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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-15781
BERKSHIRE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 04-3510455
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

60 State Street | Boston | Massachusetts |  | 02109
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (617) 641-9206,
Securities registered pursuant to Section 12(b) of the Act:

| Title of each class |  | Trading Symbol(s) |  | Name of Exchange on which registered |
| Common stock, par value $0.01 per share |  | BHLB |  | New York Stock Exchange |

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý
No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer | x |  | Accelerated Filer | ☐
Non-Accelerated Filer | o |  | Smaller Reporting Company | ☐
|  |  | Emerging Growth Company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐
The aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $1.1 billion, based upon the closing price of $24.77 as quoted on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter.
The number of shares outstanding of the registrant’s common stock as of February 24, 2023 was 44,469,516.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

Table of Contents
INDEX

PART I |  | 4
ITEM 1. | BUSINESS | 4
ITEM 1A. | RISK FACTORS | 29
ITEM 1B. | UNRESOLVED STAFF COMMENTS | 38
ITEM 2. | PROPERTIES | 38
ITEM 3. | LEGAL PROCEEDINGS | 39
ITEM 4. | MINE SAFETY DISCLOSURES | 39
PART II |  | 40
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 40
ITEM 6. | [RESERVED] | 41
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 42
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 69
ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 71
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 71
ITEM 9A. | CONTROLS AND PROCEDURES | 71
ITEM 9B. | OTHER INFORMATION | 71
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 71
PART III |  | 72
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE | 73
ITEM 11. | EXECUTIVE COMPENSATION | 77
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS | 77

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Table of Contents

ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 78
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES | 78
PART IV |  | 79
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 79
ITEM 16. | FORM 10-K SUMMARY | 81
SIGNATURES | 82
TABLE INDEX |
PART I | 4
ITEM 1. | 4
| ITEM 1 TABLE 1 — LOAN PORTFOLIO ANALYSIS | 5
| ITEM 1 TABLE 2 — MATURITY AND SENSITIVITY OF LOAN PORTFOLIO | 8
| ITEM 1 TABLE 3 — CREDIT QUALITY RATIOS | 11
| ITEM 1 TABLE 4 — ALLOCATION OF ALLOWANCE BY LOAN CATEGORY | 12
| ITEM 1 TABLE 5 — WEIGHTED AVERAGE YIELD ON SECURITIES | 13
| ITEM 1 TABLE 6 — AVERAGE BALANCE AND WEIGHTED AVERAGE RATES FOR DEPOSITS | 14
| ITEM 1 TABLE 7 — MATURITY OF DEPOSITS > $250,000 | 15
PART II |  | 40
ITEMS 7-7A. | 42
| ITEM 7 TABLE 1 — AVERAGE BALANCES, INTEREST AND AVERAGE YIELD COSTS | 45
| ITEM 7 TABLE 2 — RATE VOLUME ANALYSIS | 46
| ITEM 7 — 7A TABLE 3 — QUALITATIVE ASPECTS OF MARKET RISK | 70

3

Table of Contents
PART I
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”).
Berkshire Bank is transforming what it means to bank its neighbors socially, humanly, and digitally to empower the financial potential of people, families, and businesses in its communities as it pursues its vision of being the leading socially responsible omni-channel community bank in the markets it serves. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. At year-end 2022, the Bank had 100 full-service financial centers its New England and New York footprint. The emergence of the global COVID-19 pandemic in the first quarter of 2020 affected many aspects of the Company’s operations and financial condition through 2022, as further described in other sections of this report.
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.
4

Table of Contents
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. The Company does not rely on any individual, group, or entity for a material portion of its deposits. Due to recent mergers of in-market bank competitors, the Company is pursuing opportunities to expand its market share and talent recruitment. The Company seeks to differentiate itself with its Digitouch SM approach to personal service and user-friendly technology, as well as its commitment to corporate social responsibility. The Company recently introduced its new brand theme of “Where You Bank Matters” to highlight these differentiating factors.
LENDING ACTIVITIES
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. The information discussed below describes the Company’s ongoing lending activities. Lending activities were affected by the emergence of the COVID-19 pandemic in 2020 and subsequent government interventions and support, as well as economic and monetary disruptions resulting from these conditions.
Loan Portfolio Analysis. 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

| 2022 | 2021 | 2020 |  |
(In millions) | Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total |  |  |  |
Loans: |  |  |  |  |  |  |  |  |  |
Construction | $ | 320 |  | 3.9 | % | $ | 324 |  | 4.7 | % | $ | 455 |  | 5.6 | % |  |  |  |
Commercial multifamily | 620 |  | 7.5 |  | 516 |  | 7.6 |  | 483 |  | 6.0 |  |  |  |  |
Commercial real estate owner occupied | 641 |  | 7.7 |  | 607 |  | 8.9 |  | 552 |  | 6.8 |  |  |  |  |
Commercial real estate non-owner occupied | 2,496 |  | 29.9 |  | 2,157 |  | 31.6 |  | 2,119 |  | 26.2 |  |  |  |  |
Commercial and industrial | 1,445 |  | 17.3 |  | 1,285 |  | 18.8 |  | 1,943 |  | 24.0 |  |  |  |  |
Residential real estate | 2,312 |  | 27.7 |  | 1,489 |  | 21.8 |  | 1,932 |  | 23.9 |  |  |  |  |
Home equity | 227 |  | 2.7 |  | 252 |  | 3.7 |  | 294 |  | 3.7 |  |  |  |  |
Consumer other | 274 |  | 3.3 |  | 196 |  | 2.9 |  | 303 |  | 3.8 |  |  |  |  |
Total | $ | 8,335 |  | 100.0 | % | $ | 6,826 |  | 100.0 | % | $ | 8,081 |  | 100.0 | % |  |  |  |
Allowance for credit losses | (96) |  |  | (106) |  |  | (127) |  |  |  |  |  |
Net loans | $ | 8,239 |  |  | $ | 6,720 |  |  | $ | 7,954 |  |  |  |  |  |

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Commercial Real Estate. The Bank originates commercial real estate loans on properties used for business purposes such as small office buildings, industrial, healthcare, lodging, recreation, or retail facilities. Commercial real estate loans are provided on owner-occupied properties and on investor-owned properties. The portfolio includes commercial 1-4 family and multifamily properties. Loans may generally be made with amortizations of up to 30 years and with interest rates that adjust periodically (primarily from short-term to five years). Most commercial real estate loans are originated with final maturities of 10 years or less. As part of its business activities, the Bank also enters into commercial loan participations and interest rate swaps.
Commercial real estate is generally managed within federal regulatory monitoring guidelines of 300% of risk based capital for non-owner occupied commercial real estate and 100% for construction loans. Total commercial real estate loans measured 259% of regulatory capital at year-end 2022 and construction real estate loans measured 26% of regulatory capital.
The Bank has hold limits for numerous categories of commercial specialty lending including healthcare, hospitality, designated franchises, and leasing.
Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk and lending spreads. 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 variable rate loans, the Bank underwrites debt service coverage to interest rate shocks of 300 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 specialty property types. Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals.
The Bank offers interest rate swaps to certain larger commercial mortgage borrowers. These swaps allow the Bank to originate a mortgage based on short-term published interest rates and allow the borrower to swap into a longer-term fixed rate. The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk. The Bank also records fee income on these interest rate swaps based on the terms of the offsetting swaps with the bank counterparties.
The Bank originates construction loans to developers and commercial borrowers in and around its markets. The maximum loan to value limits for construction loans follow Federal Deposit Insurance Corporation ("FDIC") supervisory limits, up to a maximum of 85 percent. The Bank commits to provide the permanent mortgage financing on most of its construction loans on income-producing property. 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 adjustable rates of interest and can be committed or are payable on demand, 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.
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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. The loans originated through the Company’s participation in the SBA’s Paycheck Protection Program (“PPP”) lending program in 2020 were classified as C&I loans. This program was an integral component of federal support programs in response to the emergence of the pandemic in the first half of 2020. These loans were viewed as zero credit risk due to the related SBA guarantee. These loans totaled $633 million at year-end 2020. Most of these loans were repaid via SBA forgiveness in 2021.
The Asset Based Lending Group serves the commercial middle market in New England, as well as the Bank’s market in northeastern New York and in the Mid-Atlantic. The group expands the Bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets to manufacturers, distributors and select service companies experiencing seasonal working capital needs, rapid sales growth, a turnaround, buyout or recapitalization with credit needs generally ranging from $2 to $25 million. Asset based lending involves monitoring loan collateral so that outstanding balances are properly margined by business asset collateral, which reduces the risks associated with these loans.
Small Business Banking Group is also referred to as Business Banking, and handles most business relationships which are smaller than the middle market category. Additionally, some smaller business needs are handled through the Bank’s retail branch system. Berkshire Bank also owns Firestone Financial Corp. ("Firestone"), which originated loans secured by business-essential equipment throughout the U.S. Key customer segments included the fitness, carnival, gaming, and entertainment industries. The origination of loans by Firestone was terminated in mid-2022 and the remaining $133 million portfolio at year-end 2022 is being run-off.
44 Business Capital is a dedicated SBA 7A program lending team based in the Philadelphia area. This team originates loans in the Northeast, Mid-Atlantic and nationally. 44 Business Capital also works with business banking and small business teams to provide SBA guaranteed loans to Business Banking Customers in Berkshire’s footprint. This team 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.
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. The Bank is developing correspondent channels in its markets as an additional business channel for newly originated mortgages.
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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. In 2021, the Bank entered into a third party relationship to service the residential mortgages and real estate secured consumer loans in its portfolio.
Consumer Loans. The Bank’s consumer loans are centrally underwritten and processed by its experienced consumer lending team based in Syracuse, New York. 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 due to the possible impact of a potential economic slowdown.
Maturity and Sensitivity of Loan Portfolio. The following table shows contractual final maturities of loans at year-end 2022. 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 |  | $ | 12,852 |  |  | $ | 233,495 |  |  | $ | 64,985 |  |  | $ | 8,120 |  |  | $ | 319,452 |
Commercial multifamily |  | 18,565 |  |  | 206,013 |  |  | 393,341 |  |  | 2,169 |  |  | 620,088 |
Commercial real estate owner occupied |  | 27,964 |  |  | 177,362 |  |  | 353,804 |  |  | 81,359 |  |  | 640,489 |
Commercial real estate non-owner occupied |  | 280,368 |  |  | 1,280,002 |  |  | 889,709 |  |  | 46,158 |  |  | 2,496,237 |
Commercial and industrial |  | 236,565 |  |  | 948,245 |  |  | 246,527 |  |  | 13,899 |  |  | 1,445,236 |
Residential real estate |  | 2,329 |  |  | 32,703 |  |  | 231,302 |  |  | 2,046,113 |  |  | 2,312,447 |
Home equity |  | 428 |  |  | 2,333 |  |  | 71,894 |  |  | 152,795 |  |  | 227,450 |
Consumer other |  | 7,962 |  |  | 208,030 |  |  | 43,577 |  |  | 14,341 |  |  | 273,910 |
Total |  | $ | 587,033 |  |  | $ | 3,088,183 |  |  | $ | 2,295,139 |  |  | $ | 2,364,954 |  |  | $ | 8,335,309 |

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Item 1 - Table 2B - Total loans due after one year as of December 31, 2022 - fixed and variable interest rates

(In thousands) |  | Fixed Interest Rate |  | Variable Interest Rate |  | Total
Loans: |  |  |  |  |  |
Construction |  | $ | 75,136 |  |  | $ | 231,464 |  |  | $ | 306,600 |
Commercial multifamily |  | 130,141 |  |  | 471,382 |  |  | 601,523 |
Commercial real estate owner occupied |  | 228,887 |  |  | 383,638 |  |  | 612,525 |
Commercial real estate non-owner occupied |  | 817,576 |  |  | 1,398,293 |  |  | 2,215,869 |
Commercial and industrial |  | 360,681 |  |  | 847,990 |  |  | 1,208,671 |
Residential real estate |  | 1,715,222 |  |  | 594,896 |  |  | 2,310,118 |
Home equity |  | 2,308 |  |  | 224,714 |  |  | 227,022 |
Consumer other |  | 257,550 |  |  | 8,398 |  |  | 265,948 |
Total |  | $ | 3,587,501 |  |  | $ | 4,160,775 |  |  | $ | 7,748,276 |

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.
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.
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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. 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. Interest income on accruing troubled debt restructurings totaled $0.1 million for 2022. The total carrying value of troubled debt restructurings was $12.4 million at year-end.
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. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are designated Special Mention. Please see the additional discussion of non-accruing and potential problem loans in Item 7 and additional information in notes to the financial statements. Impaired loans acquired in business combinations are normally rated Substandard or lower and the fair value assigned to such loans at acquisition includes a component for the possibility of loss if deficiencies are not corrected.
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. Prior to 2020, the allowance represented management’s estimate of inherent incurred losses that are probable and estimable as of the date of the financial statements. On January 1, 2020, the Company adopted the new loan loss allowance standard based on Current Expected Credit losses (“CECL”). Under this standard, management makes estimates of future economic conditions over the life of the loan portfolio and other future conditions and arrives at a reasonable estimate of expected loan losses. The basis of the allowance changed from an incurred model to an expected model based on this standard. As a result, the amount of the loan loss allowance and the loan loss provision beginning in 2020 is not comparable to prior years. Also, since different banks may use different estimates and arrive at different expectations, comparisons between banks are more difficult. Further, since the accounting is based on future projections our estimates may change significantly from period to period, the amounts of the allowance and provision may be more volatile than under the previous model. Further information about the allowance is discussed further in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements.
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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

|  | 2022 |  | 2021 |  | 2020 |  |  |  |
Ratios: |  |  |  |  |  |  |  |  |  |
Allowance for credit losses on loans/total loans |  | 1.15 | % |  | 1.55 | % |  | 1.58 | % |  |  |  |
Non-accrual loans/total loans |  | 0.37 | % |  | 0.52 | % |  | 0.80 | % |  |  |  |
Allowance for credit losses/non-accruing loans |  | 309.41 | % |  | 300.33 | % |  | 196.01 | % |  |  |  |
Net charge-offs/average loans |  | 0.27 | % |  | 0.29 | % |  | 0.41 | % |  |  |  |

Item 1 - Table 3.a - Net charge-offs to average loans for each loan category

|  | 2022 |  | 2021 |  | 2020
Net charge-offs to average loans: |  |  |  |  |  |
Construction |  | — | % |  | — | % |  | 0.01 | %
Commercial multifamily |  | — |  |  | — |  |  | — |
Commercial real estate owner occupied |  | — |  |  | 0.02 |  |  | 0.08 |
Commercial real estate non-owner occupied |  | 0.06 |  |  | 0.18 |  |  | 0.12 |
Commercial and industrial |  | 0.20 |  |  | 0.09 |  |  | 0.16 |
Residential real estate |  | (0.01) |  |  | — |  |  | 0.01 |
Home equity |  | — |  |  | — |  |  | — |
Consumer other |  | 0.02 |  |  | 0.01 |  |  | 0.02 |

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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)

|  | 2022 |  | 2021 |  | 2020 |  |  |  |
(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 |  | $ | 1,227 |  |  | 0.4 | % |  | $ | 3,206 |  |  | 1.0 | % |  | $ | 5,111 |  |  | 1.1 | % |  |  |  |  |  |  |  |
Commercial multifamily |  | 1,810 |  |  | 0.3 |  |  | 6,120 |  |  | 1.2 |  |  | 5,916 |  |  | 1.2 |  |  |  |  |  |  |  |  |
Commercial real estate owner occupied |  | 10,739 |  |  | 1.7 |  |  | 12,752 |  |  | 2.1 |  |  | 12,380 |  |  | 2.2 |  |  |  |  |  |  |  |  |
Commercial real estate non-owner occupied |  | 30,724 |  |  | 1.2 |  |  | 32,106 |  |  | 1.5 |  |  | 35,850 |  |  | 1.7 |  |  |  |  |  |  |  |  |
Commercial and industrial |  | 18,743 |  |  | 1.3 |  |  | 22,584 |  |  | 1.8 |  |  | 25,013 |  |  | 1.3 |  |  |  |  |  |  |  |  |
Residential real estate |  | 18,666 |  |  | 0.8 |  |  | 22,734 |  |  | 1.5 |  |  | 28,491 |  |  | 1.5 |  |  |  |  |  |  |  |  |
Home equity |  | 2,173 |  |  | 1.0 |  |  | 4,006 |  |  | 1.6 |  |  | 6,482 |  |  | 2.2 |  |  |  |  |  |  |  |  |
Consumer other |  | 12,188 |  |  | 4.5 |  |  | 2,586 |  |  | 1.3 |  |  | 8,059 |  |  | 2.7 |  |  |  |  |  |  |  |  |
Total |  | $ | 96,270 |  |  | 1.2 | % |  | $ | 106,094 |  |  | 1.6 | % |  | $ | 127,302 |  |  | 1.6 | % |  |  |  |  |  |  |  |

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

|  | 2022 |  | 2021 |  | 2020 |  |  |  |
(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 |  | $ | 1,227 |  |  | 3.8 | % |  | $ | 3,206 |  |  | 4.8 | % |  | $ | 5,111 |  |  | 5.6 | % |  |  |  |  |  |  |  |
Commercial multifamily |  | 1,810 |  |  | 7.4 |  |  | 6,120 |  |  | 7.5 |  |  | 5,916 |  |  | 6.0 |  |  |  |  |  |  |  |  |
Commercial real estate owner occupied |  | 10,739 |  |  | 7.7 |  |  | 12,752 |  |  | 8.9 |  |  | 12,380 |  |  | 6.8 |  |  |  |  |  |  |  |  |
Commercial real estate non-owner occupied |  | 30,724 |  |  | 30.0 |  |  | 32,106 |  |  | 31.6 |  |  | 35,850 |  |  | 26.2 |  |  |  |  |  |  |  |  |
Commercial and industrial |  | 18,743 |  |  | 17.4 |  |  | 22,584 |  |  | 18.8 |  |  | 25,013 |  |  | 24.0 |  |  |  |  |  |  |  |  |
Residential real estate |  | 18,666 |  |  | 27.7 |  |  | 22,734 |  |  | 21.8 |  |  | 28,491 |  |  | 23.9 |  |  |  |  |  |  |  |  |
Home equity |  | 2,173 |  |  | 2.7 |  |  | 4,006 |  |  | 3.7 |  |  | 6,482 |  |  | 3.7 |  |  |  |  |  |  |  |  |
Consumer other |  | 12,188 |  |  | 3.3 |  |  | 2,586 |  |  | 2.9 |  |  | 8,059 |  |  | 3.8 |  |  |  |  |  |  |  |  |
Total |  | $ | 96,270 |  |  | 100.0 | % |  | $ | 106,094 |  |  | 100.0 | % |  | $ | 127,302 |  |  | 100.0 | % |  |  |  |  |  |  |  |

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INVESTMENT SECURITIES ACTIVITIES
The securities portfolio provides cash flow to protect the safety of customer deposits and as a potential source of liquidity. The portfolio is also used to manage interest rate risk and to earn a reasonable return on investment. Decisions are made in accordance with the Company’s investment policy and include consideration of risk, return, duration, and portfolio concentrations. Day-to-day oversight of the portfolio rests with the Chief Financial Officer and the Treasurer. The Enterprise Risk Management/Asset-Liability Committee meets multiple times each quarter and reviews investment strategies. The Risk Management, Capital and Compliance Committee of the Board of Directors provides general oversight of the investment function.
Historically, the Company has maintained short-term investment balances as a component of cash and cash equivalents which are a component of short-term liquidity management. Due to the pandemic, with a surge in demand deposits and a reduction in loan balances, the balance of short-term investments increased in 2020 and 2021 due to the comparatively low yields and spreads on longer duration investment securities. Most short-term investments have been maintained at the Federal Reserve Bank of Boston.
The Company has historically maintained a high-quality portfolio of managed duration mortgage-backed securities, together with a portfolio of municipal bonds including national and local issuers and local economic development bonds issued to non-profit organizations. Nearly all of the mortgage-backed securities are issued by Ginnie Mae, Fannie Mae, or Freddie Mac, consisting principally of collateralized mortgage obligations (generally consisting of planned amortization class bonds and pass-through securities). The municipal portfolio provides tax-advantaged yield, and the local economic development bonds were originated by the Company to area borrowers. The Company invests in investment grade corporate bonds and Agency commercial mortgage-backed securities. Purchases of non-investment grade fixed-income securities have consisted primarily of capital instruments issued by local and regional financial institutions. The Company also invests in funds financing community reinvestment projects. The Bank owns restricted equity in the Federal Home Loan Bank of Boston (“FHLBB”) based on its operating relationship with the FHLBB. The Company has various hold limits limiting credit and instrument exposures.
The Company owns an interest rate swap against a tax advantaged economic development bond issued to a local not-for-profit organization, and as a result this security is carried as a trading account security. The Company generally designates debt securities as available for sale, but sometimes designates longer-duration municipal and other securities as held to maturity based on its intent. This also allows the Company to more effectively manage the potential impact of longer-duration, fixed-rate securities on shareholders' equity in the event of rising interest rates.
The following table summarizes year-end 2022 amortized cost, weighted average yields, and contractual maturities of debt securities. Yields are shown on a fully taxable equivalent basis and are based on amortized cost. A significant portion of the mortgage-based securities are planned amortization class bonds. Their expected durations were targeted at 3-5 years, but durations lengthened due to the slower prepayment speeds of all mortgage related instruments in the environment of rising interest rates in 2022. The contractual maturities shown below reflect the underlying maturities of the collateral mortgages. Additionally, the mortgage-based securities maturities shown below are based on final maturities and do not include scheduled amortization. Yields include amortization and accretion of premiums and discounts. There were no material changes in the tax-exempt portfolio.
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 | $ | 1.4 |  |  | 5.2 | % |  | $ | 7.4 |  |  | 4.3 | % |  | $ | 39.5 |  |  | 4.9 | % |  | $ | 284.4 |  |  | 4.1 | % |  | $ | 332.7 |  |  | 4.3 | %
Mortgage-backed securities | 0.1 |  |  | 2.1 | % |  | 43.4 |  |  | 2.2 | % |  | 229.0 |  |  | 1.8 | % |  | 1,581.1 |  |  | 1.7 | % |  | 1,853.6 |  |  | 1.5 | %
Other bonds and obligations | 12.1 |  |  | 3.6 | % |  | 6.1 |  |  | 7.1 | % |  | 38.7 |  |  | 4.3 | % |  | 1.5 |  |  | 3.8 | % |  | 58.4 |  |  | 2.0 | %
Total | $ | 13.6 |  |  | 3.8 | % |  | $ | 56.9 |  |  | 3.0 | % |  | $ | 307.2 |  |  | 2.5 | % |  | $ | 1,867.0 |  |  | 2.1 | % |  | $ | 2,244.7 |  |  | 1.9 | %

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DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
Deposits are the major source of funds for the Bank’s lending and investment activities. Deposit accounts are the primary product and service interaction with the Bank’s customers. The Bank serves personal, commercial, non-profit, and municipal deposit customers. Most of the Bank’s deposits are generated from the areas surrounding its branch offices. The Bank offers a wide variety of deposit accounts with a range of interest rates and terms. The Bank also periodically offers 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. Berkshire’s Business Connection is a personal financial services benefit package designed for the employees of its business customers.
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, with the majority of volume originated by a leading national provider of payroll and human capital management software solutions.These payroll deposits often fluctuate daily by hundreds of millions of dollars depending on payroll cycles. Payroll deposits were concentrated in money market deposit balances at year-end 2022. The Bank was one of the top 50 bank ACH originators by volume in 2021 based on the most recent data available.
Online banking and mobile banking functionality is increasingly important as a component of deposit account access and service delivery. The Bank is also gradually deploying its MyTeller video tellers to complement and extend its service capabilities in its branches. The Bank has partnered with a third party fintech company to provide enhanced online deposit account opening services and plans in 2023 to implement a new online and mobile banking platform developed in partnership with this provider as an important milestone in its Digitouch SM strategy. The Company also is monitoring the development of payment services which are growing in their importance in the personal and commercial deposit markets.
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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

|  | 2022 |  | 2021 |  | 2020
(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 |  | $ | 2,914.9 |  |  | 30 | % |  | — | % |  | $ | 3,008.5 |  |  | 30 | % |  | — | % |  | $ | 2,324.6 |  |  | 23 | % |  | — | %
NOW and other |  | 1,416.7 |  |  | 14 |  |  | 0.4 |  |  | 976.4 |  |  | 10 |  |  | 0.1 |  |  | 1,216.6 |  |  | 12 |  |  | 0.3 |
Money market |  | 2,809.1 |  |  | 29 |  |  | 0.5 |  |  | 3,293.5 |  |  | 32 |  |  | 0.2 |  |  | 2,713.6 |  |  | 26 |  |  | 0.6 |
Savings |  | 1,114.8 |  |  | 11 |  |  | 0.1 |  |  | 1,111.6 |  |  | 11 |  |  | 0.1 |  |  | 914.1 |  |  | 9 |  |  | 0.1 |
Time |  | 1,541.7 |  |  | 16 |  |  | 0.9 |  |  | 1,678.9 |  |  | 17 |  |  | 0.9 |  |  | 3,102.9 |  |  | 30 |  |  | 1.7 |
Total |  | $ | 9,797.2 |  |  | 100 | % |  | 0.9 | % |  | $ | 10,068.9 |  |  | 100 | % |  | 0.3 | % |  | $ | 10,271.8 |  |  | 100 | % |  | 0.7 | %

Estimated uninsured deposits were $3.8 billion and $3.7 billion at December 31, 2022 and 2021, respectively. At year-end 2022, 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 Aggregate Time Deposits that Meet or Exceed the FDIC Insurance Limit and Otherwise Uninsured Time Deposits |  |
(In thousands) |  |  |  |  |  |
Three months or less |  | $ | 38,117 |  |  | $ | 59,192 |  |  |
Over 3 months through 6 months |  | 42,668 |  |  | 42,836 |  |  |
Over 6 months through 12 months |  | 142,382 |  |  | 164,035 |  |  |
Over 12 months |  | 218,675 |  |  | 266,841 |  |  |
Total |  | $ | 441,842 |  |  | $ | 532,904 |  |  |

The Bank’s deposits are insured by the FDIC. The Bank utilizes brokered time deposits to broaden its funding base, augment its interest rate risk management vehicles, and to support loan growth. 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. Brokered deposits are sourced through selected Board approved brokers and are managed as a component of the Bank's liquidity policies.
The Company also uses borrowings from the FHLBB as an additional source of funding, particularly for daily cash management and for funding longer duration assets. FHLBB advances also provide more pricing and option alternatives for particular asset/liability needs. The FHLBB functions as a central reserve bank providing credit for member institutions. As an FHLBB member, the Company is required to own capital stock of the organization. Borrowings from this institution are secured by a blanket lien on most of the Bank’s mortgage loans and mortgage-related securities, as well as certain other assets. Advances are made under several different credit programs with different lending standards, interest rates, and range of maturities. The Bank also has access to borrowings from the Federal Reserve Bank of Boston.
The Company had a $15 million trust preferred obligation and a $7 million trust preferred obligation outstanding, as well as $100 million in subordinated notes at year-end 2022. The Company’s common stock is listed on the New York Stock Exchange under the ticker “BHLB”. Subject to certain limitations, the Company can also choose to issue common stock, preferred stock, subordinated debt, or senior debt in public stock offerings or private placements. The Company maintains a shelf registration as part of its routine capital management.
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DERIVATIVE FINANCIAL INSTRUMENTS
The Company offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Company backs these swaps with offsetting swaps with national bank counterparties. With other lending institutions, the Company engages in risk participation agreements. These arrangements are structured similarly to its swaps with commercial borrowers, but a different bank is the lead underwriter. The Company gets paid a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default. These swaps are designated as economic hedges. Interest rate swaps that meet certain criteria to be viewed as conforming are required to be cleared through exchanges. The Bank has designated a national financial institution as its clearing agent.
The Company’s mortgage banking activities result in derivatives. Commitments to lend are provided on applications for residential mortgages intended for resale and are accounted for as non-hedging derivatives. The Company arranges offsetting forward sales commitments for most of these rate-locks with national bank counterparties, which are designated as economic hedges. Commitments on applications intended to be held for investment are not accounted for as derivative financial instruments.
The Company has a policy for managing its derivative financial instruments, and the policy and program activity are overseen by the Risk Management, Capital and Compliance Committee. Derivative financial instruments with counterparties which are not customers are limited to a select number of national financial institutions. Collateral may be required based on financial condition tests. The Company works with third-party firms which assist in marketing derivative transactions, executing transactions, and providing information for bookkeeping and accounting purposes.
The Company sometimes uses interest rate swap instruments for its own account to fix the interest rate on some of its borrowings, all of which have been designated as cash flow hedges. The Company may also use interest rate collars or other derivative instruments in managing its interest rate risk. The Company also has begun offering forward foreign exchange derivatives to its commercial markets as part of its expanded international banking services. The Company expects to back these forwards with offsetting forwards with national bank counterparties. This activity would be targeted to support routine commercial needs of customers engaged in international trading activities and would only be offered for bank approved currencies and durations.
LIBOR BASED INSTRUMENTS
The Company’s floating-rate funding, certain hedging transactions and certain of the Company’s products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate using the London Interbank Offered Rate (“LIBOR”). Pursuant to bank regulations, the use of LIBOR as an index for new contracts was prohibited beginning in 2022. The use of LIBOR as an index on existing “Legacy” contracts will be discontinued beginning in 2023. There is further discussion of the LIBOR transition in Item 1A and Item 7 of this report.
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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 $1.7 billion in total assets under management at year-end 2022. The Company expanded this team during the year and has introduced Socially Responsible Investment portfolios as another element of the Company’s overall vision of being a leading socially responsible company, and as part of a brand theme that Where You Invest Matters.
HUMAN CAPITAL MANAGEMENT
Berkshire’s people are the driving force behind its progress on Berkshire’s Exciting Strategic Transformation (BEST) plan and vision of being a high performing, leading socially responsible community bank in New England and beyond. The Company’s approach to human capital management is grounded in its corporate values and focuses on:
•Strong oversight and risk management practices
•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 performance. The full Board also receives an annual briefing on employee engagement. The SEVP, Chief Human Resources & Culture Officer provides management oversight on human capital matters. The Company proactively identifies potential human capital related risks, such as the labor market shortage, rising labor costs, and employee retention and designs strategies to mitigate those risks. Strong human capital management is viewed as integral to the Company's transformation and ability to meet its strategic objectives.
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 based on current openings and forecasted needs. The Company leverages several strategies to support its talent pipeline and talent acquisition activities including formal advertising, postings on targeted career sites, career events, internship placements, affinity group relationships, and the use of experienced external recruiters for key management and specialized positions. Berkshire also has a small internal team of talent recruitment professionals.
Berkshire maintains a hybrid work model to expand its access to top talent and provide its employees with workplace flexibility. These strategies have proved effective in meeting the demand for talent demonstrated by the Company’s strong track record of attracting high-caliber talent across retail, commercial, wealth management, business banking, technology and operational areas. In addition, as market disruptions from mergers remain and recessionary pressures impact other industries, Berkshire will continue to leverage its differentiated brand and unique market positioning to hire community-focused bankers from its competitors and attract high-performing operational talent from outside the industry.
COMPENSATION & BENEFITS
A highly competitive labor market along with inflationary pressures has impacted labor costs for all businesses. Berkshire is not immune to these economic pressures. The Company continually evaluates its compensation strategies and benefits programs, benchmarks to industry and peers and surveys the landscape of best practices to develop compensation and benefits packages that reward performance and retain top talent at all levels of the Company. Against this backdrop, and in keeping with the Company’s socially responsible mission, Berkshire raised the minimum starting pay to $17/hour in 2022. It also enhanced its vacation benefit as well as its incentive plans across lines of business to provide opportunities for employees to earn higher compensation and bonuses for strong performance aligned with Berkshire’s strategic objectives.
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Berkshire provides comprehensive medical coverage, paid vacation, personal and sick time, paid protective leave for gender-based violence, a 401(k) plan with employer match, long-term disability insurance, and group term life insurance. In addition, Berkshire offers a day care reimbursement program, a dependent care expense account, family and medical leave along with flexible work arrangements, including the ability to work fully remote dependent on the duties of one’s job. All benefits are available to married same-sex or different-sex couples as well as domestic partners. In addition to its compensation and health benefits, Berkshire offers volunteer-time off, a matching-gift program, an employee assistance program, regular performance reviews, professional development and the You FIRST Fund to help employees impacted by personal financial hardships. Approximately 97% of employees are eligible for benefits.
TRAINING, DEVELOPMENT, ENGAGEMENT & RETENTION
Training and development programs provide employees with the knowledge and skills needed to succeed and have upward career mobility. They are critical components, along with competitive compensation and benefits programs, to having an engaged workforce. Ultimately an engaged workforce drives high levels of retention which reduces human capital risks, expense, and advances Berkshire’s progress and performance.
The Company provides several learning and training programs consistent with one’s job responsibilities, professional goals, and development plans. Employees have regular performance assessments to identify strengths and areas for further growth. Berkshire continues to reskill and upskill employees from across the Company helping them advance along career paths by taking on new responsibilities and roles. The Company offers a mentoring program for high potential junior employees along with leadership development programs. For employees looking to expand their professional experience in the classroom, the Company offers educational assistance along with access to formal degree and certification programs.
Berkshire continues to monitor the progress of its efforts to evaluate the effectiveness of programs and strategies on engagement. A comprehensive annual employee engagement and pulse survey is conducted to identify strengths and opportunity areas within the organization. Overall, employees felt there was a strong spirit of teamwork, that Berkshire genuinely cares for its communities, and they have strong relationships with their direct managers. Actions plans are developed for areas identified in the survey that do not meet the Company’s high expectations.
While Berkshire has been impacted by higher-than-average turnover due to labor market disruptions, it is seeing positive momentum because of the actions it has taken to improve engagement and combat turnover including:
•Launched Company-wide reward and recognition program
•Enhanced vacation benefit
•Introduced wellness day
•Enhanced line of business incentive plans
•Established career paths for various job families
•Increased starting wage
•Offered mentoring program
•Developed robust employee communications program
Collectively these efforts have led to improved retention year over year, historically high employee engagement and being named a Forbes America’s Best Midsize Employers.
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HEALTH & WELLNESS
As the world began to emerge from the COVID-19 pandemic Berkshire continued to proactively manage impacts to protect the health and safety of its employees, customers and communities. During the height of the pandemic, the Company provided protective equipment to front-line employees, including masks and gloves, and offered all additional paid sick time, paid vaccine time, paid quarantine/isolation leave, job protected personal leave, flexible work schedules for remote employees, premium pay for onsite employees and maintained full pay for employees with reduced schedules, as a result of the pandemic.
Berkshire works to protect and enhance the physical, mental and financial wellbeing of its workforce by providing programs, benefits and a health and wellness employee resource group. The Company, through its insurance provider, offers a fitness, weight and mind/body reimbursement along with a year-round calendar of various wellness related activities. Since physical and mental health go hand-in-hand with financial health, Berkshire provides access to financial education resources, webinars along with its You FIRST Fund to assist employees experiencing financial hardships. In addition, Berkshire provides a comprehensive employee assistance program which includes counseling services and resources for those experiencing mental health challenges. To further support the needs of its workforce, Berkshire introduced a wellness day to provide a day off for employees to disconnect, recharge and take care of themselves in whatever way works best for them.
FUTURE OF THE WORKPLACE
Berkshire continues to evolve and enhance its human capital management strategies to drive organizational growth in support of BEST while combating risks, such as the labor market shortage and rising labor costs. The Company expects to maintain its hybrid workplace over the long-term and invest in technology. While technology will play a bigger role in the future of Berkshire, helping to improve processes and drive efficiencies, people will always be at the core of its ability to deliver value to its customers, shareholders and communities. The Company remains confident that the Berkshire brand, value proposition and socially responsible vision will continue to be a differentiator in the market.

Human Capital* | ◦Total Full Time Equivalent | 1310
◦Retention Rate | 71%
◦Promotion Rate | 20%
◦Minimum Starting Salary | $17/hour
◦Average Tenure (years) | 7

*All metrics reported are as of and for the year-ended December 31, 2022.
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DIVERSITY, EQUITY & INCLUSION
Creating a diverse, equitable, and inclusive (DEI) workplace is an essential enabler to continuing to drive forward progress on Berkshire’s Exciting Strategic Transformation (BEST), its BEST Community Comeback and vision. Ultimately Berkshire’s goal is to ensure that its workforce reflects the communities in which it operates, that its employees feel valued and can reach their full potential and that it improves the access and affordability of financial solutions to support economic growth of underrepresented populations and communities. The Company’s advances those goals through an integrated approach grounded in its corporate values:
•Strong oversight and governance practices
•Recruitment & talent management
•Education and training
•Workplace programming through employee resource groups (ERGs)
•Financial solutions which drive economic equity
•Community programming focused on financial inclusion and entrepreneurship
•Supplier diversity
The Company has a strong foundation of governance practices to ensure that diversity, equity and inclusion is embedded into Berkshire’s business activities. This includes the Corporate Responsibility & Culture Committee of the Board of Directors which has ultimate oversight responsibility. Berkshire’s Diversity, Equity & Inclusion Committee, which reports into the Board committee, provides additional management level oversight to the Company’s programming and performance. The Senior Vice President, Chief Diversity Officer manages the Company’s DEI programming.
Berkshire continues working to improve representation within its workplace through recruitment initiatives while enhancing its internal talent pipeline to ensure representation at all levels of the Company. Berkshire identifies opportunities in targeted markets and business lines, develops deeper partnerships with non-profit organizations and affinity groups, advertises positions on specialized career sites, participates in affinity career events and uses internal as well as external recruitment professionals to ensure it receives candidate pools that reflect the rural and urban communities in which it operates. It works to develop and implement strategies aimed at increasing representation at each level of the Company. In addition, the Company regularly reviews the gender and ethnic diversity of its workforce at the employee, manager and executive management level and completes a review of pay and performance measures to ensure that all employees, regardless of gender and ethnicity, in comparable roles are compensated equitably. As a result of Berkshire’s intentional and impactful efforts to date, Berkshire was listed in the Bloomberg Gender Equality Index and Human Rights Campaign’s Corporate Equality Index.

Diversity, Equity & Inclusion* | Percent of women in workforce | 67 | %
Percent of ethnic minorities in workforce | 13 | %
Percent of women on the Board | 31 | %
Percent of ethnic minorities on the Board | 31 | %
Percent of women in manager roles (officer+) | 20 | %
Percent of ethnic minorities in manager roles (officer+) | 4 | %
Percent of women in executive management roles | 36 | %
Percent of ethnic minorities in executive management roles | 14 | %

*Workforce metrics reported are as of December 31, 2022. Board metrics reflect the current composition of the Board of Directors.
Berkshire provides a full suite of diversity, equity & inclusion trainings. The trainings help build understanding and provide employees with knowledge, skills and tactics they can put into practice. All new employees complete training at the time of hire and Berkshire intends to roll out enhancements to its training program which includes required annual and elective courses for all employees and hiring managers in 2023. In addition, Berkshire offers seven Employee Resource Groups (ERGs) each playing an integral role for employees and the culture of the company. Every Employee Resource Group provides a safe space for dialogue, education, and collective action on topics relevant to their members and the Company. Through the ERGs, employees concerns and ideas to strengthen Berkshire’s culture are elevated to members of management and the Diversity, Equity & Inclusion Committee for action, empowering employees to collectively be engines of positive change within the workplace and the broader community.
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The Company continues to work towards building economic equity in its communities by developing and offering safe, accessible, affordable financial solutions and programs including its MyFreedom Checking account, nationally certified by BankOn for its affordability, and the Futures Fund. The Futures Fund is a special purpose credit program which provides access to a low-interest, low barrier to entry line of credit in collaboration with non-profit partners who provide wrap around technical assistance to minority, LGBTQIA+ and other businesses owned by underrepresented individuals. Since launching the program in 2020, it has deployed nearly $1.5 million to underrepresented business owners. Beyond offering financial solutions and wellness programming, Berkshire also understands that a diverse third-party base is important to achieving its operational goals, supply chain resilience, vision and creating equity in its communities. As a result, Berkshire works to maintain a third-party base that reflects the communities in which it operates and, to the maximum extent possible, increase the utilization of third parties owned by underrepresented people.
Additional information on Berkshire’s Human Capital Management and Diversity, Equity & Inclusion practices can be found in the Company’s annual Corporate Responsibility Report, which details the company's environmental, social and governance programs.
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.
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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 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 authorized 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, of the preceding two years. The Bank was required to obtain the approval of the Commissioner to pay Bank dividends to the Company in 2022 and is expected to require such approval in 2023.
Loans to One Borrower Limitations. 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 damage 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.
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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 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 asset 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 dividends payments in 2022 and such approval is expected to be required in 2023.
Investment Activities. The Federal Deposit Insurance Act generally limits the types of equity investments an FDIC-insured state-chartered bank, such as the Bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks.
Interstate Banking and Branching. 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, 2022, 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 leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1 ratio of 4.5% or greater. 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 leverage ratio of less than 4.0%, or a common equity Tier 1 ratio of less than 4.5%. 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 leverage ratio of less than 3.0%, or a common equity Tier 1 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%.
“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 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”
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bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company. “Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
At December 31, 2022, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations.
Transactions with Affiliates and Loans to Insiders. Transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. 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 in “covered transactions,” such as loans, with any one affiliate to 10% of such institution’s capital stock and surplus. There is also an aggregate limit on all such transactions with all affiliates to 20% of capital stock and surplus. Loans to affiliates and certain other specified transactions must comply with specified collateralization requirements. Section 23B requires that transactions with affiliates be on terms that are no less favorable to the institution or its subsidiary as similar transactions with non-affiliates.
Federal law also restricts an institution with respect to loans to 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 persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the Board of Directors. Further, loans to insiders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential 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 the 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. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years. The assessment range (inclusive of possible adjustments specified by the regulations) for institutions with greater than $10 billion of total assets was 1.5 to 40 basis points effective through December 31, 2022. The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 42 basis points.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a regulator. Management does not know of any practice, condition or violation that might lead to termination of FDIC deposit insurance.
The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will be in the future.
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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. Historically, the FHLBB has paid dividends to member banks based on money market rates.
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 wrongful action likely to have an 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 cover a wide range of violations and actions, 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 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.
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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 2022 and for the repurchase program announced in January 2023.
These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of its stock, or otherwise engage in capital distributions.
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, 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 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.
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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), 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 factors 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 rather than the FDIC.
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 May 5, 2022, the OCC, FRB and FDIC released a notice of proposed rulemaking to strengthen and modernize the CRA regulations and framework.
Anti-Money Laundering Laws. The Bank is subject to extensive anti-money laundering provisions and requirements, which require the institution to have in place a comprehensive customer identification program and an anti-money laundering program and procedures. 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 improve information sharing between depository institutions and the U.S. government. The Bank has established policies and procedures intended to comply with these provisions.
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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 are effective beginning January 1, 2023.
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ITEM 1A. RISK FACTORS
The risks set forth below, in addition to the other risks described in this Annual Report on Form 10-K, may adversely affect the Company's business, financial condition, strategic objectives, and operating results. In addition to the risks set forth below and the other risks described in this annual report, there may be additional risks and uncertainties that are not currently known to the Company or that the Company currently deems to be immaterial that could materially and adversely affect the Company's business, financial condition, strategic objectives, or operating results. As a result, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company.
The COVID-19 global pandemic affected all aspects of the Company’s business since 2020. The impact of the pandemic is discussed in the "Operating" risk factors below, but it should be understood as affecting the overall risk environment and risk factors of the Company.
Risk Factors Summary
Lending Risks
•Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results.
•The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits.
•The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct.
•The Company is Exposed to Risk of Environmental Liability When It Takes Title to Property.
•New Third Party Lending Relationships and Sourcing Channels May Increase Lending Risk
Operating Risks
•Public Health Emergencies Like the COVID-19 Pandemic May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.
•The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.
•The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.
•Counterparties and Correspondents Expose the Company to Risks.
•The Company’s Business is Reliant on Outside Vendors.
•Tailoring The Bank's Delivery Model to Respond to Customer Preferences in Banking May Negatively Affect Earnings
•Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.
•The Discontinuation of LIBOR and the Transition to an Alternative Reference Rate Could Adversely Impact the Company’s Business and Results of Operations.
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Liquidity Risks
•The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth.
•The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions. The Company’s Stock Repurchase Program is also Dependent on These Distributions.
•The Loss Recorded in 2020 May Have an Adverse Effect on Future Dividend Payments to Common Shareholders.
•Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.
Interest Rate Risks
•Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition.
Securities Market Value Risks
•Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings.
Regulatory Matters Risks
•Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs.
•Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party.
Significant Accounting Estimates Risks
•Various Factors May Cause Our Allowance for Credit Losses on Loans to Increase.
•Fair Value Measurements May Be Affected by Inherent Uncertainties
Trading of the Company's Common Stock
•The Trading History of the Company’s Common Stock is Characterized By Low Trading Volume. The Value of Shareholder Investments May be Subject to Sudden Decreases Due to the Volatility of the Price of the Common Stock.
Lending
Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results.
Real estate lending is a major business activity for the Company. Real estate market conditions affect the value and marketability of real estate collateral, and they also affect the cash flows, liquidity, and net worth of many borrowers whose operations and finances depend on real estate market conditions. We have a geographic concentration of loans in our market areas. Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans and increase loan losses, and generally affect the Company's financial condition and results of operations. Potential increases in interest rates could increase capitalization rates which could adversely affect commercial property appraisals and collateral value. Residential property values may be similarly adversely impacted. Pandemic impacts on the supply and demand of residential properties have caused unusual price appreciation in many markets, which may not be sustained if market conditions normalize.
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The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits.
The Company emphasizes commercial lending, which generally exposes the Company to a greater risk of nonpayment and loss because repayment of such loans often depends on the successful operations and income stream of the borrowers. Commercial loans are historically more susceptible to delinquency, default, fraud, and loss during economic downturns. Commercial lending involves larger loan sizes and larger relationship exposures, with greater potential impact on profits in the event of adverse loan performance. The majority of the Company’s commercial loans are secured by real estate and subject to the previously discussed real estate risk factors, as well as risks specific to individual properties and property types. Recent expansion of the commercial lending team may expose the Company to new markets and risks if new lenders are not integrated with the Company’s policies, controls, and procedures.
The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct.
The Company routinely sells newly originated residential mortgage loans and SBA guaranteed business loans, and may also sell other loans or loans portfolios. It may make certain representations and warranties to the purchaser concerning the loans sold and the procedures under which those loans have been originated and serviced. If any of these representations and warranties are invalid, the Company may be required to refund premiums, indemnify the purchaser for any related costs or losses, or it may be required to repurchase part or all of the affected loans, which may be impaired. The Company may also be required to repurchase loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan it has sold. The Company’s ability to maintain seller/servicer relationships with government agencies and government backed entities may be jeopardized in the event of the emergence of one or more of the above risks. Demand for the Company’s loans in the secondary markets could also be affected by these risks, which could lead to a reduction in related business activities.
The Company is Exposed to Risk of Environmental Liability When It Takes Title to Property.
In the course of its business, the Company may foreclose on and take title to real estate. As a result, the Company could be subject to environmental liabilities with respect to these properties for property damage, personal injury, investigation and clean-up costs. The costs associated with investigation or remediation activities could be substantial. The Company may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.
New Third Party Lending Relationships and Sourcing Channels May Increase Lending Risk.
The Company is expanding its lending sourcing channels, including a residential mortgage channel with local correspondents, partnering with fintech online lenders, and expanding its commercial loan sourcing channels. It is also relying more on third party loan servicing. These activities may increase the underwriting risks and loan administration risks in managing its lending activities.
Operating
Public Health Emergencies Such as the COVID-19 Pandemic May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.
The COVID-19 pandemic has negatively impacted the U.S. and global economy; disrupted U.S. and global supply chains and labor markets; created significant volatility and disruption in financial markets; impacted rates and yields on U.S. Treasury securities; resulted in increased credit risk in certain industries; increased demands on capital and liquidity; and affected employment wages, consumer confidence, and inflation. In addition, the pandemic has resulted in temporary closures and curtailment of individual and business activities in our footprint. The pandemic has resulted in increases in the Company's allowance for credit losses and the recognition of impairment of our goodwill. Some of the risks the Company faces from the pandemic include, but are not limited to: the health and availability of our colleagues, the supply of labor, inflationary impacts on operating costs, the financial condition of our clients and the demand for our products and services, changes in interest rates, recognition of credit losses and increases in the allowance for credit losses, impacts if customers draw on their lines of credit or draw down deposits or seek additional loans to help finance their businesses, and a significant deterioration of business conditions in our markets. Sustained adverse effects may also increase our cost of capital, prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, or result in downgrades in our credit rating. The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity and results of operations will
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depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to the pandemic.
The length of the pandemic and the effectiveness of the measures being put in place to address it are unknown and we face possible continued impacts on liquidity, operating revenues, and credit performance. To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of operations, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K.
The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.
Security breaches of confidential information in our technology platforms could expose the Company to possible liability and damage its reputation. Any compromise of data security could also deter customers from using the Company's services. The Company relies on industry standard internet security and authentication systems to effect secure transmission of data. These precautions may not protect the Company's security systems from compromises or breaches and could result in damage to its reputation and business. The Company utilizes third party core banking software, in addition to other outsourced data processing. If third party providers encounter difficulties or if the Company has difficulty in communicating and/or transmitting with such third parties, it could significantly affect its ability to adequately process and account for customer transactions, which could significantly affect its business operations. The Company interfaces with electronic payments systems which are subject to security and operational risks. The Company utilizes file encryption in designated internal systems and networks and is subject to certain state and federal regulations regarding how the Company manages data security. The Company's enterprise governance risk and compliance function includes a framework of controls, policies and technologies to monitor and protect information from cyberattacks, mishandling, and loss, together with safeguards related to the confidentiality, integrity, and availability of information. Natural disasters and disaster recovery risks could affect its operating systems, which could affect its reputation. The Company's business continuity program addresses crisis management, business impact, and data and systems recovery. Potential problems with the management of technology security and operational risks may affect regulatory compliance, which could affect operating costs and expansion plans.Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, may have unintended consequences due to their limitations, potential manipulation, or our failure to use them effectively.
The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.
Increased levels of remote access resulting from more work from home employees may create additional opportunities for cybercriminals to exploit vulnerabilities, and employees may be more susceptible to phishing and social engineering attempts due to work responsibilities at home. In addition, technological resources may be strained due to the number of remote users.
The Company’s computer systems and network infrastructure are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, steal financial assets, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions. As a growing regional bank, the Company may be subject to similar attacks in the future. Hacking and identity theft risks could cause serious reputational harm and possible financial loss to the Company. Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks.
The Company may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss. Despite efforts to ensure the integrity of its systems, the Company will not be able to anticipate all security breaches of these types, and the Company may not be able to implement effective preventive
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measures against such security breaches. The techniques used by cyber criminals change frequently and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, customers or other users of the Company’s systems to disclose sensitive information in order to gain access to its data or that of its clients or to conduct unauthorized financial transactions.
These risks may increase in the future as the Company continues to increase its mobile-payment and other internet-based product offerings and expands its internal usage of web-based products and applications. A successful penetration or circumvention of system security could cause serious negative consequences to the Company, including significant disruption of operations, misappropriation of confidential information of the Company or that of its customers, or damage to computers or systems of the Company or those of its customers and counterparties. A security breach could result in violations of applicable privacy and other laws, financial loss to the Company or to its customers, loss of confidence in the Company’s security measures, significant litigation exposure, and harm to the Company’s reputation, all of which could have a material adverse effect on the Company.
Counterparties and Correspondents Expose the Company to Risks.
The Company's use of derivative financial instruments exposes us to financial and contractual risks with counterparties. The Company maintains correspondent bank relationships, purchase loans, manages certain loan participations, engage in securities and funding transactions, and undergo other activities with financial counterparties that are customary to its industry. The Company also utilizes services from major vendors of technology, telecommunications, and other essential operating services. There is financial, reputational, and operational risk in these relationships, which the Company seeks to manage through internal controls and procedures, but there are no assurances that the Company will not experience loss or interruption of its business as a result of unforeseen events with these providers. The Company's mortgage banking operations have exposed us to counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and hedging. Financial, reputational, and operational risks are inherent in these counterparty and correspondent relationships. The Company could experience losses if there are failures in the controls or accounting, including those related to derivatives activities or if there are performance failures by any counterparties. The risk of loss is increased when interest rates change suddenly and if the intended hedging objectives are not achieved as a result of market or counterparty behaviors.
The Company’s Business is Reliant on Outside Vendors.
The Company’s business is highly dependent on the use of certain outside vendors for its day-to-day operations. The Company’s operations and reputation are exposed to risk that a vendor may not perform in accordance with established performance standards required in its agreements for any number of reasons including a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While the Company has comprehensive programs, policies and procedures in place to mitigate risk at all phases of vendor management from selection, to performance monitoring and renewals, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to its business, which could have a material adverse effect on its financial condition, strategic objectives, and results of operations.
Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.
The Company’s financial performance depends, in part, on its ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate its products or provide cost efficiencies, while avoiding increased related expenses. This dependency is exacerbated in the current “FinTech” environment, where financial institutions are investing significantly in evaluating new technologies, such as “Blockchain,” and developing potentially industry-changing new products, services and industry standards. The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, the Company’s ability to access technical and other information from its clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the
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preparation of marketing, sales and other materials that fully and accurately describe the product or service and its underlying risks. The Company’s failure to manage these risks and uncertainties also exposes it to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine if such initiatives can be brought to market in a manner that is timely and attractive to the Company’s clients. Products and services relying on internet and mobile technologies may expose the Company to fraud and cybersecurity risks. Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on the Company’s business and reputation, as well as on its consolidated results of operations and financial condition.
Tailoring The Bank’s Retail Delivery Model to Respond to Consumer Preferences in Banking May Negatively Affect Earnings.
The Company’s branch network continues to be a very significant source of new business generation, however, consumers continue to migrate much of their routine banking to self-service channels. In recognition of this shift in consumer patterns, we regularly review the branch network, which has resulted in branch consolidation accompanied by the enhancement of the Bank’s capabilities to serve its customers through alternate delivery channels. The benefits of this strategy will depend on our ability to realize expected benefits without experiencing significant customer attrition.
The Discontinuation of LIBOR and the Transition to an Alternative Reference Rate Could Adversely Impact the Company’s Business and Results of Operations.
The interest rates paid on certain of the Company’s floating-rate funding, hedging transactions and products, such as floating-rate loans and mortgages, are indexed to the London Interbank Offered Rate (“LIBOR”). The use of LIBOR on new contracts was discontinued on December 31, 2021, and LIBOR will cease publication after June 30, 2023.
Regulators and various financial industry groups have sponsored or formed committees (e.g., the Federal Reserve-sponsored Alternative Reference Rates Committee) to, among other things, facilitate the identification of an alternative benchmark index to replace LIBOR, and publish consultations on recommended practices for transitioning away from LIBOR, including (i) the utilization of recommended fallback language for LIBOR-linked financial instruments, and (ii) development of alternative pricing methodologies for recommended alternative benchmarks such as the Secured Overnight Financing Rate (“SOFR”). SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-based repurchase transactions. The March 2022 enactment of the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve’s proposed implementing regulations established SOFR as the benchmark rate that will automatically apply to agreements that rely on LIBOR and do not have an alternative contractual fallback benchmark rate. The selected SOFR-based replacement benchmark rates may also apply automatically to contracts with fallback provisions that authorize a particular person to determine the replacement benchmark. The Company adopted SOFR as its preferred benchmark as an alternative to LIBOR for use in new contracts beginning on January 1, 2022.
At this time, it is still not possible to predict whether these recommendations and proposals will be broadly accepted in the market, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments. The discontinuation of LIBOR could result in disputes with customers or other counterparties, changes to the Company’s risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, the Company’s exposure to fluctuations in interest rates), or otherwise result in losses on a product or having to pay more or receive less on securities that the Company has issued or owns. A substantial portion of the Company’s on- and off-balance sheet financial instruments are indexed to LIBOR, including interest rate swap agreements and other contracts used for hedging and trading account purposes, loans to commercial customers and consumers (including mortgage loans and other loans), and long-term borrowings. In addition, such uncertainty could result in pricing volatility and increased capital requirements, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks.
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Interest Rate Risks
Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition
Net interest income is the Company's largest source of income. Changes in interest rates can affect the amount of interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, which may affect our net interest margins and other elements of net income. The Company’s interest rate sensitivity is discussed in more detail in Item 7A of this report and is the primary market risk to its condition and operations.
Changes in interest rates can also affect the demand for the Company’s products and services, supply conditions in the U.S. financial and capital markets, loan prepayments, the Company’s ability to originate real estate loans, the value of its assets, its ability to realize gains from the sale of assets, and loan delinquencies and defaults, all of which ultimately affect earnings. Changes in interest rates may also affect the market value of the Company’s investment securities portfolio, which may affect the level and adequate of its regulatory capital.
During 2022, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. The Federal Reserve has signaled that further tightening is anticipated. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. In a rising rate environment, demand for loans may decrease and loans with adjustable interest rates are more likely to experience a higher rate of default. Additionally, changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. In addition, in a falling rate environment or the recent pandemic-related environment where the Federal Reserve held the federal reference rate near 0.00%, loans may be prepaid sooner than we expect, which could result in a delay between when we receive the prepayment and when we are able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income we are able to earn on those assets.
Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.
Liquidity
The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth.
The Company must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of its liquidity management, the Company uses a number of funding sources in addition to deposit growth and cash flows from loans and investments. These sources include Federal Home Loan Bank advances, proceeds from the sale of loans, and liquidity resources at the holding company. The Company uses brokered deposits both to support ongoing growth and to provide enhanced deposit insurance to support large dollar commercial relationships. The Company's financial flexibility will be severely constrained if the Company is unable to maintain access to wholesale funding or if adequate financing is not available to accommodate future growth at acceptable costs. Turbulence in the capital and credit markets may adversely affect liquidity and financial condition and the willingness of certain counterparties and customers to do business with the Company.
The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions. The Company’s Stock Repurchase Program is also Dependent on These Distributions.
A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pay obligations, and pay shareholder dividends. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the applicable regulatory authorities could assert that payment of dividends or other types of payments are an unsafe or unsound practice. If the Bank is unable to pay dividends, the Company may not
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be able to service debt, pay debt obligations, or pay dividends on its common stock. The Company may also be unable to repurchase common stock under its Stock Repurchase Program.
Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.
In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for these loans. These conditions may fluctuate or worsen in the future. As a result, a prolonged period of secondary market illiquidity may reduce the Company’s loan production volumes and operating results.
Secondary markets are significantly affected by Fannie Mae, Freddie Mac and Ginnie Mae (collectively, the “Agencies”) for loan purchases that meet their conforming loan requirements. These agencies could limit purchases of conforming loans due to capital constraints, a change in the criteria for conforming loans or other factors. Proposals to reform mortgage finance could affect the role of the Agencies and the market for conforming loans which comprise the majority of the Company’s mortgage lending and related originations income.
Securities Market Values
Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings.
Declines in the value of investment securities due to market conditions and/or issuer impairment could result in losses that can reduce capital and earnings. Such declines can result from changes in interest rates and inflation. The Company’s investment in equity securities and non-investment grade debt securities present heightened credit and price risks. Under new accounting standards, equity gains and losses are recorded to current period operating results. The Company has an investment in the stock of the Federal Home Loan Bank of Boston ("FHLBB") which could result in write-down in the event of impairment.
Regulatory Matters
Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs.
New federal or state laws and regulations could affect lending, funding practices, capital, and liquidity standards. New laws, regulations, and other regulatory changes may also increase compliance costs and affect business and operations. Moreover, the FDIC sets the cost of FDIC insurance premiums, which can affect profitability.
Regulatory capital requirements and their impact on the Company may change. The Company may need to raise additional capital in the future to support operations and continued growth. The Company's ability to raise capital, if needed, will depend on its condition and performance, and on market conditions.
New laws, regulations, and other regulatory changes, along with negative developments in the financial industry and the domestic and international credit markets, may significantly affect the markets in which the Company does business, the markets for and value of its loans and investments, and ongoing operations, costs and profitability. For more information, see “Regulation and Supervision” in Item 1 of this report.
With total assets over $10 billion, the Company and the Bank are subject to closer supervision by their primary regulators and, as to compliance with consumer protection laws and regulations, the Consumer Financial Protection Bureau. The Company and the Bank are subject to capital stress testing expectations which require significant resources and infrastructure. If the Company’s compliance with the enhanced supervision and requirements is insufficient, there can be significant negative consequences for its operations, profitability, and ability to further pursue its strategic growth plan.
Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party.
Provisions in the Company's certificate of incorporation and bylaws, the corporate law of the State of Delaware, and state and federal regulations could delay, defer or prevent a third party from acquiring us, despite the possible benefit stockholders, or otherwise adversely affect the price of its common stock. These provisions include: limitations on voting rights of beneficial owners of more than 10 percent of common stock; supermajority voting requirements for certain business combinations; the election of directors to terms of one year; and advance notice
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requirements for nominations for election to the Company's Board of Directors and for proposing matters that stockholders may act on at stockholder meetings. In addition, the Company is subject to Delaware laws, including one that prohibits engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met. These provisions may discourage potential takeover attempts, discourage bids for the Company's common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, its common stock. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by the Board.
Significant Accounting Estimates
Various Factors May Cause our Allowance for Credit Losses on Loans to Increase.
The Company has an allowance for current expected credit losses on loans maintained through a provision for credit losses charged to expense. This represents our estimate of current expected credit losses based on an evaluation of risks within the portfolio of loans. The level of the allowance represents management’s estimate of current expected credit losses over the contractual life of the existing loan portfolio. The determination of the appropriate level of the allowance inherently involves a degree of subjectivity and requires that we make significant estimates of current credit risks and current trends and reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and material changes. Changes in economic and other conditions affecting borrowers, including inflation and interest rates, along with new information regarding existing loans other factors, may indicate the need for a future increase in the allowance.
Fair Value Measurements May Be Affected by Inherent Uncertainties
The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, impaired loans, securities available for sale, and derivatives. Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and capitalized servicing rights. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements.
Trading of the Company's Common Stock
The Trading History of the Company’s Common Stock is Characterized By Low Trading Volume. The Value of Shareholder Investments May be Subject to Sudden Decreases Due to the Volatility of the Price of the Common Stock.
The level of interest and trading in the Company’s stock depends on many factors beyond the Company's control. The market price of the Company's common stock may be highly volatile and subject to wide fluctuations in response to numerous factors, including, but not limited to, the factors discussed in other risk factors and the following: actual or anticipated fluctuations in operating results; changes in interest rates and inflation; changes in the legal or regulatory environment; press releases, announcements or publicity relating to the Company or its competitors or relating to trends in its industry; changes in expectations as to future financial performance, including financial estimates or recommendations by securities analysts and investors; future sales of its common stock; changes in economic conditions in the marketplace, general conditions in the U.S. economy, financial markets or the banking industry; and other developments. These factors may adversely affect the trading price of the Company's common stock, regardless of actual operating performance, and could prevent stockholders from selling their common stock at a desirable price.
In the past, stockholders have brought securities class action litigation against a company following periods of volatility in the market price of their securities. The Company could be the target of similar litigation in the future, which could result in substantial costs and divert management’s attention and resources.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's headquarters are located at 60 State Street in leased property in Boston, MA. The Bank's headquarters are located in owned and leased facilities located in Pittsfield, MA. The Company also owns or leases other facilities within its primary market areas: Greater Boston (including Worcester, MA); Pioneer Valley (Springfield area), Massachusetts; Berkshire County, Massachusetts; Southern Vermont; the Capital Region (Albany area), New York; Central New York; Central and Eastern Connecticut; and Southern Rhode Island. As of December 31, 2022 the Company had 100 full-service financial centers in Massachusetts, New York, Connecticut, Rhode Island, and Vermont.
The Company also has regional locations which are full-service commercial offices located in Boston, MA.; Pittsfield, MA.; Springfield, MA.; Albany, N.Y.; East Syracuse, N.Y.; Hartford, CT.; Willimantic, CT. Worcester, MA.; Burlington, MA, Providence RI, and New Haven, CT. The Bank's 44 Business Capital lending division is headquartered in Blue Bell, Pennsylvania.
The Company has begun introducing MyTeller automated remote teller stations at new offices and targeted existing offices. The Bank has made its workplace more flexible as certain designated functions are approved for telecommuting arrangements. As a result of its efficiency initiatives, the Bank has been in the process of identifying and reducing real estate utilized for its operations.
Due to the pandemic, the Company adapted its infrastructure and protocols to accommodate the shift of back office operations out of the office and continues to support this expanded capability and flexibility in pursuit of its strategies and human capital management.
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ITEM 3. LEGAL PROCEEDINGS
As of December 31, 2022, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations. Periodically, there have been various claims and lawsuits involving the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the Bank’s business. A summary of certain legal matters involving unsettled litigation or pertaining to pending transactions are as follows:
On February 4, 2020, the Bank filed a complaint in the New York State Supreme Court for the County of Albany against Pioneer Bank (“Pioneer”) seeking damages of approximately $16.0 million. The complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s breach of loan participation agreements in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation. Pioneer has filed a motion to dismiss aspects of the Bank’s complaint, which motion was allowed in part by the court to dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed. Discovery is now underway in this action. The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a partial recovery of $1.7 million early in the second quarter of 2020. The Company has not accrued for any additional anticipated recovery at this time.
On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc. (“FCLS”) filed a complaint in the Court of Common Pleas, Bucks County Pennsylvania against FCLS and two of its former senior corporate officers generally alleging wrongful termination as a result of purported whistleblower retaliation and other violations of New Jersey state employment law. The complaint also purports to name the Bank and the Company as additional defendants, even though neither entity ever employed, paid wages to or contracted with the plaintiff. On November 16, 2020, the plaintiff filed a First Amended Complaint reiterating the same claims against the same defendants. The Company's liability insurer has provided outside litigation counsel to defend the Company and the Bank in this matter, as well as FCLS and its former senior corporate officers. On December 7, 2020, defense counsel filed Preliminary Objections on behalf of the Company, the Bank, FCLS and FCLS’s former senior corporate officers denying the plaintiff’s claims and seeking dismissal of the case and an order that the plaintiff’s claims must proceed through arbitration in accordance with contractual obligations set forth in plaintiff’s previous employment agreement with FCLS. On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration. The parties have mutually agreed on an arbitrator to hear the case and are preparing for arbitration proceedings that are expected to occur in the second half of 2023. Discovery is currently ongoing among the parties.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The common shares of the Company trade on the New York Stock Exchange under the symbol “BHLB”.
The Company had approximately 3,806 holders of record of common stock at February 24, 2023.
Dividends
The Company intends to pay regular cash dividends to common shareholders; however, there is no assurance as to future dividends because they are dependent on the Company’s future earnings, capital requirements, financial condition, and regulatory environment. Dividends from the Bank have been a source of cash used by the Company to pay its dividends, and these dividends from the Bank are dependent on the Bank’s future earnings, capital requirements, and financial condition. Dividends from the Bank are currently subject to approval by the Massachusetts Division of Banks and the FDIC. Further information about dividend restrictions is disclosed in Note 18 - Shareholders’ Equity and Earnings per Common Share of the Consolidated Financial Statements.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The Company occasionally issues unregistered shares of common stock to vendors or as consideration in contracts for the purchase of assets, services, or operations. During 2022 and 2021, there were no shares transferred.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
On January 19, 2022, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $140 million through December 31, 2022. This program expired at year-end 2022.
On January 25, 2023, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $50 million through December 31, 2023.

Period |  | Total number of shares purchased |  | Average price paid per share |  | Total number of shares purchased as part of publicly announced plans or programs |  | Maximum number of shares that may yet be purchased under the plans or programs
October 1-31, 2022 |  | — |  |  | $ | — |  |  | — |  |  | 1,178,244 |
November 1-30, 2022 |  | 280,000 |  |  | 30.40 |  |  | 280,000 |  |  | 898,244 |
December 1-31, 2022 |  | 380,500 |  |  | 30.13 |  |  | 380,500 |  |  | — |
Total |  | 660,500 |  |  | $ | 30.24 |  |  | 660,500 |  |  | — |

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Common Stock Performance Graph
The performance graph compares the Company’s cumulative shareholder return on its common stock over the last five years to the cumulative return of the NYSE Composite Index and the KBW NASDAQ Regional Banking Index. Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) for the measurement period plus share price change for a period by the share price at the beginning of the measurement period. The Company’s cumulative shareholder return over a five-year period is based on an initial investment of $100 on December 31, 2017. The performance graph represents past performance and should not be considered to be an indication of future performance.
Information used on the graph and table was obtained from a third party provider, a source believed to be reliable, but the Company is not responsible for any errors or omissions in such information.

|  | Period Ending
Index |  | 12/31/17 |  | 12/31/18 |  | 12/31/19 |  | 12/31/20 |  | 12/31/21 |  | 12/31/22
Berkshire Hills Bancorp, Inc. |  | 100.00 |  |  | 75.44 |  |  | 84.82 |  |  | 51.87 |  |  | 87.72 |  |  | 94.00 |
NYSE Composite Index |  | 100.00 |  |  | 91.05 |  |  | 114.28 |  |  | 122.26 |  |  | 147.54 |  |  | 133.75 |
KBW NASDAQ Regional Banking Index |  | 100.00 |  |  | 82.50 |  |  | 102.15 |  |  | 93.25 |  |  | 127.42 |  |  | 118.59 |

Source: S&P Global Market Intelligence
ITEM 6. RESERVED
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
The following summary data is based in part on the Consolidated Financial Statements and accompanying notes, and other schedules appearing elsewhere in this Form 10-K. Historical data is also based in part on, and should be read in conjunction with, prior filings with the SEC.

|  | At or For the Years Ended December 31,
(In thousands, except per share data) |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018
Per Common Share Data: |  |  |  |  |  |  |  |  |  |
Net earnings/(loss), diluted - continuing operations |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.21) |  |  | $ | 2.05 |  |  | $ | 2.36 |
Net (loss)/earnings, diluted - discontinued operations |  | — |  |  | — |  |  | (0.39) |  |  | (0.08) |  |  | (0.07) |
Net earnings/(loss), diluted |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.60) |  |  | $ | 1.97 |  |  | $ | 2.29 |
Total book value per common share |  | 21.51 |  |  | 24.30 |  |  | 23.37 |  |  | 34.65 |  |  | 33.30 |
Dividends |  | 0.54 |  |  | 0.48 |  |  | 0.72 |  |  | 0.92 |  |  | 0.88 |
Common stock price: |  |  |  |  |  |  |  |  |  |
High |  | 31.78 |  |  | 29.16 |  |  | 33.04 |  |  | 33.72 |  |  | 44.25 |
Low |  | 23.62 |  |  | 16.35 |  |  | 8.55 |  |  | 26.02 |  |  | 25.77 |
Close |  | 29.90 |  |  | 28.43 |  |  | 17.12 |  |  | 32.88 |  |  | 26.97 |
Performance Ratios: (1) |  |  |  |  |  |  |  |  |  |
Return on assets |  | 0.82 | % |  | 0.98 | % |  | (4.15) | % |  | 0.75 | % |  | 0.90 | %
Return on equity |  | 7.76 |  |  | 10.18 |  |  | (37.50) |  |  | 5.75 |  |  | 6.84 |
Return on tangible common equity |  | 8.26 |  |  | 10.80 |  |  | (48.60) |  |  | 9.36 |  |  | 11.41 |
Net interest margin, fully taxable equivalent (FTE) (2) |  | 3.26 |  |  | 2.60 |  |  | 2.72 |  |  | 3.17 |  |  | 3.40 |
Fee income/Net interest and fee income |  | 15.66 |  |  | 22.49 |  |  | 18.10 |  |  | 23.86 |  |  | 23.36 |
Growth Ratios: |  |  |  |  |  |  |  |  |  |
Total commercial loans |  | 12.99 | % |  | (12.09) | % |  | (4.58) | % |  | 9.19 | % |  | 6.17 | %
Total loans |  | 22.11 |  |  | (15.54) |  |  | (14.95) |  |  | 5.08 |  |  | 8.96 |
Total deposits |  | 2.57 |  |  | (1.44) |  |  | (1.16) |  |  | 15.07 |  |  | 2.66 |
Earnings per share, (compared to prior year) |  | (15.48) |  |  | 122.55 |  |  | (638.07) |  |  | (13.97) |  |  | 64.75 |
Selected Financial Data: |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 11,662,864 |  |  | $ | 11,554,913 |  |  | $ | 12,838,013 |  |  | $ | 13,215,970 |  |  | $ | 12,212,231 |
Total earning assets |  | 10,913,069 |  |  | 10,899,109 |  |  | 12,089,939 |  |  | 11,916,007 |  |  | 11,140,307 |
Securities |  | 2,033,436 |  |  | 2,548,590 |  |  | 2,223,417 |  |  | 1,769,878 |  |  | 1,918,604 |
Total loans |  | 8,335,309 |  |  | 6,825,847 |  |  | 8,081,519 |  |  | 9,502,428 |  |  | 9,043,253 |
Allowance for credit losses |  | (96,270) |  |  | (106,094) |  |  | (127,302) |  |  | (63,575) |  |  | (61,469) |
Total intangible assets |  | 24,483 |  |  | 26,619 |  |  | 34,819 |  |  | 599,377 |  |  | 551,743 |
Total deposits |  | 10,327,269 |  |  | 10,068,953 |  |  | 10,215,808 |  |  | 10,335,977 |  |  | 8,982,381 |
Total borrowings |  | 125,509 |  |  | 110,844 |  |  | 571,637 |  |  | 827,550 |  |  | 1,517,816 |
Total shareholders’ equity |  | 954,062 |  |  | 1,182,435 |  |  | 1,187,773 |  |  | 1,758,564 |  |  | 1,552,918 |

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|  | At or For the Years Ended December 31,
|  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018
Selected Operating Data: |  |  |  |  |  |  |  |  |  |
Total interest and dividend income |  | $ | 387,257 |  |  | $ | 329,065 |  |  | $ | 409,782 |  |  | $ | 509,513 |  |  | $ | 465,894 |
Total interest expense |  | 42,660 |  |  | 37,899 |  |  | 93,000 |  |  | 144,255 |  |  | 109,694 |
Net interest income |  | 344,597 |  |  | 291,166 |  |  | 316,782 |  |  | 365,258 |  |  | 356,200 |
Fee income |  | 63,995 |  |  | 84,462 |  |  | 69,990 |  |  | 76,824 |  |  | 74,026 |
All other non-interest income/(loss) |  | 4,942 |  |  | 58,786 |  |  | (3,683) |  |  | 7,178 |  |  | 298 |
Total net revenue |  | 413,534 |  |  | 434,414 |  |  | 383,089 |  |  | 449,260 |  |  | 430,524 |
Provision for credit losses |  | 11,000 |  |  | (500) |  |  | 75,878 |  |  | 35,419 |  |  | 25,451 |
Total non-interest expense |  | 288,716 |  |  | 285,893 |  |  | 840,239 |  |  | 289,857 |  |  | 266,893 |
Income/(loss) from continuing operations before income taxes |  | 113,818 |  |  | 149,021 |  |  | (533,028) |  |  | 123,984 |  |  | 138,180 |
Income tax expense/(benefit) from continuing operations |  | 21,285 |  |  | 30,357 |  |  | (19,853) |  |  | 22,463 |  |  | 28,961 |
Net income/(loss) from continuing operations |  | 92,533 |  |  | 118,664 |  |  | (513,175) |  |  | 101,521 |  |  | 109,219 |
(Loss)/income from discontinued operations before income taxes |  | — |  |  | — |  |  | (26,855) |  |  | (5,539) |  |  | (4,767) |
Income tax (benefit)/expense from discontinued operations |  | — |  |  | — |  |  | (7,013) |  |  | (1,468) |  |  | (1,313) |
Net (loss)/income from discontinued operations |  | — |  |  | — |  |  | (19,842) |  |  | (4,071) |  |  | (3,454) |
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |  |  | $ | 97,450 |  |  | $ | 105,765 |
Basic earnings/(loss) per common share: |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | 2.03 |  |  | $ | 2.41 |  |  | $ | (10.21) |  |  | $ | 2.06 |  |  | $ | 2.38 |
Discontinued operations |  | — |  |  | — |  |  | (0.39) |  |  | (0.08) |  |  | (0.08) |
Total basic earnings/(loss) per share |  | $ | 2.03 |  |  | $ | 2.41 |  |  | $ | (10.60) |  |  | $ | 1.98 |  |  | $ | 2.30 |
Diluted earnings/(loss) per common share: |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.21) |  |  | $ | 2.05 |  |  | $ | 2.36 |
Discontinued operations |  | — |  |  | — |  |  | (0.39) |  |  | (0.08) |  |  | (0.07) |
Total diluted earnings/(loss) per share |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.60) |  |  | $ | 1.97 |  |  | $ | 2.29 |
Weighted average common shares outstanding - basic |  | 45,564 |  |  | 49,240 |  |  | 50,270 |  |  | 49,263 |  |  | 46,024 |
Weighted average common shares outstanding - diluted |  | 45,914 |  |  | 49,554 |  |  | 50,270 |  |  | 49,421 |  |  | 46,231 |
Dividends per preferred share |  | $ | — |  |  | $ | — |  |  | $ | 1.20 |  |  | $ | 1.84 |  |  | $ | 1.76 |
Dividends per common share |  | $ | 0.54 |  |  | $ | 0.48 |  |  | $ | 0.72 |  |  | $ | 0.92 |  |  | $ | 0.88 |
Asset Quality and Condition Ratios: (3) |  |  |  |  |  |  |  |  |  |
Net loans charged-off/average loans |  | 0.27 | % |  | 0.29 | % |  | 0.41 | % |  | 0.35 | % |  | 0.18 | %
Allowance for credit losses/total loans |  | 1.15 |  |  | 1.55 |  |  | 1.58 |  |  | 0.67 |  |  | 0.68 |
Loans/deposits |  | 81 |  |  | 68 |  |  | 79 |  |  | 92 |  |  | 101 |
Capital Ratios: |  |  |  |  |  |  |  |  |  |
Tier 1 capital to average assets - Company |  | 10.18 | % |  | 10.49 | % |  | 9.38 | % |  | 9.33 | % |  | 9.04 | %
Total capital to risk-weighted assets - Company |  | 14.60 |  |  | 17.32 |  |  | 16.10 |  |  | 13.73 |  |  | 12.99 |
Tier 1 capital to risk-weighted assets - Company |  | 12.60 |  |  | 15.30 |  |  | 14.06 |  |  | 12.30 |  |  | 11.57 |
Shareholders’ equity/total assets |  | 8.18 |  |  | 10.23 |  |  | 9.25 |  |  | 13.31 |  |  | 12.73 |

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___________________________________
(1) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
(2) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.
(3) For periods prior to 2020, generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost. The fair value of loans acquired in a business combination includes expected 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.
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Average Balances, Interest and Average Yields/Cost
The following table presents an analysis of average rates and yields on a fully taxable equivalent basis for the years presented. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison.
Item 7 - Table 3 - Average Balance, Interest and Average Yields / Costs

|  | 2022 |  | 2021 |  | 2020
(Dollars in millions) |  | Average Balance |  | Interest |  | Average Yield/ Rate |  | Average Balance |  | Interest |  | Average Yield/ Rate |  | Average Balance |  | Interest |  | Average Yield/ Rate
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans: (1)(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 3,836.2 |  |  | $ | 167.7 |  |  | 4.37 | % |  | $ | 3,600.2 |  |  | $ | 124.4 |  |  | 3.46 | % |  | $ | 3,958.6 |  |  | $ | 151.5 |  |  | 3.83 | %
Commercial and industrial loans |  | 1,435.3 |  |  | 74.7 |  |  | 5.20 |  |  | 1,527.6 |  |  | 71.8 |  |  | 4.70 |  |  | 2,049.4 |  |  | 87.7 |  |  | 4.28 |
Residential loans |  | 1,784.2 |  |  | 63.3 |  |  | 3.55 |  |  | 1,560.4 |  |  | 58.4 |  |  | 3.75 |  |  | 2,324.3 |  |  | 87.8 |  |  | 3.78 |
Consumer loans |  | 556.8 |  |  | 32.1 |  |  | 5.77 |  |  | 569.1 |  |  | 22.0 |  |  | 3.87 |  |  | 828.1 |  |  | 31.3 |  |  | 3.78 |
Total loans |  | 7,612.5 |  |  | 337.8 |  |  | 4.44 |  |  | 7,257.3 |  |  | 276.6 |  |  | 3.81 |  |  | 9,160.4 |  |  | 358.3 |  |  | 3.91 |
Investment securities (2)(3) |  | 2,489.7 |  |  | 51.2 |  |  | 2.06 |  |  | 2,283.6 |  |  | 49.4 |  |  | 2.16 |  |  | 1,845.2 |  |  | 54.6 |  |  | 2.96 |
Short-term investments and loans held for sale (4) |  | 569.1 |  |  | 4.9 |  |  | 0.86 |  |  | 1,619.4 |  |  | 2.3 |  |  | 0.58 |  |  | 767.2 |  |  | 4.4 |  |  | 0.64 |
Mid-Atlantic region loans held for sale |  | — |  |  | — |  |  | — |  |  | 179.5 |  |  | 7.1 |  |  | 3.97 |  |  | 25.2 |  |  | 0.4 |  |  | 1.07 |
Total interest-earning assets |  | 10,671.3 |  |  | 393.9 |  |  | 3.69 |  |  | 11,339.8 |  |  | 335.4 |  |  | 2.60 |  |  | 11,798.0 |  |  | 417.7 |  |  | 3.55 |
Intangible assets |  | 26.8 |  |  |  |  |  |  | 32.0 |  |  |  |  |  |  | 316.1 |  |  |  |  |
Other non-interest earning assets (4) |  | 648.5 |  |  |  |  |  |  | 684.1 |  |  |  |  |  |  | 747.1 |  |  |  |  |
Total assets |  | $ | 11,346.6 |  |  |  |  |  |  | $ | 12,055.9 |  |  |  |  |  |  | $ | 12,861.2 |  |  |  |  |
Liabilities and shareholders' equity
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NOW and other |  | $ | 1,416.7 |  |  | $ | 6.1 |  |  | 0.43 | % |  | $ | 1,340.2 |  |  | $ | 1.0 |  |  | 0.07 | % |  | $ | 1,216.6 |  |  | $ | 3.5 |  |  | 0.29 | %
Money market |  | 2,809.1 |  |  | 13.8 |  |  | 0.49 |  |  | 2,749.7 |  |  | 5.3 |  |  | 0.19 |  |  | 2,713.6 |  |  | 15.3 |  |  | 0.56 |
Savings |  | 1,114.8 |  |  | 0.4 |  |  | 0.03 |  |  | 1,067.7 |  |  | 0.5 |  |  | 0.05 |  |  | 914.1 |  |  | 0.9 |  |  | 0.10 |
Certificates of deposit |  | 1,541.7 |  |  | 13.1 |  |  | 0.85 |  |  | 1,978.9 |  |  | 18.6 |  |  | 0.94 |  |  | 3,102.9 |  |  | 52.5 |  |  | 1.69 |
Total interest-bearing deposits |  | 6,882.3 |  |  | 33.4 |  |  | 0.49 |  |  | 7,136.5 |  |  | 25.4 |  |  | 0.36 |  |  | 7,947.2 |  |  | 72.2 |  |  | 0.91 |
Borrowings and notes (5) |  | 176.1 |  |  | 9.2 |  |  | 5.24 |  |  | 320.2 |  |  | 10.7 |  |  | 3.34 |  |  | 841.6 |  |  | 20.7 |  |  | 2.46 |
Mid-Atlantic region interest-bearing deposits |  | — |  |  | — |  |  | — |  |  | 335.1 |  |  | 1.8 |  |  | 0.54 |  |  | 45.0 |  |  | 0.1 |  |  | 0.80 |
Total interest-bearing liabilities |  | 7,058.4 |  |  | 42.6 |  |  | 0.60 |  |  | 7,791.8 |  |  | 37.9 |  |  | 0.49 |  |  | 8,833.8 |  |  | 93.0 |  |  | 1.06 |
Non-interest-bearing demand deposits |  | 2,914.9 |  |  |  |  |  |  | 2,817.4 |  |  |  |  |  |  | 2,324.6 |  |  |  |  |
Other non-interest-bearing liabilities (4) |  | 180.1 |  |  |  |  |  |  | 280.9 |  |  |  |  |  |  | 281.4 |  |  |  |  |
Total liabilities |  | 10,153.4 |  |  |  |  |  |  | 10,890.1 |  |  |  |  |  |  | 11,439.8 |  |  |  |  |
Total shareholders' equity |  | 1,193.2 |  |  |  |  |  |  | 1,165.8 |  |  |  |  |  |  | 1,421.4 |  |  |  |  |
Total liabilities and equity |  | $ | 11,346.6 |  |  |  |  |  |  | $ | 12,055.9 |  |  |  |  |  |  | $ | 12,861.2 |  |  |  |  |
Net interest income |  |  |  | $ | 351.3 |  |  |  |  |  |  | $ | 297.5 |  |  |  |  |  |  | $ | 324.7 |  |  |

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|  | 2022 |  | 2021 |  | 2020
(Dollars in millions) |  | Average Balance |  | Interest |  | Average Yield/ Rate |  | Average Balance |  | Interest |  | Average Yield/ Rate |  | Average Balance |  | Interest |  | Average Yield/ Rate
Net interest spread |  |  |  |  |  | 3.09 | % |  |  |  |  |  | 2.12 | % |  |  |  |  |  | 2.49 | %
Net interest margin (6) |  |  |  |  |  | 3.26 |  |  |  |  |  |  | 2.60 |  |  |  |  |  |  | 2.72 |
Cost of funds |  |  |  |  |  | 0.43 |  |  |  |  |  |  | 0.35 |  |  |  |  |  |  | 0.84 |
Cost of deposits |  |  |  |  |  | 0.34 |  |  |  |  |  |  | 0.26 |  |  |  |  |  |  | 0.71 |
Interest-earning assets/interest-bearing liabilities |  |  |  |  |  | 151.19 |  |  |  |  |  |  | 149.67 |  |  |  |  |  |  | 133.95 |
Supplementary data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total non-maturity deposits |  | $ | 8,255.5 |  |  |  |  |  |  | $ | 7,975.0 |  |  |  |  |  |  | $ | 7,168.9 |  |  |  |  |
Total deposits |  | 9,797.2 |  |  |  |  |  |  | 9,954.0 |  |  |  |  |  |  | 10,271.8 |  |  |  |  |
Fully taxable equivalent adjustment |  | 6.6 |  |  |  |  |  |  | 6.3 |  |  |  |  |  |  | 6.4 |  |  |  |  |

____________________________________
Notes:
(1) The average balances of loans include nonaccrual loans, and deferred fees and costs. As of December 31, 2022 and December 31, 2021, deferred fees related to PPP loans totaled $0.1 million and 0.2 million, respectively.
(2) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.
(3) The average balance of investment securities is based on amortized cost.
(4) Includes discontinued operations.
(5) The average balances of borrowings and notes include the capital lease obligation presented under other liabilities on the consolidated balance sheet.
(6) Purchase accounting accretion totaled $2.0 million, $6.7 million, and $9.9 million for the years-ended December 31, 2022, 2021, and 2020, respectively. The effect of purchase accounting accretion on the net interest margin was an increase in all years, which is shown sequentially as follows beginning with the most recent year and ending with the earliest year: 0.02%, 0.09%, and 0.12%.
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Rate/Volume Analysis
The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate), and (3) changes in volume/rate (change in rate multiplied by change in volume) have been allocated proportionately based on the absolute value of the change due to the rate and the change due to volume. There are no out-of-period adjustments included in the rate/volume analysis in the following table.
Item 7 - Table 4 - Rate Volume Analysis

|  | 2022 Compared with 2021 |  | 2021 Compared with 2020
|  | (Decrease) Increase Due to |  | (Decrease) Increase Due to
(In thousands) |  | Rate |  | Volume |  | Net |  | Rate |  | Volume |  | Net
Interest income: |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 34,681 |  |  | $ | 8,582 |  |  | $ | 43,263 |  |  | $ | (14,027) |  |  | $ | (13,071) |  |  | $ | (27,098) |
Commercial and industrial loans |  | 7,397 |  |  | (4,501) |  |  | 2,896 |  |  | 7,962 |  |  | (23,913) |  |  | (15,951) |
Residential loans |  | (3,179) |  |  | 8,061 |  |  | 4,882 |  |  | (762) |  |  | (28,622) |  |  | (29,384) |
Consumer loans |  | 10,572 |  |  | (482) |  |  | 10,090 |  |  | 704 |  |  | (10,014) |  |  | (9,310) |
Total loans |  | 49,471 |  |  | 11,660 |  |  | 61,131 |  |  | (6,123) |  |  | (75,620) |  |  | (81,743) |
Investment securities |  | (2,468) |  |  | 4,316 |  |  | 1,848 |  |  | (16,598) |  |  | 11,341 |  |  | (5,257) |
Short-term investments and loans held for sale (1) |  | 4,968 |  |  | (2,335) |  |  | 2,633 |  |  | (5,508) |  |  | 2,980 |  |  | (2,528) |
Mid-Atlantic region loans held for sale |  | — |  |  | (7,120) |  |  | (7,120) |  |  | (1,480) |  |  | 8,600 |  |  | 7,120 |
Total interest income |  | $ | 51,971 |  |  | $ | 6,521 |  |  | $ | 58,492 |  |  | $ | (29,709) |  |  | $ | (52,699) |  |  | $ | (82,408) |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |
NOW accounts |  | $ | 5,053 |  |  | $ | 62 |  |  | $ | 5,115 |  |  | $ | (2,832) |  |  | $ | 327 |  |  | $ | (2,505) |
Money market accounts |  | 8,402 |  |  | 116 |  |  | 8,518 |  |  | (10,259) |  |  | 201 |  |  | (10,058) |
Savings accounts |  | (204) |  |  | 23 |  |  | (181) |  |  | (536) |  |  | 137 |  |  | (399) |
Certificates of deposit |  | (1,593) |  |  | (3,839) |  |  | (5,432) |  |  | (18,740) |  |  | (15,233) |  |  | (33,973) |
Total deposits |  | 11,658 |  |  | (3,638) |  |  | 8,020 |  |  | (32,367) |  |  | (14,568) |  |  | (46,935) |
Borrowings |  | 4,568 |  |  | (6,010) |  |  | (1,442) |  |  | 5,691 |  |  | (15,702) |  |  | (10,011) |
Mid-Atlantic region interest-bearing deposits |  | — |  |  | (1,820) |  |  | (1,820) |  |  | 814 |  |  | 1,006 |  |  | 1,820 |
Total interest expense |  | $ | 16,226 |  |  | $ | (11,468) |  |  | $ | 4,758 |  |  | $ | (25,862) |  |  | $ | (29,264) |  |  | $ | (55,126) |
Change in net interest income |  | $ | 35,745 |  |  | $ | 17,989 |  |  | $ | 53,734 |  |  | $ | (3,847) |  |  | $ | (23,435) |  |  | $ | (27,282) |

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NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP adjusted earnings information set forth is not necessarily comparable to non-GAAP information which may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information.
The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations. These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations.
In 2022, the restructuring expense adjustment primarily related to the termination of leasehold interests and the write-down of related right of use assets and leasehold improvements in conjunction with branch consolidations and real estate reductions.
In 2021, the Company recorded a third quarter net gain of $52 million on the sale of the operations of the insurance subsidiary and the Mid-Atlantic branch operations. Expense adjustments in the first quarter 2021 were primarily related to branch consolidations. Third quarter 2021 adjustments included Federal Home Loan Bank borrowings prepayment costs. They also included other restructuring charges for efficiency initiatives in operations areas including write-downs on real estate moved to held for sale and severance related to staff reductions. The fourth quarter 2021 revenue adjustment was primarily related to trailing revenue on a previously reported sale, and the expense adjustment was due primarily to branch restructuring costs.
Discontinued operations are the Company’s national mortgage banking operations for which the Company completed the wind down of operations in 2020. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees. There were no merger costs in 2020. Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales. Restructuring costs also include severance and consulting expenses related to the Company’s strategic review. They also include costs related to the consolidation of branches. Restructuring expense and other for 2020 primarily related to executive separation expense as a result of the CEO transition.
The Company calculates certain profitability measures based on its adjusted revenue, expenses, and earnings. The Company also calculates adjusted earnings per share based on its measure of adjusted earnings. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.
Due to the anticipated earnings volatility resulting from loan loss provisions reflecting changes in estimates of uncertain future economic conditions under the new CECL accounting standard, many users of bank financial statements are focusing on Pre-Provision Net Revenue (“PPNR”). This is a measure of revenue less expenses, and is calculated before the loan loss provision and income tax expense. This measure gives clearer visibility of the operations of the company during the periods presented in the income statements, without the impact of period-end estimates of future uncertain events. This measure also enhances comparisons of operations across different banks, which might have significantly different period-end estimates of uncertain future economic conditions that affect the loan loss provision. Consistent with its previous practices measuring results on an adjusted basis before the impacts
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of acquisitions, divestitures, and other designated items, the Company has introduced the measure of Adjusted Pre-Provision Net Revenue (“Adjusted PPNR”) which measures PPNR excluding adjustments for items not viewed as related to ongoing operations. This measure is now integral to the Company’s analysis of its operations, and is not viewed as a substitute for GAAP measures of net income. Analysts also use this measure in assessing the Company’s operations and in making comparisons across banks. The Company and analysts also measure Adjusted PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability. This measure primarily relies on the measures of adjusted revenue and adjusted expense already used in the Company’s calculation of its efficiency ratio.
The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.
The following table summarizes the reconciliation of non-GAAP items recorded for the time periods indicated:

|  |  |  | At or For the Years Ended
(Dollars in thousands) |  |  |  |  |  | December 31, 2022 |  | December 31, 2021 |  | December 31, 2020
GAAP Net income/(loss) |  |  |  |  |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |
Non-GAAP measures |  |  |  |  |  |  |  |  |  |
Adj: Loss on securities, net |  |  |  |  |  | 2,031 |  |  | 787 |  |  | 7,520 |
Adj: Goodwill impairment |  |  |  |  |  | — |  |  | — |  |  | 553,762 |
Adj: Net gains on sale of business operations |  |  |  |  |  | — |  |  | (52,942) |  |  | (1,240) |
Adj: Acquisition, restructuring, conversion, and other related expenses (1) |  |  |  |  |  | 8,909 |  |  | 5,781 |  |  | 5,839 |
Adj: Loss from discontinued operations before income taxes |  |  |  |  |  | — |  |  | — |  |  | 26,855 |
Adj: Income taxes |  |  |  |  |  | (2,940) |  |  | 11,696 |  |  | (29,342) |
Net non-operating charges |  |  |  |  |  | 8,000 |  |  | (34,678) |  |  | 563,394 |
Total adjusted net income (non-GAAP) |  |  |  |  |  | $ | 100,533 |  |  | $ | 83,986 |  |  | $ | 30,377 |
GAAP Total revenue from continuing operations |  |  |  |  |  | $ | 413,534 |  |  | $ | 434,414 |  |  | $ | 383,089 |
Adj: Loss on securities, net |  |  |  |  |  | 2,031 |  |  | 787 |  |  | 7,520 |
Adj: Net gains on sale of business operations |  |  |  |  |  | — |  |  | (52,942) |  |  | (1,240) |
Total adjusted operating revenue (non-GAAP) |  |  |  |  |  | $ | 415,565 |  |  | $ | 382,259 |  |  | $ | 389,369 |
GAAP Total non-interest expense from continuing operations |  |  |  |  |  | $ | 288,716 |  |  | $ | 285,893 |  |  | $ | 840,239 |
Less: Total non-operating expense (see above) |  |  |  |  |  | (8,909) |  |  | (5,781) |  |  | (5,839) |
Less: Goodwill impairment |  |  |  |  |  | — |  |  | — |  |  | (553,762) |
Adjusted operating non-interest expense (non-GAAP) |  |  |  |  |  | $ | 279,807 |  |  | $ | 280,112 |  |  | $ | 280,638 |
Pre-tax, pre-provision net revenue (PPNR) from continuing operations |  |  |  |  |  | $ | 124,818 |  |  | $ | 148,521 |  |  | $ | (457,150) |
Adjusted pre-tax, pre-provision net revenue (PPNR) |  |  |  |  |  | 135,758 |  |  | 102,147 |  |  | 108,731 |
(in millions, except per share data) |  |  |  |  |  |  |  |  |  |
Total average assets |  |  |  |  |  | $ | 11,347 |  |  | $ | 12,056 |  |  | $ | 12,861 |
Total average shareholders' equity |  |  |  |  |  | 1,193 |  |  | 1,166 |  |  | 1,421 |
Total average tangible shareholders equity |  |  |  |  |  | 1,166 |  |  | 1,134 |  |  | 1,105 |
Total average tangible common shareholders equity |  |  |  |  |  | 1,166 |  |  | 1,134 |  |  | 1,088 |
Total tangible shareholders’ equity, period-end |  |  |  |  |  | 930 |  |  | 1,153 |  |  | 1,153 |
Total tangible common shareholders’ equity, period-end |  |  |  |  |  | 930 |  |  | 1,153 |  |  | 1,153 |
Total tangible assets, period-end |  |  |  |  |  | 11,638 |  |  | 11,525 |  |  | 12,803 |
Total common shares outstanding, period-end (thousands) |  |  |  |  |  | 44,361 |  |  | 48,667 |  |  | 50,833 |
Average diluted shares outstanding (thousands) |  |  |  |  |  | 45,914 |  |  | 49,554 |  |  | 50,308 |
Earnings/(loss) per share, diluted |  |  |  |  |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.60) |
Plus: Net adjustments per share, diluted |  |  |  |  |  | 0.17 |  |  | (0.70) |  |  | 11.20 |
Adjusted earnings per share, diluted |  |  |  |  |  | 2.19 |  |  | 1.69 |  |  | 0.60 |
Book value per common share, period-end |  |  |  |  |  | 21.51 |  |  | 24.30 |  |  | 23.37 |
Tangible book value per common share, period-end |  |  |  |  |  | 20.95 |  |  | 23.69 |  |  | 22.68 |
Total shareholders' equity/total assets |  |  |  |  |  | 8.18 |  |  | 10.23 |  |  | 9.25 |
Total tangible shareholders' equity/total tangible assets |  |  |  |  |  | 7.99 |  |  | 10.00 |  |  | 9.01 |

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|  |  |  | At or For the Years Ended
(Dollars in thousands) |  |  |  |  |  | December 31, 2022 |  | December 31, 2021 |  | December 31, 2020
Performance Ratios |  |  |  |  |  |  |  |  |  |
GAAP return on assets |  |  |  |  |  | 0.82 | % |  | 0.98 | % |  | (4.15) | %
Adjusted return on assets |  |  |  |  |  | 0.89 |  |  | 0.70 |  |  | 0.24 |
GAAP return on equity |  |  |  |  |  | 7.76 |  |  | 10.18 |  |  | (37.46) |
Adjusted return on equity |  |  |  |  |  | 8.43 |  |  | 7.20 |  |  | 2.14 |
Adjusted return on tangible common equity |  |  |  |  |  | 8.94 |  |  | 7.74 |  |  | 3.18 |
Efficiency ratio (2) |  |  |  |  |  | 64.31 |  |  | 69.96 |  |  | 68.53 |
Supplementary Data (in thousands) |  |  |  |  |  |  |  |  |  |
Tax benefit on tax-credit investments |  |  |  |  |  | $ | 4,880 |  |  | $ | 4,372 |  |  | $ | 4,699 |
Non-interest income charge on tax-credit investments |  |  |  |  |  | (3,508) |  |  | (3,445) |  |  | (3,645) |
Net income on tax-credit investments |  |  |  |  |  | 1,372 |  |  | 928 |  |  | 1,054 |
Intangible amortization |  |  |  |  |  | 5,134 |  |  | 5,200 |  |  | 6,181 |
Fully taxable equivalent income adjustment |  |  |  |  |  | 6,644 |  |  | 6,344 |  |  | 6,402 |

____________________________________
(1)Acquisition, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years -ended December 31, 2022, 2021 and 2020.
(2)Efficiency ratio is computed by dividing total core tangible non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income adjusted to include tax credit benefit of tax shelter investments. The Company uses this non-GAAP measure to provide important information regarding its operational efficiency.
GENERAL
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.
The objectives of this section are:
•To provide a narrative explanation of the Company’s financial statements that enables investors to see the company through the eyes of management;
•To enhance the financial disclosure and provide the context within which financial information should be analyzed; and
•To provide information about the quality of, and potential future variability of, the Company’s earnings and cash flow.
This discussion includes the following sections:
•Summary
•Comparison of Financial Condition at December 31, 2022 and 2021
•Comparison of Operating Results for the Years Ended December 31, 2022 and 2021
•Liquidity and Cash Flows
•Capital Resources
•Application of Critical Accounting Policies
•Enterprise Risk Management
•LIBOR Transition
•Environmental, Social, Governance (ESG) and Commitment to Social Responsibility
The following discussion and analysis should be read in conjunction with the Company’s financial statements and the notes thereto appearing in Item 8 of this document. In the following discussion, income statement comparisons are against the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2023 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain
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reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.
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.
SUMMARY
The Company’s vision is to be a high performing, leading socially responsible community bank in New England and beyond. It offers a wide range of banking, investment, and financial services through its lines of business that include Commercial Banking, Retail Banking, Consumer Lending, Wealth Management, Private Banking, and its 44 Business Capital national SBA lending division. Berkshire’s vision is to empower the financial potential of its stakeholders by making banking available where, when, and how it's needed through a committed focus on exceptional customer service, digital banking, and positive community impact.
Berkshire is committed to unleashing the financial potential of all its stakeholders by leveraging its more than 175 years of expertise, leading performance on environmental, social and governance (ESG) matters and best-in-class fintech partnerships. Its differentiated DigiTouch SM approach, a powerful combination of personal service, including its MyBanker program, fused with the convenience of user-centric technology, targets high customer satisfaction and a frictionless experience.
Berkshire continued to drive forward its performance and make meaningful progress towards its Berkshire’s Exciting Strategic Transformation (BEST) goals in 2022. The Company increased its operating profitability during the year. Fourth quarter revenue and earnings per share reached a fourth quarter record. Due to $52 million in gains recorded on the sale of operations in the third quarter of 2021, total full year net profit decreased year-over-year by 22% to $93 million ($2.02 per share) in 2022 from $119 million ($2.39 per share) in 2021.
The Company uses the non-GAAP measure of adjusted earnings to assess its performance. This measure excludes items not viewed as related to ongoing operations. These items were presented and reconciled to GAAP measures in a previous section of this Item 7. The major exclusions were sale gains in 2021 and branch consolidation costs in both years. Adjusted earnings increased year-over-year by 20% to $101 million in 2022 from $84 million in 2021. Adjusted earnings per share increased by 30% to $2.19 from $1.69 and also reflected the benefit of share repurchases during both years.
The improvement in operating earnings was driven by positive operating leverage resulting from an 18% increase in net interest income and disciplined expense management. Net interest income benefited from the increase in interest rates and from 22% loan growth in the environment of favorable credit conditions during the year. Loan growth exceeded 10% in most major loan categories. Approximately 55% of total loan growth was recorded in residential mortgages, as the Company reinvested excess liquidity into higher yielding loans in conjunction with the expansion of the residential mortgage function serving the Company’s markets.
At year-end 2022, the Company arrived at the midpoint of its three year BEST strategic transformation plan. Fourth quarter 2022 results achieved the objective of moving into the target range of the plan for several key measures. A summary of the Company’s progress against these key targets is shown below.
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The Company’s BEST plan includes a focus on improving Berkshire’s capital structure. In June 2022, the Company issued a $100 million Sustainability Bond, a subordinated debt issuance which replaced at a lower rate of interest a $75 million bond which was called and repaid. The Company intends to use an amount equal to the net proceeds to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework, which was established at midyear. In conjunction with this issuance, the Company received an inaugural investment grade long-term issuer rating of "Baa3", with a Positive rating outlook, from Moody’s Investors Service.
During 2022, the Company repurchased $125 million of common stock, representing 9% of shares outstanding at the start of the year. After year-end 2022, the Company announced a $50 million share repurchase program for 2023, representing approximately 4% of year-end 2022 outstanding shares. During the fourth quarter of 2022, the Company increased its quarterly common shareholder dividend by 50% to $0.18 per share from $0.12 per share. Total shareholder distributions from dividends and stock repurchases equaled $149 million in 2022, or 16% of year-end 2021 total equity. The Company remains strongly capitalized, with a 12.4% Common Equity Tier 1 Capital ratio at year-end 2022.
The improving credit environment in 2022 was reflected in the reduction in the ratio of the allowance for expected credit losses on loans to total loans; this ratio decreased to 1.15% at year-end 2022 from 1.55% at year-end 2021. This included the release of reserves related to the pandemic as expected elevated losses did not emerge due in part to the ongoing benefit from federal economic support measures. Net loan charge-offs measured 0.27% of average loans in 2022, compared to 0.29% in 2021. The ratio of total delinquent and nonaccrual loans measured a ten year low of 0.60% of loans at year-end 2022.
Inflation remained historically high throughout 2022, leading the Federal Reserve Bank to initiate a series of interest rate increases during the year, along with taking steps towards quantitative tightening. The three month U.S. Treasury rate increased by 436 basis points to 4.42% from 0.06% during the year. The increases were concentrated in the third quarter, with the target Federal Funds rate increasing by 300 basis points from mid-June to the beginning of November. The ten year Treasury rate increased during the year by 236 basis points to 3.88% from 1.52%. The
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Company’s interest rate sensitivity at the start of the year was modeled to be positively sensitive to increases in interest rates, which contributed to the growth in net interest income during the year.
The risk of recession has increased due to ongoing inflation, the higher interest rate environment, and the gradual reduction of excess liquidity in the economy. The Company views its markets as comparatively less sensitive to national trends in the economy and is pursuing strategies to continue to grow and improve operating profitability. The Company plans to roll out its new digital and mobile banking services in 2023. Its goal is that its DigiTouch SM customer engagement strategy and corporate responsibility profile will allow it to differentiate and grow profitably and responsibly in the anticipated environment where deposit costs and competition may further pressure funding costs. Optimization of digital platforms and reductions of excess premises are targeted to contribute additional efficiencies.
In October 2022, Chief Financial Officer Subhadeep Basu resigned, and Chief Accounting Officer Brett Brbovic was named Interim Chief Financial Officer. In January 2023, the Company named David Rosato as Senior Executive Vice President/Chief Financial Officer, effective February 6, 2023. Mr. Rosato was most recently Chief Financial Officer of Peoples United Financial, Inc., which was acquired by M&T Bank Corporation in 2022. Also in January 2023, the Company named James Brown as Senior Executive Vice President/Head of Commercial Banking and Philip Jurgeleit as Executive Vice President/Chief Credit Officer, filling vacancies in these positions resulting from retirements in the second half of 2022. Messrs. Brown and Jurgeleit have decades of related experience in the Company’s markets, including Boston Private Bank and Trust Company for Mr. Brown and Santander Bank for Mr. Jurgeleit.
Berkshire remains positively positioned to continue forward with its BEST program financial objectives while also enhancing its social and environmental performance. The Company was named one of America’s Most Trustworthy Companies by Newsweek, listed in the Bloomberg Gender Equality Index, named a Best Place to Work for LGBTQIA+ equality by the Human Rights Campaign and honored as the Sustainable Business of the Year in the bank category by the Sustainable Business Network of Massachusetts. Additionally, Berkshire accelerated further ahead of its BEST ESG performance goal, moving into an aggregated 17 th percentile performance in an index of leading ESG ratings and ranked in the top 1% of U.S. banks in Bloomberg throughout the year. The Company continues to differentiate itself through its high performance on ESG matters and commitment to its communities.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2022 AND DECEMBER 31, 2021
Summary: Total assets were little changed in 2022, measuring $11.7 billion at year-end. Excess liquidity was reinvested into loan growth. A $0.9 billion decrease in cash and equivalents and a $0.5 billion decrease in investment securities were mostly offset by a $1.5 billion increase in loans. Total deposits increased by $0.3 billion, and the ratio of loans to deposits increased to 81% from 68% during the year. Most measures of asset quality remained strong and improving. Shareholders’ equity decreased by $228 million primarily due to an other comprehensive loss from unrealized bond losses in the environment of rising interest rates. Shareholder distributions in the form of dividends and stock repurchases reflected the Company’s plan to reduce excess capital through loan growth and shareholder distributions. The Common Equity Tier 1 Capital ratio remained strong at 12.4% at year-end. Year-end 2022 book value per share measured $21.51 and the non-GAAP measure of tangible book value per share measured $20.95. These measures were reduced by approximately $3.93 per share as a result of the after-tax unrealized bond loss.
Investments: Short-term investments decreased by $978 million, or 64%, to $540 million, or 5% of period-end assets, as excess liquid funds were reinvested into loans in the rising rate market.
The portfolio of investment securities decreased by $515 million, or 20%, to $2.03 billion, measuring 17% of period-end assets, compared to 22% at the start of the year. The Company allowed net run-off of investment securities to provide funds for loan growth. The net runoff tempered the Company’ exposure to unrealized bond losses in the rising interest rate environment. This helped to offset the impact of a lengthening of securities average lives due to slower prepayments of the mortgage related securities which constitute the bulk of the portfolio. Excluding short-term treasury securities, net monthly run-off from proceeds of maturities, amortization, and prepayments of investment securities was approximately $20 million per month based on conditions at year-end 2022.
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The portfolio is high quality, and has an average debt securities life of 6.9 years at period-end, which was increased from 4.6 years at the start of the year due primarily to slowing prepayment speeds of mortgage related instruments resulting from the significant increase in interest rates. The investment portfolio yield was 2.20% in the fourth quarter of 2022, compared to 2.04% in the fourth quarter of 2021. The investment portfolio is viewed as a significant source of liquidity for the Bank, as 93% of the $1.4 billion available for sale bond portfolio consists of Agency mortgage related products and Treasury notes.
The portfolio of available for sale investment securities had an unrealized loss of $238 million, or 14.3% of cost at year-end 2022, compared to an unrealized loss of $4 million, or 0.2% of cost, at year-end 2021, due to the impact of rising interest rates during 2022. The unrealized loss is a component of other comprehensive income but has no impact on bank regulatory capital. If portions of this loss were recognized through sale, this would reduce regulatory capital. The Company monitors the impact of the unrealized loss on the book value of capital and it views its position as within the range of peers in the current environment. Based on year-end 2022 conditions, the unrealized loss is expected to accrete into book value as the bond portfolio seasons through its 6.9 year average life with the expectation that the securities return to a par value at maturity.
Total Loans. Total loans increased by $1.51 billion, or 22%, to $8.34 billion in 2022. Growth was concentrated in residential real estate loans, which increased by $823 million, or 55%, to $2.31 billion. Commercial loans increased by $634 million, or 13%, to $5.52 billion. In addition to improved customer demand and expansion of the Company's lending teams, loan growth in 2022 was impacted by slower prepayment rates due to the rising rate environment during the year.
Berkshire has expanded its residential mortgage lending function to be more in line with its strategic positioning in its markets and in order to reinvest excess liquidity that had accumulated from loan run-off in earlier periods. The majority of originations were produced by an expanded team of in-house mortgage originators. The Company has also been developing third party mortgage channels, including flow originations from correspondents in its markets. This expansion produced high mortgage growth in 2022 despite the market contraction resulting from rising interest rates. Most production shifted towards jumbo 7/1 adjustable-rate mortgages that were held for investment. The Company has also expanded its secondary marketing capabilities with a goal of increasing the volume of conforming mortgages originated for sale in future periods. The Company’s goal is to build customer relationships from this portfolio. The mortgage loan yield decreased to 3.56% in the fourth quarter of 2022, compared to 3.82% in the fourth quarter of 2021, reflecting shifts in the product mix. Due to the lag in application and processing pipelines, the portfolio yield began to increase in the latter part of the year from the flow of higher rate new originations.
Commercial loan growth in 2022 resulted from the expansion of the commercial team, together with solid credit demand and supportive economic and credit conditions. Commercial loans had declined in earlier periods and reached a growth inflection point in the fourth quarter of 2021, with growth in all four quarters of 2022. For the year, major areas of growth were in commercial multifamily loans, non-owner occupied commercial real estate, and asset-based lending commercial and industrial balances. These real estate loans were spread across most of the major categories or property types. The Company measures its commercial real estate loans in accordance with regulatory monitoring guidelines and definitions. Total commercial real estate measured 259% of regulatory capital at year-end 2022 and construction loans measured 26% of regulatory capital.
Through loan selection, the Company shifted commercial real estate loan production towards credits with lower loan-to-value ratios during the year to reduce impacts of potential future recessionary conditions on property valuations. The Company manages commercial real estate loan concentrations within limits by property type. Due to potential shifts in workforce patterns, commercial office loans are subject to heightened monitoring. Excluding construction loans and medical and educational properties, the commercial office portfolio totaled approximately $548 million at year-end 2022, consisting primarily of suburban properties. There were no office property loans delinquent at that date.
Inflation has contributed to an increase in commercial borrowing demand, while the related increase in interest rates has raised borrowing costs, potentially restraining demand. The gathering impact of higher rates is expected to dampen economic conditions, resulting in potentially slower portfolio growth in future periods. Due primarily to commercial loans tied to short term indices, such as LIBOR or Prime, the commercial loan yield increased by 2.06% to 5.78% in the fourth quarter of 2022 from 3.72% in the fourth quarter of 2021. The Company’s
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underwriting includes an analysis of sensitivity to higher interest rates for most of its variable rate loans. Many of the larger variable rate commercial loans are backed by interest rate swaps which have the impact of fixing the interest cost to the borrower, thereby reducing the credit risk of higher interest rates.
After midyear, the Company announced that it would cease originating new loans in its Firestone Financial specialty lending; operation and allow the portfolio to run-off. This was a strategic decision in the context of Berkshire’s BEST plan to focus on core markets and products. The Firestone portfolio stood at $133 million at period-end and continues to have strong credit performance in line with its long history.
Consumer loans increased by $53 million, or 12%, to $501 million in 2022. Growth was driven by consumer unsecured loans originated through the Company’s partnership with the fintech Upstart. This portfolio totaled $140 million at period-end, and most of these loans were originated during the first half of the year and were generally subject to the Company’s prime underwriting standards. In July 2022 the Company announced that, due to the prevailing economic uncertainty, it was ceasing new originations through this partnership. Credit performance of this portfolio has exceeded the Company’s expectations. The yield on the consumer portfolio increased to 7.00% in the fourth quarter of 2022 from 3.96% in the fourth quarter of 2021 due to both the higher yield on Upstart loans and the increase in the Prime rate which is the index rate for most home equity loans.
Overall loan yields increased from the fourth quarter of 2021 due mainly to increases in market interest rates, primarily in relation to loans repricing within three months. The Company measures its loan beta, which is the ratio of the change in loan yields to a market index. Compared to the average federal funds target rate, the beta for the total loan portfolio measured 51% comparing the fourth quarter of 2022 to the fourth quarter of 2021. Comparing the most recent quarter to the linked quarter, the loan beta was 42%. The magnitude and consistency of these betas primarily reflects the large volume of loans contractually repricing based on Prime. LIBOR, or SOFR based indices.
At year-end 2022, 45% of total loans were scheduled to mature or reprice within three months. contributing to the modeled asset sensitivity of the Company’s interest rate risk profile at that date. This is down from 50% at year-end 2021.
Asset Quality and Credit Loss Allowance: Most major asset quality metrics remained solid as of year-end 2022, with many metrics at better levels than pre-pandemic. Total delinquent and non-accruing loans measured 0.60% of total loans at year-end, the lowest in more than a decade. Non-accruing loans measured 0.37% of total loans, compared to 0.52% at year-end 2021. Annualized net loan charge-offs measured 0.27% of average loans in 2022, compared to 0.29% in 2021. Charge-offs were concentrated in the second half of the year in one commercial and industrial credit which filed for bankruptcy in the fourth quarter. The $7 million remaining carrying balance of this loan was the largest component of year-end non-accruing commercial and industrial loans. Non-accruing loans declined in other major loan categories.
At period-end, accruing troubled debt restructurings totaled $12 million and accruing loans over 90 days delinquent totaled $7 million. Total criticized loans decreased to 2.3% of loans from 3.5% of loans at the start of the year, including classified loans which decreased to 1.4% of loans from 2.1% of loans. Classified loans include accruing substandard loans, which are regarded as potential problem loans and which declined to 1.1% of loans from 1.6% during the year.
The allowance for credit losses on loans decreased to $96 million at year-end 2022 from $106 million at year-end 2021. The ratio of the allowance to total loans decreased to 1.15% from 1.55%. This decline was primarily due to a reduction in the expected losses from economic and social disruptions related to COVID-19 conditions, as well as the general improvement in asset quality measures. The year-end allowance was based on a baseline economic forecast of ongoing economic growth but included a qualitative assessment of risks related to market and inflation conditions and future possible recession conditions. The allowance covers all current expected credit losses for all loans. In relation to outstanding loans, the allowance for all categories of loans decreased except for consumer loans due to the addition of the Upstart loans. The expected average lives of most categories of loans increased during the year, reflecting the strong portfolio growth and slower expected prepayment speeds.
Deposits and Borrowings: Total deposits increased by $258 million, or 3%, to $10.3 billion during 2022. Excluding the $474 million increase in payroll deposits and the $107 million decrease in brokered deposits, total deposits decreased by $109 million, or 1%, due primarily to a $156 million, or 5%, decrease in non-interest bearing
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demand deposit balances. The payroll deposits fluctuate daily, and totaled $1.48 billion at year-end, most of which was in money market deposit balances at year-end.
Deposit activity included the impact of increased customer spending rates as well as market competition from higher yielding investment instruments in the rising interest rate environment. The Company increased its promotions of time and money market accounts tied to demand deposit accounts.
The fourth quarter cost of deposits increased year-over-year by 0.50% to 0.69% by from 0.19%, including a 0.36% increase over the third quarter of 2022. The cost of interest-bearing deposits increased by 0.70% to 0.98% from 0.28% due primarily to a 1.00% increase in the cost of money market deposits to 1.16% in the fourth quarter of 2022 from 0.16% in the fourth quarter of 2021.
The Company measures its deposit beta, which is the ratio of the change in deposit costs to a market index. Compared to the average federal funds target rate, the deposit beta measured 25% for the fourth quarter of 2022 compared to the linked quarter. The deposit beta measured 0.14% for the fourth quarter of 2022 compared to the fourth quarter of 2021, which was the last full quarter before the Federal Reserve Bank began raising interest rates. The Company anticipates that the deposit beta will continue to increase into a possible range of 30-40% by the end of the interest rate cycle, depending in part on shifts in balances from lower cost accounts to higher cost accounts.
The Company’s wholesale funds consist of brokered deposits and borrowings. Wholesale funds decreased by $93 million, or 27%, to $246 million, or 2% of assets, from $340 million, or 3% of assets, in order to reduce the balance of higher cost funds.
On June 30, 2022, Berkshire completed the sale at par of $100 million in subordinated notes bearing interest at a fixed rate of 5.5% for the first five years. The notes will then reset quarterly to a floating rate per annum equal to a benchmark rate which is expected to be the Three-Month Term SOFR, plus 249 basis points. The notes have a ten year final maturity and generally may be called at par after five years. Berkshire is the first public U.S. community bank holding company with under $150 billion in total assets to issue a Sustainability Bond. The Company intends to use an amount equal to the net proceeds of its Sustainability Bond issuance to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework. Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, has independently verified that Berkshire’s Sustainable Financing Framework "is credible and impactful and in alignment with” International Capital Market Association (ICMA) guidelines and principles.
On September 28, 2022, the Company prepaid the balance of its existing $75 million in subordinated debt bearing interest at 6.875% which became callable for the first time on that date since the original issuance ten years ago.
Derivative Financial Instruments: The notional amount of derivative financial instruments totaled $4.52 billion at year-end 2022, compared to $3.71 billion at year-end 2021. The increase was primarily due to $800 million in interest rate swaps and collars on commercial loans recorded as cash flow hedges in the second half of the year. This was in response to the increased sensitivity to a downward interest rate shock following the rapid rise in market interest rates during the year. The fair value of derivative financial instruments was a liability of $43 million at year-end 2022, compared to an asset of $43 million at year-end 2021, due to the impact of changes in interest rates on the value of outstanding commercial loan interest rate swaps.
Shareholders' Equity: Total shareholders’ equity decreased by $228 million, or 19% to $954 million in 2022. This decrease was primarily due to a $178 million net other comprehensive loss resulting mostly from the previously discussed unrealized loss on debt securities available for sale as a result of the increase in market interest rates. Additionally, the Company repurchased $125 million in common shares in 2022, representing approximately 9% of shares outstanding at year-end 2021.
The unrealized securities losses are not counted against regulatory equity. As a result, the decrease in regulatory capital was more modest and reflected shareholder distributions through stock repurchases and dividends. Including the impact of the loan growth, the Common Equity Tier 1 Capital remained relatively strong, decreasing to 12.4% from 15.0 at the start of the year. Similarly, the risk-based capital ratio remained comparatively strong at 14.6% compared to 17.3% at the start of the year.
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Across the banking industry, the unrealized losses on available for sale investment securities have led to significant compression of book value and the non-GAAP financial measure of tangible book value. The Company’s
book value per share decreased by $2.79 to $21.51 and period-end equity/assets decreased from 10.2% to 8.2%. Tangible book value per share decreased by $2.74 to $20.95, and the period-end ratio of tangible common equity/tangible assets decreased from 10.0% to 8.0%. The 2022 comprehensive loss on bonds represented approximately $3.93 per share of the decreases in the above per share book value metrics.
During the first nine months of 2022, the Company continued the quarterly shareholder dividend at $0.12 per share level it was reduced to as a result of the pandemic beginning in the third quarter of 2020. On November 4, 2022, the Company announced that it had increased its quarterly dividend to shareholders by 50% to $0.18 per share. This reflected growth in earnings since the announcement of the BEST strategic transformation plan in May 2021. The $0.18 dividend represented a yield of approximately 2.6% based on Berkshire’s closing share price of $27.44 on November 3, 2022 and was equivalent to a 29% payout compared to third quarter 2022 adjusted earnings.
Total shareholder distributions through stock repurchases and dividends measured $149 million in 2022. In January 2023, the Company announced a new 2023 stock repurchase program totaling $50 million, which was equivalent to approximately 4% of outstanding shares based on the share price at the time of the announcement.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Summary: Berkshire reported net income of $93 million, or $2.02 per share in 2022, compared to net income of $119 million, or $2.39 per share in 2021. In 2021, the Company recorded a pre-tax gain of $53 million on the sale of its Mid-Atlantic branch operations and its insurance and other operations. The Company uses the non-GAAP measure of adjusted income to assess its performance, with component measures of adjusted revenue and adjusted expense. These measures exclude items not viewed as related to ongoing operations, including the 2021 sale gains and consolidation expenses in both years.
Adjusted income increased in 2022 by 20% to $101 million compared to $84 million in 2021. This reflected a 9% increase in adjusted revenue and flat adjusted non-interest expense. Adjusted income per share increased by 30% in 2022 to $2.19 from $1.69 in 2021. This reflected the further benefit of stock repurchases in both years.
The 2022 return on equity measured 7.76% and the non-GAAP measure of adjusted return on tangible common equity measured 8.94%. Reflecting the improvement during the year, these measures reached 10.06% and 9.83% respectively in the final quarter of the year. The 2022 return on assets measured 0.82% and the non-GAAP measure of adjusted return on assets measured 0.89%. For the final quarter, these measures increased to 1.08% and 1.00% respectively.
The measure of Pre-tax Pre-provision Net Revenue (“PPNR”) totaled $125 million in 2022, and the non-GAAP measure of adjusted PPNR totaled $136 million. For the final quarter, these measures totaled $48 million and $45 million, respectively.
Revenue: Total net revenue decreased by 5% year-over-year due to the impact of the $53 million in sale gains in 2021. The non-GAAP measure of adjusted revenue excludes these gains and other gains and losses. Adjusted revenue increased by 9% due to an 18% increase in net interest income which was partially offset by a 22% decrease in non-interest income excluding gains and losses. Adjusted revenue comparisons between the two years were impacted by the sale of insurance operations and mid-Atlantic branch operations, which contributed to 2021 operating revenues for nine months before their sale.
Net Interest Income: Net interest income increased year-over-year by $53 million, or 18%. The net interest margin increased by 25%, increasing by 66 basis points to 3.26% from 2.60%. The margin rose to 3.84% in the final quarter of the year. While average earning assets decreased year-over-year by 6%, the Company benefited from the $355 million, or 5% increase in average loans. The increase in the net interest margin reflected both from the benefit of higher interest rates, as well as the reinvestment of funds from short term investments into loans.
Per the early discussion of financial condition, the 2022 cumulative fourth quarter loan beta was 42%, while the deposit beta was 14%. This difference contributed substantially to the net interest income generated as the average target federal funds rate increased by 359 basis points to 3.84% in the fourth quarter of 2022 compared to 0.25% in the fourth quarter of 2021.
The shift from low yielding short-term investments into higher yielding loans also contributed to the increase in net interest income during the year. Additionally, the shift from some investment securities into loans further supported the increase in net interest income.
The Company’s models anticipate that the full cycle deposit beta will be in the 30-40% range. The Company anticipates that the increase in deposit costs may cause a reduction in the net interest margin in future periods based on the interest rate outlook at year-end 2022. The Company’s models indicate that the Company had modest positive interest rate sensitivity at year-end 2022, as discussed in Item 7A on market risk. At year-end 2022, market expectations anticipated further increases in short-term interest rates in 2023.
Non-Interest Income: Total fee income decreased year-over year by $20 million, or 24%. All major categories of fee income decreased except for deposit related fees, which increased by $2 million, or 7%. Insurance fees decreased by $7 million due to the sale of insurance operations in 2021. Loan fees decreased by $13 million, or 38%, primarily due to an $8 million decrease in SBA originations related revenues reflecting changes in the structure of the program and market spreads. Berkshire remained among the top 20 bank originators of SBA 7-A
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guaranteed loans in the U.S. Additionally, loan servicing fee revenue decreased by $2 million due to an outsourcing initiative in 2022. Mortgage banking fees decreased by $2 million, or 89%, as most mortgage originations were designated held for investment.
Provision for Credit Losses on Loans: The loan loss provision was an expense of $11 million in 2022 compared to a benefit of $500,000 in 2021. In both years, provision expense benefited from a release of reserves for expected pandemic related credit losses which did not emerge, including the impact of government support measures. The year-over-year increase also reflected the resumption of loan growth in 2022 compared to loan contraction in 2021. The Company has steadily reduced the coverage of its allowance for credit losses on loans based on improvements in asset quality and credit loss expectations. The balance of the allowance for credit losses on loans decreased to $96 million at year-end 2022 compared to $106 million at year-end 2021.
Non-Interest Expense: Comparisons of non-interest expense year-over-year were impacted by the sale of insurance and branch operations at the end of the third quarter of 2021 and the reinvestment in frontline bankers and technology. Comparisons are also affected by consolidation costs recorded in both years, primarily for branch consolidations, along with premises and operations initiatives.
Total non-interest expense increased year-over-year by $3 million, or 1%. Adjusted non-interest expense was flat. Restructuring and other non-operating expenses totaled $9 million in 2022 and $6 million in 2021. The Company consolidated six branch offices in 2022 and 16 branch offices in 2021. Including the 8 branches related to the mid-Atlantic branch operations which were sold, total branches decreased by 30 offices over the last two years to 100 branches at year-end 2022 compared to 130 branches at the beginning of 2021.
Occupancy related expenses decreased year-over-year by $4 million, or 10%. Technology related expenses increased by $2 million, or 5%. Professional expense decreased year-over-year by $4 million, or 24%, due primarily to elevated charges in the first quarter of 2021. Total full-time equivalent staff measured 1,310 positions at period-end, compared to 1,319 positions at the end of 2021.
Reflecting the improved net interest margin and strong expense control, as well as the exit from less efficient operations, the efficiency ratio improved to 64.3% in 2022 from 70.0% in 2021. This ratio improved to 58.3% in the final quarter of the year due to the cumulative impact of improvements during the year.
Income Tax Expense: Income taxes are discussed in a note to the financial statements; this note is important to an understanding of the results of operations.
The Company recorded a 19% effective tax rate in 2022 compared to a 20% effective tax rate in 2021. Including both the federal and state benefits, the 2022 effective tax rate benefited by 4.5% from tax exemptions on investment securities and other tax-advantaged investments. Including both the federal and state benefits, the effective tax rate was also reduced by 3.4% related to the Company’s tax credit investment projects. These projects provided $0.03 per share in net income benefit in 2022 and $0.02 per share in 2021, net of amortization charges recorded to non-interest income. The Company actively pursues tax credit investment projects to provide financial support to community development projects as part of its overall banking services while also generating an appropriate return on the Bank’s investment. In recent years these projects have included historic rehabilitation, low-income housing, new markets and renewable energy generation investments.
Total Comprehensive Income: Total comprehensive income includes net income together with other comprehensive income, which primarily consists of unrealized gains/losses on debt securities available for sale, after tax. Total comprehensive income was a loss of $85 million in 2022 compared to income of $85 million in 2021. The loss in 2022 results from the unrealized bond losses in 2022 due to the rise in interest rates during the year.
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LIQUIDITY AND CASH FLOWS
Short-Term Liquidity: In 2022, loan growth was the primary use of cash, which was mainly sourced from short-term investments and investment securities. The ratio of cash and cash equivalents to total assets decreased to 6% from 14% over this period in accordance with the Company’s plan to invest excess liquidity into higher yielding loans. Investment securities and wholesale funding are ongoing potential sources of cash to supplement deposit growth to support targeted loan growth.
At year-end 2022, the Bank had $2.1 billion in total borrowing availability with the FHLBB and the Federal Reserve Bank of Boston. This availability is collateralized with investment securities and loans to the extent utilized.
The Company continues to view itself as having sufficient liquidity with a high quality securities portfolio and well-positioned wholesale funding sources. The relative stability of deposit balances and costs was also viewed as positive in 2022 as an indicator of core funding in the Company’s markets. The ratio of loans to deposits measured 81% at period-end, compared to 68% at the start of the year. A number of metrics are utilized in establishing optimal and minimal liquidity targets and the Company is generally well positioned across these metrics.
In the environment prevailing at the end of 2022, some banks have reported deposit outflows as funds are withdrawn to reinvest in other higher yielding financial instruments, and also as excess pandemic related liquidity from federal support programs is spent down. The rising rate environment potentially constrains industry deposit demand growth. Additionally, the rising rates have contributed to the extension of the investment portfolio average life and the unrealized bond losses are a potential constraint on some options for the use of investments to support overall liquidity. The unrealized losses would affect regulatory capital if they were realized through the sale of the related securities, which could then impact the management of capital. The excess liquidity which has been widespread throughout the financial system during the pandemic may constrain funding sources if system wide liquidity is reduced. The Company is monitoring various scenarios as it continues to pursue organic growth and market share gains in the context of its BEST strategic plan.
The Company maintains a contingency funding plan based on its assessment of the liquidity stress environment. Primary liquidity data is reported on daily, and thirty-day stress analytics are maintained on an updated basis. A one year forward liquidity stress test evaluates stress across a variety of stress scenarios, including severe adverse loan loss scenarios. The Company has defined strategic options which allow it to materially meet funding needs in all stress scenarios.
Long-Term Liquidity: Over the long term, the Company targets to generate organic deposit growth that will fund organic loan growth. Operating earnings are expected to fund routine cash operating costs, shareholder distributions, and capital expenditures. As a depository institution, the Bank maintains a high-quality securities portfolio as a source of liquidity to service unexpected customer demand for loan advances or deposit withdrawals. The Company and Bank have investment grade debt ratings from Moody’s Investors Services and the KBRA bond rating firm. The Company also is active in secondary markets for residential mortgages and SBA guaranteed loans, which support its organic growth without relying on internal liquidity and capital resources. The Company is monitoring for potential shifts in deposit sources as customer usage of traditional banking channels is also impacted by the spread of fintech alternatives. The Company’s strategy is to actively partner with fintechs to pursue a strong position in the evolving financial marketplace, while evolving its own technology to support these partnerships. The Company is also monitoring potential shifts in deposit demand as it is being impacted by higher interest rates and inflation, and potentials impacts of an economic slowdown and lower customer liquidity.
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Parent Company Liquidity: Total cash held by the holding company was $90 million at year-end 2022. The Company targets to use cash at the holding company together with dividends from the Bank to fund holding company cash uses including modest operating expenditures, debt service, purchases of investments, shareholder dividends, and stock repurchases. The holding company generally expects to maintain cash on hand equivalent to normal cash uses, including common stock dividends, for at least a one year period. Bank dividends to the holding company presently require approval by the FDIC and the Massachusetts Division of Banks. The holding company’s goal is to maintain access to private and public credit markets to provide access to additional liquidity sources depending on conditions.
CAPITAL RESOURCES
Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the note on Shareholders' Equity in the consolidated financial statements.
The Company’s BEST plan includes the optimization of capital, including reducing excess capital through organic growth and capital returns to shareholders. The operation of this plan was evidenced in 2022 by loan growth and shareholder distributions, including a 50% increase in the shareholder dividend in the final quarter of the year. Capital optimization was also supported through the subordinated debt issuance, reducing the coupon compared to the existing debt which was later prepaid. In conjunction with this issuance, the Company received an inaugural investment grade bond rating from Moody’s and executed a landmark Sustainability Bond placement which expands capital market access for socially responsible investments.
The Company views its regulatory capital measures as providing it with an ample cushion of excess capital in relation to its operating condition, risk profile, and strategic plans, and compared to peers. The Company’s priorities for uses of its capital are based on maintaining strong capital, supporting organic growth and its BEST strategic plan, paying a dividend yield that in the long run is competitive and targets a 30-40% payout ratio, and distributing excess capital to shareholders through stock repurchases, with a goal of achieving an efficient level and composition of capital.
The Company repurchased approximately 5% of its shares in 2021 and an additional 9% in 2022. After year-end 2022, the Company announced a 2023 share repurchase program for approximately 4% of its outstanding shares. In large measure, these repurchases represented a return of capital that became excess as a result of the reduction of certain business activities and loans, including targeted runoff of selected portfolios.
The unrealized available for sale securities losses reduce the book value of equity. These losses are expected to accrete back into equity as the securities season to maturity. These losses are not deducted from regulatory capital which is the primary focus of the Company’s capital management. The measure of tangible book value is a focus of bank investors, together with the ratio of tangible equity to tangible assets and the measure of tangible book value per share. The non-GAAP measure of tangible equity to tangible assets decreased to 8.0% from 10.0% during 2022, and tangible book value per share decreased by 12% to $20.95 from $23.69. The Company is monitoring its tangible book value related metrics and it believes that its condition at period-end was within a general range for peers at that date.
The Company’s long-term goal is to maintain an efficient capital structure and to provide a return in excess of the cost of its common equity capital. The Company’s tier 2 capital includes a $100 million subordinated note. The Company maintains a universal shelf registration statement for capital securities with the SEC. The Company and Bank are investment grade rated by Moody's Investors Service and by the KBRA bond rating service. The Company’s stock is traded on the New York Stock Exchange and the Company views itself as having good access to current capital markets.
The Company performs capital stress testing at least annually and has a goal to remain qualifying for the “well capitalized” designation in the severely stressed scenario. The Company views its current stressed capital position as sound and conforming to its objectives.
In acting as a source of strength for the Bank, the Company relies on capital distributions from the Bank in order to provide operating and capital service for the Company, which in turn can access national financial markets to provide financial support to the Bank. Capital distributions from the Bank to the parent company presently require approval by the FDIC and the Massachusetts Division of Banking. Increased distributions from the Company to shareholders require notice to and nonobjection from the Federal Reserve Bank. In 2022, the Bank paid $108 million in dividends to the parent company.
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APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies and modifications to significant accounting policies made during the year are described in Note 1 to the financial statements. The preparation of the financial statements is in accordance with GAAP and general practices applicable to the financial services industry. This preparation requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates, assumptions, and judgements.
Not all significant accounting policies require management to make difficult, subjective or complex judgments. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. The following significant accounting policies are considered most critical in that they are important to the Company’s financial condition and results, and they require management’s subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. Both of these most critical accounting policies were significant in determining income and financial condition based on events in 2022.
Allowance for Credit Losses for Loans
The allowance for credit losses for loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. 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 appropriateness of the ACLL could change significantly because current economic conditions and forecasts can change and future events are inherently difficult to predict. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses.
While management utilizes its best judgment and information available, the ultimate adequacy of our ACLL is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, and changes in interest rates. For detailed information on the ACLL see Note 1- Summary of Significant Accounting Policies and Note 6 – Loans and Allowance for Credit Losses.
Fair Value Measurements
The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, impaired loans, securities available for sale, and derivatives. Our fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and capitalized servicing rights. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting or other accounting standards.
Management has established and documented a process for determining fair value. The use of observable inputs is maximized and the use of unobservable inputs is minimized when developing fair value measurements. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our
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related valuation methodologies, see Note 1 – Summary of Significant Accounting Policies and Note 21 – Fair Value Measurements for more information.
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ENTERPRISE RISK MANAGEMENT
Other sections of this report on Form 10-K include discussion of market risk and risk factors. Risk management is overseen by the Company’s Chief Risk Officer, who reports directly to the CEO. This position oversees risk management policy, credit, compliance, and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital & Compliance Committee.
The Company includes recessionary/inflationary risk overlays on all of the material business risks to capture the uncertainties of the economic environment. The Company has also developed recession toolkits and playbooks that outline mitigating factors and actions that strive to minimize losses under such scenarios. Both of these items are addressed throughout the assessments and dashboards provided to the above Committees.
The high level corporate risk assessment focuses on the following material business risks: credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk, with the credit risk category having the highest weighting. For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company. In 2022, price risk increased in relation to the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments and operations. Residual price risk was viewed as medium including the impact of mitigating factors and management actions in the risk management environment.
LIBOR TRANSITION
The Company’s use of LIBOR based instruments and the industry-wide transition program away from LIBOR are discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) of this report. The Company has in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations. These include loans index on LIBOR, as well as interest rate swap contracts including customer, dealer, and risk participation agreements.
The Financial Conduct Authority (“FCA”) presently intends to continue publishing most LIBOR indices through June 2023 for use with legacy instruments contracted in 2021 or before. The Company continues to execute plans to transition instruments associated with LIBOR to alternative reference rates. The Company has approved the use of Term SOFR as the lead base case index to replace LIBOR for pricing of new contracts starting in 2022, with Daily Simple SOFR as an alternate. The Company continues to monitor market adoption of alternate index rates as information becomes available or as requested by customers or other counterparties.
As of December 31, 2022, the Company had approximately $1.9 billion in LIBOR based commercial loans, including $1.8 billion maturing after the LIBOR cessation date at midyear 2023. The Company is focused on converting the majority of these loans to one month term SOFR, working with customers, counsel, and its core loan servicing provider. The Company had converted $333 million in outstanding loans through year-end 2022.
ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) & COMMITMENT TO SOCIAL RESPONSIBILITY
BERKSHIRE’S APPROACH
Since its founding in 1846, Berkshire continues to be a purpose-driven, values-guided, community-centered bank working to achieve its vision of becoming a high-performing leading socially responsible community bank. Berkshire empowers the financial potential of its stakeholders by making banking available where, when, and how it's needed through an uncompromising focus on exceptional customer service, digital banking, and positive community impact. It provides a wide range of accessible, affordable, safe, responsible and sustainable financial solutions through its consumer banking, commercial banking and wealth management divisions.
Berkshire believes where you bank matters, and that simple decision can have an outsized impact on your community. That’s why ESG factors are central to the company’s vision, mission, business practices, and Berkshire’s Exciting Strategic Transformation (BEST). This better approach to banking with ESG at its core helps manage risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn drives Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.
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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 funding environmental sustainability. Through this far-reaching initiative, Berkshire aims to help create more businesses and jobs, help more families achieve the dream of owning a home, and aid communities in becoming more environmentally efficient and eco-friendly. Berkshire has made steady progress towards achieving its goal of deploying $5 billion to support its communities by the end of 2024. As of year-end, Berkshire has deployed more than $1 billion in low-moderate income neighborhoods, over $300 million to support low-carbon projects and has transitioned its own electricity supply to 99% renewable since launching the program.
CENTER FOR WOMEN, WELLNESS & WEALTH
Berkshire launched the Center for Women, Wellness, and Wealth (CWWW) to provide women with tools to help create a future enriched with financial stability and wellness. The Center, through partnerships with community organizations, specialized experts and thought leaders, offers events on wellness and financial planning, philanthropic coaching and development support, and complimentary portfolio reviews through Berkshire Bank Wealth Management. Ultimately the Center is working to strengthen women’s financial lives by empowering active participation in financial decision making and addressing the longevity risk that women face through a transformative approach to wealth management which centers on balance, stability, growth and overall wellness.
SUSTAINABLE FINANCE & IMPACT INVESTMENTS
Berkshire became the first public U.S. community bank holding company with under $150 billion in assets to issue a Sustainability Bond with a $100 million issuance in 2022. The Company intends to use an amount equal to the net proceeds to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework including renewable electricity generation; green buildings; renewable energy technology, storage and manufacturing; energy efficiency in commercial, residential and public buildings; affordable housing; workforce housing; and financial inclusion and access activities. The framework was independently verified by Sustainalytics, a Morningstar Company, for its impact and alignment with the International Capital Market Association's (ICMA) Sustainability Bond Guidelines 2021, Green Bond Principles 2021 and Social Bond Principles 2021. Berkshire intends to publish a report in 2023 describing the amount of net proceeds allocated to each eligible project category, descriptions of specific projects financed, unallocated balances and, where feasible, qualitative and quantitative measures of the expected environmental or social impact.
Beyond the issuance of its sustainability bond, Berkshire looks for innovative ways to advance its ESG positioning and its strategic business priorities through sustainable finance and impact investing. As a result, Berkshire makes targeted impact investments in Small Business Investment Companies (SBIC) and other strategically aligned assets that are within risk appetite and drive a competitive rate of return. The Company also has a strong tax-credit business whereby it makes targeted investments in low-income housing tax credits (LIHTC), historic tax credits (HTC) and solar tax credits to further Berkshire’s ESG goals and strengthen its Community Reinvestment Act (CRA) performance. These investments help bring to life important economic development, revitalization and renewable energy projects while providing an appropriate return to the bank consistent with its capital and tax strategies.
ESG INTEGRATION, OVERSIGHT & REPORTING
ESG factors are integral to Berkshire’s business practices, risk management program, competitive positioning and its ability to deliver on its Berkshire’s Exciting Strategic Transformation (BEST) program and realize its vision of becoming a high-performing, leading socially responsible community bank. Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee ESG matters and are a leader among community banks in integrating ESG standards into its business strategy and operations.
The Company maintains a strong foundation of governance systems, including:
•Board level oversight of ESG, Sustainability, Climate Change, Diversity and Culture
•Corporate Responsibility & Culture Committee of its Board of Directors
•Environmental, Social and Governance (ESG) Committee
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•Diversity Equity & Inclusion Committee
•Responsible & Sustainable Business Policy
•Lending, credit, deposit and investment policies which incorporate ESG exclusions and due diligence requirements
•Senior managers for ESG and Diversity along with active involvement from business unit leaders and front lines in managing ESG externalities and risks
This approach strengthens risk management practices consistent with the company’s enterprise risk management program and allows Berkshire to capitalize on business opportunities consistent with its strategy.
Berkshire regularly engages directly with its stakeholders to share information about the progress it’s made in its ESG performance, including through its Corporate Responsibility website, corporate annual report, and proxy statement. Additionally, Berkshire’s annual Corporate Responsibility/ESG Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure (TCFD) disclosure standards, details the Company's ESG efforts and programs.
CLIMATE CHANGE
Climate Change manifesting in the form of both physical or transition risks could adversely, either directly or indirectly, affect Berkshire’s operations, businesses, customers, communities, and its stakeholders. As the transition to a low-carbon economy accelerates, new policy emerges, and market dynamics shift, Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support the transition will allow it to strengthen its positioning as a high performing, leading socially responsible community bank. The Company continues to evolve its practices to reflect its community bank mission as well as the size, scope, and complexity of its operations.
Berkshire is actively managing climate related risks and opportunities at the board, management and employee levels. The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight on sustainability and climate change. Management and the board evaluate climate related risks and opportunities and incorporate the results of risk assessments and discussions into strategic planning, product development, programming and relevant risk mitigating measures. All business risks are also integrated into our Enterprise Risk Management program and discussed by other applicable Board Committees including the Risk Management, Capital & Compliance Committee. Both Committees report into the full board. Beyond board level oversight of climate matters, Berkshire maintains an Environmental, Social and Governance committee comprised of senior executives throughout the Company. Berkshire also completes an annual climate change risk assessment to evaluate the bank’s operations and lending activities for potential exposure to transition and physical risks.
The results of the risk assessment guide Berkshire’s forward climate management and environmental sustainability strategies to ensure its actively managing the risks and opportunities. The physical risks of climate change over short, medium and long-term horizons include weather-related events, such as flooding and tornados, and longer-term shifts in climate patterns, such as extreme heat, rising sea levels and more severe droughts. Such events could disrupt Berkshire’s operations, impact customers, or third parties on which Berkshire relies, including through direct damage to physical assets and indirect impacts from supply chain disruption and market volatility. This could impact borrowers’ ability to repay obligations, devalue physical assets resulting in uncertain residual values and affect third-parties ability to deliver on service expectations.
Transition risks over short, medium and long-term horizons can include changes in consumer preferences, additional regulatory requirements or policy such as taxes, and use of new technologies. Such developments could increase Berkshire, its customers and third-parties operating costs, reduce demand for services from select customer segments and impact current strategies. Reputation and customer relationships could be damaged as a result of Berkshire’s practices related to climate change mitigation as well as through its or its customers direct or indirect involvement with industries or projects with heighten climate related risks. Over the long-term, transition risks could also manifest in potential credit impacts affecting borrowers’ ability to repay obligations. Collectively these physical and transition risks are managed through ongoing monitoring, existing industry exclusions, due diligence processes, policies, insurance requirements, business continuity planning, target setting and product development.
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As Berkshire looks to further strengthen its management of climate related risks and opportunities, it expects to continue to formalize its climate risk management program and set formal targets to reduce its Greenhouse Gas (GHG) emissions, in addition to its existing sustainable finance and renewable electricity goals. As the Company moves further along in its climate journey, it expects to continue to enhance its disclosures, programs, mitigating controls and initiatives to minimize risk, reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy. Further details on Berkshire’s Climate Change governance, risk management, strategy, metrics & targets and next steps can be found in its most recent Corporate Responsibility Report.
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RATINGS, AWARDS & RECOGNITION
We’re proud to be recognized for our performance with local, regional, national, and international awards as well as leading third party ESG ratings* including:
•Top 17% aggregated ESG rating, achieving one of five major BEST goals
•MSCI ESG- A
•ISS ESG Quality Score - Environment: 3, Social: 1, Governance: 2
•Bloomberg ESG Disclosure- 62.81
•Sustainalytics Rated
•Communitas Award for Leadership in Corporate Social Responsibility
•Sustainable Business Network of Massachusetts Sustainable Business of the Year – Bank
•Boston Business Journal Top Charitable Contributor
•America’s Most Trustworthy Companies – Newsweek
•Forbes America’s Best Midsize Employers
•Bloomberg Gender-Equality Index
•Human Rights Campaign Corporate Equality Index Best Place to Work for LGBTQ+ equality- 100% Score
*As of December 31, 2022
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS
Qualitative Aspects of Market Risk. The Company seeks to provide sustainable net interest income (NII) under varying economic conditions, while protecting the economic value of assets and liabilities from adverse effects of changes in market interest rates. While a number of market factors affect the level of NII and the economic value of our assets and liabilities, changes in interest rates is the most significant aspect of our market risk. Berkshire’s general objective is to maintain a neutral or asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes.
The Company maintains a regular cadence for review and oversight of its asset-liability policies and interest rate risk positioning with oversight from senior management and the Board of Directors. The manner and extent of the movement of interest rates is an uncertainty that could have a positive or negative impact on the Company’s earnings. The Company manages its interest rate risk by analyzing the sensitivity and mix of its assets and liabilities, including derivative financial instruments. The Company also uses secondary markets, brokerages, and counterparties to accommodate customer demand for long-term fixed rate loans and to provide it with flexibility in managing its balance sheet positions.
Quantitative Aspects of Market Risk. The Company quantifies its NII sensitivity using an earnings simulation model that compares a baseline view of NII over 12 and 24 month horizons, based on a static view of the balance sheet and market interest rates, to a wide range of parallel and non-parallel rate shocks and ramps. In addition, the Company analyzes net income at risk and equity at risk from interest rate changes through discounted cash flow analysis. The baseline view includes the projected future impacts of previous interest rate changes that are projected based on contractual and behavioral assumptions.
The chart below shows an analysis of scenarios where there is a parallel shock to interest rates and the impacts are measured for the first year and second year after the shock. Modeled assets and liabilities are assumed to reprice at respective repricing or maturity dates. Pricing caps and floors are included in the results, where applicable. The Company uses prepayment expectations set forth by market sources as well as Company generated data where applicable. Generally, cash flows from loans and securities are assumed to be reinvested to maintain a static balance sheet. Other assumptions about balance sheet mix are generally held constant. There were no material changes to the way that the Company measures market risk in 2022. The Company has changed its summary presentation of interest rate sensitivity from an analysis of ramped changes to interest rate shocks in order to better focus on the dynamics and uncertainties of the current markets.
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CHANGE IN NET INTEREST INCOME

Parallel Interest Rate Shock – Basis Points |  |  |  |
| 1-12 Months |  | 13-24 Months
| % Change |  | % Change
At December 31, 2022 |  |  |  |
+200 |  | 1.8 | % |  | 6.1 | %
+100 |  | 0.8 |  |  | 2.9 |
-100 |  | (1.6) |  |  | (4.3) |
-200 |  | (5.2) |  |  | (10.8) |
At December 31, 2021 |  |  |  |
+200 |  | 13.1 |  |  | 16.1 |
+100 |  | 5.6 |  |  | 6.5 |
-100 |  | (0.1) |  |  | (1.2) |
-200 |  | NA |  | NA

The Company was significantly asset sensitive at year-end 2021, which benefited the Company in the 2022 environment of rising interest rates. This environment also contributed to growing sensitivity during the year to negative earnings impacts in the unexpected situation of interest rate decreases, as asset yields increased while deposit costs remained well-controlled. Over the course of the year, the Company increased the duration of assets with the growth of the mortgage portfolio, and in the second half of the year the Company employed hedging strategies with interest rate swaps and collars. As a result, year-end 2022 interest rate sensitivity was much closer to neutral, while remaining modestly asset sensitive, in line with the market expectation of further interest rate increases in 2023. Changes to first year modeled net interest income were under 2% in modeled scenarios of 100 basis point shocks in both up and down scenarios. This sensitivity was also under 2% for a 200 basis point upward shock, compared to the modeled 13.1% sensitivity at the start of the year. At year-end 2022, a down 200 basis point shock scenario was added to the model due to the increase in interest rates during the year. The change to first year modeled net interest income was down 5.2% under this scenario.
The Company also models net interest income sensitivity to interest rate ramps over a twelve month period. In all cases, these sensitivities were modestly lower than those modeled for interest rate shocks of the same magnitude. At year-end 2022, the modeled year one sensitivity to a +100 basis point interest rate ramp was 0.6% and the year two sensitivity was 2.6%. The Company also models sensitivity to yield curve twists, and sensitivity remained positive in most scenarios for widening and narrowing of the yield curve.
While the sensitivity of net interest income is the primary driver of the sensitivity of net income, the latter is more sensitive than the former since it is net of expenses. In the case of the first year of a 100 basis point scenario, the modeled shock sensitivity of net income is 1.7% in an upward shock and -3.3% in a downward shock.
Economic value of equity sensitivity to changes in market rates at year-end 2022 was neutral for a 200 basis point upward shock and was -5.4% for a similar downward shock.
A critical component of modeling is the assumption of deposit interest rate sensitivity (deposit “beta”). The Company expects the total deposits beta through the duration of an interest rate cycle to be in the area of 30-40%, which includes an assumption that non-interest bearing deposit balances remain unchanged for modeling purposes. The actual cost of deposits in 2022 has been less sensitive than the Company’s traditional modeling assumptions due to the rapid increase in interest rates and high liquidity in the economy in the unusual conditions prevailing in 2022.
Modeled interest rate sensitivity depends on other material assumptions. Market risk exposure is affected by the level and shape of the yield curve in markets for financial instruments including U.S. Treasury obligations, forward interest rate derivatives, the U.S. prime interest rate, and LIBOR related rates. Also, the economic impact on customer and market behaviors of the COVID-19 pandemic remains uncertain and may cause actual events to differ from assumptions. The behavior of markets under the historically unusual conditions currently prevailing may be different from modeling assumptions, and the Company continues to monitor the markets and the assumptions in its model.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data required by this item are presented elsewhere in this report beginning on page F-1, in the order shown below:

Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a and 15(d) -15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of December 31, 2021. Based upon their evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company evaluated changes in its internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the last fiscal quarter. The Company determined that there were no changes that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s report on internal control over financial reporting and the independent registered public accounting firm’s report on the Company’s internal control over financial reporting are contained in “Item 8 — Consolidated Financial Statements and Supplementary Data.”
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
For information concerning the directors of the Company, the information contained under the sections captioned “Proposal 1 - Election of Directors for a One-Year Term” in Berkshire’s Proxy Statement for the 2023 Annual Meeting of Stockholders (“Proxy Statement”) is incorporated by reference. The following table sets forth certain information regarding the executive officers of the Company.

Name | Age | Position
Nitin J. Mhatre | 52 | President and Chief Executive Officer of the Company; Chief Executive Officer - Berkshire Bank; Director of Berkshire Hills Bancorp and Berkshire Bank
Sean A. Gray | 46 | Senior Executive Vice President, Chief Operating Officer; President - Berkshire Bank
David Rosato | 61 | Senior Executive Vice President, Chief Financial Officer
Lucia “Lucy” Bellomia | 57 | Senior Executive Vice President, Head of Retail Banking
James Brown | 57 | Senior Executive Vice President, Head of Commercial Banking
Jennifer M. Carmichael | 46 | Executive Vice President, Chief Internal Audit Officer
Jacqueline Courtwright | 59 | Senior Executive Vice President, Chief Human Resources and Culture Officer
Ashlee Flores | 38 | Executive Vice President, Chief Compliance Officer
Philip Jurgeleit | 53 | Executive Vice President, Chief Credit Officer
Gregory D. Lindenmuth | 55 | Senior Executive Vice President, Chief Risk Officer
Wm. Gordon Prescott | 61 | Senior Executive Vice President, General Counsel and Corporate Secretary
Sumant Pustake | 38 | Executive Vice President, Chief Transformation & Strategy Officer
Ellen Steinfeld | 61 | Senior Executive Vice President, Head of Consumer Lending & Payments
Jason T. White | 47 | Senior Executive Vice President, Chief Information Officer – Berkshire Bank

The executive officers are elected annually and hold office until their successors have been elected and qualified or until they are removed or replaced.
BIOGRAPHICAL INFORMATION

| Nitin J. Mhatre. Age 52. Mr. Mhatre was appointed to the role of President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank in January 2021. He was also appointed as a Director of the Company and the Bank. Prior to joining the Company, Mr. Mhatre was Executive Vice President, Community Banking, at Webster Bank, where he led consumer and business banking businesses. Before joining Webster in 2009, Mr. Mhatre spent 13 years at Citi Group in various leadership roles across consumer-related businesses globally.
| Sean A. Gray. Age 46. Mr. Gray was appointed to the role of Senior Executive Vice President, Chief Operating Officer; President of the Bank in November 2018. He was previously Senior Executive Vice President of the Company and Chief Operating Officer of the Bank since 2015. Mr. Gray joined the Company in retail banking in 2007 and attained the position of Executive Vice President, Retail Banking. Previously, he was Vice President and Consumer Market Manager at Bank of America, in Waltham, Massachusetts.

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| David Rosato. Age 61. Mr. Rosato joined the Company in February 2023 as Senior Executive Vice President, Chief Financial Officer. He spent the last 15 years with People’s United Financial, Inc., eight of which as Chief Financial Officer. Prior to joining People’s United, Mr. Rosato worked at Webster Financial Corporation, including serving as its Treasurer, and M&T Bank Corporation. Mr. Rosato is a former board member of the Federal Home Loan Bank of Boston.
| Lucia “Lucy” Bellomia. Age 57. Ms. Bellomia is Senior Executive Vice President and Head of Retail Banking. She oversees the retail branch network, branch training, the MyBanker program, Call Center, Branch Operations, Retail Sales and Service Delivery. Prior to joining Berkshire in September 2021, she served as the Executive SVP, PM, Community Banking, Northeast Region, for Bank of America. She previously held positions at the Police and Fire Credit Union in Philadelphia, Santander Bank, PNC Bank, Sun National Bank, and Pioneer Savings and Loans.
| James Brown. Age 57. Mr. Brown joined the Company in January 2023 as Senior Executive Vice President, Commercial Banking. Mr. Brown is responsible for all aspects of commercial banking operations, including the middle-market, business banking and asset based lending teams. Previously, he spent more than 20 years at Boston Private Bank & Trust Company in multiple senior executive roles including Co-President, EVP, Head of Commercial Banking and Credit Administration, and Chief Lending Officer. He served with Silicon Valley Bank as Head of Specialty Commercial within the Private Bank, following the acquisition of Boston Private in 2021
| Jennifer M. Carmichael. Age 46. Ms. Carmichael was promoted to Executive Vice President, Chief Internal Audit Officer of Berkshire Bank in November 2020. She reports to the Audit Committee of the Board and administratively to the CEO. Ms. Carmichael previously served as Senior Vice President and Audit Manager. She joined the Bank in 2016 from Accume Partners where she served as Senior Audit Manager to several clients in the New York and New England regions, including Berkshire.
| Jacqueline Courtwright. Age 59. Ms. Courtwright is Senior Executive Vice President, Chief Human Resources and has served as Culture Officer since September 2020. She had been appointed as Senior Vice President, Chief Human Resources Officer in July 2019. Prior to joining Berkshire in 2012, Ms. Courtwright was VP, Human Resources Business Partner at Citizen Bank and also held senior human resource roles during her 20 years at KeyBank.

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| Ashlee Flores. Age 38. Ms. Flores was promoted to Executive Vice President, Chief Compliance Officer in September 2022. She oversees all aspects of the compliance risk management program, including compliance with the Bank Secrecy Act, Community Reinvestment Act, consumer protection laws and regulations, as well as the Security and Fraud Investigations functions. Ms. Flores previously served as SVP, Compliance, where she oversaw Berkshire Bank's compliance program. Prior to joining Berkshire Bank, Ms. Flores was a compliance officer at Hampden Bank in Springfield, MA where she managed the compliance and audit program.
| Philip Jurgeleit. Age 53. Mr. Jurgeleit joined the Company in January 2023 as Executive Vice President, Chief Credit Officer. He oversees all aspects of the company's credit underwriting, policy, and approval processes. Mr. Jurgeleit most recently served as SVP and Senior Director of Credit Risk at Santander Bank where he was responsible for all aspects of credit risk management including credit approval, asset quality, underwriting guidelines, and credit policies for the Middle Market, Mid-Corporate, Asset Based Lending, and Healthcare/Not-for-Profit business units. He also held senior leadership roles at Citizens Bank, Webster Bank and Bank of America.
| Gregory D. Lindenmuth. Age 55. Mr. Lindenmuth is Senior Executive Vice President, Chief Risk Officer of the Bank, a position he was promoted to in October 2018. Mr. Lindenmuth joined Berkshire in 2016 from the FDIC where he was employed for 24 years and held multiple positions including Senior Risk Examiner for the Division of Risk Management Supervision and Acting Regional Manager for the Division of Insurance and Research. With the FDIC, Mr. Lindenmuth was also a Capital Markets, Mortgage Banking, and Fraud Specialist.
| Wm. Gordon Prescott, Age 61. Mr. Prescott is Senior Executive Vice President, General Counsel and Corporate Secretary, a position he was promoted to in October 2018. Mr. Prescott joined Berkshire in 2008 as VP, General Counsel and Corporate Secretary. Mr. Prescott has 30 plus years of experience in the legal profession, including extensive experience as in-house corporate counsel, most recently with KB Toys Inc. prior to joining the Bank.
| Sumant Pustake. Age 38_. Mr. Pustake was promoted to Executive Vice President in February 2023 and has served as Chief Transformation and Strategy Officer since June 2021. Mr. Pustake previously oversaw Berkshire's corporate development efforts, where he served as the development leader and helped define and realize Berkshire’s vision and growth strategy. Prior to joining Berkshire Bank, he served as Vice President, Head of Corporate Credit for Commerce Bank and Trust at the time of its acquisition by Berkshire in 2017.

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| Ellen Steinfeld, Age 61. Ms. Steinfeld is Senior Executive Vice President and Head of Consumer Lending & Payments. She is responsible for Mortgage Banking sales and operations, Home Equity, Consumer Lending and Payments. Prior to joining Berkshire in September 2021, she was President of Innovative Lending Strategic Solutions LLC. Before her consulting role, she was Managing Director and US Consumer Lending Executive for TIAA-CREF, where she managed Mortgage Lending, Small Business Lending, Consumer Lending. She has also held management positions at Hudson City Savings, Citizens Bank, RBC Wealth Management, and E*TRADE Financial. (Note: Ms. Steinfeld’s stock ownership reports to the SEC are filed under her legal name of Ellen Tulchiner).
| Jason T. White, Age 47. Mr. White is Senior Executive Vice President and was named Chief Information Officer of Berkshire Bank in November 2020. He previously served as Senior Vice President, Chief Technology Officer since May 2019 when he joined the Bank following the acquisition of Savings Institute Bank & Trust, where he served as Chief Information Officer and Information Security Officer.

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Reference is made to the cover page of this report and to the section captioned “Additional Information - Other Information Relating to Directors and Executive Officers - Delinquent Section 16(a) Reports” in the Proxy Statement for information regarding compliance with Section 16(a) of the Exchange Act. For information concerning the audit committee and the audit committee financial expert, reference is made to the section captioned “Proposal 1 - Election of Directors for a One-Year Term", "Proposal 1 - Election of Directors for One Year Term - Corporate Governance - Committees of the Board of Directors”, and “Proposal 1 - Election of Directors for a One Year Term - Board Committees and Responsibilities" in the Proxy Statement.
For information concerning the Company’s code of ethics, the information contained under the section captioned “Proposal 1 - Election of Directors for a One Year Term - Corporate Governance - Code of Business Conduct and Anonymous Reporting Line Policy” in the Proxy Statement is incorporated herein by reference.
A copy of the Company’s code of ethics is available to stockholders on the Company’s website at:
berkshirebank.com under the Investor Relations tab.
ITEM 11. EXECUTIVE COMPENSATION
For information regarding executive compensation, the sections captioned “Proposal 1 - Election of Directors for a One-Year Term”, “Proposal 1 - Election of Directors of a One Year Term - Corporate Governance - Committees of the Board of Directors”, and “Proposal 1 - Election of Directors for a One Year Term - Board Committees and Responsibilities” in the Proxy Statement are incorporated herein by reference.
For information regarding the Compensation Committee Report, the section captioned “Compensation Discussion and Analysis” in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
(a)Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned “Additional Information - Stock Ownership” in the Proxy Statement.
(b)Security Ownership of Management
Information required by this item is incorporated herein by reference to the section captioned “Additional Information - Stock Ownership” in the Proxy Statement.
(c)Changes in Control
Management of Berkshire knows of no arrangements, including any pledge by any person of securities of Berkshire, the operation of which may at a subsequent date result in a change in control of the registrant.
(d)Equity Compensation Plan Information
The following table sets forth information, as of December 31, 2022, about Company common stock that may be issued upon exercise of options under stock-based benefit plans maintained by the Company, as well as the number of securities available for issuance under equity compensation plans:

Plan category |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options, warrants and rights |  | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders |  | 49,200 |  |  | $ | 25.62 |  |  | 1,500,355 |
Equity compensation plans not approved by security holders |  | — |  |  | — |  |  | — |
Total |  | 49,200 |  |  | $ | 25.62 |  |  | 1,500,355 |

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the sections captioned “Additional Information - Other Information Relating to Directors and Executive Officers - Transactions with Related Persons" and “Additional Information - Other Information Relating to Directors and Executive Officers - Procedures Governing Related Persons Transactions” in the Proxy Statement. Information regarding director independence is incorporated herein by reference to the section “Proposal 1 - Election of Directors for a One Year Term” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section captioned “Proposal 3 — Ratification of the Appointment of the Independent Registered Public Accounting Firm” in the Proxy Statement.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) [1] Consolidated Financial Statements
•Report of Independent Registered Public Accounting Firm
•Consolidated Balance Sheets as of December 31, 2022 and 2021
•Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021, and 2020
•Consolidated Statements of Comprehensive (Loss)/Income for the Years Ended December 31, 2022, 2021, and 2020
•Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2022, 2021, and 2020
•Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020
•Notes to Consolidated Financial Statements
The Consolidated Financial Statements required to be filed in our Annual Report on Form 10-K are included in Part II, Item 8 hereof.
[2] Financial Statement Schedules
All financial statement schedules are omitted because the required information is either included or is not applicable.
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[3] Exhibits

3.1 |  |  | Amended Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (1)
3.2 |  |  | Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
3.4 |  |  | Certificate of Designations of the Series B Non-Voting Preferred Stock (3)
4.1 |  |  | Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (1)
4.2 |  |  | Note Subscription Agreement by and among Berkshire Hills Bancorp, Inc. and certain subscribers dated September 20, 2012 (5)
4.3 |  |  | Description of Berkshire Hills Bancorp, Inc. Securities (6)
10.1 |  |  | Three-Year Employment Agreement by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and Nitin J. Mhatre (7)
10.2 |  |  | Berkshire Bank Supplemental Executive Retirement Agreement entered into with Nitin J. Mhatre (8)
10.3 |  |  | Amended and Restated Three Year Change in Control Agreement by and among Berkshire Hills Bancorp, Inc., Berkshire Bank and Sean A. Gray (9)
10.4 |  |  | Supplemental Executive Retirement Agreement between Berkshire Bank and Sean A. Gray (10)
10.5 |  |  | Three Year Executive Change in Control Agreement by and among Berkshire Hills Bancorp, Inc. Berkshire Bank and George F. Bacigalupo (11)
10.6 |  |  | Berkshire Bank Enhanced Change in Control Severance Plan (Gregory D. Lindenmuth and Brett Brbovic) (12)
10.7 |  |  | Form of Split Dollar Agreement entered into with Sean A. Gray (13)
10.8 |  |  | Berkshire Bank Executive Long-Term Care Insurance Plan (14)
10.9 |  |  | Berkshire Hills Bancorp, Inc. 2018 Equity Incentive Plan (15)
10.10 |  |  | Senior Executive Short Term Incentive Plan (16)
10.11 |  |  | Berkshire Hills Bancorp, Inc. 2022 Equity Incentive Plan (17)
10.12 |  |  | Transition Agreement and Release of Claims entered into with Subhadeep Basu (18)
10.13 |  |  | Transition Agreement entered into with Deborah Stephenson (19)
21.0 |  |  | Subsidiary Information
23.1 |  |  | Consent of Crowe LLP
31.1 |  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 |  |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 |  |  | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail

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(1) |  | Incorporated herein by reference from the Exhibits to Form 10-Q as filed on August 9, 2018
(2) |  | Incorporated herein by reference from the Exhibits to the Form 8-K as filed on June 26, 2017.
(3) |  | Incorporated herein by reference from the Exhibits to Form S-1, Registration Statement and amendments thereto, initially filed on March 10, 2000, Registration No. 333-32146.
(4) |  | Incorporated herein by reference from the Exhibits to the Form 8-K as filed on October 16, 2017.
(5) |  | Incorporated herein by reference from the Exhibits to the Form 8-K as filed on September 26, 2012.
(6) |  | Incorporated herein by reference from Exhibit 4.3 to the Form 10-K as filed on February 28, 2020.
(7) |  | Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 26, 2021.
(8) |  | Incorporated herein by reference from the Exhibit to the Form 8-K as filed on April 2, 2021.
(9) |  | Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2011.
(10) |  | Incorporated herein by reference from the Exhibits to the Form 8-K as filed on February 22, 2019.
(11) |  | Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 17, 2014.
(12) |  | Incorporated herein by reference from the Exhibits to the Form 10-K as filed on February 28, 2020.
(13) |  | Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 19, 2011.
(14) |  | Incorporated herein by reference from the Exhibits to the Form 8-K as filed on January 23, 2015.
(15) |  | Incorporated herein by reference from the Appendix to the Proxy Statement as filed on April 6, 2018.
(16) |  | Incorporated herein by reference from the Exhibits to the Form 10-Q as filed on May 10, 2019.
(17) |  | Incorporated herein by reference from the Appendix to the Proxy Statement as filed on April 8, 2022.
(18) |  | Incorporated herein by reference from the Exhibit to the Form 8-K as filed on October 13, 2022.
(19) |  | Incorporated herein by reference from the Exhibit to the Form 8-K as filed on September 12, 2022.

ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| Berkshire Hills Bancorp, Inc.
Date: March 1, 2023 | By: | /s/ Nitin J. Mhatre
|  | Nitin J. Mhatre
|  | President & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Nitin J. Mhatre |  | Director, President, & Chief Executive Officer |  | March 1, 2023
Nitin J. Mhatre |  | (principal executive officer) |  |
/s/ R. David Rosato |  | Senior Executive Vice President, Chief Financial Officer |  | March 1, 2023
R. David Rosato |  | (principal financial officer) |  |
/s/ Brett Brbovic |  | Senior Managing Director, Chief Accounting Officer |  | March 1, 2023
Brett Brbovic |  | (principal accounting officer) |  |
/s/ David M. Brunelle |  | Chairperson |  | March 1, 2023
David M. Brunelle |  |  |  |
/s/ Baye Adofo-Wilson |  | Director |  | March 1, 2023
Baye Adofo-Wilson |  |  |  |
/s/ Nina A. Charnley |  | Director |  | March 1, 2023
Nina A. Charnley |  |  |  |
/s/ John B. Davies |  | Director |  | March 1, 2023
John B. Davies |  |  |  |
/s/ Mihir A. Desai |  | Director |  | March 1, 2023
Mihir A. Desai |  |  |  |
/s/ William H. Hughes, III |  | Director |  | March 1, 2023
William H. Hughes, III |  |  |  |
/s/ Jeffrey W. Kip |  | Director |  | March 1, 2023
Jeffrey W. Kip |  |  |  |
/s/ Sylvia Maxfield |  | Director |  | March 1, 2023
Sylvia Maxfield |  |  |  |
/s/ Laurie Norton Moffatt |  | Director |  | March 1, 2023
Laurie Norton Moffatt |  |  |  |
/s/ Karyn Polito |  | Director |  | March 1, 2023
Karyn Polito |  |  |  |
/s/ Jonathan I. Shulman |  | Director |  | March 1, 2023
Jonathan I. Shulman |  |  |  |
/s/ Michael A. Zaitzeff |  | Director |  | March 1, 2023
Michael A. Zaitzeff |  |  |  |

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s Consolidated Financial Statements for external reporting purposes in accordance with generally accepted accounting principles.
As of December 31, 2022, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control—Integrated Framework issued in 2013, by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2022 was effective.
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Crowe LLP, an independent registered public accounting firm, as stated in their report, which follows. This report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.

/s/ Nitin J. Mhatre |  | /s/ R. David Rosato
Nitin J. Mhatre |  | R. David Rosato
President & Chief Executive Officer |  | Senior Executive Vice President & Chief Financial Officer
March 1, 2023 |  | March 1, 2023

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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors
of Berkshire Hills Bancorp, Inc.
Boston, Massachusetts
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Berkshire Hills Bancorp, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss)/income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (“ASC 326”). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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Table of Contents
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses for loans
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). Each of these key components of the allowance for credit loss calculation is complex and requires a high volume of data input.
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Auditing the allowance for credit losses was especially challenging and identified by us as a critical audit matter given the high volume of data inputs and judgements made by management. Auditing the allowance for credit loss calculation involved significant audit effort, including the involvement of experienced audit personnel.
The primary procedures we performed to address this critical audit matter included:
Testing the effectiveness of internal controls over management’s allowance for credit loss calculation including the design and operating effectiveness to address:
•Completeness and accuracy of the reports utilized within the allowance for credit loss calculation.
•The mathematical accuracy of the allowance for credit loss calculation.
•The accuracy of application of information within the allowance for credit loss calculation.
•Significant assumptions and judgements applied within the allowance for credit loss calculation.
Substantively testing management’s process to e stimate the allow ance f or credit loss calcu lation included:
•Testing the completeness and accuracy of the underlying internal data utilized to prepare the calculation.
•Evaluating the relevance and reliability of the underlying external data utilized to prepare the calculation.
•Testing the mathematical accuracy, including the application of data and assumptions, of the allowance for credit loss calculation.
•The reasonableness of the significant judgements and assumptions utilized within the allowance for credit loss calculation.
/s/ Crowe LLP
We have served as the Company's auditor since 2017.
New York, New York
March 1, 2023
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Table of Contents
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

|  | December 31,
(In thousands, except share data) |  | 2022 |  | 2021
Assets |  |  |  |
Cash and due from banks |  | $ | 145,342 |  |  | $ | 109,350 |
Short-term investments |  | 540,013 |  |  | 1,518,457 |
Total cash and cash equivalents |  | 685,355 |  |  | 1,627,807 |
Trading security |  | 6,708 |  |  | 8,354 |
Marketable equity securities, at fair value |  | 12,856 |  |  | 15,453 |
Securities available for sale, at fair value |  | 1,423,200 |  |  | 1,877,585 |
Securities held to maturity (fair values of $507,464 in 2022 and $647,236 in 2021) |  | 583,453 |  |  | 636,503 |
Federal Home Loan Bank stock and other restricted securities |  | 7,219 |  |  | 10,800 |
Total securities |  | 2,033,436 |  |  | 2,548,695 |
Less: Allowance for credit losses on investment |  | (91) |  |  | (105) |
Net Securities |  | 2,033,345 |  |  | 2,548,590 |
Loans held for sale |  | 4,311 |  |  | 6,110 |
Total loans |  | 8,335,309 |  |  | 6,825,847 |
Less: Allowance for credit losses on loans |  | (96,270) |  |  | (106,094) |
Net loans |  | 8,239,039 |  |  | 6,719,753 |
Premises and equipment, net |  | 85,217 |  |  | 94,383 |
Other intangible assets |  | 24,483 |  |  | 29,619 |
Cash surrender value of bank-owned life insurance |  | 238,919 |  |  | 235,690 |
Other assets |  | 348,935 |  |  | 288,384 |
Assets held for sale |  | 3,260 |  |  | 4,577 |
Total assets |  | $ | 11,662,864 |  |  | $ | 11,554,913 |
Liabilities |  |  |  |
Demand deposits |  | $ | 2,852,127 |  |  | $ | 3,008,461 |
NOW and other deposits |  | 1,054,596 |  |  | 976,401 |
Money market deposits |  | 3,723,570 |  |  | 3,293,526 |
Savings deposits |  | 1,063,269 |  |  | 1,111,625 |
Time deposits |  | 1,633,707 |  |  | 1,678,940 |
Total deposits |  | 10,327,269 |  |  | 10,068,953 |
Long-term Federal Home Loan Bank advances |  | 4,445 |  |  | 13,331 |
Subordinated notes |  | 121,064 |  |  | 97,513 |
Total borrowings |  | 125,509 |  |  | 110,844 |
Other liabilities |  | 256,024 |  |  | 192,681 |
Total liabilities |  | 10,708,802 |  |  | 10,372,478 |

(continued)

|  | December 31,
(In thousands, except share data) |  | 2022 |  | 2021
Shareholders’ equity |  |  |  |
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 44,361,222 shares outstanding in 2022; 100,000,000 shares authorized; 51,903,190 shares issued, and 48,667,110 shares outstanding in 2021) |  | $ | 528 |  |  | $ | 528 |
Additional paid-in capital - common stock |  | 1,424,183 |  |  | 1,423,445 |
Unearned compensation |  | (8,598) |  |  | (9,056) |
Retained (deficit) |  | (71,428) |  |  | (139,383) |
Accumulated other comprehensive (loss) |  | (181,052) |  |  | (3,243) |
Treasury stock, at cost (7,541,968 shares in 2022 and 3,236,080 shares in 2021) |  | (209,571) |  |  | (89,856) |
Total shareholders’ equity |  | 954,062 |  |  | 1,182,435 |
Total liabilities and shareholders’ equity |  | $ | 11,662,864 |  |  | $ | 11,554,913 |

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Interest and dividend income |  |  |  |  |  |
Loans |  | $ | 335,312 |  |  | $ | 282,164 |  |  | $ | 358,015 |
Securities and other |  | 51,945 |  |  | 46,901 |  |  | 51,767 |
Total interest and dividend income |  | 387,257 |  |  | 329,065 |  |  | 409,782 |
Interest expense |  |  |  |  |  |
Deposits |  | 33,437 |  |  | 27,236 |  |  | 72,715 |
Borrowings and subordinated notes |  | 9,223 |  |  | 10,663 |  |  | 20,285 |
Total interest expense |  | 42,660 |  |  | 37,899 |  |  | 93,000 |
Net interest income |  | 344,597 |  |  | 291,166 |  |  | 316,782 |
Non-interest income |  |  |  |  |  |
Deposit related fees |  | 32,026 |  |  | 29,813 |  |  | 27,905 |
Loan fees and revenue |  | 21,731 |  |  | 35,060 |  |  | 16,840 |
Insurance commissions and fees |  | — |  |  | 7,003 |  |  | 10,770 |
Wealth management fees |  | 10,008 |  |  | 10,530 |  |  | 9,285 |
Mortgage banking income |  | 230 |  |  | 2,056 |  |  | 5,190 |
Total fee income |  | 63,995 |  |  | 84,462 |  |  | 69,990 |
Other |  | 6,973 |  |  | 6,631 |  |  | 2,597 |
(Loss) on securities, net |  | (2,031) |  |  | (787) |  |  | (7,520) |
Gain on sale of business operations and assets, net |  | — |  |  | 52,942 |  |  | 1,240 |
Total non-interest income |  | 68,937 |  |  | 143,248 |  |  | 66,307 |
Total net revenue |  | 413,534 |  |  | 434,414 |  |  | 383,089 |
Provision expense/(benefit) for credit losses |  | 11,000 |  |  | (500) |  |  | 75,878 |
Non-interest expense |  |  |  |  |  |
Compensation and benefits |  | 152,741 |  |  | 150,589 |  |  | 147,840 |
Occupancy and equipment |  | 37,638 |  |  | 41,782 |  |  | 43,359 |
Technology and communications |  | 35,586 |  |  | 33,803 |  |  | 32,364 |
Marketing and promotion |  | 5,103 |  |  | 2,749 |  |  | 3,703 |
Professional services |  | 12,043 |  |  | 15,860 |  |  | 11,907 |
FDIC premiums and assessments |  | 3,105 |  |  | 3,759 |  |  | 5,876 |
Other real estate owned and foreclosures |  | 36 |  |  | 17 |  |  | 125 |
Amortization of intangible assets |  | 5,134 |  |  | 5,200 |  |  | 6,181 |
Goodwill impairment |  | — |  |  | — |  |  | 553,762 |
Merger, restructuring and conversion related expenses |  | 8,909 |  |  | 5,781 |  |  | 5,839 |
Other |  | 28,421 |  |  | 26,353 |  |  | 29,283 |
Total non-interest expense |  | 288,716 |  |  | 285,893 |  |  | 840,239 |
Income/(loss) from continuing operations before income taxes |  | 113,818 |  |  | 149,021 |  |  | (533,028) |
Income tax expense/(benefit) from continuing operations |  | 21,285 |  |  | 30,357 |  |  | (19,853) |
Net income/(loss) from continuing operations |  | 92,533 |  |  | 118,664 |  |  | (513,175) |
(Loss) from discontinued operations before income taxes |  | — |  |  | — |  |  | (26,855) |
Income tax (benefit) from discontinued operations |  | — |  |  | — |  |  | (7,013) |
Net (loss) from discontinued operations |  | — |  |  | — |  |  | (19,842) |
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |
Preferred stock dividend |  | — |  |  | — |  |  | 313 |
Income/(loss) available to common shareholders |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,330) |
|  | Years Ended December 31,
(in thousands, except per share data) |  | 2022 |  | 2021 |  | 2020
Basic earnings/(loss) per share: |  |  |  |  |  |
Continuing Operations |  | $ | 2.03 |  |  | $ | 2.41 |  |  | $ | (10.21) |
Discontinued operations |  | — |  |  | — |  |  | (0.39) |
Total basic earnings/(loss) per share |  | $ | 2.03 |  |  | $ | 2.41 |  |  | $ | (10.60) |
Diluted earnings/(loss) per share: |  |  |  |  |  |
Continuing Operations |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.21) |
Discontinued operations |  | — |  |  | — |  |  | (0.39) |
Total diluted earnings/(loss) per share |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.60) |
Weighted average common shares outstanding: |  |  |  |  |  |
Basic |  | 45,564 |  |  | 49,240 |  |  | 50,270 |
Diluted |  | 45,914 |  |  | 49,554 |  |  | 50,270 |

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contenets
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |
Other comprehensive (loss)/income, before tax: |  |  |  |  |  |
Changes in unrealized gains and losses on securities available-for-sale |  | (235,081) |  |  | (46,794) |  |  | 25,726 |
Changes in unrealized gains and losses on cash flow hedges |  | (6,667) |  |  | — |  |  | — |
Changes in unrealized gains and losses on pension |  | 1,674 |  |  | 993 |  |  | (489) |
Total other comprehensive (loss)/income, before tax |  | (240,074) |  |  | (45,801) |  |  | 25,237 |
Income taxes related to other comprehensive (loss)/income: |  |  |  |  |  |
Changes in unrealized gains and losses on securities available-for-sale |  | 60,922 |  |  | 11,937 |  |  | (6,471) |
Changes in unrealized gains and losses on cash flow hedges |  | 1,789 |  |  | — |  |  | — |
Changes in unrealized gains and losses on pension |  | (446) |  |  | (250) |  |  | 112 |
Total income tax benefit/(expense) related to other comprehensive income (loss) |  | 62,265 |  |  | 11,687 |  |  | (6,359) |
Total other comprehensive (loss)/income |  | (177,809) |  |  | (34,114) |  |  | 18,878 |
Total comprehensive (loss)/income |  | $ | (85,276) |  |  | $ | 84,550 |  |  | $ | (514,139) |

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

| Preferred Stock | Common Stock | Additional paid-in | Unearned | Retained (deficit) | Accumulated other comprehensive | Treasury |
(In thousands, except per share data) | Shares | Amount | Shares | Amount | capital | compensation | earnings | (loss) income | stock | Total
Balance at January 1, 2020 | 522 |  | $ | 40,633 |  | 49,585 |  | $ | 517 |  | $ | 1,422,441 |  | $ | (8,465) |  | $ | 361,082 |  | $ | 11,993 |  | $ | (69,637) |  | $ | 1,758,564 |
Comprehensive (loss): |  |  |  |  |  |  |  |  |  |
Net (loss) | — |  | — |  | — |  | — |  | — |  | — |  | (533,017) |  | — |  | — |  | (533,017) |
Other net comprehensive income | — |  | — |  | — |  | — |  | — |  | — |  | — |  | 18,878 |  | — |  | 18,878 |
Total comprehensive income | — |  | — |  | — |  | — |  | — |  | — |  | (533,017) |  | 18,878 |  | — |  | (514,139) |
Impact of ASC 326 Adoption | — |  | — |  | — |  | — |  | — |  | — |  | (24,380) |  | — |  | — |  | (24,380) |
Conversion of preferred stock to common stock | (522) |  | (40,633) |  | 1,043 |  | 11 |  | 10,395 |  | — |  | — |  | — |  | 30,227 |  | — |
Cash dividends declared on common shares ($0.72 per share) | — |  | — |  | — |  | — |  | — |  | — |  | (36,251) |  | — |  | — |  | (36,251) |
Cash dividends declared on preferred shares ($1.20 per share) | — |  | — |  | — |  | — |  | — |  | — |  | (313) |  | — |  | — |  | (313) |
Treasury stock purchased | — |  | — |  | (14) |  | — |  | — |  | — |  | — |  | — |  | (473) |  | (473) |
Forfeited shares | — |  | — |  | (91) |  | — |  | (1,570) |  | 2,727 |  | — |  | — |  | (1,157) |  | — |
Exercise of stock options | — |  | — |  | 37 |  | — |  | — |  | — |  | (465) |  | — |  | 1,129 |  | 664 |
Restricted stock grants | — |  | — |  | 314 |  | — |  | (4,121) |  | (5,234) |  | — |  | — |  | 9,355 |  | — |
Stock-based compensation | — |  | — |  | — |  | — |  | — |  | 4,727 |  | — |  | — |  | — |  | 4,727 |
Other, net | — |  | — |  | (41) |  | — |  | 94 |  | — |  | — |  | — |  | (720) |  | (626) |
Balance at December 31, 2020 | — |  | $ | — |  | 50,833 |  | $ | 528 |  | $ | 1,427,239 |  | $ | (6,245) |  | $ | (233,344) |  | $ | 30,871 |  | $ | (31,276) |  | $ | 1,187,773 |
Comprehensive income: |  | 0 |  |  |  |  |  |  |  |
Net income | — |  | — |  | — |  | — |  | — |  | — |  | 118,664 |  | — |  | — |  | 118,664 |
Other net comprehensive (loss) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | (34,114) |  | — |  | (34,114) |
Total comprehensive income | — |  | — |  | — |  | — |  | — |  | — |  | 118,664 |  | (34,114) |  | — |  | 84,550 |
Cash dividends declared on common shares ($0.48 per share) | — |  | — |  | — |  | — |  | — |  | — |  | (24,553) |  | — |  | — |  | (24,553) |
Treasury stock purchased | — |  | — |  | (2,500) |  | — |  | — |  | — |  | — |  | — |  | (68,712) |  | (68,712) |
Forfeited shares | — |  | — |  | (113) |  | — |  | 90 |  | 2,644 |  | — |  | — |  | (2,734) |  | — |
Exercise of stock options | — |  | — |  | 20 |  | — |  | — |  | — |  | (150) |  | — |  | 567 |  | 417 |
Restricted stock grants | — |  | — |  | 476 |  | — |  | (3,898) |  | (9,625) |  | — |  | — |  | 13,523 |  | — |
Stock-based compensation | — |  | — |  | — |  | — |  | — |  | 4,170 |  | — |  | — |  | — |  | 4,170 |
Other, net | — |  | — |  | (49) |  | — |  | 14 |  | — |  | — |  | — |  | (1,224) |  | (1,210) |
Balance at December 31, 2021 | — |  | $ | — |  | 48,667 |  | $ | 528 |  | $ | 1,423,445 |  | $ | (9,056) |  | $ | (139,383) |  | $ | (3,243) |  | $ | (89,856) |  | $ | 1,182,435 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |
Net income | — |  | — |  | — |  | — |  | — |  | — |  | 92,533 |  | — |  | — |  | 92,533 |
Other net comprehensive (loss) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | (177,809) |  | — |  | (177,809) |
Total comprehensive income | — |  | — |  | — |  | — |  | — |  | — |  | 92,533 |  | (177,809) |  | — |  | (85,276) |
Cash dividends declared common shares ($0.54 per share) | — |  | — |  | — |  | — |  | — |  | — |  | (24,527) |  | — |  | — |  | (24,527) |
Treasury stock purchased | — |  | — |  | (4,485) |  | — |  | — |  | — |  | — |  | — |  | (124,519) |  | (124,519) |
Forfeited shares | — |  | — |  | (98) |  | — |  | 189 |  | 2,560 |  | — |  | — |  | (2,749) |  | — |
Exercise of stock options | — |  | — |  | 12 |  | — |  | — |  | — |  | (51) |  | — |  | 321 |  | 270 |
Restricted stock grants | — |  | — |  | 328 |  | — |  | 537 |  | (9,440) |  | — |  | — |  | 8,903 |  | — |
Stock-based compensation | — |  | — |  | — |  | — |  | — |  | 7,338 |  | — |  | — |  | — |  | 7,338 |
Other, net | — |  | — |  | (63) |  | — |  | 12 |  | — |  | — |  | — |  | (1,671) |  | (1,659) |
Balance at December 31, 2022 | — |  | $ | — |  | 44,361 |  | $ | 528 |  | $ | 1,424,183 |  | $ | (8,598) |  | $ | (71,428) |  | $ | (181,052) |  | $ | (209,571) |  | $ | 954,062 |

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Cash flows from operating activities: |  |  |  |  |  |
Net income/(loss) from continuing operations |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (513,175) |
Net (loss) from discontinued operations |  | — |  |  | — |  |  | (19,842) |
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Provision expense/(benefit) for credit losses |  | 11,000 |  |  | (500) |  |  | 75,878 |
Net amortization of securities |  | 2,886 |  |  | 1,939 |  |  | 2,513 |
Change in unamortized net loan origination costs and premiums |  | 3,312 |  |  | (1,918) |  |  | 21,856 |
Premises and equipment depreciation and amortization expense |  | 9,576 |  |  | 11,035 |  |  | 11,919 |
Stock-based compensation expense |  | 7,338 |  |  | 4,170 |  |  | 4,727 |
Accretion of purchase accounting entries, net |  | (1,637) |  |  | (6,577) |  |  | (10,377) |
Amortization of other intangibles |  | 5,134 |  |  | 5,200 |  |  | 6,181 |
Income from cash surrender value of bank-owned life insurance policies |  | (5,540) |  |  | (5,561) |  |  | (5,354) |
Securities losses/(gains), net |  | 2,031 |  |  | 787 |  |  | 7,576 |
Net change in loans held-for-sale |  | 5,168 |  |  | 5,775 |  |  | (4,267) |
Loss on disposition of assets |  | — |  |  | 2,811 |  |  | 327 |
Loss on sale of real estate |  | — |  |  | 6 |  |  | 13 |
Amortization of interest in tax-advantaged projects |  | 3,508 |  |  | 3,444 |  |  | 3,645 |
Goodwill impairment |  | — |  |  | — |  |  | 553,762 |
Gain on sale of business operations and other assets |  | — |  |  | (52,942) |  |  | — |
Prepayment penalties on repayment of Federal Home Loan Bank advances |  | — |  |  | 862 |  |  | — |
Net change in other |  | (12,076) |  |  | 18,282 |  |  | (31,247) |
Net cash provided by operating activities of continuing operations |  | 123,233 |  |  | 105,477 |  |  | 123,977 |
Net cash provided/(used) by operating activities of discontinued operations |  | — |  |  | — |  |  | 103,664 |
Net cash provided by operating activities |  | $ | 123,233 |  |  | $ | 105,477 |  |  | $ | 227,641 |
Cash flows from investing activities: |  |  |  |  |  |
Net decrease in trading security |  | 818 |  |  | 776 |  |  | 734 |
Purchases of marketable equity securities |  | — |  |  | — |  |  | (17,631) |
Proceeds from sales of marketable equity securities |  | — |  |  | 2,880 |  |  | 33,928 |
Purchases of securities available for sale |  | (478,940) |  |  | (804,616) |  |  | (885,182) |
Proceeds from sales of securities available for sale |  | 149,994 |  |  | — |  |  | 69,337 |
Proceeds from maturities, calls, and prepayments of securities available for sale |  | 548,423 |  |  | 575,538 |  |  | 457,586 |
Purchases of securities held to maturity |  | (807) |  |  | (219,470) |  |  | (144,651) |
Proceeds from maturities, calls, and prepayments of securities held to maturity |  | 51,961 |  |  | 46,061 |  |  | 35,331 |
Net change in loans |  | (1,559,012) |  |  | 1,262,521 |  |  | 1,054,029 |
Net change in Mid-Atlantic region loans held for sale |  | — |  |  | 50,914 |  |  | — |
Proceeds from surrender of bank-owned life insurance |  | 2,311 |  |  | 2,566 |  |  | 553 |
Purchase of Federal Home Loan Bank stock |  | (124,331) |  |  | — |  |  | (6,741) |
Proceeds from sales of Federal Home Loan Bank stock |  | 127,912 |  |  | 24,078 |  |  | 19,887 |
Net investment in limited partnership tax credits |  | (14,537) |  |  | (2,878) |  |  | (7,280) |
Purchase of premises and equipment, net |  | (1,495) |  |  | (1,606) |  |  | (7,208) |
(Continued)

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BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)

|  | Years ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Proceeds from sales of seasoned commercial loan portfolios |  | 24,323 |  |  | 16,417 |  |  | 37,988 |
Proceeds from sales of other real estate owned |  | — |  |  | 187 |  |  | 171 |
Cash outflows from sale of business operations and other assets |  | — |  |  | (352,814) |  |  | — |
Net investing cash flows provided/(used) by discontinued operations |  | — |  |  | — |  |  | 252 |
Net cash (used)/provided by investing activities |  | $ | (1,273,380) |  |  | $ | 600,554 |  |  | $ | 641,103 |
Cash flows from financing activities: |  |  |  |  |  |
Net increase in deposits |  | $ | 258,316 |  |  | $ | (154,052) |  |  | $ | 499,657 |
Net change in Mid-Atlantic region deposits held for sale |  | — |  |  | 20,953 |  |  | — |
Proceeds from Federal Home Loan Bank advances and other borrowings |  | 51,275 |  |  | — |  |  | 326,277 |
Repayments of Federal Home Loan Bank advances and other borrowings |  | (60,196) |  |  | (462,059) |  |  | (582,648) |
Proceeds from issuance of subordinated debt |  | 98,032 |  |  | — |  |  | — |
Repayment from calling of subordinated debt |  | (75,000) |  |  | — |  |  | — |
Purchase of treasury stock |  | (124,519) |  |  | (68,712) |  |  | (473) |
Exercise of stock options |  | 270 |  |  | 417 |  |  | 664 |
Common and preferred stock cash dividends paid |  | (24,527) |  |  | (24,553) |  |  | (36,564) |
Settlement of derivative contracts with financial institution counterparties |  | 84,044 |  |  | 51,907 |  |  | (97,611) |
Net cash provided/(used) by financing activities |  | $ | 207,695 |  |  | $ | (636,099) |  |  | $ | 109,302 |
Net change in cash and cash equivalents |  | (942,452) |  |  | 69,932 |  |  | 978,046 |
Cash and cash equivalents at beginning of year |  | 1,627,807 |  |  | 1,557,875 |  |  | 579,829 |
Cash and cash equivalents at end of year |  | 685,355 |  |  | 1,627,807 |  |  | 1,557,875 |
Supplemental cash flow information: |  |  |  |  |  |
Interest paid on deposits |  | $ | 32,782 |  |  | $ | 29,606 |  |  | $ | 82,319 |
Interest paid on borrowed funds |  | 9,043 |  |  | 11,385 |  |  | 21,277 |
Income taxes (refunded)/paid, net |  | 28,439 |  |  | 14,816 |  |  | (13,864) |
Other non-cash changes: |  |  |  |  |  |
Other net comprehensive (loss)/income |  | $ | (177,809) |  |  | $ | (34,114) |  |  | $ | 18,878 |
Impact to retained earnings from adoption of ASC 326, net of tax |  | — |  |  | — |  |  | 24,380 |
Mid-Atlantic assets reclassified to held for sale |  | — |  |  | — |  |  | 317,304 |
Mid-Atlantic liabilities reclassified to held for sale |  | — |  |  | — |  |  | 630,065 |
Mid-Atlantic loans held-for-sale reclassified to portfolio loans, net |  | — |  |  | 29,418 |  |  | — |
Mid-Atlantic deposits held-for-sale reclassified to deposits, net |  | — |  |  | 7,197 |  |  | — |
Seasoned loan portfolios reclassified to held-for-sale, net |  | 3,369 |  |  | 11,660 |  |  | 14,845 |
Held-for-sale loans reclassified to held-for-investment, net |  | 606 |  |  | — |  |  | — |
Premises and equipment reclassified to held-for-sale |  | 1,380 |  |  | 4,577 |  |  | — |
Real estate owned acquired in settlement of loans |  | — |  |  | — |  |  | 224 |
Premium payable on cash flow hedges |  | 2,296 |  |  | — |  |  | — |

The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2022, 2021, and 2020
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Consolidated Financial Statements (the “financial statements”) of Berkshire Hills Bancorp, Inc. and its subsidiaries (the “Company” or “Berkshire”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is a Delaware corporation, headquartered in Boston, Massachusetts, and the holding company for Berkshire Bank (the “Bank”), a Massachusetts-chartered trust company headquartered in Pittsfield, Massachusetts. These financial statements include the accounts of the Company, its wholly-owned subsidiaries and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless GAAP requires otherwise.
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these financial statements were issued.
Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates.
Refer to Note 17 – Other Commitments, Contingencies, and Off-Balance Sheet Activities for pandemic related risks and uncertainties.
Business Combinations
Business combinations are accounted for using the acquisition method of accounting. Under this method, the accounts of an acquired entity are included with the acquirer’s accounts as of the date of acquisition with any excess of purchase price over the fair value of the net assets acquired (including identifiable intangibles) capitalized as goodwill.
To consummate an acquisition, the Company will typically issue common stock and/or pay cash, depending on the terms of the acquisition agreement. The value of common shares issued is determined based upon the market price of the stock as of the closing of the acquisition.
Cash and Cash equivalents
Cash and cash equivalents include cash, balances due from banks, and short-term investments, all of which had an original maturity within 90 days. Due to the nature of cash and cash equivalents and the near term maturity, the Company estimated that the carrying amount of such instruments approximated fair value. The nature of the Bank’s business requires that it maintain amounts due from banks which at times, may exceed federally insured limits. The Bank has not experienced any losses on such amounts and all amounts are maintained with well-capitalized institutions.
Trading Security
The Company accounts for a tax advantaged economic development bond originated in 2008 at fair value, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 320. The bond has been designated as a trading account security and is recorded at fair value, with changes in unrealized gains and losses recorded through earnings each period as part of non-interest income.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities
Debt securities that management has the intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. All other debt securities are classified as available for sale and carried at fair value, with unrealized gains and losses reported as a component of other net comprehensive income. Equity securities are carried at fair value, with changes in fair value reported in net income. Management determines the appropriate classification of securities at the time of purchase. Restricted equity securities, such as stock in the Federal Home Loan Bank of Boston (“FHLBB”) are carried at cost. There are no quoted market prices for the Company’s restricted equity securities. The Bank is a member of the FHLBB, which requires that members maintain an investment in FHLBB stock, which may be redeemed based on certain conditions. The Bank reviews for impairment based on the ultimate recoverability of the cost bases in the FHLBB stock.
Purchase premiums and discounts are recognized in interest income using the interest method, without anticipating prepayments, except mortgage-backed securities where prepayments are anticipated, over the terms of the securities. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
The Company measures expected credit losses on held to maturity debt securities on a collective basis. Accrued interest receivable on held to maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
The Company evaluates available for sale debt securities in an unrealized loss position by first assessing whether it intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Loans Held for Sale
Loans originated with the intent to be sold in the secondary market are accounted for under the fair value option. Non-refundable fees and direct loan origination costs related to residential mortgage loans held for sale are recognized in non-interest income or non-interest expense as earned or incurred. Fair value is primarily determined based on quoted prices for similar loans in active markets. Gains and losses on sales of residential mortgage loans (sales proceeds minus carrying value) are recorded in non-interest income.
Loans that were previously held for investment that the Company has an active plan to sell are transferred to loans held for sale at the lower of cost or market (fair value). The market price is primarily determined based on quoted prices for similar loans in active markets or agreed upon sales prices. Gains are recorded in non-interest income at sale to the extent that the sale price of the loan exceeds carrying value. Any reduction in the loan’s value, prior to being transferred to loans held for sale, is reflected as a charge-off of the recorded investment in the loan resulting in a new cost basis, with a corresponding reduction in the allowance for credit losses. Further decreases in the fair value of the loan are recognized in non-interest expense.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans
Loans are reported at their amortized cost. Amortized cost is the principal balance outstanding, net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers. Interest income is accrued on the unpaid principal balance. Interest income includes net accretion or amortization of deferred fees or costs and of premiums or discounts. Direct loan origination costs, net of any origination fees, in addition to premiums and discounts on loans, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest on loans, excluding automobile and unsecured consumer loans, is generally not accrued on loans which are ninety days or more past due unless the loan is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. Automobile and unsecured consumer loans generally continue accruing until one hundred and twenty days delinquent, at which time they are charged off. All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income, except for certain loans designated as well-secured. The interest on non-accrual loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Purchase Credit Deteriorated (PCD) Loans
Loans that the Company acquired in acquisitions include some loans that have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
Allowance for Credit Losses for Loans
The allowance for credit losses for loans (“ACLL”) is comprised of the allowance for credit losses on loans and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on the consolidated balance sheets. The ACLL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Accrued interest receivable is excluded from the estimate of credit losses.
The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon:
•the existence and growth of concentrations of credit;
•the volume and severity of past due financial assets, including nonaccrual assets;
•the institutions lending and credit review as well as the experience and ability of relevant management and staff and;
•the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters;
•the effect of other economic factors such as economic stimulus and customer forbearance programs.
The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit).) The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liability on the Consolidated Balance Sheets), with adjustments to the reserve recognized in other noninterest expense in the Consolidated Statements of Operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The ACLL is measured on a collective (pool) basis when similar risk characteristics exist. The Company evaluates its risk characteristics of loans based on regulatory call report code with sub-segmentation based on underlying collateral for certain loan types. Risk characteristics relevant to each portfolio segment are as follows:
Construction – Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property or long term financing at completion. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.
Commercial real estate multifamily, owner occupied and non-owner – Loans in this segment are primarily owner-occupied or income-producing properties throughout New England and Northeastern New York. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans.
Commercial and industrial loans – Loans in this segment are made to businesses and are generally secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Repayment is expected from the cash flows of the business. Loans in this segment include asset based loans which generally have no scheduled repayment which are closely monitored against formula based collateral advance ratios. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality of this segment.
Residential real estate – All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
Home equity and other consumer loans – Loans in this segment are primarily home equity lines of credit, automobile loans and other consumer loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
Loans that do not share risk characteristics are evaluated on an individual basis, which the Company has determined to be non-accrual loans over a certain threshold, loans that were determined to be Troubled Debt Restructurings (“TDRs”) and PCD loans. Loans evaluated individually are not also included in the collective evaluation. Estimates of specific allowance may be determined by the present value of anticipated future cash flows or the loan’s observable fair market value, or the fair value of the collateral less costs to sell, if the loan is collateral dependent. However, for collateral dependent loans, the amount of the amortized cost in a loan that exceeds the fair value of the collateral is charged-off against the allowance for credit losses on loans in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible.
Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses using incurred losses methodology.
Bank-Owned Life Insurance
Bank-owned life insurance policies are reflected on the Consolidated Balance Sheets at the amount that can be realized under the insurance contract at the balance sheet date which is the cash surrender value. Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the Consolidated Statements of Operations and are not subject to income taxes.
Foreclosed and Repossessed Assets
Other real estate owned is comprised of real estate acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Repossessed collateral is primarily comprised of taxi medallions. Both other real estate owned and repossessed collateral are held for sale and are initially recorded at the fair value less estimated costs to sell at the date of foreclosure or repossession, establishing a new cost basis. The shortfall, if any, of the loan balance over the fair value of the property or collateral (excluding taxi medallions), less cost to sell, at the time of transfer from loans to other real estate owned or repossessed collateral is charged to the allowance for credit losses on loans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to transfer, the asset is carried at lower of cost or fair value less cost to sell and periodically evaluated for impairment. The shortfall, if any, of the loan balance over the fair value of the collateral comprised of taxi medallions at the time of transfer from loans to repossessed collateral is charged to non-interest income. Subsequent impairments in the fair value of other real estate owned and repossessed collateral are charged to expense in the period incurred. Net operating income or expense related to other real estate owned and repossessed collateral is included in operating expenses in the accompanying Consolidated Statements of Operations. Because of changing market conditions, there are inherent uncertainties in the assumptions with respect to the estimated fair value of other real estate owned and repossessed collateral. Because of these inherent uncertainties, the amount ultimately realized on other real estate owned and repossessed collateral may differ from the amounts reflected in the financial statements.
Capitalized Servicing Rights
Capitalized servicing rights are included in “other assets” in the Consolidated Balance Sheets. Servicing assets are initially recognized as separate assets at fair value when rights are acquired through purchase or through sale of financial assets with servicing retained.
The Company's servicing rights accounted for under the fair value method are carried on the Consolidated Balance Sheets at fair value with changes in fair value recorded in income in the period in which the change occurs. Changes in the fair value of servicing rights are primarily due to changes in valuation assumptions, such as discount rates and prepayment speeds, and the collection and realization of expected cash flows.
The Company’s servicing rights accounted for under the amortization method are initially recorded at fair value. Under that method, capitalized servicing rights are charged to expense in proportion to and over the period of estimated net servicing income. Fair value of the servicing rights is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds and default rates and losses. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranches. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.
Premises and Equipment
Land is carried at cost. Buildings, improvements, and equipment are carried at cost less accumulated depreciation and amortization computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term, plus optional terms if certain conditions are met, or the estimated useful life of the asset.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is assessed annually for impairment, and more frequently if events or changes in circumstances indicate that there may be an impairment. Adverse changes in the economic environment, declining operations, unanticipated competition, loss of key personnel, or other factors could result in a decline in the implied fair value of goodwill. Subsequent reversals of goodwill impairment are prohibited. As of December 31, 2020, the Company no longer has goodwill.
Other Intangibles
Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.
The fair values of these assets are generally determined based on appraisals and are subsequently amortized on a straight-line basis or an accelerated basis over their estimated lives. Management assesses the recoverability of these intangible assets at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount exceeds fair value, an impairment charge is recorded to income.
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transfers of Financial Assets
Transfers of an entire financial asset, group of entire financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets.
Income Taxes
Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable for future years to differences between financial statement and tax bases of existing assets and liabilities. The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. A tax valuation allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than not that some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.
In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax
positions. Income tax positions and recorded tax benefits are based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have determined the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is more-likely-than-not that a tax benefit will not be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Insurance Commissions
Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later, net of return commissions related to policy cancellations. Policy cancellation is a variable consideration that is not deemed significant and thus, does not impact the amount of revenue recognized.
In addition, the Company may receive additional performance commissions based on achieving certain sales and loss experience measures. Such commissions are recognized when determinable, which is generally when such commissions are received or when the Company receives data from the insurance companies that allows the reasonable estimation of these amounts.
On September 1, 2021, the Company completed the sale of substantially all of the assets, and the assumption of certain liabilities, of Berkshire Insurance Group, Inc. (“BIG”) to Brown & Brown of Massachusetts, LLC ("Buyer"), a Massachusetts limited liability company. This sale was made pursuant to the Asset Purchase Agreement dated August 24, 2021. The Buyer paid BIG an aggregate purchase price of $41.5 million, minus $1.6 million for executive goodwill purchase price payments paid by the Buyer at the Closing to certain executives of BIG. The Company recorded a $37.2 million pre-tax gain related to this sale in 2021, which is included in gain on sale of business operations and assets on the Consolidated Statements of Operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
The Company measures and recognizes compensation cost relating to share-based payment transactions based on the grant-date fair value of the equity instruments issued. The fair value of restricted stock is recorded as unearned compensation. The deferred expense is amortized to compensation expense based on one of several permitted attribution methods over the longer of the required service period or performance period. For performance-based restricted stock awards, the Company estimates the degree to which performance conditions will be met to determine the number of shares that will vest and the related compensation expense. Compensation expense is adjusted in the period such estimates change.
Income tax benefits and/or tax deficiencies related to stock compensation determined as the difference between compensation cost recognized for financial reporting purposes and the deduction for tax, are recognized in the income statement as income tax expense or benefit in the period in which they occur.
Wealth Management
Wealth management assets held in a fiduciary or agent capacity are not included in the accompanying Consolidated
Balance Sheets because they are not assets of the Company.
Wealth management fees is primarily comprised of fees earned from consultative investment management, trust administration, tax return preparation, and financial planning. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based on the daily accrual of the market value of the investment accounts and the applicable fee rate.
Derivative Instruments and Hedging Activities
The Company enters into interest rate swap agreements as part of the Company’s interest rate risk management strategy for certain assets and liabilities and not for speculative purposes. Based on the Company’s intended use for the interest rate swap at inception, the Company designates the derivative as either an economic hedge of an asset or liability or a hedging instrument subject to the hedge accounting provisions of ASC 815, “Derivatives and Hedging.”
Interest rate swaps designated as economic hedges are recorded at fair value within other assets or liabilities. Changes in the fair value of these derivatives are recorded directly through earnings.
For interest rate swaps that management intends to apply the hedge accounting provisions of ASC 815, the Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking the various hedges. Additionally, the Company uses dollar offset or regression analysis at the hedge’s inception and for each reporting period thereafter, to assess whether the derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of the hedged item. The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.
The Company enters into commitments to lend with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed bonds to investors to hedge against the inherent interest rate and pricing risk associated with selling loans. The commitments to lend generally terminate once the loan is funded, the lock period expires or the borrower decides not to contract for the loan. The forward commitments generally terminate once the loan is sold, the commitment period expires or the borrower decides not to contract for the loan. These commitments are considered derivatives which are accounted for by recognizing their estimated fair value on the Consolidated Balance Sheets as either a freestanding asset or liability. See Note 15 - Derivative Instruments and Hedging Activities to the financial statements for more information on commitments to lend and forward commitments.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance sheet financial instruments, consisting primarily of credit related financial instruments. These financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Hierarchy
The Company groups assets and liabilities that are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 - Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Employee Benefits
The Company maintains an employer sponsored 401(k) plan to which participants may make contributions in the form of salary deferrals and the Company provides matching contributions in accordance with the terms of the plan. Contributions due under the terms of the defined contribution plans are accrued as earned by employees.
Due to the Rome Bancorp acquisition in 2011, the Company inherited a noncontributory, qualified, defined benefit pension plan for certain employees who met age and service requirements; as well as other post-retirement benefits, principally health care and group life insurance. The Rome pension plan and postretirement benefits that were acquired in connection with the whole-bank acquisition were frozen prior to the close of the transaction. The pension benefit in the form of a life annuity is based on the employee’s combined years of service, age, and compensation. The Company also has a long-term care post-retirement benefit plan for certain executives where upon disability, associated benefits are funded by insurance policies or paid directly by the Company.
In order to measure the expense associated with the Plans, various assumptions are made including the discount rate, expected return on plan assets, anticipated mortality rates, and expected future healthcare costs. The assumptions are based on historical experience as well as current facts and circumstances. The Company uses a December 31 measurement date for its plans. As of the measurement date, plan assets are determined based on fair value, generally representing observable market prices. The projected benefit obligation is primarily determined based on the present value of projected benefit distributions at an assumed discount rate.
Net periodic pension benefit costs include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial losses. Net periodic postretirement benefit costs include service costs, interest costs based on an assumed discount rate, and the amortization of prior service credits and net actuarial gains. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive income. The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the Plans. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits.
The Company recognizes in its consolidated balance sheets an asset for a plan’s overfunded status or a liability for a plan’s underfunded status. The Company also measures the Plans’ assets and obligations that determine its funded status as of the end of the fiscal year and recognizes those changes in other comprehensive income/(loss), net of tax.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Due to the SI Financial acquisition in 2019, the Company inherited a tax-qualified defined benefit pension plan. The plan was frozen effective September 6, 2013 and SI Financial recorded a contingent obligation to settle the plan at a future date, which was assumed by the Company. The plan is a single plan under the Internal Revenue Code and, as a result, all of the assets stand behind all of liabilities. Accordingly, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.
Operating Segments
The Company operates as one consolidated reportable segment. The chief operating decision-maker evaluates consolidated results and makes decisions for resource allocation on this same data. Management periodically reviews and redefines its segment reporting as internal reporting practices evolve and components of the business change. The financial statements reflect the financial results of the Company's one reportable operating segment.
Recently Adopted Accounting Principles
There were no new applicable material accounting pronouncements adopted by the Company since December 31, 2021.
Future Application of Accounting Pronouncements
In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.” The guidance expands the current last-of-layer method to allow multiple hedge layers of a single closed portfolio (renamed to portfolio layer method) and expands the portfolio layer method to include nonprepayable financial assets. The ASU specifies eligible hedging instruments in a single-layer hedge and provides additional guidance on accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method. Further, hedge basis adjustments should be considered when determining credit losses for assets included in the closed portfolio. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The ASU eliminates the troubled debt restructuring (“TDR”) accounting model that was adopted with Topic 326, “Financial Instruments – Credit Losses” and enhances disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. The ASU requires prospective disclosure of current-period gross write-offs by year of origination. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DISCONTINUED OPERATIONS AND BRANCH SALE
During the first quarter of 2019, the Company reached the decision to pursue the sale of the national mortgage banking operations of First Choice Loan Services, Inc. (“FCLS”) – a subsidiary of the Bank. The decision was based on a number of strategic priorities and other factors, including the competitiveness of the mortgage industry. As a result of these actions, the Company classified the operations of FCLS as discontinued under ASC 205-20. The Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows present discontinued operations retrospectively for current and prior periods.
On May 7, 2020, the Company completed a transaction to sell certain assets and liabilities related to the operations of FCLS. During the fourth quarter of 2020, the Company completed the final wind-down of the operations of FCLS. Operating results for the year ended December 31, 2020, included expenses related to the wind-down of operations.
At year-end 2022 and 2021, there were no assets or liabilities related to the discontinued operations of FCLS.
The following presents operating results of the discontinued operations of FCLS for the years ended December 31, 2022, 2021, and 2020:

|  | Years Ended December 31,
(in thousands) |  | 2022 |  | 2021 |  | 2020
Interest income |  | $ | — |  |  | $ | — |  |  | $ | 1,525 |
Interest expense |  | — |  |  | — |  |  | 391 |
Net interest income |  | — |  |  | — |  |  | 1,134 |
Non-interest (loss)/income |  | — |  |  | — |  |  | (4,740) |
Total net revenue |  | — |  |  | — |  |  | (3,606) |
Non-interest expense |  | — |  |  | — |  |  | 23,249 |
(Loss) from discontinued operations before income taxes |  | — |  |  | — |  |  | (26,855) |
Income tax (benefit) |  | — |  |  | — |  |  | (7,013) |
Net (loss) from discontinued operations |  | $ | — |  |  | $ | — |  |  | $ | (19,842) |

Mid-Atlantic Branch Sale
On August 27, 2021 the Company completed the sale of eight Mid-Atlantic branches to Investors Bank of Short Hills, New Jersey. This sale was made pursuant to a purchase and assumption agreement entered into by the banks on December 2, 2020.
The sale included all branch premises and equipment, and Investors also assumed related operations and the employment of associated staff. The branch sale is not expected to impact Berkshire’s growing Mid-Atlantic specialized commercial lending operations, including SBA lending at its 44 Business Capital Division and its asset-based lending relationships.
The sale involved the assignment of deposits which totaled $631 million and loans which totaled $220 million as of August 27, 2021. These instruments were classified as held for sale in the financial statements and were not included in total deposits and total loans reported by the Company at December 31, 2020. Investors Bank paid a premium of 3.0% of the deposit balance transferred. The Company provided a settlement cash payment of $391 million as part of the sale for the assumption of covered deposit liabilities by Investors. The Company recorded a $14.7 million pre-tax gain related to this branch sale in 2021, which is included in gain on sale of business operations and assets on the Consolidated Statements of Operations.
As of December 31, 2022 and 2021, there were no assets and liabilities held for sale related to the branch sale.
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NOTE 3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks, and short-term investments with original maturities of 90 days or less. At year-end 2022, there were no short-term investments pledged as collateral support for derivative financial contracts. At year-end 2021, short-term investments included $43.7 million pledged as collateral support for derivative financial contracts. The Federal Reserve Bank requires the Bank to maintain certain reserve requirements of vault cash and/or deposits. As of December 31, 2022 and 2021, the reserve requirement was zero.
NOTE 4. TRADING SECURITY
The Company holds a tax advantaged economic development bond that is being accounted for at fair value. The security had an amortized cost of $7.1 million and $7.9 million and a fair value of $6.7 million and $8.4 million at year-end 2022 and 2021, respectively. Unrealized losses recorded through income on this security totaled $0.8 million, $0.6 million, and $0.3 million for 2022, 2021, and 2020, respectively. As discussed further in Note 15 - Derivative Instruments and Hedging Activities, the Company has entered into a swap contract to swap-out the fixed rate of the security in exchange for a variable rate. The Company does not purchase securities with the intent of selling them in the near term, and there are no other debt securities in the trading portfolio at year-end 2022 and 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. SECURITIES
The following is a summary of securities available for sale (“AFS”) , held to maturity (“HTM”), and marketable equity securities:

(In thousands) |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  | Allowance
December 31, 2022 |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |
U.S Treasuries |  | $ | 11,972 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 11,973 |  |  | $ | — |
Municipal bonds and obligations |  | 65,943 |  |  | 422 |  |  | (3,030) |  |  | 63,335 |  |  | — |
Agency collateralized mortgage obligations |  | 631,732 |  |  | — |  |  | (99,787) |  |  | 531,945 |  |  | — |
Agency mortgage-backed securities |  | 643,308 |  |  | 1 |  |  | (96,996) |  |  | 546,313 |  |  | — |
Agency commercial mortgage-backed securities |  | 264,218 |  |  | — |  |  | (35,750) |  |  | 228,468 |  |  | — |
Corporate bonds |  | 43,368 |  |  | 80 |  |  | (2,938) |  |  | 40,510 |  |  | — |
Other bonds and obligations |  | 655 |  |  | 67 |  |  | (66) |  |  | 656 |  |  | — |
Total securities available for sale |  | 1,661,196 |  |  | 571 |  |  | (238,567) |  |  | 1,423,200 |  |  | — |
Securities held to maturity |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | 266,793 |  |  | 691 |  |  | (23,704) |  |  | 243,780 |  |  | 66 |
Agency collateralized mortgage obligations |  | 128,136 |  |  | — |  |  | (20,420) |  |  | 107,716 |  |  | — |
Agency mortgage-backed securities |  | 50,958 |  |  | — |  |  | (9,240) |  |  | 41,718 |  |  | — |
Agency commercial mortgage-backed securities |  | 135,206 |  |  | — |  |  | (23,203) |  |  | 112,003 |  |  | — |
Tax advantaged economic development bonds |  | 2,069 |  |  | 8 |  |  | (121) |  |  | 1,956 |  |  | 25 |
Other bonds and obligations |  | 291 |  |  | — |  |  | — |  |  | 291 |  |  | — |
Total securities held to maturity |  | 583,453 |  |  | 699 |  |  | (76,688) |  |  | 507,464 |  |  | 91 |
Marketable equity securities |  | 15,035 |  |  | — |  |  | (2,179) |  |  | 12,856 |  |  | — |
Total |  | $ | 2,259,684 |  |  | $ | 1,270 |  |  | $ | (317,434) |  |  | $ | 1,943,520 |  |  | $ | 91 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |
U.S Treasuries |  | $ | 59,972 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 59,973 |  |  | $ | — |
Municipal bonds and obligations |  | 71,822 |  |  | 5,355 |  |  | — |  |  | 77,177 |  |  | — |
Agency collateralized mortgage obligations |  | 693,782 |  |  | 5,566 |  |  | (11,012) |  |  | 688,336 |  |  | — |
Agency mortgage-backed securities |  | 711,154 |  |  | 2,347 |  |  | (7,642) |  |  | 705,859 |  |  | — |
Agency commercial mortgage-backed securities |  | 300,259 |  |  | 3,949 |  |  | (3,628) |  |  | 300,580 |  |  | — |
Corporate bonds |  | 44,824 |  |  | 950 |  |  | (114) |  |  | 45,660 |  |  | — |
Other bonds and obligations |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total securities available for sale |  | 1,881,813 |  |  | 18,168 |  |  | (22,396) |  |  | 1,877,585 |  |  | — |
Securities held to maturity |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | 281,515 |  |  | 16,151 |  |  | (693) |  |  | 296,973 |  |  | 70 |
Agency collateralized mortgage-backed securities |  | 149,195 |  |  | 3,203 |  |  | (3,513) |  |  | 148,885 |  |  | — |
Agency mortgage-backed securities |  | 57,327 |  |  | 95 |  |  | (1,498) |  |  | 55,924 |  |  | — |
Agency commercial mortgage-backed securities |  | 145,573 |  |  | 266 |  |  | (3,289) |  |  | 142,550 |  |  | — |
Tax advantaged economic development bonds |  | 2,728 |  |  | 26 |  |  | (15) |  |  | 2,739 |  |  | 35 |
Other bonds and obligations |  | 165 |  |  | — |  |  | — |  |  | 165 |  |  | — |
Total securities held to maturity |  | 636,503 |  |  | 19,741 |  |  | (9,008) |  |  | 647,236 |  |  | 105 |
Marketable equity securities |  | 15,689 |  |  | 67 |  |  | (303) |  |  | 15,453 |  |  | — |
Total |  | $ | 2,534,005 |  |  | $ | 37,976 |  |  | $ | (31,707) |  |  | $ | 2,540,274 |  |  | $ | 105 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At year-end 2022 and 2021, accumulated net unrealized (losses) on AFS securities included in accumulated other comprehensive (loss)/income were losses of $238.0 million and $4.2 million, respectively. At year-end 2022 and 2021, accumulated net unrealized gains on the securities reclassified from AFS to HTM included in accumulated other comprehensive (loss)/income were $1.1 million and $2.4 million, respectively. The year-end 2022 and 2021 related income tax benefit/(liability) of $61.3 million and $0.4 million, respectively, was also included in accumulated other comprehensive (loss).
The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the years ended December 31, 2022, 2021 and 2020:

(In thousands) | Municipal bonds and obligations |  | Tax advantaged economic development bonds |  | Total
Balance at December 31, 2021 | $ | 70 |  |  | $ | 35 |  |  | $ | 105 |
Provision (benefit) for credit losses | (4) |  |  | (10) |  |  | (14) |
Balance at December 31, 2022 | $ | 66 |  |  | $ | 25 |  |  | $ | 91 |

(In thousands) | Municipal bonds and obligations |  | Tax advantaged economic development bonds |  | Total
Balance at December 31, 2020 | $ | 64 |  |  | $ | 40 |  |  | $ | 104 |
Provision expense for credit losses | 6 |  |  | (5) |  |  | 1 |
Balance at December 31, 2021 | $ | 70 |  |  | $ | 35 |  |  | $ | 105 |

(In thousands) | Municipal bonds and obligations |  | Tax advantaged economic development bonds |  | Total
Balance at December 31, 2019 | $ | — |  |  | $ | — |  |  | $ | — |
Impact of ASC 326 adoption | 83 |  |  | 226 |  |  | 309 |
Provision (benefit) for credit losses | (19) |  |  | (186) |  |  | (205) |
Balance at December 31, 2020 | $ | 64 |  |  | $ | 40 |  |  | $ | 104 |

Credit Quality Information
The Company monitors the credit quality of held to maturity securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization.
As of December 31, 2022, none of the Company's investment securities were delinquent or in non-accrual status.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair value of AFS and HTM securities, segregated by contractual maturity at year-end 2022 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities and collateralized mortgage obligations are shown in total, as their maturities are highly variable.

|  | Available for sale |  | Held to maturity
(In thousands) |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Within 1 year |  | $ | 12,482 |  |  | $ | 12,482 |  |  | $ | 995 |  |  | $ | 995 |
Over 1 year to 5 years |  | 11,254 |  |  | 11,269 |  |  | 2,191 |  |  | 2,181 |
Over 5 years to 10 years |  | 49,729 |  |  | 46,904 |  |  | 28,544 |  |  | 28,543 |
Over 10 years |  | 48,473 |  |  | 45,819 |  |  | 237,423 |  |  | 214,308 |
Total bonds and obligations |  | 121,938 |  |  | 116,474 |  |  | 269,153 |  |  | 246,027 |
Mortgage-backed securities |  | 1,539,258 |  |  | 1,306,726 |  |  | 314,300 |  |  | 261,437 |
Total |  | $ | 1,661,196 |  |  | $ | 1,423,200 |  |  | $ | 583,453 |  |  | $ | 507,464 |

At year-end 2022 and 2021, the Company had pledged securities as collateral for certain municipal deposits and for interest rate swaps with certain counterparties. The total amortized cost and fair values of these pledged securities follows. Additionally, there is a blanket lien on certain securities to collateralize borrowings from the FHLBB, as discussed further in Note 11 - Borrowed Funds.

|  | 2022 |  | 2021
(In thousands) |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Securities pledged to swap counterparties |  | $ | 11,972 |  |  | $ | 11,973 |  |  | $ | 34,773 |  |  | $ | 34,896 |
Securities pledged for municipal deposits |  | 304,741 |  |  | 276,804 |  |  | 183,408 |  |  | 189,535 |
Total |  | $ | 316,713 |  |  | $ | 288,777 |  |  | $ | 218,181 |  |  | $ | 224,431 |

Proceeds from the sale of AFS securities totaled $150 million in 2022. During 2021, there were no sales of AFS securities. Proceeds from the sale of AFS securities totaled $69 million in 2020.The amounts for the sale of AFS securities were reclassified out of accumulated other comprehensive (loss)/income and into earnings. The components of net recognized gains and losses on the sale of AFS securities and the fair value change of marketable equities are as follows:

(In thousands) |  | 2022 |  | 2021 |  | 2020
Gross recognized gains |  | $ | 72 |  |  | $ | 108 |  |  | $ | 4,602 |
Gross recognized losses |  | (2,009) |  |  | (550) |  |  | (11,133) |
Net recognized (losses) |  | $ | (1,937) |  |  | $ | (442) |  |  | $ | (6,531) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:

|  | Less Than Twelve Months |  | Over Twelve Months |  | Total
(In thousands) |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | $ | 2,406 |  |  | $ | 36,696 |  |  | $ | 624 |  |  | $ | 2,763 |  |  | $ | 3,030 |  |  | $ | 39,459 |
Agency collateralized mortgage obligations |  | 23,052 |  |  | 247,509 |  |  | 76,735 |  |  | 284,434 |  |  | 99,787 |  |  | 531,943 |
Agency mortgage-backed securities |  | 3,124 |  |  | 37,540 |  |  | 93,872 |  |  | 508,683 |  |  | 96,996 |  |  | 546,223 |
Agency commercial mortgage-back securities |  | 9,885 |  |  | 96,396 |  |  | 25,865 |  |  | 132,043 |  |  | 35,750 |  |  | 228,439 |
Corporate bonds |  | 1,709 |  |  | 25,657 |  |  | 1,229 |  |  | 9,929 |  |  | 2,938 |  |  | 35,586 |
Other bonds and obligations |  | — |  |  | — |  |  | 66 |  |  | 295 |  |  | 66 |  |  | 295 |
Total securities available for sale |  | $ | 40,176 |  |  | $ | 443,798 |  |  | $ | 198,391 |  |  | $ | 938,147 |  |  | $ | 238,567 |  |  | $ | 1,381,945 |
Securities held to maturity |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | 5,476 |  |  | 125,494 |  |  | 18,228 |  |  | 38,341 |  |  | 23,704 |  |  | 163,835 |
Agency collateralized mortgage obligations |  | 2,734 |  |  | 49,539 |  |  | 17,686 |  |  | 58,177 |  |  | 20,420 |  |  | 107,716 |
Agency mortgage-backed securities |  | 300 |  |  | 2,419 |  |  | 8,940 |  |  | 39,299 |  |  | 9,240 |  |  | 41,718 |
Agency commercial mortgage-back securities |  | 447 |  |  | 9,713 |  |  | 22,756 |  |  | 102,290 |  |  | 23,203 |  |  | 112,003 |
Tax advantaged economic development bonds |  | 1 |  |  | 142 |  |  | 120 |  |  | 1,008 |  |  | 121 |  |  | 1,150 |
Total securities held to maturity |  | 8,958 |  |  | 187,307 |  |  | 67,730 |  |  | 239,115 |  |  | 76,688 |  |  | 426,422 |
Total |  | $ | 49,134 |  |  | $ | 631,105 |  |  | $ | 266,121 |  |  | $ | 1,177,262 |  |  | $ | 315,255 |  |  | $ | 1,808,367 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Agency collateralized mortgage obligations |  | $ | 9,626 |  |  | $ | 375,132 |  |  | $ | 1,386 |  |  | $ | 27,025 |  |  | $ | 11,012 |  |  | $ | 402,157 |
Agency mortgage-backed securities |  | 3,179 |  |  | 222,887 |  |  | 4,463 |  |  | 175,941 |  |  | 7,642 |  |  | 398,828 |
Agency commercial mortgage-backed securities |  | 1,609 |  |  | 103,354 |  |  | 2,019 |  |  | 49,313 |  |  | 3,628 |  |  | 152,667 |
Corporate bonds |  | 114 |  |  | 11,115 |  |  | — |  |  | — |  |  | 114 |  |  | 11,115 |
Total securities available for sale |  | $ | 14,528 |  |  | $ | 712,488 |  |  | $ | 7,868 |  |  | $ | 252,279 |  |  | $ | 22,396 |  |  | $ | 964,767 |
Securities held to maturity |  |  |  |  |  |  |  |  |  |  |  |
Municipal bonds and obligations |  | 693 |  |  | 36,981 |  |  | — |  |  | — |  |  | 693 |  |  | 36,981 |
Agency collateralized mortgage obligations |  | 1,808 |  |  | 49,308 |  |  | 1,705 |  |  | 36,212 |  |  | 3,513 |  |  | 85,520 |
Agency mortgage-backed securities |  | 839 |  |  | 26,656 |  |  | 659 |  |  | 26,025 |  |  | 1,498 |  |  | 52,681 |
Agency commercial mortgage-back securities |  | 1,255 |  |  | 80,406 |  |  | 2,034 |  |  | 51,654 |  |  | 3,289 |  |  | 132,060 |
Tax advantaged economic development bonds |  | 15 |  |  | 1,255 |  |  | — |  |  | — |  |  | 15 |  |  | 1,255 |
Total securities held to maturity |  | 4,610 |  |  | 194,606 |  |  | 4,398 |  |  | 113,891 |  |  | 9,008 |  |  | 308,497 |
Total |  | $ | 19,138 |  |  | $ | 907,094 |  |  | $ | 12,266 |  |  | $ | 366,170 |  |  | $ | 31,404 |  |  | $ | 1,273,264 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of December 31, 2022, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions.
The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios did not maintain other-than-temporary impairment ("OTTI") at year-end 2022:
AFS municipal bonds and obligations
At year-end 2022, 46 out of 94 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 7.1% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
AFS collateralized mortgage obligations
At year-end 2022, 243 out of 245 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 15.8% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), and Government National Mortgage Association ("GNMA") guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during 2022. All securities are performing.
AFS commercial and residential mortgage-backed securities
At year-end 2022, 137 out of 139 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 14.6% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during 2022. All securities are performing.
AFS corporate bonds
At year-end 2022, 13 out of 15 securities in the Company’s portfolio of AFS corporate bonds were in unrealized loss positions. The aggregate unrealized loss represents 7.6% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities.
AFS other bonds and obligations
At year-end 2022, 2 out of 3 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 18.3% of the amortized cost of securities in unrealized loss positions. The securities are all investment grade rated, and there were no material underlying credit downgrades during 2022. All securities are performing.
HTM municipal bonds and obligations
At year-end 2022, 119 out of 190 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 12.6% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM collateralized mortgage obligations
At year-end 2022, 13 out of 13 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in an unrealized loss position. Aggregate unrealized losses represented 15.9% of the amortized cost of the security in an unrealized loss position. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated, and there were no material underlying credit downgrades during 2022. All securities are performing.
HTM commercial and residential mortgage-backed securities
At year-end 2022, 17 out of 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 17.4% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during 2022. All securities are performing.
HTM tax-advantaged economic development bonds
At year-end 2022, 2 out of 3 securities in the Company’s portfolio of tax-advantaged economic development
bonds were in unrealized loss positions. Aggregate unrealized losses represented 9.5% of the amortized cost of
securities in unrealized loss position. The Company believes that more likely than not all the principal outstanding
will be collected. All securities are performing.
NOTE 6. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
The following is a summary of total loans by regulatory call report code with sub-segmentation based on underlying collateral for certain loan types:

(In thousands) |  | December 31, 2022 |  | December 31, 2021
Construction |  | $ | 319,452 |  |  | $ | 324,282 |
Commercial multifamily |  | 620,088 |  |  | 515,817 |
Commercial real estate owner occupied |  | 640,489 |  |  | 606,477 |
Commercial real estate non-owner occupied |  | 2,496,237 |  |  | 2,156,929 |
Commercial and industrial |  | 1,445,236 |  |  | 1,284,429 |
Residential real estate |  | 2,312,447 |  |  | 1,489,248 |
Home equity |  | 227,450 |  |  | 252,366 |
Consumer other |  | 273,910 |  |  | 196,299 |
Total loans |  | $ | 8,335,309 |  |  | $ | 6,825,847 |
Allowance for credit losses |  | 96,270 |  |  | 106,094 |
Net loans |  | $ | 8,239,039 |  |  | $ | 6,719,753 |

As of December 31, 2022 and 2021, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $5.8 million and $29.9 million, respectively. These loans are 100% guaranteed by the SBA and the full principal amount of the loan may qualify for forgiveness. These loans are included in commercial and industrial.
In 2022, the Company purchased loans aggregating $718 million and sold loans aggregating $366 million. In 2021, the Company purchased loans aggregating $211 million and sold loans aggregating $560 million. In 2020, the Company purchased loans aggregating $98 million and sold loans aggregating $415 million. Net gains on sales of loans were $12.5 million, $20.7 million, and $10.6 million for the years 2022, 2021, and 2020, respectively. These amounts are included in Loan Fees and Revenue on the Consolidated Statements of Operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Most of the Company’s lending activity occurs within its primary markets in Massachusetts, Southern Vermont, and Northeastern New York. Most of the loan portfolio is secured by real estate, including residential mortgages, commercial mortgages, and home equity loans. Year-end loans to operators of non-residential buildings totaled $1.9 billion, or 22.7%, and $1.6 billion, or 24.0% of total loans in 2022 and 2021, respectively. There were no other concentrations of loans related to any single industry in excess of 10% of total loans at year-end 2022 or 2021.
As of December 31, 2022 and December 31, 2021, the Company had no foreclosed residential real estate property. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of December 31, 2022 and December 31, 2021 totaled $3.0 million and $1.4 million, respectively, including sold loans serviced by the Company.
At year-end 2022 and 2021, the Company had pledged loans totaling $0.8 billion and $0.7 billion, respectively, to the Federal Reserve Bank of Boston as collateral for certain borrowing arrangements. Also, residential first mortgage loans are subject to a blanket lien for FHLBB advances. See Note 11 - Borrowed Funds.
At year-end 2022 and 2021, the Company’s commitments outstanding to related parties totaled $1.5 million and $1.7 million, respectively, and the loans outstanding against these commitments totaled $0.8 million and $1.0 million, respectively. Related parties include directors and executive officers of the Company and its subsidiaries, as well as their respective affiliates in which they have a controlling interest and immediate family members. For the years 2022 and 2021, all related party loans were performing.
Risk characteristics relevant to each portfolio segment are as follows:
Construction -Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property or long term financing at completion. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.
Commercial real estate multifamily, owner occupied and non-owner - Loans in these segments are primarily owner-occupied or income-producing properties throughout New England and Northeastern New York. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans.
Commercial and industrial loans - Loans in this segment are made to businesses and are generally secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Repayment is expected from the cash flows of the business. Loans in this segment include asset based loans which generally have no scheduled repayment and which are closely monitored against formula based collateral advance ratios. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.
Residential real estate - All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
Home equity and other consumer loans - Loans in this segment are primarily home equity lines of credit, automobile loans and other consumer loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Credit Losses for Loans
The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for credit losses on loans, and the allowance for unfunded commitments is accounted for as a separate liability in other liabilities on the Consolidated Balance Sheets. The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon:
•the existence and growth of concentrations of credit;
•the volume and severity of past due financial assets, including nonaccrual assets;
•the institutions lending and credit review as well as the experience and ability of relevant management and staff and;
•the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters;
•the effect of other economic factors such as economic stimulus and customer forbearance programs.
The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in other liabilities on the consolidated balance sheets.
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s activity in the allowance for credit losses for loans for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 was as follows:

(In thousands) |  | Balance at Beginning of Period |  | Charge-offs |  | Recoveries |  | Provision for Credit Losses |  | Balance at End of Period
Year ended December 31, 2022
Construction |  | $ | 3,206 |  |  | $ | — |  |  | $ | — |  |  | $ | (1,979) |  |  | $ | 1,227 |
Commercial multifamily |  | 6,120 |  |  | (94) |  |  | 112 |  |  | (4,328) |  |  | 1,810 |
Commercial real estate owner occupied |  | 12,752 |  |  | (687) |  |  | 702 |  |  | (2,028) |  |  | 10,739 |
Commercial real estate non-owner occupied |  | 32,106 |  |  | (5,894) |  |  | 1,549 |  |  | 2,963 |  |  | 30,724 |
Commercial and industrial |  | 22,584 |  |  | (18,447) |  |  | 3,050 |  |  | 11,556 |  |  | 18,743 |
Residential real estate |  | 22,406 |  |  | (555) |  |  | 1,019 |  |  | (4,204) |  |  | 18,666 |
Home equity |  | 4,006 |  |  | (166) |  |  | 283 |  |  | (1,950) |  |  | 2,173 |
Consumer other |  | 2,914 |  |  | (2,215) |  |  | 505 |  |  | 10,984 |  |  | 12,188 |
Total allowance for credit losses |  | $ | 106,094 |  |  | $ | (28,058) |  |  | $ | 7,220 |  |  | $ | 11,014 |  |  | $ | 96,270 |

(In thousands) |  | Balance at Beginning of Period |  | Charge-offs |  | Recoveries |  | Provision for Credit Losses |  | Balance at End of Period
Year ended December 31, 2021
Construction |  | $ | 5,111 |  |  | $ | — |  |  | $ | — |  |  | $ | (1,905) |  |  | $ | 3,206 |
Commercial multifamily |  | 5,916 |  |  | (404) |  |  | 157 |  |  | 451 |  |  | 6,120 |
Commercial real estate owner occupied |  | 12,380 |  |  | (1,640) |  |  | 204 |  |  | 1,808 |  |  | 12,752 |
Commercial real estate non-owner occupied |  | 35,850 |  |  | (14,557) |  |  | 2,522 |  |  | 8,291 |  |  | 32,106 |
Commercial and industrial |  | 25,013 |  |  | (10,841) |  |  | 4,565 |  |  | 3,847 |  |  | 22,584 |
Residential real estate |  | 28,491 |  |  | (1,664) |  |  | 1,767 |  |  | (6,188) |  |  | 22,406 |
Home equity |  | 6,482 |  |  | (334) |  |  | 335 |  |  | (2,477) |  |  | 4,006 |
Consumer other |  | 8,059 |  |  | (1,578) |  |  | 761 |  |  | (4,328) |  |  | 2,914 |
Total allowance for credit losses |  | $ | 127,302 |  |  | $ | (31,018) |  |  | $ | 10,311 |  |  | $ | (501) |  |  | $ | 106,094 |

(In thousands) |  | Balance at Beginning of Period |  | Impact of Adopting ASC 326 |  | Sub-total |  | Charge-offs |  | Recoveries |  | Provision for Credit Losses |  | Balance at End of Period
Year ended December 31, 2020
Construction |  | $ | 2,713 |  |  | $ | (342) |  |  | $ | 2,371 |  |  | $ | (834) |  |  | $ | — |  |  | $ | 3,574 |  |  | $ | 5,111 |
Commercial multifamily |  | 4,413 |  |  | (1,842) |  |  | 2,571 |  |  | (100) |  |  | 100 |  |  | 3,345 |  |  | 5,916 |
Commercial real estate owner occupied |  | 4,880 |  |  | 6,062 |  |  | 10,942 |  |  | (8,686) |  |  | 1,053 |  |  | 9,071 |  |  | 12,380 |
Commercial real estate non-owner occupied |  | 16,344 |  |  | 11,201 |  |  | 27,545 |  |  | (11,653) |  |  | 307 |  |  | 19,651 |  |  | 35,850 |
Commercial and industrial |  | 20,099 |  |  | (2,189) |  |  | 17,910 |  |  | (19,328) |  |  | 4,285 |  |  | 22,146 |  |  | 25,013 |
Residential real estate |  | 9,970 |  |  | 6,799 |  |  | 16,769 |  |  | (2,285) |  |  | 1,359 |  |  | 12,648 |  |  | 28,491 |
Home equity |  | 1,470 |  |  | 4,884 |  |  | 6,354 |  |  | (347) |  |  | 292 |  |  | 183 |  |  | 6,482 |
Consumer other |  | 3,686 |  |  | 861 |  |  | 4,547 |  |  | (2,562) |  |  | 609 |  |  | 5,465 |  |  | 8,059 |
Total allowance for credit losses |  | $ | 63,575 |  |  | $ | 25,434 |  |  | $ | 89,009 |  |  | $ | (45,795) |  |  | $ | 8,005 |  |  | $ | 76,083 |  |  | $ | 127,302 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liability on the Consolidated Balance Sheets), with adjustments to the reserve recognized in other noninterest expense in the Consolidated Statements of Operations. The Company’s activity in the allowance for credit losses on unfunded commitments for the years ended December 31, 2022, December 31, 2021, and December 31, 2020 was as follows:

(In thousands) |  | Total
Balance at December 31, 2021 |  | $ | 7,043 |
Expense for credit losses |  | 1,545 |
Balance at December 31, 2022 |  | $ | 8,588 |

(In thousands) |  | Total
Balance at December 31, 2020 |  | $ | 7,629 |
Release of expense for credit losses |  | (586) |
Balance at December 31, 2021 |  | $ | 7,043 |

(In thousands) |  | Total
Balance at December 31, 2019 |  | $ | 100 |
Impact of adopting ASC 326 |  | 7,993 |
Sub-Total |  | 8,093 |
Release of expense for credit losses |  | (464) |
Balance at December 31, 2020 |  | $ | 7,629 |

Credit Quality Information
The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential weaknesses and are evaluated closely by management. Substandard, including non-accruing loans, are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annually, semiannually, or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations.
The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention, and Substandard. Loans that are current within 59 days are rated Pass. Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s loans by risk category:

| Term Loans Amortized Cost Basis by Origination Year |  |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total
As of December 31, 2022
Construction |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 153,393 |  | $ | 133,708 |  | $ | 25,634 |  | $ | 3,432 |  | $ | 1,361 |  | $ | 1,924 |  | $ | — |  | $ | — |  | $ | 319,452 |
Special Mention | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 153,393 |  | $ | 133,708 |  | $ | 25,634 |  | $ | 3,432 |  | $ | 1,361 |  | $ | 1,924 |  | $ | — |  | $ | — |  | $ | 319,452 |
Commercial multifamily:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 205,124 |  | $ | 61,032 |  | $ | 27,583 |  | $ | 100,696 |  | $ | 67,675 |  | $ | 149,633 |  | $ | 205 |  | $ | — |  | $ | 611,948 |
Special Mention | — |  | — |  | 2,628 |  | — |  | — |  | — |  | — |  | — |  | 2,628 |
Substandard | — |  | — |  | — |  | — |  | 5,512 |  | — |  | — |  | — |  | 5,512 |
Total | $ | 205,124 |  | $ | 61,032 |  | $ | 30,211 |  | $ | 100,696 |  | $ | 73,187 |  | $ | 149,633 |  | $ | 205 |  | $ | — |  | $ | 620,088 |
Commercial real estate owner occupied:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 131,096 |  | $ | 127,270 |  | $ | 58,835 |  | $ | 82,576 |  | $ | 75,322 |  | $ | 154,056 |  | $ | 3,464 |  | $ | — |  | $ | 632,619 |
Special Mention | — |  | — |  | 387 |  | — |  | — |  | — |  | — |  | — |  | 387 |
Substandard | 1,003 |  | 122 |  | 31 |  | 282 |  | 1,056 |  | 4,989 |  | — |  | — |  | 7,483 |
Total | $ | 132,099 |  | $ | 127,392 |  | $ | 59,253 |  | $ | 82,858 |  | $ | 76,378 |  | $ | 159,045 |  | $ | 3,464 |  | $ | — |  | $ | 640,489 |
Commercial real estate non-owner occupied:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 621,685 |  | $ | 410,359 |  | $ | 175,456 |  | $ | 333,783 |  | $ | 313,124 |  | $ | 530,322 |  | $ | 17,846 |  | $ | — |  | $ | 2,402,575 |
Special Mention | — |  | — |  | — |  | — |  | 20,000 |  | 18,462 |  | — |  | — |  | 38,462 |
Substandard | — |  | — |  | 7,237 |  | 13,623 |  | 15,610 |  | 18,730 |  | — |  | — |  | 55,200 |
Total | $ | 621,685 |  | $ | 410,359 |  | $ | 182,693 |  | $ | 347,406 |  | $ | 348,734 |  | $ | 567,514 |  | $ | 17,846 |  | $ | — |  | $ | 2,496,237 |
Commercial and industrial:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 282,781 |  | $ | 147,070 |  | $ | 56,880 |  | $ | 67,975 |  | $ | 83,223 |  | $ | 99,367 |  | $ | 648,956 |  | $ | — |  | $ | 1,386,252 |
Special Mention | — |  | 5,811 |  | 1,290 |  | 1,332 |  | 11,502 |  | 912 |  | 2,632 |  | — |  | 23,479 |
Substandard | 204 |  | 496 |  | 3,640 |  | 8,139 |  | 1,981 |  | 2,799 |  | 10,581 |  | — |  | 27,840 |
Doubtful | — |  | — |  | — |  | — |  | — |  | 56 |  | 7,609 |  | — |  | 7,665 |
Total | $ | 282,985 |  | $ | 153,377 |  | $ | 61,810 |  | $ | 77,446 |  | $ | 96,706 |  | $ | 103,134 |  | $ | 669,778 |  | $ | — |  | $ | 1,445,236 |
Residential real estate
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 997,981 |  | $ | 280,308 |  | $ | 96,548 |  | $ | 70,845 |  | $ | 138,894 |  | $ | 713,744 |  | $ | 165 |  | $ | — |  | $ | 2,298,485 |
Special Mention | — |  | 364 |  | — |  | 861 |  | 202 |  | 707 |  | — |  | — |  | 2,134 |
Substandard | — |  | 284 |  | 448 |  | 267 |  | 1,857 |  | 8,972 |  | — |  | — |  | 11,828 |
Total | $ | 997,981 |  | $ | 280,956 |  | $ | 96,996 |  | $ | 71,973 |  | $ | 140,953 |  | $ | 723,423 |  | $ | 165 |  | $ | — |  | $ | 2,312,447 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| Term Loans Amortized Cost Basis by Origination Year |  |  |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total
As of December 31, 2021
Construction |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 71,784 |  | $ | 52,725 |  | $ | 117,784 |  | $ | 66,950 |  | $ | 3,839 |  | $ | 1,721 |  | $ | 50 |  | $ | — |  | $ | 314,853 |
Special Mention | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard | — |  | — |  | — |  | 9,429 |  | — |  | — |  | — |  | — |  | 9,429 |
Total | $ | 71,784 |  | $ | 52,725 |  | $ | 117,784 |  | $ | 76,379 |  | $ | 3,839 |  | $ | 1,721 |  | $ | 50 |  | $ | — |  | $ | 324,282 |
Commercial multifamily:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 63,630 |  | $ | 28,172 |  | $ | 98,455 |  | $ | 59,720 |  | $ | 76,699 |  | $ | 176,020 |  | $ | 457 |  | $ | — |  | $ | 503,153 |
Special Mention | — |  | 2,700 |  | — |  | 5,598 |  | — |  | — |  | — |  | — |  | 8,298 |
Substandard | — |  | — |  | — |  | — |  | — |  | 4,230 |  | 136 |  | — |  | 4,366 |
Total | $ | 63,630 |  | $ | 30,872 |  | $ | 98,455 |  | $ | 65,318 |  | $ | 76,699 |  | $ | 180,250 |  | $ | 593 |  | $ | — |  | $ | 515,817 |
Commercial real estate owner occupied:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 154,434 |  | $ | 50,236 |  | $ | 85,687 |  | $ | 91,316 |  | $ | 45,995 |  | $ | 157,346 |  | $ | 3,206 |  | $ | — |  | $ | 588,220 |
Special Mention | — |  | 525 |  | 869 |  | 1,668 |  | 1,405 |  | 1,157 |  | — |  | — |  | 5,624 |
Substandard | — |  | — |  | 2,113 |  | 1,593 |  | 838 |  | 8,089 |  | — |  | — |  | 12,633 |
Total | $ | 154,434 |  | $ | 50,761 |  | $ | 88,669 |  | $ | 94,577 |  | $ | 48,238 |  | $ | 166,592 |  | $ | 3,206 |  | $ | — |  | $ | 606,477 |
Commercial real estate non-owner occupied:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 426,086 |  | $ | 176,172 |  | $ | 296,985 |  | $ | 349,947 |  | $ | 204,043 |  | $ | 585,044 |  | $ | 19,511 |  | $ | — |  | $ | 2,057,788 |
Special Mention | — |  | 221 |  | 3,472 |  | 7,632 |  | 2,302 |  | 27,268 |  | — |  | — |  | 40,895 |
Substandard | — |  | 7,588 |  | — |  | 2,784 |  | 33,472 |  | 14,303 |  | 99 |  | — |  | 58,246 |
Total | $ | 426,086 |  | $ | 183,981 |  | $ | 300,457 |  | $ | 360,363 |  | $ | 239,817 |  | $ | 626,615 |  | $ | 19,610 |  | $ | — |  | $ | 2,156,929 |
Commercial and industrial:
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 187,257 |  | $ | 130,520 |  | $ | 114,153 |  | $ | 156,443 |  | $ | 54,190 |  | $ | 136,837 |  | $ | 424,393 |  | $ | — |  | $ | 1,203,793 |
Special Mention | 661 |  | 1,691 |  | 10,824 |  | 5,092 |  | 1,433 |  | 488 |  | 22,468 |  | — |  | 42,657 |
Substandard | 211 |  | 2,494 |  | 9,609 |  | 3,145 |  | 2,020 |  | 2,330 |  | 17,935 |  | — |  | 37,744 |
Doubtful | — |  | — |  | — |  | — |  | — |  | 15 |  | 220 |  | — |  | 235 |
Total | $ | 188,129 |  | $ | 134,705 |  | $ | 134,586 |  | $ | 164,680 |  | $ | 57,643 |  | $ | 139,670 |  | $ | 465,016 |  | $ | — |  | $ | 1,284,429 |
Residential real estate
Risk rating |  |  |  |  |  |  |  |  |
Pass | $ | 214,306 |  | $ | 114,536 |  | $ | 86,997 |  | $ | 169,537 |  | $ | 189,980 |  | $ | 697,401 |  | $ | 293 |  | $ | — |  | $ | 1,473,050 |
Special Mention | — |  | — |  | — |  | 120 |  | 502 |  | 1,557 |  | — |  | — |  | 2,179 |
Substandard | 1,239 |  | — |  | 142 |  | 1,849 |  | 2,161 |  | 8,628 |  | — |  | — |  | 14,019 |
Total | $ | 215,545 |  | $ | 114,536 |  | $ | 87,139 |  | $ | 171,506 |  | $ | 192,643 |  | $ | 707,586 |  | $ | 293 |  | $ | — |  | $ | 1,489,248 |

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For home equity and consumer other loan portfolio segments, Berkshire evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an ongoing basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost based on payment activity:

| Term Loans Amortized Cost Basis by Origination Year |  |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total
As of December 31, 2022
Home equity: |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |
Performing | $ | — |  | $ | 114 |  | $ | 454 |  | $ | — |  | $ | — |  | $ | 17 |  | $ | 224,746 |  | $ | — |  | $ | 225,331 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | 2,119 |  | — |  | 2,119 |
Total | $ | — |  | $ | 114 |  | $ | 454 |  | $ | — |  | $ | — |  | $ | 17 |  | $ | 226,865 |  | $ | — |  | $ | 227,450 |
Consumer other: |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |
Performing | $ | 161,157 |  | $ | 28,279 |  | $ | 8,312 |  | $ | 12,670 |  | $ | 27,608 |  | $ | 24,682 |  | $ | 9,070 |  | $ | — |  | $ | 271,778 |
Nonperforming | 588 |  | 137 |  | 44 |  | 280 |  | 477 |  | 567 |  | 39 |  | — |  | 2,132 |
Total | $ | 161,745 |  | $ | 28,416 |  | $ | 8,356 |  | $ | 12,950 |  | $ | 28,085 |  | $ | 25,249 |  | $ | 9,109 |  | $ | — |  | $ | 273,910 |

| Term Loans Amortized Cost Basis by Origination Year |  |  |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total
As of December 31, 2021
Home equity: |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |
Performing | $ | 125 |  | $ | 469 |  | $ | — |  | $ | — |  | $ | — |  | $ | 24 |  | $ | 249,590 |  | $ | — |  | $ | 250,208 |
Nonperforming | — |  | — |  | — |  | — |  | — |  | — |  | 2,158 |  | — |  | 2,158 |
Total | $ | 125 |  | $ | 469 |  | $ | — |  | $ | — |  | $ | — |  | $ | 24 |  | $ | 251,748 |  | $ | — |  | $ | 252,366 |
Consumer other: |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |
Performing | $ | 37,994 |  | $ | 11,189 |  | $ | 21,548 |  | $ | 55,577 |  | $ | 30,632 |  | $ | 28,797 |  | $ | 7,505 |  | $ | — |  | $ | 193,242 |
Nonperforming | 8 |  | 46 |  | 290 |  | 797 |  | 746 |  | 1,139 |  | 31 |  | — |  | 3,057 |
Total | $ | 38,002 |  | $ | 11,235 |  | $ | 21,838 |  | $ | 56,374 |  | $ | 31,378 |  | $ | 29,936 |  | $ | 7,536 |  | $ | — |  | $ | 196,299 |

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about total loans rated Special Mention or lower at December 31, 2022 and December 31, 2021. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.

(In thousands) |  | December 31, 2022 |  | December 31, 2021
Non-Accrual |  | $ | 31,114 |  |  | $ | 35,326 |
Substandard Accruing |  | 88,665 |  |  | 106,560 |
Total Classified |  | 119,779 |  |  | 141,886 |
Special Mention |  | 68,127 |  |  | 100,071 |
Total Criticized |  | $ | 187,906 |  |  | $ | 241,957 |

The following is a summary of loans by past due status at December 31, 2022 and December 31, 2021:

(In thousands) |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or Greater Past Due |  | Total Past Due |  | Current |  | Total Loans
December 31, 2022
Construction |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 319,452 |  |  | $ | 319,452 |
Commercial multifamily |  | — |  |  | 214 |  |  | — |  |  | 214 |  |  | 619,874 |  |  | 620,088 |
Commercial real estate owner occupied |  | 122 |  |  | — |  |  | 3,302 |  |  | 3,424 |  |  | 637,065 |  |  | 640,489 |
Commercial real estate non-owner occupied |  | 143 |  |  | — |  |  | 191 |  |  | 334 |  |  | 2,495,903 |  |  | 2,496,237 |
Commercial and industrial |  | 1,173 |  |  | 1,438 |  |  | 18,658 |  |  | 21,269 |  |  | 1,423,967 |  |  | 1,445,236 |
Residential real estate |  | 3,694 |  |  | 2,134 |  |  | 11,724 |  |  | 17,552 |  |  | 2,294,895 |  |  | 2,312,447 |
Home equity |  | 168 |  |  | 57 |  |  | 2,119 |  |  | 2,344 |  |  | 225,106 |  |  | 227,450 |
Consumer other |  | 1,990 |  |  | 1,028 |  |  | 2,158 |  |  | 5,176 |  |  | 268,734 |  |  | 273,910 |
Total |  | $ | 7,290 |  |  | $ | 4,871 |  |  | $ | 38,152 |  |  | $ | 50,313 |  |  | $ | 8,284,996 |  |  | $ | 8,335,309 |

(In thousands) |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or Greater Past Due |  | Total Past Due |  | Current |  | Total Loans
December 31, 2021
Construction |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 324,282 |  |  | $ | 324,282 |
Commercial multifamily |  | 82 |  |  | 306 |  |  | 187 |  |  | 575 |  |  | 515,242 |  |  | 515,817 |
Commercial real estate owner occupied |  | — |  |  | 400 |  |  | 4,221 |  |  | 4,621 |  |  | 601,856 |  |  | 606,477 |
Commercial real estate non-owner occupied |  | 25,420 |  |  | 653 |  |  | 9,049 |  |  | 35,122 |  |  | 2,121,807 |  |  | 2,156,929 |
Commercial and industrial |  | 2,700 |  |  | 709 |  |  | 6,836 |  |  | 10,245 |  |  | 1,274,184 |  |  | 1,284,429 |
Residential real estate |  | 5,529 |  |  | 2,015 |  |  | 13,264 |  |  | 20,808 |  |  | 1,468,440 |  |  | 1,489,248 |
Home equity |  | 258 |  |  | 108 |  |  | 2,158 |  |  | 2,524 |  |  | 249,842 |  |  | 252,366 |
Consumer other |  | 1,363 |  |  | 320 |  |  | 2,882 |  |  | 4,565 |  |  | 191,734 |  |  | 196,299 |
Total |  | $ | 35,352 |  |  | $ | 4,511 |  |  | $ | 38,597 |  |  | $ | 78,460 |  |  | $ | 6,747,387 |  |  | $ | 6,825,847 |

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans on nonaccrual status and loans past due 90 days or more and still accruing as of December 31, 2022 and December 31, 2021:

|  |  |  | December 31, 2022
(In thousands) |  |  |  | Nonaccrual Amortized Cost |  | Nonaccrual With No Related Allowance |  | Past Due 90 Days or Greater and Accruing |  | Interest Income Recognized on Nonaccrual
Construction |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial multifamily |  |  |  | — |  |  | — |  |  | — |  |  | — |
Commercial real estate owner occupied |  |  |  | 2,202 |  |  | 1,411 |  |  | 1,100 |  |  | — |
Commercial real estate non-owner occupied |  |  |  | 191 |  |  | 73 |  |  | — |  |  | — |
Commercial and industrial |  |  |  | 16,992 |  |  | 14,223 |  |  | 1,666 |  |  | — |
Residential real estate |  |  |  | 8,901 |  |  | 5,307 |  |  | 2,823 |  |  | — |
Home equity |  |  |  | 1,568 |  |  | 388 |  |  | 551 |  |  | — |
Consumer other |  |  |  | 1,260 |  |  | 2 |  |  | 898 |  |  | — |
Total |  |  |  | $ | 31,114 |  |  | $ | 21,404 |  |  | $ | 7,038 |  |  | $ | — |

The commercial and industrial loans nonaccrual amortized cost as of December 31, 2022 included medallion loans with a fair value of $0.6 million and a contractual balance of $10.9 million.

|  |  |  | December 31, 2021
(In thousands) |  |  |  | Nonaccrual Amortized Cost |  | Nonaccrual With No Related Allowance |  | Past Due 90 Days or Greater and Accruing |  | Interest Income Recognized on Nonaccrual
Construction |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial multifamily |  |  |  | 187 |  |  | 187 |  |  | — |  |  | — |
Commercial real estate owner occupied |  |  |  | 4,221 |  |  | 2,413 |  |  | — |  |  | — |
Commercial real estate non-owner occupied |  |  |  | 8,877 |  |  | 8,412 |  |  | 172 |  |  | — |
Commercial and industrial |  |  |  | 6,747 |  |  | 1,506 |  |  | 89 |  |  | — |
Residential real estate |  |  |  | 10,698 |  |  | 6,511 |  |  | 2,566 |  |  | — |
Home equity |  |  |  | 1,901 |  |  | 141 |  |  | 257 |  |  | — |
Consumer other |  |  |  | 2,695 |  |  | 4 |  |  | 187 |  |  | — |
Total |  |  |  | $ | 35,326 |  |  | $ | 19,174 |  |  | $ | 3,271 |  |  | $ | — |

The commercial and industrial loans nonaccrual amortized cost as of December 31, 2021 included medallion loans with a fair value of $1.2 million and a contractual balance of $31.4 million.
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of individually analyzed collateral-dependent loans by loan portfolio segment:

|  | Type of Collateral
(In thousands) |  | Real Estate |  |  |  | Investment Securities/Cash |  |  |  | Other
December 31, 2022 |  |  |  |  |  |  |  |  |  |
Construction |  | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | — |
Commercial multifamily |  | — |  |  |  |  | — |  |  |  |  | — |
Commercial real estate owner occupied |  | 2,793 |  |  |  |  | — |  |  |  |  | — |
Commercial real estate non-owner occupied |  | 384 |  |  |  |  | — |  |  |  |  | — |
Commercial and industrial |  | 288 |  |  |  |  | — |  |  |  |  | 16,931 |
Residential real estate |  | 3,910 |  |  |  |  | — |  |  |  |  | — |
Home equity |  | 501 |  |  |  |  | — |  |  |  |  | — |
Consumer other |  | 2 |  |  |  |  | — |  |  |  |  | — |
Total loans |  | $ | 7,878 |  |  |  |  | $ | — |  |  |  |  | $ | 16,931 |

|  | Type of Collateral
(In thousands) |  | Real Estate |  |  |  | Investment Securities/Cash |  |  |  | Other
December 31, 2021 |  |  |  |  |  |  |  |  |  |
Construction |  | $ | 9,429 |  |  |  |  | $ | — |  |  |  |  | $ | — |
Commercial multifamily |  | 188 |  |  |  |  | — |  |  |  |  | — |
Commercial real estate owner occupied |  | 4,466 |  |  |  |  | — |  |  |  |  | — |
Commercial real estate non-owner occupied |  | 9,501 |  |  |  |  | — |  |  |  |  | — |
Commercial and industrial |  | 526 |  |  |  |  | — |  |  |  |  | 1,040 |
Residential real estate |  | 7,035 |  |  |  |  | — |  |  |  |  | — |
Home equity |  | 262 |  |  |  |  | — |  |  |  |  | — |
Consumer other |  | 2 |  |  |  |  | — |  |  |  |  | — |
Total loans |  | $ | 31,409 |  |  |  |  | $ | — |  |  |  |  | $ | 1,040 |

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.
The following table presents activity in TDRs for the years ended December 31, 2022 and December 31, 2021:

(In thousands) |  | Balance at Beginning of Period |  | Principal Payments |  | TDR Status Change |  | Other Additions/(Reductions) |  | Newly Identified TDRs |  | Balance at End of Period
Year ended December 31, 2022
Construction |  | $ | 9,429 |  |  | $ | — |  |  | $ | — |  |  | $ | (9,429) |  |  | $ | — |  |  | $ | — |
Commercial multifamily |  | 703 |  |  | (41) |  |  | — |  |  | (174) |  |  | — |  |  | 488 |
Commercial real estate owner occupied |  | 2,733 |  |  | (75) |  |  | — |  |  | (69) |  |  | — |  |  | 2,589 |
Commercial real estate non-owner occupied |  | 9,310 |  |  | (33) |  |  | — |  |  | (8,311) |  |  | — |  |  | 966 |
Commercial and industrial |  | 3,656 |  |  | (895) |  |  | — |  |  | (359) |  |  | 3,245 |  |  | 5,647 |
Residential real estate |  | 1,117 |  |  | (81) |  |  | — |  |  | (67) |  |  | — |  |  | 969 |
Home equity |  | 121 |  |  | (81) |  |  | — |  |  | — |  |  | 50 |  |  | 90 |
Consumer other |  | 33 |  |  | (15) |  |  | — |  |  | (56) |  |  | 1,649 |  |  | 1,611 |
Total |  | $ | 27,102 |  |  | $ | (1,221) |  |  | $ | — |  |  | $ | (18,465) |  |  | $ | 4,944 |  |  | $ | 12,360 |

(In thousands) |  | Balance at Beginning of Period |  | Principal Payments |  | TDR Status Change |  | Other Additions/(Reductions) |  | Newly Identified TDRs |  | Balance at End of Period
Year ended December 31, 2021
Construction |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 9,429 |  |  | $ | 9,429 |
Commercial multifamily |  | 754 |  |  | (51) |  |  | — |  |  | — |  |  | — |  |  | 703 |
Commercial real estate owner occupied |  | 1,731 |  |  | (96) |  |  | — |  |  | (168) |  |  | 1,266 |  |  | 2,733 |
Commercial real estate non-owner occupied |  | 13,684 |  |  | (14,562) |  |  | — |  |  | (791) |  |  | 10,979 |  |  | 9,310 |
Commercial and industrial |  | 2,686 |  |  | (3,916) |  |  | — |  |  | (199) |  |  | 5,085 |  |  | 3,656 |
Residential real estate |  | 1,524 |  |  | (233) |  |  | — |  |  | (174) |  |  | — |  |  | 1,117 |
Home equity |  | 133 |  |  | (12) |  |  | — |  |  | — |  |  | — |  |  | 121 |
Consumer other |  | 36 |  |  | (8) |  |  | — |  |  | 5 |  |  | — |  |  | 33 |
Total |  | $ | 20,548 |  |  | $ | (18,878) |  |  | $ | — |  |  | $ | (1,327) |  |  | $ | 26,759 |  |  | $ | 27,102 |

F-38

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents loans modified as TDRs that occurred during the years ended December 31, 2022, 2021, and 2020:

(dollars in thousands) |  | Total
Year ended December 31, 2022 |  |
TDR: |  |
Number of loans |  | 93 |
Pre-modification outstanding recorded investment |  | $ | 4,944 |
Post-modification outstanding recorded investment |  | $ | 4,944 |
Year ended December 31, 2021 |  |
TDR: |  |
Number of loans |  | 18 |
Pre-modification outstanding recorded investment |  | $ | 26,759 |
Post-modification outstanding recorded investment |  | $ | 26,759 |
Year ended December 31, 2020 |  |
TDR: |  |
Number of loans |  | 16 |
Pre-modification outstanding recorded investment |  | $ | 12,197 |
Post-modification outstanding recorded investment |  | $ | 12,197 |

The following table discloses the modifications for TDRs where a concession has been made within the previous 12 months, that then defaulted in the respective reporting period. For the years ended 2022, there were two loans restructured that had subsequently defaulted during the reporting period. For the year ended 2021, there were four loans restructured that had subsequently defaulted during the reporting period. There were no TDRs for which there was a payment default within twelve months following the modification during the year ended 2020.

(dollars in thousands) |  | Number of Loans |  | Recorded Investment
Year ended December 31, 2022 |  |  |  |
Commercial and industrial |  | 1 |  |  | $ | 105 |
Consumer other |  | 1 |  |  | $ | 10 |
Total |  | 2 |  |  | $ | 115 |

(dollars in thousands) |  | Number of Loans |  | Recorded Investment
Year ended December 31, 2021 |  |  |  |
Commercial real estate non-owner occupied |  | 2 |  |  | $ | 18,746 |
Commercial and industrial |  | 2 |  |  | $ | 71 |
Total |  | 4 |  |  | $ | 18,817 |

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. PREMISES AND EQUIPMENT
Year-end premises and equipment are summarized as follows:

(In thousands) |  | 2022 |  | 2021 |  | Estimated Useful Life
Land |  | $ | 15,536 |  |  | $ | 15,786 |  |  | N/A
Buildings and improvements |  | 99,977 |  |  | 104,327 |  |  | 5 - 39 years
Furniture and equipment |  | 63,554 |  |  | 62,420 |  |  | 3 - 7 years
Construction in process |  | 1,147 |  |  | 703 |  |  |
Premises and equipment, gross |  | 180,214 |  |  | 183,236 |  |  |
Accumulated depreciation and amortization |  | (94,997) |  |  | (88,853) |  |  |
Premises and equipment, net |  | $ | 85,217 |  |  | $ | 94,383 |  |  |

Depreciation and amortization expense including discontinued operations for the years 2022, 2021, and 2020 amounted to $9.6 million, $11.0 million, and $12.5 million, respectively.
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. OTHER INTANGIBLES
The components of other intangible assets are as follows:

(In thousands) |  | Gross Intangible Assets |  | Accumulated Amortization |  | Net Intangible Assets
December 31, 2022 |  |  |  |  |  |
Non-maturity deposits (core deposit intangible) |  | $ | 77,213 |  |  | $ | (54,618) |  |  | $ | 22,595 |
All other intangible assets |  | 7,866 |  |  | (5,978) |  |  | 1,888 |
Total |  | $ | 85,079 |  |  | $ | (60,596) |  |  | $ | 24,483 |
December 31, 2021 |  |  |  |  |  |
Non-maturity deposits (core deposit intangible) |  | $ | 77,213 |  |  | $ | (49,963) |  |  | $ | 27,250 |
All other intangible assets |  | 7,866 |  |  | (5,497) |  |  | 2,369 |
Total |  | $ | 85,079 |  |  | $ | (55,460) |  |  | $ | 29,619 |

Other intangible assets are amortized on a straight-line or accelerated basis over their estimated lives, which range from four to fifteen years. Amortization expense related to intangibles totaled $5.1 million in 2022, $5.2 million in 2021, and $6.2 million in 2020.
The estimated aggregate future amortization expense for intangible assets remaining at year-end 2022 is as follows: 2023- $4.8 million; 2024- $4.6 million; 2025- $4.5 million; 2026- $4.5 million; 2027- $3.6 million; and thereafter- $2.5 million. For the years 2022, 2021, and 2020, no impairment charges were identified for the Company’s intangible assets.
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OTHER ASSETS
Year-end other assets are summarized as follows:

(In thousands) |  | 2022 |  | 2021
Capitalized servicing rights |  | $ | 13,047 |  |  | $ | 16,022 |
Accrued interest receivable |  | 46,868 |  |  | 33,534 |
Accrued federal and state tax receivable |  | 34,386 |  |  | 30,614 |
Right-of-use assets |  | 46,411 |  |  | 52,180 |
Derivative assets |  | 54,241 |  |  | 79,528 |
Deferred tax asset |  | 118,331 |  |  | 52,620 |
Other |  | 35,651 |  |  | 23,886 |
Total other assets |  | $ | 348,935 |  |  | $ | 288,384 |

The Bank sells loans in the secondary market and retains the right to service many of these loans. The Bank earns fees for the servicing provided. At years end 2022 and 2021, loans sold and serviced for others amounted to $1.5 billion and $1.6 billion, respectively. For year ended 2020, loans sold and serviced for others from continuing operations amounted to $1.5 billion. For year ended 2020, loans sold and serviced for others from discontinued operations amounted to $0.6 billion. Loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. For the years 2022 and 2021, contractually specified servicing fees were $5.5 million and $8.0 million, respectively, and are included as a component of loan related fees within non-interest income. For the year 2020, contractually specified servicing fees from continuing operations were $5.5 million and are included as a component of loan related fees within non-interest income on the Consolidated Statements of Operations. For the year 2020, contractually specified servicing fees from discontinued operations were $2.1 million and are included as a component of other income in Note 2 - Discontinued Operations. Refer to Note 20 - Fair Value Measurements for significant assumptions and inputs used in the valuation at year-end 2022.
Servicing rights activity was as follows:

(In thousands) |  | 2022 |  | 2021 |  | 2020
Balance at beginning of year |  | $ | 16,022 |  |  | $ | 16,348 |  |  | $ | 26,451 |
Additions |  | 3,119 |  |  | 4,568 |  |  | 3,875 |
Amortization |  | (4,590) |  |  | (4,921) |  |  | (3,761) |
Payoffs |  | (958) |  |  | — |  |  | — |
Allowance adjustment |  | (546) |  |  | 27 |  |  | (10,217) |
Balance at end of year |  | $ | 13,047 |  |  | $ | 16,022 |  |  | $ | 16,348 |

(1)As of December 31, 2022 and December 31, 2021, the servicing rights included in the total balance accounted for at fair value were $1.8 million and $2.0 million, respectively.
At December 31, 2022, the fair value of servicing rights was $16.7 million. At December 31, 2021, the fair value of servicing rights was $16.6 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. DEPOSITS
A summary of year-end time deposits is as follows:

(In thousands) |  | 2022 |  | 2021
Maturity date: |  |  |  |
Within 1 year |  | $ | 912,756 |  |  | $ | 1,228,874 |
Over 1 year to 2 years |  | 606,856 |  |  | 280,403 |
Over 2 years to 3 years |  | 68,984 |  |  | 81,391 |
Over 3 years to 4 years |  | 28,441 |  |  | 52,000 |
Over 4 years to 5 years |  | 15,835 |  |  | 34,605 |
Over 5 years |  | 835 |  |  | 1,667 |
Total |  | $ | 1,633,707 |  |  | $ | 1,678,940 |
Account balances: |  |  |  |
Less than $100,000 |  | $ | 549,265 |  |  | $ | 676,979 |
$100,000 through $250,000 |  | 642,600 |  |  | 610,174 |
$250,000 or more |  | 441,842 |  |  | 391,787 |
Total |  | $ | 1,633,707 |  |  | $ | 1,678,940 |

Included in total deposits on the Consolidated Balance Sheets are brokered deposits of $120.9 million and $228.1 million at December 31, 2022 and December 31, 2021, respectively. Also included in total deposits are reciprocal deposits of $71.1 million and $89.2 million at December 31, 2022 and December 31, 2021, respectively, as well as related party deposits of $22.3 million and $17.1 million at December 31, 2022 and December 31, 2021, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BORROWED FUNDS
Borrowed funds at December 31, 2022 and 2021 are summarized, as follows:

|  | 2022 |  | 2021
(in thousands, except rates) |  | Principal |  | Weighted Average Rate |  | Principal |  | Weighted Average Rate
Short-term borrowings: |  |  |  |  |  |  |  |
Advances from the FHLBB |  | $ | — |  |  | — | % |  | $ | — |  |  | — | %
Total short-term borrowings: |  | — |  |  | — |  |  | — |  |  | — |
Long-term borrowings: |  |  |  |  |  |  |  |
Advances from the FHLBB |  | 4,445 |  |  | 0.71 |  |  | 13,331 |  |  | 1.75 |
Subordinated notes |  | 98,089 |  |  | 5.50 |  |  | 74,590 |  |  | 7.00 |
Junior subordinated borrowing - Trust I |  | 15,464 |  |  | 6.54 |  |  | 15,464 |  |  | 2.01 |
Junior subordinated borrowing - Trust II |  | 7,511 |  |  | 6.47 |  |  | 7,459 |  |  | 1.90 |
Total long-term borrowings: |  | 125,509 |  |  | 5.52 |  |  | 110,844 |  |  | 5.33 |
Total |  | $ | 125,509 |  |  | 5.52 | % |  | $ | 110,844 |  |  | 5.33 | %

Short-term debt includes Federal Home Loan Bank of Boston (“FHLBB”) advances with an original maturity of less than one year. The Bank maintains a $3.0 million secured line of credit with the FHLBB that bears a daily adjustable rate calculated by the FHLBB. There was no outstanding balance on the FHLBB line of credit for the periods ended December 31, 2022 and December 31, 2021. The Bank's available borrowing capacity with the FHLB was $1.5 billion and $1.5 billion for the periods ended December 31, 2022 and December 31, 2021, respectively. The Company was in compliance with all debt covenants as of December 31, 2022.
The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank of Boston took place for the periods ended December 31, 2022 and December 31, 2021. As a participant in the SBA Paycheck Protection Program ("PPP"), the Bank may pledge originated loans as collateral at face value to the Federal Reserve Bank of Boston for term financings. As of December 31, 2022, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $647.9 million and $511.0 million for the periods ended December 31, 2022 and December 31, 2021, respectively.
Long-term FHLBB advances consist of advances with an original maturity of more than one year and are subject to
prepayment penalties. There were no callable advances outstanding at December 31, 2022. The advances outstanding at December 31, 2022 included amortizing advances totaling $4.4 million. The advances outstanding at December 31, 2021 included callable advances totaling $10 million and amortizing advances totaling $3.3 million. All FHLBB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of maturities of FHLBB advances at year-end 2022 is as follows:

|  | 2022
(In thousands) |  | Amount |  | Weighted Average Rate
Fixed rate advances maturing: |  |  |  |
2023 |  | $ | — |  |  | — | %
2024 |  | 25 |  |  | — |
2025 |  | — |  |  | — |
2026 |  | 557 |  |  | 2.20 |
2027 and beyond |  | 3,863 |  |  | 0.50 |
Total FHLBB advances |  | $ | 4,445 |  |  | 0.71 | %

The Company did not have variable-rate FHLB advances for the period ended December 31, 2022 and December 31, 2021.
In June 2022, the Company issued ten year subordinated notes in the amount of $100.0 million. The interest rate is fixed at 5.50% for the first five years. After five years, the notes become callable and will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be Three-Month Term SOFR), plus 249 basis points. The subordinated note includes reduction to the note principal balance of $1.9 million for unamortized debt issuance costs as of December 31, 2022.
In September 2022, the Company called the fifteen year subordinated notes that were issued in September 2012 in the amount of $75 million.
The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with a cost of $0.5 million. The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85% and had a rate of 6.54% and 2.01% at December 31, 2022 and December 31, 2021, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value on each quarterly payment date. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.
The Company holds 100% of the common stock of SI Capital Trust II (“Trust II”) which is included in other assets
with a cost of $0.2 million. The sole asset of Trust II is $8.2 million of the Company’s junior subordinated
debentures due in 2036. These debentures bear interest at a variable rate equal to LIBOR plus 1.70% and had a rate
of 6.47% and 1.90% at December 31, 2022 and December 31, 2021. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust II is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust II is not consolidated into the Company’s financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. OTHER LIABILITIES
Year-end other liabilities are summarized as follows:

(In thousands) |  | 2022 |  | 2021
Derivative liabilities |  | $ | 97,030 |  |  | $ | 35,194 |
Finance lease liabilities |  | 9,306 |  |  | 9,862 |
Employee benefits liability |  | 45,175 |  |  | 45,498 |
Operating lease liabilities |  | 53,736 |  |  | 55,674 |
Accrued interest payable |  | 1,610 |  |  | 775 |
Customer transaction clearing accounts |  | 5,758 |  |  | 5,718 |
Other |  | 43,409 |  |  | 39,960 |
Total other liabilities |  | $ | 256,024 |  |  | $ | 192,681 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EMPLOYEE BENEFIT PLANS
Pension Plan
The Company maintains a legacy, employer-sponsored defined benefit pension plan (the “Plan”) for which participation and benefit accruals were frozen on January 1, 2003. The Plan was assumed in connection with the Rome Bancorp acquisition in 2011. Accordingly, no employees are permitted to commence participation in the Plan and future salary increases and years of credited service are not considered when computing an employee’s benefits under the Plan. As of December 31, 2022, all minimum Employee Retirement Income Security Act (“ERISA”) funding requirements have been met.
Information regarding the pension plan is as follows:

|  | December 31,
(In thousands) |  | 2022 |  | 2021
Change in projected benefit obligation: |  |  |  |
Projected benefit obligation at beginning of year |  | $ | 5,328 |  |  | $ | 6,121 |
Service Cost |  | 68 |  |  | 59 |
Interest cost |  | 141 |  |  | 140 |
Actuarial loss |  | (1,508) |  |  | (211) |
Benefits paid |  | (263) |  |  | (321) |
Settlements |  | (37) |  |  | (460) |
Projected benefit obligation at end of year |  | 3,729 |  |  | 5,328 |
Accumulated benefit obligation |  | 3,729 |  |  | 5,328 |
Change in fair value of plan assets: |  |  |  |
Fair value of plan assets at plan beginning of year |  | 5,962 |  |  | 6,049 |
Actual return on plan assets |  | (979) |  |  | 694 |
Contributions by employer |  | — |  |  | — |
Benefits paid |  | (263) |  |  | (321) |
Settlements |  | (37) |  |  | (460) |
Fair value of plan assets at end of year |  | 4,683 |  |  | 5,962 |
(Overfunded) status |  | $ | (954) |  |  | $ | (634) |

Amounts Recognized on Consolidated Balance Sheets |  |  |  |
Other assets |  | $ | 954 |  |  | $ | 634 |
Other liabilities |  | — |  |  | — |

Net periodic pension cost is comprised of the following:

|  | December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Service Cost |  | $ | 68 |  |  | $ | 59 |  |  | $ | 66 |
Interest Cost |  | 141 |  |  | 140 |  |  | 178 |
Expected return on plan assets |  | (376) |  |  | (410) |  |  | (393) |
Amortization of unrecognized actuarial loss |  | 11 |  |  | 103 |  |  | 94 |
Net periodic pension (credit) |  | $ | (156) |  |  | $ | (108) |  |  | $ | (55) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in plan assets and benefit obligations recognized in accumulated other comprehensive income are as follows:

|  | December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Amortization of actuarial (loss) |  | $ | (11) |  |  | $ | (103) |  |  | $ | (94) |
Actuarial (gain) |  | (154) |  |  | (495) |  |  | 171 |
Settlement charge |  | — |  |  | (58) |  |  | — |
Total recognized in accumulated other comprehensive income |  | (165) |  |  | (656) |  |  | 77 |
Total recognized in net periodic pension cost recognized and other comprehensive income |  | $ | (321) |  |  | $ | (764) |  |  | $ | 22 |

The amounts in accumulated other comprehensive (loss)/income that have not yet been recognized as components of net periodic benefit cost are a net loss of $0.5 million, $0.7 million, and $1.3 million in 2022, 2021 and 2020, respectively.
The Company did not make any cash contributions to the pension trust during 2022 and 2021. The Company does not expect to make any cash contributions in 2023. The amount expected to be amortized from other comprehensive income into net periodic pension cost over the next fiscal year is $6 thousand.
The principal actuarial assumptions used are as follows:

|  | December 31,
|  | 2022 |  | 2021 |  | 2020
Projected benefit obligation |  |  |  |  |  |
Discount rate |  | 5.21 | % |  | 2.73 | % |  | 2.35 | %
Net periodic pension cost |  |  |  |  |  |
Discount rate |  | 2.73 | % |  | 2.35 | % |  | 3.15 | %
Long term rate of return on plan assets |  | 6.50 | % |  | 7.00 | % |  | 7.00 | %

The discount rate that is used in the measurement of the pension obligation is determined by comparing the expected future retirement payment cash flows of the pension plan to the Above Median FTSE Pension Discount Curve as of the measurement date. The expected long-term rate of return on Plan assets reflects long-term earnings expectations on existing Plan assets and those contributions expected to be received during the current plan year. In estimating that rate, appropriate consideration was given to historical returns earned by Plan assets in the fund and the rates of return expected to be available for reinvestment. The rates of return were adjusted to reflect current capital market assumptions and changes in investment allocations.
The Company’s overall investment strategy with respect to the Plan’s assets is primarily for preservation of capital and to provide regular dividend and interest payments. The Plan’s targeted asset allocation is 65% equity securities via investment in the Long-Term Growth - Equity Portfolio ("LTGE"), 34% intermediate-term investment grade bonds via investment in the Long-Term Growth - Fixed-Income Portfolio ("LTGFI"), and 1% in cash equivalents portfolio (for liquidity). Equity securities include investments in a diverse mix of equity funds to gain exposure in the US and international markets. The fixed income portion of the Plan assets is a diversified portfolio that primarily invests in intermediate-term bond funds. The overall rate of return is based on the historical performance of the assets applied against the Plan’s target allocation, and is adjusted for the long-term inflation rate.
The fair values for investment securities are determined by quoted prices in active markets, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the Plan’s assets by category within the fair value hierarchy are as follows at December 31, 2022 and December 31, 2021. The Plan did not hold any assets classified as Level 3, nor were there any transfers.

|  | December 31, 2022
Asset Category (In thousands) |  | Total |  | Level 1 |  | Level 2
Equity Mutual Funds: |  |  |  |  |  |
Large-Cap |  | $ | 1,441 |  |  | $ | — |  |  | $ | 1,441 |
Mid-Cap |  | 383 |  |  | — |  |  | 383 |
Small-Cap |  | 318 |  |  | — |  |  | 318 |
International |  | 814 |  |  | — |  |  | 814 |
Fixed Income - US Core |  | 1,167 |  |  | — |  |  | 1,167 |
Intermediate Duration |  | 396 |  |  | — |  |  | 396 |
Cash Equivalents - money market |  | 164 |  |  | 72 |  |  | 92 |
Total |  | $ | 4,683 |  |  | $ | 72 |  |  | $ | 4,611 |

|  | December 31, 2021
Asset Category (In thousands) |  | Total |  | Level 1 |  | Level 2
Equity Mutual Funds: |  |  |  |  |  |
Large-Cap |  | $ | 1,914 |  |  | $ | — |  |  | $ | 1,914 |
Mid-Cap |  | 509 |  |  | — |  |  | 509 |
Small-Cap |  | 421 |  |  | — |  |  | 421 |
International |  | 1,026 |  |  | — |  |  | 1,026 |
Fixed Income - US Core |  | 1,446 |  |  | — |  |  | 1,446 |
Intermediate Duration |  | 482 |  |  | — |  |  | 482 |
Cash Equivalents - money market |  | 164 |  |  | 62 |  |  | 102 |
Total |  | $ | 5,962 |  |  | $ | 62 |  |  | $ | 5,900 |

Estimated benefit payments under the pension plans over the next 10 years at December 31, 2022 are as follows:

Year |  | Payments (In thousands)
2023 |  | 298 |
2024 |  | 292 |
2025 |  | 283 |
2026 |  | 275 |
2027 - 2032 |  | 1,574 |

Multi-Employer Pension Plan
As a result of the Company's acquisition of SI Financial Group, Inc. (“SIFI”), the Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (the “Plan”), a tax-qualified defined benefit pension plan. The Plan operates as a multiple-employer plan under ERISA and the Internal Revenue Code, and as a multi-employer plan for accounting purposes. The Plan was frozen effective September 6, 2013. The Company made contributions of $124 thousand in 2022. As of July 1, 2022, the Plan held assets with a market value of $4.3 million and liabilities with a market value of $5.9 million. The funded status (market value of plan assets divided by funding target) of the Plan, was greater than 80% as of July 1, 2022, as required by federal and state regulations. Market value of the Plan's assets reflects contributions received through June 30, 2022. There are no collective bargaining agreements in place that require contributions to the Plan by the Company. The Plan is a single plan under the Internal Revenue Code and, as a result, all of the assets stand behind all of the liabilities. Accordingly, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Postretirement Benefits
The Company maintains an unfunded postretirement medical plan assumed in connection with the Rome Bancorp acquisition in 2011. The postretirement plan has been modified so that participation is closed to those employees who did not meet the retirement eligibility requirements by March 31, 2011. The Company contributes partially to medical benefits and life insurance coverage for retirees. Such retirees and their surviving spouses are responsible for the remainder of the medical benefits, including increases in premiums levels, between the total premium and the Company’s contribution.
The Company also has an executive long-term care (“LTC”) postretirement benefit plan which started August 1, 2014. The LTC plan reimburses executives for certain costs in the event of a future chronic illness. Funding of the plan comes from Company paid insurance policies or direct payments. At plan’s inception, a $558 thousand benefit obligation was recorded against equity representing the prior service cost of plan participants.
Information regarding the postretirement plans is as follows:

|  | December 31,
(In thousands) |  | 2022 |  | 2021
Change in accumulated postretirement benefit obligation: |  |  |  |
Accumulated post-retirement benefit obligation at beginning of year |  | $ | 4,521 |  |  | $ | 4,641 |
Service Cost |  | 12 |  |  | 13 |
Interest cost |  | 122 |  |  | 113 |
Participant contributions |  | — |  |  | — |
Actuarial loss |  | (1,396) |  |  | (198) |
Benefits paid |  | (44) |  |  | (48) |
Accumulated post-retirement benefit obligation at end of year |  | $ | 3,215 |  |  | $ | 4,521 |
Change in plan assets: |  |  |  |
Fair value of plan assets at beginning of year |  | $ | — |  |  | $ | — |
Contributions by employer |  | 44 |  |  | 48 |
Contributions by participant |  | — |  |  | — |
Benefits paid |  | (44) |  |  | (48) |
Fair value of plan assets at end of year |  | $ | — |  |  | $ | — |

Amounts Recognized on Consolidated Balance Sheets |  |  |  |
Other Liabilities |  | $ | 3,215 |  |  | $ | 4,521 |

Net periodic post-retirement cost is comprised of the following:

|  | December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Service cost |  | $ | 12 |  |  | $ | 13 |  |  | $ | 39 |
Interest costs |  | 122 |  |  | 113 |  |  | 129 |
Amortization of net prior service credit |  | 83 |  |  | 83 |  |  | 84 |
Amortization of net actuarial loss |  | 30 |  |  | 55 |  |  | 12 |
Net periodic post-retirement costs |  | $ | 247 |  |  | $ | 264 |  |  | $ | 264 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in benefit obligations recognized in accumulated other comprehensive income are as follows:

|  | December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Amortization of prior service credit |  | $ | (83) |  |  | $ | (83) |  |  | $ | (84) |
Net actuarial (gain) |  | (1,426) |  |  | (253) |  |  | 496 |
Total recognized in accumulated other comprehensive income |  | (1,509) |  |  | (336) |  |  | 412 |
Accrued post-retirement liability recognized |  | $ | 3,215 |  |  | $ | 4,521 |  |  | $ | 4,641 |

The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost are as follows:

|  | December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Net prior service cost |  | $ | 1,159 |  |  | $ | 1,242 |  |  | $ | 1,325 |
Net actuarial (gain)/loss |  | (812) |  |  | 615 |  |  | 869 |
Total recognized in accumulated other comprehensive income |  | $ | 347 |  |  | $ | 1,857 |  |  | $ | 2,194 |

The amount expected to be amortized from other comprehensive (loss)/income into net periodic postretirement cost over the next fiscal year is $83 thousand.
The discount rates used in the measurement of the postretirement plan obligations are determined by comparing the expected future retirement payment cash flows of the plans to the Above Median FTSE Pension Discount Curve as of the measurement date.
The assumed discount rates on a weighted-average basis were 5.12% and 2.30% as of December 31, 2022 and December 31, 2021, respectively. The Company has fixed contributions, therefore, the annual rate of increase in healthcare costs is not used in measuring the accumulated post-retirement benefit medical obligation.
For participants in the LTC plan covered by insurance policies, no increase in annual premiums is assumed based on the history of the corresponding insurance provider.
Estimated benefit payments under the post-retirement benefit plan over the next ten years at December 31, 2022 are as follows:

Year |  | Payments (In thousands)
2023 |  | 122 |
2024 |  | 122 |
2025 |  | 119 |
2026 |  | 115 |
2027 - 2032 |  | 951 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
401(k) Plan
The Company provides a 401(k) Plan in which most eligible employees participate. Expense related to the plan was $2.9 million in 2022, $3.2 million in 2021, and $3.5 million in 2020.
Other Plans
The Company maintains supplemental executive retirement plans (“SERPs”) for select current and former executives. Benefits generally commence no earlier than age sixty-two and are payable either as an annuity or as a lump sum at the executive’s option. Most of these SERPs were assumed in connection with acquisitions. At year-end 2022 and 2021, the accrued liability for these SERPs was $19.4 million and $20.0 million, respectively. SERP expense was $2.0 million in 2022, $2.0 million in 2021, and $2.0 million in 2020, and is recognized over the required service period.
The Company has endorsement split-dollar arrangements pertaining to certain current and former executives and directors. Under these arrangements, the Company purchased policies insuring the lives of the executives and directors, and separately entered into agreements to split the policy benefits with the individuals. There are no post-retirement benefits associated with these policies. The Company also assumed split-dollar life insurance agreements from multiple prior acquisitions. The accrued liability for these split-dollar arrangements was $7.9 million as of year-end 2022 and $7.8 million as of year-end 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INCOME TAXES
Provision for Income Taxes
The components of the Company’s provision for income taxes for the years ended December 31, 2022, 2021, and 2020 were, as follows:

(In thousands) |  | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |  |
Federal tax expense/(benefit) |  | $ | 17,915 |  |  | $ | 17,340 |  |  | $ | (19,889) |
State tax expense/(benefit) |  | 6,831 |  |  | 7,580 |  |  | (3,976) |
Total current tax expense/(benefit) (1) |  | 24,746 |  |  | 24,920 |  |  | (23,865) |
Deferred: |  |  |  |  |  |
Federal tax expense/(benefit) |  | (2,274) |  |  | 5,125 |  |  | 2,048 |
State tax expense/(benefit) |  | (1,187) |  |  | 112 |  |  | 1,964 |
Total deferred tax expense/(benefit) |  | (3,461) |  |  | 5,237 |  |  | 4,012 |
Change in valuation allowance |  | — |  |  | 200 |  |  | — |
Income tax expense/(benefit) from continuing operations |  | $ | 21,285 |  |  | $ | 30,357 |  |  | $ | (19,853) |
Income tax (benefit) from discontinued operations |  | — |  |  | — |  |  | (7,013) |
Total |  | $ | 21,285 |  |  | $ | 30,357 |  |  | $ | (26,866) |

(1) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act includes several provisions that temporarily modify the corporate net operating loss (“NOL”) carryback rules for federal income tax purposes. Specifically, the CARES Act allows a five-year carryback of any NOL generated in a taxable year beginning after December 31, 2017, and before January 1, 2021. The Company recorded a $6 million federal income tax benefit in 2020, and an additional $500 thousand benefit in 2021 resulting from the carryback of its 2020 NOL to recover federal income taxes paid in 2015 through 2018 (at a 35% federal income tax rate for years 2015 through 2017).
Effective Tax Rate
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2022, 2021, and 2020:

|  | 2022 |  | 2021 |  | 2020
(In thousands, except rates) |  | Amount |  | Rate |  | Amount |  | Rate |  | Amount |  | Rate
Statutory tax rate |  | $ | 23,902 |  |  | 21.0 | % |  | $ | 31,294 |  |  | 21.0 | % |  | $ | (111,936) |  |  | 21.0 | %
Increase (decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State taxes, net of federal tax benefit |  | 4,459 |  |  | 3.9 |  |  | 6,077 |  |  | 4.1 |  |  | (1,589) |  |  | 0.3 |
Tax exempt income - investments, net |  | (3,515) |  |  | (3.1) |  |  | (3,475) |  |  | (2.3) |  |  | (3,184) |  |  | 0.6 |
Bank-owned life insurance |  | (1,258) |  |  | (1.1) |  |  | (1,348) |  |  | (0.9) |  |  | (1,283) |  |  | 0.3 |
Goodwill impairment |  | — |  |  |  |  | — |  |  | — |  |  | 103,912 |  |  | (19.5) |
Tax credits, net of basis reduction |  | (2,129) |  |  | (1.9) |  |  | (2,881) |  |  | (1.9) |  |  | (1,812) |  |  | 0.3 |
Change in valuation allowance |  | — |  |  | — |  |  | 200 |  |  | 0.1 |  |  | — |  |  | — |
Tax rate benefit on net operating loss carryback |  | — |  |  | — |  |  | (493) |  |  | (0.3) |  |  | (6,040) |  |  | 1.1 |
Other, net |  | (174) |  |  | (0.1) |  |  | 983 |  |  | 0.6 |  |  | 2,079 |  |  | (0.4) |
Effective tax rate |  | $ | 21,285 |  |  | 18.7 | % |  | $ | 30,357 |  |  | 20.4 | % |  | $ | (19,853) |  |  | 3.7 | %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Tax Assets and Liabilities
As of December 31, 2022 and 2021, significant components of the Company’s deferred tax assets and liabilities were, as follows:

(In thousands) |  | 2022 |  | 2021
Deferred tax assets: |  |  |  |
Allowance for credit losses |  | $ | 28,312 |  |  | $ | 30,441 |
Unrealized capital loss on tax credit investments |  | 1,603 |  |  | 1,451 |
Net unrealized loss on securities available for sale, swaps, and pension in OCI |  | 63,335 |  |  | 1,085 |
Employee benefit plans |  | 11,659 |  |  | 8,435 |
Purchase accounting adjustments |  | 4,342 |  |  | 4,829 |
Net operating loss carryforwards |  | 503 |  |  | 1,139 |
Deferred loan fees |  | 4,049 |  |  | 2,449 |
Lease liability |  | 14,148 |  |  | 14,940 |
Premises and equipment |  | 2,630 |  |  | 1,850 |
Nonaccrual interest |  | 1,069 |  |  | 1,722 |
Intangible amortization |  | 659 |  |  | — |
Other |  | 1,778 |  |  | 1,845 |
Deferred tax assets, net before valuation allowances |  | 134,087 |  |  | 70,186 |
Valuation allowance |  | (400) |  |  | (400) |
Deferred tax assets, net of valuation allowances |  | $ | 133,687 |  |  | $ | 69,786 |
Deferred tax liabilities: |  |  |  |
Loan servicing rights |  | $ | (1,212) |  |  | $ | (1,488) |
Intangible amortization |  | — |  |  | (545) |
Unamortized tax credit reserve |  | (1,687) |  |  | (1,075) |
Right-of-use asset |  | (12,457) |  |  | (14,058) |
Deferred tax liabilities |  | $ | (15,356) |  |  | $ | (17,166) |
Deferred tax assets, net |  | $ | 118,331 |  |  | $ | 52,620 |

The Company’s net deferred tax asset increased by $65.7 million during 2022 and $62.3 million of this change is related to unrealized losses in OCI.
Deferred tax assets, net of valuation allowances, are expected to be realized through the reversal of existing taxable temporary differences and future taxable income.
Valuation Allowances
The components of the Company’s valuation allowance on its deferred tax asset, net as of December 31, 2022 and 2021 were, as follows:

(in thousands) |  | 2022 |  | 2021
State valuation allowances |  | $ | (400) |  |  | $ | (400) |

The state tax basis difference, net of Federal benefit, was originally recorded in 2012, due to management’s assessment that it is more likely than not that certain deferred tax assets recorded for the difference between the book basis and the state tax basis in certain tax credit limited partnership investments (LPs) will not be realized. Management anticipates that the remaining excess state tax basis will be realized as a capital loss upon disposition, and that it is unlikely that the Company will have capital gains against which to offset such capital losses.
The valuation allowance as of December 31, 2022 is subject to change in the future as the Company continues to periodically assess the likelihood of realizing its deferred tax assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax Attributes
At December 31, 2022, the Company has $1.5 million of federal net operating loss carryforwards, the utilization of which are limited under Internal Revenue Code Section 382. These net operating losses begin to expire in 2029. The related deferred tax asset is $315 thousand.
State net operating loss carryforwards, net of valuation allowance described above, are expected to be utilized in the future and begin to expire in 2023. The related gross deferred tax asset is $188 thousand.
Unrecognized Tax Benefits
On a periodic basis, the Company evaluates its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of taxing authorities’ current examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment in relation to uncertain tax positions.
The following table presents changes in unrecognized tax benefits for the years ended December 31, 2022, 2021, and 2020:

(In thousands) |  | 2022 |  | 2021 |  | 2020
Unrecognized tax benefits at January 1 |  | $ | 1,025 |  |  | $ | 516 |  |  | $ | 238 |
Increase in gross amounts of tax positions related to prior years |  | 17 |  |  | 509 |  |  | 309 |
Decrease in gross amounts of tax positions related to prior years |  | — |  |  | — |  |  | — |
Decrease due to settlement with taxing authority |  | — |  |  | — |  |  | — |
Decrease due to lapse in statute of limitations |  | — |  |  | — |  |  | (31) |
Unrecognized tax benefits at December 31 |  | $ | 1,042 |  |  | $ | 1,025 |  |  | $ | 516 |

It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes.The Company does not expect any significant changes in unrecognized tax benefits during the next twelve months.
All of the Company’s unrecognized tax benefits, if recognized, would be recorded as a component of income tax expense, therefore, affecting the effective tax rate. The Company recognizes interest and penalties, if any, related to the liability for uncertain tax positions as a component of income tax expense. The accrual for interest and penalties was not material for all years presented.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as in various states. In the normal course of business, the Company is subject to U.S. federal, state, and local income tax examinations by tax authorities. Other than open statutes of limitation pertaining specifically to the amended returns filed for 2015 through 2018 to claim NOL carryback refunds, the Company is no longer subject to examination for tax years prior to 2019 including any related income tax filings from its recent acquisitions. The Company is not under audit in any jurisdiction as of December 31, 2022.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
At year-end 2022, the Company held derivatives with a total notional amount of $4.5 billion. That amount included $0.6 billion in interest rate swap derivatives and $0.2 billion in interest rate collars that were designated as cash flow hedges for accounting purposes. The Company had economic hedges and non-hedging derivatives totaling $3.7 billion and $4.1 million, respectively, which are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling $3.4 billion, risk participation agreements with dealer banks of $341.9 million, and $0.9 million in forward commitment contracts.
As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management, Capital and Compliance Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at December 31, 2022.
The Company had no pledged collateral to derivative counterparties in the form of cash at year-end 2022. The Company had pledged securities to derivative counterparties with an amortized cost of $12.0 million and a fair value of $12.0 million at year-end 2022. At December 31, 2021, the Company pledged cash collateral of $43.7 million and securities with an amortized cost of $34.8 million and a fair value of $34.9 million. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about interest rate swap agreements and non-hedging derivative assets and liabilities at December 31, 2022 follows:

|  | Notional Amount |  | Weighted Average Maturity |  | Weighted Average Rate |  | Estimated Fair Value Asset (Liability)
December 31, 2022 |  |  |  | Received |  | Contract pay rate |
|  | (In thousands) |  | (In years) |  |  |  |  |  | (In thousands)
Cash flow hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swaps on commercial loans (1) |  | $ | 400,000 |  |  | 2.7 |  | 4.09 | % |  | 3.51 | % |  | $ | — |
Forward-starting interest rate swaps on commercial loans (1) |  | 200,000 |  |  | 3.3 |  | — | % |  | 3.90 | % |  | — |
Interest rate collars on commercial loans |  | 200,000 |  |  | 3.5 |  |  |  |  |  | 1,937 |
Total cash flow hedges |  | 800,000 |  |  |  |  |  |  |  |  | 1,937 |
Economic hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swap on tax advantaged economic development bond |  | $ | 7,062 |  |  | 6.9 |  | 4.49 | % |  | 5.09 | % |  | $ | (193) |
Interest rate swaps on loans with commercial loan customers (1) |  | 1,685,263 |  |  | 5.7 |  | 4.11 | % |  | 5.55 | % |  | (95,114) |
Reverse interest rate swaps on loans with commercial loan customers (1) |  | 1,685,263 |  |  | 5.7 |  | 5.55 | % |  | 4.11 | % |  | 50,267 |
Risk participation agreements with dealer banks |  | 341,885 |  |  | 6.6 |  |  |  |  |  | (89) |
Forward sale commitments |  | 927 |  |  | 0.2 |  |  |  |  |  | 8 |
Total economic hedges |  | 3,720,400 |  |  |  |  |  |  |  |  | (45,121) |
Non-hedging derivatives: |  |  |  |  |  |  |  |  |  |
Commitments to lend |  | 4,114 |  |  | 0.2 |  |  |  |  |  | 17 |
Total non-hedging derivatives |  | 4,114 |  |  |  |  |  |  |  |  | 17 |
Total |  | $ | 4,524,514 |  |  |  |  |  |  |  |  | $ | (43,167) |

(1) Fair value estimates include the impact of $38.3 million settled to market contract agreements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about interest rate swap agreements and non-hedging derivative asset and liabilities at December 31, 2021 follows:

|  | Notional Amount |  | Weighted Average Maturity |  | Weighted Average Rate |  | Estimated Fair Value Asset (Liability)
December 31, 2021 |  |  |  | Received |  | Contract pay rate |
|  | (In thousands) |  | (In years) |  |  |  |  |  | (In thousands)
Economic hedges: |  |  |  |  |  |  |  |  |  |
Interest rate swap on tax advantaged economic development bond |  | $ | 7,879 |  |  | 7.9 |  | 0.47 | % |  | 5.09 | % |  | $ | (1,158) |
Interest rate swaps on loans with commercial loan customers |  | 1,684,238 |  |  | 5.8 |  | 3.99 | % |  | 1.91 | % |  | 74,348 |
Reverse interest rate swaps on loans with commercial loan customers (1) |  | 1,684,238 |  |  | 5.8 |  | 1.91 | % |  | 3.99 | % |  | (30,454) |
Risk participation agreements with dealer banks |  | 320,981 |  |  | 5.8 |  |  |  |  |  | 432 |
Forward sale commitments |  | 6,377 |  |  | 0.2 |  |  |  |  |  | 134 |
Total economic hedges |  | 3,703,713 |  |  |  |  |  |  |  |  | 43,302 |
Non-hedging derivatives: |  |  |  |  |  |  |  |  |  |
Commitments to lend |  | 8,192 |  |  | 0.2 |  |  |  |  |  | 124 |
Total non-hedging derivatives |  | 8,192 |  |  |  |  |  |  |  |  | 124 |
Total |  | $ | 3,711,905 |  |  |  |  |  |  |  |  | $ | 43,426 |

(1) Fair value estimates include the impact of $45.7 million settled to market contract agreements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flow hedges
The effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges is reported in other comprehensive (loss)/income and subsequently reclassified to earnings in the same period or periods during which the hedged transaction is forecasted to affect earnings. Each quarter, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The ineffective portion of changes in the fair value of the derivatives is recognized directly in earnings. All cash flow hedges are considered highly effective.
The Company has designated its interest rate collars as cash flow hedges. The structure of these instruments is such that the Company pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, the Company receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates.
As of December 31, 2022, the Company had six interest rate swap contracts and two forward-starting interest rate swap contracts with a combined notional value of $600.0 million. The two forward starting swaps will become effective in 2023. The interest rate swaps have durations of two to four years. This hedge strategy converts commercial variable rate loans to fixed interest rates, thereby protecting the Company from floating interest rate variability.
In December 2022, the Company entered into two interest rate collars. The first interest rate collar has a 3.00% floor and a 5.75% cap with a notional value of $100.0 million. The second interest rate collar has a 3.25% floor and a 5.75% cap with a notional value of $100.0 million. The interest rate collars have durations of three to four years. The structure of these instruments is such that the Company pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, the Company receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates.
Amounts included in the Consolidated Statements of Operations and in the other comprehensive (loss)/income section of the Consolidated Statements of Comprehensive (Loss)/Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:

| Years Ended December 31,
(In thousands) | 2022 |  | 2021 |  | 2020
Interest rate swaps and collars on commercial loans: |  |  |  |  |
Unrealized (loss) recognized in accumulated other comprehensive loss | $ | (6,667) |  |  | $ | — |  |  | $ | — |
Less: Reclassification of unrealized (loss) from accumulated other comprehensive loss to interest expense | — |  |  | — |  |  | — |
Net tax benefit on items recognized in accumulated other comprehensive income | 1,789 |  |  | — |  |  | — |
Other comprehensive loss recorded in accumulated other comprehensive (loss)/income, net of reclassification adjustments and tax effects | $ | (4,878) |  |  | $ | — |  |  | $ | — |
Net interest expense recognized in interest expense on hedged commercial loans | $ | (15) |  |  | $ | — |  |  | $ | — |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of December 31, 2022 the Company has an interest rate swap with a $7.1 million notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of 5.09%, currently within the Company’s trading portfolio under the fair value option, in exchange for a LIBOR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the 21-year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.
The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. There was no credit valuation loss adjustment arising from the difference in credit worthiness of the commercial loan and financial institution counterparties as of December 31, 2022. The interest income and expense on these mirror image swaps exactly offset each other.
The Company has risk participation agreements with dealer banks. Risk participation agreements occur when the Company participates on a loan and a swap where another bank is the lead. The Company earns a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default.
The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans held for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings.
The company uses the following types of forward sale commitments contracts:
•Best efforts loan sales,
•Mandatory delivery loan sales, and
•To be announced (TBA) mortgage-backed securities sales.
A best efforts contract refers to a loan sales agreement where the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. The Company may enter into a best efforts contract once the price is known, which is shortly after the potential borrower’s interest rate is locked.
A mandatory delivery contract is a loan sales agreement where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.
The Company may sell to-be-announced mortgage-backed securities to hedge the changes in fair value of interest rate lock commitments and held for sale loans, which do not have corresponding best efforts or mandatory delivery contracts. These security sales transactions are closed once mandatory contracts are written. On the closing date the price of the security is locked-in, and the sale is paired-off with a purchase of the same security. Settlement of the security purchase/sale transaction is done with cash on a net-basis.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-hedging derivatives
The Company enters into commitments to lend for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. Commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding commitments expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The commitments are free-standing derivatives which are carried at fair value with changes recorded in non-interest income in the Company’s Consolidated Statements of Operations. Changes in the fair value of commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
Amounts included in the Consolidated Statements of Operations related to economic hedges and non-hedging derivatives were as follows:

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Economic hedges |  |  |  |  |  |
Interest rate swap on industrial revenue bond: |  |  |  |  |  |
Unrealized gain/(loss) recognized in other non-interest income |  | $ | 941 |  |  | $ | 619 |  |  | $ | (289) |
Interest rate swaps on loans with commercial loan customers: |  |  |  |  |  |
Unrealized (loss)/gain recognized in other non-interest income |  | (171,272) |  |  | (86,099) |  |  | 85,206 |
Favorable/(unfavorable) change in credit valuation adjustment recognized in other non-interest income |  | 1,809 |  |  | 1,431 |  |  | (1,516) |
Reverse interest rate swaps on loans with commercial loan customers: |  |  |  |  |  |
Unrealized gain/(loss) recognized in other non-interest income |  | 171,272 |  |  | 86,099 |  |  | (85,206) |
Risk Participation Agreements: |  |  |  |  |  |
Unrealized (loss)/gain recognized in other non-interest income |  | (521) |  |  | (233) |  |  | 345 |
Forward Commitments: |  |  |  |  |  |
Unrealized (loss)/gain recognized in other non-interest income |  | (126) |  |  | (186) |  |  | — |
Unrealized (loss)/gain recognized in discontinued operations |  | — |  |  | — |  |  | 547 |
Realized (loss) in discontinued operations |  | — |  |  | — |  |  | (8,205) |
Non-hedging derivatives |  |  |  |  |  |
Commitments to lend: |  |  |  |  |  |
Unrealized (loss) recognized in other non-interest income |  | $ | (107) |  |  | $ | (611) |  |  | $ | — |
Unrealized (loss) recognized in discontinued operations |  | — |  |  | — |  |  | (1,893) |
Realized gain in other non-interest income |  | 462 |  |  | 2,854 |  |  | — |
Realized gain in discontinued operations |  | — |  |  | — |  |  | 15,672 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Subject to Enforceable Master Netting Arrangements
Interest Rate Swap Agreements (“Swap Agreements”)
The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s Consolidated Balance Sheets. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.
The Company had net asset positions with its financial institution counterparties totaling $51.2 million and $2.2 million as of December 31, 2022 and December 31, 2021, respectively. The Company had net asset positions with its commercial banking counterparties totaling $1.0 million and $76.8 million as of December 31, 2022 and December 31, 2021, respectively.
The Company had net liability positions with its financial institution counterparties totaling $1.2 million and $33.3 million as of December 31, 2022 and December 31, 2021, respectively. The Company had net liability positions with its commercial banking counterparties totaling $96.1 million and $2.5 million as of December 31, 2022 and December 31, 2021, respectively. The Company has collateral pledged to cover this liability.
The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of December 31, 2022 and December 31, 2021:
Offsetting of Financial Assets and Derivative Assets

|  | Gross Amounts of Recognized Assets |  | Gross Amounts Offset in the Statements of Condition |  | Net Amounts of Assets Presented in the Statements of Condition |  | Gross Amounts Not Offset in the Statements of Condition |  |
|  |  |  |  | Financial Instruments |  | Cash Collateral Received |  |
(in thousands) |  |  |  |  |  |  | Net Amount
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreements:
Institutional counterparties |  | $ | 96,295 |  |  | $ | (45,046) |  |  | $ | 51,249 |  |  | $ | — |  |  | $ | — |  |  | $ | 51,249 |
Commercial counterparties |  | 975 |  |  | — |  |  | 975 |  |  | — |  |  | — |  |  | 975 |
Total |  | $ | 97,270 |  |  | $ | (45,046) |  |  | $ | 52,224 |  |  | $ | — |  |  | $ | — |  |  | $ | 52,224 |

Offsetting of Financial Liabilities and Derivative Liabilities

|  | Gross Amounts of Recognized Liabilities |  | Gross Amounts Offset in the Statements of Condition |  | Net Amounts of Liabilities Presented in the Statement of Condition |  | Gross Amounts Not Offset in the Statements of Condition |  |
|  |  |  |  | Financial Instruments |  | Cash Collateral Received |  |
(in thousands) |  |  |  |  |  |  | Net Amount
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreements:
Institutional counterparties |  | $ | (1,271) |  |  | $ | 36 |  |  | $ | (1,235) |  |  | $ | 11,973 |  |  | $ | — |  |  | $ | 10,738 |
Commercial counterparties |  | (102,595) |  |  | 6,507 |  |  | (96,088) |  |  | — |  |  | — |  |  | (96,088) |
Total |  | $ | (103,866) |  |  | $ | 6,543 |  |  | $ | (97,323) |  |  | $ | 11,973 |  |  | $ | — |  |  | $ | (85,350) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Offsetting of Financial Assets and Derivative Assets

|  | Gross Amounts of Recognized Assets |  | Gross Amounts Offset in the Statements of Condition |  | Net Amounts of Assets Presented in the Statements of Condition |  | Gross Amounts Not Offset in the Statements of Condition |  |
|  |  |  |  | Financial Instruments |  | Cash Collateral Received |  |
(in thousands) |  |  |  |  |  |  | Net Amount
As of December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreements:
Institutional counterparties |  | $ | 2,223 |  |  | $ | (75) |  |  | $ | 2,148 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,148 |
Commercial counterparties |  | 76,809 |  |  | — |  |  | 76,809 |  |  | — |  |  | — |  |  | 76,809 |
Total |  | $ | 79,032 |  |  | $ | (75) |  |  | $ | 78,957 |  |  | $ | — |  |  | $ | — |  |  | $ | 78,957 |

Offsetting of Financial Liabilities and Derivative Liabilities

|  | Gross Amounts of Recognized Liabilities |  | Gross Amounts Offset in the Statements of Condition |  | Net Amounts of Liabilities Presented in the Statement of Condition |  | Gross Amounts Not Offset in the Statements of Condition |  |
|  |  |  |  | Financial Instruments | Cash Collateral Received |  |
(in thousands) |  |  |  |  |  | Net Amount
As of December 31, 2021 |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreements:
Institutional counterparties |  | $ | (78,146) |  |  | $ | 44,814 |  |  | $ | (33,332) |  |  | $ | 34,896 |  | $ | 43,694 |  |  | $ | 45,258 |
Commercial counterparties |  | (2,461) |  |  | — |  |  | (2,461) |  |  | — |  | — |  |  | (2,461) |
Total |  | $ | (80,607) |  |  | $ | 44,814 |  |  | $ | (35,793) |  |  | $ | 34,896 |  | $ | 43,694 |  |  | $ | 42,797 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. LEASES
Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space. Most of the Company’s leases are classified as operating leases. At December 31, 2022 lease expiration dates ranged from 1 month to 17 years.
The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:

(In thousands) |  |  |  | December 31, 2022 |  | December 31, 2021
Lease Right-of-Use Assets |  | Classification |  |  |  |
Operating lease right-of-use assets |  | Other assets |  | $ | 46,411 |  |  | $ | 52,180 |
Finance lease right-of-use assets |  | Premises and equipment, net |  | 6,151 |  |  | 6,674 |
Total Lease Right-of-Use Assets |  |  |  | $ | 52,562 |  |  | $ | 58,854 |
Lease Liabilities |  |  |  |  |  |
Operating lease liabilities |  | Other liabilities |  | $ | 53,736 |  |  | $ | 55,674 |
Finance lease liabilities |  | Other liabilities |  | 9,306 |  |  | 9,862 |
Total Lease Liabilities |  |  |  | $ | 63,042 |  |  | $ | 65,536 |

Supplemental information related to leases was as follows:

| December 31, 2022 |  | December 31, 2021
Weighted-Average Remaining Lease Term (in years) |  |  |
Operating leases | 9.3 |  | 9.5
Finance leases | 11.8 |  | 12.8
Weighted-Average Discount Rate |  |  |
Operating leases | 2.56 | % |  | 2.77 | %
Finance leases | 5.00 | % |  | 5.00 | %

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.
The Company does not have any material sub-lease agreements.
Lease expense for operating leases for the year ended December 31, 2022 was $9.7 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
Lease expense for operating leases for the year ended December 31, 2021 was $10.9 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
Lease expense for operating leases for the year ended December 31, 2020 was $13.5 million, of which $1.2 million was related to FCLS and is reported as discontinued operations. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:

(In thousands) |  | December 31, 2022 |  | December 31, 2021 |  | December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
Operating cash flows from operating leases |  | $ | 9,438 |  |  | $ | 10,897 |  |  | $ | 13,750 |
Operating cash flows from finance leases |  | 476 |  |  | 503 |  |  | 530 |
Financing cash flows from finance leases |  | 555 |  |  | 528 |  |  | 500 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |  |  |
Operating leases |  | 5,730 |  |  | 2,976 |  |  | 7,083 |
Finance leases |  | — |  |  | — |  |  | — |

The following table presents a maturity analysis of the Company’s lease liability by lease classification at December 31, 2022:

(In thousands) |  | Operating Leases |  | Finance Leases
2023 |  | $ | 9,743 |  |  | $ | 1,035 |
2024 |  | 8,225 |  |  | 1,037 |
2025 |  | 6,501 |  |  | 1,037 |
2026 |  | 5,480 |  |  | 1,037 |
2027 |  | 4,713 |  |  | 1,037 |
Thereafter |  | 25,313 |  |  | 7,149 |
Total undiscounted lease payments |  | 59,975 |  |  | 12,332 |
Less amounts representing interest |  | (6,239) |  |  | (3,026) |
Lease liability |  | $ | 53,736 |  |  | $ | 9,306 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES
In March 2020, the World Health Organization declared a novel strain of coronavirus ("COVID-19") a global pandemic and the United States declared a National Public Health Emergency. The impact of the COVID-19 pandemic is fluid and continues to evolve, which is adversely affecting some of the Company’s clients. The continuing impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets, and our clients, employees, and vendors.
The Company’s business, financial condition and results of operations generally rely upon the ability of the Company’s borrowers to repay their loans, the value of collateral underlying the Company’s secured loans, and demand for loans and other products and services the Company offers, which are highly dependent on the business environment in the Company’s primary markets where it operates and in the United States as a whole.
These circumstances could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, results of operations and prospects. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, lease right-of-use assets, or counter-party risk derivatives.
Beginning in March 2020, the Company offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. As of December 31, 2022, the Company had 1 active modified loan outstanding with a carrying value of $12.4 million. As of December 31, 2021, the Company had 19 active modified loans outstanding with a carrying value of $14.4 million, which excluded loans returning to payment or awaiting evaluation for further deferral. The Company continues to accrue interest on these loans during the deferral period. In accordance with interagency guidance issued in March 2020 and Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty. In addition, the risk-ratings on COVID-19 modified loans did not automatically change as a result of payment deferrals, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume. Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act expired on December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Related Financial Instruments. The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit, and interest rate risk in excess of the amount recognized in the accompanying Consolidated Balance Sheets.
The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. A summary of financial instruments outstanding whose contract amounts represent credit risk is as follows at year-end:

(In thousands) |  | 2022 |  | 2021
Commitments to originate new loans |  | $ | 305,474 |  |  | $ | 588,034 |
Unused funds on commercial and other lines of credit |  | 966,523 |  |  | 902,598 |
Unadvanced funds on home equity lines of credit |  | 336,924 |  |  | 334,784 |
Unadvanced funds on construction and real estate loans |  | 694,091 |  |  | 340,336 |
Standby letters of credit |  | 21,387 |  |  | 14,475 |
Total |  | $ | 2,324,399 |  |  | $ | 2,180,227 |

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company considers standby letters of credit to be guarantees and the amount of the recorded liability related to such guarantees was not material at year-end 2022 and 2021.
Employment and Change in Control Agreements. The Company and the Bank have change in control agreements with several officers which provide a severance payment in the event employment is terminated in conjunction with a defined change in control.
Legal Claims. Various legal claims arise from time to time in the normal course of business. As of December 31, 2022, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material, that are not accrued for, to the Company’s financial condition or results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SHAREHOLDERS’ EQUITY AND EARNINGS PER COMMON SHARE
Minimum Regulatory Capital Requirements
The Company and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if imposed, could have a direct material impact on the Company’s Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital to average assets (as defined). As of year-end 2022 and 2021, the Bank and the Company met the capital adequacy requirements. Regulators may set higher expected capital requirements in some cases based on their examinations.
At December 31, 2022, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels. The capital levels of both the Company and the Bank at December 31, 2022 also exceeded the minimum capital requirements including the currently applicable BASEL III capital conservation buffer of 1.875%.
As of year-end 2022 and 2021, the Bank met the conditions to be classified as “well capitalized” under the relevant regulatory framework. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following tables.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company and Bank’s actual and required capital amounts were as follows:

|  |  |  |  |  | Minimum Capital Requirement
|  | Actual |
(Dollars in thousands) |  | Amount |  | Ratio |  | Amount |  | Ratio
December 31, 2022 |  |  |  |  |  |  |  |
Company (Consolidated) |  |  |  |  |  |  |  |
Total capital to risk-weighted assets |  | $ | 1,336,029 |  |  | 14.60 | % |  | $ | 732,070 |  |  | 8.00 | %
Common Equity Tier 1 Capital to risk weighted assets |  | 1,130,522 |  |  | 12.35 |  |  | 411,789 |  |  | 4.50 |
Tier 1 capital to risk-weighted assets |  | 1,152,808 |  |  | 12.60 |  |  | 549,052 |  |  | 6.00 |
Tier 1 capital to average assets |  | 1,152,808 |  |  | 10.18 |  |  | 366,035 |  |  | 4.00 |
Total risk-weighted assets |  | 9,150,869 |  |  | N/A |  | N/A |  | N/A
December 31, 2021 |  |  |  |  |  |  |  |
Company (Consolidated) |  |  |  |  |  |  |  |
Total capital to risk-weighted assets |  | $ | 1,359,470 |  |  | 17.32 | % |  | $ | 628,026 |  |  | 8.00 | %
Common Equity Tier 1 Capital to risk weighted assets |  | 1,178,497 |  |  | 15.01 |  |  | 353,265 |  |  | 4.50 |
Tier 1 capital to risk-weighted assets |  | 1,200,732 |  |  | 15.30 |  |  | 471,020 |  |  | 6.00 |
Tier 1 capital to average assets |  | 1,200,732 |  |  | 10.49 |  |  | 314,013 |  |  | 4.00 |
Total risk-weighted assets |  | 7,850,331 |  |  | N/A |  | N/A |  | N/A

|  |  |  |  |  | Minimum Capital Requirement |  | Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
|  | Actual |  |
(Dollars in thousands) |  | Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Bank |  |  |  |  |  |  |  |  |  |  |  |
Total capital to risk-weighted assets |  | $ | 1,239,722 |  |  | 13.56 | % |  | $ | 731,259 |  |  | 8.00 | % |  | $ | 914,074 |  |  | 10.00 | %
Common Equity Tier 1 Capital to risk weighted assets |  | 1,155,280 |  |  | 12.64 |  |  | 411,333 |  |  | 4.50 |  |  | 594,148 |  |  | 6.50 |
Tier 1 capital to risk-weighted assets |  | 1,155,280 |  |  | 12.64 |  |  | 548,444 |  |  | 6.00 |  |  | 731,259 |  |  | 8.00 |
Tier 1 capital to average assets |  | 1,155,280 |  |  | 10.20 |  |  | 365,629 |  |  | 4.00 |  |  | 457,037 |  |  | 5.00 |
Total risk-weighted assets |  | 9,140,737 |  |  | N/A |  | N/A |  | N/A |  | N/A |  | N/A
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Bank |  |  |  |  |  |  |  |  |  |  |  |
Total capital to risk-weighted assets |  | $ | 1,244,604 |  |  | 15.87 | % |  | $ | 627,478 |  |  | 8.00 | % |  | $ | 784,348 |  |  | 10.00 | %
Common Equity Tier 1 Capital to risk weighted assets |  | 1,160,458 |  |  | 14.80 |  |  | 352,956 |  |  | 4.50 |  |  | 509,826 |  |  | 6.50 |
Tier 1 capital to risk-weighted assets |  | 1,160,458 |  |  | 14.80 |  |  | 470,609 |  |  | 6.00 |  |  | 627,478 |  |  | 8.00 |
Tier 1 capital to average assets |  | 1,160,458 |  |  | 10.13 |  |  | 313,739 |  |  | 4.00 |  |  | 392,174 |  |  | 5.00 |
Total risk-weighted assets |  | 7,843,477 |  |  | N/A |  | N/A |  | N/A |  | N/A |  | N/A

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common stock
The Bank is subject to dividend restrictions imposed by various regulators, including a limitation on the total of all dividends that the Bank may pay to the Company in any calendar year. The total of all dividends shall not exceed the Bank’s net income for the current year (as defined by statute), plus the Bank’s net income retained for the two previous years, without regulatory approval. Dividends from the Bank are an important source of funds to the Company to make dividend payments on its common and preferred stock, to make payments on its borrowings, and for its other cash needs. The ability of the Company and the Bank to pay dividends is dependent on regulatory policies and regulatory capital requirements. The ability to pay such dividends in the future may be adversely affected by new legislation or regulations, or by changes in regulatory policies relating to capital, safety and soundness, and other regulatory concerns.
The payment of dividends by the Company is subject to Delaware law, which generally limits dividends to an amount equal to an excess of the net assets of a company (the amount by which total assets exceed total liabilities) over statutory capital, or if there is no excess, to the Company’s net profits for the current and/or immediately preceding fiscal year.
Accumulated other comprehensive income
Year-end components of accumulated other comprehensive (loss)/income are as follows:

(In thousands) |  | 2022 |  | 2021
Other accumulated comprehensive (loss), before tax: |  |  |  |
Net unrealized holding (loss) on AFS securities |  | $ | (236,887) |  |  | $ | (1,806) |
Net (loss) on effective cash flow hedging derivatives |  | (6,667) |  |  | — |
Net unrealized holding (loss) on pension plans |  | (844) |  |  | (2,518) |
Income taxes related to items of accumulated other comprehensive (loss)/income: |  |  |  |
Net unrealized holding loss on AFS securities |  | 61,329 |  |  | 407 |
Net loss on effective cash flow hedging derivatives |  | 1,789 |  |  | — |
Net unrealized holding loss on pension plans |  | 228 |  |  | 674 |
Accumulated other comprehensive (loss) |  | $ | (181,052) |  |  | $ | (3,243) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the components of other comprehensive (loss)/income for the years ended December 31, 2022, 2021, and 2020:

(In thousands) |  | Before Tax |  | Tax Effect |  | Net of Tax
Year Ended December 31, 2022 |  |  |  |  |  |
Net unrealized holding (loss) on AFS securities: |  |  |  |  |  |
Net unrealized (loss) arising during the period |  | $ | (235,075) |  |  | $ | 60,920 |  |  | $ | (174,155) |
Less: reclassification adjustment for (losses) realized in net income |  | 6 |  |  | (2) |  |  | 4 |
Net unrealized holding (loss) on AFS securities |  | (235,081) |  |  | 60,922 |  |  | (174,159) |
Net loss on cash flow hedging derivatives: |  |  |  |  |  |
Net unrealized gain arising during the period |  | (6,667) |  |  | 1,789 |  |  | (4,878) |
Less: reclassification adjustment for (losses) realized in net income |  | — |  |  | — |  |  | — |
Net (loss) on cash flow hedging derivatives |  | (6,667) |  |  | 1,789 |  |  | (4,878) |
Net unrealized holding (loss) on pension plans |  |  |  |  |  |
Net unrealized gain arising during the period |  | 1,674 |  |  | (446) |  |  | 1,228 |
Less: reclassification adjustment for (losses) realized in net income |  | — |  |  | — |  |  | — |
Net unrealized holding (loss) on pension plans |  | 1,674 |  |  | (446) |  |  | 1,228 |
Other comprehensive loss |  | $ | (240,074) |  |  | $ | 62,265 |  |  | $ | (177,809) |

(In thousands) |  | Before Tax |  | Tax Effect |  | Net of Tax
Year Ended December 31, 2021 |  |  |  |  |  |
Net unrealized holding (loss) on AFS securities: |  |  |  |  |  |
Net unrealized (loss) arising during the period |  | $ | (46,794) |  |  | $ | 11,937 |  |  | $ | (34,857) |
Less: reclassification adjustment for gains realized in net income |  | — |  |  | — |  |  | — |
Net unrealized holding (loss) on AFS securities |  | (46,794) |  |  | 11,937 |  |  | (34,857) |
Net unrealized holding (loss) on pension plans |  |  |  |  |  |
Net unrealized (loss) arising during the period |  | 993 |  |  | (250) |  |  | 743 |
Less: reclassification adjustment for (losses) realized in net income |  | — |  |  | — |  |  | — |
Net unrealized holding (loss) on pension plans |  | 993 |  |  | (250) |  |  | 743 |
Other comprehensive (loss) |  | $ | (45,801) |  |  | $ | 11,687 |  |  | $ | (34,114) |

(In thousands) |  | Before Tax |  | Tax Effect |  | Net of Tax
Year Ended December 31, 2020 |  |  |  |  |  |
Net unrealized holding gain on AFS securities: |  |  |  |  |  |
Net unrealized gain arising during the period |  | $ | 25,721 |  |  | $ | (6,470) |  |  | $ | 19,251 |
Less: reclassification adjustment for gains realized in net income |  | (5) |  |  | 1 |  |  | (4) |
Net unrealized holding gain on AFS securities |  | 25,726 |  |  | (6,471) |  |  | 19,255 |
Net unrealized holding (loss) on pension plans |  |  |  |  |  |
Net unrealized (loss) arising during the period |  | (489) |  |  | 112 |  |  | (377) |
Less: reclassification adjustment for (losses) realized in net income |  | — |  |  | — |  |  | — |
Net unrealized holding loss on pension plans |  | (489) |  |  | 112 |  |  | (377) |
Other comprehensive income |  | $ | 25,237 |  |  | $ | (6,359) |  |  | $ | 18,878 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive (loss)/income, for the years ended December 31, 2022, 2021, and 2020:

(in thousands) |  | Net unrealized holding gain (loss) on AFS Securities |  | Net loss on effective cash flow hedging derivatives |  |  |  | Net unrealized holding gain (loss) on pension plans |  | Total
Year Ended December 31, 2022 |  |  |  |  |  |  |  |  |  |
Balance at Beginning of Year |  | $ | (1,398) |  |  | $ | — |  |  |  |  | $ | (1,845) |  |  | $ | (3,243) |
Other comprehensive (loss)/income before reclassifications |  | (174,155) |  |  | (4,878) |  |  |  |  | 1,228 |  |  | (177,805) |
Amounts reclassified from accumulated other comprehensive income |  | 4 |  |  | — |  |  |  |  | — |  |  | 4 |
Total other comprehensive (loss)/income |  | (174,159) |  |  | (4,878) |  |  |  |  | 1,228 |  |  | (177,809) |
Balance at End of Period |  | $ | (175,557) |  |  | $ | (4,878) |  |  |  |  | $ | (617) |  |  | $ | (181,052) |
Year Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |
Balance at Beginning of Year |  | $ | 33,459 |  |  | $ | — |  |  |  |  | $ | (2,588) |  |  | $ | 30,871 |
Other comprehensive income/(loss)/income before reclassifications |  | (34,857) |  |  | — |  |  |  |  | 743 |  |  | (34,114) |
Amounts reclassified from accumulated other comprehensive income |  | — |  |  | — |  |  |  |  | — |  |  | — |
Total other comprehensive (loss)/income |  | (34,857) |  |  | — |  |  |  |  | 743 |  |  | (34,114) |
Balance at End of Period |  | $ | (1,398) |  |  | $ | — |  |  |  |  | $ | (1,845) |  |  | $ | (3,243) |
Year Ended December 31, 2020 |  |  |  |  |  |  |  |  |  |
Balance at Beginning of Year |  | $ | 14,204 |  |  | $ | — |  |  |  |  | $ | (2,211) |  |  | $ | 11,993 |
Other comprehensive income/(loss) before reclassifications |  | 19,251 |  |  | — |  |  |  |  | (377) |  |  | 18,874 |
Amounts reclassified from accumulated other comprehensive income |  | (4) |  |  | — |  |  |  |  | — |  |  | (4) |
Total other comprehensive income/(loss) |  | 19,255 |  |  | — |  |  |  |  | (377) |  |  | 18,878 |
Balance at End of Period |  | $ | 33,459 |  |  | $ | — |  |  |  |  | $ | (2,588) |  |  | $ | 30,871 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss)/income for the years ended December 31, 2022, 2021, and 2020:

|  |  |  |  |  |  |  | Affected Line Item in the Statement Where Net Income Is Presented
|  | Years Ended December 31, |
(in thousands) |  | 2022 |  | 2021 |  | 2020 |
Realized gains/(losses) on AFS securities:
|  | $ | 6 |  |  | $ | — |  |  | $ | (5) |  |  | Non-interest income
|  | (2) |  |  | — |  |  | 1 |  |  | Tax expense
|  | 4 |  |  | — |  |  | (4) |  |  |
Realized (losses) on cash flow hedging derivatives:
|  | — |  |  | — |  |  | — |  |  | Interest expense
|  | — |  |  | — |  |  | — |  |  | Non-interest income
|  | — |  |  | — |  |  | — |  |  | Non-interest expense
|  | — |  |  | — |  |  | — |  |  | Tax benefit
|  | — |  |  | — |  |  | — |  |  |
Realized (losses) on pension plans: |  |  |  |  |  |  |  |
|  | — |  |  | — |  |  | — |  |  | Non-interest expense
|  | — |  |  | — |  |  | — |  |  | Tax expense
|  | — |  |  | — |  |  | — |  |  |
Total reclassifications for the period |  | $ | 4 |  |  | $ | — |  |  | $ | (4) |  |  |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings/(Loss) Per Common Share
Basic earnings/(loss) per common share (“EPS”) excludes dilution and is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding for the year, plus an incremental number of common-equivalent shares computed using the treasury stock method.
Earnings/(loss) per common share has been computed based on the following (average diluted shares outstanding is calculated using the treasury stock method):

|  | Years Ended December 31,
(In thousands, except per share data) |  | 2022 |  | 2021 |  | 2020
Net income/(loss) from continuing operations |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (513,175) |
Net (loss) from discontinued operations |  | — |  |  | — |  |  | (19,842) |
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |
Average number of common shares issued |  | 51,903 |  |  | 51,903 |  |  | 51,903 |
Less: average number of treasury shares |  | 5,577 |  |  | 1,951 |  |  | 1,569 |
Less: average number of unvested stock award shares |  | 762 |  |  | 712 |  |  | 505 |
Plus: average participating preferred shares |  | — |  |  | — |  |  | 441 |
Average number of basic common shares outstanding |  | 45,564 |  |  | 49,240 |  |  | 50,270 |
Plus: dilutive effect of unvested stock award shares |  | 345 |  |  | 309 |  |  | — |
Plus: dilutive effect of stock options outstanding |  | 5 |  |  | 5 |  |  | — |
Average number of diluted common shares outstanding |  | 45,914 |  |  | 49,554 |  |  | 50,270 |
Basic earnings/(loss) per share: |  |  |  |  |  |
Continuing Operations |  | $ | 2.03 |  |  | $ | 2.41 |  |  | $ | (10.21) |
Discontinued operations |  | — |  |  | — |  |  | (0.39) |
Basic earnings/(loss) per common share |  | $ | 2.03 |  |  | $ | 2.41 |  |  | $ | (10.60) |
Diluted earnings/(loss) per share: |  |  |  |  |  |
Continuing Operations |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.21) |
Discontinued operations |  | — |  |  | — |  |  | (0.39) |
Diluted earnings/(loss) per common share |  | $ | 2.02 |  |  | $ | 2.39 |  |  | $ | (10.60) |

For the year ended 2022, 64 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations.For the year ended 2021, 88 thousand options were anti-dilutive and therefore excluded from the earnings per share calculations. Due to the net loss in 2020, all unvested restricted stock and options were considered anti-dilutive and therefore excluded from the earnings per share calculations.
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NOTE 19. STOCK-BASED COMPENSATION PLANS
The 2022 Equity Incentive Plan (the “2022 Plan”) permits the granting of a combination of Restricted Stock awards and incentive and non-qualified stock options (“Stock Options”) to employees and directors. A total of 1.2 million shares was authorized under the Plan. Awards may be granted as either Restricted Stock or Stock Options provided that any shares that are granted as Restricted Stock are counted against the share limit set forth as (1) one for every one share of Restricted Stock granted and (2) one for every one share of Stock Option granted. As of the 2022 Plan's effective date, all expired, canceled, and forfeited shares under the 2018 Plan are included in the 2022 Plan's available shares. As of year-end 2022, the Company had the ability to grant approximately 1.5 million shares under this plan.
A summary of activity in the Company’s stock compensation plans is shown below:

|  | Non-vested Stock Awards Outstanding |  | Stock Options Outstanding
(Shares in thousands) |  | Number of Shares |  | Weighted- Average Grant Date Fair Value |  | Number of Shares |  | Weighted- Average Exercise Price
Balance, December 31, 2021 |  | 710 |  |  | $ | 20.16 |  |  | 80 |  |  | $ | 25.21 |
Granted |  | 328 |  |  | 28.75 |  |  | — |  |  | — |
Acquired |  | — |  |  | — |  |  | — |  |  | — |
Stock options exercised |  | — |  |  | — |  |  | (12) |  |  | 22.97 |
Stock awards vested |  | (236) |  |  | 21.80 |  |  | — |  |  | — |
Forfeited |  | (98) |  |  | 26.03 |  |  | — |  |  | — |
Expired |  | — |  |  | — |  |  | (19) |  |  | 23.38 |
Balance, December 31, 2022 |  | 704 |  |  | $ | 22.85 |  |  | 49 |  |  | $ | 25.62 |

Stock Awards
The total compensation cost for stock awards recognized as expense was $7.3 million, $4.2 million, and $4.7 million, in the years 2022, 2021, and 2020, respectively. The total recognized tax benefit associated with this compensation cost was $2.0 million, $1.0 million, and $1.2 million, respectively.
The weighted average fair value of stock awards granted was $28.75, $20.22, and $16.69 in 2022, 2021, and 2020, respectively. Stock awards vest over periods up to five years and are valued at the closing price of the stock on the grant date. Certain awards vest based on the Company's performance over established measurement periods. The total fair value of stock awards vested during 2022, 2021, and 2020 was $5.1 million, $4.3 million, and $5.2 million respectively. The unrecognized stock-based compensation expense related to unvested stock awards was $8.6 million as of year-end 2022. This amount is expected to be recognized over a weighted average period of two years.
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Option Awards
Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant, and vest over periods up to five years. The options grant the holder the right to acquire a share of the Company’s common stock for each option held, and have a contractual life of ten years. As of year-end 2022, the weighted average remaining contractual term for options outstanding is three years.
The Company generally issues shares from treasury stock as options are exercised. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The expected dividend yield and expected term are based on management estimates. The expected volatility is based on historical volatility. The risk-free interest rates for the expected term are based on the U.S. Treasury yield curve in effect at the time of the grant. The Company did not grant options during 2022 and 2021.
The total intrinsic value of options exercised was $62 thousand, $102 thousand, and $246 thousand for the years 2022, 2021, and 2020, respectively. The expense pertaining to options vesting was $13 thousand, $14 thousand, and $96 thousand for the years 2022, 2021, and 2020, respectively. The tax benefit associated with stock option expense for 2022, 2021 and 2020 was $3 thousand, $4 thousand, and $25 thousand, respectively. The unrecognized stock-based compensation expense related to unvested stock options as of year-end 2022, 2021 and 2020 was $1 thousand, $14 thousand, and $27 thousand, respectively.
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NOTE 20. FAIR VALUE MEASUREMENTS
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value, including assets classified as discontinued operations on the consolidated balance sheets.
Recurring Fair Value Measurements of Financial Instruments
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of year-end 2022 and 2021 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

|  | December 31, 2022
(In thousands) |  | Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Trading security |  | $ | — |  |  | $ | — |  |  | $ | 6,708 |  |  | $ | 6,708 |
Available-for-sale securities: |  |  |  |  |  |  |  |
U.S Treasuries |  | 11,973 |  |  | — |  |  | — |  |  | 11,973 |
Municipal bonds and obligations |  | — |  |  | 63,335 |  |  | — |  |  | 63,335 |
Agency collateralized mortgage obligations |  | — |  |  | 531,945 |  |  | — |  |  | 531,945 |
Agency residential mortgage-backed securities |  | — |  |  | 546,313 |  |  | — |  |  | 546,313 |
Agency commercial mortgage-backed securities |  | — |  |  | 228,468 |  |  | — |  |  | 228,468 |
Corporate bonds |  | — |  |  | 36,510 |  |  | 4,000 |  |  | 40,510 |
Other bonds and obligations |  | — |  |  | 656 |  |  | — |  |  | 656 |
Marketable equity securities |  | 12,856 |  |  | — |  |  | — |  |  | 12,856 |
Loans held for investment |  | — |  |  | — |  |  | 605 |  |  | 605 |
Loans held for sale |  | — |  |  | 942 |  |  | — |  |  | 942 |
Derivative assets |  | — |  |  | 54,216 |  |  | 25 |  |  | 54,241 |
Capitalized servicing rights |  | — |  |  | — |  |  | 1,846 |  |  | 1,846 |
Derivative liabilities |  | — |  |  | 97,030 |  |  | — |  |  | 97,030 |

| December 31, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total
(In thousands) | Inputs |  | Inputs |  | Inputs |  | Fair Value
Trading security | $ | — |  |  | $ | — |  |  | $ | 8,354 |  |  | $ | 8,354 |
Securities available for sale: |  |  |  |  |  |  |
U.S Treasuries | — |  |  | 59,973 |  |  | — |  |  | 59,973 |
Municipal bonds and obligations | — |  |  | 77,177 |  |  | — |  |  | 77,177 |
Agency collateralized mortgage obligations | — |  |  | 688,336 |  |  | — |  |  | 688,336 |
Agency residential mortgage-backed securities | — |  |  | 705,859 |  |  | — |  |  | 705,859 |
Agency commercial mortgage-backed securities | — |  |  | 300,580 |  |  | — |  |  | 300,580 |
Corporate bonds | — |  |  | 41,630 |  |  | 4,030 |  |  | 45,660 |
Marketable equity securities | 14,798 |  |  | 655 |  |  | — |  |  | 15,453 |
Loans held for investment at fair value | — |  |  | — |  |  | 1,200 |  |  | 1,200 |
Loans held for sale | — |  |  | 6,110 |  |  | — |  |  | 6,110 |
Derivative assets | — |  |  | 79,270 |  |  | 258 |  |  | 79,528 |
Capitalized servicing rights | — |  |  | — |  |  | 1,966 |  |  | 1,966 |
Derivative liabilities | — |  |  | 35,194 |  |  | — |  |  | 35,194 |

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During the year ended December 31, 2022, there were no transfers between Level 1, 2 and 3. During the year ended December 31, 2021, the Company had one transfer totaling $4.0 million in corporate bonds from Level 2 to Level 3 based on recent inactivity in the market related to pricing information for similar bonds. During the year ended December 31, 2022, there were no transfers between Level 1, 2 and 3.
Trading Security at Fair Value. The Company holds one security designated as a trading security. It is a tax advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The determination of the fair value for this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month LIBOR rate.
Securities Available for Sale and Marketable Equity Securities. Marketable equity securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. Marketable equity securities classified as Level 2 consist of securities with infrequent trades in active exchange markets, and pricing is primarily sourced from third party pricing services. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. Level 3 pricing includes inputs unobservable to market participants.
Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing a $11.2 million fair value write-down charged to Retained Earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of December 31, 2022.

|  |  |  |  |  | Aggregate Fair Value
December 31, 2022 |  | Aggregate |  | Aggregate |  | Less Aggregate
(In thousands) |  | Fair Value |  | Unpaid Principal |  | Unpaid Principal
Loans held for investment at fair value |  | $ | 605 |  |  | $ | 10,948 |  |  | $ | (10,343) |

|  |  |  |  |  | Aggregate Fair Value
December 31, 2021 |  | Aggregate |  | Aggregate |  | Less Aggregate
(In thousands) |  | Fair Value |  | Unpaid Principal |  | Unpaid Principal
Loans held for investment at fair value |  | $ | 1,200 |  |  | $ | 31,430 |  |  | $ | (30,230) |

Loans held for sale. The Company elected the fair value option for all mortgage loans originated for sale (HFS) that were originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.

|  | Aggregate Fair Value |  | Aggregate Unpaid Principal |  | Aggregate Fair Value Less Aggregate Unpaid Principal
December 31, 2022 (In thousands) |  |  |
Loans held for sale |  | $ | 942 |  |  | $ | 927 |  |  | $ | 15 |

|  | Aggregate Fair Value |  | Aggregate Unpaid Principal |  | Aggregate Fair Value Less Aggregate Unpaid Principal
December 31, 2021 (In thousands) |  |  |
Loans held for sale |  | $ | 6,110 |  |  | $ | 5,926 |  |  | $ | 184 |

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The changes in fair value of loans held for sale for the year ended December 31, 2022 were losses of $169 thousand. The changes in fair value of loans held for sale for the year ended December 31, 2021 were losses of $169 thousand. The changes in fair value of loans held for sale for the year ended December 31, 2020 were gains of $212 thousand from continuing operations and gains of $3.0 million from discontinued operations. During 2022, originations of loans held for sale totaled $20 million and sales of loans originated for sale totaled $25 million. During 2021, originations of loans held for sale totaled $104 million and sales of loans originated for sale totaled $108 million. During 2020, originations of loans held for sale from continuing operations totaled $150 million and sales of loans originated for sale from continuing operations totaled $141 million. During 2020, originations of loans held for sale from discontinued operations totaled $624 million and sales of loans originated for sale from discontinued operations totaled $755 million.
Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of year-end 2022, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a certain interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan commitment will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments to lend are classified as Level 3 measurements.
Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To be announced (TBA) mortgage-backed securities forward commitment sales are used as hedging instruments, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward sale commitments are classified as Level 3 measurements.
Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used
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in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
The table below presents the changes in Level 3 assets that were measured at fair value on a recurring basis at year-end 2022 and 2021:

|  | Assets (Liabilities)
(In thousands) |  | Trading Security |  | Securities Available for Sale |  | Loans Held for Investment |  | Commitments to Lend |  | Forward Commitments |  | Capitalized Servicing Rights
Balance as of December 31, 2020 |  | $ | 9,708 |  |  | $ | 15,000 |  |  | $ | 2,265 |  |  | $ | 735 |  |  | $ | 320 |  |  | $ | 3,033 |
Maturities, calls, and prepayments of AFS Security |  | — |  |  | (15,000) |  |  | — |  |  | — |  |  | — |  |  | — |
Unrealized (loss) gain, net recognized in other non-interest income |  | (578) |  |  | — |  |  | 1,645 |  |  | 1,995 |  |  | (186) |  |  | (1,067) |
Unrealized gain included in accumulated other comprehensive loss |  | — |  |  | 30 |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers to Level 3 |  | — |  |  | 4,000 |  |  | — |  |  | — |  |  | — |  |  | — |
Paydown of asset |  | (776) |  |  | — |  |  | (2,710) |  |  | — |  |  | — |  |  | — |
Transfers to loans held for sale |  | — |  |  | — |  |  | — |  |  | (2,606) |  |  | — |  |  | — |
Additions to servicing rights |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Balance as of December 31, 2021 |  | $ | 8,354 |  |  | $ | 4,030 |  |  | $ | 1,200 |  |  | $ | 124 |  |  | $ | 134 |  |  | $ | 1,966 |
Maturities, calls, and prepayments of AFS Security |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |
Unrealized (loss) gain, net recognized in other non-interest income |  | (828) |  |  | — |  |  | 314 |  |  | 200 |  |  | (126) |  |  | (120) |
Unrealized (loss) in included in accumulated other comprehensive loss |  | — |  |  | (30) |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers to Level 3 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Paydown of asset |  | (818) |  |  | — |  |  | (909) |  |  | — |  |  | — |  |  | — |
Transfers to loans held for sale |  | — |  |  | — |  |  |  |  | (307) |  |  | — |  |  | — |
Additions to servicing rights |  | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |
Balance as of December 31, 2022 |  | $ | 6,708 |  |  | $ | 4,000 |  |  | $ | 605 |  |  | $ | 17 |  |  | $ | 8 |  |  | $ | 1,846 |
Unrealized gains/(losses) relating to instruments still held at December 31, 2022 |  | $ | (354) |  |  | $ | — |  |  | $ | — |  |  | $ | 17 |  |  | $ | 8 |  |  | $ | — |
Unrealized gains/(losses) relating to instruments still held at December 31, 2021 |  | $ | 475 |  |  | $ | 30 |  |  | $ | — |  |  | $ | 124 |  |  | $ | 134 |  |  | $ | — |

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Quantitative information about the significant unobservable inputs within Level 3 recurring assets/(liabilities) as of December 31, 2022 and 2021 are as follows:

|  | Fair Value |  |  |  |  |  | Significant Unobservable Input Value
(In thousands) |  | December 31, 2022 |  | Valuation Techniques |  | Unobservable Inputs |
Assets |  |  |  |  |  |  |  |
Trading Security |  | $ | 6,708 |  |  | Discounted Cash Flow |  | Discount Rate |  | 5.92 | %
Securities Available for Sale |  | 4,000 |  |  | Indication from Market Maker |  | Price |  | 100.00 | %
Loans held for investment |  | 605 |  |  | Discounted Cash Flow |  | Discount Rate |  | 25.00 | %
|  |  |  |  |  | Collateral Value |  | $— - $20.4
Commitments to Lend |  | 17 |  |  | Historical Trend |  | Closing Ratio |  | 80.63 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 2 |
Forward Commitments |  | 8 |  |  | Historical Trend |  | Closing Ratio |  | 80.63 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 2 |
Capitalized Servicing Rights |  | 1,846 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 11.07 | %
|  |  |  |  |  | Discount rate |  | 9.56 | %
Total |  | $ | 13,184 |  |  |  |  |  |  |

|  | Fair Value |  |  |  |  |  | Significant Unobservable Input Value
(In thousands) |  | December 31, 2021 |  | Valuation Techniques |  | Unobservable Inputs |
Assets |  |  |  |  |  |  |  |
Trading Security |  | $ | 8,354 |  |  | Discounted Cash Flow |  | Discount Rate |  | 3.35 | %
Securities Available for Sale |  | 4,030 |  |  | Indication from Market Maker |  | Price |  | 101.00 | %
Loans held for investment |  | 1,200 |  |  | Discounted Cash Flow |  | Discount Rate |  | 25.00 | %
|  |  |  |  |  | Collateral Value |  | $6.3 - $19.8
Commitments to Lend |  | 124 |  |  | Historical Trend |  | Closing Ratio |  | 82.09 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 3 |
Forward Commitments |  | 134 |  |  | Historical Trend |  | Closing Ratio |  | 82.09 | %
|  |  |  | Pricing Model |  | Origination Costs, per loan |  | $ | 3 |
Capitalized Servicing Rights |  | 1,966 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 19.41 | %
|  |  |  |  |  | Discount rate |  | 9.50 | %
Total |  | $ | 15,808 |  |  |  |  |  |  |

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Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured on a non-recurring basis.

|  | December 31, 2022 |  |  |  | Fair Value Measurements as of December 31, 2022
(In thousands) |  | Level 3 Inputs |  |  |  | Level 3 Inputs
Assets |  |  |  |  |  |
Individually evaluated loans |  | $ | 14,571 |  |  |  |  | December 2022
Loans held for sale |  | 3,369 |  |  |  |  | December 2022
Capitalized servicing rights |  | 11,201 |  |  |  |  | December 2022
Total |  | $ | 29,141 |  |  |  |  |

|  | December 31, 2021 |  |  |  | Fair Value Measurements as of December 31, 2021
(In thousands) |  | Level 3 Inputs |  |  |  | Level 3 Inputs
Assets |  |  |  |  |  |
Individually evaluated loans |  | $ | 12,482 |  |  |  |  | December 2021
Capitalized servicing rights |  | 14,056 |  |  |  |  | December 2021
Total |  | $ | 26,538 |  |  |  |  |

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets as of December 31, 2022 and 2021 are as follows:

(in thousands) |  | December 31, 2022 |  | Valuation Techniques |  | Unobservable Inputs |  | Range (Weighted Average) (a)
Assets |  |  |  |  |  |  |  |
Individually evaluated loans |  | $ | 14,571 |  |  | Fair value of collateral |  | Discounted Cash Flow- Loss Severity |  | (100.00)% to 74.74% ((40.02)%)
|  |  |  |  |  | Appraised value |  | $0 to $2,160 ($643)
Loans held for sale |  | 3,369 |  |  | Fair value of collateral |  | Appraised value |  | 3,369
Capitalized servicing rights |  | 11,201 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 5.81% to 13.18% (10.94)%
|  |  |  |  |  | Discount rate |  | 9.59% to 22.70% (16.83%)
Total Assets |  | $ | 29,141 |  |  |  |  |  |  |

(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties.
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(in thousands) |  | December 31, 2021 |  | Valuation Techniques |  | Unobservable Inputs |  |
Assets |  |  |  |  |  |  |  | Range (Weighted Average) (a)
Individually evaluated loans |  | $ | 12,482 |  |  | Fair value of collateral |  | Loss severity |  | (35.96)% to 133.09% (49.14%)
|  |  |  |  |  | Appraised value |  | $0 to $405 ($256)
Capitalized servicing rights |  | 14,056 |  |  | Discounted cash flow |  | Constant prepayment rate (CPR) |  | 6.24% to 17.73% (13.29%)
|  |  |  |  |  | Discount rate |  | 9.59% to 13.11% (11.97%)
Total Assets |  | $ | 26,538 |  |  |  |  |  |  |

(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties.
There were no Level 1 or Level 2 nonrecurring fair value measurements for year-end 2022 and 2021.
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, real estate collateral related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale, these loans are transferred into the held for sale category and carried at the lower of cost or fair value. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. The choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values, which represent exit price, and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company. Certain assets and liabilities in the following disclosures include balances classified as discontinued operations.

|  | December 31, 2022
|  | Carrying Amount |  | Fair Value |  |  |  |  |  |
(In thousands) |  |  |  | Level 1 |  | Level 2 |  | Level 3
Financial Assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 685,355 |  |  | $ | 685,355 |  |  | $ | 685,355 |  |  | $ | — |  |  | $ | — |
Trading security |  | 6,708 |  |  | 6,708 |  |  | — |  |  | — |  |  | 6,708 |
Marketable equity securities |  | 12,856 |  |  | 12,856 |  |  | 12,856 |  |  | — |  |  | — |
Securities available for sale |  | 1,423,200 |  |  | 1,423,200 |  |  | 11,973 |  |  | 1,407,227 |  |  | 4,000 |
Securities held to maturity |  | 583,453 |  |  | 507,464 |  |  | — |  |  | 505,508 |  |  | 1,956 |
FHLB stock and restricted equity securities |  | 7,219 |  |  | N/A |  | N/A |  | N/A |  | N/A
Net loans |  | 8,239,039 |  |  | 8,194,110 |  |  | — |  |  | — |  |  | 8,194,110 |
Loans held for sale |  | 4,311 |  |  | 4,311 |  |  | — |  |  | 942 |  |  | 3,369 |
Accrued interest receivable |  | 46,868 |  |  | 46,868 |  |  | — |  |  | 46,868 |  |  | — |
Derivative assets |  | 54,241 |  |  | 54,241 |  |  | — |  |  | 54,216 |  |  | 25 |
Financial Liabilities |  |  |  |  |  |  |  |  |  |
Total deposits |  | 10,327,269 |  |  | 10,283,543 |  |  | — |  |  | 10,283,543 |  |  | — |
Short-term debt |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Long-term FHLB advances |  | 4,445 |  |  | 2,782 |  |  | — |  |  | 2,782 |  |  | — |
Subordinated notes |  | 121,064 |  |  | 110,853 |  |  | — |  |  | 110,853 |  |  | — |
Derivative liabilities |  | 97,030 |  |  | 97,030 |  |  | — |  |  | 97,030 |  |  | — |

|  | December 31, 2021
|  | Carrying Amount |  | Fair Value |  |  |  |  |  |
(In thousands) |  |  |  | Level 1 |  | Level 2 |  | Level 3
Financial Assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,627,807 |  |  | $ | 1,627,807 |  |  | $ | 1,627,807 |  |  | $ | — |  |  | $ | — |
Trading security |  | 8,354 |  |  | 8,354 |  |  | — |  |  | — |  |  | 8,354 |
Marketable equity securities |  | 15,453 |  |  | 15,453 |  |  | 14,798 |  |  | 655 |  |  | — |
Securities available for sale |  | 1,877,585 |  |  | 1,877,585 |  |  | — |  |  | 1,873,555 |  |  | 4,030 |
Securities held to maturity |  | 636,503 |  |  | 647,236 |  |  | — |  |  | 644,497 |  |  | 2,739 |
FHLB stock and restricted equity securities |  | 10,800 |  |  | N/A |  | N/A |  | N/A |  | N/A
Net loans |  | 6,719,753 |  |  | 6,850,975 |  |  | — |  |  | — |  |  | 6,850,975 |
Loans held for sale |  | 6,110 |  |  | 6,110 |  |  | — |  |  | 6,110 |  |  | — |
Accrued interest receivable |  | 33,534 |  |  | 33,534 |  |  | — |  |  | 33,534 |  |  | — |
Derivative assets |  | 79,528 |  |  | 79,528 |  |  | — |  |  | 79,270 |  |  | 258 |
Assets held for sale |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Financial Liabilities |  |  |  |  |  |  |  |  |  |
Total deposits |  | 10,068,953 |  |  | 10,073,217 |  |  | — |  |  | 10,073,217 |  |  | — |
Short-term debt |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Long-term FHLB advances |  | 13,331 |  |  | 13,053 |  |  | — |  |  | 13,053 |  |  | — |
Subordinated notes |  | 97,513 |  |  | 95,006 |  |  | — |  |  | 95,006 |  |  | — |
Derivative liabilities |  | 35,194 |  |  | 35,194 |  |  | — |  |  | 35,194 |  |  | — |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
Condensed financial information pertaining only to the Parent, Berkshire Hills Bancorp, is as follows.
CONDENSED BALANCE SHEETS

|  | December 31,
(In thousands) |  | 2022 |  | 2021
Assets |  |  |  |
Cash due from Berkshire Bank |  | $ | 90,022 |  |  | $ | 108,946 |
Investment in subsidiaries |  | 986,805 |  |  | 1,172,439 |
Other assets |  | 1,445 |  |  | 213 |
Total assets |  | $ | 1,078,272 |  |  | $ | 1,281,598 |
Liabilities and Shareholders’ Equity |  |  |  |
Subordinated notes |  | $ | 121,064 |  |  | $ | 97,513 |
Accrued expenses |  | 3,146 |  |  | 1,650 |
Shareholders’ equity |  | 954,062 |  |  | 1,182,435 |
Total liabilities and shareholders’ equity |  | $ | 1,078,272 |  |  | $ | 1,281,598 |

CONDENSED STATEMENTS OF OPERATIONS

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Income: |  |  |  |  |  |
Dividends from subsidiaries |  | $ | 108,000 |  |  | $ | 118,000 |  |  | $ | 46,300 |
Other |  | 23 |  |  | 31 |  |  | (2,185) |
Total income |  | 108,023 |  |  | 118,031 |  |  | 44,115 |
Interest expense |  | 7,044 |  |  | 5,393 |  |  | 5,335 |
Non-interest expenses |  | 2,754 |  |  | 2,719 |  |  | 2,866 |
Total expense |  | 9,798 |  |  | 8,112 |  |  | 8,201 |
Income before income taxes and equity in undistributed income of subsidiaries |  | 98,225 |  |  | 109,919 |  |  | 35,914 |
Income tax (benefit) |  | (2,586) |  |  | (2,136) |  |  | (2,719) |
Income before equity in undistributed income of subsidiaries |  | 100,811 |  |  | 112,055 |  |  | 38,633 |
Equity in undistributed results of operations of subsidiaries |  | (8,278) |  |  | 6,609 |  |  | (571,650) |
Net income/(loss) |  | 92,533 |  |  | 118,664 |  |  | (533,017) |
Preferred stock dividend |  | — |  |  | — |  |  | 313 |
Income/(loss) available to common shareholders |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,330) |
Comprehensive (loss)/income |  | $ | (85,276) |  |  | $ | 84,550 |  |  | $ | (514,139) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Cash flows from operating activities: |  |  |  |  |  |
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |
Adjustments to reconcile net income to net cash provided/(used) by operating activities: |  |  |  |  |  |
Equity in undistributed results of operations of subsidiaries |  | 8,278 |  |  | (6,609) |  |  | 571,650 |
Other, net |  | 5,998 |  |  | 5,816 |  |  | 2,603 |
Net cash provided by operating activities |  | 106,809 |  |  | 117,871 |  |  | 41,236 |
Cash flows from investing activities: |  |  |  |  |  |
Advances to subsidiaries |  | — |  |  | — |  |  | — |
Purchase of securities |  | — |  |  | — |  |  | (489) |
Sale of securities |  | — |  |  | 167 |  |  | 4,658 |
Other, net |  | — |  |  | — |  |  | — |
Net cash provided by investing activities |  | — |  |  | 167 |  |  | 4,169 |
Cash flows from financing activities: |  |  |  |  |  |
Proceeds from issuance of short term debt |  | — |  |  | 232 |  |  | 231 |
Proceeds from issuance of long term debt |  | 98,032 |  |  | — |  |  | — |
Repayment of long term debt |  | (75,000) |  |  | — |  |  | — |
Net proceeds from common stock |  | — |  |  | — |  |  | — |
Payment to repurchase common stock |  | (124,519) |  |  | (68,712) |  |  | (473) |
Common stock cash dividends paid |  | (24,527) |  |  | (24,553) |  |  | (36,251) |
Preferred stock cash dividends paid |  | — |  |  | — |  |  | (313) |
Other, net |  | 281 |  |  | 431 |  |  | 758 |
Net cash (used) in financing activities |  | (125,733) |  |  | (92,602) |  |  | (36,048) |
Net change in cash and cash equivalents |  | (18,924) |  |  | 25,436 |  |  | 9,357 |
Cash and cash equivalents at beginning of year |  | 108,946 |  |  | 83,510 |  |  | 74,153 |
Cash and cash equivalents at end of year |  | $ | 90,022 |  |  | $ | 108,946 |  |  | $ | 83,510 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22. QUARTERLY DATA (UNAUDITED)
Quarterly results of operations were as follows:

|  | 2022 |  | 2021
(In thousands, except per share data) |  | Fourth Quarter |  | Third Quarter |  | Second Quarter |  | First Quarter |  | Fourth Quarter |  | Third Quarter |  | Second Quarter |  | First Quarter
Interest and dividend income |  | $ | 121,384 |  |  | $ | 103,671 |  |  | $ | 87,379 |  |  | $ | 74,823 |  |  | $ | 75,860 |  |  | $ | 79,688 |  |  | $ | 85,364 |  |  | $ | 88,153 |
Interest expense |  | 19,292 |  |  | 11,587 |  |  | 6,021 |  |  | 5,760 |  |  | 6,548 |  |  | 8,320 |  |  | 9,971 |  |  | 13,060 |
Net interest income |  | 102,092 |  |  | 92,084 |  |  | 81,358 |  |  | 69,063 |  |  | 69,312 |  |  | 71,368 |  |  | 75,393 |  |  | 75,093 |
Non-interest income |  | 15,654 |  |  | 16,251 |  |  | 16,351 |  |  | 20,681 |  |  | 21,409 |  |  | 73,635 |  |  | 22,011 |  |  | 26,193 |
Total revenue |  | 117,746 |  |  | 108,335 |  |  | 97,709 |  |  | 89,744 |  |  | 90,721 |  |  | 145,003 |  |  | 97,404 |  |  | 101,286 |
Provision expense/(benefit) for credit losses |  | 12,000 |  |  | 3,000 |  |  | — |  |  | (4,000) |  |  | (3,000) |  |  | (4,000) |  |  | — |  |  | 6,500 |
Non-interest expense |  | 70,014 |  |  | 81,677 |  |  | 68,475 |  |  | 68,550 |  |  | 69,407 |  |  | 69,460 |  |  | 68,872 |  |  | 78,154 |
Income before income taxes |  | 35,732 |  |  | 23,658 |  |  | 29,234 |  |  | 25,194 |  |  | 24,314 |  |  | 79,543 |  |  | 28,532 |  |  | 16,632 |
Income tax expense |  | 5,227 |  |  | 4,941 |  |  | 6,119 |  |  | 4,998 |  |  | 4,066 |  |  | 15,794 |  |  | 6,896 |  |  | 3,601 |
Net income |  | $ | 30,505 |  |  | $ | 18,717 |  |  | $ | 23,115 |  |  | $ | 20,196 |  |  | $ | 20,248 |  |  | $ | 63,749 |  |  | $ | 21,636 |  |  | $ | 13,031 |
Basic earnings per share |  | $ | 0.69 |  |  | $ | 0.42 |  |  | $ | 0.50 |  |  | $ | 0.42 |  |  | $ | 0.42 |  |  | $ | 1.32 |  |  | $ | 0.43 |  |  | $ | 0.26 |
Diluted earnings per share |  | $ | 0.69 |  |  | $ | 0.42 |  |  | $ | 0.50 |  |  | $ | 0.42 |  |  | $ | 0.42 |  |  | $ | 1.31 |  |  | $ | 0.43 |  |  | $ | 0.26 |
Weighted average common shares outstanding:
Basic |  | 44,105 |  |  | 44,700 |  |  | 45,818 |  |  | 47,668 |  |  | 47,958 |  |  | 48,395 |  |  | 50,321 |  |  | 50,330 |
Diluted |  | 44,484 |  |  | 45,034 |  |  | 46,102 |  |  | 48,067 |  |  | 48,340 |  |  | 48,744 |  |  | 50,608 |  |  | 50,565 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23. NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
Presented below is net interest income after provision for credit losses for the three years ended 2022, 2021, and 2020, respectively:

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Net interest income |  | $ | 344,597 |  |  | $ | 291,166 |  |  | $ | 316,782 |
Provision expense/(benefit) for credit losses |  | 11,000 |  |  | (500) |  |  | 75,878 |
Net interest income after provision for credit losses |  | 333,597 |  |  | 291,666 |  |  | 240,904 |
Total non-interest income |  | 68,937 |  |  | 143,248 |  |  | 66,307 |
Total non-interest expense |  | 288,716 |  |  | 285,893 |  |  | 840,239 |
Income/(loss) from continuing operations before income taxes |  | 113,818 |  |  | 149,021 |  |  | (533,028) |
Income tax expense/(benefit) |  | 21,285 |  |  | 30,357 |  |  | (19,853) |
Net income/(loss) from continuing operations |  | 92,533 |  |  | 118,664 |  |  | (513,175) |
(Loss) from discontinued operations before income taxes |  | — |  |  | — |  |  | (26,855) |
Income tax (benefit) |  | — |  |  | — |  |  | (7,013) |
Net (loss) from discontinued operations |  | — |  |  | — |  |  | (19,842) |
Net income/(loss) |  | $ | 92,533 |  |  | $ | 118,664 |  |  | $ | (533,017) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24. REVENUE
Revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income. The Company does not have any material significant payment terms as payment is received at or shortly after the satisfaction of the performance obligation. The value of unsatisfied performance obligations for contracts with an original expected length of one year or less are not disclosed. The Company recognizes incremental costs of obtaining contracts as an expense when incurred for contracts with a term of one year or less.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of Topic 606. Topic 606 is applicable to non-interest revenue streams such as wealth management fees, insurance commissions and fees, administrative services for customer deposit accounts, interchange fees, and sale of owned real estate properties.
The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended 2022, 2021, and 2020, respectively.

|  | Years Ended December 31,
(In thousands) |  | 2022 |  | 2021 |  | 2020
Non-interest income |  |  |  |  |  |
In-scope of Topic 606: |  |  |  |  |  |
Service charges on deposit accounts |  | $ | 22,396 |  |  | $ | 20,249 |  |  | $ | 19,239 |
Wealth management fees |  | 10,008 |  |  | 10,530 |  |  | 9,285 |
Interchange income |  | 8,470 |  |  | 8,321 |  |  | 7,559 |
Insurance commissions and fees |  | — |  |  | 7,003 |  |  | 10,770 |
Non-interest income (in-scope of Topic 606) |  | $ | 40,874 |  |  | $ | 46,103 |  |  | $ | 46,853 |
Non-interest income (out-of-scope of Topic 606) |  | 28,063 |  |  | 97,145 |  |  | 19,454 |
Total non-interest income from continuing operations |  | $ | 68,937 |  |  | $ | 143,248 |  |  | $ | 66,307 |

Non-interest income streams in-scope of Topic 606 are discussed below.
Service Charges on Deposit Accounts. Service charges on deposit accounts consist of monthly service fees (i.e. business analysis fees and consumer service charges) and other deposit account related fees. The Company's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. The Company may, from time to time, waive certain fees (e.g., NSF fee) for customers but generally do not reduce the transaction price to reflect variability for future reversals due to the insignificance of the amounts. Waiver of fees reduces the revenue in the period the waiver is granted to the customer.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wealth Management Fees. Wealth management fees are primarily comprised of fees earned from consultative investment management, trust administration, tax return preparation, and financial planning. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based on the daily accrual of the market value of the investment accounts and the applicable fee rate.
Interchange Fees. Interchange fees are transaction fees paid to the card-issuing bank to cover handling costs, fraud and bad debt costs, and the risk involved in approving the payment. Due to the day-to-day nature of these fees they are settled on a daily basis and are accounted for as they are received.
Insurance Commissions and Fees. Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later, net of return commissions related to policy cancellations. Policy cancellation is a variable consideration that is not deemed significant and thus, does not impact the amount of revenue recognized.
In addition, the Company may receive additional performance commissions based on achieving certain sales and loss experience measures. Such commissions are recognized when determinable, which is generally when such commissions are received or when the Company receives data from the insurance companies that allows the reasonable estimation of these amounts.
On September 1, 2021, the Company completed the sale of substantially all of the assets, and the assumption of certain liabilities, of Berkshire Insurance Group, Inc.
Gains/Losses on Sales of OREO. The sale of OREO and other nonfinancial assets are accounted for with the derecognition of the asset in question once a contract exists and control of the asset has been transferred to the buyer. The gain or loss on the sale is calculated as the difference between the carrying value of the asset and the transaction price.
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