Beacon Financial Corp 10-K

ITEM 1. BUSINESS FORWARD-LOOKING STATEMENTS Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment and inflation, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission, including the Risk Factors in Item 1A of this report. Because of these and other uncertainties, Berkshire’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire’s past results of operations do not necessarily indicate Berkshire’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Berkshire is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Berkshire qualifies all of its forward-looking statements by these cautionary statements. GENERAL Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is headquartered in Boston, Massachusetts. Berkshire is a Delaware corporation and the holding company for Berkshire Bank (“the Bank”). The Bank provides Commercial Banking, Retail Banking, Consumer Lending, Private Banking and Wealth Management services. At year-end 2023, the Bank had $12.4 billion in assets and 96 full-service financial centers in its New England and New York footprint. FILINGS Information regarding the Company is available through the Investor Relations tab at berkshirebank.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge at sec.gov and, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission, at berkshirebank.com under the Investor Relations tab. Information on the website is not incorporated by reference and is not a part of this annual report on Form 10-K. COMPETITION The Company is subject to strong competition from banks and other financial institutions and financial service providers. Its competition includes national and super-regional banks. Non-bank competitors include credit unions, brokerage firms, insurance providers, financial planners, and the mutual fund industry. New technology is reshaping customer interaction with financial service providers and the increase of internet-accessible financial institutions increases competition for the Company’s customers. The Company generally competes on the basis of customer service, relationship management, and the fair pricing of its products. The location and convenience of branch offices is also a significant competitive factor, particularly regarding new offices. The Company is pursuing a “banker heavy, branch light” model in newer markets, and uses its mobile MyBanker teams which provide personalized service to customers with committed relationships. Due to recent mergers of in-market bank competitors, the Company is pursuing opportunities to expand its market share and talent recruitment. The Company seeks to differentiate itself with its Digitouch SM approach to personal service and user-friendly technology, as well as its commitment to corporate responsibility. The Company recently introduced its new brand theme of “Where You Bank Matters” to highlight these differentiating factors. 4 Table of Contents LENDING ACTIVITIES General. The Bank originates loans in the basic portfolio categories discussed below. Lending activities are limited by federal and state laws and regulations. Loan interest rates and other key loan terms are affected principally by the Bank’s credit policy, asset/liability strategy, loan demand, competition, and the supply of money available for lending purposes. These factors, in turn, are affected by general and economic conditions, monetary policies of the federal government, including the Federal Reserve, legislative tax policies, and governmental budgetary matters. Most of the Bank’s loans held for investment are made in its market areas and are secured by real estate located in its market areas. Lending is therefore affected by activity in these real estate markets. The Bank monitors and manages the amount of long-term fixed-rate lending volume. Adjustable-rate loan products generally reduce interest rate risk but may produce higher loan losses in the event of sustained rate increases. The Bank generally originates loans for investment except for residential mortgages, which are sometimes originated for sale on a servicing released basis. Additionally, the Bank also originates Small Business Administration ("SBA") 7A loans for sale to investors. The Bank also conducts loan participations generally with other banks doing business in its markets, including selected national banks. Loan Portfolio Analysis. The following table sets forth the year-end composition of the Bank’s loan portfolio in dollar amounts and as a percentage of the portfolio at the dates indicated. Further information about the composition of the loan portfolio is contained in Note 6 – Loans of the Consolidated Financial Statements. Item 1 – Table 1 – – Loan Portfolio Analysis 2023 2022 2021 (In millions) Amount Percent of Total Amount Percent of Total Amount Percent of Total Loans: Construction $ 640 7.1 % $ 320 3.9 % $ 324 4.7 % Commercial multifamily 599 6.6 620 7.5 516 7.6 Commercial real estate owner occupied 629 7.0 641 7.7 607 8.9 Commercial real estate non-owner occupied 2,607 28.8 2,496 29.9 2,157 31.6 Commercial and industrial 1,359 15.1 1,445 17.3 1,285 18.8 Residential real estate 2,760 30.5 2,312 27.7 1,489 21.8 Home equity 224 2.5 227 2.7 252 3.7 Consumer other 221 2.4 274 3.3 196 2.9 Total $ 9,039 100.0 % $ 8,335 100.0 % $ 6,826 100.0 % Allowance for credit losses (105) (96) (106) Net loans $ 8,934 $ 8,239 $ 6,720 There is further information about the above components of the loan portfolio, and the risk characteristics relevant to each portfolio segment, in the “Loans and Related Allowance for Credit Losses” footnote to the financial statements referenced in Item 8 of this report. There is also information about the loan portfolio and changes in the portfolio during 2023 in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this report. There is reference made to Commercial and Retail Loans, as well as to Commercial Real Estate loans. Commercial Real Estate loans include Construction, Commercial Multi-Family, Commercial Real Estate Owner Occupied, and Commercial Real Estate Non-Owner Occupied. Commercial loans include Commercial Real Estate loans and Commercial and Industrial Loans. Retail loans include Residential Real Estate loans and Consumer loans, which are comprised of Home Equity loans and Consumer other loans. 5 Table of Contents Commercial Real Estate. The Bank originates commercial real estate loans on properties used for business purposes such as retail, multifamily, office, healthcare, hospitality, industrial, and manufacturing facilities. Commercial real estate loans are provided on owner-occupied properties and on investor-owned properties and also include construction loans. Loans may generally be made with amortizations of up to 30 years and with final maturities of 10 years or less. As part of its business activities, the Bank also enters into commercial loan participations and interest rate swaps. Commercial real estate is generally managed within federal regulatory monitoring guidelines of 300% of capital, with construction loans within 100% of capital, as defined in the guidance. Total supervisory commercial real estate loans measured 287% of regulatory capital at year-end 2023 and construction real estate loans measured 43% of regulatory capital as defined in accordance with regulatory monitory guidelines. The Bank has hold limits for numerous categories of commercial lending including healthcare, hospitality, retail, and construction. Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk than the overall credit portfolio. Because repayment is often dependent on the successful operation or management of the properties, repayment of commercial real estate loans may be affected by adverse conditions in the real estate market or the economy. The Bank seeks to manage these risks through its underwriting disciplines and portfolio management processes. The Bank generally requires that borrowers have debt service coverage ratios (the ratio of available cash flows before debt service to debt service) of at least 1.25 times based on stabilized cash flows of leases in place, with some exceptions for national credit tenants. For adjustable rate loans, the Bank’s underwriting stresses debt service coverage to interest rate shocks of 400 basis points or higher based on a minimum of 1.0 times coverage and it uses loan maturities to manage risk based on the lease base and interest sensitivity. Loans at origination may be made up to 80% of appraised value based on property type and risk, with sublimits of 75% or less for designated industry types. Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals. The economic environment in 2023 was affected by higher interest rates as a result of federal monetary policy. An environment of higher interest rates can affect overall property values and operating debt service coverage across the spectrum of commercial real estate. Additionally, there have been changes in supply and demand factors in commercial real estate following the pandemic. Most prominently, metropolitan office properties have reported higher vacancy rates in many markets across the nation due to the shift towards work from home, with lower demand for office space in some markets. Loans that are scheduled to mature in the near term are being reviewed closely for risk to repayment or renewal. The Company has a diversified commercial real estate portfolio primarily located in suburban markets in its footprint. As discussed in Item 7, the performance of the loan portfolio in 2023 generally improved and was well within the historic range at December 31, 2023. At year-end 2023, commercial real estate loans which were modified and experiencing financial difficulty were 0.33% of total commercial real estate loans. Loans rated substandard were 1.94% of commercial real estate loans, compared to 1.67% at year-end 2022. At year-end 2023, the largest components of the commercial real estate portfolio (over 5% of the portfolio and excluding construction) were retail trade (21%), multifamily (13%), office (11%), healthcare (9%), and hospitality (8%). The largest category, retail trade, was primarily comprised of properties anchored by strong grocery and big box tenants in suburban areas – with no significant tenant concentrations, and negligible indoor mall exposure. The $493 million office portfolio was approximately 66% composed of Class A properties and approximately 68% of the office portfolio was maturing after 2025. Boston properties were 13% of the office portfolio, with no high-rise office buildings. There were no charge-offs of office loans in 2023, and nonaccrual office loans were 0.7% of total office loans at December 31, 2023. Construction loans consisted primarily of multifamily (approximately 39%) and healthcare approximately (17%). The Bank offers interest rate swaps to certain larger commercial mortgage borrowers. These swaps allow the Bank to originate a mortgage based on a floating rate of interest and allow the borrower to swap into a fixed rate. The Bank then concurrently enters into offsetting positions with third-party financial institutions. The Bank may record fee income associated with offering the interest rate swaps to its borrowers. The Bank originates construction loans to developers and commercial borrowers in its footprint. The maximum loan to value limits for construction loans follow Federal Deposit Insurance Corporation ("FDIC") supervisory limits, up to a maximum of 85 percent. The Bank commits to provide the permanent mortgage financing on most of its 6 Table of Contents construction loans on income-producing property. Advances on construction loans are made in accordance with a schedule reflecting the cost of the improvements. Construction loans include land acquisition loans up to a maximum 50 percent loan to value on raw land. Construction loans may have greater credit risk due to the dependence on completion of construction and other real estate improvements, as well as the sale or rental of the improved property. The Bank generally mitigates these risks with presale or preleasing requirements and phasing of construction. Commercial and Industrial Loans ("C&I"). C&I loans are mostly managed through the Bank’s commercial middle market banking organization, as well as its Asset Based Lending Group, its Small Business Banking Group, and 44 Business Capital. The Bank offers secured commercial term loans with repayment terms which are normally limited to the expected useful life of the asset being financed, and generally not exceeding ten years. The Bank also offers revolving loans, lines of credit, letters of credit, time notes and SBA guaranteed loans. Business lines of credit have interest rates that adjust, and are generally subject to annual review and renewal. Commercial and industrial loans are generally secured by a variety of collateral such as accounts receivable, inventory and equipment, and are generally supported by personal guarantees. Loan-to-value ratios depend on the collateral type and generally do not exceed 80 percent of orderly liquidation value or net book value as reported on the borrower’s financial statements. Some commercial loans may also be secured by liens on real estate. The Bank generally does not make unsecured commercial loans. Commercial and industrial loans are of higher risk and are made primarily on the basis of the borrower’s ability to make repayment from the cash flows of its business. Further, any collateral securing such loans may depreciate over time, may be difficult to monitor and appraise and may fluctuate in value. The Bank gives additional consideration to the borrower’s credit history and the guarantor’s capacity to help mitigate these risks. Additionally, the Bank uses loan structures including shorter terms, amortizations, and advance rate limitations to additionally mitigate credit risk. Credit enhancements in the form of additional collateral or guarantees are normally considered for start-up businesses without a qualifying cash flow history. The Company considers commercial and industrial loans, together with its owner-occupied commercial real estate loans, as constituting the primary relationship based component of its commercial lending activities. Commercial and industrial loans are commonly structured as variable rate loans, and are accordingly impacted by the recent environment of rising interest rates. The Asset Based Lending Group serves the commercial middle market in New England, as well as the Bank’s market in northeastern New York and in the Mid-Atlantic. The group expands the Bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets to manufacturers, distributors and select service companies experiencing seasonal working capital needs, rapid sales growth, a turnaround, buyout or recapitalization with credit needs generally ranging from $2 million to $25 million. Asset based lending involves monitoring loan collateral so that outstanding balances are properly margined by business asset collateral, which reduces the risks associated with these loans. Small Business Banking Group handles most business relationships which are smaller than the middle market category. Additionally, some smaller business needs are handled through the Bank’s retail branch system. Berkshire Bank also owns Firestone Financial LLC. ("Firestone"), which originated loans secured by business-essential equipment throughout the U.S. Key customer segments included the fitness, carnival, gaming, and entertainment industries. The origination of loans by Firestone was terminated in mid-2022 and the remaining portfolio totaled $77 million at December 31, 2023. 44 Business Capital is a dedicated SBA 7A program lending team based in the Philadelphia area. This team originates loans in the Northeast, Mid-Atlantic and nationally. 44 Business Capital also works with business banking and small business teams to provide SBA guaranteed loans to Business Banking Customers in Berkshire’s footprint. This team generally sells the guaranteed portions of these loans with servicing retained and the Bank retains the unguaranteed portions of the loans in its C&I loan portfolio. The unguaranteed loan balances are participated pari-passu with the SBA and are generally collateralized and supported by recourse to business principals. The Bank is a preferred SBA lender and closely manages the servicing portfolio pursuant to SBA requirements. This team is the Bank’s largest source of commercial lending fee revenue. 44 Business Capital is one of the top 20 bank originators of SBA 7A loans in the U.S. 7 Table of Contents Residential Mortgages. Through its mortgage banking operations, the Bank offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments. The majority of loans have been originated for investment, although the Bank targets more held for sale originations in the future. The majority of mortgages originated in 2022 were jumbo mortgages exceeding the maximum amounts according to U.S. government sponsored enterprise guidelines and were viewed as generally consistent with secondary market guidelines for these loans. The Bank does not offer subprime mortgage lending programs. The Bank buys and sells seasoned mortgages primarily with smaller financial institutions operating in its markets. Mortgage loan originations often include rate lock features intended to cover normal processing times. These rate locks introduce price risk into the Company’s operations and cause mortgage origination yields to lag market interest rates. The Bank does not offer interest-only or negative amortization mortgage loans. Adjustable rate mortgage loan interest rates may rise as interest rates rise, thereby increasing the potential for default. The Bank also originates construction loans which generally provide 15-month construction periods followed by a permanent mortgage loan, and follow the Bank’s normal mortgage underwriting guidelines. Mortgage banking also requires flexible and scalable operations due to the volatility of mortgage demand over time. Investor management is integral to maintaining the secondary market support that is a component for these operations. Consumer Loans. The Bank’s consumer loans are centrally underwritten and processed by its experienced consumer lending team. The Bank engages in prime home equity lending, following its conforming mortgage underwriting guidelines with more streamlined verifications and documentation. Most of these outstanding loans are prime based home equity lines with a maximum combined loan-to-value of 85 percent. Home equity line credit risks include the risk that higher interest rates will affect repayment and possible compression of collateral coverage on second lien home equity lines. The Company exited its prime indirect auto originations business in 2019 and has a remaining portfolio in runoff. In late 2021, the Company expanded its consumer lending in its markets through a third party relationship with financial technology company Upstart which originates unsecured consumer loans through the internet using artificial intelligence technology in combination with the Bank’s underwriting criteria. The Bank suspended originating loans through this partnership in mid-2022 and the remaining portfolio totaled $90 million at December 31, 2023. 8 Table of Contents Maturity and Sensitivity of Loan Portfolio. The following table shows contractual final maturities of loans at year-end 2023. The contractual maturities do not reflect premiums, discounts, deferred costs, or prepayments. Item 1 - Table 2A - Loan Contractual Maturity - Scheduled loan amortizations are not included in the maturities presented. Contractual Maturity One Year One to Five to More Than (In thousands) or Less Five Years Fifteen Years Fifteen Years Total Loans: Construction $ 979 $ 471,837 $ 155,573 $ 11,982 $ 640,371 Commercial multifamily 564 184,183 412,290 2,108 599,145 Commercial real estate owner occupied 2,741 169,940 369,367 86,598 628,646 Commercial real estate non-owner occupied 34,626 1,336,589 1,193,906 41,288 2,606,409 Commercial and industrial 89,765 935,592 318,503 15,389 1,359,249 Residential real estate 237 24,570 205,675 2,529,830 2,760,312 Home equity 69 1,017 54,277 168,860 224,223 Consumer other 805 128,844 74,985 16,697 221,331 Total $ 129,786 $ 3,252,572 $ 2,784,576 $ 2,872,752 $ 9,039,686 Item 1 - Table 2B - Total loans due after one year as of December 31, 2023 - fixed and variable interest rates (In thousands) Fixed Interest Rate Variable Interest Rate Total Loans: Construction $ 187,736 $ 451,656 $ 639,392 Commercial multifamily 129,014 469,567 598,581 Commercial real estate owner occupied 230,994 394,911 625,905 Commercial real estate non-owner occupied 1,070,743 1,501,040 2,571,783 Commercial and industrial 393,534 875,950 1,269,484 Residential real estate 1,813,349 946,726 2,760,075 Home equity 3,421 220,733 224,154 Consumer other 214,207 6,319 220,526 Total $ 4,042,998 $ 4,866,902 $ 8,909,900 Loan Administration. Lending activities are governed by a loan policy approved by the Board’s Risk Management, Capital, and Compliance Committee. Internal staff perform and monitor post-closing loan documentation review, quality control, and commercial loan administration. The lending staff assigns a risk rating to all commercial loans, excluding point scored small business loans. Management primarily relies on internal risk management staff to review the risk ratings of the majority of commercial loan balances. The Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by the Risk Management, Capital and Compliance Committee and Management, under the leadership of the Chief Risk Officer. The Bank’s loan underwriting is based on a review of certain factors including risk ratings, repayment capacity, recourse, loan-to-value ratios, and material policy exceptions. The Risk Management, Capital and Compliance Committee has established individual and combined loan limits and lending approval authorities. Management’s Executive Loan Committee is responsible for commercial loan approvals in accordance with these standards and procedures. Generally, pass rated secured commercial loans can be approved jointly up to $7 million by the business line Managing Director and Credit Director. Loans up to $12.5 million can be approved with the additional signature of the Chief Credit Officer. Loans in excess of this amount, and designated lower rated loans are approved by the Executive Loan Committee. The Bank tracks loan underwriting exceptions and exception reports are actively monitored by executive lending management. 9 Table of Contents In 2023, the Company's administrative monitoring of the commercial real estate portfolio, the largest segment of the loan portfolio, reflects its risk based focus. It reviewed the larger exposures of all commercial real estate loans maturing in the next five years, including reviewing debt service coverage. It has expanded its monitoring of portfolio-level lease expirations and continued its review of trends in commercial real estate appraisals. The monitoring of lease expirations was increased and the review of trends in commercial real estate appraisals was expanded. The Company is reviewing trends in large loan originations and increasing its monitoring of portfolio components and trends, with a focus on office loans and multifamily. Trends in lease maturities and renewals are updated periodically. Upcoming loan maturities and larger variable and adjustable rate loans are being monitored. The Bank’s lending activities are conducted by its salaried and commissioned loan personnel. Designated salaried branch staff originate conforming residential mortgages and receive bonuses based on overall performance. Additionally, the Bank employs commissioned residential mortgage originators. Commercial lenders receive salaries and are eligible for bonuses based on individual and overall performance. The Bank purchases whole loans and participations in loans from banks headquartered in its market and from outside of its market. These loans are underwritten according to the Bank’s underwriting criteria and procedures and are generally serviced by the originating lender under terms of the applicable agreement. The Bank routinely sells newly originated, fixed-rate residential mortgages in the secondary market. Customer rate locks are offered without charge and rate locked applications are generally committed for forward sale or hedged with derivative financial instruments to minimize interest rate risk pending delivery of the loans to the investors. The Bank also sells interest rate derivatives to larger commercial borrowers desiring to fix their interest rates through interest rate swaps, and includes these derivatives in its underwriting and administrative procedures. The Bank also sells residential mortgages and commercial loan participations on a non-recourse basis. The Bank issues loan commitments to its prospective borrowers conditioned on the occurrence of certain events. Loan origination commitments are made in writing on specified terms and conditions and are generally honored for up to 60 days from approval and may be honored for up to six months; some commercial commitments are made for longer terms. The Company also monitors pipelines of loan applications and has processes for issuing letters of interest for commercial loans and pre-approvals for residential mortgages, all of which are generally conditional on completion of underwriting prior to the issuance of formal commitments. The loan policy sets certain limits on concentrations of credit and requires periodic reporting of concentrations to the Risk Management, Capital and Compliance Committee. The Bank has heightened monitoring of its 25 largest borrower relationships. Commercial real estate is generally managed within federal regulatory monitoring guidelines of 300% of risk based capital for non-owner occupied commercial real estate and 100% for construction loans. The Bank has hold limits for numerous categories of commercial specialty lending including healthcare, hospitality, designated franchises, and leasing, as well as hold limits for designated commercial loan participations purchased. In most cases, these limits are below 100% of risk based capital for all outstanding loans in each monitored category. Problem Assets. The Bank prefers to work with borrowers to resolve problems rather than proceeding to foreclosure. For commercial loans, this may result in a period of forbearance or restructuring of the loan, which is normally done at current market terms and does not result in a “troubled” loan designation. For residential mortgage loans, the Bank generally follows FDIC guidelines to attempt a restructuring that will enable owner-occupants to remain in their home. However, if these processes fail to result in a performing loan, then the Bank generally will initiate foreclosure or other proceedings no later than the 90th day of a delinquency, as necessary, to minimize any potential loss. Management reports delinquent loans and non-performing assets to the Board quarterly. Loans are generally removed from accruing status when they reach 90 days delinquent, except for certain loans which are well secured and in the process of collection. The Company’s ongoing quarterly process of reviewing larger criticized loans evaluates risk ratings and accrual status based on updated information about loan performance and related risk management issues at the loan level. Loan collections are managed by a combination of the related business units and the Bank’s special assets group, which focuses on larger, riskier collections and the recovery of purchased credit deteriorated loans. Real estate obtained by the Bank as a result of loan collections, including foreclosures, is classified as real estate owned until sold. When property is acquired it is recorded at fair market value less estimated selling costs at the date of foreclosure, establishing a new cost basis. Holding costs and decreases in fair value after acquisition are expensed. 10 Table of Contents Asset Classification and Delinquencies. The Bank performs an internal analysis of its commercial loan portfolio and assets to classify such loans and assets in a manner similar to that employed by federal banking regulators. There are four classifications for loans with higher than normal risk: Loss, Doubtful, Substandard, and Special Mention. Usually an asset classified as Loss is fully charged-off. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values questionable, and there is a high possibility of loss. Special mention are assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses. Please see the additional discussion of nonaccruing and potential problem loans in Item 7 and additional information in notes to the financial statements. Allowance for Credit Losses on Loans. The Bank’s loan portfolio is regularly reviewed by management to evaluate the adequacy of the allowance for credit losses on loans. Management makes estimates of future economic conditions over the life of the loan portfolio and other future conditions and arrives at a reasonable estimate of expected loan losses. Different banks may use different estimates and arrive at different expectations, and therefore, comparisons between banks may be difficult. The accounting is based on future projections and our estimates may change significantly from period to period, and accordingly, the amounts of the allowance and provision may vary between periods. Further information about the allowance is discussed further in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements. Management believes that it uses the best information available to establish the allowance. However, future adjustments to the allowance for credit losses on loans may be necessary, and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making its determinations. There can be no assurance that the existing allowance for credit losses is adequate or that increases will not be necessary should the quality of any loan or loan portfolio category deteriorate. Regulatory agencies may require the Bank to make additional provisions for credit losses based upon judgments different from those of management. Any material increase in the allowance may adversely affect the Bank’s financial condition and results of operations. Item 1 - Table 3 - Credit Quality Ratios 2023 2022 2021 Ratios: Allowance for credit losses on loans/total loans 1.17 % 1.15 % 1.55 % Nonaccrual loans/total loans 0.24 % 0.37 % 0.52 % Allowance for credit losses/nonaccruing loans 492.47 % 309.41 % 300.33 % Net charge-offs/average loans 0.26 % 0.27 % 0.29 % Item 1 - Table 3.a - Net charge-offs to average loans for each loan category 2023 2022 2021 Net charge-offs to average loans: Construction — % — % — % Commercial multifamily — — — Commercial real estate owner occupied (0.01) — 0.02 Commercial real estate non-owner occupied — 0.06 0.17 Commercial and industrial 0.17 0.20 0.09 Residential real estate — (0.01) — Home equity — — — Consumer other 0.10 0.02 0.01 11 Table of Contents The following tables present year-end data for the approximate allocation of the allowance for credit losses on loans by loan categories at the dates indicated (including an apportionment of any unallocated amount). The first table shows for each category the amount of the allowance allocated to that category as a percentage of the outstanding loans in that category. The second table shows the allocated allowance together with the percentage of loans in each category to total loans. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance to each category is not indicative of future losses and does not restrict the use of any of the allowance to absorb losses in any category. Item 1 - Table 4A - Allocation of Allowance for Credit Losses on Loans by Category (as of year-end) 2023 2022 2021 (Dollars in thousands) Amount Allocated Percent Allocated to Total Loans in Each Category Amount Allocated Percent Allocated to Total Loans in Each Category Amount Allocated Percent Allocated to Total Loans in Each Category Construction $ 2,885 0.5 % $ 1,227 0.4 % $ 3,206 1.0 % Commercial multifamily 2,475 0.4 1,810 0.3 6,120 1.2 Commercial real estate owner occupied 9,443 1.5 10,739 1.7 12,752 2.1 Commercial real estate non-owner occupied 38,221 1.5 30,724 1.2 32,106 1.5 Commercial and industrial 18,602 1.4 18,743 1.3 22,584 1.8 Residential real estate 19,622 0.7 18,666 0.8 22,734 1.5 Home equity 2,015 0.9 2,173 1.0 4,006 1.6 Consumer other 12,094 5.5 12,188 4.5 2,586 1.3 Total $ 105,357 1.2 % $ 96,270 1.2 % $ 106,094 1.6 % Item 1 - Table 4B - Allocation of Allowance for Credit Losses on Loans (as of year-end) 2023 2022 2021 (Dollars in thousands) Amount Allocated Percent of Loans in Each Category to Total Loans Amount Allocated Percent of Loans in Each Category to Total Loans Amount Allocated Percent of Loans in Each Category to Total Loans Construction $ 2,885 7.1 % $ 1,227 3.8 % $ 3,206 4.8 % Commercial multifamily 2,475 6.6 1,810 7.4 6,120 7.5 Commercial real estate owner occupied 9,443 7.0 10,739 7.7 12,752 8.9 Commercial real estate non-owner occupied 38,221 28.8 30,724 30.0 32,106 31.6 Commercial and industrial 18,602 15.0 18,743 17.4 22,584 18.8 Residential real estate 19,622 30.5 18,666 27.7 22,734 21.8 Home equity 2,015 2.5 2,173 2.7 4,006 3.7 Consumer other 12,094 2.5 12,188 3.3 2,586 2.9 Total $ 105,357 100.0 % $ 96,270 100.0 % $ 106,094 100.0 % 12 Table of Contents INVESTMENT SECURITIES ACTIVITIES The securities portfolio provides a source of liquidity, income and interest rate risk management. Decisions are made in accordance with the Company’s investment policy which is reviewed and approved by the Board and includes consideration of risk, return, duration, and portfolio concentrations. The Company has historically maintained a high-quality portfolio of managed duration residential and commercial mortgage-backed securities, together with a portfolio of state and municipal bonds and obligations of national and local issuers. All of the mortgage-backed securities are issued by Fannie Mae, Ginnie Mae, or Freddie Mac. The Company generally designates debt securities as available for sale, but sometimes designates securities as held to maturity based on its intent. The Company periodically invests in corporate bonds, investment grade and non-rated fixed-income capital instruments issued by local and regional financial institutions, and funds financing community reinvestment projects. Due to elevated market interest rates, the net fair value of the investment securities portfolio was below amortized costs at year-end 2023. Please see Note 4 – Securities in the financial statement for more information. The Company’s ability and intent to hold the portfolio at year-end 2023 was consistent with its liquidity and capital resources as discussed in Item 7 of this report. The following table summarizes year-end 2023 amortized cost, weighted average yields, and contractual maturities of debt securities. Yields are shown on a fully taxable-equivalent basis and are based on amortized cost. A proportion of the mortgage-backed securities are planned amortization class bonds. The contractual maturities of mortgage-backed securities shown below reflect the maturities of the underlying mortgage collateral based on final maturities and do not include scheduled amortization. Yields include amortization and accretion of premiums and discounts. Item 1 - Table 5 - Weighted Average Yield One Year or Less More than One Year to Five Years More than Five Years to Ten Years More than Ten Years Total (In millions) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Municipal bonds and obligations $ 0.7 6.5 % $ 6.9 4.3 % $ 53.6 4.8 % $ 254.6 4.0 % $ 315.8 4.2 % Mortgage-backed securities — — % 18.3 2.2 % 94.1 2.1 % 1,272.6 1.6 % 1,385.0 1.7 % Other bonds and obligations 8.0 1.0 % 6.1 8.6 % 38.2 4.3 % 1.5 5.0 % 53.8 4.3 % Total $ 8.7 1.4 % $ 31.3 3.9 % $ 185.9 3.3 % $ 1,528.7 2.0 % $ 1,754.6 2.2 % 13 Table of Contents DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS Deposits are the major source of funds for the Bank’s lending and investment activities. The Bank serves personal, commercial, non-profit, and municipal deposit customers. The Bank offers a wide variety of deposit accounts with a range of interest rates and terms. The Bank may also periodically offer promotional interest rates and terms for limited periods of time. The Bank’s deposit accounts consist of demand deposits (non-interest-bearing checking), NOW (interest-bearing checking), regular savings, money market savings, and time certificates of deposit. Additionally, the Bank offers a variety of retirement deposit accounts to personal and business customers. The Bank emphasizes its transaction deposits – checking and NOW accounts – for personal accounts and checking accounts promoted to businesses. These accounts have the lowest marginal cost to the Bank and are also often a core account for a customer relationship. The Bank offers a courtesy overdraft program to improve customer service, and also provides debit cards and other electronic fee producing payment services to transaction account customers. The Bank offers targeted online and mobile deposit account opening capabilities for personal accounts. The Bank promotes remote deposit capture devices so that commercial accounts can make deposits from their place of business. Deposit related fees include overdraft fees, interchange fees related to debit card usage, service charges, and other miscellaneous transactions and convenience services sold to customers through the branch system as part of an overall service relationship. The Bank offers compensating balance arrangements for larger business customers as an alternative to fees charged for checking account services. In addition to providing service through its branches, Berkshire provides services to deposit customers through its private bankers, MyBankers, commercial/small business relationship managers, and call center representatives. Commercial cash management services are an important commercial service offered to commercial and governmental depositors and a fee income source to the bank. The Bank also operates a commercial payment processing business that serves regional and national payroll service bureau customers. These payroll deposits often fluctuate daily by hundreds of millions of dollars depending on payroll cycles. Online banking and mobile banking functionality is increasingly important as a component of deposit account access and service delivery. The Bank has partnered with a third party fintech company to provide enhanced online deposit account opening services and new online and mobile banking platform developed in partnership with this provider as an important milestone in its Digitouch SM strategy. The Company also is monitoring the development of payment services which are growing in their importance in the personal and commercial deposit markets. 14 Table of Contents The following table presents information concerning average balances and weighted average interest rates on the Bank’s interest-bearing deposit accounts for the years indicated. Item 1 - Table 6 - Average Balance and Weighted Average Rates for Deposits 2023 2022 2021 (In millions) Average Balance Percent of Total Average Deposits Weighted Average Rate Average Balance Percent of Total Average Deposits Weighted Average Rate Average Balance Percent of Total Average Deposits Weighted Average Rate Demand $ 2,584.6 27 % — % $ 2,914.9 30 % — % $ 3,008.5 30 % — % NOW and other 1,048.9 11 0.6 1,416.7 14 0.4 976.4 10 0.1 Money market 2,727.3 28 3.4 2,809.1 29 0.5 3,293.5 32 0.2 Savings 1,067.2 11 1.0 1,114.8 11 0.1 1,111.6 11 0.1 Time 2,275.8 23 4.0 1,541.7 16 0.9 1,678.9 17 0.9 Total $ 9,703.8 100 % 2.4 % $ 9,797.2 100 % 0.9 % $ 10,068.9 100 % 0.3 % Estimated uninsured deposits were $4.6 billion and $3.8 billion at December 31, 2023 and 2022, respectively. Estimated uninsured deposits are based on the same methodologies and assumptions used for the Bank's regulatory reporting requirements. Estimated uninsured deposits adjusted to exclude internal accounts and collateralized deposits were $3.7 billion and $3.2 billion at December 31, 2023 and 2022, respectively. At year-end 2023, time deposits in excess of the FDIC insurance limit and estimated time deposits that are otherwise uninsured by maturity were as follows: Item 1 - Table 7 - Maturity of Deposits >$250,000 Maturity Period Time Deposits that Meet or Exceed the FDIC Insurance Limit Estimated Portion of Time Deposits in Excess of the FDIC Insurance Limit Estimated Aggregate Time Deposits in Excess of the FDIC Insurance Limit and Otherwise Uninsured Time Deposits (In thousands) Three months or less $ 278,710 $ 63,112 $ 63,112 Over 3 months through 6 months 195,852 67,987 67,987 Over 6 months through 12 months 147,777 58,407 58,407 Over 12 months 62,825 17,620 17,620 Total $ 685,164 $ 207,126 $ 207,126 The Bank’s deposits are insured by the FDIC. The Bank utilizes brokered certificates of deposits (CDs) to diversify its funding base, augment its interest rate risk management positioning, and to support loan growth. Brokered CDs are sourced through select approved brokers and are managed as a component of the Bank's Liquidity Policy. The Bank also offers brokered reciprocal money market arrangements to provide additional deposit protection to certain large commercial and institutional accounts. These balances are viewed as part of overall relationship balances with regional customers. The Bank is a member of the Federal Home Loan Bank (‘‘FHLB’’) of Boston, which provides a source of funding for member institutions and is a tool to manage liquidity and interest rate risk. The Bank is subject to the rules and requirements of the FHLB, including the requirement to acquire and hold shares of capital stock in the FHLB. The Bank was in compliance with FHLB rules and requirements as of December 31, 2023. The Bank also has access to borrowings from the Federal Reserve Bank of Boston. The Company had $100 million in subordinated notes, a $15 million trust preferred obligation and a $7 million trust preferred obligation outstanding at year-end 2023. The Company’s common stock is listed on the New York Stock Exchange under the ticker “BHLB”. Subject to certain limitations, the Company can also choose to issue common stock, preferred stock, subordinated debt, or senior debt in public stock offerings or private placements. The Company maintains a shelf registration as part of its routine capital management. 15 Table of Contents DERIVATIVE FINANCIAL INSTRUMENTS The Company offers interest rate swaps to commercial loan customers who wish to fix the interest rate on their loans, and concurrently enters into offsetting positions with third-party financial institutions. The Company may also enter into risk participation agreements with other lending institutions for customer related positions. On a limited basis, the Company offers foreign exchange services to customers on both a spot and forward basis. The Company may also use derivative financial instruments to manage its interest rate risk associated with the Company’s loan portfolios and borrowings. All derivative financial instruments eligible for clearing are cleared through the Chicago Mercantile Exchange (“CME”). WEALTH MANAGEMENT SERVICES The Company’s Wealth Management Group provides consultative investment management, trust administration, and financial planning to individuals, businesses, and institutions, with an emphasis on personal investment management. The Wealth Management Group has built a track record over more than a decade with its dedicated in-house investment management team. The Bank also provides a full line of investment products, financial planning, and brokerage services through BerkshireBanc Investment Services utilizing Commonwealth Financial Network as the broker/dealer. The Bank is integrating with its growing private banking and MyBanker teams to further develop wealth management account generation. The Wealth Management Group reported $1.4 billion in total assets under management at year-end 2023. HUMAN CAPITAL MANAGEMENT Berkshire’s people are the driving force behind its progress on its strategic goals, ability to deliver tailored financial solutions for its clients and vision to be a high-performing, relationship-focused, community-driven bank. The Company’s approach to human capital management is grounded in its corporate values, business strategy and focuses on: • Strong oversight and risk management practices • Recruitment • Compensation & Benefits • Training, Development, Engagement & Retention • Health & Wellness OVERSIGHT The Board of Directors has ultimate responsibility for the strategy of the Company. The Compensation Committee of the Board of Directors oversees executive compensation matters and the Corporate Responsibility & Culture committee oversees company culture as well as diversity, equity and inclusion. The full Board also receives an annual briefing on employee engagement. The SEVP, Chief Human Resources & Culture Officer provides management oversight on human capital matters. The Company proactively identifies potential human capital related risks, such as the labor market shortage, skills gap, rising labor and health care costs, and employee retention and designs strategies to mitigate those risks. Strong human capital management is viewed as integral to the Company's ability to meet its strategic objectives, deliver a superior client experience and drive sustainable shareholder returns. RECRUITMENT Berkshire operates in a highly competitive labor market with strong competition for top talent. The Company relies on and continues to recruit employees with the right mix of skills, expertise and experiences. The Company forecasts its hiring needs based on attrition, skills assessments, market conditions, resource availability and strategic objectives. This helps inform corporate strategies to fill current and future open positions. The Company leverages several strategies to support its talent pipeline and talent acquisition activities including formal advertising, postings on targeted career sites, career events, internship placements, affinity group relationships, and the use of experienced external recruiters for key management and specialized positions. Berkshire also maintains a small internal team of talent recruitment professionals. 16 Table of Contents Berkshire maintains a hybrid work model to expand its access to top talent and provide its employees with workplace flexibility. These strategies have proved effective in meeting the demand for talent demonstrated by the Company’s strong track record of attracting high-caliber talent across retail, commercial, private banking, wealth management, business banking, technology and operational areas. In addition, as market disruptions from mergers remain and macroeconomic pressures impact many companies, Berkshire will continue to leverage its differentiated brand and unique market positioning to hire community-focused bankers from its competitors and attract high-performing operational talent from outside the industry. COMPENSATION & BENEFITS A highly competitive labor market along with inflationary and macroeconomic pressures has impacted labor costs for all businesses. Berkshire is not immune to these economic pressures. The Company continually evaluates its compensation strategies and benefits programs, benchmarks to industry and peers and surveys the landscape of best practices to develop compensation and benefits packages that reward performance and retain top talent at all levels of the Company. Against this backdrop, Berkshire raised the minimum starting pay to $17/hour and enhanced its vacation, wellness and bereavement benefits. It also restructured its incentive plans across lines of business to provide opportunities for employees to earn higher compensation and bonuses for strong performance aligned with Berkshire’s financial and non-financial objectives. Berkshire provides comprehensive medical coverage, paid vacation, personal and sick time, paid protective leave for gender-based violence, a 401(k) plan with employer match, long-term disability insurance, and group term life insurance. In addition, Berkshire offers a day care reimbursement program, a dependent care expense account, family and medical leave along with flexible work arrangements, including the ability to work fully remote dependent on the duties of one’s job. All benefits are available to married same-sex or different-sex couples as well as domestic partners. In addition to its compensation and health benefits, Berkshire offers volunteer-time off, a matching-gift program, an employee assistance program, regular performance reviews, professional development and the You FIRST Fund to help employees impacted by personal financial hardships. Nearly 100% (99.6%) of employees are eligible for benefits. TRAINING, DEVELOPMENT, ENGAGEMENT & RETENTION Training and development programs provide employees with the knowledge and skills needed to succeed and have upward career mobility. They are critical components, along with competitive compensation and benefits programs, to having an engaged workforce. Ultimately an engaged workforce drives high levels of productivity and retention which reduces human capital risks, expense, and advances Berkshire’s progress and performance. The Company provides several learning and training programs consistent with one’s job responsibilities, professional goals, and development plans. Employees have regular performance assessments to identify strengths, areas for further growth and career interests. Berkshire continues to reskill and upskill employees from across the Company helping them advance along career paths by taking on expanded responsibilities and roles. The Company offers a mentoring program for high potential employees along with development programs as Berkshire remains committed to providing pathways for its associates to grow and maintains succession plans for key leadership positions. Berkshire encourages its employees to participate in appropriate educational opportunities to expand their professional experience, aid them in their current position or support their self-development to benefit both the employee and Company. As such, the Company offers educational assistance along with access to formal degree and certification programs, including college courses and Center for Financial Training (CFT) programs. Berkshire continues to monitor the progress of its efforts to evaluate the effectiveness of programs and strategies on retention and engagement. A comprehensive annual employee engagement survey is conducted to identify strengths and opportunity areas within the organization. Overall, employees felt there was a strong spirit of teamwork, that Berkshire genuinely cares for its communities, and they have strong relationships with their direct managers. Actions plans are developed for areas identified in the survey that do not meet the Company’s high expectations. Beyond a formal engagement survey, Berkshire provides regular opportunities for managers and employees to ask questions, raise concerns and make suggestions for ways to build a better and stronger company. This includes regular quarterly employee town halls and leadership forums, an employee suggestion program and regional gatherings that provide employees with direct access to Company leaders. 17 Table of Contents Berkshire continues to make progress reducing turnover, which decreased year-over-year. This progress is the direct result of the actions it has taken to improve engagement and combat turnover including: • Launched Company-wide reward and recognition program • Enhanced vacation benefit • Introduced wellness day • Enhanced line of business incentive plans • Established career paths for various job families • Increased starting wage • Offered mentoring program • Developed robust employee communications program • New employee events Collectively these efforts have led to improved retention in each of the last three years, record high employee engagement and being named a Forbes America’s Best Midsize Employers. HEALTH & WELLNESS Berkshire works hard to keep its employees safe, healthy and support their physical, mental and financial wellbeing. It provides its workforce comprehensive programs, benefits and a health and wellness employee resource group. The Company also creates a workplace environment that is accessible and free from occupational hazards. The Company, through its insurance provider, offers a fitness, weight and mind/body reimbursement along with a year-round calendar of various wellness related activities. Since physical and mental health go hand-in-hand with financial health, Berkshire provides access to financial education resources, webinars along with its You FIRST Fund to assist employees experiencing financial hardships. Additionally, Berkshire provides a comprehensive employee assistance program which includes counseling services and resources for those experiencing mental health challenges. To further support the needs of its workforce, employees have access to a wellness day to disconnect, recharge and take care of themselves in whatever way works best for them. The Health & Wellness Employee Resource Group provides yet another channel for employees to participate in regular programming and advocate for health and wellness options that suit their needs and interests. WORKPLACE OF THE FUTURE Berkshire continues to evolve and enhance its human capital management strategies to drive organizational growth in support of strategic priorities while combating risks, such as the labor market shortage, skills gap and rising labor and health costs. The Company expects to maintain its hybrid workplace over the long-term, invest in technology to streamline processes and ensure the workforce structure is aligned with the Company’s forward operating needs. While technology continues to play a bigger role in the future of Berkshire, helping to improve processes and drive efficiencies, people will always be at the core of its ability to deliver expert advisement and tailored solutions to its clients which in turn drives value for its shareholders and communities. The Company remains confident that the Berkshire brand, value proposition and vision will continue to be a differentiator in the market. SELECT HUMAN CAPITAL METRICS † Human Capital* † Total number of FTEs 1340 † Turnover Rate 21% † Retention Rate 79% † Promotion Rate 11% † Minimum Starting Pay $17/hour † Average Tenure (years) 7 years * All metrics reported are as of and for the year-ended December 31, 2023. 18 Table of Contents DIVERSITY, EQUITY & INCLUSION ("DEI") Creating a diverse, accessible, inclusive and equitable workplace is an essential enabler to advancing the Company’s strategic goals, social and environmental commitments and vision. Ultimately Berkshire’s goal is to attract and retain individuals from a wide range of backgrounds, cultures and experiences so that the workforce, executives and board composition reflect the diversity of the communities in which it operates. It also seeks to ensure equity, accessibility, fairness and impartiality in all aspects of the Company’s workplace, banking practices and financial solutions while fostering an inclusive environment where all employees feel valued, respected and empowered. The Company advances those goals through an integrated approach that includes: • Strong oversight and governance practices • Talent management and recruitment • Education and training • Workplace programming • Multicultural community engagement • Equitable product and service development • Supplier diversity The Company has a strong foundation of governance practices to ensure that diversity, equity and inclusion is embedded into Berkshire’s business activities. This includes the Corporate Responsibility & Culture Committee of the Board of Directors which oversees DEI performance. Berkshire’s Diversity, Equity & Inclusion Committee, which reports into the Board committee, provides additional management level oversight to the Company’s programming and performance. The Senior Vice President, Chief Diversity Officer leads and executes the Company’s DEI programming. Berkshire continues working to improve representation within its workplace through recruitment initiatives while enhancing its internal talent pipeline to ensure representation at all levels of the Company. Berkshire identifies opportunities in targeted markets and business lines, develops deeper partnerships with non-profit organizations and affinity groups, advertises positions on specialized career sites, participates in affinity career events and uses internal as well as external recruitment professionals to ensure it receives candidate pools that reflect the rural and urban communities in which it operates. It works to develop and implement strategies aimed at increasing representation at each level of the Company. In addition, the Company regularly reviews the gender and ethnic diversity of its workforce at the employee, manager and executive management level and completes a review of pay and performance measures to ensure that all employees, regardless of gender and ethnicity, in comparable roles are compensated equitably. As a result of Berkshire’s intentional and impactful efforts to date, Berkshire was listed in the Bloomberg Gender Equality Index and Human Rights Campaign’s Corporate Equality Index. † Diversity, Equity & Inclusion* † Percent of workforce comprised of women 66 % † Percent of workforce comprised of ethnic minorities 16 % † Percent of the Board comprised of women 38 % † Percent of the Board comprised of ethnic minorities 31 % † Percent of manager roles (officer+) comprised of women 55 % † Percent of manager roles (officer+) comprised of ethnic minorities 12 % † Percent of executive management roles comprised of women 29 % † Percent of executive management roles comprised of ethnic minorities 14 % *Workforce metrics reported are as of December 31, 2023. Berkshire provides a full suite of diversity, equity & inclusion trainings. The trainings help build understanding and provide employees with knowledge, skills and tactics they can put into practice. All employees complete training annually through a combination of required and elective DEI-themed courses. Berkshire intends to enhance its training program in 2024 to deepen alignment with corporate goals. The training programs help form the basis for more inclusive recruitment, hiring, retention and customer service strategies going forward. In addition, Berkshire offers six Employee Resource Groups ("ERGs"), each playing an integral role for employees and the culture of the company. Every Employee Resource Group provides a safe space for dialogue, education, programming and 19 Table of Contents collective action on topics relevant to their members and the Company. Through the ERGs, employees’ concerns and ideas to strengthen Berkshire’s culture are elevated to members of management and the Diversity, Equity & Inclusion Committee for action, empowering employees to collectively be engines of positive change within the workplace and the broader community. The Company continues to work toward building economic equity in its communities by developing and offering safe, accessible, affordable financial solutions and programs including its MyFreedom Checking account, nationally certified by BankOn for its affordability, and the Futures Fund. The Futures Fund is a special purpose credit program which provides access to a low-interest, low barrier to entry line of credit in collaboration with non-profit partners who provide wrap around technical assistance to minority, LGBTQIA+ and other businesses owned by underrepresented individuals. Since launching the program in 2020, it has deployed nearly $1.7 million to underrepresented business owners. Beyond offering financial solutions and wellness programming, Berkshire also understands that a diverse third-party base is important to achieving its operational goals, supply chain resilience, and vision. As a result, Berkshire works to maintain a third-party base that reflects the communities in which it operates and, to the maximum extent possible, increase the utilization of third parties owned by underrepresented people. Additional information on Berkshire’s Human Capital Management and Diversity, Equity & Inclusion practices can be found in the Company’s annual Corporate Responsibility & Sustainability Report, which details the company's environmental, social and governance programs. SUBSIDIARY ACTIVITIES The Company wholly-owns Berkshire Bank. The Bank operates as a commercial bank under a Massachusetts trust company charter. Berkshire Bank owns Firestone Financial, LLC which is a Massachusetts limited liability company, as well as consolidated subsidiaries operated as Massachusetts securities corporations and other subsidiary entities. The Company also owns all of the common stock of Delaware statutory business trusts, Berkshire Hills Capital Trust I and SI Capital Trust II. The capital trusts are unconsolidated and their only material assets are trust preferred securities related to the junior subordinated debentures reported in the Company’s Consolidated Financial Statements. Additional information about the subsidiaries is contained in Exhibit 21 to this report. REGULATION AND SUPERVISION The Company is a Delaware corporation and a bank holding company that has elected financial holding company status within the meaning of the Bank Holding Company Act of 1956, as amended. It is registered with, supervised by and required to comply with the rules and regulations of the Federal Reserve Board. The Federal Reserve Board requires the Company to file various reports and also conducts examinations of the Company. The Company must receive the approval of the Federal Reserve Board to engage in certain transactions, such as acquisitions of additional banks and savings associations, and the Company must seek nonobjection for various capital actions, including stock repurchases. The Bank is a Massachusetts-chartered trust company and its deposits are insured up to applicable limits by the FDIC. The Bank is subject to extensive regulation by the Massachusetts Commissioner of Banks (the “Commissioner”), as its chartering agency, and by the FDIC, as its deposit insurer. The Bank is required to file reports with the Commissioner and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository institutions or branches of other institutions. Under specified conditions, the Bank must also seek regulatory approval of capital distributions to the Company, its sole shareholder. The Commissioner and the FDIC conduct periodic examinations to test the Bank’s safety and soundness and compliance with various regulatory requirements. The regulatory structure gives the regulatory authorities extensive discretion in connection with supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Commissioner, the Massachusetts legislature, the FDIC, the Federal Reserve Board, or Congress, could have a material adverse impact on the Company, the Bank, and their operations. 20 Table of Contents Certain regulatory requirements applicable to the Company and the Bank are referred to below. The description of statutory provisions and regulations applicable to financial institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Company and the Bank and is qualified in its entirety by reference to the actual laws and regulations. A summary of the regulatory requirements referred to below is as follows: • Massachusetts Banking Laws and Supervision • Federal Banking Regulations • Enforcement • Holding Company Regulation • Mergers and Acquisitions • Other Regulations • Taxation Massachusetts Banking Laws and Supervision General. As a Massachusetts-chartered depository institution, the Bank is subject to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, the Bank is subject to Massachusetts consumer protection and civil rights laws and regulations. The approval of the Commissioner is required for a Massachusetts-chartered institution to establish or close branches, merge with other financial institutions, issue stock, and undertake certain other activities. Massachusetts law and regulations generally allow Massachusetts institutions to engage in activities permissible for federally chartered banks or banks chartered by another state. There is a 30-day notice procedure to the Commissioner in order to engage in such activities. Massachusetts law also authorizes Massachusetts institutions to engage in activities determined to be “financial in nature,” or incidental or complementary to such a financial activity, subject to a 30-day notice to the Commissioner. Dividends. Under Massachusetts law, the Bank may declare cash dividends from net profits not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the institution’s capital stock is impaired. An institution with outstanding preferred stock may not, without the prior approval of the Commissioner, declare dividends to the common stock without also declaring dividends to the preferred stock. The approval of the Commissioner is generally required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained “net profits,” as defined, over the preceding two years. The Bank was required to obtain the approval of the Commissioner to pay Bank dividends to the Company in 2023. Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations of one borrower to an institution may not exceed 20.0% of the total of the institution’s capital, which is defined under Massachusetts law as the sum of the institution’s capital stock, surplus account and undivided profits. Regulatory Enforcement Authority. Any Massachusetts-chartered institution that does not operate in accordance with the regulations, policies, and directives of the Commissioner may be sanctioned for non-compliance, including seizure of the property and business of the institution and suspension or revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the institution’s business in a manner which is unsafe, unsound or contrary to the depositors’ interests, or been negligent in the performance of their duties. In addition, upon finding that an institution has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the institution concerned. Finally, Massachusetts consumer protection and civil rights statutes applicable to the Bank permit private individual and class action lawsuits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorney’s fees in the case of certain violations of those statutes. Massachusetts has other statutes or regulations that are similar to the federal provisions discussed below. 21 Table of Contents Federal Regulations Capital Requirements. Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The definitions of these capital categories and the ratio metrics are set out in federal regulations. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. As a bank holding company, the Company is also subject to regulatory capital requirements, as described in a subsequent section. The approval of the FDIC is required for the Bank to pay a dividend to the Company from its surplus account. FDIC approval was required for Bank dividend payments in 2023 and such approval is expected to be required in 2024. Investment Activities. The Federal Deposit Insurance Act generally limits the types of equity investments an FDIC-insured state-chartered bank, such as the Bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks. Interstate Banking and Branching . Federal law permits an institution, such as the Bank, to acquire another institution by merger in a state other than Massachusetts unless the other state has opted out. Federal law, as amended by the Dodd-Frank Act, authorizes de novo branching into another state to the extent that the target state allows its state-chartered banks to establish branches within its borders. As of December 31, 2023, the Bank operated branches in New York, Vermont, Connecticut and Rhode Island, as well as Massachusetts. At its interstate branches, the Bank may conduct any activity authorized under Massachusetts law that is permissible either for an institution chartered in that state (subject to applicable federal restrictions) or a branch in that state of an out-of-state national bank. The New York State Superintendent of Banks, the Vermont Commissioner of Banking and Insurance, the Connecticut Commissioner of Banking and the Director of the Rhode Island Department of Business Regulation may exercise certain regulatory authority over the Bank’s branches in their respective states. Prompt Corrective Regulatory Action. Federal law requires that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. The law establishes three categories of capital deficient institutions: undercapitalized, significantly undercapitalized, and critically undercapitalized. The FDIC regulations implementing the prompt corrective action law were amended to incorporate the previously discussed increased regulatory capital standards that were effective January 1, 2015. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 ratio of 6.5% or greater, and a leverage ratio of 5.0% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a common equity Tier 1 ratio of 4.5% or greater, and a leverage ratio of 4.0% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a common equity Tier 1 ratio of less than 4.5%, or a leverage ratio of less than 4.0%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a common equity Tier 1 ratio of less than 3.0%, or a leverage ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. 22 Table of Contents “Undercapitalized” banks must adhere to growth, capital distribution (including dividend), and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such capital restoration plans must be guaranteed by its holding company in an amount equal to the lesser of 5% of the institution’s total assets when deemed “undercapitalized” or the amount needed to comply with regulatory capital requirements. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company. “Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after they obtain such status. At December 31, 2023, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations. Transactions with Affiliates and Loans to Insiders. Transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and the Act’s implementing regulation, Regulation W. In a holding company context, at a minimum, the parent holding company of an institution and any companies which are controlled by the holding company are affiliates of the institution. Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage with any one affiliate in “covered transactions,” such as loans, to 10% of such institution’s capital stock and surplus. There is also an aggregate limit on all such “covered transactions” with all affiliates to 20% of the institution’s capital stock and surplus. Loans to affiliates and certain other specified transactions must comply with specified collateralization requirements. Section 23B generally requires that transactions with affiliates be on terms and under circumstances that are substantially the same, or at least as favorable to the institution or its subsidiary, as comparable transactions with or involving non-affiliates. Federal law also restricts an institution with respect to loans to the institution’s or its affiliates’ directors, executive officers, and principal stockholders (“insiders”). Loans to insiders and their related interests may not exceed, together with all other outstanding loans to such insiders and their related interests, the institution’s unimpaired capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the majority of the Board of Directors. Further, loans to insiders must be made on terms substantially the same as offered in comparable transactions to non-insiders, although insiders may receive loans made under a benefit or compensation program that is widely available to the institution’s employees and does not give preference to the insider over other employees. Federal law places additional limitations on loans to executive officers. Massachusetts law previously had a separate law regarding insider transactions, but that law was amended in 2015 to generally incorporate the federal restrictions. Insurance of Deposit Accounts . The Bank’s deposit accounts are insured by the Deposit Insurance Fund of the FDIC up to applicable limits. The FDIC insures deposits up to the standard maximum deposit insurance amount (“SMDIA”) of $250,000. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Under the risk-based assessment system, institutions deemed less risky of failure pay lower assessments. The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets was 1.5 to 40 basis points effective through December 31, 2022. The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size range from 2.5 to 42 basis points. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or condition imposed by a regulator. Management does not know of any practice, condition or violation that might lead to termination of FDIC deposit insurance. 23 Table of Contents Federal Home Loan Bank System . The Bank is a member of the Federal Home Loan Bank system, which consists of 12 regional Federal Home Loan Banks that provide a central credit facility primarily for member institutions. The Bank, as a member, is required to acquire and hold shares of capital stock in the FHLBB. The Federal Home Loan Banks are required to provide funds for certain purposes including contributing funds for affordable housing programs. These requirements, and general financial results, could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. Enforcement The FDIC has primary federal enforcement responsibility over state-chartered banks that are not members of Federal Reserve System, which includes the Bank. The FDIC has authority to bring enforcement actions against such institutions and their “institution-related parties,” including officers, directors, certain shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in prescribed types of misconduct which caused or were likely to cause more than a minimal loss to, or a significant adverse effect on, an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution or receivership or conservatorship in certain circumstances. Potential civil money penalties can be assessed for a wide range of legal and regulatory violations and for unsafe or unsound practices, and are adjusted annually for inflation. Such penalties currently range up to more than $50 thousand per day or, in extreme cases, as high as $2.37 million per day. Holding Company Regulation General. The Company is subject to examination, regulation, and periodic reporting as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any other bank or bank holding company. Prior Federal Reserve Board approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than five percent of any class of voting shares of the bank or bank holding company. A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than five percent of the voting securities of any company engaged in non-banking activities. The Federal Reserve Board has allowed by regulation some exceptions based on activities closely related to banking including: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; and (v) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies. The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed” as defined in the regulations, to opt to become a “financial holding company” and thereby engage in a broader array of financial activities. Such activities can include insurance and investment banking. The Company has elected to become a financial holding company. The Company is subject to the Federal Reserve Board’s capital adequacy requirements for bank holding companies. The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Consolidated regulatory capital requirements identical to those applicable to the Bank apply also to the Company. Federal Reserve Board policy requires that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength doctrine. 24 Table of Contents The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior consultation with and nonobjection of the Federal Reserve Board with respect to dividends in certain circumstances, such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The Federal Reserve Board guidance also provides for consultation and nonobjection for material increases in the amount of a bank holding company’s common stock dividend. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. Federal regulations require a bank holding company to give the Federal Reserve Board prior written notice of any repurchase or redemption of then outstanding equity securities if the gross consideration for the repurchase or redemption, when combined with the net consideration paid for all such repurchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption under certain circumstances. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions. Federal Reserve guidance provides for regulatory consultation and nonobjection under specified circumstances prior to a holding company redeeming or repurchasing regulatory capital instruments, including common stock, regardless of the applicability of the previously referenced notification requirement. Pursuant to regulatory policies, such circumstances include repurchasing common stock that would result in a net reduction as of the end of the quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter. In these circumstances, Federal Reserve nonobjection is required. The Company obtained such nonobjection for its repurchase program in 2023 and for the repurchase program announced in January 2024. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of its stock, or otherwise engage in capital distributions. The status of the Company as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. Acquisition of the Company. Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as the Company unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined for this purpose, means ownership, control of or power to vote 25% or more of any class of voting stock. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, as is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. Massachusetts Holding Company Regulation. In addition to the federal bank holding company regulations, a bank holding company organized or doing business in Massachusetts must comply with requirements under Massachusetts law. Approval of the Massachusetts regulatory authorities is generally required for the Company to acquire 25 percent or more of the voting stock of another depository institution. Similarly, prior regulatory approval would be necessary for any person or company to acquire 25 percent or more of the voting stock of the Company. 25 Table of Contents Mergers and Acquisitions The Company and the Bank have authority to engage, and have engaged, in acquisitions of other depository institutions. Such transactions are subject to a variety of conditions including, but not limited to, required stockholder approvals and the receipt of all necessary regulatory approvals. Necessary regulatory approvals include those required by the federal Bank Holding Company Act and/or Bank Merger Act, Massachusetts law and, if the target institution is located in a state other than Massachusetts, the law of that state. When considering merger applications, the federal regulators must evaluate such factors as the financial and managerial resources and future prospects of the parties, the convenience and needs of the communities to be served (including performance of the parties under the Community Reinvestment Act (“CRA”)), competitive factors, any risk to the stability of the United States banking or financial system and the effectiveness of the institutions involved in combating money laundering activities. Both the Bank Holding Company Act and the Bank Merger Act provide for a waiting period of 15 to 30 days following approval by the federal banking regulator within which the United States Department of Justice may file objections to the merger under the federal antitrust laws. Massachusetts law requires the Commissioner (or Board of Bank Incorporation in certain cases) to consider such factors as whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage will be promoted (including whether the merger will result in net new benefits). Other Regulations Consumer Protection Laws. The Bank is subject to federal and state consumer protection statutes and regulations applicable to depository institutions. These include the Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinance loans; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited bases in extending credit; the Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. Since the Bank has exceeded $10 billion of consolidated assets, compliance with such federal consumer protection statutes and regulations is examined for and enforced by the Consumer Finance Protection Bureau. The Bank also is subject to Massachusetts and federal laws protecting the confidentiality of consumer financial records, and limiting the ability of the institution to share non-public personal information with third parties. The Community Reinvestment Act (“CRA”) establishes a requirement for federal banking agencies that, in connection with examinations of depository institutions within their jurisdiction, the agencies evaluate the record of the depository institutions in meeting the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or new facility. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” A less than “satisfactory” rating would result in the suspension of any growth of the Bank through acquisitions or opening de novo branches until the rating is improved. As of the most recent CRA examination by the FDIC, the Bank’s CRA rating was “satisfactory.” On October 24, 2023, the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test. The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. 26 Table of Contents Cybersecurity and Protection of Customers’ Personal Information. The provisions of Gramm-Leach-Bliley Act (GLBA) regarding privacy generally prohibit financial institutions from disclosing nonpublic personal financial information of consumer customers to third parties for certain purposes unless those customers have the opportunity to opt out. The Fair Credit Reporting Act (FCRA) restricts information sharing among affiliates for marketing purposes. Both the FCRA and Regulation V, which are issued by the Federal Reserve Board, govern the use and provision of information to consumer reporting agencies. In addition, federal banking regulators regularly issue guidance concerning cybersecurity standards to help enhance cyber risk management among financial institutions. Under these statutory frameworks and guidance, financial institutions such as ours are expected to implement layers of security controls designed to establish multiple lines of defense and to provide for risk management processes that address the risks posed by compromised customer credentials, including security measures to reliably authenticate customers when they access the financial institution’s internet-based services. Moreover, management of the financial institution is responsible for maintaining disaster and business continuity planning and processes designed to ensure speedy recovery and resumption of the institution’s operations after an intrusive cyber-attack or other type of compromise of customer data or information technology systems, including appropriate processes to address data and network restoration, if needed. The financial institution is also responsible for accounting for the disaster recovery and business continuity plans and processes of its critical third party service providers. Failing to observe its obligations under regulatory guidance could subject the Company regulatory sanctions such as financial penalties. For a further discussion of risks related to cybersecurity, see Item 1A “Risk Factors.” As a banking organization, the Company is required to notify its primary federal regulator as soon as possible but no later than 36 hours after the Company’s discovery of a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the Company’s: (1) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business; (2) business lines, including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or (3) operations, including associated services, functions, and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States. The Company also notes that in August 2023, the Securities and Exchange Commission adopted a final rule that requires registrants such as the Company to file a Form 8-K to disclose any material cybersecurity incident it suffers. If an event requiring disclosure under the final rule were to occur, the Company’s disclosure would need to include the impact of the incident on the Company, as well as the material aspects of the nature, scope, and timing of the incident. The final rule also requires registrants such as the Company to describe, on Form 10-K, their processes for assessing, identifying and managing material risks from cybersecurity threats and whether those risks have materially affected the registrant. The final rule also requires registrants such as the Company to describe Board oversight of risks emanating from cybersecurity threats and management’s role and expertise in assessing and managing material risks from cybersecurity threats. See Item 1C “Cybersecurity” for more information. Finally, the Company notes that there has been a recent uptick in activity among state regulators with respect to implementing privacy and cybersecurity standards and regulations. Some states have adopted laws and regulations requiring financial institutions to maintain cybersecurity programs and make details available regarding those programs. Also, some states have either implemented, or modified, their data breach notification and/or data privacy rules. While the Company cannot predict future legislative or regulatory actions of the various states, the Company expects continued activity in this area and will continue to monitor for developments in the states in which it operates. Anti-Money Laundering Laws . The Bank is subject to extensive anti-money laundering statutes and regulations, which require the institution to have in place an anti-money laundering compliance program and procedures and a customer identification program, among other things. These laws and regulations also prohibit depository institutions from engaging in business with foreign shell banks; require depository institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and require information sharing with the U.S. government in certain circumstances. The Bank has established policies and procedures intended to comply with these statutes and regulations. 27 Table of Contents Taxation The Company reports its income on a calendar year basis using the accrual method of accounting. This discussion of tax matters is only a summary and is not a comprehensive description of the tax rules applicable to the Company and its subsidiaries. Further discussion of income taxation is contained in a note to the financial statements. The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions. The Company may exclude from income 100 percent of dividends received from the Bank and from Berkshire Insurance Group as members of the same affiliated group of corporations. The Company reports income on a calendar year basis to the Commonwealth of Massachusetts. Massachusetts tax law generally permits special tax treatment for a qualifying limited purpose “securities corporation.” The Bank’s securities corporations all qualify for this treatment, and are taxed at a 1.3% rate on their gross income. Inflation Reduction Act of 2022 . The Inflation Reduction Act, which was signed into law on August 16, 2022, among other things, implements a new alternative minimum tax of 15% on corporations with profits in excess of $1 billion, a 1% excise tax on stock repurchases, and several tax incentives to promote clean energy and climate initiatives. These provisions were effective beginning January 1, 2023.