What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-03 compared with 2024-02-28 · 271 added, 288 removed, 337 unchanged (62% of the section changed)

17 unchanged sentences

Return on assets 0.52 % 0.59 % 0.82 % 0.98 % (4.15) %

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

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

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

7.60 9.29 10.57 (46.88) 9.31

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

Return on equity 5.84 7.07 8.70 9.96 37.15

Return on tangible common equity (2)

6.27 7.60 9.29 10.57 (46.88)

60 unchanged sentences

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

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

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

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

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

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

Other institutions may have loans acquired in a business combination, and therefore there may be no direct comparability of these ratios between and among other institutions.

Average Balances, Interest and Average Yields/Cost

14 unchanged sentences

Short-term investments and loans held for sale (4) 528.7 25.7 4.86 372.4 17.1 4.59 569.1 4.9 0.86

Mid-Atlantic region loans held for sale — — — — — — 179.5 7.1 3.97

New York branch loans held for sale 26.3 1.5 5.71 — — — — — —

Total interest-earning assets 11,166.7 622.0 5.51 11,372.5 584.2 5.14 10,671.3 393.8 3.69

10 unchanged sentences

Borrowings and notes (4) 624.9 34.3 5.42 913.6 48.3 5.29 176.1 9.2 5.24

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

New York branch non-interest-bearing deposits held for sale 45.4 — — — — — — — —

New York branch interest-bearing deposits held for sale 181.6 5.0 2.75 — — — — — —

Total funding liabilities 10,388.1 262.4 2.52 10,617.4 207.3 1.95 9,973.3 42.6 0.43

12 unchanged sentences

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

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

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

(5) Purchase accounting accretion totaled $1.3 million, $0.7 million, and $2.0 million for the years-ended December 31, 2024, 2023, and 2022, respectively.

18 unchanged sentences

Short-term investments and loans held for sale 1,078 7,551 8,629 14,416 (2,244) 12,172

14,416 (2,244) 12,172 4,968 (2,335) 2,633

Mid-Atlantic region loans held for sale — — — — (7,120) (7,120)

New York branch loans held for sale — 1,527 1,527 — — —

Total interest income $ 24,553 $ 13,200 $ 37,753 $ 148,885 $ 41,384 $ 190,269

6 unchanged sentences

Borrowings 2,189 (16,193) (14,004) 8 39,111 39,119

Mid-Atlantic region interest-bearing deposits — — — — (1,820) (1,820)

New York branch interest-bearing deposits — 4,998 4,998 — (1,820) (1,820)

Total interest expense $ 62,870 $ (7,772) $ 55,098 $ 131,692 $ 32,904 $ 164,596

13 unchanged sentences

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

In 2024, adjustments were primarily related to the pending merger, branch sales and consolidations, and loss on sale of AFS securities.

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

1 unchanged sentence

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

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

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

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

19 unchanged sentences

Fair value adjustments on securities (1)

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

Loss/(gain) on sale of securities 49,937 25,057 (6)

Net gains on sale of business operations (16,241) — —

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

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

9,493 6,261 8,909

14 unchanged sentences

Total average assets $ 11,683 $ 11,838 $ 11,216

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

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

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

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

Total average shareholders' equity 1,044 984 1,063

Total average tangible shareholders' equity 1,027 962 1,036

Total tangible shareholders’ equity, period-end 1,152 993 930

13 unchanged sentences

Performance Ratios (5)

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

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

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

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

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

7.60 9.29 10.57

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

6.07 8.26 10.80

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

Return on equity 5.84 % 7.07 % 8.70 %

Operating return on equity 9.09 9.47 9.46

Return on tangible common equity (3)

6.27 7.60 9.29

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

Operating return on tangible common equity (3)

9.56 10.05 10.07

4 unchanged sentences

Supplementary Data (in thousands)

Tax benefit on tax-credit investments $ 9,863 $ 4,880 $ 4,372

Non-interest income charge on tax-credit investments (8,018) (3,508) (3,445)

Net income on tax-credit investments 1,845 1,372 928

Tax benefit on tax-credit investments N/M $ 9,863 $ 4,880

Non-interest income charge on tax-credit investments N/M (8,018) (3,508)

Net income on tax-credit investments N/M 1,845 1,372

Intangible amortization 4,601 4,820 5,134

2 unchanged sentences

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

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

(2) Merger, restructuring, conversion, and other related expenses included $6.6 million of merger expenses for the year ended December 31, 2024.

Merger, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years ended December 31, 2023 and 2022.

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

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

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

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

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

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

(5) Return on tangible common equity excluding AFS unrealized losses was 5.45%, 6.07%, and 8.26% for the years ended December 31, 2024, 2023, and 2022, respectively.

Operating return on tangible common equity excluding AFS unrealized losses was 8.32%, 8.03%, and 8.94% for the years ended December 31, 2024, 2023, and 2022, respectively.

This discussion is intended to assist readers in understanding the financial condition and results of operations of the Company, the changes in key items in the Company’s Consolidated Financial Statements (“financial statements”) from year to year, and the primary reasons for those changes.

The objectives of this section are:

9 unchanged sentences

• Enterprise Risk Management

• LIBOR Transition

• Corporate Responsibility and Sustainability

5 unchanged sentences

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

Berkshire is a Delaware corporation headquartered in Boston and the holding company for Berkshire Bank (“the Bank”) Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter.

Berkshire is a Delaware corporation headquartered in Boston and the holding company for the Bank.

Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter.

On December 16, 2024, the Company entered into a definitive agreement for a merger of equals with Brookline Bancorp, Inc., a Boston-based multi-bank holding company with $11.9 billion in assets and branches in Massachusetts, Rhode Island, and New York.

This merger is targeted to be completed in the second half of 2025, subject to customary shareholder and regulatory approvals, and closing conditions.

Berkshire reported 2024 net income of $61 million, or $1.43 per share, compared to $70 million, or $1.60 per share, in 2023.

The decrease in 2024 was due primarily to higher non-operating losses on the sale of securities.

The Company’s non-GAAP measure of operating income totaled $95 million, or $2.22 per share in 2024, compared to $93 million, or $2.14 per share in 2023.

The 4% increase in operating EPS included the benefit of lower credit loss provision expense and lower non-interest expense, together with a 2% reduction in average diluted shares due to ongoing share repurchases.

Berkshire’s 2024 return on assets was 0.52%;

the operating return on assets was 0.81%.

The return on tangible common equity was 6.3%;

the operating return on tangible common equity was 9.6%.

The efficiency ratio measured 63.9%.

The 2024 shareholder dividend was $0.72 per share in 2024.

Period-end book value per share increased 8% to $25.15 and the non-GAAP measure of tangible equity to tangible assets increased 9% to $24.82 for the year.

Operating income and profitability improved sequentially in every quarter of the year, reflecting the cumulative benefit of the Company’s ongoing growth initiatives together with strategic optimization programs.

Results also benefited from strong credit discipline, rigorous expense management, investments in new client-facing bankers and enhancements to the digital platform and consumer product offerings.

Strategic initiatives included:

• Network Optimization:

The Company consolidated four branches in 2023 and three branches in 2024, and additionally exited surplus back-office premises.

Staff count was reduced through a workforce realignment in the first half of 2024.

The sale of ten New York branches was completed in the third quarter of 2024.

The sale concentrated the Bank’s overall geographic footprint and reduced certain expenses.

With the branch sale and consolidations, Berkshire’s total branch count was reduced to 83 offices in New England and New York, including 16 offices in its Albany and Rome/Utica markets.

• Sales of Securities:

Investment securities were sold in the fourth quarter of 2023 and first quarter of 2024.

This allowed the Company to reposition its balance sheet to improve net interest income and to fund the branch sale.

The securities were carried at fair value on the Company’s balance sheet and the non-operating losses on sale therefore had no effect on shareholders’ equity.

• Sales of Targeted Loan Portfolios:

The Company sold most of its remaining Upstart consumer loan portfolio, which was in run-off mode.

In addition to this, the Company also sold a package of $47 million of seasoned residential mortgages.

• Growth Initiatives:

During 2024, the Company announced the recruitment of commercial deposit relationship managers and private bankers.

Additionally, it announced the planned move and expansion of a Boston branch to bolster its commercial and private banking teams serving the Greater Boston market.

• Digital Enhancements:

In the third quarter, the Bank launched Berkshire One, its innovative suite of digital-first banking solutions to complement its branch and concierge banking channels.

Including the impact of branch and loan sales, in 2024 the Company recorded 4% loan growth and a 2% deposit decrease.

Excluding the impact of these sales, Berkshire produced 5% loan growth and 1% deposit growth in 2024.

Measures of asset quality remained favorable in 2024.

Delinquent and non-performing loans were 0.52% of total period-end loans;

this was the lowest quarterly level in nearly two decades.

Net loan charge-offs measured 0.16% of average total loans in 2024, compared to 0.26% in the prior year.

Liquidity remained satisfactory in 2024, with the year-end loans to deposits ratio measuring 90% in 2024 compared to 85% in 2023.

Total shareholders’ equity increased by $155 million, or 15%, to $1.2 billion during the year, including the proceeds of a $100 million common stock placement in December in conjunction with the merger agreement.

The common equity Tier 1 capital ratio stood at 13.0% at year-end 2024.

In response to persistent high inflation, the Federal Reserve Board increased the maximum target federal funds rate beginning in the first quarter of 2022.

The rate increased from 0.25% in the first quarter of 2022 to 5.50% in the third quarter of 2023, increasing in each sequential quarter.

The target rate remained unchanged until September

2024 and then was reduced by 1.00% in three steps to 4.50% at year-end.

Some of the Bank’s loans are indexed to market rates and are the most immediately sensitive to rate changes.

The upward move in federal funds in 2022 and 2023 contributed to inversion of the yield curve, which can negatively impact the net interest margin.

This inversion began to correct in the second half of 2024, bringing more positive slope to portions of the yield curve.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

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

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

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

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

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

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

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

Per share results benefited from share repurchases.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

GAAP net income decreased $9 million, or 12%, year-over-year to $61 million in 2024 from $70 million in 2023.

This was primarily due to a $25 million increase in non-operating securities losses offset in part by $16 million in non-operating gains on branch sales.

Berkshire improved operating profitability in 2024, with consecutive quarter-over-quarter improvement in operating results throughout the year.

The non-GAAP measure of operating income increased $2 million, or 2%, to $95 million in 2024 from $93 million in 2023.

A $17 million decrease in net interest income was mostly offset by an $8 million decrease in credit loss provision expense and an $8 million decrease in operating non-interest expense.

The additional benefit of a $3 million increase in loan and SBA related revenue contributed to the $2 million increase in total operating income.

Effective January 1, 2024, the Company elected the proportional amortization method for its tax credit equity investments in public welfare investment projects which consist of Affordable Housing and New Market tax credit investments.

This election had no material impact on net income.

As a result of this election, certain noncash charges which had been posted to non-interest income are now posted to income tax expense.

Therefore, non-interest income, total revenue, and tax expense are not comparable on a year-over-year basis.

The amount charged against non-interest income in 2023 was $8.0 million compared to $2.5 million credited to non-interest income in 2024.

Year-to-year comparisons of revenue and expense were also impacted by the sale of ten branches toward the end of the third quarter and the sale of investment securities and reinvestment of proceeds into short-term investments in the first quarter to help fund the branch sale.

The fourth quarter of 2024 was the first full quarter subsequent to completion of the branch sale.

Due to the change in tax accounting, the efficiency ratio was unchanged at 63.9% in both years.

Excluding the impact of tax credits in 2023, the adjusted efficiency ratio was 65.3% in 2023.

The improvement in 2024 compared to this adjusted ratio included the benefit of reinvestments of proceeds from securities sales and the reduction in operating expenses in 2024.

Net Interest Income

10 unchanged sentences

and asset quality.

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

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

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

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

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

The FTE interest adjustment increased $1 million.

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

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

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

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

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

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

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

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

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

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

Average time deposits increased $734 million.

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

Time deposit growth included higher utilization of brokered deposits.

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

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

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

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

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

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

Net interest income decreased in 2024 by $17 million, or 5%, to $352 million.

The net interest margin decreased by 11 basis points, or 3%, to 316 basis points in 2024 from 327 basis points in 2023.

Average earning assets decreased by $0.2 billion, or 2%, to $11.2 billion.

The decrease in average earning assets was primarily due to the sale of lower yielding investment securities to fund the branch sales and to pay down higher cost borrowings.

The 11 basis point decrease in the net interest margin was primarily due to the 57 basis point increase in the cost of funds, partially offset by the 37 basis point increase in the yield on earning assets.

These changes resulted from the ongoing impact of repricings following federal funds rate increases in the period from January 2022 to July 2024.

The increase in the cost of funds was driven by the 75 basis point increase in the cost of deposits.

This reflected ongoing repricings in the higher rate and competitive market conditions, and mix shifts from lower cost transaction accounts into higher cost money market and time deposit accounts.

The increase in the yield on earning assets was primarily due to a mix shift from lower yield investment securities to higher yielding loans and short term investments.

The loan yield increased 18 basis points as a result of upward repricings of loans.

The net interest margin decreased sequentially on a quarterly basis in 2023, from 3.84% in the fourth quarter of 2022 to 3.11% in the fourth quarter of 2023.

This primarily reflected deposit repricings catching up with loan repricings in 2022.

It improved to 3.20% in the second quarter of 2024, including the benefit of securities sales and related balance sheet changes.

The margin declined to 3.14% in the fourth quarter of 2024 as loan repricings adjusted quickly to the 100 basis reduction in the federal funds rate beginning in September.

The margin measured 3.18% in December 2024, as deposit repricings began to accelerate.

For the full year 2024, the net interest margin averaged 3.16%, down from 3.27% in 2023 due primarily to deposit repricings in the higher rate and competitive marketplace.

Non-Interest Income

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

The Company views this loss as non-operating.

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

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

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

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

Non-interest income was $48 million in 2024 and $43 million in 2023.

As previously noted, due to the tax accounting methodology change, total non-interest income is not comparable between these years.

This change is included in the category of other non-interest income, which increased by $12 million.

Operating results benefited from a $3 million increase in revenues from loan related fees and gains on SBA loans.

Non-interest income in 2024 included the $16 million gain on the branch sale and the $50 million loss on the first quarter sale of securities.

In 2023, non-interest income included the $25 million loss on the fourth quarter sale of securities.

The securities losses had no impact on total shareholders’ equity.

These gains and losses are viewed by the Company as non-operating.

Provision for Credit Losses

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

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

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

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

Provision expense decreased year-over-year by $8 million, or 25%, to $24 million from $32 million.

In part, this reflected a decrease in loan growth to 4% in 2024 from 8% in 2023.

Additionally, it reflected an increase in the coverage ratio of the allowance for credit losses on loans to 1.22% at year-end 2024 compared to 1.17% at the prior year-end.

Net loan charge-offs totaled $15 million in 2024 compared to $23 million in the prior year.

Non-Interest Expense

Total non-interest expense increased year-over-year by $12.8 million, or 4%.

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

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

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

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

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

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

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

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

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

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

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

Non-interest expense decreased year-over year by $5 million, or 2%, to $296 million.

The non-GAAP measure of operating non-interest expense decreased by $8 million, or 3%, to $287 million.

This primarily reflected lower operating expenses due to branch sales and consolidations.

Non-operating expenses of $9 million in 2024 and $6 million in 2023 included branch and facilities consolidations in both years, and 2024 expenses related to the pending merger.

The largest decrease in operating expense was occupancy and equipment expense, which decreased $4 million or 12%.

This included the impact of four branch consolidations in 2023, three branch consolidations in 2024, and ten branches sold in 2024, together with dispositions of other excess properties.

Of note, the sales of eight of the branches sold were completed near the end of the third quarter of 2024.

All major categories of operating expenses declined year-over-year except for regulatory expense and compensation expense.

The Company is focused on efficiencies to reduce overhead and to deepen its investment in frontline staff and customer engagement technology.

Full year compensation expense increased 1% year-over-year.

Fourth quarter compensation expense decreased 3% year-over-year.

Year-end full time equivalent staff totaled 1,216 positions in 2024, a decrease of 124 positions, or 9%, from 1,340 positions at year-end 2023.

This decrease included 40 positions which were transferred in the branch sale.

All staff related to the ten branches sold were offered employment by the branch buyers.

FTE staff was also reduced based on a workforce realignment in the first quarter of the year.

Income Tax Expense

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

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

As previously noted, income tax expense in 2024 is not comparable to 2023 and prior years due to the change in the accounting method for certain equity tax credit investments.

In 2024, the effective income tax rate was 23%.

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

federal statutory rate of 21% are generally attributable to:

federal statutory rate of 21% are primarily attributable to:

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

(ii) tax-exempt income from BOLI;

(iii) tax credit investment benefits;

(iii) non-deductible merger costs;

and (iv) state income taxes.

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

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2024 AND DECEMBER 31, 2023

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Construction loans increased by $321 million.

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

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

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

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

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

Retail loans include residential mortgage loans and consumer loans.

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

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

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

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

Total assets decreased $0.2 billion, or 1%, to $12.3 billion in 2024.

A $0.4 billion decrease in investment securities primarily funded the $0.4 billion sale of deposits.

Loan growth of $0.2 billion from business activities was primarily funded by deposit growth from business activities.

A $100 million common stock issuance offset a decrease in borrowings.

With the stock offering and reduction in assets, the ratio of equity to assets increased to 9.5% from 8.1%.

Primarily as a result of the deposit sale, the ratio of loans/deposits increased to 90% from 85%

Investment Securities

Investment securities decreased $419 million, or 26%, to $1.2 billion during 2024.

This was primarily due to the sale of lower yielding securities near the end of the first quarter.

This improved the Company’s liquidity in advance of the branch sale and benefited earnings as the sale proceeds were used to pay down higher cost funds.

The yield on the securities portfolio was 2.66% in the fourth quarter of 2024 compared to 2.40% in the fourth quarter of 2023, reflecting the sale of lower coupon securities and the benefit of higher interest rates in the second half of 2024.

The unrealized loss on available for sale securities decreased by $47 million in 2024 to $142 million at year-end 2024 due to the $50 million loss realized on the sale of securities in the first quarter.

Total loans increased $345 million, or 4%, to $9.4 billion in 2024, including commercial loan growth totaling $433 million, or 7%, which was partially offset by a $99 million, or 22%, reduction in consumer loans.

During the year, the Company sold $47 million in seasoned residential mortgages and $47 million in consumer loans.

Additionally, the Company sold $50 million in residential mortgage and consumer loans as part of the branch sale.

Adjusted for these loans sold, total loans increased 5% for the year 2024.

The yield on total loans was 5.88% in the most recent quarter, compared to 5.97% in the final quarter of 2023.

At year-end 2024, loans repricing within three months were 43% of total loans.

Year-end commercial loans were 67% of total loans at year-end 2024 compared to 65% in 2023.

Commercial loan growth was recorded in all major categories of commercial loans, including a 13% increase in construction loans and an 11% increase in owner-occupied commercial real estate loans.

Based on the supervisory definition of commercial real estate loans which excludes owner-occupied properties, the supervisory measure of commercial real estate loans to total bank regulatory capital measured 292% at period-end, compared to 286% at year-end 2023.

The supervisory measure of construction loans to bank regulatory capital measured 54% and 51% at the above respective dates.

The Company has a diversified commercial real estate portfolio primarily located in suburban markets in its footprint.

The commercial real estate loan portfolio increased $353 million, or 8%, to $4.8 million in 2024, and constituted 51% of the total loan portfolio at period-end.

There were $1.2 million in net charge-offs of commercial real estate loans in 2024, compared to net recoveries of $0.8 million in 2023.

Non-accruing loans were 0.22% of total commercial real estate loans at period-end compared to 0.10% at year-end 2023.

For commercial real estate loans, year-end loans rated as criticized increased to 2.93% from 2.44% while loans rated as classified decreased to 1.19% from 1.94% of total loans.

At period-end, the largest property type concentrations (over 5% of the portfolio and excluding construction loans) were retail trade (21%), multifamily (13%), office (10%), healthcare (9%), and hospitality (7%).

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 $507 million office portfolio was approximately 71% composed of Class A properties and approximately 79% of the office portfolio was maturing after 2025.

Boston properties were approximately 16% of the office portfolio, with no high-rise office buildings.

Construction loans consisted primarily of multifamily (approximately 49%) and health care (approximately 13%) at period-end.

Residential mortgage loans comprised 30% of year-end 2024 loans and were up $11 million to $2.8 billion during the year.

Consumer loans comprised 4% of loans and decreased 22% to $0.3 billion during the year.

This was largely due to targeted run-off and sales of unsecured consumer installment loans.

Allowance for Credit Losses on Loans

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

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

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

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

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

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

Loan performance indicators remained at historically favorable levels in 2024.

Total delinquent and non-performing loans measured 0.52% of loans at period-end, the lowest level in nearly two decades.

It included non-performing loans measuring 0.26% of total loans at that date.

Net loan charge-offs totaled $15 million, measuring 0.16% of average loans in 2024 and totaled $23 million, measuring 0.26% of average loans in 2023.

Consumer loan net charge-offs totaled $9 million in 2024 and $8 million in 2023.

Excluding consumer loans, charge-offs of all other loans totaled $5 million and $14 million, measuring 0.06% and 0.17% of all other average loans in those respective years.

Year-end criticized loans/total loans decreased to 2.62% of total loans from in 2024 from 2.71% in 2023, including a reduction in classified loans to 1.20% of loans from 1.69%.

Potential problems loans, which are defined as accruing classified loans, decreased to $88 million from $132 million.

Improvements in borrower risk ratings have generally reflected borrowers adjusting operations to mitigate the impact of higher interest rates on variable rate loans and to the impact of changing supply/demand conditions.

The allowance for credit losses on loans increased by $9 million, or 9%, to $115 million during 2024.

In addition to reflecting the 4% loan growth, this also reflected an increase in the ratio of the allowance to total loans to 1.22% from 1.17%.

The increase in reserve coverage reflected increases in all major loan categories except non-owner occupied commercial real estate and other consumer loans.

Regarding the former, coverage decreased to 1.39% from 1.47%.

Regarding other consumer loans, coverage decreased to 5.11% from 5.46% and the total other consumer allowance decreased by $6 million to $3 million primarily as a result of the sale of Upstart loans.

The remaining Upstart loan balance was $7.5 million at year-end 2024.

The major contributor to the increase in the total allowance was the commercial and industrial loan portfolio, which accounted for $13 million, or 53%, of the total $24 million credit loss provision expense in 2024.

Reflecting higher net loan losses of $6 million in this portfolio, the year-end allowance coverage of these loans was 1.78% at year-end 2024 compared to 1.37% at year-end 2023.

Factors contributing to higher coverage in most portfolios included longer expected loan lives and increased qualitative reserves related to macroeconomic and federal policy uncertainties.

Deposits and Borrowings

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

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

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

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

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

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

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

For the year 2024, total deposits decreased by $258 million, or 2%, to $10.4 billion.

This included the sale of $383 million in deposits due to the sale of ten branches in the third quarter.

Average deposits in the fourth quarter of 2024 were $9.7 billion, decreasing $277 million, or 3%, from the same quarter of 2023 due to lower average transaction account balances.

Excluding the deposits sold, average fourth quarter deposits increased $106 million, or 1%, year-over-year.

In recent years, year-end balances included higher overnight balances related to the Company’s payroll deposit service.

The branch sale included $383 million in deposits, consisting of $77 million of non-interest bearing deposits, $25 million of NOW deposits, $77 million of money market deposits, $45 million of savings deposits, and $159 million of time deposits.

Fourth quarter average non-interest bearing deposits were 24% of average deposits in 2024 compared to 25% in 2023.

All major categories of average deposits decreased between these two periods, primarily in transaction deposits.

The fourth quarter cost of deposits was 2.30% in 2024 compared to 2.11% in 2023.

The fourth quarter of 2024 marked the first decline in the cost of deposits since the first quarter of 2022, reflecting market changes following the reduction in the federal funds rate and other market interest rates beginning in the third quarter of 2024.

Total borrowings decreased year-over year by $68 million, or 14%, to $438 million at year-end 2024.

The fourth quarter cost of borrowings was 5.20% in 2024 compared to 5.45% in 2023.

Derivative Financial Instruments

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

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

The notional amount of derivative financial instruments totaled $4.9 billion at period-end, compared to $4.8 billion at year-end 2023.

The net fair value of these instruments at period-end was a liability of $31 million, compared to $30 million at year-end 2023.

Included in derivative financial instruments are $800 million in cash flow hedges on commercial loans, of which $275 million mature in 2025, $425 million mature in 2026, and $100 million mature in 2027.

The Company recorded a $632 thousand charge to interest expense for the realized loss on cash flow hedging instruments in both 2024 and 2023.

Shareholders’ Equity and Dividends

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

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

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

Total shareholders' equity increased $155 million, or 15%, to $1.2 billion in 2024.

This included the benefit of the $100 million common stock placement in December 2024.

Equity also benefited from operating income of $95 million and was reduced by $31 million in dividends declared and $18 million in stock repurchases.

The $50 million loss on securities recorded in the first quarter of 2024 had no impact on shareholders’ equity, as the after-tax impact on retained earnings was offset by a reduction in the accumulated other comprehensive loss component of equity.

Book value per share increased in 2024 by $1.88, or 8%, to $25.15 at year-end 2024 compared to $23.27 at year-end 2023.

The non-GAAP measure of tangible book value per share increased by $2.00, or 9%, to $24.82 from $22.82.

Share repurchases in 2024 were accretive to book value measures, based on the average repurchase price of approximately $21.94.

The share issuance in December was priced at $29.00 per share.

Reflecting primarily the increase in equity, the year-end ratio of equity to assets increased to 9.5% from 8.1% and the non-GAAP measure of tangible common equity to tangible assets increased to 9.4% from 8.0%.

The common equity Tier 1 capital ratio increased to 13.0% from 12.0%.

LIQUIDITY AND CASH FLOWS

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

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

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

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

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

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

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

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

At year-end 2024, liquid assets totaling $1.8 billion included cash and equivalents totaling $1.1 billion and securities available for sale totaling $0.7 billion.

At year-end 2023 liquid assets were $2.2 billion, including $1.2 billion in cash and equivalents and $1.0 billion in securities available for sale.

Year-end liquidity is elevated due to overnight payroll related deposit balances.

Securities include assets pledged to support borrowings.

At year-end 2024 wholesale funds, consisting of borrowings and brokered deposits, totaled $0.9 billion, compared to $1.0 billion at year-end 2023.

Unused borrowing availability at period-end from the Federal Home Loan Bank of Boston “FHLBB” and the Federal Reserve Bank of Boston (“FRB”) totaled $4.1 billion at year-end 2024, compared to $4.0 billion at year-end 2023.

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

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

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

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

Cash balances at the holding company totaled $164 million at period-end.

During 2024, total cash and equivalents decreased to $1.1 billion from $1.2 billion.

The primary sources of funds were securities sales, together with operating activities and the stock issuance.

The primary uses of funds were the branch sale and loan growth.

CAPITAL RESOURCES

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

Please see the Note 17 - Shareholders’ Equity and Earnings per Common Share of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the note on Shareholders' Equity in the consolidated financial statements.

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

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

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

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

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

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

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

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

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

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

The balance of AOCI was a loss of $106 million at period-end, compared to a loss of $143 million at year-end 2023.

This reduction was primarily due to the after-tax realization of $50 million in losses with the securities sale in the first quarter of 2024.

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

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

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

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

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

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

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

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

This ratio measured 13.0% at year-end 2024 compared to 12.0% at year-end 2023.

This improvement included the benefit of the $100 million capital placement in December 2024.

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

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Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACLL in those future periods.

The estimate of expected credit losses is based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts.

In order to estimate the expected credit losses for loans evaluated on a pooled basis, the Company utilizes a static pool migration methodology which calculates a historical loss rate for each of the identified loan segments.

The historical loss rates are then adjusted for current and asset specific characteristics (also referred to as qualitative adjustments) and for expected changes to current conditions over the reasonable and supportable forecast period (also referred to as forecast).

The appropriateness of the ACLL could change significantly because current economic conditions and forecasts can change and future events are inherently difficult to predict.

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

For detailed information on the ACLL see Note 1- Summary of Significant Accounting Policies and Note 6 – Loans and Allowance for Credit Losses.

For detailed information on the ACLL see Note 1- Summary of Significant Accounting Policies and Note 5 – Loans and Related Allowance for Credit Losses.

Fair Value Measurements

11 unchanged sentences

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

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

This position oversees risk management, credit, loan review, compliance, data governance, and information security.

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

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

In 2023, price risk remained elevated in relation to

the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments and operations.

In 2024, price risk remained elevated in relation to the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments.

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

LIBOR TRANSITION

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

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

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

The Company has transitioned to indices based on SOFR.

Emerging risks affecting business risks included merger execution risk, fraud risk due to rising thefts targeting electronic platforms, and IT and cyber risks due to rising external threats and the emergence of artificial intelligence technology.

CORPORATE RESPONSIBILITY & SUSTAINABILITY

Berkshire’s Approach

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

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

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

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

Berkshire’s integrated approach to managing the environmental, social and governance externalities helps reduce risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn drives Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.

Oversight and Reporting

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

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

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

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

• Corporate Responsibility & Culture Committee of its Board of Directors

• Environmental, Social and Governance (ESG) Committee

• Diversity Equity & Inclusion (DEI) Committee

• Responsible & Sustainable Business Policy

• Climate Risk Management Program

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

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

• Senior leadership for corporate responsibility and sustainability

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

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

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

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

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

opportunities.

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

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

Additionally, Berkshire’s annual Corporate Responsibility & Sustainability Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure ("TCFD") disclosure standards, details the Company's programs and performance.

BEST Community Comeback

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

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

fueling small businesses;

community financing and philanthropy;

financial access and empowerment;

and environmental sustainability.

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

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

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

Sustainable Finance & Impact Investments

Berkshire became the first public U.S.

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

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

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

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

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

Beyond its sustainability bond, Berkshire looks for innovative ways to advance its business priorities through sustainable finance and impact investing.

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

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

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

Climate Change

Climate Change manifesting in the form of both physical or transition risks could adversely, either directly or indirectly, affect Berkshire’s operations, businesses, customers, communities, and its stakeholders.

As the transition to a low-carbon economy accelerates, new policy emerges, and market dynamics shift, Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support the transition will allow it to strengthen its competitive positioning.

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

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

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

This could impact borrowers’ ability to repay obligations, devalue physical assets

resulting in uncertain residual values and affect third-parties ability to deliver on service expectations.

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

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

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

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

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

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

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

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

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

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

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

Berkshire’s integrated approach to strong governance and managing environmental and social externalities helps reduce risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn supports Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.

The Company maintains a comprehensive governance system to oversee sustainability matters including a dedicated committee of its Board of Directors and a dedicated management committee, along with a network of policies including its Responsible & Sustainable Business Policy and Climate Risk Management Program.

Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee these matters and became the first public U.S.

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

Berkshire remains a leader among community banks in sustainability performance and regularly engages directly with its stakeholders to share information about its progress.

The Company’s annual Sustainability Report, which is aligned with disclosure standards from Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure ("TCFD"), detail the Company's programs and performance.

Climate Impact

Climate change manifesting in the form of both physical or transition risks along with the Company’s mitigating practices could adversely, either directly or indirectly, affect Berkshire’s operations, businesses, customers, communities, and its stakeholders.

As the transition to a low-carbon economy continues, new policy emerges, and market dynamics shift, Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support the transition will allow it to strengthen its long-term positioning.

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

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

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

Both Committees report into the full board.

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

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

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

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

As the Company moves further along in its climate journey, it will look to enhance its disclosures, including scope 3 emissions, programs, mitigating controls and initiatives to minimize risk, reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy.

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

Ratings, Awards & Recognition

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

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

• MSCI ESG- A

• ISS ESG Quality Score - Environment:

2, Governance:

• Bloomberg ESG Disclosure- 62.81

• Sustainalytics Rated

• Communitas Award for Leadership in Corporate Social Responsibility

• Boston Business Journal Top Charitable Contributor

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

Further details on Berkshire’s practices can be found in its most recent Sustainability Report.

Opportunity for All

Maintaining an inclusive workplace is essential to business success and an important enabler to advancing the Company’s strategic goals.

By embracing and leveraging diverse backgrounds, cultures, skills, ideas and experiences, Berkshire is driving innovation, better decision-making and enhancing the bank’s ability to serve the evolving needs of its customers and communities.

Berkshire remains committed to creating a culture of inclusivity in its workplace where every employee feels respected, valued and empowered to contribute their unique talents to the Company’s success.

Berkshire seeks to attract, engage and retain individuals, businesses and suppliers from a wide range of backgrounds, and experiences so that the workforce, clients and supplier base reflect the communities in which it operates.

The Company approaches its efforts with strong governance practices, provides professional development for its employees, engages with its communities and offers employee resource groups, all aimed at ensuring accessibility and opportunity for all.

Awards & Recognition

Berkshire is proud to be recognized for its performance with local, regional, national, and international awards including:

• American Bankers Association Community Commitment Award

• America’s Most Trustworthy Companies – Newsweek

• America’s Best Regional Banks – Newsweek

• Forbes America’s Best Midsize Employers

• Bloomberg Gender-Equality Index

• Human Rights Campaign Corporate Equality Index

*As of December 31, 2023

• America’s Greatest Workplaces – Newsweek

• America’s Best Mid-Size Companies – TIME

• Communitas Award for Leadership in Corporate Social Responsibility

• Boston Business Journal Top Charitable Contributor

• Human Rights Campaign Equality 100

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What changed 10-K

Item 7. Management’s Discussion and Analysis