.

This team generally sells the guaranteed portions of these loans with servicing retained and the Bank retains the unguaranteed portions of the loans in its C&I loan portfolio.

The unguaranteed loan balances are participated pari-passu with the SBA and are generally collateralized and supported by recourse to business principals.

The Bank is a preferred SBA lender and closely manages the servicing portfolio pursuant to SBA requirements.

This team is the Bank’s largest source of commercial lending fee revenue, and it is targeting to further expand these operations.

Berkshire Bank also owns Firestone Financial Corp.

("Firestone"), which is located in Needham, MA.

Firestone originates loans secured by business-essential equipment through over 160 equipment distributors and manufacturers and directly via the end borrower in all 50 states.

Key customer segments include the fitness, carnival, gaming, and entertainment industries.

This team is the Bank’s largest source of commercial lending fee revenue.

44 Business Capital is one of the top 20 bank originators of SBA 7A loans in the U.S.

Residential Mortgages.

Through its mortgage banking operations, the Bank offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments.

The majority of loans are originated for sale with rate lock commitments which are recorded as

derivative financial instruments.

Mortgages are generally underwritten according to U.S.

government sponsored enterprise guidelines designated as “A” or “A-” and referred to as “conforming loans”.

The Bank also originates jumbo loans above conforming loan amounts which generally are consistent with secondary market guidelines for these loans and are often held in portfolio.

The majority of loans have been originated for investment, although the Bank targets more held for sale originations in the future.

The majority of mortgages originated in 2022 were jumbo mortgages exceeding the maximum amounts according to U.S.

government sponsored enterprise guidelines and were viewed as generally consistent with secondary market guidelines for these loans.

The Bank does not offer subprime mortgage lending programs.

The Bank buys and sells seasoned mortgages primarily with smaller financial institutions operating in its markets.

The Bank is developing conduit relationships in its markets as an additional business channel for newly originated mortgages.

The majority of the Bank’s secondary marketing is to U.S.

secondary market investors on a servicing-released basis.

The Bank also sells directly to government sponsored enterprises with servicing retained.

Mortgage sales generally involve customary representations and warranties and are nonrecourse in the event of borrower default.

The Bank is also an approved originator of loans for sale to the Federal Housing Administration (“FHA”), U.S.

Department of Veteran Affairs (“VA”), state housing agency programs, and other government sponsored mortgage programs.

The Bank is developing correspondent channels in its markets as an additional business channel for newly originated mortgages.

Mortgage loan originations often include rate lock features intended to cover normal processing times.

These rate locks introduce price risk into the Company’s operations and cause mortgage origination yields to lag market interest rates.

The Bank does not offer interest-only or negative amortization mortgage loans.

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Mortgage banking also requires flexible and scalable operations due to the volatility of mortgage demand over time.

Investor management is integral to maintaining the secondary market support that is required for these operations.

Investor management is integral to maintaining the secondary market support that is a component for these operations.

In 2021, the Bank entered into a third party relationship to service the residential mortgages and real estate secured consumer loans in its portfolio.

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The Bank’s consumer loans are centrally underwritten and processed by its experienced consumer lending team based in Syracuse, New York.

The Bank’s primary consumer lending activity in recent years was indirect auto lending.

In 2019, the Company decided to end the origination of indirect auto loans.

The Bank’s other major consumer lending activity is prime home equity lending, following its conforming mortgage underwriting guidelines with more streamlined verifications and documentation.

The Bank engages in prime home equity lending, following its conforming mortgage underwriting guidelines with more streamlined verifications and documentation.

Most of these outstanding loans are prime based home equity lines with a maximum combined loan-to-value of 85 percent.

Home equity line credit risks include the risk that higher interest rates will affect repayment and possible compression of collateral coverage on second lien home equity lines.

In 2021, the Company expanded its consumer lending in its markets through a third party relationship with a financial technology company which originates unsecured consumer loans through the internet using artificial intelligence technology in combination with the Bank’s underwriting criteria.

The Company exited its prime indirect auto originations business in 2019 and has a remaining portfolio in runoff.

In late 2021, the Company expanded its consumer lending in its markets through a third party relationship with financial technology company Upstart which originates unsecured consumer loans through the internet using artificial intelligence technology in combination with the Bank’s underwriting criteria.

The Bank suspended originating loans through this partnership in mid-2022 due to the possible impact of a potential economic slowdown.

Maturity and Sensitivity of Loan Portfolio.

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Loan Administration.

Lending activities are governed by a loan policy approved by the Board’s Risk Management and Capital Committee.

Lending activities are governed by a loan policy approved by the Board’s Risk Management, Capital, and Compliance Committee.

Internal staff perform and monitor post-closing loan documentation review, quality control, and commercial loan administration.

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Management primarily relies on internal risk management staff to review the risk ratings of the majority of commercial loan balances.

The Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Risk Management and Capital Committee and Management, under the leadership of the Chief Risk Officer.

The Bank’s loan underwriting is based on a review of certain factors including risk ratings, recourse, loan-to-value ratios, and material policy exceptions.

The Risk Management and Capital Committee has established individual and combined loan limits and lending approval authorities.

The Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Risk Management, Capital and Compliance Committee and Management, under the leadership of the Chief Risk Officer.

The Bank’s loan underwriting is based on a review of certain factors including risk ratings, repayment capacity, recourse, loan-to-value ratios, and material policy exceptions.

The Risk Management, Capital and Compliance Committee has established individual and combined loan limits and lending approval authorities.

Management’s Executive Loan Committee is responsible for commercial loan approvals in accordance with these standards and procedures.

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Customer rate locks are offered without charge and rate locked applications are generally committed for forward sale or hedged with derivative financial instruments to minimize interest rate risk pending delivery of the loans to the investors.

The Bank also sells interest rate derivatives to larger commercial borrowers desiring to fix their interest rates, and includes these derivatives in its underwriting and administrative procedures.

The Bank also sells interest rate derivatives to larger commercial borrowers desiring to fix their interest rates through interest rate swaps, and includes these derivatives in its underwriting and administrative procedures.

The Bank also sells residential mortgages and commercial loan participations on a non-recourse basis.

The Bank issues loan commitments to its prospective borrowers conditioned on the occurrence of certain events.

Loan origination commitments are made in writing on specified terms and conditions and are generally honored for up to 60 days from approval;

Loan origination commitments are made in writing on specified terms and conditions and are generally honored for up to 60 days from approval and may be honored for up to six months;

some commercial commitments are made for longer terms.

The Company also monitors pipelines of loan applications and has processes for issuing letters of interest for commercial loans and pre-approvals for residential mortgages, all of which are generally conditional on completion of underwriting prior to the issuance of formal commitments.

The loan policy sets certain limits on concentrations of credit and requires periodic reporting of concentrations to the Risk Management and Capital Committee.

The loan policy sets certain limits on concentrations of credit and requires periodic reporting of concentrations to the Risk Management, Capital and Compliance Committee.

The Bank has heightened monitoring of its 25 largest borrower relationships.

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Allowance for Credit Losses on Loans.

The Bank’s loan portfolio is regularly reviewed by management to evaluate the adequacy of the allowance for loan losses.

The Bank’s loan portfolio is regularly reviewed by management to evaluate the adequacy of the allowance for credit losses on loans.

Prior to 2020, the allowance represented management’s estimate of inherent incurred losses that are probable and estimable as of the date of the financial statements.

The allowance included a specific component for impaired loans (a “specific loan loss reserve”) and a general component for portfolios of all outstanding loans (a “general loan loss reserve”).

At the time of acquisition, no allowance for loan losses was assigned to loans acquired in business combinations.

These loans were initially recorded at fair value, including the impact of expected losses, as of the acquisition date.

An allowance on such loans was established subsequent to the acquisition date through the provision for loan losses based on an analysis of factors including environmental factors.

On January 1, 2020, the Company adopted the new loan loss allowance standard based on Current Expected Credit losses (“CECL”).

Under this standard, management makes estimates of future economic conditions over the life of the loan portfolio and other future conditions and arrives at a reasonable estimate of expected loan losses.

of the allowance changed from an incurred model to an expected model based on this standard.

The basis of the allowance changed from an incurred model to an expected model based on this standard.

As a result, the amount of the loan loss allowance and the loan loss provision beginning in 2020 is not comparable to prior years.

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However, future adjustments to the allowance for credit losses on loans may be necessary, and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making its determinations.

There can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loan or loan portfolio category deteriorate.

There can be no assurance that the existing allowance for credit losses is adequate or that increases will not be necessary should the quality of any loan or loan portfolio category deteriorate.

Regulatory agencies may require the Bank to make additional provisions for credit losses based upon judgments different from those of management.

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2022 2021 2020

Allowance for credit losses/total loans 1.55 % 1.58 % 0.67 %

Allowance for credit losses on loans/total loans 1.15 % 1.55 % 1.58 %

Non-accrual loans/total loans 0.37 % 0.52 % 0.80 %

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Consumer other 0.02 0.01 0.02

The following tables present year-end data for the approximate allocation of the allowance for loan losses by loan categories at the dates indicated (including an apportionment of any unallocated amount).

The following tables present year-end data for the approximate allocation of the allowance for credit losses on loans by loan categories at the dates indicated (including an apportionment of any unallocated amount).

The first table shows for each category the amount of the allowance allocated to that category as a percentage of the outstanding loans in that category.

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The allocation of the allowance to each category is not indicative of future losses and does not restrict the use of any of the allowance to absorb losses in any category.

Due to the impact of accounting standards for acquired loans, data in the accompanying tables may not be comparable between accounting periods.

Item 1 - Table 4A - Allocation of Allowance for Credit Losses by Category (as of year-end)

Item 1 - Table 4A - Allocation of Allowance for Credit Losses on Loans by Category (as of year-end)

2022 2021 2020

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Consumer other 12,188 4.5 2,586 1.3 8,059 2.7

$ 106,094 1.6 % $ 127,302 1.6 % $ 63,575 0.7 %

(1) Beginning January 1, 2020, the allowance calculation is based on current expected loss methodology.

Prior to January 1, 2020, the allowance calculation was based on the incurred loss model.

Item 1 - Table 4B - Allocation of Allowance for Credit Losses (as of year-end)

Total $ 96,270 1.2 % $ 106,094 1.6 % $ 127,302 1.6 %

Item 1 - Table 4B - Allocation of Allowance for Credit Losses on Loans (as of year-end)

2022 2021 2020

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Consumer other 12,188 3.3 2,586 2.9 8,059 3.8

$ 106,094 100.0 % $ 127,302 100.0 % $ 63,575 100.0 %

(1) Beginning January 1, 2020, the allowance calculation is based on current expected loss methodology.

Prior to January 1, 2020, the allowance calculation was based on the incurred loss model.

Total $ 96,270 100.0 % $ 106,094 100.0 % $ 127,302 100.0 %

INVESTMENT SECURITIES ACTIVITIES

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The Enterprise Risk Management/Asset-Liability Committee meets multiple times each quarter and reviews investment strategies.

The Risk Management and Capital Committee of the Board of Directors provides general oversight of the investment function.

The Risk Management, Capital and Compliance Committee of the Board of Directors provides general oversight of the investment function.

Historically, the Company has maintained short-term investment balances as a component of cash and cash equivalents which are a component of short-term liquidity management.

Due to the pandemic, with a surge in demand deposits and a reduction in loan balances, the balance of short-term investments has increased due to the comparatively low yields and spreads on longer duration investment securities.

Due to the pandemic, with a surge in demand deposits and a reduction in loan balances, the balance of short-term investments increased in 2020 and 2021 due to the comparatively low yields and spreads on longer duration investment securities.

Most short-term investments have been maintained at the Federal Reserve Bank of Boston.

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The Company generally designates debt securities as available for sale, but sometimes designates longer-duration municipal and other securities as held to maturity based on its intent.

This also allows the Company to more effectively manage the potential impact of longer-duration, fixed-rate securities on stockholders' equity in the event of rising interest rates.

This also allows the Company to more effectively manage the potential impact of longer-duration, fixed-rate securities on shareholders' equity in the event of rising interest rates.

The following table summarizes year-end 2022 amortized cost, weighted average yields, and contractual maturities of debt securities.

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A significant portion of the mortgage-based securities are planned amortization class bonds.

Their expected durations are 3-5 years at current interest rates, but the contractual maturities shown reflect the underlying maturities of the collateral mortgages.

Their expected durations were targeted at 3-5 years, but durations lengthened due to the slower prepayment speeds of all mortgage related instruments in the environment of rising interest rates in 2022.

The contractual maturities shown below reflect the underlying maturities of the collateral mortgages.

Additionally, the mortgage-based securities maturities shown below are based on final maturities and do not include scheduled amortization.

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The Bank’s deposit accounts consist of demand deposits (non-interest-bearing checking), NOW (interest-bearing checking), regular savings, money market savings, and time certificates of deposit.

Additionally, the Bank offers a variety of retirement deposit accounts to personal and business customers.

The Bank emphasizes its transaction deposits – checking and NOW accounts – for personal accounts and checking accounts promoted to businesses.

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The Bank promotes remote deposit capture devices so that commercial accounts can make deposits from their place of business.

Additionally, the Bank offers a variety of retirement deposit accounts to personal and business customers.

Deposit related fees are a significant source of fee income to the Bank, including overdraft and interchange fees related to debit card usage.

Deposit service fee income also includes other miscellaneous transactions and convenience services sold to customers through the branch system as part of an overall service relationship.

Deposit related fees include overdraft fees, interchange fees related to debit card usage, service charges, and other miscellaneous transactions and convenience services sold to customers through the branch system as part of an overall service relationship.

The Bank offers compensating balance arrangements for larger business customers as an alternative to fees charged for checking account services.

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Commercial cash management services are an important commercial service offered to commercial and governmental depositors and a fee income source to the bank.

The Bank also operates a commercial payment processing business that serves regional and national payroll service bureau customers.

The Bank also operates a commercial payment processing business that serves regional and national payroll service bureau customers, with the majority of volume originated by a leading national provider of payroll and human capital management software solutions.These payroll deposits often fluctuate daily by hundreds of millions of dollars depending on payroll cycles.

Payroll deposits were concentrated in money market deposit balances at year-end 2022.

The Bank was one of the top 50 bank ACH originators by volume in 2021 based on the most recent data available.

Online banking and mobile banking functionality is increasingly important as a component of deposit account access and service delivery.

The Bank is also gradually deploying its MyTeller video tellers to complement and extend its service capabilities in its branches.

The Bank has partnered with a third party fintech company to provide enhanced online deposit account opening services.

The Bank has partnered with a third party fintech company to provide enhanced online deposit account opening services and plans in 2023 to implement a new online and mobile banking platform developed in partnership with this provider as an important milestone in its Digitouch SM strategy.

The Company also is monitoring the development of payment services which are growing in their importance in the personal and commercial deposit markets.

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These balances are viewed as part of overall relationship balances with regional customers.

Brokered deposits are sourced through selected Board approved brokers;

these deposits are viewed as potentially more volatile than other deposits and are managed as a component of the Bank's liquidity policies.

Brokered deposits are sourced through selected Board approved brokers and are managed as a component of the Bank's liquidity policies.

The Company also uses borrowings from the FHLBB as an additional source of funding, particularly for daily cash management and for funding longer duration assets.

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The Bank also has access to borrowings from the Federal Reserve Bank of Boston.

The Company had a $15 million trust preferred obligation and a $7 million trust preferred obligation outstanding, as well as $74 million in senior subordinated notes at year-end 2021.

The Company had a $15 million trust preferred obligation and a $7 million trust preferred obligation outstanding, as well as $100 million in subordinated notes at year-end 2022.

The Company’s common stock is listed on the New York Stock Exchange under the ticker “BHLB”.

Subject to certain limitations, the Company can also choose

to issue common stock, preferred stock, subordinated debt, or senior debt in public stock offerings or private placements.

In 2020, the Company renewed its universal securities shelf registration with the SEC to facilitate potential future capital issuances.

The Company has maintained a shelf registration as part of its routine capital management for many years.

Subject to certain limitations, the Company can also choose to issue common stock, preferred stock, subordinated debt, or senior debt in public stock offerings or private placements.

The Company maintains a shelf registration as part of its routine capital management.

DERIVATIVE FINANCIAL INSTRUMENTS

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Commitments on applications intended to be held for investment are not accounted for as derivative financial instruments.

The Company has a policy for managing its derivative financial instruments, and the policy and program activity are overseen by the Risk Management and Capital Committee.

The Company has a policy for managing its derivative financial instruments, and the policy and program activity are overseen by the Risk Management, Capital and Compliance Committee.

Derivative financial instruments with counterparties which are not customers are limited to a select number of national financial institutions.

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The Company sometimes uses interest rate swap instruments for its own account to fix the interest rate on some of its borrowings, all of which have been designated as cash flow hedges.

The Company may also use interest rate collars or other derivative instruments in managing its interest rate risk.

The Company also has begun offering forward foreign exchange derivatives to its commercial markets as part of its expanded international banking services.

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The Wealth Management Group reported $1.7 billion in total assets under management at year-end 2022.

The Company expanded this team during the year and introduced Socially Responsible Investment portfolios as another element of the Company’s overall vision of being a leading socially responsible company.

The Company expanded this team during the year and has introduced Socially Responsible Investment portfolios as another element of the Company’s overall vision of being a leading socially responsible company, and as part of a brand theme that Where You Invest Matters .

HUMAN CAPITAL MANAGEMENT

Berkshire’s people are the core of its ability to deliver on its Berkshire’s Exciting Strategic Transformation (BEST) plan and vision of being a high performing, leading socially responsible community bank in New England and beyond.

The Company’s approach to human capital management is grounded in its Be FIRST values and focuses on:

Berkshire’s people are the driving force behind its progress on Berkshire’s Exciting Strategic Transformation (BEST) plan and vision of being a high performing, leading socially responsible community bank in New England and beyond.

The Company’s approach to human capital management is grounded in its corporate values and focuses on:

• Strong oversight and risk management practices

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• Compensation & Benefits

• Retention, Training, Development & Engagement

• Training, Development, Engagement & Retention

• Health & Wellness

The Board of Directors has ultimate responsibility for the strategy of the Company.

The Compensation Committee of the Board of Directors oversees executive compensation matters and the Corporate Responsibility & Culture committee oversees company culture, diversity, and employee engagement.

The Compensation Committee of the Board of Directors oversees executive compensation matters and the Corporate Responsibility & Culture committee oversees company culture as well as diversity, equity and inclusion performance.

The full Board also receives an annual briefing on employee engagement.

The SEVP, Chief Human Resources & Culture Officer provides management oversight on human capital matters.

The Company proactively identifies potential human capital related risks, such as the labor market shortage, rising labor costs, and employee retention and designs strategies to mitigate those risks.

Strong human capital management is viewed as integral to the Company's strategic transformation.

Strong human capital management is viewed as integral to the Company's transformation and ability to meet its strategic objectives.

Berkshire operates in a highly competitive labor market with strong competition for top talent.

To help power Berkshire’s transformation, it relies on and continues to recruit employees with the right mix of skills, expertise and experiences.

The Company leverages several strategies to support its talent pipeline and talent acquisition activities including internship placements, affinity group relationships, and the use of experienced recruiters for key management and specialized positions.

Berkshire continues to pursue a hybrid work model to expand its access to top talent and provide its employees with workplace flexibility.

These strategies have proved effective in meeting the demand for talent demonstrated by the Company’s strong track record attracting new talent across retail, commercial, wealth management, business banking and operational areas.

In addition, as market disruptions from mergers remain, Berkshire will continue to leverage its differentiated brand and unique market positioning to hire community-focused bankers from its competitors.

The Company relies on and continues to recruit employees with the right mix of skills, expertise and experiences based on current openings and forecasted needs.

The Company leverages several strategies to support its talent pipeline and talent acquisition activities including formal advertising, postings on targeted career sites, career events, internship placements, affinity group relationships, and the use of experienced external recruiters for key management and specialized positions.

Berkshire also has a small internal team of talent recruitment professionals.

Berkshire maintains a hybrid work model to expand its access to top talent and provide its employees with workplace flexibility.

These strategies have proved effective in meeting the demand for talent demonstrated by the Company’s strong track record of attracting high-caliber talent across retail, commercial, wealth management, business banking, technology and operational areas.

In addition, as market disruptions from mergers remain and recessionary pressures impact other industries, Berkshire will continue to leverage its differentiated brand and unique market positioning to hire community-focused bankers from its competitors and attract high-performing operational talent from outside the industry.

COMPENSATION & BENEFITS

While the labor market shortage and other factors can contribute to increased labor costs, Berkshire continually evaluates its strategies and looks at best practices to provide competitive pay and benefits packages that reward performance and retain top talent at all levels of the Company.

The Company offers comprehensive medical coverage, paid vacation and personal time, along with other benefits, all of which are available to married same-sex or different-sex couples as well as domestic partners.

In addition to its compensation and health benefits, Berkshire offers volunteer-time off, an employee assistance program, regular performance reviews and the You FIRST Fund to help employees impacted by personal financial hardships.

Retention, Training, Development & Engagement

Strong employee retention will help reduce expense, create efficiencies and contribute to the success of BEST.

In addition to compensation and benefits packages, Berkshire employs a collection of strategies to strengthen employee retention.

The Company offers a menu of development and training programs consistent with one’s job responsibilities and professional goals including a mentoring program to pair high potential junior employees with senior staff.

Berkshire continues to reskill and upskill employees from across the Company to take on new responsibilities and roles.

For employees looking to expand their professional experience in the classroom, the Company offers an education assistance program.

In 2021, Berkshire further enhanced its commitment to creating a strong workplace culture by rolling out a comprehensive employee engagement survey to identify strengthens and opportunity areas within the organization.

Action plans were developed in areas that did not meet the Company’s high expectations.

It expects to continue to enhance its efforts through intentional actions including offering a new employee rewards and recognition program.

A highly competitive labor market along with inflationary pressures has impacted labor costs for all businesses.

Berkshire is not immune to these economic pressures.

The Company continually evaluates its compensation strategies and benefits programs, benchmarks to industry and peers and surveys the landscape of best practices to develop compensation and benefits packages that reward performance and retain top talent at all levels of the Company.

Against this backdrop, and in keeping with the Company’s socially responsible mission, Berkshire raised the minimum starting pay to $17/hour in 2022.

It also enhanced its vacation benefit as well as its incentive plans across lines of business to provide opportunities for employees to earn higher compensation and bonuses for strong performance aligned with Berkshire’s strategic objectives.

Berkshire provides comprehensive medical coverage, paid vacation, personal and sick time, paid protective leave for gender-based violence, a 401(k) plan with employer match, long-term disability insurance, and group term life insurance.

In addition, Berkshire offers a day care reimbursement program, a dependent care expense account, family and medical leave along with flexible work arrangements, including the ability to work fully remote dependent on the duties of one’s job.

All benefits are available to married same-sex or different-sex couples as well as domestic partners.

In addition to its compensation and health benefits, Berkshire offers volunteer-time off, a matching-gift program, an employee assistance program, regular performance reviews, professional development and the You FIRST Fund to help employees impacted by personal financial hardships.

Approximately 97% of employees are eligible for benefits.

TRAINING, DEVELOPMENT, ENGAGEMENT & RETENTION

Training and development programs provide employees with the knowledge and skills needed to succeed and have upward career mobility.

They are critical components, along with competitive compensation and benefits programs, to having an engaged workforce.

Ultimately an engaged workforce drives high levels of retention which reduces human capital risks, expense, and advances Berkshire’s progress and performance.

The Company provides several learning and training programs consistent with one’s job responsibilities, professional goals, and development plans.

Employees have regular performance assessments to identify strengths and areas for further growth.

Berkshire continues to reskill and upskill employees from across the Company helping them advance along career paths by taking on new responsibilities and roles.

The Company offers a mentoring program for high potential junior employees along with leadership development programs.

For employees looking to expand their professional experience in the classroom, the Company offers educational assistance along with access to formal degree and certification programs.

Berkshire continues to monitor the progress of its efforts to evaluate the effectiveness of programs and strategies on engagement.

A comprehensive annual employee engagement and pulse survey is conducted to identify strengths and opportunity areas within the organization.

Overall, employees felt there was a strong spirit of teamwork, that Berkshire genuinely cares for its communities, and they have strong relationships with their direct managers.

Actions plans are developed for areas identified in the survey that do not meet the Company’s high expectations.

While Berkshire has been impacted by higher-than-average turnover due to labor market disruptions, it is seeing positive momentum because of the actions it has taken to improve engagement and combat turnover including:

• Launched Company-wide reward and recognition program

• Enhanced vacation benefit

• Introduced wellness day

• Enhanced line of business incentive plans

• Established career paths for various job families

• Increased starting wage

• Offered mentoring program

• Developed robust employee communications program

Collectively these efforts have led to improved retention year over year, historically high employee engagement and being named a Forbes America’s Best Midsize Employers.

HEALTH & WELLNESS

Like all businesses, Berkshire has been impacted by the ongoing COVID-19 pandemic and continues to proactively manage impacts to protect the health and safety of its employees, customers and communities as well as retain and attract top talent.

As the world began to emerge from the COVID-19 pandemic Berkshire continued to proactively manage impacts to protect the health and safety of its employees, customers and communities.

During the height of the pandemic, the Company provided protective equipment to front-line employees, including masks and gloves, and offered all additional paid sick time, paid vaccine time, paid quarantine/isolation leave, job protected personal leave, flexible work schedules for remote employees, premium pay for onsite employees and maintained full pay for employees with reduced schedules, as a result of the pandemic.

The Company continues to maintain a largely hybrid working environment with the majority of non-branch staff working remotely at least part-time.

Berkshire works to protect and enhance the physical, mental and financial wellbeing of its workforce by providing programs, benefits and a health and wellness employee resource group.

The Company, through its insurance provider, offers a fitness, weight and mind/body reimbursement along with a year-round calendar of various wellness related activities.

Since physical and mental health go hand-in-hand with financial health, Berkshire provides access to financial education resources, webinars along with its You FIRST Fund to assist employees experiencing financial hardships.

In addition, Berkshire provides a comprehensive employee assistance program which includes counseling services and resources for those experiencing mental health challenges.

To further support the needs of its workforce, Berkshire introduced a wellness day to provide a day off for employees to disconnect, recharge and take care of themselves in whatever way works best for them.

FUTURE OF THE WORKPLACE

Berkshire continues to evolve and enhance its human capital management strategies to help drive organizational growth in support of BEST while combating risks, such as the labor market shortage and rising labor costs.

The Company intends to continue to evolve its workplace model into a hybrid environment over the long-term.

It also plans to pursue its DigiTouch™ service delivery model, a powerful combination of personal service driven by bankers fused with the convenience of user-centric technology that combined, delivers a superior customer experience.

While technology will play a bigger role in the future of Berkshire helping to improve processes and drive efficiencies, people will always be at the core of its ability to deliver value to its customers and communities.

The Company remains confident that the Berkshire brand, value proposition and socially-responsible vision will continue to be a differentiator in the market and help overcome labor market disruptions.

Berkshire continues to evolve and enhance its human capital management strategies to drive organizational growth in support of BEST while combating risks, such as the labor market shortage and rising labor costs.

The Company expects to maintain its hybrid workplace over the long-term and invest in technology.

While technology will play a bigger role in the future of Berkshire, helping to improve processes and drive efficiencies, people will always be at the core of its ability to deliver value to its customers, shareholders and communities.

The Company remains confident that the Berkshire brand, value proposition and socially responsible vision will continue to be a differentiator in the market.

Human Capital* ◦ Total Full Time Equivalent

◦ Turnover Rate

◦ Retention Rate

*All metrics reported are as of or for the year-ended December 31, 2021.

◦ Promotion Rate

◦ Minimum Starting Salary

◦ Average Tenure (years)

* All metrics reported are as of and for the year-ended December 31, 2022.

DIVERSITY, EQUITY & INCLUSION

Creating a diverse, equitable, and inclusive workplace is a critical component to the success of Berkshire’s Exciting Strategic Transformation (BEST) and its BEST Community Comeback.

At the core of Berkshire’s strategy is a goal to ensure that its workforce reflects the communities in which it operates, that its employees feel that they are valued and can reach their full potential and that it leverages its core business to improve the access and affordability of financial solutions to support economic growth of under-represented populations and communities.

The Company instituted a strong foundation of governance practices to ensure that diversity, equity and inclusion is embedded into Berkshire’s business activities.

Creating a diverse, equitable, and inclusive (DEI) workplace is an essential enabler to continuing to drive forward progress on Berkshire’s Exciting Strategic Transformation (BEST), its BEST Community Comeback and vision.

Ultimately Berkshire’s goal is to ensure that its workforce reflects the communities in which it operates, that its employees feel valued and can reach their full potential and that it improves the access and affordability of financial solutions to support economic growth of underrepresented populations and communities.

The Company’s advances those goals through an integrated approach grounded in its corporate values:

• Strong oversight and governance practices

• Recruitment & talent management

• Education and training

• Workplace programming through employee resource groups (ERGs)

• Financial solutions which drive economic equity

• Community programming focused on financial inclusion and entrepreneurship

• Supplier diversity

The Company has a strong foundation of governance practices to ensure that diversity, equity and inclusion is embedded into Berkshire’s business activities.

This includes the Corporate Responsibility & Culture Committee of the Board of Directors which has ultimate oversight responsibility.

Berkshire’s Diversity, Equity & Inclusion Committee, which reports into the Board committee, provides additional management level oversight to the Company’s programming and performance.

To further strengthen those efforts in 2021, Berkshire named a Senior Vice President/Chief Diversity Officer.

The Company continues to work to improve representation within its workplace leveraging a combination of strategies.

Berkshire identifies opportunities in targeted markets and business lines, develops deeper partnerships with non-profit organizations and affinity groups and uses external recruitment professionals to ensure it receives candidate pools that reflect the rural and urban communities in which it operates.

In addition, the Company regularly reviews the gender and ethnic diversity of its workforce at the employee, manager and executive management level.

Diversity & Inclusion* ◦ Percent of women in workforce

The Senior Vice President, Chief Diversity Officer manages the Company’s DEI programming.

Berkshire continues working to improve representation within its workplace through recruitment initiatives while enhancing its internal talent pipeline to ensure representation at all levels of the Company.

Berkshire identifies opportunities in targeted markets and business lines, develops deeper partnerships with non-profit organizations and affinity groups, advertises positions on specialized career sites, participates in affinity career events and uses internal as well as external recruitment professionals to ensure it receives candidate pools that reflect the rural and urban communities in which it operates.

It works to develop and implement strategies aimed at increasing representation at each level of the Company.

In addition, the Company regularly reviews the gender and ethnic diversity of its workforce at the employee, manager and executive management level and completes a review of pay and performance measures to ensure that all employees, regardless of gender and ethnicity, in comparable roles are compensated equitably.

As a result of Berkshire’s intentional and impactful efforts to date, Berkshire was listed in the Bloomberg Gender Equality Index and Human Rights Campaign’s Corporate Equality Index.

Diversity, Equity & Inclusion* Percent of women in workforce 67 %

Percent of ethnic minorities in workforce 13 %

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Percent of ethnic minorities on the Board 31 %

◦ Percent of women in management (officer+)

◦ Percent of ethnic minorities in management officer+)

*All metrics reported are as of December 31, 2021.

Berkshire provides a full suite of diversity, equity & inclusion trainings to build understanding and afford employees with strategies they can put into practice.

All employees complete training annually.

Percent of women in manager roles (officer+) 20 %

Percent of ethnic minorities in manager roles (officer+) 4 %

Percent of women in executive management roles 36 %

Percent of ethnic minorities in executive management roles 14 %

*Workforce metrics reported are as of December 31, 2022.

Board metrics reflect the current composition of the Board of Directors.

Berkshire provides a full suite of diversity, equity & inclusion trainings.

The trainings help build understanding and provide employees with knowledge, skills and tactics they can put into practice.

All new employees complete training at the time of hire and Berkshire intends to roll out enhancements to its training program which includes required annual and elective courses for all employees and hiring managers in 2023.

In addition, Berkshire offers seven Employee Resource Groups (ERGs) each playing an integral role for employees and the culture of the company.

Every Employee Resource Group provides a safe space for dialogue, education, and collective action on topics relevant to their members and the Company.

Through the ERGs, employees concerns and ideas to strengthen Berkshire’s culture are elevated to members of management and the Diversity, Equity & Inclusion Committee for action, empowering employees to collectively be engines of positive change within the workplace.

The Company continues to work towards building economic equity in its communities by developing and offering safe, accessible, affordable financial solutions and programs including its MyFreedom Checking account, nationally certified by BankOn for its affordability, and the Futures Fund.

The Futures Fund is a special purpose credit program which provides access to a low-interest, low barrier to entry line of credit in collaboration with non-profit partners who provide wrap around technical assistance to minority, LGBTQIA+ and other businesses owned by underrepresented individuals.

Since launching the program in 2020, it has deployed nearly $1.5 million to underrepresented business owners.

Beyond offering financial solutions and wellness programming, Berkshire also understands that a diverse third-party base is important to achieving its operational goals, supply chain resilience, vision and creating equity in its communities.

As a result, Berkshire works to maintain a third-party base that reflects the communities in which it operates and, to the maximum extent possible, increase the utilization of third parties owned by underrepresented people.

Additional information on Berkshire’s Human Capital Management and Diversity, Equity & Inclusion practices can be found in the Company’s annual Corporate Responsibility Report, which details the company's environmental, social and governance programs.

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The Company is a Delaware corporation and a bank holding company that has elected financial holding company status within the meaning of the Bank Holding Company Act of 1956, as amended.

As such, it is registered with, supervised by and required to comply with the rules and regulations of the Federal Reserve Board.

It is registered with, supervised by and required to comply with the rules and regulations of the Federal Reserve Board.

The Federal Reserve Board requires the Company to file various reports and also conducts examinations of the Company.

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The Bank is a Massachusetts-chartered trust company and its deposits are insured up to applicable limits by the FDIC.

The Bank was previously a Massachusetts-chartered savings bank and converted to a Massachusetts-chartered trust company in July 2014.

The Bank is subject to extensive regulation by the Massachusetts Commissioner of Banks (the “Commissioner”), as its chartering agency, and by the FDIC, as its deposit insurer.

The Bank is required to file reports with the Commissioner and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers

with, or acquisitions of, other depository institutions or branches of other institutions.

Under specified conditions, the Bank must also seek regulatory approval of capital distributions to the Company, its sole shareholder.

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• Massachusetts Banking Laws and Supervision

•Federal Regulations

• Federal Banking Regulations

• Enforcement

• Holding Company Regulation

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The approval of the Commissioner is generally required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained “net profits,” as defined, of the preceding two years.

The approval of both the Commissioner and the FDIC is required for the Bank to pay a dividend from its surplus account, which was the case during 2021 as to Bank dividends to the Company, and is expected to be the case for 2022.

The Bank was required to obtain the approval of the Commissioner to pay Bank dividends to the Company in 2022 and is expected to require such approval in 2023.

Loans to One Borrower Limitations.

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However, with certain limited exceptions, total obligations of one borrower to an institution may not exceed 20.0% of the total of the institution’s capital, which is defined under Massachusetts law as the sum of the institution’s capital stock, surplus account and undivided profits.

Investment Activities.

In general, Massachusetts-chartered institutions may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4.0% of the bank’s deposits.

Massachusetts-

chartered institutions may also invest an amount equal to 1.0% of their deposits in stocks of Massachusetts corporations or companies with substantial employment in Massachusetts which have pledged to the Commissioner that such monies will be used for further development within the Commonwealth.

However, these powers are constrained by federal law, which generally limit the activities and equity investments of state banks to those permitted for national banks.

Regulatory Enforcement Authority.

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As a bank holding company, the Company is also subject to regulatory capital requirements, as described in a subsequent section.

The approval of the FDIC is required for the Bank to pay a dividend to the Company from its surplus account.

FDIC approval was required for Bank dividends payments in 2022 and such approval is expected to be required in 2023.

Investment Activities.

The Federal Deposit Insurance Act generally limits the types of equity investments an FDIC-insured state-chartered bank, such as the Bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks.

Interstate Banking and Branching .

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Federal law requires that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements.

At December 31, 2021, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations.

The law establishes three categories of capital deficient institutions:

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The FDIC regulations implementing the prompt corrective action law were amended to incorporate the previously discussed increased regulatory capital standards that were effective January 1, 2015.

An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of

6.5% or greater.

An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1 ratio of 4.5% or greater.

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A bank’s compliance with such plans must be guaranteed by its holding company in an amount equal to the lesser of 5% of the institution’s total assets when deemed “undercapitalized” or the amount needed to comply with regulatory capital requirements.

If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company.

If an “undercapitalized”

bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company.

“Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

At December 31, 2022, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations.

Transactions with Affiliates and Loans to Insiders.

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The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

The Dodd-Frank Act required the FDIC to revise its procedures to base its assessments upon each insured institution’s total assets less tangible equity instead of deposits.

Under the FDIC’s risk-based assessment system, insured institutions are assessed based on perceived risk to the Deposit Insurance Fund with institutions deemed less risky pay lower FDIC assessments.

Assessments for institutions with $10 billion or more of assets are primarily based on a scorecard approach by the FDIC, including factors such as examination ratings and modeling measuring the institution’s ability to withstand asset-related and funding-related stress and potential loss to the Deposit Insurance Fund should the bank fail.

The assessment range

(inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets is 1.5 to 40 basis points.

Under the risk-based assessment system, institutions deemed less risky of failure pay lower assessments.

Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.

The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets was 1.5 to 40 basis points effective through December 31, 2022.

The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023.

As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 42 basis points.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a regulator.

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The Company is subject to the Federal Reserve Board’s capital adequacy requirements for bank holding companies.

The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components

of capital, than those applicable to institutions themselves.

Consolidated regulatory capital requirements identical to those applicable to the Bank apply also to the Company.

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Regulatory guidance provides for prior consultation with and nonobjection of the Federal Reserve Board with respect to dividends in certain circumstances, such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition.

Such Federal Reserve Board consultation and nonobjection was required for certain dividends paid by the Company during the first half of 2021.

The Federal Reserve Board guidance also provides for consultation and nonobjection for material increases in the amount of a bank holding company’s common stock dividend.

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Federal Reserve guidance provides for regulatory consultation and nonobjection under specified circumstances prior to a holding company redeeming or repurchasing regulatory capital instruments, including common stock, regardless of the applicability of the previously referenced notification requirement.

Pursuant to regulatory policies, such circumstances include repurchasing common stock that would result in a net reduction as of the end of the quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter.

In these circumstances, Federal Reserve nonobjection is required.

The Company obtained such nonobjection for its repurchase program in 2022 and for the repurchase program announced in January 2023.

These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of its stock, or otherwise engage in capital distributions.

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Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” A less than “satisfactory” rating would result in the suspension of any growth of the Bank through acquisitions or opening de novo branches until the rating is improved.

As of the most recent CRA examination by the FDIC, the Bank’s CRA rating was “satisfactory.”

As of the most recent CRA examination by the FDIC, the Bank’s CRA rating was “satisfactory.” On May 5, 2022, the OCC, FRB and FDIC released a notice of proposed rulemaking to strengthen and modernize the CRA regulations and framework.

Anti-Money Laundering Laws .

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The Company reports its income on a calendar year basis using the accrual method of accounting.

This discussion of tax matters is only a summary and is not a comprehensive description of the tax rules applicable to the Company

and its subsidiaries.

This discussion of tax matters is only a summary and is not a comprehensive description of the tax rules applicable to the Company and its subsidiaries.

Further discussion of income taxation is contained in a note to the financial statements.

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Massachusetts tax law generally permits special tax treatment for a qualifying limited purpose “securities corporation.” The Bank’s securities corporations all qualify for this treatment, and are taxed at a 1.3% rate on their gross income.

Inflation Reduction Act of 2022 .

The Inflation Reduction Act, which was signed into law on August 16, 2022, among other things, implements a new alternative minimum tax of 15% on corporations with profits in excess of $1 billion, a 1% excise tax on stock repurchases, and several tax incentives to promote clean energy and climate initiatives.

These provisions are effective beginning January 1, 2023.

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What changed 10-K

Item 1. Business