What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-01 · 404 added, 383 removed, 380 unchanged (67% of the section changed)

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Total deposits 2.57 (1.44) (1.16) 15.07 2.66

Total net revenues, (compared to prior year) 13.40 (14.73) 4.53 11.59 41.05

Earnings per share, (compared to prior year) (15.48) 122.55 (638.07) (13.97) 64.75

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(3) For periods prior to 2020, generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost.

The fair value of loans acquired in a business combination includes expected loan losses, and there is no loan loss allowance recorded for these loans at the time of acquisition.

The fair value of loans acquired in a business combination includes expected credit losses, and there is no loan loss allowance recorded for these loans at the time of acquisition.

Accordingly, the ratio of the loan loss allowance to total loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods.

Similarly, net loan charge-offs are normally reduced for loans acquired in a business combination since these loans are recorded net of expected loan losses.

Similarly, net loan charge-offs are normally reduced for loans acquired in a business combination since these loans are recorded net of expected credit losses.

Therefore, the ratio of net loan charge-offs to average loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods.

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Change in net interest income $ 35,745 $ 17,989 $ 53,734 $ (3,847) $ (23,435) $ (27,282)

(1) Includes discontinued operations.

NON-GAAP FINANCIAL MEASURES

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These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations.

In 2022, the restructuring expense adjustment primarily related to the termination of leasehold interests and the write-down of related right of use assets and leasehold improvements in conjunction with branch consolidations and real estate reductions.

In 2021, the Company recorded a third quarter net gain of $52 million on the sale of the operations of the insurance subsidiary and the Mid-Atlantic branch operations.

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Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees.

There were no merger costs in 2020 and merger costs in 2019 are primarily related to the acquisition of SI Financial Group, Inc.

There were no merger costs in 2020.

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.

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Restructuring expense and other for 2020 primarily related to executive separation expense as a result of the CEO transition.

Restructuring expense and other for 2019 primarily related to branch consolidations.

The Company calculates certain profitability measures based on its adjusted revenue, expenses, and earnings.

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This measure also enhances comparisons of operations across different banks, which might have significantly different period-end estimates of uncertain future economic conditions that affect the loan loss provision.

Consistent with its previous practices measuring results on an adjusted basis before the impacts of acquisitions, divestitures, and other designated items, the Company has introduced the measure of Adjusted Pre-Provision Net Revenue (“Adjusted PPNR”) which measures PPNR excluding adjustments for items not viewed as

related to ongoing operations.

Consistent with its previous practices measuring results on an adjusted basis before the impacts

of acquisitions, divestitures, and other designated items, the Company has introduced the measure of Adjusted Pre-Provision Net Revenue (“Adjusted PPNR”) which measures PPNR excluding adjustments for items not viewed as related to ongoing operations.

This measure is now integral to the Company’s analysis of its operations, and is not viewed as a substitute for GAAP measures of net income.

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Non-GAAP measures

Loss/(gain) on securities, net 787 7,520 (4,389)

Loss on securities, net 2,031 787 7,520

Goodwill impairment — — 553,762

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GAAP Total revenue from continuing operations $ 413,534 $ 434,414 $ 383,089

Loss/(gain) on securities, net 787 7,520 (4,389)

Loss on securities, net 2,031 787 7,520

Net gains on sale of business operations — (52,942) (1,240)

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(1) Acquisition, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years -ended December 31, 2022, 2021 and 2020.

For the year-ended 2019, these expenses included $18.7 million in merger and acquisition expenses and $9.3 million of restructuring, conversion, and other expenses.

(2) Efficiency ratio is computed by dividing total core tangible non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income adjusted to include tax credit benefit of tax shelter investments.

The Company uses this non-GAAP measure to provide important information regarding its operational efficiency.

This discussion is intended to assist readers in understanding the financial condition and results of operations Berkshire Hills Bancorp, Inc.

This discussion is intended to assist readers in understanding the financial condition and results of operations of Berkshire Hills Bancorp, Inc.

(“Berkshire” or the “Company"), the changes in key items in the Company’s Consolidated Financial Statements (“financial statements”) from year to year, and the primary reasons for those changes.

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• Comparison of Operating Results for the Years Ended December 31, 2022 and 2021

• Comparison of Operating Results for the Years Ended December 31, 2020 and 2019

• Liquidity and Cash Flows

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• LIBOR Transition

• Corporate Responsibility Update

• Environmental, Social, Governance (ESG) and Commitment to Social Responsibility

The following discussion and analysis should be read in conjunction with the Company’s financial statements and the notes thereto appearing in Item 8 of this document.

In the following discussion, income statement comparisons

are against the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted.

In the following discussion, income statement comparisons are against 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.

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, including the dilutive impact of the convertible preferred shares.

In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.

Berkshire 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.

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It offers a wide range of banking, investment, and financial services through its lines of business that include Commercial Banking, Retail Banking, Consumer Lending, Wealth Management, Private Banking, and its 44 Business Capital national SBA lending division.

Berkshire is committed to unleashing the financial potential of all its stakeholders by leveraging its 175 years of expertise, leading performance on environmental, social and governance (ESG) matters and best-in-class fintech partnerships.

Its differentiated DigiTouch™ approach, a powerful combination of personal service, including its MyBanker program, fused with the convenience of user-centric technology, targets high customer satisfaction and a frictionless experience.

The ongoing COVID-19 global pandemic continued to impact the Company’s activities and results in 2021.

Business and consumer activity were recovering from the sharp downturn in 2020 but remained constrained by the impact of the pandemic.

The Company’s markets generally reported comparatively high vaccination rates, but the emergence of new variants created disruptions throughout the year.

Labor and supply shortages affected many sectors in the economy.

The emergence of inflation led to expectations of a reversal of accommodative monetary policy near year-end, which had supported higher asset values across many financial and other property classes.

Further federal fiscal support early in the year buoyed ongoing liquidity across the economy, and credit performance remained positive and improving throughout the year.

The Company’s retail branch offices were intermittently affected by closures or reduced operations.

Its non-branch workforce remained in a work-from-home status throughout the year as the Company continued to plan its transition to a hybrid work environment.

Berkshire reported net income of $119 million in 2021, compared to a loss of $533 million in 2020 and net income of $97 million in 2019.

The loss in 2020 was primarily due to pandemic impacts leading to the write-off of goodwill and elevated provisioning for expected credit losses.

Net income in 2021 included the benefit of lower credit loss provision expense reflecting strong credit performance.

Results in 2021 also included gains recorded on the sale of Mid-Atlantic branches and insurance operations which were part of the Company’s strategy to focus on core markets and return excess equity to shareholders.

Berkshire’s vision is to empower the financial potential of its stakeholders by making banking available where, when, and how it's needed through a committed focus on exceptional customer service, digital banking, and positive community impact.

Berkshire is committed to unleashing the financial potential of all its stakeholders by leveraging its more than 175 years of expertise, leading performance on environmental, social and governance (ESG) matters and best-in-class fintech partnerships.

Its differentiated DigiTouch SM approach, a powerful combination of personal service, including its MyBanker program, fused with the convenience of user-centric technology, targets high customer satisfaction and a frictionless experience.

Berkshire continued to drive forward its performance and make meaningful progress towards its Berkshire’s Exciting Strategic Transformation (BEST) goals in 2022.

The Company increased its operating profitability during the year.

Fourth quarter revenue and earnings per share reached a fourth quarter record.

Due to $52 million in gains recorded on the sale of operations in the third quarter of 2021, total full year net profit decreased year-over-year by 22% to $93 million ($2.02 per share) in 2022 from $119 million ($2.39 per share) in 2021.

The Company uses the non-GAAP measure of adjusted earnings to assess its performance.

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These items were presented and reconciled to GAAP measures in a previous section of this Item 7.

Adjusted earnings were $84 million in 2021, compared to $30 million in 2020 and $119 million in 2019.

The decrease in 2021 adjusted earnings compared to the pre-pandemic year of 2019 is a result of pandemic, economic, and operating factors leading to lower operating leverage.

The Company’s BEST strategic plan goal, discussed below, is to restore operating leverage through revenue growth and expense discipline and to improve efficiencies based on its operating focus and technology initiatives.

Net income per share totaled $2.39 in 2021, and adjusted earnings per share totaled $1.69.

For the year 2021, book value per share increased by 4% to $24.30, and the non-GAAP measure of tangible book value per share also increased by 4% to $23.69.

The Company’s Board of Directors recruited Nitin Mhatre as Chief Executing Officer in January 2021, completing the transition following the resignation of the previous CEO in August 2020.

During the first quarter of 2021, the

Company recruited Subhadeep Basu as SEVP/ Chief Financial Officer, replacing the prior CFO who resigned during the quarter.

Also, during 2021, following the departure of the SEVP/Head of Consumer Banking, the Company recruited Lucy Bellomia as EVP/Head of Retail Banking and Ellen Steinfeld as EVP/Head of Consumer Lending and Payments.

During 2021, Board Chair J.

Williar Dunlaevy retired from the board, and Vice Chair David Brunelle was elected to the position of Board Chair.

Three new directors joined the Board during the year:

Charnley, Jeffrey W.

Kip, and Michael A.

In the second quarter of 2021, the Company announced its Berkshire’s Exciting Strategic Transformation (BEST) plan.

The comprehensive BEST plan is targeted to improve the customer experience, deliver profitable growth, enhance stakeholder value and strengthen Berkshire’s community impact with improved focus on long-term efficiency, its customers, and its communities.

The BEST plan has five major goals over the three-year plan period:

• Return On Tangible Common Equity (ROTCE):

◦ 2021 Return on tangible common equity was 10.80%;

Adjusted ROTCE was 7.74%

• Return on Assets (ROA):

◦ 2021 ROA was 0.98%;

Adjusted ROA was 0.70%

• Annual Pre-tax Pre-Provision Net Revenue (PPNR):

$180 - 200 million

◦ 2021 PPNR was $149 million;

adjusted PPNR was $102 million

• Net Promoter Score (NPS) in top quartile among New England banks

◦ NPS measures customer experience and is correlated with business growth potential

◦ NPS measure to be initiated in 2022

• ESG ranking in the top quartile nationally based on composite metrics tracked by the Company

◦ ESG percentile ranking improved from 39 th at year-end 2020 to 24 th at year-end 2021

The plan has three major pillars;

optimize, digitize, and enhance, outlined below along with the Company's 2021 accomplishments:

◦ Completed the sale of its Mid-Atlantic branch operations, sold insurance operations, and consolidated 16 branch locations.

◦ Procurement programs were widely initiated throughout the company.

◦ Excess real estate was identified and designated as held for sale.

◦ A third-party partnership was entered into for residential mortgage servicing.

◦ Built out Application Programming Interfaces (APIs) to core systems.

◦ Data warehouse technology was enhanced and enterprise analytics were expanded.

◦ A mobile deposit application was deployed to customers through a fintech partnership.

◦ A third-party fintech partnership was entered into for internet and mobile consumer loan origination.

◦ Front-line bankers were recruited across multiple business lines.

◦ Socially responsible wealth management investment solutions were introduced.

◦ A residential mortgage origination conduit was initiated with third-party in-market bank partners.

◦ A 5% share repurchase was completed and a new repurchase program for additional buybacks was announced after year-end for approximately 9% of outstanding shares.

In the third quarter, Berkshire announced its BEST Community Comeback initiative that targets to lend and invest $5 billion over three years to strengthen the economic health of its communities, an industry-leading commitment given the relative size of the program and the Bank.

This initiative includes specific targets for small business lending, lending in low and moderate income neighborhoods, mortgage lending to minorities, and lending for low-

carbon projects amongst other non-financial measures.

The plan is expected to help create more businesses and jobs, assist more families in achieving the dream of homeownership and support the transition to a low-carbon economy.

Berkshire resumed commercial loan growth in the fourth quarter of 2021 after a number of quarters of attrition from targeted run-off and lower demand.

Growth of non-interest-bearing deposit account balances totaled 21% in 2021.

The Company used excess liquidity to reduce higher cost wholesale funds and to increase the portfolio of investment securities.

At year-end 2021, the Company viewed itself as having excess liquidity to support plans for resumed loan growth, further reductions in higher cost funds, and stock repurchases in the coming year.

The Company ended 2021 with cash and cash equivalents measuring 14% of total assets, contributing to strongly positive earnings sensitivity to higher interest rates.

These low yielding assets reduced profitability metrics in 2021 but positioned the Company to benefit from forecast higher interest rates in 2022 and beyond.

In addition to its $1.6 billion in year-end cash and equivalents, the Company also had $3.4 billion in loans with scheduled repricings within three months.

At year-end 2021, many of the Company’s asset quality and credit performance metrics had returned to pre-pandemic levels.

The Company reduced the level of its credit loss allowance/loans in the fourth quarter and anticipated possible further normalization of reserve coverage if public health and economic conditions continued to support strong credit performance.

In 2021, Berkshire established a new banking region in Southern Connecticut and recruited a veteran Connecticut banking professional as SVP, Regional President & Middle Market Team Leader in Southern Connecticut, based in New Haven.

The Company also opened a new Commercial Banking office in Providence, Rhode Island to complement and expand its existing Rhode Island presence.

The Company also hired experienced frontline bankers in its growing Commercial Banking, SBA Lending, Asset-Based Lending, Wealth Management, Private Banking, and MyBanker teams.

The Company believes that merger activities among major local competitors provide opportunity for customer and talent acquisition over the near and medium term.

The Company’s strategy is to be “banker heavy and branch light” in newer markets.

The Company’s goal is to produce positive operating leverage through revenue growth and disciplined expense management utilizing expanded market channels, it’s 175 year history of community focus and it’s Digitouch™ strategy which combines personal service with the convenience of user-friendly technology.

The Company reduced its total branch banking offices from 130 offices at the start of the year to 106 offices at year-end 2021, including the 8 Mid-Atlantic offices sold and the consolidation of 16 other offices.

The Company is considering the further consolidation of another 5 - 10 branches.

Berkshire executed this plan in conjunction with the expansion of its MyBanker concierge style banking program.

Deposit retention in the consolidated branches is regarded as high in part due to the MyBanker program,

At year-end 2021, forecasts of economic and public health conditions were supportive of the prospects for continued improvement in the Company’s markets.

While uncertainties remain about the course of public health and government programs that have supported the economy during the pandemic, the Company views itself as positioned with excess capital and excess liquidity to support its strategies.

Price inflation has recently reached levels not seen in four decades, and interest rate levels are expected to increase sharply after years of low interest rates.

The Company’s income is targeted to benefit from higher rates based on its asset sensitive interest rate sensitivity profile.

The major exclusions were sale gains in 2021 and branch consolidation costs in both years.

Adjusted earnings increased year-over-year by 20% to $101 million in 2022 from $84 million in 2021.

Adjusted earnings per share increased by 30% to $2.19 from $1.69 and also reflected the benefit of share repurchases during both years.

The improvement in operating earnings was driven by positive operating leverage resulting from an 18% increase in net interest income and disciplined expense management.

Net interest income benefited from the increase in interest rates and from 22% loan growth in the environment of favorable credit conditions during the year.

Loan growth exceeded 10% in most major loan categories.

Approximately 55% of total loan growth was recorded in residential mortgages, as the Company reinvested excess liquidity into higher yielding loans in conjunction with the expansion of the residential mortgage function serving the Company’s markets.

At year-end 2022, the Company arrived at the midpoint of its three year BEST strategic transformation plan.

Fourth quarter 2022 results achieved the objective of moving into the target range of the plan for several key measures.

A summary of the Company’s progress against these key targets is shown below.

The Company’s BEST plan includes a focus on improving Berkshire’s capital structure.

In June 2022, the Company issued a $100 million Sustainability Bond, a subordinated debt issuance which replaced at a lower rate of interest a $75 million bond which was called and repaid.

The Company intends to use an amount equal to the net proceeds to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework, which was established at midyear.

In conjunction with this issuance, the Company received an inaugural investment grade long-term issuer rating of "Baa3", with a Positive rating outlook, from Moody’s Investors Service.

During 2022, the Company repurchased $125 million of common stock, representing 9% of shares outstanding at the start of the year.

After year-end 2022, the Company announced a $50 million share repurchase program for 2023, representing approximately 4% of year-end 2022 outstanding shares.

During the fourth quarter of 2022, the Company increased its quarterly common shareholder dividend by 50% to $0.18 per share from $0.12 per share.

Total shareholder distributions from dividends and stock repurchases equaled $149 million in 2022, or 16% of year-end 2021 total equity.

The Company remains strongly capitalized, with a 12.4% Common Equity Tier 1 Capital ratio at year-end 2022.

The improving credit environment in 2022 was reflected in the reduction in the ratio of the allowance for expected credit losses on loans to total loans;

this ratio decreased to 1.15% at year-end 2022 from 1.55% at year-end 2021.

This included the release of reserves related to the pandemic as expected elevated losses did not emerge due in part to the ongoing benefit from federal economic support measures.

Net loan charge-offs measured 0.27% of average loans in 2022, compared to 0.29% in 2021.

The ratio of total delinquent and nonaccrual loans measured a ten year low of 0.60% of loans at year-end 2022.

Inflation remained historically high throughout 2022, leading the Federal Reserve Bank to initiate a series of interest rate increases during the year, along with taking steps towards quantitative tightening.

The three month U.S.

Treasury rate increased by 436 basis points to 4.42% from 0.06% during the year.

The increases were concentrated in the third quarter, with the target Federal Funds rate increasing by 300 basis points from mid-June to the beginning of November.

The ten year Treasury rate increased during the year by 236 basis points to 3.88% from 1.52%.

Company’s interest rate sensitivity at the start of the year was modeled to be positively sensitive to increases in interest rates, which contributed to the growth in net interest income during the year.

The risk of recession has increased due to ongoing inflation, the higher interest rate environment, and the gradual reduction of excess liquidity in the economy.

The Company views its markets as comparatively less sensitive to national trends in the economy and is pursuing strategies to continue to grow and improve operating profitability.

The Company plans to roll out its new digital and mobile banking services in 2023.

Its goal is that its DigiTouch SM customer engagement strategy and corporate responsibility profile will allow it to differentiate and grow profitably and responsibly in the anticipated environment where deposit costs and competition may further pressure funding costs.

Optimization of digital platforms and reductions of excess premises are targeted to contribute additional efficiencies.

In October 2022, Chief Financial Officer Subhadeep Basu resigned, and Chief Accounting Officer Brett Brbovic was named Interim Chief Financial Officer.

In January 2023, the Company named David Rosato as Senior Executive Vice President/Chief Financial Officer, effective February 6, 2023.

Rosato was most recently Chief Financial Officer of Peoples United Financial, Inc., which was acquired by M&T Bank Corporation in 2022.

Also in January 2023, the Company named James Brown as Senior Executive Vice President/Head of Commercial Banking and Philip Jurgeleit as Executive Vice President/Chief Credit Officer, filling vacancies in these positions resulting from retirements in the second half of 2022.

Brown and Jurgeleit have decades of related experience in the Company’s markets, including Boston Private Bank and Trust Company for Mr.

Brown and Santander Bank for Mr.

Berkshire remains positively positioned to continue forward with its BEST program financial objectives while also enhancing its social and environmental performance.

The Company was named one of America’s Most Trustworthy Companies by Newsweek, listed in the Bloomberg Gender Equality Index, named a Best Place to Work for LGBTQIA+ equality by the Human Rights Campaign and honored as the Sustainable Business of the Year in the bank category by the Sustainable Business Network of Massachusetts.

Additionally, Berkshire accelerated further ahead of its BEST ESG performance goal, moving into an aggregated 17 th percentile performance in an index of leading ESG ratings and ranked in the top 1% of U.S.

banks in Bloomberg throughout the year.

The Company continues to differentiate itself through its high performance on ESG matters and commitment to its communities.

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

Total assets decreased to $11.6 billion from $12.8 billion during 2021.

This included the $0.6 billion impact of the sale of the Mid-Atlantic branch operations, along with the impact of $0.6 billion in Paycheck Protection Program (“PPP”) loan payoffs.

Cash and cash equivalents increased to 14% of total assets, contributing to heightened asset sensitivity which is expected to benefit income in the forecast rising rate environment.

The ratio of loans to deposits decreased to 68% from 79%, and the regulatory ratio of common equity tier 1 capital to risk-weighted assets increased to 15.0% from 13.8%.

Most major measures of asset quality strengthened as economic

conditions improved from distressed pandemic conditions, with many measures returning to pre-pandemic levels.

The Company paid down most higher cost wholesale funding which, along with ongoing repricing of maturing retail time deposits, continued to lower overall funding costs and support the net interest margin.

Stock repurchases were resumed in 2021 following a pause in 2020 and are targeted to accelerate in 2022.

Short-term investments remained elevated at $1.52 billion, or 14% of earning assets at year-end 2021.

These funds are available for ongoing payoffs of remaining maturing brokered deposits and are available to fund targeted net loan growth in 2022, as well as potential increases in the investment securities portfolio.

Most short-term investments are held at the Federal Reserve Bank of Boston.

The yield on short-term investments was approximately 0.17% in the final quarter of 2021, which brought down the overall yield on earning assets and the return on assets until the planned opportunity to source higher yielding loans and investments in 2022.

The portfolio of investment securities increased by $325 million, or 15%, to $2.55 billion in 2021, with much of this growth recorded in the fourth quarter in order to avoid further accumulation of low yielding short-term investments.

Growth was concentrated in agency mortgage-backed securities.

Approximately 53% of the net growth was in held to maturity securities in order to limit negative impacts on accumulated other comprehensive income in shareholders’ equity if rising rates lead to bond price declines which would result in charges to shareholders’ equity.

The portfolio is highly liquid, with an average life of 4.6 years for the bond portfolio at period-end.

The portfolio yield decreased to 2.04% in the fourth quarter of 2021 from 2.69% in the fourth quarter of 2020, due to ongoing compression of asset yields.

The portfolio of investment securities had an unrealized gain of $6 million, or 0.2% of cost, at period-end, compared to $68 million, or 3.2% of cost at the start of the year, due to the rise in medium term interest rates during 2021.

The Company continues to evaluate possible expansion of the securities portfolio to utilize a portion of excess short-term investments, taking into consideration the outlook for interest rates, loan growth, and deposit behaviors.

Total loans decreased by $1.3 billion, or 16% in 2021, to $6.83 billion.

This primarily reflected $0.6 billion in PPP loan pay-offs and $0.6 billion in run-off of residential mortgages and consumer loans.

The PPP loan repayments were based on SBA loan forgiveness procedures and were anticipated.

Excluding these loans, total commercial loans decreased by $74 million due to a $158 million decrease in commercial loans to COVID-sensitive industries.

Commercial loan growth turned positive in the final quarter of the year as new frontline bankers contributed to loan originations.

This also contributed to a strengthening of the commercial loan pipeline at year-end.

At year-end 2021, non-owner occupied commercial real estate loans measured 223% of risk based capital, compared to the 300% federal regulatory monitoring guideline.

Construction loans measured 26% of risk-based capital, compared to the 100% guideline.

Included in commercial and industrial loans, the remaining balance of PPP loans was $30 million at year-end 2021, having declined from $633 million at the start of the year due to payoffs from SBA loan forgiveness.

Also included in commercial and industrial loans are the asset-based lending loans managed by the Company’s growing ABL team in the Northeast and MidAtlantic.

At year-end 2021, total C&I loans included $440 million of ABL balances, which was a 40% increase over the prior year-end .

The Company’s 44 Business Capital national SBA lending group ranked 24 th nationally for the SBA year ending September 30, 2021, with a total of $293 million in gross loans approved.

The Company sells the SBA guaranteed portion of these loans, with the result that 44 Business Capital is one of the Company’s largest sources of non-interest income.

Residential mortgage runoff reflected ongoing prepayments in the low interest rate environment.

Berkshire is expanding its mortgage origination team and is also developing conduit relationships with in-market third-party lenders.

Consumer loan runoff primarily represents targeted run-off of the indirect auto loan portfolio.

The balance of this portfolio was $110 million at year-end 2021, compared to $222 million at year-end 2020.

In the fourth quarter of 2021, the Bank initiated a relationship with a leading artificial intelligence digital (AI) lending platform designed to improve access to affordable consumer credit while reducing the risk and costs of lending.

Company is investigating additional consumer lending channels as it pursues the strategies and goals set out in its BEST and Berkshire Community Comeback programs.

Total assets were little changed in 2022, measuring $11.7 billion at year-end.

Excess liquidity was reinvested into loan growth.

A $0.9 billion decrease in cash and equivalents and a $0.5 billion decrease in investment securities were mostly offset by a $1.5 billion increase in loans.

Total deposits increased by $0.3 billion, and the ratio of loans to deposits increased to 81% from 68% during the year.

Most measures of asset quality remained strong and improving.

Shareholders’ equity decreased by $228 million primarily due to an other comprehensive loss from unrealized bond losses in the environment of rising interest rates.

Shareholder distributions in the form of dividends and stock repurchases reflected the Company’s plan to reduce excess capital through loan growth and shareholder distributions.

The Common Equity Tier 1 Capital ratio remained strong at 12.4% at year-end.

Year-end 2022 book value per share measured $21.51 and the non-GAAP measure of tangible book value per share measured $20.95.

These measures were reduced by approximately $3.93 per share as a result of the after-tax unrealized bond loss.

Short-term investments decreased by $978 million, or 64%, to $540 million, or 5% of period-end assets, as excess liquid funds were reinvested into loans in the rising rate market.

The portfolio of investment securities decreased by $515 million, or 20%, to $2.03 billion, measuring 17% of period-end assets, compared to 22% at the start of the year.

The Company allowed net run-off of investment securities to provide funds for loan growth.

The net runoff tempered the Company’ exposure to unrealized bond losses in the rising interest rate environment.

This helped to offset the impact of a lengthening of securities average lives due to slower prepayments of the mortgage related securities which constitute the bulk of the portfolio.

Excluding short-term treasury securities, net monthly run-off from proceeds of maturities, amortization, and prepayments of investment securities was approximately $20 million per month based on conditions at year-end 2022.

The portfolio is high quality, and has an average debt securities life of 6.9 years at period-end, which was increased from 4.6 years at the start of the year due primarily to slowing prepayment speeds of mortgage related instruments resulting from the significant increase in interest rates.

The investment portfolio yield was 2.20% in the fourth quarter of 2022, compared to 2.04% in the fourth quarter of 2021.

The investment portfolio is viewed as a significant source of liquidity for the Bank, as 93% of the $1.4 billion available for sale bond portfolio consists of Agency mortgage related products and Treasury notes.

The portfolio of available for sale investment securities had an unrealized loss of $238 million, or 14.3% of cost at year-end 2022, compared to an unrealized loss of $4 million, or 0.2% of cost, at year-end 2021, due to the impact of rising interest rates during 2022.

The unrealized loss is a component of other comprehensive income but has no impact on bank regulatory capital.

If portions of this loss were recognized through sale, this would reduce regulatory capital.

The Company monitors the impact of the unrealized loss on the book value of capital and it views its position as within the range of peers in the current environment.

Based on year-end 2022 conditions, the unrealized loss is expected to accrete into book value as the bond portfolio seasons through its 6.9 year average life with the expectation that the securities return to a par value at maturity.

Total loans increased by $1.51 billion, or 22%, to $8.34 billion in 2022.

Growth was concentrated in residential real estate loans, which increased by $823 million, or 55%, to $2.31 billion.

Commercial loans increased by $634 million, or 13%, to $5.52 billion.

In addition to improved customer demand and expansion of the Company's lending teams, loan growth in 2022 was impacted by slower prepayment rates due to the rising rate environment during the year.

Berkshire has expanded its residential mortgage lending function to be more in line with its strategic positioning in its markets and in order to reinvest excess liquidity that had accumulated from loan run-off in earlier periods.

The majority of originations were produced by an expanded team of in-house mortgage originators.

The Company has also been developing third party mortgage channels, including flow originations from correspondents in its markets.

This expansion produced high mortgage growth in 2022 despite the market contraction resulting from rising interest rates.

Most production shifted towards jumbo 7/1 adjustable-rate mortgages that were held for investment.

The Company has also expanded its secondary marketing capabilities with a goal of increasing the volume of conforming mortgages originated for sale in future periods.

The Company’s goal is to build customer relationships from this portfolio.

The mortgage loan yield decreased to 3.56% in the fourth quarter of 2022, compared to 3.82% in the fourth quarter of 2021, reflecting shifts in the product mix.

Due to the lag in application and processing pipelines, the portfolio yield began to increase in the latter part of the year from the flow of higher rate new originations.

Commercial loan growth in 2022 resulted from the expansion of the commercial team, together with solid credit demand and supportive economic and credit conditions.

Commercial loans had declined in earlier periods and reached a growth inflection point in the fourth quarter of 2021, with growth in all four quarters of 2022.

For the year, major areas of growth were in commercial multifamily loans, non-owner occupied commercial real estate, and asset-based lending commercial and industrial balances.

These real estate loans were spread across most of the major categories or property types.

The Company measures its commercial real estate loans in accordance with regulatory monitoring guidelines and definitions.

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

Through loan selection, the Company shifted commercial real estate loan production towards credits with lower loan-to-value ratios during the year to reduce impacts of potential future recessionary conditions on property valuations.

The Company manages commercial real estate loan concentrations within limits by property type.

Due to potential shifts in workforce patterns, commercial office loans are subject to heightened monitoring.

Excluding construction loans and medical and educational properties, the commercial office portfolio totaled approximately $548 million at year-end 2022, consisting primarily of suburban properties.

There were no office property loans delinquent at that date.

Inflation has contributed to an increase in commercial borrowing demand, while the related increase in interest rates has raised borrowing costs, potentially restraining demand.

The gathering impact of higher rates is expected to dampen economic conditions, resulting in potentially slower portfolio growth in future periods.

Due primarily to commercial loans tied to short term indices, such as LIBOR or Prime, the commercial loan yield increased by 2.06% to 5.78% in the fourth quarter of 2022 from 3.72% in the fourth quarter of 2021.

The Company’s

underwriting includes an analysis of sensitivity to higher interest rates for most of its variable rate loans.

Many of the larger variable rate commercial loans are backed by interest rate swaps which have the impact of fixing the interest cost to the borrower, thereby reducing the credit risk of higher interest rates.

After midyear, the Company announced that it would cease originating new loans in its Firestone Financial specialty lending;

operation and allow the portfolio to run-off.

This was a strategic decision in the context of Berkshire’s BEST plan to focus on core markets and products.

The Firestone portfolio stood at $133 million at period-end and continues to have strong credit performance in line with its long history.

Consumer loans increased by $53 million, or 12%, to $501 million in 2022.

Growth was driven by consumer unsecured loans originated through the Company’s partnership with the fintech Upstart.

This portfolio totaled $140 million at period-end, and most of these loans were originated during the first half of the year and were generally subject to the Company’s prime underwriting standards.

In July 2022 the Company announced that, due to the prevailing economic uncertainty, it was ceasing new originations through this partnership.

Credit performance of this portfolio has exceeded the Company’s expectations.

The yield on the consumer portfolio increased to 7.00% in the fourth quarter of 2022 from 3.96% in the fourth quarter of 2021 due to both the higher yield on Upstart loans and the increase in the Prime rate which is the index rate for most home equity loans.

Overall loan yields increased from the fourth quarter of 2021 due mainly to increases in market interest rates, primarily in relation to loans repricing within three months.

The Company measures its loan beta, which is the ratio of the change in loan yields to a market index.

Compared to the average federal funds target rate, the beta for the total loan portfolio measured 51% comparing the fourth quarter of 2022 to the fourth quarter of 2021.

Comparing the most recent quarter to the linked quarter, the loan beta was 42%.

The magnitude and consistency of these betas primarily reflects the large volume of loans contractually repricing based on Prime.

LIBOR, or SOFR based indices.

At year-end 2022, 45% of total loans were scheduled to mature or reprice within three months.

contributing to the modeled asset sensitivity of the Company’s interest rate risk profile.

contributing to the modeled asset sensitivity of the Company’s interest rate risk profile at that date.

This is down from 50% at year-end 2021.

Asset Quality and Credit Loss Allowance:

Major asset quality metrics improved in 2021, trending towards pre-pandemic levels.

Total non-accruing loans decreased year-over-year and ended below the year-end 2019 pre-pandemic level, declining to $35 million and measuring 0.52% of period-end loans.

Total delinquent loans decreased year-over-year and compared to year-end 2019, totaling $78 million and measuring 1.15% of year-end 2021 loans.

Net loan charge-offs decreased compared to the prior two years, totaling $21 million in 2021 and measuring 0.29% of average loans in 2021.

Accruing troubled debt restructurings totaled $17 million at year-end 2021 compared to $18 million at year-end 2020.

Total COVID-19 loan modifications decreased to $14 million at year-end 2021 from approximately $1.5 billion in the second quarter of 2020 and $316 million at year-end 2020.

Criticized loans decreased year-over-year to $242 million, measuring 3.5% of total year-end 2021 loans.

These included classified loans which decreased to $142 million, measuring 2.1% of year-end 2021 loans.

The Company has traditionally viewed its potential problem loans as those loans from business activities which are rated as classified and continue to accrue interest.

These loans have a possibility of loss if weaknesses are not corrected.

Accruing classified loans decreased year-over-year to $106 million at year-end 2021.

The allowance for credit losses on loans decreased by $21 million, or 17%, to $106 million during 2021.

The ratio of the allowance to total loans measured 1.55%, compared to 1.58% at the start of the year.

The ratio of the allowance to total loans remains higher than the 0.94% ratio following the adoption of CECL and prior to the emergence of the pandemic.

The Company anticipates that the allowance ratio may decline in 2022, depending on economic and qualitative factors, and depending on the portfolio performance and mix.

The allowance is based on a methodology which considers historic loss rates for loans by collateral type and includes components for the impact of forecast economic conditions on loss rates, as well as an evaluation of qualitative factors including current period loan performance metrics and consideration of the benefit of government support in reducing possible loss rates.

The economic forecast utilizes third-party base case projections and estimates credit loss impacts for the next seven quarters, with straight-line reversion to historical losses thereafter.

The overall weighted average portfolio life was estimated at approximately 2.9 years at year-end 2021.

Most major asset quality metrics remained solid as of year-end 2022, with many metrics at better levels than pre-pandemic.

Total delinquent and non-accruing loans measured 0.60% of total loans at year-end, the lowest in more than a decade.

Non-accruing loans measured 0.37% of total loans, compared to 0.52% at year-end 2021.

Annualized net loan charge-offs measured 0.27% of average loans in 2022, compared to 0.29% in 2021.

Charge-offs were concentrated in the second half of the year in one commercial and industrial credit which filed for bankruptcy in the fourth quarter.

The $7 million remaining carrying balance of this loan was the largest component of year-end non-accruing commercial and industrial loans.

Non-accruing loans declined in other major loan categories.

At period-end, accruing troubled debt restructurings totaled $12 million and accruing loans over 90 days delinquent totaled $7 million.

Total criticized loans decreased to 2.3% of loans from 3.5% of loans at the start of the year, including classified loans which decreased to 1.4% of loans from 2.1% of loans.

Classified loans include accruing substandard loans, which are regarded as potential problem loans and which declined to 1.1% of loans from 1.6% during the year.

The allowance for credit losses on loans decreased to $96 million at year-end 2022 from $106 million at year-end 2021.

The ratio of the allowance to total loans decreased to 1.15% from 1.55%.

This decline was primarily due to a reduction in the expected losses from economic and social disruptions related to COVID-19 conditions, as well as the general improvement in asset quality measures.

The year-end allowance was based on a baseline economic forecast of ongoing economic growth but included a qualitative assessment of risks related to market and inflation conditions and future possible recession conditions.

The allowance covers all current expected credit losses for all loans.

In relation to outstanding loans, the allowance for all categories of loans decreased except for consumer loans due to the addition of the Upstart loans.

The expected average lives of most categories of loans increased during the year, reflecting the strong portfolio growth and slower expected prepayment speeds.

Deposits and Borrowings:

Berkshire has been pursuing a course of reducing higher cost wholesale funds by paying off brokered time deposits and FHLB borrowings as they mature, as well as prepaying most longer maturity FHLB borrowings.

Total wholesale funds were reduced to $340 million, or 3% of total year-end 2021 assets, compared to $1.18 billion, or 9% of total assets at year-end 2020.

Total deposits decreased by $147 million, or 1%, to $10.07 billion during 2021.

Excluding the $383 million decrease in brokered deposits, total deposits increased by $236 million, or 2%, in 2021.

Non-interest-bearing demand deposits increased by $524 million, or 21%, including the benefit of federal stimulus payments in the Company’s markets, along with funds inflows from maturing retail time deposits.

The Company entered the year with $1.77 billion in retail time deposits and repriced maturing time deposits down in the current low rate environment, with the result that retail time deposits decreased by $324 million, and most maturing funds were transferred to demand deposits and other deposit products, including savings deposits.

Most of the remaining $1.45 billion remaining balance of retail time deposits at year-end 2021 was scheduled to mature in 2021, and the Company targets additional deposit cost savings on these maturing deposits.

The total cost of deposits decreased in the fourth quarter of 2021 to 0.19% from 0.47% in the same quarter of 2020.

This mostly reflected the growth in non-interest-bearing checking accounts and the reduction and downward repricing of time deposits, which cost 0.80% compared to 1.35% for the above respective periods.

The total cost of funds decreased to 0.26% from 0.60% for these periods and included the benefit from the paydown of borrowings.

Other Assets and Liabilities:

At year-end 2020, liabilities held for sale totaling $630 million and assets held for sale totaling $317 million included deposits and loans held for sale pursuant to the contract for the sale of the Mid-Atlantic branch operations.

This sale was completed in the third quarter of 2021.

Total deposits increased by $258 million, or 3%, to $10.3 billion during 2022.

Excluding the $474 million increase in payroll deposits and the $107 million decrease in brokered deposits, total deposits decreased by $109 million, or 1%, due primarily to a $156 million, or 5%, decrease in non-interest bearing

demand deposit balances.

The payroll deposits fluctuate daily, and totaled $1.48 billion at year-end, most of which was in money market deposit balances at year-end.

Deposit activity included the impact of increased customer spending rates as well as market competition from higher yielding investment instruments in the rising interest rate environment.

The Company increased its promotions of time and money market accounts tied to demand deposit accounts.

The fourth quarter cost of deposits increased year-over-year by 0.50% to 0.69% by from 0.19%, including a 0.36% increase over the third quarter of 2022.

The cost of interest-bearing deposits increased by 0.70% to 0.98% from 0.28% due primarily to a 1.00% increase in the cost of money market deposits to 1.16% in the fourth quarter of 2022 from 0.16% in the fourth quarter of 2021.

The Company measures its deposit beta, which is the ratio of the change in deposit costs to a market index.

Compared to the average federal funds target rate, the deposit beta measured 25% for the fourth quarter of 2022 compared to the linked quarter.

The deposit beta measured 0.14% for the fourth quarter of 2022 compared to the fourth quarter of 2021, which was the last full quarter before the Federal Reserve Bank began raising interest rates.

The Company anticipates that the deposit beta will continue to increase into a possible range of 30-40% by the end of the interest rate cycle, depending in part on shifts in balances from lower cost accounts to higher cost accounts.

The Company’s wholesale funds consist of brokered deposits and borrowings.

Wholesale funds decreased by $93 million, or 27%, to $246 million, or 2% of assets, from $340 million, or 3% of assets, in order to reduce the balance of higher cost funds.

On June 30, 2022, Berkshire completed the sale at par of $100 million in subordinated notes bearing interest at a fixed rate of 5.5% for the first five years.

The notes will then reset quarterly to a floating rate per annum equal to a benchmark rate which is expected to be the Three-Month Term SOFR, plus 249 basis points.

The notes have a ten year final maturity and generally may be called at par after five years.

Berkshire is the first public U.S.

community bank holding company with under $150 billion in total assets to issue a Sustainability Bond.

The Company intends to use an amount equal to the net proceeds of its Sustainability Bond issuance to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework.

Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, has independently verified that Berkshire’s Sustainable Financing Framework "is credible and impactful and in alignment with” International Capital Market Association (ICMA) guidelines and principles.

On September 28, 2022, the Company prepaid the balance of its existing $75 million in subordinated debt bearing interest at 6.875% which became callable for the first time on that date since the original issuance ten years ago.

Derivative Financial Instruments:

There were no material changes in the portfolio of outstanding derivative financial instruments, which totaled $3.8 billion in notional amount at period-end.

The estimated fair value of these instruments was an asset of $43 million at period-end, which decreased from $94 million at year-end 2020 due to the impact of rising medium term interest rates on the value of outstanding commercial loan interest rate swaps.

The notional amount of derivative financial instruments totaled $4.52 billion at year-end 2022, compared to $3.71 billion at year-end 2021.

The increase was primarily due to $800 million in interest rate swaps and collars on commercial loans recorded as cash flow hedges in the second half of the year.

This was in response to the increased sensitivity to a downward interest rate shock following the rapid rise in market interest rates during the year.

The fair value of derivative financial instruments was a liability of $43 million at year-end 2022, compared to an asset of $43 million at year-end 2021, due to the impact of changes in interest rates on the value of outstanding commercial loan interest rate swaps.

Shareholders' Equity:

Total shareholders’ equity was unchanged at $1.18 billion in 2021, as the contribution from net income was offset by shareholder distributions in the form of dividends and stock repurchases, along with a charge to accumulated other comprehensive net income due to lower debt investment security valuations related to higher medium interest rates at year-end.

Due to the decline in assets, capital metrics improved year-over-year, with the common equity tier 1 capital ratio strengthening further to 15.0% from 13.8% at the start of the year.

The Company’s BEST plan targets reducing this ratio to around 11% over time through loan growth and shareholder distributions of excess capital.

During the second quarter, Berkshire announced board authorization for the repurchase of 2.5 million shares, or approximately 5% of the then outstanding shares.

The Company completed this repurchase in the third quarter, paying an average price of $27.48 per share, totaling $69 million, for the repurchase of the 2.5 million shares.

After year-end, the Company announced the approval of another repurchase authorization through 2022 totaling $140 million, equating to approximately 9% of outstanding shares.

The Company maintained its $0.12 per share quarterly dividend through 2021.

Total shareholders’ equity decreased by $228 million, or 19% to $954 million in 2022.

This decrease was primarily due to a $178 million net other comprehensive loss resulting mostly from the previously discussed unrealized loss on debt securities available for sale as a result of the increase in market interest rates.

Additionally, the Company repurchased $125 million in common shares in 2022, representing approximately 9% of shares outstanding at year-end 2021.

The unrealized securities losses are not counted against regulatory equity.

As a result, the decrease in regulatory capital was more modest and reflected shareholder distributions through stock repurchases and dividends.

Including the impact of the loan growth, the Common Equity Tier 1 Capital remained relatively strong, decreasing to 12.4% from 15.0 at the start of the year.

Similarly, the risk-based capital ratio remained comparatively strong at 14.6% compared to 17.3% at the start of the year.

Across the banking industry, the unrealized losses on available for sale investment securities have led to significant compression of book value and the non-GAAP financial measure of tangible book value.

The Company’s

book value per share decreased by $2.79 to $21.51 and period-end equity/assets decreased from 10.2% to 8.2%.

Tangible book value per share decreased by $2.74 to $20.95, and the period-end ratio of tangible common equity/tangible assets decreased from 10.0% to 8.0%.

The 2022 comprehensive loss on bonds represented approximately $3.93 per share of the decreases in the above per share book value metrics.

During the first nine months of 2022, the Company continued the quarterly shareholder dividend at $0.12 per share level it was reduced to as a result of the pandemic beginning in the third quarter of 2020.

On November 4, 2022, the Company announced that it had increased its quarterly dividend to shareholders by 50% to $0.18 per share.

This reflected growth in earnings since the announcement of the BEST strategic transformation plan in May 2021.

The $0.18 dividend represented a yield of approximately 2.6% based on Berkshire’s closing share price of $27.44 on November 3, 2022 and was equivalent to a 29% payout compared to third quarter 2022 adjusted earnings.

Total shareholder distributions through stock repurchases and dividends measured $149 million in 2022.

In January 2023, the Company announced a new 2023 stock repurchase program totaling $50 million, which was equivalent to approximately 4% of outstanding shares based on the share price at the time of the announcement.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Berkshire reported net income of $119 million, or $2.39 per share, in 2021, compared to a loss of $533 million, or $10.60 per share, in 2020.

The loss in 2020 was primarily due to pandemic impacts leading to a $554 million pre-tax charge to write-off goodwill.

The Company also recorded a $27 million pre-tax charge in 2020 as it completed the exit from discontinued national mortgage banking operations.

In 2021, the Company recorded a pre-tax gain of $53 million on the sale of its Mid-Atlantic branch operations and its insurance operations.

Berkshire reported net income of $93 million, or $2.02 per share in 2022, compared to net income of $119 million, or $2.39 per share in 2021.

In 2021, the Company recorded a pre-tax gain of $53 million on the sale of its Mid-Atlantic branch operations and its insurance and other operations.

The Company uses the non-GAAP measure of adjusted income to assess its performance, with component measures of adjusted revenue and adjusted expense.

These measures exclude items not viewed as related to ongoing operations.

In addition to the above items, the Company excludes securities gains and losses, other sale related gains and losses, and restructuring and other expense, together with related tax impacts, as discussed in the previous section on non-GAAP financial measures.

Adjusted income totaled $84 million, or $1.69 per share, in 2021, compared to $30 million, or $0.60 per share, in 2020.

Earnings in 2020 were depressed by $76 million in credit loss provision expense based on future loan loss expectations following the emergence of the pandemic.

Berkshire entered into an agreement to sell the operations of its eight mid-Atlantic branches in 2020 and completed the sale in the third quarter of 2021.

During that quarter, the Company also announced and completed the sale of the operations of its insurance subsidiary.

These operations were not viewed as central to the Company’s strategy.

The sales produced $53 million in pre-tax gains which are planned to be returned to shareholders through the announced share buyback program.

The operating expenses related to these sold operations are being reinvested in bankers and technology contributing to Berkshire’s BEST plan with a goal of replacing and expanding on the revenues previously related to these sold operations.

The return on tangible common equity measured 10.80% in 2021 and the non-GAAP measure of adjusted return on tangible common equity measured 7.74%.

The Company’s BEST plan targets improving this measure to the 10 -12% range.

Return on assets measured 0.98% in 2020, while the adjusted return on assets measured 0.70%.

The Company’s BEST plan targets improving this measure to the 1.00 – 1.05% range.

Total net revenue increased 13% year-over-year due to the gains on sales of operations.

The non-GAAP measure of adjusted revenue excluding sale gains and losses, decreased year-over-year by $7 million, or 2%, to $382 million in 2021.

A decrease in net interest income was partially offset by higher fee income.

Contributing to this decrease were the four months of operating revenues related to the branch and insurance operations that were sold at the start of September.

The Company targets to increase these revenues in 2022 based on expanded frontline bankers, increased business activity, and improved margins in the forecast environment of higher interest rates.

These measures exclude items not viewed as related to ongoing operations, including the 2021 sale gains and consolidation expenses in both years.

Adjusted income increased in 2022 by 20% to $101 million compared to $84 million in 2021.

This reflected a 9% increase in adjusted revenue and flat adjusted non-interest expense.

Adjusted income per share increased by 30% in 2022 to $2.19 from $1.69 in 2021.

This reflected the further benefit of stock repurchases in both years.

The 2022 return on equity measured 7.76% and the non-GAAP measure of adjusted return on tangible common equity measured 8.94%.

Reflecting the improvement during the year, these measures reached 10.06% and 9.83% respectively in the final quarter of the year.

The 2022 return on assets measured 0.82% and the non-GAAP measure of adjusted return on assets measured 0.89%.

For the final quarter, these measures increased to 1.08% and 1.00% respectively.

The measure of Pre-tax Pre-provision Net Revenue (“PPNR”) totaled $125 million in 2022, and the non-GAAP measure of adjusted PPNR totaled $136 million.

For the final quarter, these measures totaled $48 million and $45 million, respectively.

Total net revenue decreased by 5% year-over-year due to the impact of the $53 million in sale gains in 2021.

The non-GAAP measure of adjusted revenue excludes these gains and other gains and losses.

Adjusted revenue increased by 9% due to an 18% increase in net interest income which was partially offset by a 22% decrease in non-interest income excluding gains and losses.

Adjusted revenue comparisons between the two years were impacted by the sale of insurance operations and mid-Atlantic branch operations, which contributed to 2021 operating revenues for nine months before their sale.

Net Interest Income:

Net interest income decreased year-over-year by $26 million, or 8%.

The Company recorded a $612 million, or 5%, decrease in average earning assets and a 4% decrease in the net interest margin to 2.60% in 2021 compared to 2.72% in 2020.

The decrease in average earning assets was due to the use of funds from loan runoff to reduce wholesale funding, along with the impact of the sale of branch operations.

The net interest margin was generally stable over the last five quarters, ranging between 2.56% and 2.62% on a quarterly basis, and ending the year at 2.60 % in the fourth quarter of 2021.

The full year decrease compared to 2020 was primarily due to the sharp contraction in the margin in the second quarter of 2020 as a result of the near-zero interest rate monetary policy.

The margin in the first three quarters of 2021 included an average 9 basis point benefit from PPP loans due to elevated recognition of deferred PPP income at the time of loan repayment.

There was no benefit in the fourth quarter due to the reduced PPP loan balance.

The fourth quarter margin benefited from ongoing reduction in funding costs, along with higher investment securities balances.

As discussed in the later section on interest rate sensitivity, the Company’s models indicate that the Company’s net interest income is positively sensitive to higher interest rates, based on conditions and model assumptions at year-end 2021.

The Company also targets to benefit from maturing higher rate time deposits in 2022.

Net interest income increased year-over-year by $53 million, or 18%.

The net interest margin increased by 25%, increasing by 66 basis points to 3.26% from 2.60%.

The margin rose to 3.84% in the final quarter of the year.

While average earning assets decreased year-over-year by 6%, the Company benefited from the $355 million, or 5% increase in average loans.

The increase in the net interest margin reflected both from the benefit of higher interest rates, as well as the reinvestment of funds from short term investments into loans.

Per the early discussion of financial condition, the 2022 cumulative fourth quarter loan beta was 42%, while the deposit beta was 14%.

This difference contributed substantially to the net interest income generated as the average target federal funds rate increased by 359 basis points to 3.84% in the fourth quarter of 2022 compared to 0.25% in the fourth quarter of 2021.

The shift from low yielding short-term investments into higher yielding loans also contributed to the increase in net interest income during the year.

Additionally, the shift from some investment securities into loans further supported the increase in net interest income.

The Company’s models anticipate that the full cycle deposit beta will be in the 30-40% range.

The Company anticipates that the increase in deposit costs may cause a reduction in the net interest margin in future periods based on the interest rate outlook at year-end 2022.

The Company’s models indicate that the Company had modest positive interest rate sensitivity at year-end 2022, as discussed in Item 7A on market risk.

At year-end 2022, market expectations anticipated further increases in short-term interest rates in 2023.

Non-Interest Income:

Total fee income increased year-over-year by $14 million, or 21%, due primarily to an $18 million increase in loan fees and revenue.

This included a $9 million increase in revenue related to SBA loan originations, which totaled a record $21 million in 2021 after recovering from pandemic impacts on business volume in 2020.

Fee revenue benefited from a decrease in fair value charges related to mortgage servicing rights and interest rate swaps which were elevated in 2020 after the plunge in interest rates resulting from federal monetary policy actions.

Loan fees benefited by $2 million in 2021 from PPP loan referral fees recorded mostly in the first quarter of the year in relation to the second round of PPP loan support which the Company referred to a third-party.

Fee income also benefited in 2021 from a $2 million, or 7%, increase in deposit related fees and a $1 million, or 13%, increase in wealth management related revenue.

This was offset by a $4 million reduction in insurance fee revenue due to the sale of these operations in the third quarter.

Mortgage banking revenue decreased by $3 million, or 60%, as origination activity was reduced in 2021.

Other non-interest income also benefited from an improvement related to fair valued loans resulting from charges in 2020 and recoveries in 2021.

The Company is actively expanding its SBA lending, mortgage banking, and wealth management teams as part of its strategy to build revenues and earnings and reduce reliance on net interest income.

The Company is evaluating potential changes in industry practice related to overdraft fees which could reduce future deposit related fee income.

Net overdraft fee income totaled $8 million in 2021.

Securities losses in 2020 were due primarily to pandemic related impacts on equity securities values.

Gains on the sale of operations in 2021 were related to the previously described sales of branch operations and insurance operations.

Credit Loss Provision Expense:

The Company recorded a $500 thousand credit to provision expense in 2021, compared to a $76 million charge in 2020.

The elevated charge in 2020 was due to the provision for estimated credit losses projected to arise from the pandemic.

In 2021, the credit to the provision resulted from a $21 million release of the credit loss allowance net of $21 million in net loan charge-offs.

The allowance release was primarily due to the reduction in loan balances during the year.

Total fee income decreased year-over year by $20 million, or 24%.

All major categories of fee income decreased except for deposit related fees, which increased by $2 million, or 7%.

Insurance fees decreased by $7 million due to the sale of insurance operations in 2021.

Loan fees decreased by $13 million, or 38%, primarily due to an $8 million decrease in SBA originations related revenues reflecting changes in the structure of the program and market spreads.

Berkshire remained among the top 20 bank originators of SBA 7-A

guaranteed loans in the U.S.

Additionally, loan servicing fee revenue decreased by $2 million due to an outsourcing initiative in 2022.

Mortgage banking fees decreased by $2 million, or 89%, as most mortgage originations were designated held for investment.

Provision for Credit Losses on Loans:

The loan loss provision was an expense of $11 million in 2022 compared to a benefit of $500,000 in 2021.

In both years, provision expense benefited from a release of reserves for expected pandemic related credit losses which did not emerge, including the impact of government support measures.

The year-over-year increase also reflected the resumption of loan growth in 2022 compared to loan contraction in 2021.

The Company has steadily reduced the coverage of its allowance for credit losses on loans based on improvements in asset quality and credit loss expectations.

The balance of the allowance for credit losses on loans decreased to $96 million at year-end 2022 compared to $106 million at year-end 2021.

Non-Interest Expense:

Non-interest expense decreased year-over-year by $554 million due to the $554 million charge for the write-down of goodwill in 2020.

Non-interest expense was flat before the impact of this charge and benefited from the third quarter sale of branch and insurance operations.

Modest increases in compensation and technology expense were partially offset by lower occupancy expense.

Lower salary expense was offset by higher performance-based compensation, which had been reduced in 2020 due to the pandemic.

Professional services expense increased by $4 million, including $3 million accrued in the first quarter for legal, consulting, and other advisory services related to board and management matters.

The category of all other expense decreased including the impact of higher lending and workout related charges in 2020.

Procurement initiatives have been deployed across the company, contributing to lower expenses for occupancy and professional services towards the end of the year.

The Company completed the consolidation of 16 branch offices in 2021.

Including the 8 Mid-Atlantic branches sold, total branch offices declined from 130 to 106, as the Company pursues its “branch light, banker heavy” strategy for front-line bankers in managing expansion and market positioning.

This includes a focus on its MyBankers who provide dedicated relationship support to customers with committed banking relationships.

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

This decrease included 79 positions which were transferred in conjunction with the sale of insurance and branch operations.

The Company designated a number of real estate properties as held for sale in the third quarter as it pursues its efficiency strategies for reducing overhead and evolving a hybrid work environment.

Due to the revenue contraction, the efficiency ratio increased year-over-year to 69.96% from 68.53%.

Comparisons of non-interest expense year-over-year were impacted by the sale of insurance and branch operations at the end of the third quarter of 2021 and the reinvestment in frontline bankers and technology.

Comparisons are also affected by consolidation costs recorded in both years, primarily for branch consolidations, along with premises and operations initiatives.

Total non-interest expense increased year-over-year by $3 million, or 1%.

Adjusted non-interest expense was flat.

Restructuring and other non-operating expenses totaled $9 million in 2022 and $6 million in 2021.

The Company consolidated six branch offices in 2022 and 16 branch offices in 2021.

Including the 8 branches related to the mid-Atlantic branch operations which were sold, total branches decreased by 30 offices over the last two years to 100 branches at year-end 2022 compared to 130 branches at the beginning of 2021.

Occupancy related expenses decreased year-over-year by $4 million, or 10%.

Technology related expenses increased by $2 million, or 5%.

Professional expense decreased year-over-year by $4 million, or 24%, due primarily to elevated charges in the first quarter of 2021.

Total full-time equivalent staff measured 1,310 positions at period-end, compared to 1,319 positions at the end of 2021.

Reflecting the improved net interest margin and strong expense control, as well as the exit from less efficient operations, the efficiency ratio improved to 64.3% in 2022 from 70.0% in 2021.

This ratio improved to 58.3% in the final quarter of the year due to the cumulative impact of improvements during the year.

Income Tax Expense:

1 unchanged sentence

this note is important to an understanding of the results of operations.

The Company recorded an effective income tax rate of 20% on income from continuing operations in 2021.

The Company recorded a benefit to income tax expense in 2020 due to loss carrybacks resulting from the 2020 loss.

The 2021 effective tax rate included a 2.3% benefit from tax exemptions on investment securities.

The effective tax rate was also reduced by 2.3% related to the Company’s tax credit investment projects for historic rehabilitation and low income housing.

The Company reported $0.02 per share in net income benefit in both 2021 and 2020 related to investments in tax credit projects, net of amortization charges recorded to non-interest income.

The Company actively pursues tax credit investment projects in its markets to provide financial support to community development projects as part of its overall banking services while also generating an appropriate return on the Bank’s investment.

Discontinued Operations:

In the fourth quarter of 2020, the Company completed the exit of its national mortgage banking operations.

These operations generated a net loss of $20 million in 2020.

These operations are excluded from the Company’s measures of adjusted net income.

The Company recorded a 19% effective tax rate in 2022 compared to a 20% effective tax rate in 2021.

Including both the federal and state benefits, the 2022 effective tax rate benefited by 4.5% from tax exemptions on investment securities and other tax-advantaged investments.

Including both the federal and state benefits, the effective tax rate was also reduced by 3.4% related to the Company’s tax credit investment projects.

These projects provided $0.03 per share in net income benefit in 2022 and $0.02 per share in 2021, net of amortization charges recorded to non-interest income.

The Company actively pursues tax credit investment projects to provide financial support to community development projects as part of its overall banking services while also generating an appropriate return on the Bank’s investment.

In recent years these projects have included historic rehabilitation, low-income housing, new markets and renewable energy generation investments.

Total Comprehensive Income :

Total comprehensive income includes net income together with other comprehensive income, which primarily consists of unrealized gains/losses on debt securities available for sale, after tax.

The decrease in interest rates in 2020 resulted in $19 million in other net after-tax comprehensive income and the increase in medium term interest rates in 2021 resulted in a $34 million other net after-tax comprehensive loss.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Revenue and expense included the SI Financial operations acquired on May 17, 2019.

Additionally, due to the COVID-19 pandemic Berkshire reported charges of $554 million for goodwill impairment and $76 million for the provision for credit losses.

As a result, many categories of revenue and expense are not directly comparable year-over-year.

For the year 2020, the Company recorded a loss of $533 million, or $10.60 per share.

In 2019, the Company recorded earnings for the year of $97 million, or $1.97 per share.

Revenue was adversely impacted by the pandemic in 2020, including the impact of lower business volumes, fee waivers, and tighter margins.

Net revenue decreased by $66 million, or 15%, to $383 million in 2020.

Revenue in 2020 included a full year of revenue from SI Financial operations acquired in May 2019.

The full year decrease included a $48 million decrease in net interest income, a $7 million decrease in fee income, and a $12 million adverse swing in net securities gains/losses.

Net Interest Income:

Net interest income decreased by $48 million, or 13% in 2020.

This was the result of a 14% decrease in the net interest margin to 2.72% from 3.17%.

The fourth quarter 2020 net interest margin was 2.61%.

Quarterly net interest income peaked at $97 million in the third quarter of 2019, including the first full quarter of benefit from the acquired SI Financial operations.

Net interest income decreased to $91 million in the fourth quarter of 2019 and then decreased sequentially in 2020 to $76 million in the final quarter.

The margin was under pressure coming into 2020 due to the anticipated loss of purchased loan accretion income, including the impact of the CECL accounting standard.

The Company’s interest rate risk profile was asset sensitive and was structurally sensitive both to the decrease in interest rates and to the low and relatively flat yield curve.

The approximate 1.50% decrease in short-term interest rates resulting from the Federal Reserve Bank’s near zero interest rate policy response to the pandemic was adverse to the Company’s net interest margin.

Additionally, the Company took on higher cost funds at the start of the pandemic to further strengthen liquidity in the national emergency as part of its risk management protocol.

Also, the decline in higher yielding loans reduced this yield as the primary source of interest revenue.

Non-Interest Income:

Fee income decreased year-over-year $7 million, or 9% due to pandemic impacts on deposit and loan fees.

The decrease in deposit fees was due to pandemic impacts which resulted in less consumer spending and higher household liquidity.

Additionally, overdraft fees and other deposit fees reflected increased fee waivers,

which were granted programmatically by the Company as part of its support to its communities during initial lockdowns.

The decrease in loan related fees included a reduction in commercial swap fee income due to lower demand, along with impacts from market value adjustments to the carrying value of commercial loan swaps.

Other pandemic related market value adjustments affecting 2020 results related to charges against mortgage servicing rights and fair valued loans.

Securities losses in 2020 were primarily due to the impact of the pandemic related stock market selloff on the carrying value of equity securities.

Provision for Credit Losses:

In adopting the CECL accounting model on January 1, 2020, the Company moved from an incurred loss methodology to an expected loss methodology.

Additionally, due to the emergence of the pandemic in March 2020, the Company recorded expected pandemic-related losses as provision expense against current period operations.

Accordingly, provision expense increased year-over-year to $76 million from $35 million.

The provision in 2019 included a component recognizing the incurred expense related to a $16 million charge-off in a fraud related commercial loan situation.

Non-Interest Expense:

Total non-interest expense increased by $550 million due to the $554 million second quarter write-off of goodwill.

Expenses in 2020 included a full year of the acquired SI Financial operations.

Full time equivalent staff in continuing operations at year-end 2020 totaled 1,505, compared to 1,550 positions at the start of the year.

Income Tax Expense:

The Company recorded a $20 million income tax benefit on 2020 continuing operations, including a benefit from the deductible portion of goodwill related impairment expense.

In 2019, the Company’s effective tax rate was 18% on pre-tax income from continuing operations.

Total comprehensive income was a loss of $85 million in 2022 compared to income of $85 million in 2021.

The loss in 2022 results from the unrealized bond losses in 2022 due to the rise in interest rates during the year.

LIQUIDITY AND CASH FLOWS

Short-Term Liquidity:

In 2021, the primary sources of cash were the decrease in total loans and the increase in demand deposits.

The primary uses of cash were the reduction of wholesale funds, the settlement of the branch sale, and increases in short and long-term investments.

The Company viewed itself as having excess short-term liquidity at year-end 2021, with cash and equivalents totaling $1.6 billion, or 14% of total assets.

The Company targets to use its excess liquidity in 2022 to fund growth in loans and investment securities, and to paydown higher cost funds sources.

The Company also anticipates using liquidity to fund share repurchases under its $140 million stock repurchase program.

Based on contractual obligations and ongoing operations, the Corporation's sources of liquidity are sufficient to meet present and future liquidity needs.

Contractual obligations are viewed as normal in the context of banking operations, and consist primarily of payment schedules of financial instruments and off balance sheet commitments as discussed in the consolidated financial statements.

In addition to its cash and cash equivalents, the primary sources of the Company’s on balance sheet liquidity are its portfolio of high-quality marketable securities and the pledgeable loans in its loan portfolio.

In addition to its on-balance sheet liquidity, the Bank has access to brokered deposits and to short-term credit availability.

At year-end 2021, unused borrowing capacity at the FHLBB was $1.5 billion, and borrowing availability at the Fed discount window was $0.5 billion.

The Bank monitors a series of liquidity indicators and maintains monthly and quarterly forecasts of liquidity and cash flow, with primary focus on on-balance sheet cash equivalents and high-quality liquid investment securities in relation to scheduled debt and time deposit maturities.

The Company views its liquidity as strong based on its high level of cash and equivalents and reduced use of wholesale funding.

In 2022, loan growth was the primary use of cash, which was mainly sourced from short-term investments and investment securities.

The ratio of cash and cash equivalents to total assets decreased to 6% from 14% over this period in accordance with the Company’s plan to invest excess liquidity into higher yielding loans.

Investment securities and wholesale funding are ongoing potential sources of cash to supplement deposit growth to support targeted loan growth.

At year-end 2022, the Bank had $2.1 billion in total borrowing availability with the FHLBB and the Federal Reserve Bank of Boston.

This availability is collateralized with investment securities and loans to the extent utilized.

The Company continues to view itself as having sufficient liquidity with a high quality securities portfolio and well-positioned wholesale funding sources.

The relative stability of deposit balances and costs was also viewed as positive in 2022 as an indicator of core funding in the Company’s markets.

The ratio of loans to deposits measured 81% at period-end, compared to 68% at the start of the year.

A number of metrics are utilized in establishing optimal and minimal liquidity targets and the Company is generally well positioned across these metrics.

In the environment prevailing at the end of 2022, some banks have reported deposit outflows as funds are withdrawn to reinvest in other higher yielding financial instruments, and also as excess pandemic related liquidity from federal support programs is spent down.

The rising rate environment potentially constrains industry deposit demand growth.

Additionally, the rising rates have contributed to the extension of the investment portfolio average life and the unrealized bond losses are a potential constraint on some options for the use of investments to support overall liquidity.

The unrealized losses would affect regulatory capital if they were realized through the sale of the related securities, which could then impact the management of capital.

The excess liquidity which has been widespread throughout the financial system during the pandemic may constrain funding sources if system wide liquidity is reduced.

The Company is monitoring various scenarios as it continues to pursue organic growth and market share gains in the context of its BEST strategic plan.

The Company maintains a contingency funding plan based on its assessment of the liquidity stress environment.

Primary liquidity data is reported on daily, and thirty-day stress analytics are maintained on an updated basis.

A one year forward liquidity stress test evaluates stress across a variety of stress scenarios, including severe adverse loan loss scenarios due to the pandemic.

The Company has defined strategic options which allow it to meet funding needs in all stress scenarios.

A one year forward liquidity stress test evaluates stress across a variety of stress scenarios, including severe adverse loan loss scenarios.

The Company has defined strategic options which allow it to materially meet funding needs in all stress scenarios.

Long-Term Liquidity:

Over the long term, the Company expects to generate organic deposit growth that will fund organic loan growth.

Operating earnings are expected to fund routine cash operating costs and capital expenditures.

As a depository institution, the Bank maintains a high-quality liquid securities portfolio as a source of liquidity to service unexpected customer demand for loan advances or deposit withdrawals.

Additionally, the aforementioned FHLBB and Federal Reserve Bank secured borrowing arrangements are maintained, and the Company and Bank have investment grade debt ratings from a Nationally Recognized Statistical Rating Organization (KBRA – Kroll Bond Rating Agency) to support access to public and institutional debt markets.

Over the long term, the Company targets to generate organic deposit growth that will fund organic loan growth.

Operating earnings are expected to fund routine cash operating costs, shareholder distributions, and capital expenditures.

As a depository institution, the Bank maintains a high-quality securities portfolio as a source of liquidity to service unexpected customer demand for loan advances or deposit withdrawals.

The Company and Bank have investment grade debt ratings from Moody’s Investors Services and the KBRA bond rating firm.

The Company also is active in secondary markets for residential mortgages and SBA guaranteed loans, which support its organic growth without relying on internal liquidity and capital resources.

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The Company’s strategy is to actively partner with fintechs to pursue a strong position in the evolving financial marketplace, while evolving its own technology to support these partnerships.

The Company is also monitoring potential shifts in deposit demand if interest rates and inflation rise rapidly and pandemic related customer liquidity declines.

The Company is also monitoring potential shifts in deposit demand as it is being impacted by higher interest rates and inflation, and potentials impacts of an economic slowdown and lower customer liquidity.

Parent Company Liquidity:

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The Company targets to use cash at the holding company together with dividends from the Bank to fund holding company cash uses including modest operating expenditures, debt service, purchases of investments, shareholder dividends, and stock repurchases.

A $50 million cash dividend was paid from the Bank to the parent company after year-end as an additional source of funds for stock repurchases.

The holding company generally expects to maintain cash on hand equivalent to normal cash uses, including common stock dividends, for at least a one year period.

Beginning in the third quarter of 2020, the Company cut its cash dividend to shareholders in half, reducing the quarterly cash dividend requirement from $12 million to $6 million.

Bank dividends to the holding company presently require approval by the FDIC and the Massachusetts Division of Banks.

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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.

The Company views its regulatory capital measures as providing it with a cushion of excess capital in relation to its operating condition, risk profile, and strategic plans, and compared to peers.

The Company’s priorities for uses of its capital are based on maintaining strong capital, supporting organic growth and its BEST strategic plan, paying a dividend yield that in the long run is competitive and targets a 30-40% payout ratio, and distributing excess capital to shareholders through stock repurchases.

The Company repurchased approximately 5% of its shares in 2021 and has approved an additional repurchase program for approximately 9% of its shares up to $140 million in 2022.

The Company repurchased shares in 2019 but allowed a repurchase authorization to expire unused in 2020 due to the onset of the pandemic.

The Company’s BEST plan includes the optimization of capital, including reducing excess capital through organic growth and capital returns to shareholders.

The operation of this plan was evidenced in 2022 by loan growth and shareholder distributions, including a 50% increase in the shareholder dividend in the final quarter of the year.

Capital optimization was also supported through the subordinated debt issuance, reducing the coupon compared to the existing debt which was later prepaid.

In conjunction with this issuance, the Company received an inaugural investment grade bond rating from Moody’s and executed a landmark Sustainability Bond placement which expands capital market access for socially responsible investments.

The Company views its regulatory capital measures as providing it with an ample cushion of excess capital in relation to its operating condition, risk profile, and strategic plans, and compared to peers.

The Company repurchased approximately 5% of its shares in 2021 and an additional 9% in 2022.

After year-end 2022, the Company announced a 2023 share repurchase program for approximately 4% of its outstanding shares.

In large measure, these repurchases represented a return of capital that became excess as a result of the reduction of certain business activities and loans, including targeted runoff of selected portfolios.

The Company’s long-term goal is to maintain a competitive capital stack and to provide a return in excess of the cost of its common equity capital.

The Company’s tier 2 capital includes a $75 million subordinated note which converts to a floating rate and becomes callable as of September 2022.

The Company will monitor capital markets conditions while assessing future plans for this capital.

The Company maintains a universal shelf registration of capital securities with the SEC.

The Company and Bank are investment grade rated by the KBRA bond rating service.

The unrealized available for sale securities losses reduce the book value of equity.

These losses are expected to accrete back into equity as the securities season to maturity.

These losses are not deducted from regulatory capital which is the primary focus of the Company’s capital management.

The measure of tangible book value is a focus of bank investors, together with the ratio of tangible equity to tangible assets and the measure of tangible book value per share.

The non-GAAP measure of tangible equity to tangible assets decreased to 8.0% from 10.0% during 2022, and tangible book value per share decreased by 12% to $20.95 from $23.69.

The Company is monitoring its tangible book value related metrics and it believes that its condition at period-end was within a general range for peers at that date.

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 Company’s tier 2 capital includes a $100 million subordinated note.

The Company maintains a universal shelf registration statement for capital securities with the SEC.

The Company and Bank are investment grade rated by Moody's Investors Service and by the KBRA bond rating service.

The Company’s stock is traded on the New York Stock Exchange and the Company views itself as having good access to current capital markets.

The Company performs capital stress testing at least annually and has a general goal to remain qualifying for the “well capitalized” designation in the severely stressed scenario.

The Company performs capital stress testing at least annually and has a goal to remain qualifying for the “well capitalized” designation in the severely stressed scenario.

The Company views its current stressed capital position as sound and conforming to its 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.

In acting as a source of strength for the Bank, the Company relies on capital distributions from the Bank in order to provide operating and capital service for the Company, which in turn can access national financial markets to provide financial support to the Bank.

Capital distributions from the Bank to the parent company presently require approval by the FDIC and the Massachusetts Division of Banking.

Increased distributions from the Company to shareholders require notice to and nonobjection from the Federal Reserve Bank.

In 2022, the Bank paid $108 million in dividends to the parent company.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party.

Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses.

While management utilizes its best judgment and information available, the ultimate adequacy of our ACLL is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, and changes in interest rates.

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The use of observable inputs is maximized and the use of unobservable inputs is minimized when developing fair value measurements.

there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment.

Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment.

As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements.

For detailed information on our use of fair value measurements and our related valuation methodologies, see Note 1 – Summary of Significant Accounting Policies and Note 21 – Fair Value Measurements for more information.

For detailed information on our use of fair value measurements and our

related valuation methodologies, see Note 1 – Summary of Significant Accounting Policies and Note 21 – Fair Value Measurements for more information.

ENTERPRISE RISK MANAGEMENT

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This position oversees risk management policy, credit, compliance, and information security.

Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management and Capital Committee.

Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital & Compliance Committee.

The Company includes recessionary/inflationary risk overlays on all of the material business risks to capture the uncertainties of the economic environment.

The Company has also developed recession toolkits and playbooks that outline mitigating factors and actions that strive to minimize losses under such scenarios.

Both of these items are addressed throughout the assessments and dashboards provided to the above Committees.

The high level corporate risk assessment focuses on the following material business risks:

credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk, with the credit risk category having the highest weighting.

Based on management's recent review, all risks were within corporate appetites .

For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company.

In 2022, price risk increased in relation to the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments and operations.

Residual price risk was viewed as medium including the impact of mitigating factors and management actions in the risk management environment.

LIBOR TRANSITION

The Company’s use of LIBOR based instruments and the industry-wide transition program off of LIBOR are discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) of this report.

The Company’s use of LIBOR based instruments and the industry-wide transition program away from LIBOR are discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) of this report.

The Company has in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations.

These include loans priced off of LIBOR, as well as interest rate swap contacts including customer, dealer, and risk participation agreements.

These include loans index on LIBOR, as well as interest rate swap contracts including customer, dealer, and risk participation agreements.

The Financial Conduct Authority (“FCA”) presently intends to continue publishing most LIBOR indices through June 2023 for use with legacy instruments contracted in 2021 or before.

The Company continues to develop and execute plans to transition instruments associated with LIBOR to alternative reference rates.

The Company continues to execute plans to transition instruments associated with LIBOR to alternative reference rates.

The Company has approved the use of Term SOFR as the lead base case index to replace LIBOR for pricing of new contracts starting in 2022, with Daily Simple SOFR as an alternate.

The Company continues to monitor additional index rates as they become available or are requested by customers or other counterparties.

CORPORATE RESPONSIBILITY UPDATE

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

Berkshire is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being a high performing, leading socially responsible community bank in New England and beyond.

We’re a bank with a purpose:

to empower the financial potential of individuals, families and businesses in our communities.

We provide an ecosystem of socially responsible financial solutions, actively engage with our communities, and harness the power of our entire business to fuel the economy, promote thriving neighborhoods, foster financial access and success, and invest in a low-carbon future.

At Berkshire, our most important investment for 175 years has been the one we make in each other.

We know that where you bank matters and building stronger communities requires a better approach to banking.

As such, ESG factors are central to our vision, mission, risk management practices, and Berkshire’s Exciting Strategic Transformation (BEST) .

The Company continues to monitor market adoption of alternate index rates as information becomes available or as requested by customers or other counterparties.

As of December 31, 2022, the Company had approximately $1.9 billion in LIBOR based commercial loans, including $1.8 billion maturing after the LIBOR cessation date at midyear 2023.

The Company is focused on converting the majority of these loans to one month term SOFR, working with customers, counsel, and its core loan servicing provider.

The Company had converted $333 million in outstanding loans through year-end 2022.

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

BERKSHIRE’S APPROACH

Since its founding in 1846, Berkshire 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 an uncompromising 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.

Berkshire believes where you bank matters, and that simple decision can have an outsized impact on your community.

That’s why ESG factors are central to the company’s vision, mission, business practices, and Berkshire’s Exciting Strategic Transformation (BEST).

This better approach to banking with ESG at its core helps manage risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn drives Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.

BEST COMMUNITY COMEBACK

We believe every community deserves a comeback.

That’s why we launched the BEST Community Comeback in 2021, a transformational commitment to empower our stakeholders’ financial potential.

The plan focuses on four key areas:

Berkshire launched the BEST Community Comeback in late 2021, a transformational commitment to empower its stakeholders’ financial potential.

The plan focuses on four areas critical to the long-term vibrancy and success of its communities:

fueling small businesses;

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and funding environmental sustainability.

Through this far-reaching initiative, Berkshire aims to help create more

businesses and jobs, help more families achieve the dream of owning a home, and aid communities in becoming more environmentally efficient and eco-friendly.

Ongoing Pandemic Support

As 2021 continued to present new challenges, we remained committed to serving our customers and communities.

We’re guided by our Be FIRST Values of Belonging, Focusing, Inclusion, Respect, Service, and Teamwork.

These values fueled our efforts to navigate the pandemic with the goal of supporting the health and economic resiliency of all our stakeholders.

During the height of the pandemic, Berkshire created the You FIRST employee assistance fund to help staff impacted by unexpected financial hardships, provided additional paid sick time, flexible work schedules for remote staff, and maintained full pay for those with reduced schedules as a result of the pandemic.

Small businesses and consumers were helped with loan forbearances and government assistance programs.

We also launched a fund to assist businesses in the LGBTQIA+ and Black, Indigenous and People of Color (BIPOC) communities.

ESG Program & Business Integration

We’re committed to integrating social, environmental and reputational considerations into all business decision making through our strong foundation of governance systems, including our Environmental, Social and Governance (ESG) Management Committee, Corporate Responsibility & Culture Committee of our Board of Directors, Diversity Equity & Inclusion Committee, Responsible & Sustainable Business Policy, and a strong collection of Social & Environmental risk management practices.

Berkshire engages directly with its stakeholders to share information about the progress we’ve made in our ESG performance, including through our Corporate Responsibility website , corporate annual report, and proxy statement.

Additionally, our annual Corporate Responsibility Report , which is aligned with Sustainability Accounting Standards Board (“SASB”) commercial bank disclosure topics, details the Company's ESG efforts and programs.

Through this far-reaching initiative, Berkshire aims to help create more businesses and jobs, help more families achieve the dream of owning a home, and aid communities in becoming more environmentally efficient and eco-friendly.

Berkshire has made steady progress towards achieving its goal of deploying $5 billion to support its communities by the end of 2024.

As of year-end, Berkshire has deployed more than $1 billion in low-moderate income neighborhoods, over $300 million to support low-carbon projects and has transitioned its own electricity supply to 99% renewable since launching the program.

CENTER FOR WOMEN, WELLNESS & WEALTH

Berkshire launched the Center for Women, Wellness, and Wealth (CWWW) to provide women with tools to help create a future enriched with financial stability and wellness.

The Center, through partnerships with community organizations, specialized experts and thought leaders, offers events on wellness and financial planning, philanthropic coaching and development support, and complimentary portfolio reviews through Berkshire Bank Wealth Management.

Ultimately the Center is working to strengthen women’s financial lives by empowering active participation in financial decision making and addressing the longevity risk that women face through a transformative approach to wealth management which centers on balance, stability, growth and overall wellness.

SUSTAINABLE FINANCE & IMPACT INVESTMENTS

Berkshire became the first public U.S.

community bank holding company with under $150 billion in assets to issue a Sustainability Bond with a $100 million issuance in 2022.

green buildings;

renewable energy technology, storage and manufacturing;

energy efficiency in commercial, residential and public buildings;

affordable housing;

workforce housing;

and financial inclusion and access activities.

The framework was independently verified by Sustainalytics, a Morningstar Company, for its impact and alignment with the International Capital Market Association's (ICMA) Sustainability Bond Guidelines 2021, Green Bond Principles 2021 and Social Bond Principles 2021.

Berkshire intends to publish a report in 2023 describing the amount of net proceeds allocated to each eligible project category, descriptions of specific projects financed, unallocated balances and, where feasible, qualitative and quantitative measures of the expected environmental or social impact.

Beyond the issuance of its sustainability bond, Berkshire looks for innovative ways to advance its ESG positioning and its strategic business priorities through sustainable finance and impact investing.

As a result, Berkshire makes targeted impact investments in Small Business Investment Companies (SBIC) and other strategically aligned assets that are within risk appetite and drive a competitive rate of return.

The Company also has a strong tax-credit business whereby it makes targeted investments in low-income housing tax credits (LIHTC), historic tax credits (HTC) and solar tax credits to further Berkshire’s ESG goals and strengthen its Community Reinvestment Act (CRA) performance.

These investments help bring to life important economic development, revitalization and renewable energy projects while providing an appropriate return to the bank consistent with its capital and tax strategies.

ESG INTEGRATION, OVERSIGHT & REPORTING

ESG factors are integral to Berkshire’s business practices, risk management program, competitive positioning and its ability to deliver on its Berkshire’s Exciting Strategic Transformation (BEST) program and realize its vision of becoming a high-performing, leading socially responsible community bank.

Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee ESG matters and are a leader among community banks in integrating ESG standards into its business strategy and operations.

The Company maintains a strong foundation of governance systems, including:

• Board level oversight of ESG, Sustainability, Climate Change, Diversity and Culture

• Corporate Responsibility & Culture Committee of its Board of Directors

• Environmental, Social and Governance (ESG) Committee

• Diversity Equity & Inclusion Committee

• Responsible & Sustainable Business Policy

• Lending, credit, deposit and investment policies which incorporate ESG exclusions and due diligence requirements

• Senior managers for ESG and Diversity along with active involvement from business unit leaders and front lines in managing ESG externalities and risks

This approach strengthens risk management practices consistent with the company’s enterprise risk management program and allows Berkshire to capitalize on business opportunities consistent with its strategy.

Berkshire regularly engages directly with its stakeholders to share information about the progress it’s made in its ESG performance, including through its Corporate Responsibility website, corporate annual report, and proxy statement.

Additionally, Berkshire’s annual Corporate Responsibility/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.

CLIMATE CHANGE

Climate Change manifesting in the form of both physical or transition risks could adversely, 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 expects 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.

Berkshire is actively managing climate related risks and opportunities at the board, management and employee levels.

The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight on sustainability and climate change.

Management and the board evaluate climate related risks and opportunities and incorporate the results of risk assessments and discussions into strategic planning, product development, programming and relevant risk mitigating measures.

All business risks are also integrated into our Enterprise Risk Management program and discussed by other applicable Board Committees including the Risk Management, Capital & Compliance Committee.

Both Committees report into the full board.

Beyond board level oversight of climate matters, Berkshire maintains an Environmental, Social and Governance committee comprised of senior executives throughout the Company.

Berkshire also completes an annual climate change risk assessment to evaluate the bank’s operations and lending activities for potential exposure to transition and physical risks.

The results of the risk assessment guide Berkshire’s forward climate management and environmental sustainability strategies to ensure its actively managing the risks and opportunities.

The physical risks of climate change over short, medium and long-term horizons include weather-related events, such as flooding and tornados, and longer-term shifts in climate patterns, such as extreme heat, rising sea levels and more severe droughts.

Such events could disrupt Berkshire’s operations, impact customers, or third parties on which Berkshire relies, including through direct damage to physical assets and indirect impacts from supply chain disruption and market volatility.

This could impact borrowers’ ability to repay obligations, devalue physical assets resulting in uncertain residual values and affect third-parties ability to deliver on service expectations.

Transition risks over short, medium and long-term horizons can include changes in consumer preferences, additional regulatory requirements or policy such as taxes, and use of new technologies.

Such developments could increase Berkshire, its customers and third-parties operating costs, reduce demand for services from select customer segments and impact current strategies.

Reputation and customer relationships could be damaged as a result of Berkshire’s practices related to climate change mitigation as well as through its or its customers direct or indirect involvement with industries or projects with heighten climate related risks.

Over the long-term, transition risks could also manifest in potential credit impacts affecting borrowers’ ability to repay obligations.

Collectively these physical and transition risks are managed through ongoing monitoring, existing industry exclusions, due diligence processes, policies, insurance requirements, business continuity planning, target setting and product development.

As Berkshire looks to further strengthen its management of climate related risks and opportunities, it expects to continue to formalize its climate risk management program and set formal targets to reduce its Greenhouse Gas (GHG) emissions, in addition to its existing sustainable finance and renewable electricity goals.

As the Company moves further along in its climate journey, it expects to continue to enhance its disclosures, programs, mitigating controls and initiatives to minimize risk, reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy.

Further details on Berkshire’s Climate Change governance, risk management, strategy, metrics & targets and next steps can be found in its most recent Corporate Responsibility Report.

RATINGS, AWARDS & RECOGNITION

We’re proud to be recognized for our performance with local, regional, national, and international awards as well as leading third party ESG ratings* including:

• MSCI ESG- BBB

• Top 17% aggregated ESG rating, achieving one of five major BEST goals

• MSCI ESG- A

• ISS ESG Quality Score - Environment:

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• Bloomberg ESG Disclosure- 62.81

• The Company is also rated by Sustainalytics

• Banking Northeast Community Champion Award

• Sustainalytics Rated

• Communitas Award for Leadership in Corporate Social Responsibility

• Sustainable Business Network of Massachusetts Sustainable Business of the Year – Bank

• Boston Business Journal Top Charitable Contributor

• America’s Most Trustworthy Companies – Newsweek

• Forbes America’s Best Midsize Employers

• Bloomberg Gender-Equality Index

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*As of December 31, 2022

Climate Change

Climate Change poses unprecedented risks and opportunities to the world, including Berkshire, its customers and communities.

The impacts which can occur from climate change can directly and/or indirectly impact the Company and its stakeholders.

The Company continues to evolve its practices to reflect its community bank mission as well as the size, scope, and complexity of its operations.

Berkshire is actively managing climate related risks and opportunities at board, management and employee levels.

The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight to environmental sustainability and Climate Change.

All business risks are also integrated into our Enterprise Risk Management program and discussed by other applicable Board Committees including the Risk Management & Capital Committee.

Both Committees report into the full board.

Berkshire enhanced its governance over material

environmental matters in 2021 by formalizing an Environmental, Social and Governance management committee and completing a formal climate change risk assessment to evaluate the bank’s operations and lending activities for potential exposure to transition and physical risks resulting from climate change.

The results of the risk assessment guide Berkshire’s forward climate management and environmental sustainability strategies to ensure its actively managing these risks and opportunities.

It has set targets to help finance the green transition, reduce its Greenhouse Gas (GHG) emissions and source 100% of its electricity from renewable sources by the end of 2024.

As the Company moves further along in its climate journey, it expects to continue to enhance its plans, disclosures, programs and initiatives to reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy.

Further details on Berkshire’s Climate Change governance, risk management, strategy, metrics & targets and next steps can be found in its most recent Corporate Responsibility Report.

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What changed 10-K

Item 7. Management’s Discussion and Analysis