BERKSHIRE HILLS BANCORP INC - Quarter Report: 2022 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 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: (800) 773-5601, ext. 133773

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BHLB

The New York Stock Exchange

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 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

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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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of May 5, 2022, the Registrant had 47,323,374 shares of common stock, $0.01 par value per share, outstanding

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BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021

Consolidated Statements of Comprehensive (Loss) for the Three Months Ended March 31, 2022 and 2021

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

Notes to Consolidated Financial Statements (Unaudited)

Note 1

Basis of Presentation

Note 2

Trading Security

Note 3

Securities Available for Sale, Held to Maturity, and Marketable Equity Securities

Note 4

Loans and Allowance for Credit Losses

Derivative Financial Instruments and Hedging Activities

Note 8

Leases

Note 9

Other Commitments, Contingencies, Off- Balance Sheet Activities, and Pandemic Impact

Note 10

Capital Ratios and Shareholders' Equity

Note 11

Earnings per Share

Note 12

Stock-Based Compensation Plans

Note 13

Fair Value Measurements

Note 14

Net Interest Income after Provision for Credit Losses

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Selected Financial Data

Average Balances and Average Yields/Rates

Non-GAAP Financial Measures

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

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PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	75
Item 6.	Exhibits	76
Signatures		77

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PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS


	March 31, 2022		December 31, 2021
(In thousands, except share data)
Assets
Cash and due from banks	$	151,814	$	109,350
Short-term investments	1,455,437		1,518,457
Total cash and cash equivalents	1,607,251		1,627,807

Trading security, at fair value	7,798		8,354
Marketable equity securities, at fair value	14,719		15,453
Securities available for sale, at fair value	2,032,575		1,877,585
Securities held to maturity (fair values of $580,538 and $647,236)	612,174		636,503
Federal Home Loan Bank stock and other restricted securities	10,829		10,800
Total securities	2,678,095		2,548,695
Less: Allowance for credit losses on held to maturity securities	(99)		(105)
Net securities	2,677,996		2,548,590

Loans held for sale	300		6,110





Total loans	7,267,323		6,825,847
Less: Allowance for credit losses on loans	(99,475)		(106,094)
Net loans	7,167,848		6,719,753

Premises and equipment, net	92,971		94,383


Other intangible assets	28,332		29,619
Cash surrender value of bank-owned life insurance policies	236,593		235,690

Other assets	281,729		288,384
Assets held for sale	3,988		4,577

Total assets	$	12,097,008	$	11,554,913

Liabilities
Demand deposits	$	3,020,568	$	3,008,461
NOW and other deposits	2,546,799		976,401
Money market deposits	2,469,042		3,293,526
Savings deposits	1,133,877		1,111,625
Time deposits	1,528,922		1,678,940
Total deposits	10,699,208		10,068,953

Long-term Federal Home Loan Bank advances and other	14,563		13,331
Subordinated borrowings	97,569		97,513
Total borrowings	112,132		110,844
Other liabilities	191,807		192,681

Total liabilities	$	11,003,147	$	10,372,478
(continued)
	March 31, 2022		December 31, 2021

Shareholders’ equity

Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 47,791,829 shares outstanding in 2022; 51,903,190 shares issued and 48,667,110 shares outstanding in 2021)	528		528
Additional paid-in capital - common stock	1,423,679		1,423,445
Unearned compensation	(10,284)		(9,056)
Retained (deficit)	(125,343)		(139,383)
Accumulated other comprehensive (loss)	(78,237)		(3,243)
Treasury stock, at cost (4,111,361 shares in 2022 and 3,236,080 shares in 2021)	(116,482)		(89,856)
Total shareholders’ equity	1,093,861		1,182,435
Total liabilities and shareholders’ equity	$	12,097,008	$	11,554,913

The accompanying notes are an integral part of these consolidated financial statements.

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended March 31,
(In thousands, except per share data)	2022		2021
Interest and dividend income
Loans	$	62,474	$	75,933
Securities and other	12,349		12,220
Total interest and dividend income	74,823		88,153
Interest expense
Deposits	4,174		9,583
Borrowings	1,586		3,477
Total interest expense	5,760		13,060
Net interest income	69,063		75,093
Non-interest income
Deposit related fees	7,351		7,126
Loan fees and revenue	8,265		10,246
Insurance commissions and fees	—		3,130
Wealth management fees	2,625		2,772
Mortgage banking originations	19		802
Total fee income	18,260		24,076
Other, net	3,166		2,148
(Loss) on securities, net	(745)		(31)



Total non-interest income	20,681		26,193
Total net revenue	89,744		101,286
(Benefit)/provision for credit losses	(4,000)		6,500
Non-interest expense
Compensation and benefits	37,521		38,735
Occupancy and equipment	10,067		11,024
Technology and communications	8,527		8,593
Marketing and promotion	1,111		595
Professional services	2,692		6,614
FDIC premiums and assessments	987		1,120
Other real estate owned and foreclosures	—		2
Amortization of intangible assets	1,286		1,319

Acquisition, restructuring, and other expenses	18		3,486
Other	6,341		6,666
Total non-interest expense	68,550		78,154

Income before income taxes	$	25,194	$	16,632
Income tax expense	4,998		3,601
Net income	$	20,196	$	13,031









Basic earnings per common share	$	0.42	$	0.26
Diluted earnings per common share	$	0.42	$	0.26

Weighted average shares outstanding:
Basic	47,668		50,330
Diluted	48,067		50,565

The accompanying notes are an integral part of these consolidated financial statements.

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)


	Three Months Ended March 31,
(In thousands)	2022		2021
Net income	$	20,196	$	13,031
Other comprehensive (loss), before tax:
Changes in unrealized (loss) on debt securities available-for-sale	(101,373)		(27,013)





Income taxes related to other comprehensive income:
Changes in unrealized (loss) on debt securities available-for-sale	26,379		6,863





Total other comprehensive (loss)	(74,994)		(20,150)
Total comprehensive (loss)	$	(54,798)	$	(7,119)

The accompanying notes are an integral part of these consolidated financial statements.

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY



	Common stock		Additional paid-in capital			Unearned compensation		Retained earnings (deficit)		Accumulated other comprehensive income/(loss)		Treasury stock
(In thousands)		Shares			Amount											Total
Balance at December 31, 2020		50,833	$	528		$	1,427,239	$	(6,245)	$	(233,344)	$	30,871	$	(31,276)	$	1,187,773
Comprehensive (loss):
Net income		—	—			—		—		13,031		—		—		13,031
Other comprehensive (loss)		—	—			—		—		—		(20,150)		—		(20,150)
Total comprehensive (loss)		—	—			—		—		13,031		(20,150)		—		(7,119)


Cash dividends declared on common shares ($0.12 per share)		—	—			—		—		(6,124)		—		—		(6,124)


Forfeited shares		(52)	—			(234)		1,333		—		—		(1,099)		—
Exercise of stock options		5	—			—		—		(79)		—		148		69
Restricted stock grants		210	—			(2,660)		(3,485)		—		—		6,145		—
Stock-based compensation		—	—			—		675		—		—		—		675

Other, net		(8)	—			4		—		—		—		(139)		(135)
Balance at March 31, 2021		50,988	$	528		$	1,424,349	$	(7,722)	$	(226,516)	$	10,721	$	(26,221)	$	1,175,139

Balance at December 31, 2021		48,667	$	528		$	1,423,445	$	(9,056)	$	(139,383)	$	(3,243)	$	(89,856)	$	1,182,435
Comprehensive (loss):
Net income		—	—			—		—		20,196		—		—		20,196
Other comprehensive (loss)		—	—			—		—		—		(74,994)		—		(74,994)
Total comprehensive (loss)		—	—			—		—		20,196		(74,994)		—		(54,798)


Cash dividends declared on common shares ($0.12 per share)		—	—			—		—		(6,152)		—		—		(6,152)

Treasury shares repurchased		(972)	—			—		—		—		—		(29,254)		(29,254)
Forfeited shares		(36)	—			70		983		—		—		(1,053)		—
Exercise of stock options		1	—			—		—		(4)		—		29		25
Restricted stock grants		139	—			161		(4,016)		—		—		3,855		—
Stock-based compensation		—	—			—		1,805		—		—		—		1,805

Other, net		(7)	—			3		—		—		—		(203)		(200)
Balance at March 31, 2022		47,792	$	528		$	1,423,679	$	(10,284)	$	(125,343)	$	(78,237)	$	(116,482)	$	1,093,861

The accompanying notes are an integral part of these consolidated financial statements.

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(In thousands)	2022		2021
Cash flows from operating activities:


Net income	$	20,196	$	13,031
Adjustments to reconcile net income to net cash provided by operating activities:
(Benefit)/provision for credit losses	(4,000)		6,500
Net amortization of securities	668		389
Change in unamortized net loan costs and premiums	560		(2,755)
Premises and equipment depreciation and amortization expense	2,479		2,839
Stock-based compensation expense	1,805		675
Accretion of purchase accounting entries, net	(677)		(1,305)
Amortization of other intangibles	1,286		1,319

Income from cash surrender value of bank-owned life insurance policies	(1,332)		(1,348)
Securities losses, net	745		31
Net change in loans held-for-sale	5,204		3,938



Loss on disposition of assets	—		2,811

Amortization of interest in tax-advantaged projects	357		33




Net change in other	(10,595)		(2,584)


Net cash provided by operating activities	16,696		23,574

Cash flows from investing activities:
Net decrease in trading security	202		192

Proceeds from sales of marketable equity securities	—		2,849
Purchases of securities available for sale	(386,636)		(103,877)

Proceeds from maturities, calls, and prepayments of securities available for sale	130,118		166,998
Purchases of securities held to maturity	—		(155,417)
Proceeds from maturities, calls, and prepayments of securities held to maturity	23,853		9,377
Net change in loans	(443,357)		412,255
Net change in Mid-Atlantic region loans held for sale	—		16,830
Proceeds from surrender of bank-owned life insurance	429		—
Purchase of Federal Home Loan Bank stock	(116)		—
Proceeds from redemption of Federal Home Loan Bank stock	87		6,193


Purchase of premises and equipment, net	—		(2,297)




Net cash (used)/provided by investing activities	(675,420)		353,103

(continued)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)


	Three Months Ended March 31,
(In thousands)	2022		2021
Cash flows from financing activities:
Net increase in deposits	630,255		28,562
Net change in Mid-Atlantic region deposits held for sale	—		29,245
Proceeds from Federal Home Loan Bank advances and other borrowings	1,275		—
Repayments of Federal Home Loan Bank advances and other borrowings	(46)		(123,022)
Purchase of treasury stock	(29,254)		—
Exercise of stock options	25		69
Common stock cash dividends paid	(6,152)		(6,124)
Settlement of derivative contracts with financial institution counterparties	42,065		36,326
Net cash provided/(used) by financing activities	638,168		(34,944)

Net change in cash and cash equivalents	(20,556)		341,733

Cash and cash equivalents at beginning of period	1,627,807		1,557,875

Cash and cash equivalents at end of period	$	1,607,251	$	1,899,608

Supplemental cash flow information:
Interest paid on deposits	$	3,965	$	10,149
Interest paid on borrowed funds	1,588		3,655
Income taxes (refunded) paid, net	2,694		(2,386)





Other non-cash changes:
Other net comprehensive income	$	(74,994)	$	(20,150)


Unsettled transactions related to security purchases	—		22,126
Reclass of seasoned loan portfolios to held-for-sale, net	—		9,500



Reclass of held-for-sale loans to held-for-investment, net	606		—

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

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.

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and disclosures Berkshire Hills Bancorp, Inc. previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods.

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 9 – Other Commitments, Contingencies, Off-Balance Sheet Activities, and Pandemic Impact for pandemic related risks and uncertainties.

Recently Adopted Accounting Principles

There were no new applicable material accounting pronouncements adopted by the Company since December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ending after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating; however, 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 ending after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted and the Company can elect to adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is still evaluating; however, the adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

NOTE 2. TRADING SECURITY

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $7.7 million and $7.9 million, and a fair value of $7.8 million and $8.4 million, at March 31, 2022 and December 31, 2021, respectively. As discussed further in Note 7 - Derivative Financial Instruments and Hedging Activities, the Company 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 were no other securities in the trading portfolio at March 31, 2022 or December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SECURITIES AVAILABLE FOR SALE, HELD TO MATURITY, AND MARKETABLE

EQUITY SECURITIES

The following is a summary of securities available for sale, held to maturity, and marketable equity securities:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
March 31, 2022
Securities available for sale
U.S Treasuries	$	290,656	$	31	$	(78)	$	290,609
Municipal bonds and obligations	68,624		2,039		(440)		70,223		—
Agency collateralized mortgage obligations	740,928		68		(43,284)		697,712		—
Agency mortgage-backed securities	702,903		50		(48,567)		654,386		—
Agency commercial mortgage-backed securities	273,144		100		(14,920)		258,324		—
Corporate bonds	44,803		373		(678)		44,498		—
Other bonds and obligations	16,790		77		(44)		16,823		—
Total securities available for sale	2,137,848		2,738		(108,011)		2,032,575		—

Securities held to maturity
Municipal bonds and obligations	271,466		5,462		(11,963)		264,965		67
Agency collateralized mortgage obligations	143,170		618		(9,741)		134,047		—
Agency mortgage-backed securities	55,058		—		(5,353)		49,705		—
Agency commercial mortgage-backed securities	139,751		—		(10,611)		129,140		—
Tax advantaged economic development bonds	2,564		15		(63)		2,516		32
Other bonds and obligations	165		—		—		165		—
Total securities held to maturity	612,174		6,095		(37,731)		580,538		99

Marketable equity securities	15,690		109		(1,080)		14,719		—
Total	$	2,765,712	$	8,942	$	(146,822)	$	2,627,832	$	99


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
December 31, 2021
Securities available for sale
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	282,958		2,996		(3,620)		282,334		—
Corporate bonds	44,824		950		(114)		45,660		—

Other bonds and obligations	17,301		953		(8)		18,246		—
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 obligations	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	$	37,979	$	(31,707)	$	2,540,274	$	105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the three months ended March 31, 2022 and 2021:


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at December 31, 2021	$	70	$	35	$	105
Provision for credit losses - reversal	(3)		(3)		(6)
Balance at March 31, 2022	$	67	$	32	$	99


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at December 31, 2020	$	64	$	40	$	104
Provision for credit losses	7		—		7
Balance at March 31, 2021	$	71	$	40	$	111

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 March 31, 2022, none of the Company's investment securities were delinquent or in non-accrual status.

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at March 31, 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 are shown in total, as their maturities are highly variable.


	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value

Within 1 year	$	292,101	$	292,057	$	1,717	$	1,718
Over 1 year to 5 years	7,941		8,007		2,783		2,799
Over 5 years to 10 years	48,905		48,853		21,186		21,602
Over 10 years	71,926		73,236		248,509		241,527
Total bonds and obligations	420,873		422,153		274,195		267,646


Mortgage-backed securities	1,716,975		1,610,422		337,979		312,892
Total	$	2,137,848	$	2,032,575	$	612,174	$	580,538

During the three months ended March 31, 2022, purchases of AFS securities totaled $386.6 million. During the three months ended March 31, 2022, there were no sales of AFS securities. During the three months ended March 31, 2021, purchases of AFS securities totaled $103.9 million, and there were no sales of AFS securities. During the three months ended March 31, 2021, there were no gross gains or losses on AFS securities. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities available for sale and held to maturity 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
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	Losses		Value		Losses		Value		Losses		Value
March 31, 2022

Securities available for sale
U.S Treasuries	$	78	$	140,643	$	—	$	—	$	78	$	140,643
Municipal bonds and obligations	440		10,695		—		—		440		10,695
Agency collateralized mortgage obligations	38,150		637,494		5,134		38,740		43,284		676,234
Agency mortgage-backed securities	24,058		414,665		24,509		233,313		48,567		647,978
Agency commercial mortgage-backed securities	8,380		178,298		6,540		69,180		14,920		247,478
Corporate bonds	678		16,533		—		—		678		16,533

Other bonds and obligations	35		6,049		9		594		44		6,643



Total securities available for sale	$	71,819	$	1,404,377	$	36,192	$	341,827	$	108,011	$	1,746,204

Securities held to maturity
Municipal bonds and obligations	$	10,422	$	43,645	$	1,541	$	5,249	$	11,963	$	48,894
Agency collateralized mortgage obligations	5,863		48,246		3,878		32,979		9,741		81,225
Agency mortgage-backed securities	73		2,925		5,280		46,780		5,353		49,705
Agency commercial mortgage-backed securities	5,524		77,044		5,087		52,095		10,611		129,139
Tax advantaged economic development bonds	63		1,171		—		—		63		1,171
Total securities held to maturity	21,945		173,031		15,786		137,103		37,731		310,134

Total	$	93,764	$	1,577,408	$	51,978	$	478,930	$	145,742	$	2,056,338

December 31, 2021

Securities available for sale

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		2,011		48,619		3,620		151,973
Corporate bonds	114		11,115		—		—		114		11,115

Other bonds and obligations	—		—		8		694		8		694



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-backed 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

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 March 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 as well as its historically low portfolio turnover.

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 were not other-than-temporarily impaired at March 31, 2022:

AFS U.S Treasuries

At March 31, 2022, 6 of the 11 securities in the Company’s portfolio of U.S Treasuries were in unrealized loss positions. Aggregate unrealized losses represented 0.1% 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 the quarter. All securities are performing.

AFS municipal bonds and obligations

At March 31, 2022, 7 of the 100 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 4.0% 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 March 31, 2022, 224 of the 255 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 6.0% 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 mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS commercial and residential mortgage-backed securities

At March 31, 2022, 90 of the 134 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 6.6% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS corporate bonds

At March 31, 2022, 6 of the 15 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. Aggregate unrealized losses represents 3.9% of the amortized cost of the bond in an unrealized loss position. The Company reviews the financial strength of all 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 March 31, 2022, 4 of the 5 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 0.7% 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 the quarter. All securities are performing.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HTM municipal bonds and obligations

At March 31, 2022, 41 of the 200 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 19.7% 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.

HTM collateralized mortgage obligations

At March 31, 2022, 7 of the 14 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 10.7% of the amortized cost of the securities in unrealized loss positions. 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 the quarter. All securities are performing.

HTM commercial and residential mortgage-backed securities

At March 31, 2022, 16 of the 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 8.2% 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 the quarter. All securities are performing.

HTM tax-advantaged economic development bonds

At March 31, 2022, 1 of the 3 securities in the Company’s portfolio of tax-advantaged economic development bonds was in an unrealized loss position. Aggregate unrealized losses represented 5.1% of the amortized cost of the security in an unrealized loss position. The Company believes that more likely than not all the principal outstanding will be collected. All securities are performing.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS AND 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)	March 31, 2022		December 31, 2021
Construction	$	310,778	$	324,282
Commercial multifamily	640,922		515,817
Commercial real estate owner occupied	609,526		606,477
Commercial real estate non-owner occupied	2,207,124		2,156,929
Commercial and industrial	1,350,752		1,284,429

Residential real estate	1,665,304		1,489,248
Home equity	244,649		252,366
Consumer other	238,268		196,299
Total loans	$	7,267,323	$	6,825,847

Allowance for credit losses	99,475		106,094
Net loans	$	7,167,848	$	6,719,753

As of March 31, 2022 and December 31, 2021, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $15.6 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.

During the three months ended March 31, 2022, there were no loans reclassified to held for sale. During the three months ended March 31, 2021, the Company reclassified $9.5 million of commercial loans to held for sale, reflecting its intent to sell these loans. Held for sale loans are not contained in the balances within this note and are accounted for at the lower of carrying value or fair market value within loans held for sale on the Consolidated Balance Sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Allowance for Credit Losses for Loans

The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for loan losses, and the allowance for unfunded commitments is accounted for as a separate liability in other liabilities on the balance sheet. 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).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s activity in the allowance for credit losses for loans for the three months ended March 31, 2022 and March 31, 2021 was as follows:


(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three months ended March 31, 2022
Construction	$	3,206	$	—	$	—	$	(701)	$	2,505
Commercial multifamily	6,120		—		—		(349)		5,771
Commercial real estate owner occupied	12,752		(130)		209		(1,333)		11,498
Commercial real estate non-owner occupied	32,106		(4,884)		1,266		(2,674)		25,814
Commercial and industrial	22,584		(653)		1,288		(270)		22,949

Residential real estate	22,406		(164)		388		(4,814)		17,816
Home equity	4,006		—		134		(837)		3,303
Consumer other	2,914		(216)		137		6,984		9,819
Total allowance for credit losses	$	106,094	$	(6,047)	$	3,422	$	(3,994)	$	99,475


(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three months ended March 31, 2021
Construction	$	5,111	$	—	$	—	$	(714)	$	4,397
Commercial multifamily	5,916		(124)		62		497		6,351
Commercial real estate owner occupied	12,380		(376)		12		2,241		14,257
Commercial real estate non-owner occupied	35,850		(6,658)		126		5,243		34,561
Commercial and industrial	25,013		(3,320)		644		3,734		26,071

Residential real estate	28,491		(377)		437		(2,751)		25,800
Home equity	6,482		(77)		24		(680)		5,749
Consumer other	8,059		(528)		160		(1,077)		6,614
Total allowance for credit losses	$	127,302	$	(11,460)	$	1,465	$	6,493	$	123,800

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liability on consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the consolidated statement of income. The Company’s activity in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2022 and March 31, 2021 was as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
Balance at beginning of period	$	7,043	$	7,629


Expense for credit losses	—		200
Balance at end of period	$	7,043	$	7,829

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 annual, 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.

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 March 31, 2022
Construction
Risk rating
Pass	$	23,309	$	101,236	$	28,394	$	90,605	$	33,505	$	4,932	$	49	$	—	$	282,030
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		28,748		—		—		—		28,748
Total	$	23,309	$	101,236	$	28,394	$	90,605	$	62,253	$	4,932	$	49	$	—	$	310,778

Commercial multifamily:
Risk rating
Pass	$	125,302	$	63,610	$	28,023	$	119,128	$	69,248	$	225,003	$	769	$	—	$	631,083
Special Mention	—		—		2,682		—		5,578		—		—		—		8,260
Substandard	—		—		—		—		—		1,445		134		—		1,579
Total	$	125,302	$	63,610	$	30,705	$	119,128	$	74,826	$	226,448	$	903	$	—	$	640,922

Commercial real estate owner occupied:
Risk rating
Pass	$	26,695	$	147,396	$	49,844	$	85,077	$	87,214	$	195,950	$	3,344	$	—	$	595,520
Special Mention	—		—		396		1,609		262		1,395		—		—		3,662
Substandard	—		—		116		856		1,576		7,796		—		—		10,344
Total	$	26,695	$	147,396	$	50,356	$	87,542	$	89,052	$	205,141	$	3,344	$	—	$	609,526

Commercial real estate non-owner occupied:
Risk rating
Pass	$	228,720	$	425,619	$	169,251	$	260,590	$	333,773	$	667,716	$	18,161	$	—	$	2,103,830
Special Mention	—		—		—		11,119		13,737		29,310		—		—		54,166
Substandard	—		—		7,504		—		3,066		38,459		99		—		49,128
Total	$	228,720	$	425,619	$	176,755	$	271,709	$	350,576	$	735,485	$	18,260	$	—	$	2,207,124

Commercial and industrial:
Risk rating
Pass	$	76,088	$	182,930	$	110,615	$	93,214	$	132,957	$	167,828	$	519,051	$	—	$	1,282,683
Special Mention	—		—		1,296		9,857		3,157		1,244		19,264		—		34,818
Substandard	—		465		2,416		8,128		2,781		4,285		14,949		—		33,024
Doubtful	—		—		—		—		—		14		213		—		227
Total	$	76,088	$	183,395	$	114,327	$	111,199	$	138,895	$	173,371	$	553,477	$	—	$	1,350,752









Residential real estate
Risk rating
Pass	$	225,079	$	259,363	$	107,629	$	81,674	$	153,406	$	820,956	$	291	$	—	$	1,648,398
Special Mention	—		—		328		—		—		499		—		—		827
Substandard	—		854		13		425		2,031		12,756		—		—		16,079
Total	$	225,079	$	260,217	$	107,970	$	82,099	$	155,437	$	834,211	$	291	$	—	$	1,665,304

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

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 March 31, 2022
Home equity:
Payment performance
Performing	$	—	$	122	$	464	$	—	$	—	$	22	$	242,052	$	—	$	242,660
Nonperforming	—		—		—		—		—		—		1,989		—		1,989
Total	$	—	$	122	$	464	$	—	$	—	$	22	$	244,041	$	—	$	244,649

Consumer other:
Payment performance
Performing	$	68,740	$	35,602	$	10,303	$	18,878	$	48,084	$	47,445	$	6,902	$	—	$	235,954
Nonperforming	—		92		39		263		733		1,167		20		—		2,314
Total	$	68,740	$	35,694	$	10,342	$	19,141	$	48,817	$	48,612	$	6,922	$	—	$	238,268


	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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of loans by past due status at March 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
March 31, 2022
Construction	$	—	$	—	$	—	$	—	$	310,778	$	310,778
Commercial multifamily	—		—		182		182		640,740		640,922
Commercial real estate owner occupied	225		—		4,263		4,488		605,038		609,526
Commercial real estate non-owner occupied	2,342		26		4,923		7,291		2,199,833		2,207,124
Commercial and industrial	3,979		476		7,450		11,905		1,338,847		1,350,752

Residential real estate	3,821		828		15,263		19,912		1,645,392		1,665,304
Home equity	188		70		1,989		2,247		242,402		244,649
Consumer other	1,366		198		2,224		3,788		234,480		238,268
Total	$	11,921	$	1,598	$	36,294	$	49,813	$	7,217,510	$	7,267,323


(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

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 March 31, 2022 and 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
At or for the three months ended March 31, 2022
Construction	$	—	$	—	$	—	$	—
Commercial multifamily	182		182		—		—
Commercial real estate owner occupied	3,726		2,477		537		—
Commercial real estate non-owner occupied	4,751		94		172		—
Commercial and industrial	5,619		746		1,831		—

Residential real estate	11,678		6,946		3,585		—
Home equity	1,719		132		270		—
Consumer other	2,006		4		218		—
Total	$	29,681	$	10,581	$	6,613	$	—

The commercial and industrial loans nonaccrual amortized cost as of March 31, 2022 included medallion loans with a fair value of $1.2 million and a contractual balance of $23.1 million.



(In thousands)	Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or Greater and Accruing		Interest Income Recognized on Nonaccrual
At or for the three months ended December 31, 2021
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.

The following table summarizes information about total loans rated Special Mention or lower at March 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)	March 31, 2022		December 31, 2021
Non-Accrual	$	29,681	$	35,326
Substandard Accruing	113,755		106,560
Total Classified	143,436		141,886
Special Mention	101,992		100,071
Total Criticized	$	245,428	$	241,957

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
March 31, 2022
Construction	$	9,429	$	—	$	—
Commercial multifamily	184		—		—
Commercial real estate owner occupied	3,628		—		—
Commercial real estate non-owner occupied	5,481		—		—
Commercial and industrial	623		—		1,040

Residential real estate	6,563		—		—
Home equity	253		—		—
Consumer other	6		—		—
Total loans	$	26,167	$	—	$	1,040

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

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 three months ended March 31, 2022 and March 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
Three months ended March 31, 2022
Construction	$	9,429	$	—	$	—	$	—	$	—	$	9,429
Commercial multifamily	703		(9)		—		—		—		694
Commercial real estate owner occupied	2,733		(9)		—		—		—		2,724
Commercial real estate non-owner occupied	9,310		—		—		(8,312)		—		998
Commercial and industrial	3,656		(51)		—		(13)		—		3,592

Residential real estate	1,117		(8)		—		—		—		1,109
Home equity	121		(2)		—		—		50		169
Consumer other	33		(1)		—		—		—		32
Total	$	27,102	$	(80)	$	—	$	(8,325)	$	50	$	18,747


(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period
Three months ended March 31, 2021
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial multifamily	754		(13)		—		—		—		741
Commercial real estate owner occupied	1,731		(6)		—		—		—		1,725
Commercial real estate non-owner occupied	13,684		(14)		—		511		544		14,725
Commercial and industrial	2,686		(199)		—		—		146		2,633

Residential real estate	1,524		(31)		—		—		—		1,493
Home equity	133		(3)		—		—		—		130
Consumer other	36		(2)		—		—		—		34
Total	$	20,548	$	(268)	$	—	$	511	$	690	$	21,481

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents loans modified as TDRs that occurred during the three months ended March 31, 2022 and 2021:


(dollars in thousands)	Total
Three months ended March 31, 2022
TDR:
Number of loans	1
Pre-modification outstanding recorded investment	$	50
Post-modification outstanding recorded investment	$	50

Three months ended March 31, 2021
TDR:
Number of loans	4
Pre-modification outstanding recorded investment	$	690
Post-modification outstanding recorded investment	$	690

The following table presents loans by portfolio segment modified as TDRs for which there was a payment default within twelve months following the modification during the three months ended March 31, 2022:


(in thousands)	Number of Loans	Recorded Investment
Three months ended March 31, 2022




Commercial and industrial	1	$	105



Total	1	$	105

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended March 31, 2021.

Beginning in March 2020, the Company has 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. Refer to Note 9 - Other Commitments, Contingencies, and Off-Balance Sheet Activities, and Pandemic Impact for more information regarding these modifications.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. DEPOSITS

A summary of time deposits is as follows:


(In thousands)	March 31, 2022		December 31, 2021
Time less than $100,000	$	543,728	$	676,979
Time $100,000 through $250,000	623,928		610,174
Time more than $250,000	361,266		391,787
Total time deposits	$	1,528,922	$	1,678,940

Included in total deposits are brokered deposits of $164.8 million and $228.1 million at March 31, 2022 and December 31, 2021, respectively. Included in total deposits are reciprocal deposits of $79.9 million and $89.2 million at March 31, 2022 and December 31, 2021, respectively.

NOTE 6. BORROWED FUNDS

Borrowed funds at March 31, 2022 and December 31, 2021 are summarized, as follows:


	March 31, 2022				December 31, 2021
			Weighted				Weighted
			Average				Average
(Dollars in thousands)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLB	$	—	—	%	$	—	—	%

Total short-term borrowings:	—		—		—		—
Long-term borrowings:
Advances from the FHLB and other borrowings	14,563		1.60		13,331		1.75

Subordinated borrowings	74,633		7.00		74,590		7.00
Junior subordinated borrowing - Trust I	15,464		2.33		15,464		2.01
Junior subordinated borrowing - Trust II	7,472		2.53		7,459		1.90

Total long-term borrowings:	112,132		5.36		110,844		5.33
Total	$	112,132	5.36	%	$	110,844	5.33	%

Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year. The Bank also maintains a $3.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was no outstanding balance on the FHLB line of credit for the periods ended March 31, 2022 and December 31, 2021. The Bank's available borrowing capacity with the FHLB was $1.3 billion and $1.5 billion for the periods ended March 31, 2022 and December 31, 2021.

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 under this arrangement took place for the periods ended March 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 March 31, 2022 and December 31, 2021, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $553.2 million and $511.0 million for the periods ended March 31, 2022 and December 31, 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term FHLB advances consist of advances with an original maturity of more than one year and are subject to prepayment penalties. The advances outstanding at March 31, 2022 included callable advances totaling $10.0 million and amortizing advances totaling $4.6 million. The advances outstanding at December 31, 2021 included callable advances totaling $10.0 million and amortizing advances totaling $3.4 million. All FHLB 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.

A summary of maturities of FHLB advances as of March 31, 2022 is as follows:


	March 31, 2022
			Weighted Average
(In thousands, except rates)	Principal		Rate
Fixed rate advances maturing:
2022	$	3,999	2.04	%
2023	—		—
2024	35		—
2025	5,971		1.99
2025 and beyond	4,558		0.72
Total FHLB advances	$	14,563	1.60	%

The Company did not have variable-rate FHLB advances for the periods ended March 31, 2022 and December 31, 2021, respectively.

In September 2012, the Company issued fifteen year subordinated notes in the amount of $75.0 million at a discount of 1.15%. The interest rate is fixed at 6.875% for the first ten years. After ten years, the notes become callable and convert to an interest rate of three-month LIBOR rate plus 5.113%. The subordinated note includes reduction to the note principal balance of $61 thousand and $92 thousand for unamortized debt issuance costs as of March 31, 2022 and December 31, 2021, respectively.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets at 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 2.33% and 2.01% at March 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. 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 at 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 2.53% and 1.90% at March 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. 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of March 31, 2022, the Company held derivatives with a total notional amount of $3.7 billion. The Company had economic hedges totaling $3.7 billion and $1.2 million non-hedging derivatives, which are not designated as hedges for accounting purposes 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 $0.3 billion, and $0.3 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 and Capital 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 March 31, 2022.

The Company pledged collateral to derivative counterparties in the form of cash totaling $38.6 million and securities with an amortized cost of $45.4 million and a fair value of $45.3 million as of March 31, 2022. 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.

Information about derivative assets and liabilities at March 31, 2022, follows:


			Weighted	Weighted Average Rate				Estimated
	Notional		Average			Contract		Fair Value
	Amount		Maturity	Received		pay rate		Asset (Liability)
	(In thousands)		(In years)					(In thousands)





Economic hedges:
Interest rate swap on tax advantaged economic development bond	$	7,677	7.7	0.60	%	5.09	%	$	(726)
Interest rate swaps on loans with commercial loan customers	1,688,052		6.0	3.97	%	2.01	%	(2,540)
Offsetting interest rate swaps on loans with commercial loan customers (1)	1,688,052		6.0	2.01	%	3.97	%	6,179
Risk participation agreements with dealer banks	329,679		5.5					324
Forward sale commitments	307		0.2					7
Total economic hedges	3,713,767							3,244

Non-hedging derivatives:
Commitments to lend	1,184		0.2					18
Total non-hedging derivatives	1,184							18

Total	$	3,714,951						$	3,262

(1) Fair value estimates include the impact of $3.4 million settled to market contract agreements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about derivative assets and liabilities at December 31, 2021, follows:


			Weighted	Weighted Average Rate				Estimated
	Notional		Average			Contract		Fair Value
	Amount		Maturity	Received		pay rate		Asset (Liability)
	(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
Offsetting 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Economic hedges

As of March 31, 2022, the Company has an interest rate swap with a $7.7 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 March 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 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. Changes in fair value are recorded in current period earnings.

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 originated 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 sale 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 sale 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 TBA 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-hedging derivatives

The Company enters into interest rate lock commitments (“IRLCs”), or 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. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs 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 IRLCs 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 IRLCs 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 Income related to economic hedges and non-hedging derivatives were as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
Economic hedges
Interest rate swap on industrial revenue bond:
Unrealized gain recognized in other non-interest income	$	432	$	346

Interest rate swaps on loans with commercial loan customers:
Unrealized (loss) recognized in other non-interest income	(78,698)		(60,302)
Favorable change in credit valuation adjustment recognized in other non-interest income	867		2,502

Offsetting interest rate swaps on loans with commercial loan customers:
Unrealized gain recognized in other non-interest income	78,698		60,302


Risk participation agreements:
Unrealized (loss) recognized in other non-interest income	(108)		(329)

Forward commitments:
Unrealized (loss)/gain recognized in other non-interest income	(127)		6
Realized gain/(loss) in other non-interest income	—		(6)


Non-hedging derivatives
Commitments to lend
Unrealized (loss) recognized in other non-interest income	$	(106)	$	(550)

Realized gain in other non-interest income	252		1,352

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 statements of condition. 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 $26.7 million and $2.2 million as of March 31, 2022 and December 31, 2021, respectively. The Company had net asset positions with its commercial banking counterparties totaling $22.7 million and $76.8 million as of March 31, 2022 and December 31, 2021, respectively. The Company had net liability positions with its financial institution counterparties totaling $20.3 million and $33.3 million as of March 31, 2022 and December 31, 2021, respectively. The Company had net liability positions with its commercial banking counterparties totaling $25.3 million as of March 31, 2022. The Company had $2.5 million net liability positions with its commercial banking counterparties as of December 31, 2021. 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 March 31, 2022 and December 31, 2021:

Offsetting of Financial Assets and Derivative Assets


	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Assets Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
March 31, 2022
Interest Rate Swap Agreements:
Institutional counterparties	$	26,748	$	(49)	$	26,699	$	—	$	—	$	26,699
Commercial counterparties	22,748		—		22,748		—		—		22,748
Total	$	49,496	$	(49)	$	49,447	$	—	$	—	$	49,447

Offsetting of Financial Liabilities and Derivative Liabilities


	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Liabilities Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount
March 31, 2022
Interest Rate Swap Agreements:
Institutional counterparties	$	(24,005)	$	3,712	$	(20,293)	$	45,288	$	38,609	$	63,604
Commercial counterparties	(25,288)		—		(25,288)		—		—		(25,288)
Total	$	(49,293)	$	3,712	$	(45,581)	$	45,288	$	38,609	$	38,316

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Offsetting of Financial Assets and Derivative Assets


	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Assets Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
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		Gross Amounts Offset in the		Net Amounts of Liabilities Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount
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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. 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 March 31, 2022, lease expiration dates ranged from 1 month to 18 years.

The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:


(In thousands)		March 31, 2022		December 31, 2021
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	53,641	$	52,180
Finance lease right-of-use assets	Premises and equipment, net	6,543		6,674
Total Lease Right-of-Use Assets		$	60,184	$	58,854

Lease Liabilities
Operating lease liabilities	Other liabilities	$	57,085	$	55,674
Finance lease liabilities	Other liabilities	9,725		9,862
Total Lease Liabilities		$	66,810	$	65,536

Supplemental information related to leases was as follows:


	March 31, 2022		December 31, 2021
Weighted-Average Remaining Lease Term (in years)
Operating leases	9.5		9.5
Finance leases	12.6		12.8

Weighted-Average Discount Rate
Operating leases	2.59	%	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 three months ended March 31, 2022 was $2.6 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 three months ended March 31, 2021 was $2.8 million.Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases was as follows:


	Three Months Ended
(In thousands)	March 31, 2022		March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,614	$	3,330
Operating cash flows from finance leases	120		127
Financing cash flows from finance leases	138		131

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


(In thousands)	Operating Leases		Finance Leases
2022	$	7,499	$	772
2023	9,192		1,037
2024	7,993		1,037
2025	6,215		1,037
2026	4,992		1,037
Thereafter	28,683		8,187
Total undiscounted lease payments	64,574		13,107
Less amounts representing interest	(7,489)		(3,382)
Lease liability	$	57,085	$	9,725

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OTHER COMMITMENTS, CONTINGENCIES, OFF-BALANCE SHEET ACTIVITIES, AND PANDEMIC IMPACT

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 COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets and has had an adverse effect on the Company’s business, financial condition and results of operations. The ultimate extent of 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 has 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 March 31, 2022, the Company had 7 active modified loans outstanding with a carrying value of $13.5 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:


	March 31, 2022		December 31, 2021		Minimum Capital Requirement
Company (consolidated)
Total capital to risk-weighted assets	16.0	%	17.3	%	8.0	%
Common equity tier 1 capital to risk-weighted assets	13.9		15.0		4.5
Tier 1 capital to risk-weighted assets	14.2		15.3		6.0
Tier 1 capital to average assets	10.3		10.5		4.0


	March 31, 2022		December 31, 2021		Regulatory Minimum to be Adequately Capitalized		Regulatory Minimum to be Well Capitalized
Bank
Total capital to risk-weighted assets	14.5	%	15.9	%	8.0	%	10.0	%
Common equity tier 1 capital to risk-weighted assets	13.5		14.8		4.5		6.5
Tier 1 capital to risk-weighted assets	13.5		14.8		6.0		8.0
Tier 1 capital to average assets	9.8		10.1		4.0		5.0

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Failure to meet capital requirements can initiate regulatory action. At each date shown, the Company met the minimum capital requirements and 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 table above.

Effective January 1, 2015, the Company and the Bank became subject to the Basel III rule that requires the Company and the Bank to assess their Common equity Tier 1 capital to risk weighted assets. The Bank's Common equity Tier 1 capital to risk weighted assets exceeds the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of Common equity Tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the Common equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio, and the Total risk-based capital ratio. As of January 1, 2019, banking organizations must maintain a minimum Common equity Tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5%, and a minimum Total risk-based capital ratio of 10.5%. The final capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum capital conservation buffer is not met.

At March 31, 2022, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at March 31, 2022 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive (loss)

Components of accumulated other comprehensive (loss) is as follows:


(In thousands)	March 31, 2022		December 31, 2021
Other accumulated comprehensive income, before tax:
Net unrealized holding loss on AFS securities	$	(103,179)	$	(1,806)

Net unrealized holding (loss) on pension plans	(2,518)		(2,518)

Income taxes related to items of accumulated other comprehensive income:
Net unrealized tax benefit on AFS securities	26,786		407

Net unrealized tax benefit on pension plans	674		674
Accumulated other comprehensive loss	$	(78,237)	$	(3,243)

The following table presents the components of other comprehensive (loss) for the three months ended March 31, 2022 and 2021:


(In thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended March 31, 2022
Net unrealized holding loss on AFS securities:	x
Net unrealized (losses) arising during the period	$	(101,373)	$	26,379	$	(74,994)
Less: reclassification adjustment for gains realized in net income	—		—		—
Net unrealized holding (loss) on AFS securities	(101,373)		26,379		(74,994)















Other comprehensive (loss)	$	(101,373)	$	26,379	$	(74,994)




Three Months Ended March 31, 2021
Net unrealized holding loss on AFS securities:
Net unrealized (losses) arising during the period	$	(27,013)	$	6,863	$	(20,150)
Less: reclassification adjustment for gains realized in net income	—		—		—
Net unrealized holding (loss) on AFS securities	(27,013)		6,863		(20,150)















Other comprehensive (loss)	$	(27,013)	$	6,863	$	(20,150)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the changes in each component of accumulated other comprehensive (loss), for the three months ended March 31, 2022 and 2021:


(In thousands)	Net unrealized holding loss on AFS Securities		Net unrealized holding loss on pension plans		Total
Three Months Ended March 31, 2022
Balance at Beginning of Period	$	(1,398)	$	(1,845)	$	(3,243)
Other comprehensive loss before reclassifications	(74,994)		—		(74,994)
Less: amounts reclassified from accumulated other comprehensive (loss)	—		—		—
Total other comprehensive (loss)	(74,994)		—		(74,994)
Balance at End of Period	$	(76,392)	$	(1,845)	$	(78,237)

Three Months Ended March 31, 2021
Balance at Beginning of Period	$	33,458	$	(2,587)	$	30,871
Other comprehensive loss before reclassifications	(20,150)		—		(20,150)
Less: amounts reclassified from accumulated other comprehensive (loss)	—		—		—
Total other comprehensive (loss)	(20,150)		—		(20,150)

Balance at End of Period	$	13,308	$	(2,587)	$	10,721

There were no amounts reclassified out of each component of accumulated other comprehensive (loss) for the three months ended March 31, 2022, and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. EARNINGS PER SHARE

Earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):


	Three Months Ended March 31,
(In thousands, except per share data)	2022		2021


Net income	$	20,196	$	13,031

Average number of common shares issued	51,903		51,903
Less: average number of treasury shares	3,494		948
Less: average number of unvested stock award shares	741		625

Average number of basic shares outstanding	47,668		50,330
Plus: dilutive effect of unvested stock award shares	392		235
Plus: dilutive effect of stock options outstanding	7		—
Average number of diluted shares outstanding	48,067		50,565




Basic earnings per common share:	$	0.42	$	0.26




Diluted earnings per common share:	$	0.42	$	0.26

For the three months ended March 31, 2022, 366 thousand shares of unvested restricted stock and 71 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended March 31, 2021, 390 thousand shares of unvested restricted stock and all options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the three months ended March 31, 2022 is presented in the following table:


	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
December 31, 2021	710	$	20.16	80	$	25.21
Granted	139	28.92		—	—
Acquired	—	—		—	—
Stock options exercised	—	—		1	23.30
Stock awards vested	(63)	22.09		—	—
Forfeited	(36)	27.12		—	—
Expired	—	—		(3)	23.34
March 31, 2022	750	$	21.73	78	$	25.30

During the three months ended March 31, 2022, proceeds from stock option exercises totaled $25 thousand. During the three months ended March 31, 2021, proceeds from stock option exercises totaled $69 thousand. During the three months ended March 31, 2022 and March 31, 2021, there were 63 thousand and 44 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $1.8 million and $0.7 million during the three months ended March 31, 2022 and 2021, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities 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.

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.


	March 31, 2022
	Level 1		Level 2		Level 3		Total
(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading security	$	—	$	—	$	7,798	$	7,798
Securities available for sale:
U.S Treasuries	—		290,609		—		290,609
Municipal bonds and obligations	—		70,223		—		70,223
Agency collateralized mortgage obligations	—		697,712		—		697,712
Agency residential mortgage-backed securities	—		654,386		—		654,386
Agency commercial mortgage-backed securities	—		258,324		—		258,324
Corporate bonds	—		40,478		4,020		44,498

Other bonds and obligations	—		16,823		—		16,823
Marketable equity securities	14,064		655		—		14,719
Loans held for investment at fair value	—		—		1,197		1,197
Loans held for sale	—		300		—		300
Derivative assets	—		49,046		25		49,071
Capitalized servicing rights	—		—		1,786		1,786
Derivative liabilities	—		45,809		—		45,809


	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	—		282,334		—		282,334
Corporate bonds	—		41,630		4,030		45,660

Other bonds and obligations	—		18,246		—		18,246
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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no transfers between levels during the three months ended March 31, 2022.

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 fair value of 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 an $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 March 31, 2022.

Aggregate Fair Value

March 31, 2022

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for investment at fair value

1,197

23,148

(21,951)

Aggregate Fair Value

December 31, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

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 loans held for sale (HFS) 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

March 31, 2022

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

300

291

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aggregate Fair Value

December 31, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

6,110

5,926

184

The changes in fair value of loans held for sale for the three months ended March 31, 2022, were losses of $175 thousand. During the three ended March 31, 2022, originations of loans held for sale totaled $7.4 million and sales of loans originated for sale totaled $13.1 million.

The changes in fair value of loans held for sale for the three months ended March 31, 2021, were gains of $6 thousand. During the three months ended March 31, 2021, originations of loans held for sale totaled $44.0 million and sales of loans originated for sale totaled $46.9 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 March 31, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company 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 specific 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 in a lock position 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 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 the hedging instrument, 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 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 in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and liabilities that were measured at fair value on a recurring basis for the three months ended March 31, 2022 and 2021.


	Assets (Liabilities)
			Securities		Loans						Capitalized
	Trading		Available		Held for		Commitments		Forward		Servicing
(In thousands)	Security		for Sale		Investment		to Lend		Commitments		Rights
Three Months Ended March 31, 2022
December 31, 2021	$	8,354	$	4,030	$	1,200	$	124	$	134	$	1,966



Unrealized (loss)/gain, net recognized in other non-interest income	(354)		—		209		70		(127)		(180)
Unrealized gain included in accumulated other comprehensive income	—		(10)		—		—		—		—
Unrealized gain/(loss), net recognized in discontinued operations	—		—		—		—		—		—
Paydown of asset	(202)		—		(212)		—		—		—

Transfers to held for sale loans	—		—		—		(176)		—		—

March 31, 2022	$	7,798	$	4,020	$	1,197	$	18	$	7	$	1,786
















Unrealized gain relating to instruments still held at March 31, 2022	$	121	$	20	$	—	$	18	$	7	$	—



			Securities		Loans						Capitalized
	Trading		Available		Held for		Commitments		Forward		Servicing
(In thousands)	Security		for Sale		Investment		to Lend		Commitments		Rights
Three Months Ended March 31, 2021
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	(166)		—		414		818		6		(65)


Paydown of asset	(192)		—		(1,231)		—		—		—

Transfers to held for sale loans	—		—		—		(1,368)		—		—
Additions to servicing rights	—		—		—		—		—		—
March 31, 2021	$	9,350	$	—	$	1,448	$	185	$	326	$	2,968














Unrealized gains relating to instruments still held at March 31,2021	$	887	$	—	$	—	$	185	$	326	$	—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:


	Fair Value				Significant Unobservable Input
(In thousands)	March 31, 2022		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading security	$	7,798	Discounted Cash Flow	Discount Rate	4.32		%
AFS Securities	4,020		Indication from Market Maker	Price	101.00%
Loans held for investment	1,197		Discounted Cash Flow	Discount Rate	25.00		%
				Collateral Value	$6.3 - $16.9
Commitments to lend	18		Historical Trend	Closing Ratio	80.00		%
			Pricing Model	Origination Costs, per loan	$	3
Forward commitments	7		Historical Trend	Closing Ratio	80.00		%
			Pricing Model	Origination Costs, per loan	$	3
Capitalized servicing rights	1,786		Discounted cash flow	Constant Prepayment Rate (CPR)	12.55		%
				Discount Rate	9.01		%
Total	$	14,826


	Fair Value				Significant Unobservable Input
(In thousands)	December 31, 2021		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading security	$	8,354	Discounted Cash Flow	Discount Rate	3.35		%
AFS Securities	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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 at fair value on a non-recurring basis.

March 31, 2022

December 31, 2021

Fair Value Measurement Date as of March 31, 2022

Level 3

(In thousands)

Inputs

Assets

Individually evaluated

8,192

12,482

March 2022

Capitalized servicing rights

13,579

14,056

March 2022

Total

21,771

26,538

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:

Fair Value

(In thousands)

March 31, 2022

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

8,192

Fair Value of Collateral

Discounted Cash Flow - Loss Severity

(100.00)% to 102.24% ((45.07)%)

Appraised Value

$0 to $4,319 ($2,497)

Capitalized servicing rights

13,579

Discounted Cash Flow

Constant Prepayment Rate (CPR)

6.16% to 13.64% (11.51%)

Discount Rate

9.09% to 11.74% (10.83%)

Total

21,771

(1) 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 individuals properties.

Fair Value

(In thousands)

December 31, 2021

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

12,482

Fair Value of Collateral

Discounted Cash Flow - 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

26,538

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended March 31, 2022 and December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 amount 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, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Estimated Fair Values of Financial Instruments

The following tables summarize the estimated fair values (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.


	March 31, 2022
	Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	1,607,251	$	1,607,251	$	1,607,251	$	—	$	—
Trading security	7,798		7,798		—		—		7,798
Marketable equity securities	14,719		14,719		14,064		655		—
Securities available for sale	2,032,575		2,032,575		—		2,028,555		4,020
Securities held to maturity	612,174		580,538		—		578,021		2,517
FHLB bank stock and restricted securities	10,829		N/A		N/A		N/A		N/A
Net loans	7,167,848		7,224,588		—		—		7,224,588
Loans held for sale	300		300		—		300		—
Accrued interest receivable	33,813		33,813		—		33,813		—

Derivative assets	49,071		49,071		—		49,046		25


Financial Liabilities
Total deposits	$	10,699,208	$	10,683,261	$	—	$	10,683,261	$	—
Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances and other	14,563		13,487		—		13,487		—
Subordinated borrowings	97,569		94,267		—		94,267		—
Derivative liabilities	45,809		45,809		—		45,809		—


	December 31, 2021
	Carrying		Fair
(In thousands)	Amount		Value		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 and other	1,877,585		1,877,585		—		1,873,555		4,030
Securities held to maturity	636,503		647,236		—		644,497		2,739
FHLB bank stock and restricted 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


Financial Liabilities
Total deposits	$	10,068,953	$	10,073,217	$	—	$	10,073,217	$	—
Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances	13,331		13,053		—		13,053		—
Subordinated borrowings	97,513		95,006		—		95,006		—
Derivative liabilities	35,194		35,194		—		35,194		—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. NET INTEREST INCOME AFTER BENEFIT/PROVISION FOR CREDIT LOSSES

Presented below is net interest income after provision for credit losses for the three months ended March 31, 2022 and 2021, respectively.


	Three Months Ended March 31,
(In thousands)	2022		2021
Net interest income	$	69,063	$	75,093
(Benefit)/provision for credit losses	(4,000)		6,500
Net interest after provision for credit losses	$	73,063	$	68,593

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ITEM 2. 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 information appearing elsewhere in this or prior Forms 10-Q. Stock price information is for Berkshire’s common shares traded on the New York Stock exchange under the symbol “BHLB”.


	At or for the
	Three Months Ended March,31,
	2022			2021
NOMINAL AND PER SHARE DATA
Net earnings per common share, diluted	$	0.42		$	0.26
Adjusted earnings per common share, diluted (1)(2)	0.43			0.32
Net income, (thousands)	20,196			13,031
Adjusted net income, (thousands) (1)(2)	20,789			16,015
Total common shares outstanding, (thousands)	47,792			50,988
Average diluted shares, (thousands)	48,067			50,565
Total book value per common share	22.89			23.05
Tangible book value per common share (2)	22.30			22.39
Dividends per common share	0.12			0.12
Full-time equivalent staff, continuing operations	1,333			1,467

PERFORMANCE RATIOS (3)
Return on equity	6.79		%	4.50		%
Adjusted return on equity (1)(2)	6.99			5.53
Return on tangible common equity (1)(2)	7.29			4.98
Adjusted return on tangible common equity (1)(2)	7.49			6.04
Return on assets	0.70			0.42
Adjusted return on assets (1)(2)	0.72			0.51
Net interest margin, fully taxable equivalent (FTE) (4)(6)	2.61			2.62
Efficiency ratio (1)(2)	72.61			71.32


FINANCIAL DATA (in millions, end of period)
Total assets	$	12,097		$	12,757
Total earning assets	11,401			12,071
Total loans	7,267			7,659

Total deposits	10,699			10,244
Loans/deposits (%)	68		%	75		%


ASSET QUALITY (5)
Allowance for credit losses, (millions)	$	99		$	124
Net charge-offs, (millions)	(3)			(10)
Net charge-offs (QTD annualized)/average loans	0.15		%	0.51		%
Provision (benefit)/expense, (millions)	$	(4)		$	7

Non-accruing loans/total loans	0.41		%	0.73		%
Allowance for credit losses/non-accruing loans	335			222
Allowance for credit losses/total loans	1.37			1.62

CAPITAL RATIOS
Common equity tier 1 capital to risk-weighted assets	13.9		%	14.2		%
Tier 1 capital leverage ratio	10.3			9.5
Tangible common shareholders' equity/tangible assets (2)	8.8			9.0

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	At or for the
	Three Months Ended March 31,
	2022		2021
FOR THE PERIOD: (In thousands)
Net interest income	$	69,063	$	75,093
Non-interest income	20,681		26,193
Net revenue	89,744		101,286
(Benefit)/provision for credit losses	(4,000)		6,500
Non-interest expense	68,550		78,154
Net income	20,196		13,031
Adjusted income (1)(2)	20,789		16,015

____________________________________________________________________________________________

(1) Adjusted measurements are non-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions and restructuring activities. Refer to the Reconciliation of non-GAAP Financial Measures for additional information.

(2) Non-GAAP financial measure. Refer to the Reconciliation of non-GAAP Financial Measures for additional information.

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

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

(5) The effect of purchase accounting accretion for loans, time deposits, and borrowings on the net interest margin was an increase in all periods presented. The increase for the three months ended March 31, 2022 and 2021 was 0.03% and 0.05%, respectively.

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES

The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included:


	Three Months Ended March,31,
	2022				2021
(Dollars in millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Assets
Loans:
Commercial real estate	$	3,651	3.35	%	$	3,630	3.27	%
Commercial and industrial loans	1,373		4.14		1,865		4.62
Residential mortgages	1,436		3.56		1,740		3.71
Consumer loans	514		4.24		634		3.79
Total loans (1)	6,974		3.61		7,869		3.73
Investment securities (2)	2,649		1.95		2,195		2.36
Short-term investments & loans held for sale (3)	1,202		0.17		1,351		0.13
Mid-Atlantic region loans held for sale(4)	—		—		295		4.09
Total interest-earning assets	10,825		2.82		11,710		3.07
Intangible assets	29		X		34
Other non-interest earning assets	639				724

Total assets	$	11,493			$	12,468

Liabilities and shareholders’ equity
Deposits:
NOW and other	$	1,456	0.04	%	$	1,325	0.15	%
Money market	2,871		0.16		2,802		0.27
Savings	1,117		0.03		1,003		0.08
Time	1,624		0.71		2,266		1.12
Total interest-bearing deposits	7,068		0.24		7,396		0.48
Borrowings and notes (5)	122		5.21		511		2.78
Mid-Atlantic region interest-bearing deposits(4)	—		—		518		0.60
Total interest-bearing liabilities	7,190		0.32		8,425		0.63
Non-interest-bearing demand deposits	2,968				2,537
Other non-interest earning liabilities	146				347
Liabilities from discontinued operations	—				—
Total liabilities	10,304				11,309


Total common shareholders' equity	1,189				1,159
Total shareholders’ equity (2)	1,189				1,159
Total liabilities and stockholders’ equity	$	11,493			$	12,468

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	Three Months Ended March 31,
	2022				2021
	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Net interest spread			2.50	%			2.44	%
Net interest margin (6)			2.61				2.62
Cost of funds			0.23				0.48
Cost of deposits			0.17				0.36

Supplementary data
Total deposits (In millions)	$	10,037			$	9,932
Fully taxable equivalent income adj. (In thousands) (7)	1,524				1,494

____________________________________

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

(2) The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.

(3) Interest income on loans held for sale is included in loan interest income on the income statement.

(4) The Mid-Atlantic region loans are not included in the loan yields; however they are included in the total earning assets yield and the net interest margin. The Mid-Atlantic region deposits are not included in the deposit costs; however, they are included in the total interest-bearing liabilities cost and the net interest margin.

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

(6) Purchase accounting accretion totaled $0.7 and $1.3 million for the three months ended March 31, 2022 and 2021, respectively.

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

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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. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees. 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. For 2021, the net gains on sale of business operations and assets was related to the sale of the insurance subsidiary and the Mid-Atlantic branch operations.

The Company also calculates adjusted earnings per share based on its measure of adjusted earnings and diluted common shares. 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. Expense adjustments in the first quarter 2021 were primarily related to branch consolidations. Net losses on securities in the first quarter of 2022 were primarily due to unrealized equity securities losses due to changes in market conditions.

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

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following table summarizes the reconciliation of non-GAAP items recorded for the periods indicated:


		At or for the Three Months Ended March 31,
(In thousands)		2022			2021
GAAP Net income/(loss)		$	20,196		$	13,031
Adj: Net losses on securities (1)		745			31




Adj: Restructuring and other expense		18			3,486


Adj: Income taxes		(170)			(533)
Total adjusted income/(loss) (non-GAAP) (2)	(A)	$	20,789		$	16,015

GAAP Total revenue		$	89,744		$	101,286
Adj: Losses on securities, net (1)		745			31
Adj: Net (gains) on sale of business operations and assets		—			—
Total operating revenue (non-GAAP) (2)	(B)	$	90,489		$	101,317

GAAP Total non-interest expense		$	68,550		$	78,154
Less: Total non-operating expense (see above)		(18)			(3,486)

Operating non-interest expense (non-GAAP) (2)	(C)	$	68,532		$	74,668

(In millions, except per share data)
Total average assets	(D)	$	11,493		$	12,468
Total average shareholders’ equity	(E)	1,189			1,159
Total average tangible shareholders’ equity (2)	(F)	1,160			1,125
Total average tangible common shareholders' equity (2)	(G)	1,160			1,125
Total tangible shareholders’ equity, period-end (2)(3)	(H)	1,066			1,142
Total tangible common shareholders' equity, period-end (2)(3)	(I)	1,066			1,142
Total tangible assets, period-end (2)(3)	(J)	12,069			12,724
Total common shares outstanding, period-end (thousands)	(K)	47,792			50,988
Average diluted shares outstanding (thousands)	(L)	48,067			50,565

Earnings per common share, diluted		$	0.42		$	0.26
Adjusted earnings per common share, diluted (2)	(A/L)	0.43			0.32
Book value per common share, period-end		22.89			23.05
Tangible book value per common share, period-end (2)	(I/K)	22.30			22.39
Total shareholders' equity/total assets		9.04			9.21
Total tangible shareholder's equity/total tangible assets (2)	(H/J)	8.83			8.98

Performance ratios (4)
GAAP return on equity		6.79		%	4.50		%
Adjusted return on equity (2)	(A/E)	6.99			5.53
Return on tangible common equity (2)(5)		7.29			4.98
Adjusted return on tangible common equity (2)(5)	(A+O)/(G)	7.49			6.04
GAAP return on assets		0.70			0.42
Adjusted return on assets (2)	(A/D)	0.72			0.51
Efficiency ratio (2)	(C-O)/(B+M+P)	72.61			71.32
(in thousands)
Supplementary data (In thousands)
Tax benefit on tax-credit investments (6)	(M)	$	596		$	41
Non-interest income charge on tax-credit investments (7)	(N)	(357)			(33)
Net income on tax-credit investments	(M+N)	239			8

Intangible amortization	(O)	1,286			1,319
Fully taxable equivalent income adjustment	(P)	1,524			1,494

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_________________________________________________________________________________________

(1) Net securities losses/(gains) for the periods ending March 31, 2022 and 2021 include the change in fair value of the Company's equity securities in compliance with the Company's adoption of ASU 2016-01.

(2) Non-GAAP financial measure.

(3) Total tangible shareholders’ equity is computed by taking total shareholders’ equity less the intangible assets at period-end. Total tangible assets is computed by taking total assets less the intangible assets at period-end.

(4) Ratios are annualized and based on average balance sheet amounts, where applicable.

(5) Adjusted return on tangible common equity is computed by dividing the total adjusted income adjusted for the tax-affected amortization of intangible assets, assuming a 27% marginal rate, by tangible equity.

(6) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation and low-income housing.

(7) The non-interest income charge is the reduction to the tax-advantaged commercial project investments, which are incurred as the tax credits are generated.

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GENERAL

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Annual Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of 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 2022 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. 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 Hills Bancorp, Inc. (“Berkshire” or “the Company”) is a Delaware corporation headquartered in Boston and the holding company for Berkshire Bank (“the Bank”). Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter. The Bank seeks to transform 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 a leading socially responsible omni-channel community bank in New England and beyond. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately $12.1 billion in assets and operates 105 branch offices in New England and New York.

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, including statements regarding our outlook for earnings, net interest margin, fees, expenses, tax rates, capital and liquidity levels and other matters regarding or affecting Berkshire and its future business or operations. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “outlook,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. Such statements further include statements about expectations regarding inflation and interest rates, economic activity, the Russian invasion of Ukraine, market conditions, and stock repurchases.

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, 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 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and the Risk Factors in Item 1A of this report.

Additionally, the COVID-19 pandemic may have further adverse impacts on the Company, its customers, and the communities where it operates, with possible adverse impacts on the Company’s business, results of operations and financial condition for an indefinite period of time. 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.

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SUMMARY

Berkshire recorded $20 million in first quarter net income in 2022, which was a 55 percent increase over results in the first quarter of 2021. Results in 2021 reflected higher credit loss provisioning due to the pandemic and restructuring charges. Results in 2022 included a provision benefit as pandemic related loss reserves are being released, as well as financial benefits from the restructuring actions in 2021.

First quarter financial highlights included:

•62% year-over-year increase in earnings per share, including the benefit of share repurchases

•6% increase in total loans quarter-over-quarter

•2.61% net interest margin, stable year-over-year

◦0.11% reduction in PPP loan contribution offset by reduction in cost of funds

•$4 million benefit to the credit loss provision due to a release of the credit loss allowance

•0.41% non-accruing loans/loans – fifth sequential quarterly improvement

•6% reduction in period-end shares outstanding year-over-year reflecting stock buybacks

Strong growth in loan balances benefited from higher loan originations from existing and new bankers, and new bankers, and from new partnership channels developed in the second half of 2021. Credit metrics remained strong and improving, and earnings benefited from a release of the credit loss allowance, which continues to provide comparatively strong coverage of the loan portfolio. The Company’s balance sheet positioning includes:

•Strong levels of liquidity available to support planned loan growth. Cash and equivalents totaled 11% of average total assets in the most recent quarter

•Positive asset sensitivity to rising interest rates, with a 4% modeled benefit to net interest income compared to a static scenario in the event of a 100 basis point upward shock to net interest income

•Higher cost funds targeted to further reset down in 2022, including maturing time deposits and callable subordinated debt

•Stock repurchase plan approved for $140 million

•Relatively strong regulatory capital metrics, with a 13.9% period-end common equity tier 1 capital ratio

In accordance with its BEST plan, Berkshire continued recruiting front line bankers and developing technology initiatives in the first quarter. The Company continues to promote employees from within the organization and bring on board knowledgeable bankers to deepen long-term relationships with its customers. Berkshire Bank recently announced an expanded partnership with fintech Narmi to create a best-in-class digital banking experience for consumers and small businesses, which is targeted for implementation in 2023. During the quarter, the Company announced the appointment of Dr. Mihir Desai to its board of directors. Dr. Desai is a Professor of Finance at Harvard Business School and Professor of Law at Harvard Law School. For more information about the BEST plan, please see Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s most recent report on Form 10-K.

During the most recent quarter, the Federal Reserve Bank increased the target Federal Funds rate by 25 basis points, which was the first increase since it was dropped to near zero approximately two years ago at the start of the pandemic. Inflation has reached a forty-year high, and labor and supply chain challenges have been heightened by the global impacts of the Russian invasion of Ukraine. During the quarter, the three-month treasury interest rate increased by 0.46% to 0.52%, the two year rate increased by 1.55% to 2.28%, and the ten year rate increased by 0.80% to 2.32%.

GDP declined in the most recent quarter and the markets anticipate further monetary tightening through rate hikes and quantitative tightening. The Company is pursuing its plans for growth under its BEST plan based on its favorable niche in a consolidating regional market and its distinctive strategy based on its DigitouchSM approach to customer engagement and its community service message that where you bank matters.

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

Summary: Total assets increased by $0.5 billion, or 5%, to $12.1 billion primarily due to $0.4 billion in loan growth, reflecting increases in all major loan categories. Deposits grew by $0.6 billion due to an increase in period-end fluctuating payroll deposit balances.

The balance of cash and equivalents totaled $1.6 billion at period-end, and the average cash and equivalents measured 11% of average total assets in the first quarter.

Stock repurchases were resumed under a newly approved program to repurchase approximately 9% of outstanding shares in 2022, with 2% repurchased during the quarter. The common equity tier 1 capital ratio remained comparatively strong at 13.9% at period-end. Including the impact of unrealized bond losses resulting from higher interest rates, the book value of shareholders’ equity decreased by 8% during the quarter. Major measures of asset quality continued to strengthen and generally were improved over pre-pandemic levels.

Investments: The portfolio of investment securities increased by $129 million, or 5%, to $2.68 billion during the first quarter. The balance of shorter duration treasury securities increased by $231 million as cash was invested to earn higher yields pending reinvestment in planned future loan growth. This increase was partially offset by unrealized losses in the fair value of available-for-sale bonds, reflecting the impact of higher interest rates on fixed rate bond values. The period-end net unrealized loss on available for sale securities measured $105 million, or 4.9% of cost, compared to a net loss of $4 million, or 0.2% of cost, at year-end 2021. The first quarter yield on investment securities declined to 1.95% compared to 2.04% in the linked quarter, including the impact of the treasury securities purchased during the first quarter. The average life of the portfolio increased during the quarter to 5.6 years from 4.6 years, primarily due to slower projected prepayment speeds in the environment of higher interest rates.

Loans: Total loans increased by $441 million, or 6%, to $7.27 billion during the first quarter, reflecting growth in all major categories. Commercial loans benefited from strong growth in asset based lending, commercial multifamily, and other commercial real estate loans. Loan production increased strongly quarter over quarter, including contributions from new commercial bankers recruited in the second half of 2021. Asset based lending growth was primarily driven by higher line borrowings. The commercial pipeline at period-end reflected continued strong demand.

Residential mortgage growth included contributions from the expanded originations team along with higher wholesale volume including correspondent banking. Consumer loan growth was primarily due to loans originated through Berkshire’s partnership with fintech Upstart.

The loan yield decreased to 3.61% in the most recent quarter from 3.76% in the linked quarter. Roll-off of higher yielding loans and lower yields on new residential mortgages combined to reduce the overall portfolio yield. The Company’s loans repricing within three months totaled $3.76 billion at quarter-end, measuring 52% of total loans. Increases in the prime and LIBOR index rates late in the first quarter and anticipated in future quarters are expected to contribute to higher loan yields in future periods.

On a year-over-year basis, total loans decreased 5%, due to payoffs and reduced demand during the pandemic. Loan growth was positive before the impact of planned or targeted reductions in certain runoff portfolios. The Company’s strong planned originations volume is targeted to result in solid future loan growth, with diminished future impact from these run-off portfolios.

Asset Quality and Credit Loss Allowance: Major asset quality metrics improved in the first quarter of 2022, with many metrics improving to better levels than pre-pandemic. Non-accruing loans decreased quarter-over-quarter by 16%, measuring 0.41% of period-end total loans. Annualized net loan charge-offs measured 0.15% of average loans, down from 0.29% for the year 2021. Accruing delinquent loans declined to a near five quarter low of 0.28% of total loans. Accruing troubled debt restructurings improved to 0.24% of total loans.

The allowance for credit losses on loans decreased quarter-over-quarter by $7 million to $99 million, measuring 1.37% of total loans, which was a decrease from 1.55% at the start of the year. This reflected improved credit

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metrics and internal forecasts as well as other qualitative factors. The Company anticipates that the allowance ratio may decline in the current year, depending on economic and qualitative factors, and depending on the portfolio mix.

Deposits and Borrowings: Period-end total deposits increased by $630 million, or 6%, to $10.7 billion in the first quarter of 2022. This increase was concentrated in payroll deposits, which fluctuate daily. Shifts in balances between the NOW and money market categories also relate to payroll deposits. Total average deposits increased by 1% during this period. The Company has been reducing higher cost time deposits, including brokered deposits, which declined by 20% quarter-over-quarter based on average balances. Total average non-maturity deposits increased by 3% quarter-over-quarter. The first quarter 2022 total cost of deposits decreased to 0.17%, compared 0.19% in the linked quarter. There were no significant changes in borrowings during the quarter. The Company has a $75 million subordinated debt obligation bearing interest at 6.875% which becomes callable in September 2022. The Company expects to explore options for refinancing this obligation.

Derivative Financial Instruments: There were no material changes in the portfolio of outstanding derivative financial instruments, which totaled $3.7 billion in notional amount at period-end. The estimated fair value of these instruments was a liability of $4 million at period-end, which decreased from 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. Please see the Company’s report on Form 10-K regarding the LIBOR transition.

Shareholders' Equity: Total shareholders’ equity decreased by $89 million, or 7%, to $1.09 billion during the first quarter of 2022. This reflected the impact of share repurchases and a $75 million reduction in the most recent quarter reflecting the lower after-tax fair value of the available for sale bond portfolio because of higher interest rates.

The Company returned a total of $35 million to shareholders during the quarter through share repurchases and dividends, reducing excess capital while still having a comparatively elevated 13.9% common equity tier 1 capital ratio at period end. During the quarter, the Board approved a $140 million share repurchase program, representing approximately 9% of outstanding shares when approved. The Company repurchased approximately 2% of shares during the quarter.

The ratio of equity/assets decreased quarter-over- quarter to 9.0% from 10.2%. This primarily reflected the increase in assets from loan growth and the impact on accumulated other comprehensive income of the change in bond values. The non-GAAP measure of tangible common equity to tangible assets decreased to 8.8% from 10.0%. The Company monitors the impact of bond values on this ratio considering projections of further interest rate increases. The fair value of the high-quality liquid bond portfolio is expected to return to par as bonds mature, with the current discount accreted back into comprehensive income over time.

At quarter-end, book value per share was $22.89 and the non-GAAP measure of tangible book value per share was $22.30

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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021

Summary: Berkshire recorded net income of $20 million, or $0.42 per share, in the first quarter of 2022. Net income increased by 55% from $13 million, or $0.26 per share, in the first quarter of 2022. The improvement reflected a $11 million net change in the provision for credit losses on loans and a $3 million reduction in restructuring and other expenses.

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, including restructuring and other expenses in 2021 and an equity securities loss. First quarter adjusted earnings totaled $21 million, or $0.43 per share, in 2022 compared to $16 million, or $0.32 per share, in 2021. Earnings per share in 2022 also benefited from share repurchases in both years, with total average diluted shares decreasing year-over-year by 5%.

The first quarter efficiency ratio measured 72.6% in 2022, compared to 71.3% in 2021, primarily reflecting lower loan interest income. Revenue and expense in 2022 also include the impact of insurance and branch operations sold near the end of the third quarter of 2021. The Company’s overall strategy is to reinvest expense savings into bankers and technology to support higher future revenue in the context of its BEST plan.

The first quarter 2022 return on tangible common equity measured 7.3% and the non-GAAP measure of adjusted return on tangible common equity measured 7.5%.

Net Interest Income: First quarter net interest income decreased year-over-year by $6 million, or 8%, reflecting an 8% decrease in average earning assets, primarily driven by PPP loan prepayments, as well as the sale of certain branch operations, in 2021. The first quarter net interest margin was generally stable, measuring 2.61% in 2022 compared to 2.62% in 2021.

The yield on PPP loans was elevated in 2021 due to the recognition of deferred origination fees at the time of prepayment. PPP loans contributed 11 basis points to the first quarter net interest margin in 2021, with no significant contribution in 2022. Measured before this contribution, the net interest margin increased by 10 basis points year-over-year, primarily reflecting the Company’s balance sheet restructuring to reduce higher cost wholesale funds.

The cost of funds decreased by 25 basis points year-over-year, to 0.23% from 0.48%. The cost of deposits decreased by 19 basis points, to 0.17% from 0.36%. The cost of time deposits decreased quarter-over-quarter by 9 basis points to 0.71% in the most recent quarter and is anticipated to decline further due to repricing of higher cost time deposits, most of which mature over the next year.

The Company’s net interest income is modeled as positively sensitive to interest rate increases, as the interest bearing assets are more sensitive to interest rate increases, compared to liabilities. This is discussed further in the later discussion of Market Risk Factors. Based on market forecasts of interest rate increases throughout 2022, net interest income is modeled to benefit from these increases. Additionally, the targeted reinvestment of cash and short-term treasury securities into planned loan growth is also targeted to contribute to future growth in net interest income.

Non-Interest Income: Non-interest income decreased year-over-year by $6 million, or 21%. This largely reflected the sale of insurance operations, which produced $3 million of income in the first quarter of 2021, and approximately $1.5 million in PPP referral fees earned in that period for originating PPP loan referrals in the second phase of the PPP program. Mortgage banking revenue decreased by $1 million as new loan originations were mostly held for investment in 2022 rather than for sale in 2021.

Provision for Credit Losses on Loans: Berkshire recorded a $4 million benefit to the first quarter 2022 provision, compared to a $6.5 million charge in the first quarter of 2021. The $4 million benefit resulted from a $7 million release of the credit loss allowance net of $3 million in net loan charge-offs. The year-over-year improvement reflected improved credit metrics and internal forecasts as well as other qualitative factors. Major asset quality metrics were significantly improved year-over-year, including a reduction in first quarter net loan charge-offs to $3

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million from $10 million. The Company continues to maintain a relatively higher allowance compared to loans based on its methodology. If circumstances remain supportive, the Company’s methodology may result in a further reduction in the level of the allowance compared to loans, with potential favorable impact on the provision. This could be offset based on the volume and mix of loan originations.

Non-Interest Expense and Tax Expense: Non-interest expense decreased year-over-year by $10 million, or 12%. This included a $3 million reduction in restructuring expense costs including borrowings prepayment fees, real estate consolidation plans, and severance including costs related to branch consolidations. There was

a $4 million reduction in professional services expense which was elevated in 2021 including legal, financial, and other advisory services related to management and board matters during the quarter. Most other categories of expense declined, including the impact of insurance and branch operations sold, and the consolidation of 16 branch offices during 2021. Full-time equivalent staff totaled 1,333 positions at period-end, compared to 1,319 positions at the start of the 2022 and 1,505 positions at the start of 2021. The first quarter effective tax rate was 20% in 2022, compared to 22% in 2021, and compared to 20% for the full year 2021.

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 $55 million in the first quarter of 2022, compared to a loss of $7 million in the first quarter of 2021, reflecting the impact in both periods of rising medium term interest rates on the bond portfolio.

Liquidity and Cash Flows: Please see the discussion of Liquidity and Cash Flows in the most recent report on Form10-K for a more expansive discussion of these topics.

Growth in loans and investment securities were the primary uses of cash in the most recent quarter, and the primary source was higher deposits. The increase in deposits was mostly due to elevated payroll deposits at period-end. These elevated balances were expected to normalize, with the reduction to be funded from cash and cash equivalents, which totaled $1.6 billion at period-end. The Company views itself as having strong liquidity to support loan growth during 2022.

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. Additional information about capital resources and regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.

During the first quarter of 2022, the Company initiated stock repurchases under its newly approved $140 million stock repurchase plan, which was targeted to repurchase approximately 9% of outstanding shares. The Company initiated repurchases under this plan during the quarter and repurchased approximately 2% of shares during the quarter.

As a result of rising interest rates, bond portfolios in banks are subject to unrealized losses which result in charges against other comprehensive income (“AOCI”) and reduce the book value of shareholders’ equity. Like many of its peers, the Company utilizes an option in reporting its regulatory equity which excludes changes in AOCI in the calculation of regulatory capital. The unrealized bond losses that arose in the most recent quarter had no impact on regulatory capital metrics, which remain comparatively strong.

Reductions in bond valuations due to changes in market interest rates are reversed as bonds approach maturity. These reversals are accreted to AOCI over time, restoring the book value of equity. While the Company monitors the book value of equity and related metrics, it primarily manages capital based on regulatory capital measures, with a focus on the common equity tier 1 capital ratio. The Company continues to view itself as having excess capital which it plans to utilize to support loan growth as well as stock repurchases under its approved repurchase plan.

The Company regularly evaluates the level of its quarterly cash dividend to common shareholders. The dividend was cut in half in the third quarter of 2020 due to uncertainties related to the onset of the pandemic. The Company’s long run goal is to increase the dividend as profitability improves under its BEST plan.

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In acting as a source of strength for the Bank, the Company relies in the long term on capital distributions from the Bank in order to provide operating and capital service for the Company, which in turn can access national financial markets to provide financial support to the Bank. Capital distributions from the Bank to the parent company presently require approval by the FDIC and the Massachusetts Division of Banking.

CORPORATE RESPONSIBILITY UPDATE

Our Commitment to Environmental, Social, Governance (ESG) & Corporate Responsibility: Berkshire is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being a high performing, leading socially responsible community bank in New England and beyond. Berkshire's goal is to provide an ecosystem of socially responsible financial solutions, actively engages with its communities, and harness the power of its business to fuel the economy, create thriving neighborhoods, empower financial access and success, and invest in a low-carbon future.

The Bank believes that where you bank matters and that building stronger communities requires a better approach to banking. As such, ESG factors are central to the Bank's vision, mission, risk management practices, and Berkshire’s Exciting Strategic Transformation (BEST). Berkshire was a leader among community banks in establishing a dedicated committee of its Board of Directors to oversee ESG matters and have been a leader as a community bank in thoroughly integrating ESG standards into its business strategy and operations.

Berkshire shares information about its ESG performance, including through the Bank's Corporate Responsibility website, corporate annual report, and proxy statement. Additionally, the annual Corporate Responsibility Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) commercial bank disclosure topics, details the Company's ESG efforts and programs.

Climate Change & Sustainability: Climate change poses unprecedented risks and opportunities to the world, including Berkshire, its customers and communities. 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 and impacts associated with climate change, and finance the transition will allow it to strengthen its positioning towards its goal of being 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.

Key ESG & Corporate Responsibility Quarterly Developments

•BEST Community Comeback – Berkshire continues to deliver on its BEST Community Comeback, a transformational multibillion commitment to empower our stakeholders’ financial potential. 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. Further information is provided online at berkshirebank.com/comeback and in public relations announcements.

•Corporate Responsibility Report - In April 2022, the Company released its 2021 Corporate Responsibility Report, Empowering Community Comebacks. The report highlights Berkshire's performance on environmental, social, and governance matters along with its progress on its BEST Community Comeback. Detailed on the pages of the report are examples of how the simple decision of where you bank can have an outsized impact in your community.

•Standing with Ukraine: Berkshire took several actions along with its employees and customers in response to the ongoing humanitarian crisis in Ukraine including making a $50,000 contribution, through its Foundation, to the Ukrainian Federation of America. In addition, Berkshire is refunding outgoing wire transfer fees to individuals who are sending money to family and non-profit organizations in Ukraine; matching employee contributions to non-profits working to aid in relief efforts; and activating a virtual supply drive to provide critical supplies to organizations working to assist in Ukraine and neighboring countries.

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•Awards & Recognition: The Company was named to Newsweek's list of America's Most Trusted Companies 2022 and ranked #9 for banks. Earlier in the quarter Berkshire was also listed in Bloomberg's Gender Equality Index and named a Best Place to Work for LGBTQ+ Equality by the Human Rights Campaign. Finally, Berkshire received a 2022 Communitas Award for Leadership in Corporate Responsibility for its BEST Community Comeback program recognizing its early progress on the multi-year commitment.

•Current ESG Performance: The Company moved into the top 22% of leading ESG indexes in the U.S. for its Environmental, Social and Governance (ESG) ratings. As of March 31, 2022 the Company received ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 3, Social: 1, Governance: 3; and Bloomberg ESG Disclosure- 47.81. The Company is also rated by Sustainalytics.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements

included in its most recent Annual Report on Form 10-K. Modifications to significant accounting policies made during the year are described in Note 1 to the consolidated financial statements included in Item 1 of this report. The preparation of the consolidated financial statements in accordance with GAAP and practices generally applicable to the financial services industry requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.

Management has identified the Company's most critical accounting policies as related to:

• Allowance for Credit Losses on Loans

• Fair Value Measurements

These 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 policies were significant in determining income and financial condition in the financial statements. There is further discussion of the application of these policies in the Form 10-K.

ENTERPRISE RISK MANAGEMENT

Following sections of this report on Form 10-Q 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 and

Capital Committee. 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For additional discussion about the Company’s Quantitative and Qualitative Aspects of Market Risk, please review Item 7A of the most recent report on Form 10-K which sets forth the methodologies employed by the Company and the various aspects of its analysis of its interest rate sensitivity. Berkshire’s 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.

As of March 31, 2022, Berkshire’s balance sheet remained well-positioned for the forecast rising rate environment despite a small decline in asset sensitivity, driven primarily by an increase in residential mortgage loans. Based on market expectations for higher interest rates in 2022 and beyond, and on commentary from monetary authorities about easing monetary stimulus, it is anticipated that the Company’s positive sensitivity to rising rates may contribute to its BEST goals for improved profitability.

Shown below is a chart of the modeled change in net interest income from a static base case in the event of interest rate shocks for the scenarios illustrated.


CHANGE IN NET INTEREST INCOME
	1-12 Months	13-24 Months
Parallel Interest Rate Shock – Basis Points	% Change	% Change
At March 31, 2022
+200	10.3%	12.5%
+100	4.3%	4.6%
-100	(4.4)%	(5.6)%
At December 31, 2021
+200	13.1%	16.1%
+100	5.6%	6.5%
-100	(0.1)%	(1.2)%

The Company also models net interest income sensitivity to twelve month interest rate ramps. At period-end, the year one sensitivity to a +100 basis point interest rate ramp was 1.9% and the year two sensitivity was 4.1%. The Company also models sensitivity to yield curve twists, and sensitivity remained positive for both widening and narrowing of the yield curve scenarios.

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 second year of a +100 basis point scenario, the modeled shock sensitivity of net income is 12.8% and the ramp sensitivity is 11.4% based on conditions at March 31, 2022.

Economic value of equity sensitivity to changes in market rates was positive at year-end 2021, measuring 3.9% for a +100 basis point change and 4.8% for a +200% basis point change. Due to the decrease in the Company’s asset sensitivity in the most recent quarter, these measures declined to 1.0% and 1.4% respectively, as of March 31, 2022.

A critical component of modeling is the assumption of deposit interest rate sensitivity. The Company continues to model the non-maturity deposit beta of approximately 40% for purposes of interest rate risk simulations. Due to the low level of interest rates, the modeled sensitivity of a downward shift in interest rates is affected by assumptions related to market influences on spreads and floors. Prime, mortgage rates, and deposits are floored. All other rates are zero bound.

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

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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 4. CONTROLS AND PROCEDURES

a) Disclosure controls and procedures.

The principal executive officers, including the principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures were effective.

b) Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

As of March 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 September 11, 2020, the Company received notice of a demand letter served on the Company and the Bank by a former mortgagee of the Bank pursuant to the Massachusetts Consumer Protection Act, M.G.L Ch. 93A (“Chapter 93A). The demand letter alleges that a mortgage payoff statement tendered by the Bank to the mortgagee included a mortgage discharge preparation fee that is purportedly impermissible under Massachusetts law. The demand letter also claims that the Bank failed to provide a copy of the recorded mortgage discharge to the mortgagee in a timely manner. The demand letter further purports to state claims on behalf of a putative class of similarly situated Massachusetts mortgage customers of the Bank, who allegedly may have suffered similar violations of Massachusetts law. The demand letter seeks monetary damages for the original mortgagee claimant and the putative class, plus double or treble damages and reasonable attorneys’ fees, as may be allowed under Chapter 93A. The Company and the Bank have retained outside litigation counsel in this matter, and discussions have proceeded between the parties to find a mutually acceptable resolution. On July 28, 2021, a class action complaint was filed by the original 93A claimant against the Bank in the Massachusetts Superior Court for Suffolk County, pursuant to a pre-negotiated Memorandum of Understanding (“MOU”) between the parties. In accordance with the MOU, the parties have filed and the court has preliminarily approved a settlement agreement, under which the Bank expects to pay damages of approximately $510,000 in exchange for the dismissal with prejudice and release of all claims that have been or could have been asserted in the filed class action lawsuit on behalf of the plaintiff and all putative settlement class members, plus certain costs for administration of the class action settlement and legal fees incurred by the named plaintiff up to the amount of $85,000. The court granted preliminary approval of the settlement on October 18, 2021 and set a hearing date for final approval. The settlement administrator issued notice to class members shortly after preliminary approval, informing them of the settlement and of the opportunity to object. No objections were received prior to the objection deadline set by the court. On February 23, 2022, the court granted final approval of the settlement agreement and dismissed this action with prejudice accordingly.

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

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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 are preparing for arbitration proceedings that are expected to occur in the first half of 2022.

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ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed herein and in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which could materially affect the Company's business, financial condition, or future operating results. Please also see the earlier discussion in this report about Enterprise Risk Management. The risks described in this report and in the Annual Report on Form 10-K are not the only risks presently facing the Company. Additional risks and uncertainties not currently known to the Company, or currently deemed to be immaterial, also may materially adversely affect the Company's business, financial condition, and/or operating results. There were no other major changes in risk factors identified during the first three months of 2022.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sales of Unregistered Securities

The Company occasionally engages in the practice of transferring unregistered securities for the purpose of completing business transactions. These shares are issued to vendors or other organizations as consideration for services performed in accordance with each contract. During the three months ended March 31, 2022 and 2021 there were no shares transferred.

(b) Not applicable.

(c) The following table provides certain information with regard to shares repurchased by the Company in the first quarter of 2022:


	Total number of	Average price		Total number of shares purchased as part of publicly announced	Maximum number of shares that may yet be purchased under
Period	shares purchased	paid per share		plans or programs	the plans or programs
January 1-31, 2022	—	$	—	—	4,832,585
February 1-28, 2022	420,000	30.41		420,000	4,412,585
March 1-31, 2022	552,000	29.95		552,000	3,860,585
Total	972,000	$	30.15	972,000	3,860,585

On January 19, 2022, the Company announced that its Board of Directors has 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 would result in the repurchase of approximately 9% of outstanding shares based on the share price when the plan was approved. Maximum number of shares that may be purchased under this program has been estimated based on the March 31, 2022 share price of $28.97.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


3.1						Amended and Restated Certificate of Incorporation of Berkshire Hills Bancorp, Inc.(1)
3.2						Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
4.1						Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (3)
4.2						Certificate of Designations of Series B Non-Voting Preferred Stock of Berkshire Hills Bancorp, Inc. (4)
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						The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL: (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 including detailed tags.
104						The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL.

_______________________________________

(1) Incorporated herein by reference from the Exhibits to the 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 the 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.

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SIGNATURES

Pursuant to the requirements 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.


Dated: May 10, 2022	By:	/s/ Nitin J. Mhatre
	Nitin J. Mhatre
	President and Chief Executive Officer


Dated: May 10, 2022	By:	/s/ Subhadeep Basu
	Subhadeep Basu
	Senior Executive Vice President, Chief Financial Officer