What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 316 added, 475 removed, 309 unchanged (72% of the section changed)

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Net earnings/(loss), diluted - continuing operations $ 1.60 $ 2.02 $ 2.39 $ (10.21) $ 2.05

Net (loss)/earnings, diluted - discontinued operations — — (0.39) (0.08) (0.07)

Net (loss), diluted - discontinued operations — — — (0.39) (0.08)

Net earnings/(loss), diluted $ 1.60 $ 2.02 $ 2.39 $ (10.60) $ 1.97

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Return on assets 0.59 % 0.82 % 0.98 % (4.15) % 0.75 %

Return on equity 7.76 10.18 (37.50) 5.75 6.84

Return on tangible common equity 8.26 10.80 (48.60) 9.36 11.41

Return on equity, including unrealized losses on AFS securities 7.07 8.70 9.96 37.15 5.73

Return on equity, excluding unrealized losses on AFS securities 5.68 7.76 10.18 (37.50) 5.75

Return on tangible common equity, including unrealized losses on AFS securities (2)

7.60 9.29 10.57 (46.88) 9.31

Return on tangible common equity, excluding unrealized losses on AFS securities (2)

6.07 8.26 10.80 (48.60) 9.36

Net interest margin, fully taxable equivalent ("FTE") (3)

Fee income/Net interest and fee income 15.66 22.49 18.10 23.86 23.36

3.27 3.26 2.60 2.72 3.17

Growth Ratios:

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(1) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(2) Non-GAAP financial measure.

Refer to "Reconciliation of Non-GAAP Financial Measures" for additional information.

(3) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.

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Liabilities and shareholders' equity

Non-interest-bearing demand deposits $ 2,584.6 $ — — % $ 2,914.9 $ — — % $ 2,817.4 $ — — %

NOW and other 1,048.9 14.9 1.42 % 1,416.7 6.1 0.43 % 1,340.2 1.0 0.07 %

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Certificates of deposit 2,275.8 72.4 3.18 1,541.7 13.1 0.85 1,978.9 18.6 0.94

Total interest-bearing deposits 6,882.3 33.4 0.49 7,136.5 25.4 0.36 7,947.2 72.2 0.91

Total deposits 9,703.8 159.0 1.64 9,797.2 33.4 0.34 9,953.9 25.4 0.26

Borrowings and notes (4) 913.6 48.3 5.29 176.1 9.2 5.24 320.2 10.7 3.34

Mid-Atlantic region interest-bearing deposits — — — — — — 335.1 1.8 0.54

Total interest-bearing liabilities 7,058.4 42.6 0.60 7,791.8 37.9 0.49 8,833.8 93.0 1.06

Non-interest-bearing demand deposits 2,914.9 2,817.4 2,324.6

Total funding liabilities 10,617.4 207.3 1.95 9,973.3 42.6 0.43 10,609.2 37.9 0.35

Other non-interest-bearing liabilities 236.3 180.1 280.9

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Total liabilities and equity $ 11,837.6 $ 11,216.3 $ 12,080.6

Net interest income $ 351.3 $ 297.5 $ 324.7

2022 2021 2020

(Dollars in millions) Average

Balance Interest Average

Net interest spread 3.09 % 2.12 % 2.49 %

Net interest margin (5) 3.27 3.26 2.60

Cost of funds 0.43 0.35 0.84

Cost of deposits 0.34 0.26 0.71

Interest-earning assets/interest-bearing liabilities 151.19 149.67 133.95

Supplementary data

Total non-maturity deposits $ 8,255.5 $ 7,975.0 $ 7,168.9

Total deposits 9,797.2 9,954.0 10,271.8

Fully taxable equivalent adjustment 6.6 6.3 6.4

Net Interest Income, non FTE $ 369.0 $ 344.6 $ 291.2

FTE income adjustment (6) 7.9 6.6 6.3

Net Interest Income, FTE 376.9 351.2 297.5

_________________________________

(1) The average balances of loans include nonaccrual loans, and deferred fees and costs.

As of December 31, 2022 and December 31, 2021, deferred fees related to PPP loans totaled $0.1 million and 0.2 million, respectively.

(2) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.

(3) The average balance of investment securities is based on amortized cost.

(4) Includes discontinued operations.

(5) The average balances of borrowings and notes include the capital lease obligation presented under other liabilities on the consolidated balance sheet.

(4) The average balances of borrowings and notes include the finance lease obligation presented under other liabilities on the consolidated balance sheet.

(5) Purchase accounting accretion totaled $0.7 million, $2.0 million, and $6.7 million for the years-ended December 31, 2023, 2022, and 2021, respectively.

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In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders.

An item which management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’s results for any particular quarter or year.

The Company’s non-GAAP adjusted earnings information set forth is not necessarily comparable to non-GAAP information which may be presented by other companies.

An item which management excludes when computing non-GAAP operating earnings can be of substantial importance to the Company’s results for any particular quarter or year.

The Company’s non-GAAP operating earnings information set forth is not necessarily comparable to non-GAAP information which may be presented by other companies.

Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information.

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operating revenue and expense.

The Company utilizes the non-GAAP measure of operating earnings in evaluating operating trends, including components for operating revenue and expense.

These measures exclude amounts which the Company views as unrelated to its normalized operations.

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

These items primarily include securities gains/losses, merger costs, and restructuring costs.

In 2023, adjustments were primarily related to branch consolidations, severance charges related to a workforce reduction, and loss on sale of AFS securities.

Starting in 2023, fair value adjustments on securities are included in operating income.

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.

Expense adjustments in the first quarter 2021 were primarily related to branch consolidations.

Third quarter 2021 adjustments included Federal Home Loan Bank borrowings prepayment costs.

They also included other restructuring charges for efficiency initiatives in operations areas including write-downs on real estate moved to held for sale and severance related to staff reductions.

The fourth quarter 2021 revenue adjustment was primarily related to trailing revenue on a previously reported sale, and the expense adjustment was due primarily to branch restructuring costs.

Discontinued operations are the Company’s national mortgage banking operations for which the Company completed the wind down of operations in 2020.

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.

Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales.

Restructuring costs also include severance and consulting expenses related to the Company’s strategic review.

They also include costs related to the consolidation of branches.

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

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

The Company also calculates adjusted earnings per share based on its measure of adjusted earnings.

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

Expense adjustments in 2021 were primarily related to branch consolidations, borrowings prepayment costs, and restructuring charges for efficiency initiatives in operation areas including write-downs on real estate and severance related to staff reductions.

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

The Company also calculates operating earnings per share based on its measure of adjusted earnings.

The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity.

Analysts also rely on these measures in estimating and evaluating the Company’s performance.

Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.

Due to the anticipated earnings volatility resulting from loan loss provisions reflecting changes in estimates of uncertain future economic conditions under the new CECL accounting standard, many users of bank financial statements are focusing on Pre-Provision Net Revenue (“PPNR”).

Management also believes that the computation of non-GAAP operating earnings and operating earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.

Due to the anticipated earnings volatility resulting from loan loss provisions reflecting changes in estimates of uncertain future economic conditions under the CECL accounting standard, many users of bank financial statements are focusing on Pre-Provision Net Revenue (“PPNR”).

This is a measure of revenue less expenses, and is calculated before the loan loss provision and income tax expense.

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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 Operating Pre-Provision Net Revenue (“Operating 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.

Analysts also use this measure in assessing the Company’s operations and in making comparisons across banks.

The Company and analysts also measure Adjusted PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability.

This measure primarily relies on the measures of adjusted revenue and adjusted expense already used in the Company’s calculation of its efficiency ratio.

The Company and analysts also measure Operating PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability.

This measure primarily relies on the measures of operating revenue and operating expense already used in the Company’s calculation of its efficiency ratio.

The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.

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(Dollars in thousands) December 31, 2023 December 31, 2022 December 31, 2021

GAAP Net income/(loss) $ 92,533 $ 118,664 $ (533,017)

GAAP Net income $ 69,598 $ 92,533 $ 118,664

Non-GAAP measures

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

Goodwill impairment — — 553,762

Fair value adjustments on securities (1)

Loss/(gain) on sale of AFS securities 25,057 (6) —

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

Acquisition, restructuring, conversion, and other related expenses (2)

Loss from discontinued operations before income taxes — — 26,855

6,261 8,909 5,781

Income taxes (7,723) (2,940) 11,696

Net non-operating charges 23,595 8,000 (34,678)

Total adjusted net income (non-GAAP) $ 100,533 $ 83,986 $ 30,377

Operating net income (non-GAAP) $ 93,193 $ 100,533 $ 83,986

GAAP Total revenue from continuing operations $ 411,829 $ 413,534 $ 434,414

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

Fair value adjustments on securities — 2,037 787

Loss/(gain) on sale of AFS securities 25,057 (6) —

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

Total adjusted operating revenue (non-GAAP) $ 415,565 $ 382,259 $ 389,369

Operating revenue (non-GAAP) $ 436,886 $ 413,528 $ 382,259

GAAP Total non-interest expense from continuing operations $ 301,508 $ 288,716 $ 285,893

Total non-operating expense (see above) (6,261) (8,909) (5,781)

Goodwill impairment — — (553,762)

Adjusted operating non-interest expense (non-GAAP) $ 279,807 $ 280,112 $ 280,638

Pre-tax, pre-provision net revenue (PPNR) from continuing operations $ 124,818 $ 148,521 $ (457,150)

Adjusted pre-tax, pre-provision net revenue (PPNR) 135,758 102,147 108,731

Operating non-interest expense (non-GAAP) $ 295,247 $ 279,807 $ 280,112

Pre-tax, pre-provision net revenue (PPNR) $ 110,321 $ 124,818 $ 148,521

Operating pre-tax, pre-provision net revenue (PPNR) 141,639 135,758 102,147

(in millions, except per share data)

Total average assets $ 11,838 $ 11,216 $ 12,081

Total average shareholders' equity 1,193 1,166 1,421

Total average tangible shareholders equity 1,166 1,134 1,105

Total average tangible common shareholders equity 1,166 1,134 1,088

Total average shareholders' equity, including unrealized losses on AFS securities 984 1,063 1,191

Total average shareholders' equity, excluding unrealized losses on AFS securities 1,226 1,193 1,166

Total average tangible shareholders' equity, including unrealized losses on AFS securities 962 1,036 1,159

Total average tangible shareholders' equity, excluding unrealized losses on AFS securities 1,204 1,166 1,134

Total tangible shareholders’ equity, period-end 993 930 1,153

Total tangible common shareholders’ equity, period-end 930 1,153 1,153

Total tangible assets, period-end 12,411 11,638 11,525

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43,504 45,914 49,554

Earnings/(loss) per share, diluted $ 2.02 $ 2.39 $ (10.60)

Earnings per share, diluted $ 1.60 $ 2.02 $ 2.39

Net adjustments per share, diluted 0.54 0.17 (0.70)

Adjusted earnings per share, diluted 2.19 1.69 0.60

Operating earnings per share, diluted 2.14 2.19 1.69

Book value per common share, period-end 23.27 21.51 24.30

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Performance Ratios

GAAP return on assets 0.82 % 0.98 % (4.15) %

Adjusted return on assets 0.89 0.70 0.24

GAAP return on equity 7.76 10.18 (37.46)

Adjusted return on equity 8.43 7.20 2.14

Adjusted return on tangible common equity 8.94 7.74 3.18

Return on equity, including unrealized losses on AFS securities 7.07 % 8.70 % 9.96 %

Return on equity, excluding unrealized losses on AFS securities 5.68 7.76 10.18

Operating return on equity, including unrealized losses on AFS securities 9.47 9.46 7.05

Operating return on equity, excluding unrealized losses on AFS securities 7.60 8.43 7.20

Return on tangible common equity, including unrealized losses on AFS securities (3)

7.60 9.29 10.57

Return on tangible common equity, excluding unrealized losses on AFS securities (3)

6.07 8.26 10.80

Operating return on tangible common equity, including unrealized losses on AFS securities (3)

10.05 10.07 7.58

Operating return on tangible common equity, excluding unrealized losses on AFS securities (3)

8.03 8.94 7.74

Return on assets 0.59 0.82 0.98

Operating return on assets 0.79 0.90 0.70

Efficiency ratio (4)

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____________________________________

(1) Starting in 2023, fair value adjustments on securities are included in operating income.

(2) Acquisition, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years ended December 31, 2023, 2022 and 2021.

(3) Amortization of intangible assets is adjusted assuming a 27% marginal tax rate.

(4) 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.

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This discussion includes the following sections:

• Comparison of Financial Condition at December 31, 2022 and 2021

• Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

• Comparison of Financial Condition at December 31, 2023 and 2022

• Liquidity and Cash Flows

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• LIBOR Transition

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

• Corporate Responsibility and Sustainability

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.

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Operating results discussed herein are not necessarily indicative of the results for the year 2024 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).

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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.

The Company’s vision is to be a high performing, leading socially responsible community bank in New England and beyond.

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’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.

This measure excludes items not viewed as related to ongoing operations.

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

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 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 at that date.

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

Asset Quality and Credit Loss Allowance:

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:

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:

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 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, 2023 AND 2022

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, 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.

Berkshire reported 2023 net income of $69.6 million, or $1.60 per diluted share, compared to $92.5 million, or $2.02, per share in 2022.

Net income in 2023 included net pre-tax non-operating charges totaling $31.3 million ($23.6 million after-tax), or $0.54 per share.

Net income in 2022 included net pre-tax non-operating charges totaling $10.9 million ($8.0 million after-tax), or $0.17 per share.

Non-operating charges included restructuring charges in both years and a $25.1 million loss on the sale of securities in the fourth quarter of 2023.

Due to this loss, the Company reported a net loss of $1 million in the fourth quarter of 2023.

The Company’s 2023 non-GAAP measure of operating income totaled $93.2 million, or $2.14 per diluted share, compared to $100.5 million, or $2.19 per share, for 2022.

Year-over-year, higher net interest income was more than offset by higher loan loss provision expense and operating non-interest expense.

Per share results benefited from share repurchases.

Berkshire’s 2023 return on average assets was 0.59% (0.79% on an operating basis) compared to 0.82% (0.90% on an operating basis) for 2022.

Return on average tangible common equity including unrealized loss on AFS securities was 7.60% (10.05% on an operating basis) in 2023 compared to 9.29% (10.07% on an operating basis) in 2022.

Return on average tangible common equity excluding unrealized loss on AFS securities was 6.07% (8.03% on an operating basis) in 2023 compared to 8.26% (8.94% on an operating basis) in 2022.

Compared to 2022, fully taxable equivalent ("FTE") net interest income increased $25.7 million to $376.9 million.

The net interest margin was little changed, increasing one basis point to 3.27%.

Average total earning assets increased year-over-year by $701 million, reflecting a $1.20 billion increase in average loans, partially offset by a $303 million decrease in average securities and a $197 million decrease in average short-term investments and HFS loans.

Average total funding liabilities increased year-over-year by $644 million compared to the year-ago average, reflecting a $738 million increase in average borrowings, partially offset by a $93 million decrease in average deposits.

Year-over-year, non-interest income excluding losses/gains decreased $3.6 million and total non-interest expense increased $12.8 million.

The efficiency ratio was 63.88% in 2023 compared to 64.31% in 2022.

The provision for credit losses on loans was $32.0 million in 2023, compared to $11.0 million in 2022.

The allowance for credit losses on loans was $105.4 million, or 1.17% of total loans, at December 31, 2023, compared to $96.3 million, or 1.15% of total loans at December 31, 2022.

Berkshire’s total shareholders’ equity was $1.01 billion at December 31, 2023 compared to $954 million at December 31, 2022.

The year-end common equity Tier 1 capital ratio was 12.0% in 2023 and 12.4% in 2022 .

Tangible common equity as a percentage of tangible assets was 8.0% at both of those dates.

Net Interest Income

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.

Net interest income and net interest margin may be affected by many factors, including:

changes in average balances;

interest rate fluctuations and the slope of the yield curve;

sales of loans and securities;

residential mortgage loan and mortgage-backed security prepayment rates;

product pricing;

competitive forces;

the relative mix, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities;

non-interest-bearing sources of funds;

hedging activities;

and asset quality.

In response to persistent high inflation, the Federal Reserve Board increased the target federal funds rate during 2022 and 2023.

The average maximum target Federal Funds rate increased from 0.25% in the first quarter of 2022 to 5.50% in the fourth quarter of 2023, increasing in each sequential quarter, with the largest quarterly increases occurring in the second and third quarters of 2022.

The net interest margin increased by one basis point to 3.27% in 2023.

Net interest income increased year-over-year by $24 million, or 7%, due to a 7% increase in average earning assets funded by higher average borrowings.

Total interest income increased $189 million and total interest expense increased $165 million.

The FTE interest adjustment increased $1 million.

Full year total average earning assets increased $701 million in 2023 compared to 2022, primarily reflecting an increase of $1.20 billion in average loans offset by decreases of $303 million in average securities and $197 million in short-term investments and loans HFS.

The increase in average loans was primarily due to a $491 million increase in average commercial real estate loans and a $728 million increase in average residential mortgages, reflecting growth in originations staff and expansionary economic conditions supporting market demand for commercial loans.

Average total loans, average securities and average short-term investments and loans held for sale comprised 78%, 19% and 3%, respectively, of average total earning assets in 2023, compared to 72%, 23% and 5%, respectively, in 2022.

In 2023, the yields on these portfolios were 5.86%, 2.32%, and 4.59% respectively, compared to 4.44%, 2.06%, and 0.86% in 2022.

The 145 basis point year-over-year increase in the full year yield on average earning assets reflected higher market interest rates.

The loan yield increased by 142 basis points, the securities yield increased by 26 basis points, and the yield on short-term investments and loans held for sale increased 373 basis points.

Higher loans yields included increases of 193 basis points in commercial real estate, 221 basis points in commercial and industrial loans, 36 basis points in residential mortgages, and 152 basis points in consumer loans.

Average total funding liabilities increased $644 million, reflecting a $738 million increase in average borrowings which was partially offset by a $93 million reduction in average deposits.

The increase in borrowings was primarily due to higher borrowings from the Federal Home Loan Bank of Boston.

Compared to the prior year, average non-interest bearing deposits decreased $330 million, average NOW and other interest-bearing transaction accounts decreased $368 million, average money market deposits decreased $82 million, and average savings deposits decreased $48 million.

Average time deposits increased $734 million.

Deposit shifts reflected the migration of some balances from lower yielding accounts to higher yielding accounts in and out of the Bank, as well as the spend-down by customers of liquidity accumulated during the pandemic.

Time deposit growth included higher utilization of brokered deposits.

Average total deposits comprised 91% and 98% of average total funding liabilities in 2023 and 2022, respectively.

As a percentage of 2023 average deposits, average non-interest bearing deposits measured 27%, average NOW and other interest-bearing transaction accounts measured 11%, average money market deposits were 28%, average savings accounts were 11%, and average time deposits were 23%.

The comparable percentages in the year-ago quarter were 30%, 14%, 29%, 11%, and 16% respectively.

The 152 basis point increase to 1.95% in the rate paid on average total funding liabilities in 2023 compared to 2022 primarily reflects the impact of the increase in market interest rates and increased borrowings.

The rate paid on average total deposits increased 130 basis points, reflecting higher interest rates paid and the shift in the mix of deposits.

Higher deposit costs included increases of 99 basis points in the cost of NOW and other interest-bearing transaction deposits, 191 basis points in the cost of money market deposits, 54 basis points in the cost of savings deposits, and 233 basis points in the cost of time deposits.

Non-Interest Income

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.

Total non-interest income decreased $26.2 million in 2023 compared to 2022 due primarily to a $25.1 million loss recorded on the sale of AFS securities near-year end, with proceeds used to pay down higher cost borrowings.

The Company views this loss as non-operating.

SBA loan sale revenue decreased by $2.2 million, reflecting margin and volume changes in the rising interest rate environment.

The category of other non-interest income decreased $4.9 million due to a $4.5 million increase in charges for the amortization of tax credit investments, reflecting higher balances of these investments in 2023 as projects progressed following prior pandemic related delays.

These charges are more than offset by credits to income tax expense.

Total deposit and loan related fees increased $3.3 million, or 8%, due to improved volume and pricing conditions.

Provision for Credit Losses

The provision totaled $32.0 million in 2023 compared to $11.0 million in 2022.

Provision expense in 2023 primarily reflected growth in the loan portfolio and increased uncertainty related to commercial real estate market conditions.

T he ratio of the allowance for credit losses to loans increased to 1.17% from 1.15%.

The provision in 2022 reflected lower pandemic-related expected credit losses near the end of the pandemic public health emergency.

Non-Interest Expense

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 $12.8 million, or 4%.

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.

Restructuring and other non-operating expense decreased to $6.3 million from $8.9 million.

Restructuring expense in 2023 was primarily due to the consolidation of four branches and severance related to a cross-company workforce reduction in the fourth quarter.

Restructuring expense in 2022 was primarily due to the consolidation of six branch offices.

The Company’s non-GAAP measure of operating non-interest expense increased year-over-year by $15.4 million, or 6%.

This was primarily due to a $6.5 million, or 4%, increase in compensation expense and a $6.3 million, or 18%, increase in technology related expense.

Expense growth reflected the impact of inflation, together with the Company’s strategy of investing in frontline bankers and digital innovation targeted to support future growth of revenues and deposits.

Occupancy expense decreased by $1.9 million, or 5%, due to consolidation of branches and office premises.

FDIC insurance expense increased $3.9 million due to higher premiums charged to the industry.

The efficiency ratio improved slightly year-over-year to 63.9% from 64.3% as higher net interest income offset lower operating fee income and higher operating expenses.

Quarterly operating revenue peaked in the fourth quarter of 2022 and has declined in consecutive quarters as the net interest margin has declined over these periods, with funding cost increases catching up with the higher initial sensitivity of variable rate interest earning assets to the rapid increase in market interest rates in 2022.

The fourth quarter efficiency ratio measured 67.8% in 2023, compared to 58.3% in 2022.

Income Tax Expense

Income taxes are discussed in a note to the financial statements;

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

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.

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.

The Company’s effective income tax rate was 11.1% in 2023 compared to 18.7% in 2022.

This reduction was primarily due to the higher proportional benefit of tax advantaged income compared to pre-tax income, which declined by $35.5 million, or 31%, due to the loss on sale of AFS securities and the increase in credit loss provision expense.

Differences arising between Berkshire’s effective income tax rate and the U.S.

federal statutory rate of 21% are generally attributable to:

(i) tax-exempt interest earned on certain investments;

(ii) tax-exempt income from BOLI;

(iii) tax credit investment benefits;

and (iv) state income taxes.

The Company’s tax credit investment program contributed $0.04 to earnings per share in 2023, compared to $0.03 in 2022.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2023 AND DECEMBER 31, 2022

Total assets at December 31, 2023 were $12.4 billion, a $768 million increase from December 31, 2022, primarily reflecting a $704 million increase in total loans and a $515 million increase in short-term investments, partially offset by a decrease of $426 million in investment securities.

Loan growth primarily consisted of a $398 million increase in commercial real estate loans and a $448 million increase in residential mortgages.

The increase in short-term investments was primarily due to higher short-term deposits at year-end 2023.

The decrease in investment securities was primarily due to the sale of $267 million of available for sale securities near year-end 2023, and also included amortizations and maturities of securities during the year.

Nonaccrual loans totaled $21.4 million at December 31, 2023, a $9.7 million decrease from December 31, 2022 across most major loan categories.

The allowance for credit losses on loans totaled $105.4 million at December 31, 2023, compared to $96.3 million at December 31, 2022.

At December 31 2023, the allowance as a percentage of total loans was 1.17% and as a percentage of nonaccrual loans was 492%, compared to 1.15% and 309%, respectively, at December 31, 2022.

At December 31, 2023, total liabilities were $11.4 billion, a $710 million increase from December 31, 2022, primarily reflecting a $306 million increase in deposits and a $381 million increase in total borrowings.

Berkshire’s total shareholders’ equity was $1.01 billion at December 31, 2023, a $58 million increase from December 31, 2022.

As a percentage of total assets, shareholders’ equity was 8.1% and 8.2% at December 31, 2023 and December 31, 2022, respectively.

Tangible common equity equaled 8.0% both at December 31, 2023 and December 31, 2022.

Berkshire’s (consolidated) Tier 1 Leverage capital ratio and its Common Equity Tier 1 (“CET 1”), Tier 1 and Total risk-based capital ratios were 9.6%, 12.0%, 12.3% and 14.4%, respectively, at December 31, 2023, compared to 10.2%, 12.4%, 12.6% and 14.6%, respectively, at December 31, 2022.

The Bank’s Tier 1 Leverage capital ratio and its CET 1, Tier 1 and Total risk-based capital ratios were 9.6%, 12.2%, 12.2% and 13.3%, respectively, at December 31, 2023, compared to 10.2%, 12.6%, 12.6% and 13.6%, respectively, at December 31, 2022.

Total securities measured $1.6 billion at December 31, 2023, decreasing $426 million during 2023.

This decrease was primarily due to the sale of available for sale securities valued at $267 million near year-end, with proceeds used to paydown higher costing short-term borrowings.

The decrease in securities from this sale and from amortization and payoffs in 2023 was mostly in agency mortgage-related instruments including collateralized mortgage obligations, mortgage-backed securities, and commercial mortgage-backed securities.

Total loans at period-end are categorized in the financial statement in accordance with regulatory reporting.

Total loans measured $9.0 billion at December 31, 2023, increasing $704 million during 2023.

At December 31, 2023, commercial loans measured 65% of total loans and retail loans measured 35% of total loans.

In comparison, at December 31, 2022, commercial loans measured 66% of total loans and retail loans measured 34% of total loans.

Total commercial loans increased by $312 million to $5.8 billion during 2023 and were comprised of commercial real estate loans and commercial and industrial loans.

Commercial real estate loans (which include construction loans and multifamily loans) totaled $4.5 billion and increased by $398 million during 2023.

Construction loans increased by $321 million.

Commercial and industrial loans totaled $1.4 billion and decreased by $86 million.

Nonaccrual commercial loans totaled $13.1 million at December 31, 2023, and measured 0.22% of total commercial loans.

At December 31, 2022, nonaccrual commercial loans totaled $19.4 million, measuring 0.35% of total commercial loans.

Potential problem loans, which are adversely classified loans which remain in an accrual status, totaled $132 million, or 2.26% of total commercial loans at December 31, 2023, compared to $89 million, or 1.61% of total commercial loans at December 31, 2022.

Total retail loans increased by $392 million to $3.2 billion during 2023.

Retail loans include residential mortgage loans and consumer loans.

At December 31, 2023, residential mortgages totaled $2.8 billion and increased by $448 million during 2023.

Consumer loans totaled $446 million and decreased by $56 million for this period, due primarily to planned run-off of unsecured consumer balances.

Nonaccrual retail loans totaled $8.3 million at December 31, 2023, measuring 0.26% of total retail loans.

At December 31, 2022, nonaccrual retail loans totaled $11.7 million, measuring 0.42% of total retail loans.

Allowance for Credit Losses on Loans

The allowance totaled $105.4 million at December 31, 2023, an increase of $9.1 million from December 31, 2022, primarily reflecting growth in the loan portfolio together with an increase in the qualitative reserve for non-owner occupied commercial real estate loans due to uncertain market conditions.

The ratio of the allowance to total loans decreased to 1.17% from 1.15% for these respective dates.

For the commercial loan portfolio, the allowance for credit losses as a percentage of commercial loans was 1.23% at December 31, 2023, compared to 1.15% at December 31, 2022.

The commercial allowance for credit losses represented 548% of nonaccrual commercial loans at December 31, 2023 compared to 326% at December 31, 2022.

For the retail loan portfolio, the allowance for credit losses as a percentage of retail loans was 1.05% at December 31, 2023 compared to 1.17% at December 31, 2022.

The retail allowance for credit losses represented 404% of nonaccrual retail loans at December 31, 2023 compared to 282% at December 31, 2022.

Deposits and Borrowings

Total deposits were $10.6 billion at December 31, 2023, a $306 million increase from year-end 2022.

Most categories of deposits decreased except for higher cost time deposits as customers sought higher rate deposits in the environment of higher interest rates.

Non-interest bearing deposits totaled $2.5 billion at December 31, 2023, a $383 million decrease from December 31, 2022.

Non-maturity interest-bearing deposits totaled $5.5 billion, a $363 million decrease from year-end 2022.

Period-end time deposits totaled $2.7 billion, increasing $1.1 billion during the year.

Borrowings totaled $385 million at period-end, increasing $381 million from year-end 2022.

The increase was due to the utilization of Federal Home Loan Bank of Boston advances primarily to fund loan growth.

Derivative Financial Instruments

The notional amount of derivative financial instruments totaled $4.8 billion at period-end, increasing $263 million from year-end 2022.

The net fair value of these instruments at December 31, 2023 was a liability of $30 million, compared to a liability of $43 million at December 31, 2022.

Shareholders’ Equity and Dividends

Total shareholders’ equity was $1.01 billion at December 31, 2023, a $58 million increase from December 31, 2022.

This primarily reflects net income of $70 million and other comprehensive income of $38 million partially offset by $32 million in common stock dividends at $0.72 per share and share repurchases totaling $24 million for the repurchase of 103,000 shares.

Other comprehensive income reflected a decrease in the after-tax net unrealized losses on available for sale debt securities and derivative hedges primarily due to the $25 million realized loss on the sale of securities near year-end 2023.

LIQUIDITY AND CASH FLOWS

Short-Term Liquidity:

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.

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 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.

The Company is monitoring for potential shifts in deposit sources as customer usage of traditional banking channels is also impacted by the spread of fintech alternatives.

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 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:

Total cash held by the holding company was $90 million at year-end 2022.

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.

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.

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

The holding company’s goal is to maintain access to private and public credit markets to provide access to additional liquidity sources depending on conditions.

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs for the Company, including the Bank.

Liquidity management addresses both the Company’s ability to fund new loans and investments as opportunities arise, to meet customer deposit withdrawals and to repay borrowings and subordinated notes as they mature.

In the first quarter of 2023, the banking industry faced heightened focus on liquidity following the failure of several large banks.

In response, the Company increased borrowings and short-term investments and also increased its off-balance sheet liquidity sources primarily by increasing its assets qualified for pledging against borrowings.

The Company views its liquidity as satisfactory for current conditions as well as for stressed scenarios in its liquidity testing models.

At December 31, 2023, cash and equivalents totaled $1.2 billion and securities available for sale totaled $1.0 billion.

Unused borrowing capacity at that date from the Federal Home Loan Bank of Boston “FHLBB” and the Federal Reserve Bank of Boston (“FRB”) totaled $4.0 billion, compared to $2.1 billion at year-end 2022.

Borrowings from these sources are supported by collateral, to the extent utilized.

The increase in borrowing capacity in 2023 was primarily due to the Company’s strategic focus to improve collateral efficiency, which began in early 2023 before market conditions worsened due to bank failures.

During 2023, growth of time deposits was the primary source of funds and the primary uses were loan growth and net outflows of non-maturity deposits.

At year-end 2023, money market deposits and short-term investments were elevated due to short-term commercial deposit balances held at period-end.

CAPITAL RESOURCES

Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the note on Shareholders' Equity in the consolidated financial statements.

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’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, with a goal of achieving an efficient level and composition of capital.

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 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.

Additional information about capital resources and regulatory capital is contained in the notes to the consolidated financial statements and in Item 1 of this report.

The Company’s goal is to maintain sound capitalization and use capital generation to support organic growth and shareholder distributions in the form of dividends and stock repurchases.

The Company’s goal is to maintain a “well-capitalized” regulatory designation under projected and stressed financial projections.

In recent periods, the Company has returned excess capital to shareholders through stock repurchases.

Additionally, the Company increased the quarterly dividend by 50% in the fourth quarter of 2022.

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

The 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 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 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.

As a result of rising interest rates, available for sale bond portfolios in banks are subject to unrealized losses which result in charges against other comprehensive income (“AOCI”) and reduce the book value of shareholders’ equity.

Like many of its peers, the Company utilizes an option in reporting its regulatory equity which excludes changes in AOCI in the calculation of regulatory capital.

Reductions in bond valuations due to changes in market interest rates are reversed as bonds approach maturity.

These reversals are accreted to AOCI over time, restoring the book value of equity.

Tangible common equity totaled $993 million at period-end and was net of an accumulated other comprehensive loss totaling $143 million.

While the Company monitors the book value of equity and related metrics, it primarily manages capital based on regulatory capital measures, with a focus on the common equity Tier 1 capital ratio.

The Company continues to view itself as having excess capital which it plans to utilize in accordance with its capital management objectives.

During the fourth quarter of 2023, the company sold $267 million of available for sale securities at a $25 million loss, which was recorded as a reduction in accumulated other comprehensive loss and in retained earnings.

This had no impact on the total book value of equity but did reduce regulatory capital.

As of December 31, 2023 unrealized gains and losses, net of tax, are included in average equity and in average non-interest earning assets.

Prior period balances and financial metrics have been updated to reflect the current presentation.

Performance measures related to return on average equity, including related non-GAAP performance measures, are presented both based on the updated averages as well as based on measures which exclude these unrealized gains and losses, net of tax.

These unrealized gains and losses are primarily related to the fair values of available-for-sale securities.

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

Capital distributions from the Bank to the parent company presently require approval by the FDIC.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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Both of these most critical accounting policies were significant in determining income and financial condition based on events in 2023.

Allowance for Credit Losses for Loans

The allowance for credit losses for loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio.

Allowance for Credit Losses on Loans

The allowance for credit losses on loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio.

Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain.

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Fair Value Measurements

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, impaired loans, securities available for sale, and derivatives.

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, individually evaluated loans, securities available for sale, and derivatives.

Our fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and capitalized servicing rights.

Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain individually evaluated loans held for investment and capitalized servicing rights.

These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting or other accounting standards.

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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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Risk management is overseen by the Company’s Chief Risk Officer, who reports directly to the CEO.

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

This position oversees risk management policy, credit, loan review, 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, Capital & Compliance Committee.

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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.

In 2023, price risk remained elevated 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 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 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 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 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

In 2023, the Company completed the transition away from the use of LIBOR based instruments in the context of the industry-wide transition program.

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

These include loan interest rate indices as well as interest rate swap contracts based on LIBOR.

The Company has transitioned to indices based on SOFR.

CORPORATE RESPONSIBILITY & SUSTAINABILITY

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.

Since its founding in 1846, Berkshire remains a purpose-driven and values-guided institution working to achieve its vision of becoming a high-performing, relationship-driven, community-focused bank.

Berkshire empowers the financial potential of its stakeholders by delivering industry-leading financial expertise and a full suite of tailored banking solutions through its consumer banking, commercial banking and wealth management divisions to clients in New England and New York.

For more than 175 years, Berkshire has provided strength, stability and trusted advice to create a positive impact for its clients and communities while upholding equitable, ethical, responsible and sustainable business practices.

Berkshire’s longstanding commitment to operating equitably, responsibly and sustainably is interwoven into the company’s vision, mission, business practices, and strategic goals.

Berkshire’s integrated approach to managing the environmental, social and governance externalities helps reduce 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.

Oversight and Reporting

The management of material environmental, social and governance factors is integral to Berkshire’s business practices, risk management program, competitive positioning and its ability to deliver on its strategic priorities and vision.

Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee corporate culture, diversity and sustainability and are a leader among community banks in integrating these practices into its business strategy and operations.

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

• Board level oversight of Company Culture, Sustainability, Social Responsibility, Climate Change, and Diversity

• Corporate Responsibility & Culture Committee of its Board of Directors

• Environmental, Social and Governance (ESG) Committee

• Diversity Equity & Inclusion (DEI) Committee

• Responsible & Sustainable Business Policy

• Climate Risk Management Program

• Lending, credit, deposit and investment policies which incorporate environmental and social considerations along with due diligence requirements

• Active involvement from business unit leaders and front lines in managing externalities and risks

• Senior leadership for corporate responsibility and sustainability

The Board of Directors including its Corporate Responsibility & Culture Committee ("CRCC") has ultimate oversight responsibility for environmental, social and governance matters.

The CRCC meets quarterly to review performance and approve relevant policies.

In addition, the company established management Committees comprised of executives and senior leaders throughout the organization to assist in the management and oversight of ESG and DEI activities.

Berkshire’s comprehensive approach ensures that the board receives regular reports from management on environmental and social dimensions of its business such as human capital management, diversity, stakeholder relations, climate change, community impact, and cybersecurity.

It allows the board to develop a sufficient understanding of the Company’s impacts, management’s programs to mitigate those risks and capture

opportunities.

It helps inform strategic planning, create accountability and, along with management committees and senior leaders, provides visibility throughout the organization.

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

Additionally, Berkshire’s annual Corporate Responsibility & Sustainability 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 programs and performance.

BEST Community Comeback

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financial access and empowerment;

and funding environmental sustainability.

and 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.

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.

As of year-end and since launching the program, Berkshire has deployed more than $2.5 billion into low-moderate income neighborhoods, $591 million to support low-carbon projects, increased its lending to underrepresented homebuyers and transitioned its own electricity supply to 100% renewables.

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.

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

In 2023, Berkshire allocated the proceeds from its inaugural sustainability bond to projects resulting in the creation of 330 units of affordable and workforce housing along with more than 200,000 square feet of green building development.

Proceeds from the bond were allocated in alignment with Berkshire's Sustainable Financing Framework.

Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, independently verified that Berkshire's Sustainable Financing Framework "is credible and impactful and aligns with the International Capital Market Association's ("ICMA") Sustainability Bond Guidelines 2021, Green Bond Principles 2021 and Social Bond Principles 2021." The subordinated Sustainability Bond issuance also received an investment grade rating of Baa3 from Moody's Investors Service.

Berkshire's Sustainability Bond Report further details how proceeds were allocated to support affordable housing, workforce housing, green building and financial access and inclusion projects in communities across New England and New York.

Beyond its sustainability bond, Berkshire looks for innovative ways to advance its 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.

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 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 Company continues to evolve its practices to align with its mission, current and expected regulations as well as the size, scope, and complexity of its operations.

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.

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.

In turn, this could lead to operational disruptions, loan losses and an inability to fully recoup funds due to uncertain residual values over long-term horizons.

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.

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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.

Over the long-term, transition risks could also manifest in potential credit impacts affecting borrowers’ ability to repay obligations, increasing operating costs, creating stranded assets, uncertainty of residual values and potential loan losses.

Collectively these physical and transition risks are managed through a formal Climate Risk Management Program which outlines roles and responsibilities for the board, management and all employees, definitions, along with procedures for identifying, measuring and assessing climate risk.

The program also lays out Berkshire’s system of controls which include governance mechanisms, formal policies, due diligence and insurance requirements, exclusionary criteria, business continuity planning, external relations, and employee education.

Finally, the program sets expectations for responses to risk events or elevated risk levels, reporting and external disclosure.

Ultimately the program helps identify, assess, mitigate and control climate risks protecting the Company, its stakeholders, communities and preserving shareholder value.

The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight of 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 & 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.

Business lines identify base-tier climate risks and Berkshire also completes an annual climate change risk assessment to assess the bank’s operations and lending activities for potential exposure to transition and physical risks as well as evaluate its related controls.

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.

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

As the Company moves further along in its climate journey, it will look to enhance its disclosures, including scope 3 emissions, 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 governance, risk management, strategy, metrics & targets and next steps can be found in its most recent Corporate Responsibility & Sustainability 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:

Berkshire is proud to be recognized for its performance with local, regional, national, and international awards as well as leading third party ESG ratings* including:

• Top 20% aggregated ESG rating, achieving one of five major BEST goals

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• 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

• America’s Best Regional Banks - Newsweek

• Forbes America’s Best Midsize Employers

• Bloomberg Gender-Equality Index

• Human Rights Campaign Corporate Equality Index Best Place to Work for LGBTQ+ equality- 100% Score

• Human Rights Campaign Corporate Equality Index

*As of December 31, 2023

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis