0001108134bhlb:FairValueOfCollateralValuationTechniqueMemberus-gaap:MeasurementInputLossSeverityMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:FairValueInputsLevel3Membersrt:WeightedAverageMember2021-09-30

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: September 30, ~~2021~~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

Table of Contents

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 oý Accelerated filer ýo

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 November ~~5, 2021,~~7, 2022, the Registrant had ~~48,659,319~~45,025,062 shares of common stock, $0.01 par value per share, outstanding

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021

Consolidated Statements of ~~Operations~~Income for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Consolidated Statements of Comprehensive ~~Income/~~(Loss)/Income for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

109

Notes to Consolidated Financial Statements (Unaudited)

Note 1

Basis of Presentation

~~Note 2~~

~~Discontinued Operations~~

~~Note 3~~

~~Branch Sale and Sale of Insurance Operations~~

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

1613

Note 64

Loans and Allowance for Credit Losses

~~Deposits~~

~~Note 8~~

~~Borrowed Funds~~

~~Note 9~~

Derivative Financial Instruments and Hedging Activities

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

4543

Note 1210

Capital Ratios and Shareholders' Equity

Stock-Based Compensation Plans

Note 13

~~Earnings/(Loss) per Share~~Fair Value Measurements

5051

Note 14

~~Stock-Based Compensation Plans~~

~~Note 15~~

~~Fair Value Measurements~~

~~Note 16~~

Net Interest Income after Provision for Credit Losses

6160

Item 2.

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

6261

Selected Financial Data

6261

Average Balances and Average Yields/Rates

6463

Non-GAAP Financial Measures

6665

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

8182

Table of Contents

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS


		September 30, 2021			December 31, 2020			September 30, 2022		December 31, 2021
(In thousands, except share data)	(In thousands, except share data)			(In thousands, except share data)
Assets	Assets								Assets
Cash and due from banks	Cash and due from banks	$	153,185		$	91,219	Cash and due from banks	$	128,509	$	109,350
Short-term investments	Short-term investments	1,971,345			1,466,656		Short-term investments	566,404		1,518,457
Total cash and cash equivalents	Total cash and cash equivalents	2,124,530			1,557,875		Total cash and cash equivalents	694,913		1,627,807

Trading security, at fair value	Trading security, at fair value	8,574			9,708		Trading security, at fair value	6,812		8,354
Marketable equity securities, at fair value	Marketable equity securities, at fair value	15,601			18,513		Marketable equity securities, at fair value	12,790		15,453
Securities available for sale, at fair value	Securities available for sale, at fair value	1,643,965			1,695,232		Securities available for sale, at fair value	1,470,949		1,877,585
Securities held to maturity (fair values of $665,359 and $491,855)		651,863			465,091
Securities held to maturity (fair values of $503,262 and $647,236)							Securities held to maturity (fair values of $503,262 and $647,236)	592,503		636,503
Federal Home Loan Bank stock and other restricted securities	Federal Home Loan Bank stock and other restricted securities	12,041			34,873		Federal Home Loan Bank stock and other restricted securities	7,264		10,800
Total securities	Total securities	2,332,044			2,223,417		Total securities	2,090,318		2,548,695
Less: Allowance for credit losses on held to maturity securities	Less: Allowance for credit losses on held to maturity securities	(125)			(104)		Less: Allowance for credit losses on held to maturity securities	(95)		(105)
Net securities	Net securities	2,331,919			2,223,313		Net securities	2,090,223		2,548,590

Loans held for sale	Loans held for sale	5,176			17,748		Loans held for sale	4,124		6,110

Total loans	Total loans	6,836,235			8,081,519		Total loans	7,943,481		6,825,847
Less: Allowance for credit losses on loans	Less: Allowance for credit losses on loans	(112,916)			(127,302)		Less: Allowance for credit losses on loans	(96,013)		(106,094)
Net loans	Net loans	6,723,319			7,954,217		Net loans	7,847,468		6,719,753

Premises and equipment, net	Premises and equipment, net	99,233			112,663		Premises and equipment, net	86,809		94,383
Other real estate owned		—			149

Other intangible assets	Other intangible assets	30,907			34,819		Other intangible assets	25,761		29,619
Cash surrender value of bank-owned life insurance policies	Cash surrender value of bank-owned life insurance policies	235,327			232,695		Cash surrender value of bank-owned life insurance policies	238,052		235,690

Other assets	Other assets	291,722			387,230		Other assets	325,894		288,384
Assets held for sale	Assets held for sale	3,743			317,304		Assets held for sale	3,830		4,577

Total assets	Total assets	$	11,845,876		$	12,838,013	Total assets	$	11,317,074	$	11,554,913

Liabilities	Liabilities						Liabilities
Demand deposits	Demand deposits	$	3,022,821		$	2,484,249	Demand deposits	$	2,896,659	$	3,008,461
NOW and other deposits	NOW and other deposits	1,982,089			1,003,005		NOW and other deposits	1,045,970		976,401
Money market deposits	Money market deposits	2,438,832			3,371,353		Money market deposits	3,388,932		3,293,526
Savings deposits	Savings deposits	1,095,959			972,116		Savings deposits	1,111,304		1,111,625
Time deposits	Time deposits	1,825,714			2,385,085		Time deposits	1,545,256		1,678,940
Total deposits	Total deposits	10,365,415			10,215,808		Total deposits	9,988,121		10,068,953
Short-term debt		—			40,000

Long-term Federal Home Loan Bank advances and other	Long-term Federal Home Loan Bank advances and other	13,369			434,357		Long-term Federal Home Loan Bank advances and other	4,494		13,331
Subordinated borrowings	Subordinated borrowings	97,454			97,280		Subordinated borrowings	121,001		97,513
Total borrowings	Total borrowings	110,823			571,637		Total borrowings	125,495		110,844
Other liabilities	Other liabilities	191,563			232,730		Other liabilities	260,896		192,681
Liabilities held for sale		—			630,065

Total liabilities	Total liabilities	$	10,667,801		$	11,650,240	Total liabilities	$	10,374,512	$	10,372,478
(continued)	(continued)						(continued)
		September 30, 2021			December 31, 2020			September 30, 2022		December 31, 2021

Shareholders’ equity	Shareholders’ equity						Shareholders’ equity

Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 48,656,902 shares outstanding in 2021; 51,903,190 shares issued and 50,833,087 shares outstanding in 2020)		528			528
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 45,039,702 shares outstanding in 2022; 51,903,190 shares issued and 48,667,110 shares outstanding in 2021)							Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 45,039,702 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	Additional paid-in capital - common stock	1,423,321			1,427,239		Additional paid-in capital - common stock	1,424,158		1,423,445
Unearned compensation	Unearned compensation	(9,437)			(6,245)		Unearned compensation	(10,726)		(9,056)
Retained (deficit)	Retained (deficit)	(153,439)			(233,344)		Retained (deficit)	(93,820)		(139,383)
Accumulated other comprehensive income		7,249			30,871
Treasury stock, at cost (3,246,288 shares in 2021 and 1,070,103 shares in 2020)		(90,147)			(31,276)
Accumulated other comprehensive (loss)							Accumulated other comprehensive (loss)	(188,494)		(3,243)
Treasury stock, at cost (6,863,488 shares in 2022 and 3,236,080 shares in 2021)							Treasury stock, at cost (6,863,488 shares in 2022 and 3,236,080 shares in 2021)	(189,084)		(89,856)
Total shareholders’ equity	Total shareholders’ equity	1,178,075			1,187,773		Total shareholders’ equity	942,562		1,182,435
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	11,845,876		$	12,838,013	Total liabilities and shareholders’ equity	$	11,317,074	$	11,554,913

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

Three Months Ended
September 30, Nine Months Ended
September 30
(In thousands, except per share data) 2021 2020 2021 2020
Interest and dividend income from continuing operations
Loans $ 68,018 $ 85,688 $ 217,872 $ 278,259
Securities and other 11,670 12,080 35,333 39,392
Total interest and dividend income 79,688 97,768 253,205 317,651
Interest expense from continuing operations
Deposits 5,842 16,070 22,406 60,460
Borrowings 2,478 4,643 8,945 16,118
Total interest expense 8,320 20,713 31,351 76,578
Net interest income from continuing operations 71,368 77,055 221,854 241,073
Non-interest income from continuing operations
Deposit related fees 7,657 7,062 22,291 20,382
Loan fees and revenue 8,285 4,988 25,962 12,007
Insurance commissions and fees 1,581 2,660 7,003 8,451
Wealth management fees 2,653 2,299 7,944 6,926
Mortgage banking originations 461 2,044 1,797 4,647
Total fee income 20,637 19,053 64,997 52,413
Other, net 1,279 1,927 5,638 492
(Loss)/gain on securities, net (166) (1,017) (681) (9,925)
Gain on sale of business operations and other assets, net 51,885 — 51,885 —
Total non-interest income 73,635 19,963 121,839 42,980
Total net revenue from continuing operations 145,003 97,018 343,693 284,053
Provision for credit losses (4,000) 1,200 2,500 65,878
Non-interest expense from continuing operations
Compensation and benefits 37,068 34,809 112,773 111,121
Occupancy and equipment 10,421 11,084 32,044 32,411
Technology and communications 8,397 8,540 25,204 24,376
Marketing and promotion 860 1,002 1,973 3,069
Professional services 3,180 2,567 13,495 7,852
FDIC premiums and assessments 805 1,518 2,852 4,658
Other real estate owned and foreclosures 41 40 17 81
Amortization of intangible assets 1,296 1,530 3,912 4,668
Goodwill impairment — — — 553,762
Acquisition, restructuring, and other expenses 1,425 5,316 4,917 5,316
Other 5,967 6,437 19,299 21,129
Total non-interest expense 69,460 72,843 216,486 768,443
Income/(loss) from continuing operations before income taxes $ 79,543 $ 22,975 $ 124,707 $ (550,268)
Income tax expense/(benefit) 15,794 (68) 26,291 (18,194)
Net income/(loss) from continuing operations $ 63,749 $ 23,043 $ 98,416 $ (532,074)
(Loss) from discontinued operations before income taxes $ — $ (2,477) $ — $ (21,741)
Income tax (benefit) — (659) — (5,789)
Net (loss) from discontinued operations $ — $ (1,818) $ — $ (15,952)
Net income/(loss) $ 63,749 $ 21,225 $ 98,416 $ (548,026)
Preferred stock dividend — 58 — 313
Income/(loss) available to common shareholders $ 63,749 $ 21,167 $ 98,416 $ (548,339)
(continued)

~~Table of Contents~~

~~BERKSHIRE HILLS BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS (CONCLUDED)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Basic earnings/(loss) per common share:
Continuing operations $ 1.32 $ 0.46 $ 1.98 $ (10.58)
Discontinued operations — (0.04) — (0.32)
Total $ 1.32 $ 0.42 $ 1.98 $ (10.90)
Diluted earnings/(loss) per common share:
Continuing operations $ 1.31 $ 0.46 $ 1.97 $ (10.58)
Discontinued operations — (0.04) — (0.32)
Total $ 1.31 $ 0.42 $ 1.97 $ (10.90)
Weighted average shares outstanding:
Basic 48,395 50,329 49,672 50,256
Diluted 48,744 50,329 49,963 50,256


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2022		2021		2022		2021
Interest and dividend income
Loans	$	90,266	$	68,018	$	227,583	$	217,872
Securities and other	13,405		11,670		38,290		35,333
Total interest and dividend income	103,671		79,688		265,873		253,205
Interest expense
Deposits	8,164		5,842		16,508		22,406
Borrowings	3,423		2,478		6,860		8,945
Total interest expense	11,587		8,320		23,368		31,351
Net interest income	92,084		71,368		242,505		221,854
Non-interest income
Deposit related fees	8,377		7,657		23,733		22,291
Loan fees and revenue	3,785		8,285		16,673		25,962
Insurance commissions and fees	—		1,581		—		7,003
Wealth management fees	2,353		2,653		7,753		7,944
Mortgage banking originations	58		461		186		1,797
Total fee income	14,573		20,637		48,345		64,997
Other, net	2,154		1,279		7,132		5,638
(Loss) on securities, net	(476)		(166)		(2,194)		(681)

Gain on sale of business operations and other assets, net	—		51,885		—		51,885

Total non-interest income	16,251		73,635		53,283		121,839
Total net revenue	108,335		145,003		295,788		343,693
Provision/(benefit) for credit losses	3,000		(4,000)		(1,000)		2,500
Non-interest expense
Compensation and benefits	39,422		37,068		114,773		112,773
Occupancy and equipment	8,702		10,421		28,207		32,044
Technology and communications	8,719		8,397		25,857		25,204
Marketing and promotion	1,290		860		3,873		1,973
Professional services	3,285		3,180		8,890		13,495
FDIC premiums and assessments	476		805		2,121		2,852
Other real estate owned and foreclosures	13		41		36		17
Amortization of intangible assets	1,285		1,296		3,857		3,912

Acquisition, restructuring, and other expenses	11,473		1,425		11,526		4,917
Other	7,012		5,967		19,562		19,299
Total non-interest expense	81,677		69,460		218,702		216,486

Income before income taxes	$	23,658	$	79,543	$	78,086	$	124,707
Income tax expense	4,941		15,794		16,058		26,291
Net income	$	18,717	$	63,749	$	62,028	$	98,416









Basic earnings per common share	$	0.42	$	1.32	$	1.35	$	1.98
Diluted earnings per common share	$	0.42	$	1.31	$	1.34	$	1.97

Weighted average shares outstanding:
Basic	44,700		48,395		46,056		49,672
Diluted	45,034		48,744		46,396		49,963

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME/~~(LOSS)/INCOME

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2021 2020 2021 2020
Net income/(loss) $ 63,749 $ 21,225 $ 98,416 $ (548,026)
Other comprehensive income, before tax:
Changes in unrealized (loss)/gain on debt securities available-for-sale (10,098) (1,085) (31,718) 27,529
Income taxes related to other comprehensive income:
Changes in unrealized (loss)/gain on debt securities available-for-sale 2,575 272 8,096 (7,096)
Total other comprehensive (loss)/income (7,523) (813) (23,622) 20,433
Total comprehensive income/(loss) $ 56,226 $ 20,412 $ 74,794 $ (527,593)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Net income	$	18,717	$	63,749	$	62,028	$	98,416
Other comprehensive (loss), before tax:
Changes in unrealized (loss) on debt securities available-for-sale	(83,073)		(10,098)		(244,933)		(31,718)
Changes in unrealized (loss) on derivative hedges	(5,555)		—		(5,555)		—




Income taxes related to other comprehensive (loss):
Changes in unrealized (loss) on debt securities available-for-sale	21,639		2,575		63,743		8,096
Changes in unrealized (loss) on derivative hedges	1,494		—		1,494		—




Total other comprehensive (loss)	(65,495)		(7,523)		(185,251)		(23,622)
Total comprehensive (loss)/income	$	(46,778)	$	56,226	$	(123,223)	$	74,794

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


		Preferred stock			Common stock			Additional paid-in capital				Unearned compensation		Retained earnings (deficit)				Accumulated other comprehensive income/(loss)				Treasury stock										Common stock		Additional paid-in capital		Unearned compensation			Retained earnings (deficit)		Accumulated other comprehensive income/(loss)		Treasury stock
(In thousands)	(In thousands)	Shares	Amount		Shares	Amount										Total				(In thousands)									Shares			Amount						Total
Balance at June 30, 2020		261	$	20,325	50,192	$	523			$	1,427,728					$	(8,298)			$	(257,352)			$	33,239		$	(52,025)		$	1,164,140
Comprehensive income:
Net income		—	—		—	—		—				—		21,225				—				—		21,225
Other comprehensive (loss)		—	—		—	—		—				—		—				(813)				—		(813)
Total comprehensive income		—	—		—	—		—				—		21,225				(813)				—		20,412

Cash dividends declared on common shares ($0.12 per share)		—	—		—	—		—				—		(5,993)				—				—		(5,993)
Cash dividends declared on preferred shares ($0.24 per share)		—	—		—	—		—				—		(58)				—				—		(58)

Forfeited shares		—	—		(74)	—		(1,395)				2,163		—				—				(768)		—
Exercise of stock options		—	—		—	—		—				—		—				—				—		—
Restricted stock grants		—	—		198	—		(4,033)				(2,026)		—				—				6,059		—
Stock-based compensation		—	—		—	—		—				635		—				—				—		635

Other, net		—	—		(10)	—		—				—		3				—				(114)		(111)
Balance at September 30, 2020		261	$	20,325	50,306	$	523	$	1,422,300			$	(7,526)	$	(242,175)			$	32,426			$	(46,848)	$	1,179,025

Balance at June 30, 2021	Balance at June 30, 2021	—	$	—	50,453	$	528	$	1,423,083			$	(11,006)	$	(210,994)			$	14,772			$	(40,994)	$	1,175,389	Balance at June 30, 2021							50,453	$	528	$	1,423,083		$	(11,006)	$	(210,994)	$	14,772	$	(40,994)	$	1,175,389
Comprehensive income:	Comprehensive income:																									Comprehensive income:
Net income	Net income	—	—		—	—		—				—		63,749				—				—		63,749		Net income							—	—		—			—		63,749		—		—		63,749
Other comprehensive (loss)	Other comprehensive (loss)	—	—		—	—		—				—		—				(7,523)				—		(7,523)		Other comprehensive (loss)							—	—		—			—		—		(7,523)		—		(7,523)
Total comprehensive income	Total comprehensive income	—	—		—	—		—				—		63,749				(7,523)				—		56,226		Total comprehensive income							—	—		—			—		63,749		(7,523)		—		56,226

Cash dividends declared on common shares ($0.12 per share)	Cash dividends declared on common shares ($0.12 per share)	—	—		—	—		—				—		(6,187)				—				—		(6,187)		Cash dividends declared on common shares ($0.12 per share)							—	—		—			—		(6,187)		—		—		(6,187)

Treasury shares repurchased	Treasury shares repurchased	—	—		(1,755)	—		—				—		—				—				(47,961)		(47,961)		Treasury shares repurchased							(1,755)	—		—			—		—		—		(47,961)		(47,961)
Forfeited shares	Forfeited shares	—	—		(27)	—		146				560		—				—				(705)		1		Forfeited shares							(27)	—		146			560		—		—		(706)		—
Exercise of stock options	Exercise of stock options	—	—		2	—		—				—		(7)				—				45		38		Exercise of stock options							2	—		—			—		(7)		—		46		39
Restricted stock grants	Restricted stock grants	—	—		13	—		89				(362)		—				—				273		—		Restricted stock grants							13	—		89			(362)		—		—		273		—
Stock-based compensation	Stock-based compensation	—	—		—	—		—				1,371		—				—				—		1,371		Stock-based compensation							—	—		—			1,371		—		—		—		1,371

Other, net	Other, net	—	—		(29)	—		3				—		—				—				(805)		(802)		Other, net							(29)	—		3			—		—		—		(805)		(802)
Balance at September 30, 2021	Balance at September 30, 2021	—	$	—	48,657	$	528	$	1,423,321			$	(9,437)	$	(153,439)			$	7,249			$	(90,147)	$	1,178,075	Balance at September 30, 2021							48,657	$	528	$	1,423,321		$	(9,437)	$	(153,439)	$	7,249	$	(90,147)	$	1,178,075

Balance at June 30, 2022																										Balance at June 30, 2022							45,788	$	528	$	1,424,081		$	(12,824)	$	(106,997)	$	(122,999)	$	(167,739)	$	1,014,050
Comprehensive (loss):																										Comprehensive (loss):
Net income																										Net income							—	—		—			—		18,717		—		—		18,717
Other comprehensive (loss)																										Other comprehensive (loss)							—	—		—			—		—		(65,495)		—		(65,495)
Total comprehensive (loss)																										Total comprehensive (loss)							—	—		—			—		18,717		(65,495)		—		(46,778)

Cash dividends declared on common shares ($0.12 per share)																										Cash dividends declared on common shares ($0.12 per share)							—	—		—			—		(5,493)		—		—		(5,493)

Treasury shares repurchased																										Treasury shares repurchased							(705)	—		—			—		—		—		(20,249)		(20,249)
Forfeited shares																										Forfeited shares							(23)	—		90			553		—		—		(643)		—
Exercise of stock options																										Exercise of stock options							11	—		—			—		(47)		—		292		245
Restricted stock grants																										Restricted stock grants							7	—		(17)			(188)		—		—		205		—
Stock-based compensation																										Stock-based compensation							—	—		—			1,733		—		—		—		1,733

Other, net																										Other, net							(38)	—		4			—		—		—		(950)		(946)
Balance at September 30, 2022																										Balance at September 30, 2022							45,040	$	528	$	1,424,158		$	(10,726)	$	(93,820)	$	(188,494)	$	(189,084)	$	942,562

Table of Contents


		Preferred stock			Common stock			Additional paid-in capital				Unearned compensation		Retained earnings (deficit)				Accumulated other comprehensive income/(loss)				Treasury stock										Common stock		Additional paid-in capital				Unearned compensation			Retained earnings (deficit)		Accumulated other comprehensive income/(loss)		Treasury stock
(In thousands)	(In thousands)	Shares	Amount		Shares	Amount										Total				(In thousands)									Shares			Amount								Total
Balance at December 31, 2019		522	$	40,633	49,585	$	517			$	1,422,441					$	(8,465)			$	361,082			$	11,993		$	(69,637)		$	1,758,564
Balance at December 31, 2020																										Balance at December 31, 2020							50,833			$	528				$	1,427,239	$	(6,245)	$	(233,344)	$	30,871	$	(31,276)	$	1,187,773
Comprehensive income:	Comprehensive income:																									Comprehensive income:
Net (loss)		—	—		—	—		—				—		(548,026)				—				—		(548,026)
Other comprehensive income		—	—		—	—		—				—		—				20,433				—		20,433
Total comprehensive (loss)		—	—		—	—		—				—		(548,026)				20,433				—		(527,593)
Impact of ASC 326 Adoption		—	—		—	—		—				—		(24,380)				—				—		(24,380)
Conversion of preferred stock to common stock		(261)	(20,308)		522	6		5,391				—		—				—				14,911		—
Cash dividends declared on common shares ($0.60 per share)		—	—		—	—		—				—		(30,143)				—				—		(30,143)
Cash dividends declared on preferred shares ($1.20 per share)		—	—		—	—		—				—		(313)				—				—		(313)
Net income																										Net income							—	—				—			—		98,416		—		—		98,416
Other comprehensive (loss)																										Other comprehensive (loss)							—	—				—			—		—		(23,622)		—		(23,622)
Total comprehensive income																										Total comprehensive income							—	—				—			—		98,416		(23,622)		—		74,794
Cash dividends declared on common shares ($0.36 per share)																										Cash dividends declared on common shares ($0.36 per share)							—	—				—			—		(18,411)		—		—		(18,411)

Treasury shares repurchased	Treasury shares repurchased	—	—		(14)	—		—				—		—				—				(473)		(473)		Treasury shares repurchased							(2,500)	—				—			—		—		—		(68,712)		(68,712)
Forfeited shares	Forfeited shares	—	—		(87)	—		(1,551)				2,648		—				—				(1,097)		—		Forfeited shares							(89)	—				(44)			2,130		—		—		(2,086)		—
Exercise of stock options	Exercise of stock options	—	—		33	—		—				—		(395)				—				1,002		607		Exercise of stock options							9	—				—			—		(100)		—		262		162
Restricted stock grants	Restricted stock grants	—	—		306	—		(3,981)				(5,159)		—				—				9,140		—		Restricted stock grants							452	—				(3,885)			(8,974)		—		—		12,859		—
Stock-based compensation	Stock-based compensation	—	—		—	—		—				3,450		—				—				—		3,450		Stock-based compensation							—	—				—			3,652		—		—		—		3,652

Other, net	Other, net	—	—		(39)	—		—				—		—				—				(694)		(694)		Other, net							(48)	—				11			—		—		—		(1,194)		(1,183)
Balance at September 30, 2020		261	$	20,325	50,306	$	523	$	1,422,300			$	(7,526)	$	(242,175)			$	32,426			$	(46,848)	$	1,179,025
Balance at September 30, 2021																										Balance at September 30, 2021							48,657	$	528			$	1,423,321		$	(9,437)	$	(153,439)	$	7,249	$	(90,147)	$	1,178,075

Balance at December 31, 2020		—	$	—	50,833	$	528	$	1,427,239			$	(6,245)	$	(233,344)			$	30,871			$	(31,276)	$	1,187,773
Comprehensive income:
Balance at December 31, 2021																										Balance at December 31, 2021							48,667	$	528			$	1,423,445		$	(9,056)	$	(139,383)	$	(3,243)	$	(89,856)	$	1,182,435
Comprehensive (loss):																										Comprehensive (loss):
Net income	Net income	—	—		—	—		—				—		98,416				—				—		98,416		Net income							—	—				—			—		62,028		—		—		62,028
Other comprehensive (loss)	Other comprehensive (loss)	—	—		—	—		—				—		—				(23,622)				—		(23,622)		Other comprehensive (loss)							—	—				—			—		—		(185,251)		—		(185,251)
Total comprehensive income		—	—		—	—		—				—		98,416				(23,622)				—		74,794
Total comprehensive (loss)																										Total comprehensive (loss)							—	—				—			—		62,028		(185,251)		—		(123,223)

Cash dividends declared on common shares ($0.36 per share)	Cash dividends declared on common shares ($0.36 per share)	—	—		—	—		—				—		(18,411)				—				—		(18,411)		Cash dividends declared on common shares ($0.36 per share)							—	—				—			—		(16,414)		—		—		(16,414)

Treasury shares repurchased	Treasury shares repurchased	—	—		(2,500)	—		—				—		—				—				(68,712)		(68,712)		Treasury shares repurchased							(3,825)	—				—			—		—		—		(104,543)		(104,543)
Forfeited shares	Forfeited shares	—	—		(89)	—		(44)				2,130		—				—				(2,086)		—		Forfeited shares							(75)	—				169			1,911		—		—		(2,080)		—
Exercise of stock options	Exercise of stock options	—	—		9	—		—				—		(100)				—				262		162		Exercise of stock options							12	—				—			—		(51)		—		320		269
Restricted stock grants	Restricted stock grants	—	—		452	—		(3,885)				(8,974)		—				—				12,859		—		Restricted stock grants							321	—				536			(9,240)		—		—		8,704		—
Stock-based compensation	Stock-based compensation	—	—		—	—		—				3,652		—				—				—		3,652		Stock-based compensation							—	—				—			5,659		—		—		—		5,659

Other, net	Other, net	—	—		(48)	—		11				—		—				—				(1,194)		(1,183)		Other, net							(60)	—				8			—		—		—		(1,629)		(1,621)
Balance at September 30, 2021		—	$	—	48,657	$	528	$	1,423,321			$	(9,437)	$	(153,439)			$	7,249			$	(90,147)	$	1,178,075
Balance at September 30, 2022																										Balance at September 30, 2022							45,040	$	528			$	1,424,158		$	(10,726)	$	(93,820)	$	(188,494)	$	(189,084)	$	942,562

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income/(loss) from continuing operations		$	98,416	$	(532,074)
Net (loss) from discontinued operations		—		(15,952)
Net income/(loss)		$	98,416	$	(548,026)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Provision for credit losses		2,500		65,878

Net income						Net income	$	62,028	$	98,416
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
(Benefit)/provision for credit losses						(Benefit)/provision for credit losses	(1,000)		2,500
Net amortization of securities	Net amortization of securities	1,533		2,035		Net amortization of securities	2,288		1,533
Change in unamortized net loan costs and premiums	Change in unamortized net loan costs and premiums	(4,772)		20,565		Change in unamortized net loan costs and premiums	2,557		(4,772)
Premises and equipment depreciation and amortization expense	Premises and equipment depreciation and amortization expense	8,406		8,944		Premises and equipment depreciation and amortization expense	7,257		8,406
Stock-based compensation expense	Stock-based compensation expense	3,652		3,450		Stock-based compensation expense	5,659		3,652
Accretion of purchase accounting entries, net	Accretion of purchase accounting entries, net	(5,046)		(8,146)		Accretion of purchase accounting entries, net	(1,467)		(5,046)
Amortization of other intangibles	Amortization of other intangibles	3,912		4,668		Amortization of other intangibles	3,857		3,912

Income from cash surrender value of bank-owned life insurance policies	Income from cash surrender value of bank-owned life insurance policies	(4,210)		(3,876)		Income from cash surrender value of bank-owned life insurance policies	(4,139)		(4,210)
Securities losses, net	Securities losses, net	681		9,925		Securities losses, net	2,194		681
Net change in loans held-for-sale	Net change in loans held-for-sale	6,752		(7,130)		Net change in loans held-for-sale	4,954		6,752

Loss on disposition of assets	Loss on disposition of assets	2,811		327		Loss on disposition of assets	—		2,811
Gain on sale of real estate	Gain on sale of real estate	6		13		Gain on sale of real estate	—		6
Amortization of interest in tax-advantaged projects	Amortization of interest in tax-advantaged projects	1,996		2,621		Amortization of interest in tax-advantaged projects	—		1,996

Goodwill impairment		—		553,762

Gain on sale of business operations and other assets	Gain on sale of business operations and other assets	(51,885)		—		Gain on sale of business operations and other assets	—		(51,885)
Prepayment penalties on repayment of Federal Home Loan Bank advances	Prepayment penalties on repayment of Federal Home Loan Bank advances	862		—		Prepayment penalties on repayment of Federal Home Loan Bank advances	—		862
Net change in other	Net change in other	16,934		(36,089)		Net change in other	4,039		16,934
Net cash provided by operating activities of continuing operations		82,548		84,873
Net cash provided by operating activities of discontinued operations		—		109,897

Net cash provided by operating activities	Net cash provided by operating activities	82,548		194,770		Net cash provided by operating activities	88,227		82,548

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Net decrease in trading security	Net decrease in trading security	578		546		Net decrease in trading security	609		578
Purchases of marketable equity securities		—		(17,631)

Proceeds from sales of marketable equity securities	Proceeds from sales of marketable equity securities	2,880		18,458		Proceeds from sales of marketable equity securities	—		2,880
Purchases of securities available for sale	Purchases of securities available for sale	(428,950)		(635,194)		Purchases of securities available for sale	(428,068)		(428,950)
Proceeds from sales of securities available for sale	Proceeds from sales of securities available for sale	—		71,844		Proceeds from sales of securities available for sale	149,994		—
Proceeds from maturities, calls, and prepayments of securities available for sale	Proceeds from maturities, calls, and prepayments of securities available for sale	448,446		320,010		Proceeds from maturities, calls, and prepayments of securities available for sale	440,025		448,446
Purchases of securities held to maturity	Purchases of securities held to maturity	(219,471)		(3,200)		Purchases of securities held to maturity	(807)		(219,471)
Proceeds from maturities, calls, and prepayments of securities held to maturity	Proceeds from maturities, calls, and prepayments of securities held to maturity	31,222		29,237		Proceeds from maturities, calls, and prepayments of securities held to maturity	43,384		31,222
Net change in loans	Net change in loans	1,256,178		474,707		Net change in loans	(1,130,744)		1,256,178
Net change in Mid-Atlantic region loans held for sale	Net change in Mid-Atlantic region loans held for sale	50,914		—		Net change in Mid-Atlantic region loans held for sale	—		50,914
Proceeds from surrender of bank-owned life insurance	Proceeds from surrender of bank-owned life insurance	1,578		553		Proceeds from surrender of bank-owned life insurance	1,777		1,578
Purchase of Federal Home Loan Bank stock	Purchase of Federal Home Loan Bank stock	—		(6,741)		Purchase of Federal Home Loan Bank stock	(66,486)		—
Proceeds from redemption of Federal Home Loan Bank stock	Proceeds from redemption of Federal Home Loan Bank stock	22,832		14,240		Proceeds from redemption of Federal Home Loan Bank stock	70,022		22,832
Net investment in limited partnership tax credits	Net investment in limited partnership tax credits	(1,385)		(6,499)		Net investment in limited partnership tax credits	(1,443)		(1,385)

Purchase of premises and equipment, net	Purchase of premises and equipment, net	(1,606)		(6,190)		Purchase of premises and equipment, net	(730)		(1,606)

Proceeds from sales of seasoned commercial loan portfolios	Proceeds from sales of seasoned commercial loan portfolios	17,480		37,988		Proceeds from sales of seasoned commercial loan portfolios	—		17,480
Proceeds from sale of other real estate	Proceeds from sale of other real estate	187		171		Proceeds from sale of other real estate	—		187
Cash outflows from sale of business operations and other assets	Cash outflows from sale of business operations and other assets	(352,814)		—		Cash outflows from sale of business operations and other assets	—		(352,814)
Net cash provided by investing activities		828,069		292,299
Net investing cash flows from discontinued operations		—		—
Net cash (used)/provided by investing activities						Net cash (used)/provided by investing activities	(922,467)		828,069

(continued)	(continued)					(continued)

109

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits		142,410		133,031
Net increase/(decrease) in deposits						Net increase/(decrease) in deposits	(80,832)		142,410
Net change in Mid-Atlantic region deposits held for sale	Net change in Mid-Atlantic region deposits held for sale	20,953		—		Net change in Mid-Atlantic region deposits held for sale	—		20,953
Proceeds from Federal Home Loan Bank advances and other borrowings	Proceeds from Federal Home Loan Bank advances and other borrowings	—		326,277		Proceeds from Federal Home Loan Bank advances and other borrowings	51,275		—
Repayments of Federal Home Loan Bank advances and other borrowings	Repayments of Federal Home Loan Bank advances and other borrowings	(462,017)		(451,493)		Repayments of Federal Home Loan Bank advances and other borrowings	(60,146)		(462,017)
Proceeds from issuance of subordinated debt						Proceeds from issuance of subordinated debt	98,032		—
Repayment from calling of subordinated debt						Repayment from calling of subordinated debt	(75,000)		—
Purchase of treasury stock	Purchase of treasury stock	(68,712)		(473)		Purchase of treasury stock	(104,543)		(68,712)
Exercise of stock options	Exercise of stock options	162		607		Exercise of stock options	269		162
Common and preferred stock cash dividends paid		(18,411)		(30,456)
Common stock cash dividends paid						Common stock cash dividends paid	(16,414)		(18,411)
Settlement of derivative contracts with financial institution counterparties	Settlement of derivative contracts with financial institution counterparties	41,653		(109,099)		Settlement of derivative contracts with financial institution counterparties	88,705		41,653
Net cash used by financing activities		(343,962)		(131,606)
Net cash (used) by financing activities						Net cash (used) by financing activities	(98,654)		(343,962)

Net change in cash and cash equivalents	Net change in cash and cash equivalents	566,655		355,463		Net change in cash and cash equivalents	(932,894)		566,655

Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	1,557,875		579,829		Cash and cash equivalents at beginning of period	1,627,807		1,557,875

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	2,124,530	$	935,292	Cash and cash equivalents at end of period	$	694,913	$	2,124,530

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid on deposits	Interest paid on deposits	$	23,769	$	67,119	Interest paid on deposits	$	16,290	$	23,769
Interest paid on borrowed funds	Interest paid on borrowed funds	9,671		16,961		Interest paid on borrowed funds	7,016		9,671
Income taxes (refunded) paid, net	Income taxes (refunded) paid, net	58		345		Income taxes (refunded) paid, net	15,241		58

Other non-cash changes:	Other non-cash changes:					Other non-cash changes:
Other net comprehensive income	Other net comprehensive income	$	(23,622)	$	20,433	Other net comprehensive income	$	(185,251)	$	(23,622)

Impact to retained earnings from adoption of ASC 326, net of tax		—		24,380

Reclass of seasoned loan portfolios to held-for-sale, net	Reclass of seasoned loan portfolios to held-for-sale, net	11,660		10,048		Reclass of seasoned loan portfolios to held-for-sale, net	3,574		11,660
Reclass of Mid-Atlantic loans held-for-sale to portfolio loans, net	Reclass of Mid-Atlantic loans held-for-sale to portfolio loans, net	29,418		—		Reclass of Mid-Atlantic loans held-for-sale to portfolio loans, net	—		29,418
Reclass of Mid-Atlantic deposits held-for-sale to deposits, net	Reclass of Mid-Atlantic deposits held-for-sale to deposits, net	7,197		—		Reclass of Mid-Atlantic deposits held-for-sale to deposits, net	—		7,197
Real estate owned acquired in settlement of loans		—		224

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

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

1110

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, and Berkshire Insurance Group, Inc.~~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, ~~2020.~~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 119 – Other Commitments, Contingencies, ~~and~~ 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 ~~August 2018,~~March 2022, the FASB issued ASU No. ~~2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)~~2022-01, “Derivatives and Hedging (Topic 815): ~~Disclosure Framework - Changes~~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 ~~Disclosure Requirements~~portfolio layer method. Further, hedge basis adjustments should be considered when determining credit losses for ~~Defined Benefit Plans.” This ASU amends and modifies~~assets included in the ~~disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans.~~closed portfolio. The amendments in this ~~update remove disclosures that no longer~~ASU are ~~considered cost beneficial, clarify the specific requirements of disclosures,~~effective for fiscal years beginning after December 15, 2022, and ~~add disclosure requirements identified as relevant. As ASU No. 2018-14 only revises disclosure requirements,~~interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating; however, the adoption ~~did~~is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In ~~December 2019,~~March 2022, the FASB issued ASU No. ~~2019-12, “Income Taxes~~2022-02, “Financial Instruments – Credit Losses (Topic ~~740)~~326): ~~Simplifying the Accounting for Income Taxes.~~Troubled Debt Restructurings and Vintage Disclosures.” The ASU ~~No. 2019-12 removes specific exceptions to the general principles in FASB ASC Topic 740. It~~ eliminates the ~~need~~troubled debt restructuring (“TDR”) accounting model that was adopted with Topic 326, “Financial Instruments – Credit Losses” and enhances disclosure requirements for ~~an organization~~certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. The ASU requires prospective disclosure of current-period gross write-offs by year of origination. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted and the Company can elect to ~~analyze whether~~adopt the ~~following apply in a given period: (1) exception~~amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is still evaluating; however, the ~~incremental approach for intraperiod tax allocation; (2) exceptions~~adoption is not expected to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial statement preparers’ application of income tax-related guidance and simplifies: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The adoption of ASU No. 2019-12 did not have a material impact on ~~the Company's Consolidated Financial Statements.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)”. ASU No. 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, this ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The amendments are to be applied prospectively. The adoption of ASU No. 2020-01 did not have a material impact on the Company's Consolidated Financial Statements.

In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU No. 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU No. 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact the Company’s Consolidated Financial Statements.

~~Future Application of Accounting Pronouncements~~

In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. For instance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Finally, entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. It is anticipated that this ASU will simplify any modifications that are executed between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 2. DISCONTINUED OPERATIONS~~

During the first quarter of 2019, the Company reached the decision to pursue the sale of the national mortgage banking operations of First Choice Loan Services, Inc. (“FCLS”), – a subsidiary of the Bank. The decision was based on a number of strategic priorities and other factors, including the competitiveness of the mortgage industry. FCLS continued to operate and serve its customers as the Company initiated the process of identifying a buyer. As a result of these actions, the Company classified the operations of FCLS as discontinued under ASC 205-20. The Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows present discontinued operations retrospectively for current and prior periods.

On May 7, 2020, the Company completed a transaction to sell certain assets and liabilities related to the operations of FCLS. During the fourth quarter of 2020, the Company completed the final wind-down of the operations of FCLS. Operating results for the year ended December 31, 2020, include expenses related to the wind-down of operations.

~~As of September 30, 2021 and December 31, 2020, there were no assets or liabilities related to the discontinued operations of FCLS.~~

~~The following presents operating results of the discontinued operations of FCLS for the three and nine months ended September 30, 2021 and September 30, 2020:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Interest income $ — $ 23 $ — $ 1,516
Interest expense — 3 — 390
Net interest income — 20 — 1,126
Non-interest income — (286) — (4,175)
Total net revenue — (266) — (3,049)
Non-interest expense — 2,211 — 18,692
(Loss) from discontinued operations before income taxes — (2,477) — (21,741)
Income tax (benefit) — (659) — (5,789)
Net (loss) from discontinued operations $ — $ (1,818) $ — $ (15,952)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 3. BRANCH SALE AND SALE OF INSURANCE OPERATIONS~~

~~Mid-Atlantic Branch Sale~~

On August 27, 2021 the Company completed the sale of 8 Mid-Atlantic branches to Investors Bank of Short Hills, New Jersey. This sale was made pursuant to a purchase and assumption agreement entered into by the banks on December 2, 2020.

The sale included all branch premises and equipment, and Investors also assumed related operations and the employment of associated staff. The branch sale is not expected to impact Berkshire’s growing Mid-Atlantic specialized commercial lending operations, including SBA lending at its 44 Business Capital Division and its asset-based lending relationships.

The sale involved the assignment of deposits which totaled $631 million and loans which totaled $220 million as of August 27, 2021. These instruments were classified as held for sale in the financial statements and were not included in total deposits and total loans reported by the Company at December 31, 2020. Investors Bank paid a premium of 3.0% of the deposit balance transferred. The Company provided a settlement cash payment of $391 million as part of the sale for the assumption of covered deposit liabilities by Investors. The Company recorded a $14.7 million pre-tax gain related to this branch sale.

~~The following is a summary of the assets and liabilities held for sale related to the branch sale at September 30, 2021 and December 31, 2020:~~

~~(In thousands)~~

~~September 30, 2021~~

~~December 31, 2020~~

~~Assets~~

~~Loans~~

—

~~300,599~~

~~Other assets~~

—

~~16,705~~

~~Total assets~~

—

~~317,304~~

~~Liabilities~~

~~Deposits~~

—

~~617,377~~

~~Other liabilities~~

—

~~12,688~~

~~Total liabilities~~

—

~~630,065~~

~~Berkshire Insurance Group Sale of Operations~~

On September 1, 2021, the Company completed the sale of substantially all of the assets, and the assumption of certain liabilities, of Berkshire Insurance Group, Inc. (“BIG”) to Brown & Brown of Massachusetts, LLC ("Buyer"), a Massachusetts limited liability company. This sale was made pursuant to the Asset Purchase Agreement dated August 24, 2021. The Buyer paid BIG an aggregate purchase price of $41.5 million, minus $1.6 million for executive goodwill purchase price payments paid by the the Buyer at the Closing to certain executives of BIG. The Company recorded a $37.2 million pre-tax gain related to this sale.

NOTE 4.2. TRADING SECURITY

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of ~~$8.1~~$7.3 million and ~~$8.7~~$7.9 million, and a fair value of ~~$8.6~~$6.8 million and ~~$9.7~~$8.4 million, at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. As discussed further in Note 97 - 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 September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

1512

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.3. 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)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
September 30, 2021
September 30, 2022												September 30, 2022
Securities available for sale	Securities available for sale											Securities available for sale
U.S Treasuries												U.S Treasuries	$	19,997	$	3	$	—	$	20,000
Municipal bonds and obligations	Municipal bonds and obligations	$	75,546	$	5,627	$	—	$	81,173	$	—	Municipal bonds and obligations	66,399		21		(5,854)		60,566		—
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	766,550		9,578		(3,838)		772,290		—		Agency collateralized mortgage obligations	656,132		—		(98,619)		557,513		—
Agency mortgage-backed securities	Agency mortgage-backed securities	432,926		2,424		(7,843)		427,507		—		Agency mortgage-backed securities	660,065		1		(106,329)		553,737		—
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	259,742		4,866		(2,430)		262,178		—		Agency commercial mortgage-backed securities	270,609		—		(35,033)		235,576		—
Corporate bonds	Corporate bonds	49,843		959		(60)		50,742		—		Corporate bonds	45,269		83		(2,451)		42,901		—
Other bonds and obligations	Other bonds and obligations	48,833		1,250		(8)		50,075		—		Other bonds and obligations	655		67		(66)		656		—
Total securities available for sale	Total securities available for sale	1,633,440		24,704		(14,179)		1,643,965		—		Total securities available for sale	1,719,126		175		(248,352)		1,470,949		—

Securities held to maturity	Securities held to maturity											Securities held to maturity
Municipal bonds and obligations	Municipal bonds and obligations	283,736		16,263		(2,233)		297,766		87		Municipal bonds and obligations	267,821		299		(36,446)		231,674		67
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	156,554		4,103		(1,979)		158,678		—		Agency collateralized mortgage obligations	132,931		—		(19,965)		112,966		—
Agency mortgage-backed securities	Agency mortgage-backed securities	60,086		135		(1,495)		58,726		—		Agency mortgage-backed securities	52,175		—		(10,333)		41,842		—
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	148,304		632		(1,948)		146,988		—		Agency commercial mortgage-backed securities	137,177		—		(22,659)		114,518		—
Tax advantaged economic development bonds	Tax advantaged economic development bonds	2,890		34		(16)		2,908		38		Tax advantaged economic development bonds	2,235		5		(142)		2,098		28
Other bonds and obligations	Other bonds and obligations	293		—		—		293		—		Other bonds and obligations	164		—		—		164		—
Total securities held to maturity	Total securities held to maturity	651,863		21,167		(7,671)		665,359		125		Total securities held to maturity	592,503		304		(89,545)		503,262		95

Marketable equity securities	Marketable equity securities	15,690		105		(194)		15,601		—		Marketable equity securities	15,035		—		(2,245)		12,790		—
Total	Total	$	2,300,993	$	45,976	$	(22,044)	$	2,324,925	$	125	Total	$	2,326,664	$	479	$	(340,142)	$	1,987,001	$	95


(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
December 31, 2020
December 31, 2021												December 31, 2021
Securities available for sale	Securities available for sale											Securities available for sale
U.S Treasuries												U.S Treasuries	$	59,972	$	1	$	—	$	59,973	$	—
Municipal bonds and obligations	Municipal bonds and obligations	$	90,273	$	7,530	$	—	$	97,803	$	—	Municipal bonds and obligations	71,822		5,355		—		77,177		—
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	740,225		16,836		(235)		756,826		—		Agency collateralized mortgage obligations	693,782		5,566		(11,012)		688,336		—
Agency mortgage-backed securities	Agency mortgage-backed securities	433,311		4,954		(133)		438,132		—		Agency mortgage-backed securities	711,154		2,347		(7,642)		705,859		—
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	278,990		9,835		(175)		288,650		—		Agency commercial mortgage-backed securities	300,259		3,949		(3,628)		300,580		—
Corporate bonds	Corporate bonds	59,098		942		(10)		60,030		—		Corporate bonds	44,824		950		(114)		45,660		—

Other bonds and obligations		52,080		1,719		(8)		53,791		—

Total securities available for sale	Total securities available for sale	1,653,977		41,816		(561)		1,695,232		—		Total securities available for sale	1,881,813		18,168		(22,396)		1,877,585		—

Securities held to maturity	Securities held to maturity											Securities held to maturity
Municipal bonds and obligations	Municipal bonds and obligations	246,520		20,106		—		266,626		64		Municipal bonds and obligations	281,515		16,151		(693)		296,973		70
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	153,561		5,989		(171)		159,379		—		Agency collateralized mortgage obligations	149,195		3,203		(3,513)		148,885		—
Agency mortgage-backed securities	Agency mortgage-backed securities	35,865		198		(29)		36,034		—		Agency mortgage-backed securities	57,327		95		(1,498)		55,924		—
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	25,481		590		(12)		26,059		—		Agency commercial mortgage-backed securities	145,573		266		(3,289)		142,550		—
Tax advantaged economic development bonds	Tax advantaged economic development bonds	3,369		93		—		3,462		40		Tax advantaged economic development bonds	2,728		26		(15)		2,739		35
Other bonds and obligations	Other bonds and obligations	295		—		—		295		—		Other bonds and obligations	165		—		—		165		—
Total securities held to maturity	Total securities held to maturity	465,091		26,976		(212)		491,855		104		Total securities held to maturity	636,503		19,741		(9,008)		647,236		105

Marketable equity securities	Marketable equity securities	18,061		767		(315)		18,513		—		Marketable equity securities	15,689		67		(303)		15,453		—
Total	Total	$	2,137,129	$	69,559	$	(1,088)	$	2,205,600	$	104	Total	$	2,534,005	$	37,976	$	(31,707)	$	2,540,274	$	105

1613

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 and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

(In thousands) Municipal bonds and obligations Tax advantaged economic development bonds Total
Balance at June 30, 2021 $ 90 $ 40 $ 130
Provision for credit losses - reversal (3) (2) (5)
Balance at September 30, 2021 $ 87 $ 38 $ 125


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at June 30, 2022	$	66	$	28	$	94
Provision for credit losses	1		—		1
Balance at September 30, 2022	$	67	$	28	$	95

(In thousands) Municipal bonds and obligations Tax advantaged economic development bonds Total
Balance at June 30, 2020 $ 62 $ 51 $ 113
Provision for credit losses - reversal 5 (22) (17)
Balance at September 30, 2020 $ 67 $ 29 $ 96


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at June 30, 2021	$	90	$	40	$	130
(Benefit)/provision for credit losses	(3)		(2)		(5)
Balance at September 30, 2021	$	87	$	38	$	125

(In thousands) Municipal bonds and obligations Tax advantaged economic development bonds Total
Balance at December 31, 2020 $ 64 $ 40 $ 104
Impact of ASC 326 adoption — — —
Provision for credit losses - reversal 23 (2) 21
Balance at September 30, 2021 $ 87 $ 38 $ 125


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at December 31, 2021	$	70	$	35	$	105
(Benefit)/provision for credit losses	(3)		(7)		(10)
Balance at September 30, 2022	$	67	$	28	$	95

(In thousands) Municipal bonds and obligations Tax advantaged economic development bonds Total
Balance at December 31, 2019 $ — $ — $ —
Impact of ASC 326 adoption 83 226 309
Provision for credit losses - reversal (16) (197) (213)
Balance at September 30, 2020 $ 67 $ 29 $ 96


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at December 31, 2020	$	64	$	40	$	104
Provision/(benefit) for credit losses	23		(2)		21
Balance at September 30, 2021	$	87	$	38	$	125

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 September 30, ~~2021,~~2022, none of the Company's investment securities were delinquent or in non-accrual status.

1714

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at September 30, ~~2021~~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					Available for sale				Held to maturity
		Amortized		Fair		Amortized		Fair			Amortized		Fair		Amortized		Fair
(In thousands)	(In thousands)	Cost		Value		Cost		Value		(In thousands)	Cost		Value		Cost		Value

Within 1 year	Within 1 year	$	31,218	$	31,236	$	1,756	$	1,758	Within 1 year	$	20,441	$	20,444	$	1,711	$	1,710
Over 1 year to 5 years	Over 1 year to 5 years	4,741		4,815		3,874		3,909		Over 1 year to 5 years	9,392		9,224		2,326		2,313
Over 5 years to 10 years	Over 5 years to 10 years	57,667		59,021		21,191		21,885		Over 5 years to 10 years	48,894		46,318		23,841		23,500
Over 10 years	Over 10 years	80,596		86,918		260,098		273,415		Over 10 years	53,593		48,137		242,342		206,413
Total bonds and obligations	Total bonds and obligations	174,222		181,990		286,919		300,967		Total bonds and obligations	132,320		124,123		270,220		233,936

Mortgage-backed securities	Mortgage-backed securities	1,459,218		1,461,975		364,944		364,392		Mortgage-backed securities	1,586,806		1,346,826		322,283		269,326
Total	Total	$	1,633,440	$	1,643,965	$	651,863	$	665,359	Total	$	1,719,126	$	1,470,949	$	592,503	$	503,262

During the three and nine months ended September 30, 2022, purchases of AFS securities totaled $41.4 million and $428.1 million, respectively. During the three months ended September 30, 2022, there were no sales of AFS securities. During the nine months ended September 30, 2022, sales of AFS securities totaled $150 million. During the three and nine months ended September 30, 2021, purchases of AFS securities totaled $160.0 ~~million. During the nine months ended September 30, 2021, purchases of AFS securities totaled~~million and $429.0 ~~million.~~million, respectively. During the three and nine months ended September 30, 2021, there were 0no sales of AFS securities. During the three months ended September 30, ~~2020, purchases of AFS securities totaled $319.2 million and the proceeds from the sale of AFS securities totaled $64.2 million.~~2022, there were no gross gains or gross losses. During the nine months ended September 30, ~~2020, purchases of AFS securities~~2022, gross gains totaled ~~$635.2 million~~$6 thousand and ~~the proceeds from the sale of AFS securities totaled $71.8 million.~~there were no gross losses. During the three and nine months ended September 30, 2021, there were 0no gross gains or losses on AFS securities. During the three months ended September 30, 2020, there were $704.6 thousand gross gains on AFS securities and there were $698.6 thousand gross losses. During the nine months ended September 30, 2020, there were $705.4 thousand gross gains on AFS securities and gross losses totaled $699.9 thousand. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of ~~operations.~~income.

1815

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					Less Than Twelve Months				Over Twelve Months				Total
		Gross				Gross				Gross					Gross				Gross				Gross
		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair			Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	(In thousands)	Losses		Value		Losses		Value		Losses		Value		(In thousands)	Losses		Value		Losses		Value		Losses		Value
September 30, 2021
September 30, 2022														September 30, 2022

Securities available for sale	Securities available for sale													Securities available for sale

U.S Treasuries														U.S Treasuries	$	—	$	—	$	—	$	—	$	—	$	—
Municipal bonds and obligations														Municipal bonds and obligations	5,854		52,279		—		—		5,854		52,279
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	$	3,230	$	305,788	$	608	$	13,050	$	3,838	$	318,838	Agency collateralized mortgage obligations	26,129		293,758		72,490		263,754		98,619		557,512
Agency mortgage-backed securities	Agency mortgage-backed securities	7,037		334,368		806		26,641		7,843		361,009		Agency mortgage-backed securities	48,764		314,987		57,565		238,651		106,329		553,638
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	1,410		84,357		1,020		28,953		2,430		113,310		Agency commercial mortgage-backed securities	19,323		154,763		15,710		80,799		35,033		235,562
Corporate bonds	Corporate bonds	60		6,596		—		—		60		6,596		Corporate bonds	1,627		34,126		824		7,851		2,451		41,977

Other bonds and obligations	Other bonds and obligations	—		—		8		831		8		831		Other bonds and obligations	—		—		66		295		66		295

Total securities available for sale	Total securities available for sale	$	11,737	$	731,109	$	2,442	$	69,475	$	14,179	$	800,584	Total securities available for sale	$	101,697	$	849,913	$	146,655	$	591,350	$	248,352	$	1,441,263

Securities held to maturity	Securities held to maturity													Securities held to maturity
Municipal bonds and obligations	Municipal bonds and obligations	$	2,233	$	50,793	$	—	$	—	$	2,233	$	50,793	Municipal bonds and obligations	$	22,075	$	166,539	$	14,371	$	23,286	$	36,446	$	189,825
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	1,979		64,395		—		—		1,979		64,395		Agency collateralized mortgage obligations	2,537		52,558		17,428		60,408		19,965		112,966
Agency mortgage-backed securities	Agency mortgage-backed securities	1,495		55,261		—		—		1,495		55,261		Agency mortgage-backed securities	340		2,410		9,993		39,432		10,333		41,842
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	1,948		104,503		—		—		1,948		104,503		Agency commercial mortgage-backed securities	4,156		25,094		18,503		89,423		22,659		114,517
Tax advantaged economic development bonds	Tax advantaged economic development bonds	16		1,288		—		—		16		1,288		Tax advantaged economic development bonds	1		213		141		1,023		142		1,236
Total securities held to maturity	Total securities held to maturity	7,671		276,240		—		—		7,671		276,240		Total securities held to maturity	29,109		246,814		60,436		213,572		89,545		460,386

Total	Total	$	19,408	$	1,007,349	$	2,442	$	69,475	$	21,850	$	1,076,824	Total	$	130,806	$	1,096,727	$	207,091	$	804,922	$	337,897	$	1,901,649

December 31, 2020
December 31, 2021														December 31, 2021

Securities available for sale	Securities available for sale													Securities available for sale

Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	$	235	$	77,898	$	—	$	—	$	235	$	77,898	Agency collateralized mortgage obligations	$	9,626	$	375,132	$	1,386	$	27,025	$	11,012	$	402,157
Agency mortgage-backed securities	Agency mortgage-backed securities	131		39,939		2		256		133		40,195		Agency mortgage-backed securities	3,179		222,887		4,463		175,941		7,642		398,828
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	175		51,435		—		—		175		51,435		Agency commercial mortgage-backed securities	1,609		103,354		2,019		49,313		3,628		152,667
Corporate bonds	Corporate bonds	10		4,875		—		—		10		4,875		Corporate bonds	114		11,115		—		—		114		11,115

Other bonds and obligations		—		—		8		1,030		8		1,030

Total securities available for sale	Total securities available for sale	$	551	$	174,147	$	10	$	1,286	$	561	$	175,433	Total securities available for sale	$	14,528	$	712,488	$	7,868	$	252,279	$	22,396	$	964,767

Securities held to maturity	Securities held to maturity													Securities held to maturity

Municipal bonds and obligations														Municipal bonds and obligations	$	693	$	36,981	$	—	$	—	$	693	$	36,981
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	$	171	$	25,048	$	—	$	—	$	171	$	25,048	Agency collateralized mortgage obligations	1,808		49,308		1,705		36,212		3,513		85,520
Agency mortgage-backed securities	Agency mortgage-backed securities	29		20,710		—		—		29		20,710		Agency mortgage-backed securities	839		26,656		659		26,025		1,498		52,681
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	12		10,216		—		—		12		10,216		Agency commercial mortgage-backed securities	1,255		80,406		2,034		51,654		3,289		132,060

Tax advantaged economic development bonds														Tax advantaged economic development bonds	15		1,255		—		—		15		1,255
Total securities held to maturity	Total securities held to maturity	212		55,974		—		—		212		55,974		Total securities held to maturity	4,610		194,606		4,398		113,891		9,008		308,497
Total	Total	$	763	$	230,121	$	10	$	1,286	$	773	$	231,407	Total	$	19,138	$	907,094	$	12,266	$	366,170	$	31,404	$	1,273,264

1916

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 September 30, ~~2021,~~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 September 30, ~~2021:~~2022:

AFS municipal bonds and obligations

At September 30, 2022, 76 of the 95 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 10.1% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

AFS collateralized mortgage obligations

At September 30, ~~2021, 33~~2022, 245 of the ~~255~~248 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~1.2%~~15.0% 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 September 30, ~~2021, 30~~2022, 136 of the ~~124~~139 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~2.1%~~15.2% 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 September 30, ~~2021, 3~~2022, 14 of the 1615 securities in the Company’s portfolio of AFS corporate bonds ~~was~~were in an unrealized loss ~~position.~~positions. Aggregate unrealized losses represents ~~0.9%~~5.5% of the amortized cost of the ~~bond~~bonds in an unrealized loss ~~position.~~positions. 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 September 30, ~~2021,~~2022, 2 of the 63 securities in the Company’s portfolio of AFS other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses ~~represented 0.9%~~represents 18.3% of the amortized cost of ~~securities~~the bonds in unrealized loss positions. The ~~securities are~~Company reviews the financial strength of all ~~investment grade rated,~~of these bonds and ~~there were no material underlying credit downgrades during~~has concluded that the ~~quarter. All securities are performing.~~amortized cost remains supported by the expected future cash flows of these securities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HTM municipal bonds and obligations

At September 30, ~~2021, 36~~2022, 148 of the ~~216~~192 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~4.2%~~16.1% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

HTM collateralized mortgage obligations

At September 30, ~~2021, 5~~2022, 13 of the 1413 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~3.0%~~15.0% 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.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

HTM commercial and residential mortgage-backed securities

At September 30, ~~2021, 13 out~~2022, 17 of the 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~2.1%~~17.4% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

HTM tax-advantaged economic development bonds

At September 30, ~~2021, 1 out~~2022, 2 of the 3 securities in the Company’s portfolio of tax-advantaged economic development bonds ~~were~~was in an unrealized loss ~~position.~~positions. Aggregate unrealized losses represented ~~1.3%~~10.3% of the amortized cost of the security in an unrealized loss ~~position.~~positions. 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 6.4. 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)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	September 30, 2022		December 31, 2021
Construction	Construction	$	383,425	$	454,513	Construction	$	367,997	$	324,282
Commercial multifamily	Commercial multifamily	489,793		483,350		Commercial multifamily	612,890		515,817
Commercial real estate owner occupied	Commercial real estate owner occupied	563,948		552,413		Commercial real estate owner occupied	632,001		606,477
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	2,131,433		2,119,263		Commercial real estate non-owner occupied	2,285,770		2,156,929
Commercial and industrial	Commercial and industrial	1,255,749		1,943,164		Commercial and industrial	1,395,172		1,284,429

Residential real estate	Residential real estate	1,546,308		1,931,681		Residential real estate	2,128,039		1,489,248
Home equity	Home equity	263,746		293,981		Home equity	234,027		252,366
Consumer other	Consumer other	201,833		303,154		Consumer other	287,585		196,299
Total loans	Total loans	$	6,836,235	$	8,081,519	Total loans	$	7,943,481	$	6,825,847

Allowance for credit losses	Allowance for credit losses	112,916		127,302		Allowance for credit losses	96,013		106,094
Net loans	Net loans	$	6,723,319	$	7,954,217	Net loans	$	7,847,468	$	6,719,753

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled ~~$45.8~~$10.3 million and ~~$633.3~~$29.9 million, respectively. T~~hese~~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 and nine months ended September 30, 2022, the Company reclassified $3.6 million of commercial real estate non-owner occupied loans to held for sale, reflecting its intent to sell these loans. During the three months ended September 30, 2021, there were no loans reclassified to held for sale. During the nine months ended September 30, 2021, the Company reclassified $11.7 million of commercial loans to held for sale, reflecting its intent to sell these loans. ~~These~~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.

2119

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). and is included in other liabilities on the consolidated balance sheet.

2220

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s activity in the allowance for credit losses for loans for the three and nine months ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021 was as follows:


(In thousands)	(In thousands)	Balance at Beginning of Period		Sub-total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period		(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three months ended September 30, 2021
Three months ended September 30, 2022														Three months ended September 30, 2022
Construction	Construction	$	3,919	$	3,919	$	—	$	—	$	714	$	4,633	Construction	$	1,710	$	—	$	—	$	(479)	$	1,231
Commercial multifamily	Commercial multifamily	7,197		7,197		—		—		(46)		7,151		Commercial multifamily	4,621		(94)		112		(2,919)		1,720
Commercial real estate owner occupied	Commercial real estate owner occupied	13,242		13,242		(84)		32		(342)		12,848		Commercial real estate owner occupied	10,687		(176)		256		(582)		10,185
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	30,315		30,315		(1,676)		267		2,870		31,776		Commercial real estate non-owner occupied	26,166		(1,012)		153		4,114		29,421
Commercial and industrial	Commercial and industrial	28,225		28,225		(1,279)		1,373		(2,385)		25,934		Commercial and industrial	22,914		(5,545)		616		650		18,635

Residential real estate	Residential real estate	23,643		23,643		(903)		312		(107)		22,945		Residential real estate	16,411		(102)		131		3,398		19,838
Home equity	Home equity	5,432		5,432		(12)		80		(845)		4,655		Home equity	2,828		(9)		9		(407)		2,421
Consumer other	Consumer other	7,071		7,071		(380)		137		(3,854)		2,974		Consumer other	13,684		(486)		140		(776)		12,562
Total allowance for credit losses	Total allowance for credit losses	$	119,044	$	119,044	$	(4,334)	$	2,201	$	(3,995)	$	112,916	Total allowance for credit losses	$	99,021	$	(7,424)	$	1,417	$	2,999	$	96,013


(In thousands)	(In thousands)	Balance at Beginning of Period		Sub-total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period		(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three months ended September 30, 2020
Three months ended September 30, 2021														Three months ended September 30, 2021
Construction	Construction	$	7,779	$	7,779	$	—	$	—	$	(1,122)	$	6,657	Construction	$	3,919	$	—	$	—	$	714	$	4,633
Commercial multifamily	Commercial multifamily	4,299		4,299		—		—		(518)		3,781		Commercial multifamily	7,197		—		—		(46)		7,151
Commercial real estate owner occupied	Commercial real estate owner occupied	11,552		11,552		(58)		38		(537)		10,995		Commercial real estate owner occupied	13,242		(84)		32		(342)		12,848
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	34,707		34,707		—		155		(2,088)		32,774		Commercial real estate non-owner occupied	30,315		(1,676)		267		2,870		31,776
Commercial and industrial	Commercial and industrial	23,096		23,096		(5,968)		406		3,314		20,848		Commercial and industrial	28,225		(1,279)		1,373		(2,385)		25,934

Residential real estate	Residential real estate	39,004		39,004		(1,085)		842		1,130		39,891		Residential real estate	23,643		(903)		312		(107)		22,945
Home equity	Home equity	8,021		8,021		(88)		36		1,352		9,321		Home equity	5,432		(12)		80		(845)		4,655
Consumer other	Consumer other	10,936		10,936		(577)		102		(314)		10,147		Consumer other	7,071		(380)		137		(3,854)		2,974
Total allowance for credit losses	Total allowance for credit losses	$	139,394	$	139,394	$	(7,776)	$	1,579	$	1,217	$	134,414	Total allowance for credit losses	$	119,044	$	(4,334)	$	2,201	$	(3,995)	$	112,916


(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Nine months ended September 30, 2022
Construction	$	3,206	$	—	$	—	$	(1,975)	$	1,231
Commercial multifamily	6,120		(94)		112		(4,418)		1,720
Commercial real estate owner occupied	12,752		(603)		562		(2,526)		10,185
Commercial real estate non-owner occupied	32,106		(5,895)		1,464		1,746		29,421
Commercial and industrial	22,584		(6,951)		2,485		517		18,635

Residential real estate	22,406		(480)		719		(2,807)		19,838
Home equity	4,006		(9)		255		(1,831)		2,421
Consumer other	2,914		(1,031)		375		10,304		12,562
Total allowance for credit losses	$	106,094	$	(15,063)	$	5,972	$	(990)	$	96,013

2321

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands) Balance at Beginning of Period Impact of Adopting ASC 326 Sub-total Charge-offs Recoveries Provision for Credit Losses Balance at End of Period
Nine months ended September 30, 2021
Construction $ 5,111 $ — $ 5,111 $ — $ — $ (478) $ 4,633
Commercial multifamily 5,916 — 5,916 (239) 157 1,317 7,151
Commercial real estate owner occupied 12,380 — 12,380 (686) 83 1,071 12,848
Commercial real estate non-owner occupied 35,850 — 35,850 (10,896) 571 6,251 31,776
Commercial and industrial 25,013 — 25,013 (8,184) 3,284 5,821 25,934
Residential real estate 28,491 — 28,491 (1,501) 1,417 (5,462) 22,945
Home equity 6,482 — 6,482 (253) 119 (1,693) 4,655
Consumer other 8,059 — 8,059 (1,283) 546 (4,348) 2,974
Total allowance for credit losses $ 127,302 $ — $ 127,302 $ (23,042) $ 6,177 $ 2,479 $ 112,916


(In thousands)	(In thousands)	Balance at Beginning of Period		Impact of Adopting ASC 326		Sub-total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period		(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Nine months ended September 30, 2020
Nine months ended September 30, 2021																Nine months ended September 30, 2021
Construction	Construction	$	2,713	$	(342)	$	2,371	$	—	$	—	$	4,286	$	6,657	Construction	$	5,111	$	—	$	—	$	(478)	$	4,633
Commercial multifamily	Commercial multifamily	4,413		(1,842)		2,571		(50)		—		1,260		3,781		Commercial multifamily	5,916		(239)		157		1,317		7,151
Commercial real estate owner occupied	Commercial real estate owner occupied	4,880		6,062		10,942		(8,670)		907		7,816		10,995		Commercial real estate owner occupied	12,380		(686)		83		1,071		12,848
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	16,344		11,201		27,545		(135)		290		5,074		32,774		Commercial real estate non-owner occupied	35,850		(10,896)		571		6,251		31,776
Commercial and industrial	Commercial and industrial	20,099		(2,189)		17,910		(14,253)		4,025		13,166		20,848		Commercial and industrial	25,013		(8,184)		3,284		5,821		25,934

Residential real estate	Residential real estate	9,970		6,799		16,769		(2,212)		936		24,398		39,891		Residential real estate	28,491		(1,501)		1,417		(5,462)		22,945
Home equity	Home equity	1,470		4,884		6,354		(322)		136		3,153		9,321		Home equity	6,482		(253)		119		(1,693)		4,655
Consumer other	Consumer other	3,686		861		4,547		(1,840)		502		6,938		10,147		Consumer other	8,059		(1,283)		546		(4,348)		2,974
Total allowance for credit losses	Total allowance for credit losses	$	63,575	$	25,434	$	89,009	$	(27,482)	$	6,796	$	66,091	$	134,414	Total allowance for credit losses	$	127,302	$	(23,042)	$	6,177	$	2,479	$	112,916

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other ~~liability~~liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the consolidated statement of ~~operations.~~income. The Company’s activity in the allowance for credit losses on unfunded commitments for the three and nine months ended September 30, 2022 and 2021 was as follows:


		Three Months Ended September 30,					Three Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)		2022		2021
Balance at beginning of period	Balance at beginning of period	$	7,829	$	8,593	Balance at beginning of period		$	7,043	$	7,829

Expense for credit losses	Expense for credit losses	—		—		Expense for credit losses		700		—
Balance at end of period	Balance at end of period	$	7,829	$	8,593	Balance at end of period		$	7,743	$	7,829


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021
Balance at beginning of period	Balance at beginning of period	$	7,629	$	100	Balance at beginning of period	$	7,043	$	7,629
Impact of adopting ASC 326		—		7,993
Sub-Total		7,629		8,093

Expense for credit losses	Expense for credit losses	200		500		Expense for credit losses	700		200
Balance at end of period	Balance at end of period	$	7,829	$	8,593	Balance at end of period	$	7,743	$	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.

2522

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s loans by risk category:


		Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of September 30, 2021
As of September 30, 2022																				As of September 30, 2022
Construction	Construction																			Construction
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	43,325	$	53,385	$	193,833	$	64,502	$	16,845	$	1,793	$	—	$	—	$	373,683	Pass	$	117,627	$	129,188	$	31,541	$	65,388	$	2,331	$	2,103	$	—	$	—	$	348,178
Special Mention	Special Mention	—		—		—		313		—		—		—		—		313		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		9,429		—		—		—		—		9,429		Substandard	—		—		—		—		19,819		—		—		—		19,819
Total	Total	$	43,325	$	53,385	$	193,833	$	74,244	$	16,845	$	1,793	$	—	$	—	$	383,425	Total	$	117,627	$	129,188	$	31,541	$	65,388	$	22,150	$	2,103	$	—	$	—	$	367,997

Commercial multifamily:	Commercial multifamily:																			Commercial multifamily:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	30,214	$	31,016	$	81,868	$	65,882	$	77,066	$	198,651	$	44	$	—	$	484,741	Pass	$	194,494	$	61,247	$	27,732	$	94,937	$	68,290	$	157,611	$	400	$	—	$	604,711
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		2,646		—		5,533		—		—		—		8,179
Substandard	Substandard	—		—		—		—		—		4,914		138		—		5,052		Substandard	—		—		—		—		—		—		—		—		—
Total	Total	$	30,214	$	31,016	$	81,868	$	65,882	$	77,066	$	203,565	$	182	$	—	$	489,793	Total	$	194,494	$	61,247	$	30,378	$	94,937	$	73,823	$	157,611	$	400	$	—	$	612,890

Commercial real estate owner occupied:	Commercial real estate owner occupied:																			Commercial real estate owner occupied:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	98,552	$	50,730	$	70,391	$	96,479	$	50,025	$	169,203	$	3,240	$	—	$	538,620	Pass	$	101,409	$	133,212	$	60,422	$	84,434	$	76,062	$	164,207	$	3,169	$	—	$	622,915
Special Mention	Special Mention	—		531		2,154		2,037		1,957		1,771		—		—		8,450		Special Mention	—		—		—		—		—		114		—		—		114
Substandard	Substandard	—		—		1,882		4,011		1,416		9,569		—		—		16,878		Substandard	1,033		122		31		366		1,311		6,109		—		—		8,972
Total	Total	$	98,552	$	51,261	$	74,427	$	102,527	$	53,398	$	180,543	$	3,240	$	—	$	563,948	Total	$	102,442	$	133,334	$	60,453	$	84,800	$	77,373	$	170,430	$	3,169	$	—	$	632,001

Commercial real estate non-owner occupied:	Commercial real estate non-owner occupied:																			Commercial real estate non-owner occupied:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	240,271	$	189,885	$	306,471	$	390,299	$	234,270	$	648,359	$	18,321	$	—	$	2,027,876	Pass	$	421,349	$	445,515	$	168,958	$	291,942	$	296,356	$	568,691	$	18,051	$	—	$	2,210,862
Special Mention	Special Mention	—		226		266		7,761		6,794		33,409		—		—		48,456		Special Mention	—		—		—		13,686		—		31,073		—		—		44,759
Substandard	Substandard	—		7,697		3,229		2,802		12,085		29,189		99		—		55,101		Substandard	—		—		7,333		—		16,081		6,735		—		—		30,149
Total	Total	$	240,271	$	197,808	$	309,966	$	400,862	$	253,149	$	710,957	$	18,420	$	—	$	2,131,433	Total	$	421,349	$	445,515	$	176,291	$	305,628	$	312,437	$	606,499	$	18,051	$	—	$	2,285,770

Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	100,332	$	153,232	$	113,815	$	174,674	$	72,581	$	155,535	$	385,180	$	—	$	1,155,349	Pass	$	175,428	$	159,122	$	81,452	$	75,464	$	95,370	$	109,382	$	635,314	$	—	$	1,331,532
Special Mention	Special Mention	661		3,511		10,811		9,122		1,872		168		23,282		—		49,427		Special Mention	—		—		—		667		12,558		—		—		—		13,225
Substandard	Substandard	232		1,619		17,878		5,893		3,236		4,086		17,787		—		50,731		Substandard	91		559		4,215		9,044		1,420		3,297		31,711		—		50,337
Doubtful	Doubtful	—		—		—		—		—		—		242		—		242		Doubtful	—		—		—		—		—		—		78		—		78
Total	Total	$	101,225	$	158,362	$	142,504	$	189,689	$	77,689	$	159,789	$	426,491	$	—	$	1,255,749	Total	$	175,519	$	159,681	$	85,667	$	85,175	$	109,348	$	112,679	$	667,103	$	—	$	1,395,172

Residential real estate	Residential real estate																			Residential real estate
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	175,047	$	126,838	$	99,726	$	158,363	$	213,995	$	758,315	$	295	$	—	$	1,532,579	Pass	$	770,095	$	281,469	$	100,116	$	73,592	$	147,992	$	736,711	$	286	$	—	$	2,110,261
Special Mention	Special Mention	—		—		—		—		—		401		—		—		401		Special Mention	—		—		158		—		—		1,942		—		—		2,100
Substandard	Substandard	—		—		—		1,865		1,583		9,880		—		—		13,328		Substandard	—		3,254		—		274		2,086		10,064		—		—		15,678
Total	Total	$	175,047	$	126,838	$	99,726	$	160,228	$	215,578	$	768,596	$	295	$	—	$	1,546,308	Total	$	770,095	$	284,723	$	100,274	$	73,866	$	150,078	$	748,717	$	286	$	—	$	2,128,039

2623

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2020
As of December 31, 2021																				As of December 31, 2021
Construction	Construction																			Construction
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	38,374	$	255,377	$	114,690	$	28,474	$	9,519	$	2,766	$	1,000	$	—	$	450,200	Pass	$	71,784	$	52,725	$	117,784	$	66,950	$	3,839	$	1,721	$	50	$	—	$	314,853
Special Mention	Special Mention	—		—		313		—		—		—		—		—		313		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		4,000		—		—		—		—		4,000		Substandard	—		—		—		9,429		—		—		—		—		9,429
Total	Total	$	38,374	$	255,377	$	115,003	$	32,474	$	9,519	$	2,766	$	1,000	$	—	$	454,513	Total	$	71,784	$	52,725	$	117,784	$	76,379	$	3,839	$	1,721	$	50	$	—	$	324,282

Commercial multifamily:	Commercial multifamily:																			Commercial multifamily:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	31,438	$	57,659	$	74,932	$	77,746	$	81,066	$	153,818	$	20	$	—	$	476,679	Pass	$	63,630	$	28,172	$	98,455	$	59,720	$	76,699	$	176,020	$	457	$	—	$	503,153
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		2,700		—		5,598		—		—		—		—		8,298
Substandard	Substandard	—		—		—		—		47		6,479		145		—		6,671		Substandard	—		—		—		—		—		4,230		136		—		4,366
Total	Total	$	31,438	$	57,659	$	74,932	$	77,746	$	81,113	$	160,297	$	165	$	—	$	483,350	Total	$	63,630	$	30,872	$	98,455	$	65,318	$	76,699	$	180,250	$	593	$	—	$	515,817

Commercial real estate owner occupied:	Commercial real estate owner occupied:																			Commercial real estate owner occupied:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	58,327	$	84,839	$	104,797	$	64,693	$	44,300	$	169,197	$	1,194	$	—	$	527,347	Pass	$	154,434	$	50,236	$	85,687	$	91,316	$	45,995	$	157,346	$	3,206	$	—	$	588,220
Special Mention	Special Mention	535		2,569		1,136		1,009		800		2,579		—		—		8,628		Special Mention	—		525		869		1,668		1,405		1,157		—		—		5,624
Substandard	Substandard	—		1,266		3,597		1,685		1,439		8,451		—		—		16,438		Substandard	—		—		2,113		1,593		838		8,089		—		—		12,633
Total	Total	$	58,862	$	88,674	$	109,530	$	67,387	$	46,539	$	180,227	$	1,194	$	—	$	552,413	Total	$	154,434	$	50,761	$	88,669	$	94,577	$	48,238	$	166,592	$	3,206	$	—	$	606,477

Commercial real estate non-owner occupied:	Commercial real estate non-owner occupied:																			Commercial real estate non-owner occupied:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	180,520	$	292,386	$	435,440	$	223,935	$	303,221	$	497,066	$	15,393	$	—	$	1,947,961	Pass	$	426,086	$	176,172	$	296,985	$	349,947	$	204,043	$	585,044	$	19,511	$	—	$	2,057,788
Special Mention	Special Mention	—		279		2,068		6,958		11,798		44,961		1,068		—		67,132		Special Mention	—		221		3,472		7,632		2,302		27,268		—		—		40,895
Substandard	Substandard	7,804		3,529		4,235		19,632		2,124		66,651		195		—		104,170		Substandard	—		7,588		—		2,784		33,472		14,303		99		—		58,246
Total	Total	$	188,324	$	296,194	$	441,743	$	250,525	$	317,143	$	608,678	$	16,656	$	—	$	2,119,263	Total	$	426,086	$	183,981	$	300,457	$	360,363	$	239,817	$	626,615	$	19,610	$	—	$	2,156,929

Commercial and industrial:	Commercial and industrial:																			Commercial and industrial:
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	754,260	$	159,046	$	205,651	$	130,985	$	48,326	$	148,222	$	368,769	$	—	$	1,815,259	Pass	$	187,257	$	130,520	$	114,153	$	156,443	$	54,190	$	136,837	$	424,393	$	—	$	1,203,793
Special Mention	Special Mention	1,467		5,753		5,267		2,851		1,601		65		12,408		—		29,412		Special Mention	661		1,691		10,824		5,092		1,433		488		22,468		—		42,657
Substandard	Substandard	7,392		39,822		24,951		7,765		3,504		5,630		9,099		—		98,163		Substandard	211		2,494		9,609		3,145		2,020		2,330		17,935		—		37,744
Doubtful	Doubtful	—		—		—		—		—		—		330		—		330		Doubtful	—		—		—		—		—		15		220		—		235
Total	Total	$	763,119	$	204,621	$	235,869	$	141,601	$	53,431	$	153,917	$	390,606	$	—	$	1,943,164	Total	$	188,129	$	134,705	$	134,586	$	164,680	$	57,643	$	139,670	$	465,016	$	—	$	1,284,429

Residential real estate	Residential real estate																			Residential real estate
Risk rating	Risk rating																			Risk rating
Pass	Pass	$	150,583	$	146,142	$	272,399	$	320,384	$	333,159	$	691,078	$	3,281	$	—	$	1,917,026	Pass	$	214,306	$	114,536	$	86,997	$	169,537	$	189,980	$	697,401	$	293	$	—	$	1,473,050
Special Mention	Special Mention	384		—		454		1,430		—		362		—		—		2,630		Special Mention	—		—		—		120		502		1,557		—		—		2,179
Substandard	Substandard	991		39		703		902		417		8,964		9		—		12,025		Substandard	1,239		—		142		1,849		2,161		8,628		—		—		14,019
Total	Total	$	151,958	$	146,181	$	273,556	$	322,716	$	333,576	$	700,404	$	3,290	$	—	$	1,931,681	Total	$	215,545	$	114,536	$	87,139	$	171,506	$	192,643	$	707,586	$	293	$	—	$	1,489,248

2724

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																			Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of September 30, 2021
As of September 30, 2022																				As of September 30, 2022
Home equity:	Home equity:																			Home equity:
Payment performance	Payment performance																			Payment performance
Performing	Performing	$	267	$	471	$	—	$	—	$	—	$	26	$	260,798	$	—	$	261,562	Performing	$	—	$	117	$	457	$	—	$	—	$	19	$	231,218	$	—	$	231,811
Nonperforming	Nonperforming	—		—		—		—		—		—		2,184		—		2,184		Nonperforming	—		—		—		—		—		—		2,216		—		2,216
Total	Total	$	267	$	471	$	—	$	—	$	—	$	26	$	262,982	$	—	$	263,746	Total	$	—	$	117	$	457	$	—	$	—	$	19	$	233,434	$	—	$	234,027

Consumer other:	Consumer other:																			Consumer other:
Payment performance	Payment performance																			Payment performance
Performing	Performing	$	18,117	$	12,230	$	24,397	$	64,468	$	38,387	$	37,666	$	3,295	$	—	$	198,560	Performing	$	159,609	$	30,603	$	8,901	$	14,548	$	33,215	$	30,817	$	8,035	$	—	$	285,728
Nonperforming	Nonperforming	8		75		332		898		900		1,053		7		—		3,273		Nonperforming	279		165		20		271		562		553		7		—		1,857
Total	Total	$	18,125	$	12,305	$	24,729	$	65,366	$	39,287	$	38,719	$	3,302	$	—	$	201,833	Total	$	159,888	$	30,768	$	8,921	$	14,819	$	33,777	$	31,370	$	8,042	$	—	$	287,585


		Term Loans Amortized Cost Basis by Origination Year																			Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2020
As of December 31, 2021																				As of December 31, 2021
Home equity:	Home equity:																			Home equity:
Payment performance	Payment performance																			Payment performance
Performing	Performing	$	2,445	$	1,960	$	316	$	1,859	$	499	$	1,882	$	282,123	$	—	$	291,084	Performing	$	125	$	469	$	—	$	—	$	—	$	24	$	249,590	$	—	$	250,208
Nonperforming	Nonperforming	—		—		1		—		—		—		2,896		—		2,897		Nonperforming	—		—		—		—		—		—		2,158		—		2,158
Total	Total	$	2,445	$	1,960	$	317	$	1,859	$	499	$	1,882	$	285,019	$	—	$	293,981	Total	$	125	$	469	$	—	$	—	$	—	$	24	$	251,748	$	—	$	252,366

Consumer other:	Consumer other:																			Consumer other:
Payment performance	Payment performance																			Payment performance
Performing	Performing	$	15,193	$	35,317	$	101,730	$	69,366	$	35,421	$	31,327	$	9,339	$	—	$	297,693	Performing	$	37,994	$	11,189	$	21,548	$	55,577	$	30,632	$	28,797	$	7,505	$	—	$	193,242
Nonperforming	Nonperforming	39		316		1,511		1,599		1,585		407		4		—		5,461		Nonperforming	8		46		290		797		746		1,139		31		—		3,057
Total	Total	$	15,232	$	35,633	$	103,241	$	70,965	$	37,006	$	31,734	$	9,343	$	—	$	303,154	Total	$	38,002	$	11,235	$	21,838	$	56,374	$	31,378	$	29,936	$	7,536	$	—	$	196,299

2825

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of loans by past due status at September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(In thousands)	(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
September 30, 2021
September 30, 2022														September 30, 2022
Construction	Construction	$	—	$	—	$	—	$	—	$	383,425	$	383,425	Construction	$	—	$	—	$	—	$	—	$	367,997	$	367,997
Commercial multifamily	Commercial multifamily	87		69		360		516		489,277		489,793		Commercial multifamily	—		—		—		—		612,890		612,890
Commercial real estate owner occupied	Commercial real estate owner occupied	627		1,082		7,318		9,027		554,921		563,948		Commercial real estate owner occupied	391		114		3,831		4,336		627,665		632,001
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	4,821		694		7,718		13,233		2,118,200		2,131,433		Commercial real estate non-owner occupied	368		3		206		577		2,285,193		2,285,770
Commercial and industrial	Commercial and industrial	3,269		398		7,252		10,919		1,244,830		1,255,749		Commercial and industrial	2,844		1,192		22,986		27,022		1,368,150		1,395,172

Residential real estate	Residential real estate	3,860		581		12,939		17,380		1,528,928		1,546,308		Residential real estate	4,566		2,281		13,038		19,885		2,108,154		2,128,039
Home equity	Home equity	602		450		2,184		3,236		260,510		263,746		Home equity	170		206		2,216		2,592		231,435		234,027
Consumer other	Consumer other	1,579		246		3,179		5,004		196,829		201,833		Consumer other	1,720		809		1,862		4,391		283,194		287,585
Total	Total	$	14,845	$	3,520	$	40,950	$	59,315	$	6,776,920	$	6,836,235	Total	$	10,059	$	4,605	$	44,139	$	58,803	$	7,884,678	$	7,943,481


(In thousands)	(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		(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, 2020
December 31, 2021														December 31, 2021
Construction	Construction	$	—	$	—	$	—	$	—	$	454,513	$	454,513	Construction	$	—	$	—	$	—	$	—	$	324,282	$	324,282
Commercial multifamily	Commercial multifamily	—		—		757		757		482,593		483,350		Commercial multifamily	82		306		187		575		515,242		515,817
Commercial real estate owner occupied	Commercial real estate owner occupied	809		631		4,894		6,334		546,079		552,413		Commercial real estate owner occupied	—		400		4,221		4,621		601,856		606,477
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	315		168		38,389		38,872		2,080,391		2,119,263		Commercial real estate non-owner occupied	25,420		653		9,049		35,122		2,121,807		2,156,929
Commercial and industrial	Commercial and industrial	3,016		3,259		12,982		19,257		1,923,907		1,943,164		Commercial and industrial	2,700		709		6,836		10,245		1,274,184		1,284,429

Residential real estate	Residential real estate	2,068		2,630		11,115		15,813		1,915,868		1,931,681		Residential real estate	5,529		2,015		13,264		20,808		1,468,440		1,489,248
Home equity	Home equity	244		284		2,897		3,425		290,556		293,981		Home equity	258		108		2,158		2,524		249,842		252,366
Consumer other	Consumer other	2,109		777		5,364		8,250		294,904		303,154		Consumer other	1,363		320		2,882		4,565		191,734		196,299
Total	Total	$	8,561	$	7,749	$	76,398	$	92,708	$	7,988,811	$	8,081,519	Total	$	35,352	$	4,511	$	38,597	$	78,460	$	6,747,387	$	6,825,847

2926

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 September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(In thousands)	(In thousands)	Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or Greater and Accruing		Interest Income Recognized on Nonaccrual		(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 September 30, 2021
At or for the three months ended September 30, 2022										At or for the three months ended September 30, 2022
Construction	Construction	$	—	$	—	$	—	$	—	Construction	$	—	$	—	$	—	$	—
Commercial multifamily	Commercial multifamily	360		195		—		—		Commercial multifamily	—		—		—		—
Commercial real estate owner occupied	Commercial real estate owner occupied	6,695		5,053		623		—		Commercial real estate owner occupied	2,722		1,987		1,109		—
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	7,193		1,500		525		—		Commercial real estate non-owner occupied	206		80		—		—
Commercial and industrial	Commercial and industrial	7,140		1,138		112		—		Commercial and industrial	20,977		18,292		2,009		—

Residential real estate	Residential real estate	10,570		6,301		2,369		—		Residential real estate	10,703		6,355		2,335		—
Home equity	Home equity	2,021		144		163		—		Home equity	1,725		518		491		—
Consumer other	Consumer other	3,168		5		11		—		Consumer other	1,520		2		342		—
Total	Total	$	37,147	$	14,336	$	3,803	$	—	Total	$	37,853	$	27,234	$	6,286	$	—

The commercial and industrial loans nonaccrual amortized cost as of September 30, ~~2021~~2022 included medallion loans with a fair value of ~~$1.0~~$0.8 million and a contractual balance of ~~$35.4~~$13.4 million.


(In thousands)	(In thousands)	Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or Greater and Accruing		Interest Income Recognized on Nonaccrual		(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, 2020
At or for the three months ended December 31, 2021										At or for the three months ended December 31, 2021
Construction	Construction	$	—	$	—	$	—	$	—	Construction	$	—	$	—	$	—	$	—
Commercial multifamily	Commercial multifamily	757		591		—		—		Commercial multifamily	187		187		—		—
Commercial real estate owner occupied	Commercial real estate owner occupied	4,509		2,290		385		—		Commercial real estate owner occupied	4,221		2,413		—		—
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	29,572		13,912		8,817		—		Commercial real estate non-owner occupied	8,877		8,412		172		—
Commercial and industrial	Commercial and industrial	12,441		4,725		541		—		Commercial and industrial	6,747		1,506		89		—

Residential real estate	Residential real estate	9,711		5,739		1,404		—		Residential real estate	10,698		6,511		2,566		—
Home equity	Home equity	2,654		159		243		—		Home equity	1,901		141		257		—
Consumer other	Consumer other	5,304		2		60		—		Consumer other	2,695		4		187		—
Total	Total	$	64,948	$	27,418	$	11,450	$	—	Total	$	35,326	$	19,174	$	3,271	$	—

The commercial and industrial loans nonaccrual amortized cost as of December 31, ~~2020~~2021 included medallion loans with a fair value of ~~$2.3~~$1.2 million and a contractual balance of ~~$53.9~~$31.4 million.

The following table summarizes information about total loans rated Special Mention or lower at September 30, ~~2021~~2022 and December 31, ~~2020.~~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) September 30, 2021 December 31, 2020
Non-Accrual $ 37,147 $ 64,948
Substandard Accruing 120,058 185,207
Total Classified 157,205 250,155
Special Mention 107,860 109,299
Total Criticized $ 265,065 $ 359,454


(In thousands)	September 30, 2022		December 31, 2021
Non-Accrual	$	37,853	$	35,326
Substandard Accruing	88,649		106,560
Total Classified	126,502		141,886
Special Mention	69,530		100,071
Total Criticized	$	196,032	$	241,957

3027

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				Type of Collateral
(In thousands)	(In thousands)	Real Estate		Investment Securities/Cash			Other		(In thousands)	Real Estate		Investment Securities/Cash		Other
September 30, 2021
September 30, 2022									September 30, 2022
Construction	Construction	$	—	$	—		$	—	Construction	$	—	$	—	$	—
Commercial multifamily	Commercial multifamily	196		—			—		Commercial multifamily			—		—
Commercial real estate owner occupied	Commercial real estate owner occupied	8,012		—			—		Commercial real estate owner occupied	3,380		—		—
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	8,858		—			—		Commercial real estate non-owner occupied	394		—		—
Commercial and industrial	Commercial and industrial	573		—			687		Commercial and industrial	461		—		19,113

Residential real estate	Residential real estate	6,255		—			—		Residential real estate	5,537		—		—
Home equity	Home equity	279		—			—		Home equity	638		—		—
Consumer other	Consumer other	7		—			—		Consumer other	4		—		—
Total loans	Total loans	$	24,180	$	—		$	687	Total loans	$	10,414	$	—	$	19,113

December 31, 2020
December 31, 2021									December 31, 2021
Construction	Construction	$	—	$	—		$	—	Construction	$	9,429	$	—	$	—
Commercial multifamily	Commercial multifamily	591		—			—		Commercial multifamily	188		—		—
Commercial real estate owner occupied	Commercial real estate owner occupied	5,714		—			—		Commercial real estate owner occupied	4,466		—		—
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	30,950		—			—		Commercial real estate non-owner occupied	9,501		—		—
Commercial and industrial	Commercial and industrial	973		36			3,758		Commercial and industrial	526		—		1,040
Commercial and industrial - other		—		—			—

Residential real estate	Residential real estate	5,081		—			—		Residential real estate	7,035		—		—
Home equity	Home equity	145		—			—		Home equity	262		—		—
Consumer other	Consumer other	51		—			—		Consumer other	2		—		—
Total loans	Total loans	$	43,505	$	36		$	3,758	Total loans	$	31,409	$	—	$	1,040

3128

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 and nine months ended September 30, ~~2021~~2022 and September 30, ~~2020:~~2021:


(In thousands)	(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period		(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 September 30, 2021
Three months ended September 30, 2022														Three months ended September 30, 2022
Construction	Construction	$	—	$	—	$	—	$	—	$	—	$	—	Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial multifamily	Commercial multifamily	728		(11)		—		—		—		717		Commercial multifamily	677		(7)		—		(175)		—		495
Commercial real estate owner occupied	Commercial real estate owner occupied	2,962		(33)		—		—		—		2,929		Commercial real estate owner occupied	2,701		(28)		—		(16)		—		2,657
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	24,488		(67)		—		(10,967)		—		13,454		Commercial real estate non-owner occupied	986		(13)		—		—		—		973
Commercial and industrial	Commercial and industrial	6,810		(387)		—		(3,105)		283		3,601		Commercial and industrial	4,651		(426)		—		(15)		—		4,210

Residential real estate	Residential real estate	1,305		(160)		—		—		—		1,145		Residential real estate	1,019		(17)		—		—		—		1,002
Home equity	Home equity	127		(3)		—		—		—		124		Home equity	162		(62)		—		—		—		100
Consumer other	Consumer other	37		(2)		—		(1)		—		34		Consumer other	30		(2)		—		—		545		573
Total	Total	$	36,457	$	(663)	$	—	$	(14,073)	$	283	$	22,004	Total	$	10,226	$	(555)	$	—	$	(206)	$	545	$	10,010

(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 September 30, 2020
Construction $ — $ — $ — $ — $ — $ —
Commercial multifamily 779 (12) — — — 767
Commercial real estate owner occupied 2,919 (19) — — 18 2,918
Commercial real estate non-owner occupied 11,166 — — 1,241 194 12,601
Commercial and industrial 2,563 (127) — (58) 399 2,777
Residential real estate 1,968 (57) — — — 1,911
Home equity 275 (3) — (72) — 200
Consumer other 43 (3) — — — 40
Total $ 19,713 $ (221) $ — $ 1,111 $ 611 $ 21,214


(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 September 30, 2021
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial multifamily	728		(11)		—		—		—		717
Commercial real estate owner occupied	2,962		(33)		—		—		—		2,929
Commercial real estate non-owner occupied	24,488		(67)		—		(10,967)		—		13,454
Commercial and industrial	6,810		(387)		—		(3,105)		283		3,601

Residential real estate	1,305		(160)		—		—		—		1,145
Home equity	127		(3)		—		—		—		124
Consumer other	37		(2)		—		(1)		—		34
Total	$	36,457	$	(663)	$	—	$	(14,073)	$	283	$	22,004

3229

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period
Nine months ended September 30, 2022
Construction	$	9,429	$	—	$	—	$	(9,429)	$	—	$	—
Commercial multifamily	703		(33)		—		(175)		—		495
Commercial real estate owner occupied	2,733		(60)		—		(16)		—		2,657
Commercial real estate non-owner occupied	9,310		(25)		—		(8,312)		—		973
Commercial and industrial	3,656		(768)		—		(164)		1,486		4,210

Residential real estate	1,117		(48)		—		(67)		—		1,002
Home equity	121		(71)		—		—		50		100
Consumer other	33		(5)		—		—		545		573
Total	$	27,102	$	(1,010)	$	—	$	(18,163)	$	2,081	$	10,010


(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period
Nine months ended September 30, 2021
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial multifamily	754		(37)		—		—		—		717
Commercial real estate owner occupied	1,731		(68)		—		—		1,266		2,929
Commercial real estate non-owner occupied	13,684		(163)		—		(11,046)		10,979		13,454
Commercial and industrial	2,686		(815)		—		(3,141)		4,871		3,601

Residential real estate	1,524		(205)		—		(174)		—		1,145
Home equity	133		(9)		—		—		—		124
Consumer other	36		(7)		—		5		—		34
Total	$	20,548	$	(1,304)	$	—	$	(14,356)	$	17,116	$	22,004

(In thousands) Balance at Beginning of Period Principal Payments TDR Status Change Other Additions/(Reductions) Newly Identified TDRs Balance at End of Period
Nine months ended September 30, 2020
Construction $ — $ — $ — $ — $ — $ —
Commercial multifamily 793 (26) — — — 767
Commercial real estate owner occupied 13,331 (5,721) — (4,710) 18 2,918
Commercial real estate non-owner occupied 1,373 — — 1,241 9,987 12,601
Commercial and industrial 1,449 (198) — (60) 1,586 2,777
Residential real estate 2,045 (134) — — — 1,911
Home equity 277 (5) — (72) — 200
Consumer other 48 (8) — — — 40
Total $ 19,316 $ (6,092) $ — $ (3,601) $ 11,591 $ 21,214

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents loans modified as TDRs that occurred during the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(dollars in thousands)	Total
Three months ended September 30, 2022
TDR:
Number of loans	30
Pre-modification outstanding recorded investment	$	545
Post-modification outstanding recorded investment	$	545

Three months ended September 30, 2021
TDR:
Number of loans	2
Pre-modification outstanding recorded investment	$	283
Post-modification outstanding recorded investment	$	283

~~Three months ended September 30, 2020~~
~~TDR:~~
~~Number of loans~~	10
~~Pre-modification outstanding recorded investment~~	$	~~611~~
~~Post-modification outstanding recorded investment~~	$	~~611~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


(dollars in thousands)	Total
Nine months ended September 30, 2022
TDR:
Number of loans	32
Pre-modification outstanding recorded investment	$	2,081
Post-modification outstanding recorded investment	$	2,081

Nine months ended September 30, 2021
TDR:
Number of loans	15
Pre-modification outstanding recorded investment	$	17,116
Post-modification outstanding recorded investment	$	17,116

~~Nine months ended September 30, 2020~~
~~TDR:~~
~~Number of loans~~	15
~~Pre-modification outstanding recorded investment~~	$	~~11,591~~
~~Post-modification outstanding recorded investment~~	$	~~11,591~~

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ending September 30, 2022. 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 and~~ nine months ended September 30, ~~2021:~~

(in thousands) Number of Loans Recorded Investment
Three months ended September 30, 2021
Commercial real estate non-owner occupied 1 $ 10,435
Total 1 $ 10,435
2022:


(in thousands)	(in thousands)	Number of Loans	Recorded Investment		(in thousands)	Number of Loans	Recorded Investment
Nine months ended September 30, 2021
Nine months ended September 30, 2022					Nine months ended September 30, 2022

Commercial real estate non-owner occupied		1	$	10,435

Commercial and industrial	Commercial and industrial	2	$	71	Commercial and industrial	1	$	105

Total	Total	3	$	10,506	Total	1	$	105

There were no TDRs for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, ~~2020.~~2021.

~~Beginning in~~Between March 2020 and December 2021, 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 119 - Other Commitments, Contingencies, and Off-Balance Sheet Activities, and Pandemic Impact for more information regarding these modifications.

3431

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.5. DEPOSITS

A summary of time deposits is as follows:


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	September 30, 2022		December 31, 2021
Time less than $100,000	Time less than $100,000	$	583,893	$	663,324	Time less than $100,000	$	533,683	$	676,979
Time $100,000 through $250,000	Time $100,000 through $250,000	828,625		1,219,210		Time $100,000 through $250,000	631,551		610,174
Time more than $250,000	Time more than $250,000	413,196		502,551		Time more than $250,000	380,022		391,787
Total time deposits	Total time deposits	$	1,825,714	$	2,385,085	Total time deposits	$	1,545,256	$	1,678,940

Included in total deposits ~~are~~were brokered deposits of ~~$317.1~~$163.5 million and ~~$610.6~~$228.1 million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Included in total deposits ~~are~~were reciprocal deposits of ~~$79.2~~$71.3 million and ~~$119.0~~$89.2 million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

NOTE 8.6. BORROWED FUNDS

Borrowed funds at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 are summarized as follows:

September 30, 2021 December 31, 2020
Weighted Weighted
Average Average
(Dollars in thousands) Principal Rate Principal Rate
Short-term borrowings:
Advances from the FHLB $ — — % $ 40,000 1.05 %
Total short-term borrowings: — — 40,000 1.05
Long-term borrowings:
Advances from the FHLB and other borrowings 13,369 1.75 434,357 1.89
Subordinated borrowings 74,544 7.00 74,411 7.00
Junior subordinated borrowing - Trust I 15,464 1.98 15,464 2.06
Junior subordinated borrowing - Trust II 7,446 1.82 7,405 1.92
Total long-term borrowings: 110,823 5.32 531,637 2.61
Total $ 110,823 5.32 % $ 571,637 2.50 %

During the three months ended September 30, 2021, the Company pre-paid Federal Home Loan Bank (“FHLB”) advances of $94.1 million resulting in pre-payment penalties of $862.2 thousand, which is included with acquisition, restructuring and other expenses on the Consolidated Statement of Operations.


	September 30, 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	4,494		0.71		13,331		1.75


Subordinated borrowings	98,038		5.50		74,590		7.00
Junior subordinated borrowing - Trust I	15,464		4.81		15,464		2.01
Junior subordinated borrowing - Trust II	7,499		4.99		7,459		1.90

Total long-term borrowings:	125,495		5.21		110,844		5.33
Total	$	125,495	5.21	%	$	110,844	5.33	%

Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one ~~year and a short-term line-of-credit drawdown through a correspondent bank.~~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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The Bank's available borrowing capacity with the FHLB was ~~$1.6~~$1.2 billion and $1.5 billion for the periods ended September 30, ~~2021~~2022 and December 31, ~~2020.~~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 September 30, ~~2021~~2022 and December 31, ~~2020.~~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 September 30, ~~2021~~2022 and December 31, 2021, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $590.5 million and $511.0 million for the periods ended September 30, 2022 and December 31, 2021, respectively.

3532

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Bank's available borrowing capacity with the Federal Reserve Bank was $523.4 million and $815.6 million for the periods ended September 30, 2021 and December 31, 2020, respectively.~~

Long-term FHLB advances consist of advances with an original maturity of more than one year and are subject to prepayment penalties. There were no callable advances outstanding at September 30, 2022. The advances outstanding at September 30, 2022 included amortizing advances totaling $4.4 million. The advances outstanding at December 31, 2021 included callable advances totaling $10.0 million and amortizing advances totaling $3.4 ~~million. The advances outstanding at December 31, 2020 included callable advances totaling $10.0 million and amortizing advances totaling $5.2~~ 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 September 30, ~~2021~~2022 is as follows:


		September 30, 2021				September 30, 2022
				Weighted Average						Weighted Average
(In thousands, except rates)	(In thousands, except rates)	Principal		Rate			(In thousands, except rates)	Principal		Rate
Fixed rate advances maturing:	Fixed rate advances maturing:						Fixed rate advances maturing:
2021		$	—	—	%
2022	2022	4,002		2.04			2022	$	—	—	%
2023	2023	—		—			2023	—		—
2024	2024	43		—			2024	28		—
2025							2025	—		—
2025 and beyond	2025 and beyond	9,324		1.63			2025 and beyond	4,466		0.71
Total FHLB advances	Total FHLB advances	$	13,369	1.75	%		Total FHLB advances	$	4,494	0.71	%

The Company did not have variable-rate FHLB advances for the periods ended September 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively.

In ~~September 2012,~~June 2022, the Company issued ~~fifteen~~ten year subordinated notes in the amount of ~~$75.0 million at a discount of 1.15%.~~$100.0 million. The interest rate is fixed at ~~6.875%~~5.50% for the first ~~ten~~five years. After ~~ten~~five years, the notes become callable and ~~convert~~will bear interest at a floating rate per annum equal to ~~an interest~~a benchmark rate ~~of three-month LIBOR rate~~(which is expected to be Three-Month Term SOFR), plus ~~5.113%.~~249 basis points. The subordinated note includes reduction to the note principal balance of ~~$123 thousand and $215 thousand~~$2.0 million for unamortized debt issuance costs as of September 30, ~~2021 and December 31, 2020, respectively.~~2022.

In September 2022, the Company called the fifteen year subordinated notes that were issued in September 2012 in the amount of $75 million.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets ~~with~~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 ~~1.98%~~4.81% and ~~2.06%~~2.01% at September 30, ~~2021~~2022 and December 31, ~~2020,~~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 ~~with~~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 ~~1.82%~~4.99% and ~~1.92%~~1.90% at September 30, ~~2021~~2022 and December 31, ~~2020,~~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.

3633

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, ~~2021,~~2022, the Company held derivatives with a total notional amount of ~~$3.7~~$4.0 billion. That amount included $0.4 billion in interest rate swap derivatives that were designated as cash flow hedges for accounting purposes. The Company also had economic hedges totaling ~~$3.7~~$3.6 billion and ~~$17.7~~$3.1 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~~$3.3 billion, risk participation agreements with dealer banks of ~~$0.4~~$0.3 billion, and ~~$4.8~~$1.0 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 September 30, ~~2021.~~2022.

The Company pledged collateral to derivative counterparties in the form of cash totaling ~~$56.9~~$14.9 million and securities with an amortized cost of ~~$35.4~~$22.5 million and a fair value of ~~$35.6~~$22.3 million as of September 30, ~~2021.~~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 September 30, 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 $ 8,077 8.2 0.45 % 5.09 % $ (1,316)
Interest rate swaps on loans with commercial loan customers 1,677,953 5.8 4.04 % 1.89 % 94,461
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,677,953 5.8 1.89 % 4.04 % (39,350)
Risk participation agreements with dealer banks 355,417 6.6 383
Forward sale commitments 4,814 0.2 102
Total economic hedges 3,724,214 54,280
Non-hedging derivatives:
Commitments to lend 17,669 0.2 222
Total non-hedging derivatives 17,669 222
Total $ 3,741,883 $ 54,502

~~(1) Fair value estimates include the impact of $56.0 million settled to market contract agreements.~~

3734

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about derivative assets and liabilities at ~~December 31, 2020,~~September 30, 2022, follows:


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

Cash flow hedges:											Cash flow hedges:
Interest rate swaps on commercial loans											Interest rate swaps on commercial loans	$	225,000	2.9	2.50	%	3.25	%	$	(4,740)
Forward-starting interest rate swaps on commercial loans											Forward-starting interest rate swaps on commercial loans	175,000		3.0	—	%	3.84	%	$	(815)
Total cash flow hedges											Total cash flow hedges	400,000							(5,555)

Economic hedges:	Economic hedges:										Economic hedges:
Interest rate swap on tax advantaged economic development bond	Interest rate swap on tax advantaged economic development bond	$	8,654	8.9	0.52	%	5.09	%	$	(1,778)	Interest rate swap on tax advantaged economic development bond	$	7,270	7.4	5.09	%	4.25	%	$	(205)
Interest rate swaps on loans with commercial loan customers		1,734,978		6.1	4.15	%	1.95	%	159,016
Interest rate swaps on loans with commercial loan customers (1)											Interest rate swaps on loans with commercial loan customers (1)	1,653,839		5.8	3.98	%	4.26	%	(95,836)
Offsetting interest rate swaps on loans with commercial loan customers (1)	Offsetting interest rate swaps on loans with commercial loan customers (1)	1,734,978		6.1	1.95	%	4.15	%	(64,645)		Offsetting interest rate swaps on loans with commercial loan customers (1)	1,653,839		5.8	4.26	%	3.98	%	52,834
Risk participation agreements with dealer banks	Risk participation agreements with dealer banks	326,862		8.0					665		Risk participation agreements with dealer banks	325,063		6.9					13
Forward sale commitments	Forward sale commitments	11,544		0.2					320		Forward sale commitments	539		0.2					7
Total economic hedges	Total economic hedges	3,817,016							93,578		Total economic hedges	3,640,550							(43,187)

Non-hedging derivatives:	Non-hedging derivatives:										Non-hedging derivatives:
Commitments to lend	Commitments to lend	40,099		0.2					735		Commitments to lend	3,132		0.2					16
Total non-hedging derivatives	Total non-hedging derivatives	40,099							735		Total non-hedging derivatives	3,132							16

Total	Total	$	3,857,115						$	94,313	Total	$	4,043,682						$	(48,726)

(1) Fair value estimates include the impact of ~~$97.6~~$43.0 million settled to market contract agreements.

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

Cash flow hedges

The effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges is reported in other comprehensive income and subsequently reclassified to earnings in the same period or periods during which the hedged transaction is forecasted to affect earnings. Each quarter, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The ineffective portion of changes in the fair value of the derivatives is recognized directly in earnings.

The Company has entered into three interest rate swap contracts and three forward-starting interest rate swap contracts with a combined notional value of $400.0 million as of September 30, 2022. The three forward starting swaps will become effective in 2022. These interest rate swaps have durations of two to three years. This hedge strategy converts commercial variable rate loans to fixed interest rates, thereby protecting the Company from floating interest rate variability. Amounts included in the Consolidated Statements of Income and in the other comprehensive income section of the Consolidated Statements of Comprehensive Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Interest rate swaps on commercial loans:
Unrealized (loss) recognized in accumulated other comprehensive loss	$	(5,555)	$	—	$	(5,555)	$	—

Less: Reclassification of unrealized (loss) from accumulated other comprehensive loss to interest expense	—		—		—		—



Net tax benefit on items recognized in accumulated other comprehensive income	1,494		—		1,494		—

Other comprehensive loss recorded in accumulated other comprehensive income, net of reclassification adjustments and tax effects	$	(4,061)	$	—	$	(4,061)	$	—
Net interest expense recognized in interest expense on hedged commercial loans	$	(136)	$	—	$	(136)	$	—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Economic hedges

As of September 30, ~~2021,~~2022, the Company has an interest rate swap with a ~~$8.1~~$7.3 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. ~~Credit~~There was no credit valuation loss ~~adjustments~~adjustment arising from the difference in credit worthiness of the commercial loan and financial institution counterparties ~~totaled $2.4 million~~ as of September 30, ~~2021.~~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.

3937

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 September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Economic hedges	Economic hedges									Economic hedges
Interest rate swap on industrial revenue bond:	Interest rate swap on industrial revenue bond:									Interest rate swap on industrial revenue bond:
Unrealized gain/(loss) recognized in other non-interest income		$	106	$	106	$	462	$	(444)
Unrealized gain recognized in other non-interest income										Unrealized gain recognized in other non-interest income	$	304	$	106	$	953	$	462

Interest rate swaps on loans with commercial loan customers:	Interest rate swaps on loans with commercial loan customers:									Interest rate swaps on loans with commercial loan customers:
Unrealized (loss)/gain recognized in other non-interest income		(17,164)		(10,219)		(66,949)		104,434
Favorable/(Unfavorable) change in credit valuation adjustment recognized in other non-interest income		874		406		2,394		(2,029)
Unrealized (loss) recognized in other non-interest income										Unrealized (loss) recognized in other non-interest income	(53,788)		(17,164)		(177,413)		(66,949)
Favorable change in credit valuation adjustment recognized in other non-interest income										Favorable change in credit valuation adjustment recognized in other non-interest income	—		874		1,809		2,394

Offsetting interest rate swaps on loans with commercial loan customers:	Offsetting interest rate swaps on loans with commercial loan customers:									Offsetting interest rate swaps on loans with commercial loan customers:
Unrealized gain/(loss) recognized in other non-interest income		17,164		10,219		66,949		(104,434)
Unrealized gain recognized in other non-interest income										Unrealized gain recognized in other non-interest income	53,788		17,164		177,413		66,949

Risk participation agreements:	Risk participation agreements:									Risk participation agreements:
Unrealized (loss) recognized in other non-interest income										Unrealized (loss) recognized in other non-interest income	(19)		(103)		(419)		(282)

Forward commitments:										Forward commitments:
Unrealized (loss)/gain recognized in other non-interest income	Unrealized (loss)/gain recognized in other non-interest income	(103)		(26)		(282)		339		Unrealized (loss)/gain recognized in other non-interest income	(11)		10		(127)		(218)

Forward commitments:
Unrealized gain/(loss) recognized in other non-interest income		10		(50)		(218)		624
Realized gain/(loss) in other non-interest income		—		48		—		(8,283)

Non-hedging derivatives	Non-hedging derivatives									Non-hedging derivatives
Commitments to lend	Commitments to lend									Commitments to lend
Unrealized (loss)/gain recognized in other non-interest income		$	(39)	$	349	$	(513)	$	(1,130)
Unrealized (loss) recognized in other non-interest income										Unrealized (loss) recognized in other non-interest income	$	(100)	$	(39)	$	(108)	$	(513)

Realized gain in other non-interest income	Realized gain in other non-interest income	500		1,563		2,310		14,532		Realized gain in other non-interest income	78		500		420		2,310

4038

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 ~~$1.8~~$52.8 million and ~~$1.0~~$2.2 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company had net asset positions with its commercial banking counterparties totaling ~~$95.6 million~~$98.0 thousand and ~~$159.0~~$76.8 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company had net liability positions with its financial institution counterparties totaling ~~$40.8 million~~$190.0 thousand and ~~$66.8~~$33.3 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company had net liability positions with its commercial banking counterparties totaling ~~$1.1~~$95.9 million and $2.5 million as of September 30, ~~2021. The Company had no net liability positions with its commercial banking counterparties as of~~2022 and December 31, ~~2020.~~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 September 30, ~~2021~~2022 and December 31, ~~2020:~~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							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					Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount		(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
September 30, 2021
September 30, 2022														September 30, 2022
Interest Rate Swap Agreements:	Interest Rate Swap Agreements:													Interest Rate Swap Agreements:
Institutional counterparties	Institutional counterparties	$	1,853	$	(46)	$	1,807	$	—	$	—	$	1,807	Institutional counterparties	$	101,474	$	(48,639)	$	52,835	$	—	$	—	$	52,835
Commercial counterparties	Commercial counterparties	95,587		—		95,587		—		—		95,587		Commercial counterparties	98		—		98		—		—		98
Total	Total	$	97,440	$	(46)	$	97,394	$	—	$	—	$	97,394	Total	$	101,572	$	(48,639)	$	52,933	$	—	$	—	$	52,933

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							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					Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount		(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount
September 30, 2021
September 30, 2022														September 30, 2022
Interest Rate Swap Agreements:	Interest Rate Swap Agreements:													Interest Rate Swap Agreements:
Institutional counterparties	Institutional counterparties	$	(96,810)	$	56,036	$	(40,774)	$	35,616	$	56,893	$	51,735	Institutional counterparties	$	(232)	$	42	$	(190)	$	22,273	$	14,863	$	36,946
Commercial counterparties	Commercial counterparties	(1,126)		—		(1,126)		—		—		(1,126)		Commercial counterparties	(101,353)		5,419		(95,934)		—		—		(95,934)
Total	Total	$	(97,936)	$	56,036	$	(41,900)	$	35,616	$	56,893	$	50,609	Total	$	(101,585)	$	5,461	$	(96,124)	$	22,273	$	14,863	$	(58,988)

4139

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							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					Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount		(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
December 31, 2020
December 31, 2021														December 31, 2021
Interest Rate Swap Agreements:	Interest Rate Swap Agreements:													Interest Rate Swap Agreements:
Institutional counterparties	Institutional counterparties	$	1,124	$	(78)	$	1,046	$	—	$	—	$	1,046	Institutional counterparties	$	2,223	$	(75)	$	2,148	$	—	$	—	$	2,148
Commercial counterparties	Commercial counterparties	159,016		—		159,016		—		—		159,016		Commercial counterparties	76,809		—		76,809		—		—		76,809
Total	Total	$	160,140	$	(78)	$	160,062	$	—	$	—	$	160,062	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							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					Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount		(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount
December 31, 2020
December 31, 2021														December 31, 2021
Interest Rate Swap Agreements:	Interest Rate Swap Agreements:													Interest Rate Swap Agreements:
Institutional counterparties	Institutional counterparties	$	(164,543)	$	97,740	$	(66,803)	$	37,815	$	75,070	$	46,082	Institutional counterparties	$	(78,146)	$	44,814	$	(33,332)	$	34,896	$	43,694	$	45,258
Commercial counterparties	Commercial counterparties	—		—		—		—		—		—		Commercial counterparties	(2,461)		—		(2,461)		—		—		(2,461)
Total	Total	$	(164,543)	$	97,740	$	(66,803)	$	37,815	$	75,070	$	46,082	Total	$	(80,607)	$	44,814	$	(35,793)	$	34,896	$	43,694	$	42,797

4240

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~10.~~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 September 30, ~~2021,~~2022, lease expiration dates ranged from 1 month to 1817 years.

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


(In thousands)	(In thousands)		September 30, 2021		December 31, 2020		(In thousands)		September 30, 2022		December 31, 2021
Lease Right-of-Use Assets	Lease Right-of-Use Assets	Classification					Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	Other assets	$	53,583	$	60,018	Operating lease right-of-use assets	Other assets	$	48,467	$	52,180
Finance lease right-of-use assets	Finance lease right-of-use assets	Premises and equipment, net	6,805		7,197		Finance lease right-of-use assets	Premises and equipment, net	6,282		6,674
Total Lease Right-of-Use Assets	Total Lease Right-of-Use Assets		$	60,388	$	67,215	Total Lease Right-of-Use Assets		$	54,749	$	58,854

Lease Liabilities	Lease Liabilities						Lease Liabilities
Operating lease liabilities	Operating lease liabilities	Other liabilities	$	57,144	$	63,894	Operating lease liabilities	Other liabilities	$	55,269	$	55,674
Finance lease liabilities	Finance lease liabilities	Other liabilities	9,996		10,383		Finance lease liabilities	Other liabilities	9,448		9,862
Total Lease Liabilities	Total Lease Liabilities		$	67,140	$	74,277	Total Lease Liabilities		$	64,717	$	65,536

Supplemental information related to leases was as follows:


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Weighted-Average Remaining Lease Term (in years)	Weighted-Average Remaining Lease Term (in years)					Weighted-Average Remaining Lease Term (in years)
Operating leases	Operating leases	9.7		9.8		Operating leases	9.1		9.5
Finance leases	Finance leases	13.1		13.8		Finance leases	12.1		12.8

Weighted-Average Discount Rate	Weighted-Average Discount Rate					Weighted-Average Discount Rate
Operating leases	Operating leases	2.84	%	2.81	%	Operating leases	2.60	%	2.77	%
Finance leases	Finance leases	5.00	%	5.00	%	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 September 30, 2022 was $2.2 million. Lease expense for operating leases for the nine months ended September 30, 2022 was $7.3 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 September 30, 2021 was $2.6 million. Lease expense for operating leases for the nine months ended September 30, 2021 was $8.3 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 September 30, 2020 was $3.4 million, of which $0.2 million was related to discontinued operations. Lease expense for operating leases for the nine months ended September 30, 2020 was $10.2 million, of which $0.9 million was related to discontinued operations.Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

4341

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases was as follows:


		Three Months Ended					Three Months Ended
(In thousands)	(In thousands)	September 30, 2021		September 30, 2020		(In thousands)	September 30, 2022		September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases ~~(1)~~	Operating cash flows from operating leases ~~(1)~~	$	2,524	$	2,441	Operating cash flows from operating leases ~~(1)~~	$	2,518	$	2,524
Operating cash flows from finance leases	Operating cash flows from finance leases	126		133		Operating cash flows from finance leases	119		126
Financing cash flows from finance leases	Financing cash flows from finance leases	132		125		Financing cash flows from finance leases	139		132

~~(1) There were operating cash flows from operating leases related to discontinued operations of $0.2 million at September 30, 2020.~~

Nine Months Ended
(In thousands) September 30, 2021 September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)
$ 8,358 $ 10,461
Operating cash flows from finance leases 379 399
Financing cash flows from finance leases 394 374

~~(1) There were operating cash flows from operating leases related to discontinued operations of $0.9 million at September 30, 2020.~~


	Nine Months Ended
(In thousands)	September 30, 2022		September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7,657	$	8,358
Operating cash flows from finance leases	359		379
Financing cash flows from finance leases	414		394

The following table presents a maturity analysis of the Company’s lease liability by lease classification at September 30, ~~2021:~~2022:


(In thousands)	(In thousands)	Operating Leases		Finance Leases		(In thousands)	Operating Leases		Finance Leases
2021		$	2,536	$	257
2022	2022	9,686		1,031		2022	$	2,522	$	256
2023	2023	8,494		1,037		2023	10,068		1,037
2024	2024	7,451		1,037		2024	8,506		1,037
2025	2025	5,764		1,037		2025	6,541		1,037
2026						2026	5,323		1,037
Thereafter	Thereafter	32,049		9,223		Thereafter	29,271		8,187
Total undiscounted lease payments	Total undiscounted lease payments	65,980		13,622		Total undiscounted lease payments	62,231		12,591
Less amounts representing interest	Less amounts representing interest	(8,836)		(3,626)		Less amounts representing interest	(6,962)		(3,143)
Lease liability	Lease liability	$	57,144	$	9,996	Lease liability	$	55,269	$	9,448

4442

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~11.~~9. OTHER COMMITMENTS, CONTINGENCIES, OFF-BALANCE SHEET ACTIVITIES, AND PANDEMIC IMPACT

In ~~December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in China and has since spread to a number of other countries, including the United States. In~~ March 2020, the World Health Organization declared ~~COVID-19~~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 thecontinuing 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.

~~At this time, it is difficult to quantify the impact COVID-19 will continue to have on the Company during the current year.~~ 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 September 30, ~~2021,~~2022, the Company had 242 active modified loans outstanding with a carrying value of ~~$65~~$12.5 million. As of December 31, ~~2020,~~2021, the Company had ~~746~~19 active modified loans outstanding with a carrying value of ~~$316~~$14.4 million, which excluded loans returning to payment or awaiting evaluation for further deferral. The Company continues to accrue interest on these loans during the deferral period. In accordance with interagency guidance issued in March 2020 and Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty. In addition, the risk-ratings on COVID-19 modified loans did not automatically change as a result of payment deferrals, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume. Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act expired on December 31, 2021.

4543

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~12.~~10. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:


		September 30, 2021		December 31, 2020		Minimum Capital Requirement			September 30, 2022		December 31, 2021		Minimum Capital Requirement
Company (consolidated)	Company (consolidated)							Company (consolidated)
Total capital to risk-weighted assets	Total capital to risk-weighted assets	17.7	%	16.1	%	8.0	%	Total capital to risk-weighted assets	15.1	%	17.3	%	8.0	%
Common equity tier 1 capital to risk-weighted assets	Common equity tier 1 capital to risk-weighted assets	15.3		13.8		4.5		Common equity tier 1 capital to risk-weighted assets	12.7		15.0		4.5
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	15.6		14.1		6.0		Tier 1 capital to risk-weighted assets	13.0		15.3		6.0
Tier 1 capital to average assets	Tier 1 capital to average assets	9.9		9.4		4.0		Tier 1 capital to average assets	10.1		10.5		4.0


		September 30, 2021		December 31, 2020		Regulatory Minimum to be Adequately Capitalized		Regulatory Minimum to be Well Capitalized			September 30, 2022		December 31, 2021		Regulatory Minimum to be Adequately Capitalized		Regulatory Minimum to be Well Capitalized
Bank	Bank									Bank
Total capital to risk-weighted assets	Total capital to risk-weighted assets	16.2	%	15.0	%	8.0	%	10.0	%	Total capital to risk-weighted assets	13.6	%	15.9	%	8.0	%	10.0	%
Common equity tier 1 capital to risk-weighted assets	Common equity tier 1 capital to risk-weighted assets	15.1		13.9		4.5		6.5		Common equity tier 1 capital to risk-weighted assets	12.7		14.8		4.5		6.5
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	15.1		13.9		6.0		8.0		Tier 1 capital to risk-weighted assets	12.7		14.8		6.0		8.0
Tier 1 capital to average assets	Tier 1 capital to average assets	9.6		9.2		4.0		5.0		Tier 1 capital to average assets	9.9		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~~, including a 2.5% capital conservation buffer. Capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the ~~minimum~~ capital conservation buffer is not met.

At September 30, ~~2021,~~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 September 30, ~~2021~~2022 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.

4644

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive ~~income~~(loss)

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


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	September 30, 2022		December 31, 2021
Other accumulated comprehensive income, before tax:	Other accumulated comprehensive income, before tax:					Other accumulated comprehensive income, before tax:
Net unrealized holding gain on AFS securities		$	13,270	$	44,988

Net unrealized holding (loss) on AFS securities						Net unrealized holding (loss) on AFS securities	$	(246,739)	$	(1,806)
Net unrealized (loss) on cash flow hedging derivatives						Net unrealized (loss) on cash flow hedging derivatives	(5,555)		—
Net unrealized holding (loss) on pension plans	Net unrealized holding (loss) on pension plans	(3,511)		(3,511)		Net unrealized holding (loss) on pension plans	(2,518)		(2,518)

Income taxes related to items of accumulated other comprehensive income:	Income taxes related to items of accumulated other comprehensive income:					Income taxes related to items of accumulated other comprehensive income:
Net unrealized tax (expense) on AFS securities		(3,434)		(11,530)

Net unrealized tax benefit on AFS securities						Net unrealized tax benefit on AFS securities	64,150		407
Net unrealized tax benefit on cash flow hedging derivatives						Net unrealized tax benefit on cash flow hedging derivatives	1,494		—
Net unrealized tax benefit on pension plans	Net unrealized tax benefit on pension plans	924		924		Net unrealized tax benefit on pension plans	674		674
Accumulated other comprehensive income		$	7,249	$	30,871
Accumulated other comprehensive loss						Accumulated other comprehensive loss	$	(188,494)	$	(3,243)

The following table presents the components of other comprehensive ~~income~~(loss) for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(In thousands)	(In thousands)	Before Tax		Tax Effect		Net of Tax		(In thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended September 30, 2021
Net unrealized holding gain on AFS securities:		x
Three Months Ended September 30, 2022								Three Months Ended September 30, 2022
Net unrealized holding loss on AFS securities:								Net unrealized holding loss on AFS securities:	x
Net unrealized (losses) arising during the period	Net unrealized (losses) arising during the period	$	(10,098)	$	2,575	$	(7,523)	Net unrealized (losses) arising during the period	$	(83,073)	$	21,639	$	(61,434)
Less: reclassification adjustment for gains realized in net income	Less: reclassification adjustment for gains realized in net income	—		—		—		Less: reclassification adjustment for gains realized in net income	—		—		—
Net unrealized holding (loss) on AFS securities	Net unrealized holding (loss) on AFS securities	(10,098)		2,575		(7,523)		Net unrealized holding (loss) on AFS securities	(83,073)		21,639		(61,434)

Net unrealized loss on cash flow hedging derivatives:								Net unrealized loss on cash flow hedging derivatives:
Net unrealized (loss) arising during the period								Net unrealized (loss) arising during the period	(5,555)		1,494		(4,061)
Less: reclassification adjustment for (losses) realized in net income								Less: reclassification adjustment for (losses) realized in net income	—		—		—
Net unrealized (loss) on cash flow hedging derivatives								Net unrealized (loss) on cash flow hedging derivatives	(5,555)		1,494		(4,061)

Other comprehensive (loss)	Other comprehensive (loss)	$	(10,098)	$	2,575	$	(7,523)	Other comprehensive (loss)	$	(88,628)	$	23,133	$	(65,495)

Three Months Ended September 30, 2020
Net unrealized holding gain on AFS securities:
Three Months Ended September 30, 2021								Three Months Ended September 30, 2021
Net unrealized holding loss on AFS securities:								Net unrealized holding loss on AFS securities:
Net unrealized (losses) arising during the period	Net unrealized (losses) arising during the period	$	(1,079)	$	270	$	(809)	Net unrealized (losses) arising during the period	$	(10,098)	$	2,575	$	(7,523)
Less: reclassification adjustment for gains realized in net income	Less: reclassification adjustment for gains realized in net income	6		(2)		4		Less: reclassification adjustment for gains realized in net income	—		—		—
Net unrealized holding (loss) on AFS securities	Net unrealized holding (loss) on AFS securities	(1,085)		272		(813)		Net unrealized holding (loss) on AFS securities	(10,098)		2,575		(7,523)

Net unrealized loss on cash flow hedging derivatives:								Net unrealized loss on cash flow hedging derivatives:
Net unrealized (loss) arising during the period								Net unrealized (loss) arising during the period	—		—		—
Less: reclassification adjustment for (losses) realized in net income								Less: reclassification adjustment for (losses) realized in net income	—		—		—
Net unrealized gain on cash flow hedging derivatives								Net unrealized gain on cash flow hedging derivatives	—		—		—

Other comprehensive (loss)	Other comprehensive (loss)	$	(1,085)	$	272	$	(813)	Other comprehensive (loss)	$	(10,098)	$	2,575	$	(7,523)

(In thousands) Before Tax Tax Effect Net of Tax
Nine Months Ended September 30, 2021

Net unrealized holding gain on AFS securities: x
Net unrealized (losses) arising during the period $ (31,718) $ 8,096 $ (23,622)
Less: reclassification adjustment for gains realized in net income — — —
Net unrealized holding (loss) on AFS securities (31,718) 8,096 (23,622)
Other comprehensive (loss) $ (31,718) $ 8,096 $ (23,622)
Nine Months Ended September 30, 2020

Net unrealized holding gain on AFS securities:
Net unrealized gains arising during the period $ 27,534 $ (7,097) $ 20,437
Less: reclassification adjustment for gains realized in net income 5 (1) 4
Net unrealized holding gain on AFS securities 27,529 (7,096) 20,433
Other comprehensive income $ 27,529 $ (7,096) $ 20,433

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In thousands)	Before Tax		Tax Effect		Net of Tax
Nine Months Ended September 30, 2022
Net unrealized holding loss on AFS securities:
Net unrealized (losses) arising during the period	$	(244,927)	$	63,741	$	(181,186)
Less: reclassification adjustment for gains realized in net income	6		(2)		4
Net unrealized holding (loss) on AFS securities	(244,933)		63,743		(181,190)

Net unrealized loss on cash flow hedging derivatives:
Net unrealized (loss) arising during the period	(5,555)		1,494		(4,061)
Less: reclassification adjustment for (losses) realized in net income	—		—		—
Net unrealized loss on cash flow hedging derivatives	(5,555)		1,494		(4,061)










Other comprehensive (loss)	$	(250,488)	$	65,237	$	(185,251)

Nine Months Ended September 30, 2021
Net unrealized holding loss on AFS securities:
Net unrealized (losses) arising during the period	$	(31,718)	$	8,096	$	(23,622)
Less: reclassification adjustment for gains realized in net income	—		—		—
Net unrealized holding (loss) on AFS securities	(31,718)		8,096		(23,622)

Net unrealized loss on cash flow hedging derivatives:
Net unrealized (loss) arising during the period	—		—		—
Less: reclassification adjustment for (losses) realized in net income	—		—		—
Net unrealized gain on cash flow hedging derivatives	—		—		—










Other comprehensive (loss)	$	(31,718)	$	8,096	$	(23,622)

4746

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the changes in each component of accumulated other comprehensive ~~income,~~(loss), for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(In thousands)	(In thousands)	Net unrealized holding loss on AFS Securities		Net unrealized holding loss on pension plans		Total		(In thousands)	Net unrealized holding loss on AFS Securities		Net loss on effective cash flow hedging derivatives		Net unrealized holding loss on pension plans		Total
Three Months Ended September 30, 2021
Three Months Ended September 30, 2022								Three Months Ended September 30, 2022
Balance at Beginning of Period	Balance at Beginning of Period	$	17,359	$	(2,587)	$	14,772	Balance at Beginning of Period	$	(121,154)	$	—	$	(1,845)	$	(122,999)
Other comprehensive income before reclassifications		(7,523)		—		(7,523)
Less: amounts reclassified from accumulated other comprehensive income		—		—		—
Other comprehensive (loss) before reclassifications								Other comprehensive (loss) before reclassifications	(61,434)		(4,061)		—		(65,495)
Less: amounts reclassified from accumulated other comprehensive (loss)								Less: amounts reclassified from accumulated other comprehensive (loss)	—		—		—		—
Total other comprehensive (loss)	Total other comprehensive (loss)	(7,523)		—		(7,523)		Total other comprehensive (loss)	(61,434)		(4,061)		—		(65,495)
Balance at End of Period	Balance at End of Period	$	9,836	$	(2,587)	$	7,249	Balance at End of Period	$	(182,588)	$	(4,061)	$	(1,845)	$	(188,494)

Three Months Ended September 30, 2020
Three Months Ended September 30, 2021								Three Months Ended September 30, 2021
Balance at Beginning of Period	Balance at Beginning of Period	$	35,450	$	(2,211)	$	33,239	Balance at Beginning of Period	$	17,359	$	—	$	(2,587)	$	14,772
Other comprehensive income before reclassifications		(809)		—		(809)
Other comprehensive (loss) before reclassifications								Other comprehensive (loss) before reclassifications	(7,523)		—		—		(7,523)
Less: amounts reclassified from accumulated other comprehensive (loss)								Less: amounts reclassified from accumulated other comprehensive (loss)	—		—		—		—
Total other comprehensive income								Total other comprehensive income	(7,523)		—		—		(7,523)

Balance at End of Period								Balance at End of Period	$	9,836	$	—	$	(2,587)	$	7,249

Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2022
Balance at Beginning of Period								Balance at Beginning of Period	$	(1,398)	$	—	$	(1,845)	$	(3,243)
Other comprehensive (loss) before reclassifications								Other comprehensive (loss) before reclassifications	(181,186)		(4,061)		—		(185,247)
Less: amounts reclassified from accumulated other comprehensive income	Less: amounts reclassified from accumulated other comprehensive income	4		—		4		Less: amounts reclassified from accumulated other comprehensive income	4		—		—		4
Total other comprehensive (loss)	Total other comprehensive (loss)	(813)		—		(813)		Total other comprehensive (loss)	(181,190)		(4,061)		—		(185,251)

Balance at End of Period	Balance at End of Period	$	34,637	$	(2,211)	$	32,426	Balance at End of Period	$	(182,588)	$	(4,061)	$	(1,845)	$	(188,494)

Nine Months Ended September 30, 2021	Nine Months Ended September 30, 2021							Nine Months Ended September 30, 2021
Balance at Beginning of Period	Balance at Beginning of Period	$	33,458	$	(2,587)	$	30,871	Balance at Beginning of Period	$	33,458	$	—	$	(2,587)	$	30,871
Other comprehensive income before reclassifications		(23,622)		—		(23,622)
Other comprehensive (loss) before reclassifications								Other comprehensive (loss) before reclassifications	(23,622)		—				(23,622)
Less: amounts reclassified from accumulated other comprehensive income	Less: amounts reclassified from accumulated other comprehensive income	—		—		—		Less: amounts reclassified from accumulated other comprehensive income	—		—		—		—
Total other comprehensive (loss)	Total other comprehensive (loss)	(23,622)		—		(23,622)		Total other comprehensive (loss)	(23,622)		—		—		(23,622)

Balance at End of Period	Balance at End of Period	$	9,836	$	(2,587)	$	7,249	Balance at End of Period	$	9,836	$	—	$	(2,587)	$	7,249

Nine Months Ended September 30, 2020
Balance at Beginning of Period		$	14,204	$	(2,211)	$	11,993
Other comprehensive income before reclassifications		20,437		—		20,437
Less: amounts reclassified from accumulated other comprehensive income		4		—		4
Total other comprehensive income		20,433		—		20,433
Balance at End of Period		$	34,637	$	(2,211)	$	32,426

4847

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the amounts reclassified out of each component of accumulated other comprehensive

income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~

Affected Line Item in the
Three Months Ended September 30, Statement where Net Income
(In thousands) 2021 2020 is Presented
Realized gains on AFS securities:
$ — $ 6 Non-interest income
— (2) Tax expense
— 4 Net of tax

Total reclassifications for the period $ — $ 4 Net of tax
2021:


						Affected Line Item in the						Affected Line Item in the
		Nine Months Ended September 30,				Statement where Net Income		Three Months Ended September 30,				Statement where Net Income
(In thousands)	(In thousands)	2021		2020		is Presented	(In thousands)	2022		2021		is Presented
Realized gains on AFS securities:	Realized gains on AFS securities:						Realized gains on AFS securities:
		$	—	$	5	Non-interest income		$	—	$	—	Non-interest income
								—		—		Retained earnings
		—		(1)		Tax expense		—		—		Tax expense
								—		—		Net of tax

		—		4		Net of tax


Total reclassifications for the period	Total reclassifications for the period	$	—	$	4	Net of tax	Total reclassifications for the period	$	—	$	—	Net of tax


					Affected Line Item in the
	Nine Months Ended September 30,				Statement where Net Income
(In thousands)	2022		2021		is Presented
Realized gains on AFS securities:
	$	6			Non-interest income

	(2)		—		Tax expense


	4		—		Net of tax


















Total reclassifications for the period	$	4	$	—	Net of tax

4948

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~13. EARNINGS/(LOSS)~~11. EARNINGS PER SHARE

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

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2021 2020 2021 2020
Income/(loss) from continuing operations $ 63,749 $ 23,043 $ 98,416 $ (532,074)
(Loss) from discontinued operations — (1,818) — (15,952)
Net income/(loss) $ 63,749 $ 21,225 $ 98,416 $ (548,026)
Average number of common shares issued 51,903 51,903 51,903 51,903
Less: average number of treasury shares 2,764 1,560 1,519 1,674
Less: average number of unvested stock award shares 744 536 712 499
Plus: average participating preferred shares — 522 — 526
Average number of basic shares outstanding 48,395 50,329 49,672 50,256
Plus: dilutive effect of unvested stock award shares 342 — 286 —
Plus: dilutive effect of stock options outstanding 7 — 5 —
Average number of diluted shares outstanding 48,744 50,329 49,963 50,256
Basic earnings/(loss) per common share:
Continuing operations $ 1.32 $ 0.46 $ 1.98 $ (10.58)
Discontinued operations — (0.04) — (0.32)
Total $ 1.32 $ 0.42 $ 1.98 $ (10.90)
Diluted earnings/(loss) per common share:
Continuing operations $ 1.31 $ 0.46 $ 1.97 $ (10.58)
Discontinued operations — (0.04) — (0.32)
Total $ 1.31 $ 0.42 $ 1.97 $ (10.90)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2022		2021		2022		2021


Net income	$	18,717	$	63,749	$	62,028	$	98,416

Average number of common shares issued	51,903		51,903		51,903		51,903
Less: average number of treasury shares	6,433		2,764		5,068		1,519
Less: average number of unvested stock award shares	770		744		779		712

Average number of basic shares outstanding	44,700		48,395		46,056		49,672
Plus: dilutive effect of unvested stock award shares	330		342		336		286
Plus: dilutive effect of stock options outstanding	4		7		4		5
Average number of diluted shares outstanding	45,034		48,744		46,396		49,963




Basic earnings per common share:	$	0.42	$	1.32	$	1.35	$	1.98




Diluted earnings per common share:	$	0.42	$	1.31	$	1.34	$	1.97

For the three months ended September 30, 2022, 440 thousand shares of unvested restricted stock and 68 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the nine months ended September 30, 2022, 448 thousand shares of unvested restricted stock and 69 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended September 30, 2021, 402 thousand shares of unvested restricted stock and 88 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the nine months ended September 30, 2021, 425 thousand shares of unvested restricted stock and 93 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three and nine months ended September 30, 2020, all unvested restricted stock and options outstanding were considered anti-dilutive and therefore excluded from the earnings per share calculation.

5049

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~14.~~12. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the nine months ended September 30, ~~2021~~2022 is presented in the following table:


		Non-Vested Stock Awards Outstanding			Stock Options Outstanding				Non-Vested Stock Awards Outstanding			Stock Options Outstanding
(Shares in thousands)	(Shares in thousands)	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Exercise Price		(Shares in thousands)	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Exercise Price
December 31, 2020		517	$	28.35	112	$	22.95
December 31, 2021								December 31, 2021	710	$	20.16	80	$	25.21
Granted	Granted	452	19.85		—	—		Granted	321	28.78		—	—
Acquired	Acquired	—	—		—	—		Acquired	—	—		—	—
Stock options exercised	Stock options exercised	—	—		(9)	17.85		Stock options exercised	—	—		(12)	22.97
Stock awards vested	Stock awards vested	(168)	24.80		—	—		Stock awards vested	(230)	21.75		—	—
Forfeited	Forfeited	(89)	23.97		—	—		Forfeited	(75)	25.62		—	—
Expired	Expired	—	—		(10)	17.46		Expired	—	—		(6)	24.30
September 30, 2021		712	$	20.16	93	$	24.91
September 30, 2022								September 30, 2022	726	$	22.73	62	$	25.43

During the three and nine months ended September 30, 2022, proceeds from stock option exercises totaled $246 thousand and $270 thousand, respectively. During the three and nine months ended September 30, 2021, proceeds from stock option exercises totaled $38 thousand and $162 thousand, respectively. During the three and nine months ended September 30, ~~2020~~2022, there were ~~no options exercised .~~120 thousand and 230 thousand shares vested in connection with stock awards, respectively. During the three and nine months ended September 30, 2021, there were 89 thousand and 168 thousand shares vested in connection with stock awards, respectively. ~~During the three and nine months ended September 30, 2020, there were 37 thousand and 133 thousand shares vested in connection with stock awards, respectively.~~ All of these shares were issued from available treasury stock. Stock-based compensation expense totaled ~~$1.4~~$1.7 million and ~~$0.6~~$1.4 million during the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Stock-based compensation expense totaled ~~$3.7~~$5.7 million and ~~$3.5~~$3.7 million during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

5150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~15.~~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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.


		September 30, 2021									September 30, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
(In thousands)	(In thousands)	Inputs		Inputs		Inputs		Fair Value		(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading security	Trading security	$	—	$	—	$	8,574	$	8,574	Trading security	$	—	$	—	$	6,812	$	6,812
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S Treasuries										U.S Treasuries	—		20,000		—		20,000
Municipal bonds and obligations	Municipal bonds and obligations	—		81,173		—		81,173		Municipal bonds and obligations	—		60,566		—		60,566
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	—		772,290		—		772,290		Agency collateralized mortgage obligations	—		557,513		—		557,513
Agency residential mortgage-backed securities	Agency residential mortgage-backed securities	—		427,507		—		427,507		Agency residential mortgage-backed securities	—		553,737		—		553,737
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	—		262,178		—		262,178		Agency commercial mortgage-backed securities	—		235,576		—		235,576
Corporate bonds	Corporate bonds	—		50,742		—		50,742		Corporate bonds	—		38,981		3,920		42,901

Other bonds and obligations	Other bonds and obligations	—		50,075		—		50,075		Other bonds and obligations	—		656		—		656
Marketable equity securities	Marketable equity securities	14,946		655		—		15,601		Marketable equity securities	12,790		—		—		12,790
Loans held for investment at fair value	Loans held for investment at fair value	—		—		1,038		1,038		Loans held for investment at fair value	—		—		796		796
Loans held for sale	Loans held for sale	—		5,176		—		5,176		Loans held for sale	—		550		—		550
Derivative assets	Derivative assets	—		96,802		324		97,126		Derivative assets	—		52,997		22		53,019
Capitalized servicing rights	Capitalized servicing rights	—		—		2,146		2,146		Capitalized servicing rights	—		—		2,026		2,026
Derivative liabilities	Derivative liabilities	—		42,624		—		42,624		Derivative liabilities	—		101,745		—		101,745


		December 31, 2020									December 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
(In thousands)	(In thousands)	Inputs		Inputs		Inputs		Fair Value		(In thousands)	Inputs		Inputs		Inputs		Fair Value
Trading security	Trading security	$	—	$	—	$	9,708	$	9,708	Trading security	$	—	$	—	$	8,354	$	8,354
Securities available for sale:	Securities available for sale:									Securities available for sale:
U.S Treasuries										U.S Treasuries	—		59,973		—		59,973
Municipal bonds and obligations	Municipal bonds and obligations	—		97,803		—		97,803		Municipal bonds and obligations	—		77,177		—		77,177
Agency collateralized mortgage obligations	Agency collateralized mortgage obligations	—		756,826		—		756,826		Agency collateralized mortgage obligations	—		688,336		—		688,336
Agency residential mortgage-backed securities	Agency residential mortgage-backed securities	—		438,132		—		438,132		Agency residential mortgage-backed securities	—		705,859		—		705,859
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	—		288,650		—		288,650		Agency commercial mortgage-backed securities	—		300,580		—		300,580
Corporate bonds	Corporate bonds	—		45,030		15,000		60,030		Corporate bonds	—		41,630		4,030		45,660

Other bonds and obligations		—		53,791		—		53,791

Marketable equity securities	Marketable equity securities	17,841		672		—		18,513		Marketable equity securities	14,798		655		—		15,453
Loans held for investment at fair value	Loans held for investment at fair value	—		—		2,265		2,265		Loans held for investment at fair value	—		—		1,200		1,200
Loans held for sale	Loans held for sale	—		12,992		4,756		17,748		Loans held for sale	—		6,110		—		6,110
Derivative assets	Derivative assets	—		159,016		1,055		160,071		Derivative assets	—		79,270		258		79,528
Capitalized servicing rights	Capitalized servicing rights	—		—		3,033		3,033		Capitalized servicing rights	—		—		1,966		1,966
Derivative liabilities	Derivative liabilities	—		65,758		—		65,758		Derivative liabilities	—		35,194		—		35,194

There were no transfers between levels during the three and nine months ended September 30, ~~2021.~~

2022.

5251

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trading Security at Fair Value. The Company holds 1one 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,~~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 September 30, ~~2021.~~2022.

Aggregate Fair Value

September 30, 2021

Aggregate

Less Aggregate

September 30, 2022

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

(In thousands)

Fair Value

Unpaid Principal

Loans held for investment at fair value

1,038

35,390

(34,352)

Loans held for investment at fair value

796

13,371

(12,575)

Aggregate Fair Value

December 31, 2020

Aggregate

Less Aggregate

December 31, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

(In thousands)

Fair Value

Unpaid Principal

Loans held for investment at fair value

2,265

53,945

(51,680)

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

September 30, 2021

Aggregate

Less Aggregate

September 30, 2022

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

5,176

5,040

136

Loans held for sale

550

539

Aggregate Fair Value

December 31, 2020

Aggregate

Less Aggregate

December 31, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

12,992

12,639

353

Loans held for sale

6,110

5,926

184

5352

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in fair value of loans held for sale for the three and nine months ended September 30, 2022, were losses of $12 thousand and $173 thousand, respectively. During the three and nine months ended September 30, 2022, originations of loans held for sale totaled $6.0 million and $16.1 million, respectively. During the three and nine months ended September 30, 2022, sales of loans originated for sale totaled $6.5 million and $21.6 million, respectively.

The changes in fair value of loans held for sale for the three and nine months ended September 30, 2021, were gains of $17 thousand and losses of $217 thousand, respectively. During the three and nine months ended September 30, 2021, originations of loans held for sale totaled $24.0 million and $84.4 million, respectively. During the three and nine months ended September 30, 2021, sales of loans originated for sale totaled $22.5 million and $90.8 million, respectively.

The changes in fair value of loans held for sale for the three months ended September 30, 2020, were losses of $6 thousand from continuing operations and gains of $0.9 million from discontinued operations. During the three months ended September 30, 2020, originations of loans held for sale from continuing operations totaled $70.6 million and sales of loans originated for sale from continuing operations totaled $74.1 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 September 30, ~~2021,~~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.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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 and nine months ended September 30, ~~2021~~2022 and ~~2020.~~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 September 30, 2021
June 30, 2021 $ 8,853 $ — $ 1,260 $ 261 $ 92 $ 2,356
Unrealized (loss)/gain, net recognized in other non-interest income (85) — 509 440 10 (210)
Paydown of asset (194) — (731) — — —
Transfers to held for sale loans — — — (479) — —
September 30, 2021 $ 8,574 $ — $ 1,038 $ 222 $ 102 $ 2,146
Nine Months Ended September 30, 2021
December 31, 2020 $ 9,708 $ 15,000 $ 2,265 $ 735 $ 320 $ 3,033
Maturity of AFS security — (15,000) — — — —
Unrealized (loss)/gain, net recognized in other non-interest income (556) — 1,110 1,688 (218) (887)
Paydown of asset (578) — (2,337) — — —
Transfers to held for sale loans — — — (2,201) — —
September 30, 2021 $ 8,574 $ — $ 1,038 $ 222 $ 102 $ 2,146
Unrealized gain relating to instruments still held at September 30, 2021 $ 497 $ — $ — $ 222 $ 102 $ —


	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 September 30, 2022
June 30, 2022	$	7,040	$	4,020	$	1,049	$	26	$	18	$	1,906



Unrealized (loss)/gain, net recognized in other non-interest income	(23)		—		(6)		41		(11)		120
Unrealized gain included in accumulated other comprehensive income	—		(100)		—		—		—		—

Paydown of asset	(205)		—		(247)		—		—		—

Transfers to held for sale loans	—		—		—		(52)		—		—

September 30, 2022	$	6,812	$	3,920	$	796	$	15	$	7	$	2,026


Nine Months Ended September 30, 2022
December 31, 2021	$	8,354	$	4,030	$	1,200	$	124	$	134	$	1,966


Unrealized (loss)/gain, net recognized in other non-interest income	(933)		—		462		171		(127)		60
Unrealized (loss) included in accumulated other comprehensive income	—		(110)		—		—		—		—


Paydown of asset	(609)		—		(866)		—		—		—
Transfers to held for sale loans	—		—		—		(280)		—		—

September 30, 2022	$	6,812	$	3,920	$	796	$	15	$	7	$	2,026

Unrealized gain relating to instruments still held at September 30, 2022	$	(459)	$	(80)	$	—	$	26	$	18	$	—

5554

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities Loans Capitalized
Trading Available Held for Commitments Forward Servicing
(In thousands) Security for Sale Investment to Lend (1) Commitments (1) Rights (1)
Three Months Ended September 30, 2020
June 30, 2020 $ 9,519 $ 25,600 $ 3,140 $ 1,149 $ 447 $ 4,828
Unrealized gain, net recognized in other non-interest income 190 — 1,189 — (50) —
Unrealized gain included in accumulated other comprehensive loss — 225 — — — —
Unrealized gain/(loss), net recognized in discontinued operations — — — 2,124 — (973)
Paydown of asset (184) — (1,555) — — —
Transfers to held for sale loans — — — (1,775) — —
Additions to servicing rights — — — — — —
September 30, 2020 $ 9,525 $ 25,825 $ 2,774 $ 1,498 $ 397 $ 3,855
Nine Months Ended September 30, 2020
December 31, 2020 $ 10,769 $ 42,966 $ — $ 2,628 $ — $ 12,299
Adoption of ASC 326 — — 7,660 — —
Sale of AFS security — (17,000) — — — —
Unrealized gain, net recognized in other non-interest income (698) — (2,523) — 397 —
Unrealized (loss) included in accumulated other comprehensive income — (141) — — — —
Unrealized gain/(loss), net recognized in discontinued operations — — — 15,877 — (8,255)
Paydown of trading security (546) — (2,363) — — —
Transfers to held for sale loans — — — (17,007) — —
Additions to servicing rights — — — — — (189)
September 30, 2020 $ 9,525 $ 25,825 $ 2,774 $ 1,498 $ 397 $ 3,855
Unrealized gains relating to instruments still held at September 30,2020 $ 682 $ (643) $ — $ 1,498 $ 397 $ —



			Securities		Loans						Capitalized
	Trading		Available		Held for		Commitments		Forward		Servicing
(In thousands)	Security		for Sale		Investment		to Lend		Commitments		Rights
Three Months Ended September 30, 2021
June 30, 2021	$	8,853	$	—	$	1,260	$	261	$	92	$	2,356


Unrealized (loss)/gain, net recognized in other non-interest income	(85)		—		509		440		10		(210)


Paydown of asset	(194)		—		(731)		—		—		—

Transfers to held for sale loans	—		—		—		(479)		—		—

September 30, 2021	$	8,574	$	—	$	1,038	$	222	$	102	$	2,146

Nine Months Ended September 30, 2021
December 31, 2020	$	9,708	$	15,000	$	2,265	$	735	$	320	$	3,033

Maturity of AFS security	—		(15,000)		—		—		—		—
Unrealized (loss)/gain, net recognized in other non-interest income	(556)		—		1,110		1,688		(218)		(887)



Paydown of asset	(578)		—		(2,337)		—		—		—
Transfers to held for sale loans	—		—		—		(2,201)		—		—

September 30, 2021	$	8,574	$	—	$	1,038	$	222	$	102	$	2,146

Unrealized gains relating to instruments still held at September 30,2021	$	497	$	—	$	—	$	222	$	102	$	—

~~(1) Classified as assets from discontinued operations on the consolidated balance sheets.~~

5655

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				Fair Value				Significant Unobservable Input
(In thousands)	(In thousands)	September 30, 2021		Valuation Techniques	Unobservable Inputs	Value			(In thousands)	September 30, 2022		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)	Assets (Liabilities)								Assets (Liabilities)
Trading security	Trading security	$	8,574	Discounted Cash Flow	Discount Rate	3.43		%	Trading security	$	6,812	Discounted Cash Flow	Discount Rate	6.38		%

AFS Securities									AFS Securities	3,920		Indication from Market Maker	Price	98.00%
Loans held for investment	Loans held for investment	1,038		Discounted Cash Flow	Discount Rate	25.00		%	Loans held for investment	1,049		Discounted Cash Flow	Discount Rate	25.00		%
					Collateral Value	$6.7 - $16.9							Collateral Value	$— - $20.7
Commitments to lend	Commitments to lend	222		Historical Trend	Closing Ratio	76.00		%	Commitments to lend	15		Historical Trend	Closing Ratio	83.95		%
				Pricing Model	Origination Costs, per loan	$	3					Pricing Model	Origination Costs, per loan	$	3
Forward commitments	Forward commitments	102		Historical Trend	Closing Ratio	76.00		%	Forward commitments	7		Historical Trend	Closing Ratio	83.95		%
				Pricing Model	Origination Costs, per loan	$	3					Pricing Model	Origination Costs, per loan	$	3
Capitalized servicing rights	Capitalized servicing rights	2,146		Discounted cash flow	Constant Prepayment Rate (CPR)	24.50		%	Capitalized servicing rights	2,026		Discounted cash flow	Constant Prepayment Rate (CPR)	12.48		%
					Discount Rate	9.50		%					Discount Rate	9.55		%
Total	Total	$	12,082						Total	$	13,829


		Fair Value				Significant Unobservable Input				Fair Value				Significant Unobservable Input
(In thousands)	(In thousands)	December 31, 2020		Valuation Techniques	Unobservable Inputs	Value			(In thousands)	December 31, 2021		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)	Assets (Liabilities)								Assets (Liabilities)
Trading security	Trading security	$	9,708	Discounted Cash Flow	Discount Rate	2.72		%	Trading security	$	8,354	Discounted Cash Flow	Discount Rate	3.35		%
AFS Securities	AFS Securities	15,000		Indication from Market Maker	Price	102.00		%	AFS Securities	4,030		Indication from Market Maker	Price	101.00		%
Loans held for investment	Loans held for investment	2,265		Discounted Cash Flow	Discount Rate	30.00		%	Loans held for investment	1,200		Discounted Cash Flow	Discount Rate	25.00		%
					Collateral Value	$8.1- $21.9							Collateral Value	$6.3- $19.8
Commitments to lend	Commitments to lend	735		Historical Trend	Closing Ratio	74.54		%	Commitments to lend	124		Historical Trend	Closing Ratio	82.09		%
				Pricing Model	Origination Costs, per loan	$	3					Pricing Model	Origination Costs, per loan	$	3
Forward commitments	Forward commitments	320		Historical Trend	Closing Ratio	74.54		%	Forward commitments	134		Historical Trend	Closing Ratio	82.09		%
				Pricing Model	Origination Costs, per loan	$	3					Pricing Model	Origination Costs, per loan	$	3
Capitalized servicing rights	Capitalized servicing rights	3,033		Discounted Cash Flow	Constant Prepayment Rate (CPR)	26.52		%	Capitalized servicing rights	1,966		Discounted Cash Flow	Constant Prepayment Rate (CPR)	19.41		%
					Discount Rate	10.00		%					Discount Rate	9.50		%
Total	Total	$	31,061						Total	$	15,808

5756

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.

September 30, 2021

December 31, 2020

Fair Value Measurement Date as of September 30, 2021

September 30, 2022

December 31, 2021

Fair Value Measurement Date as of September 30, 2022

Level 3

(In thousands)

Inputs

(In thousands)

Inputs

Assets

Individually evaluated

20,379

28,028

September 2021

Individually evaluated

2,944

12,482

September 2022

Loans held for sale

3,574

—

September 2022

Capitalized servicing rights

13,963

13,315

September 2021

Capitalized servicing rights

11,793

14,056

September 2022

Other real estate owned

—

149

September 2021

Total

34,342

41,492

Total

18,311

26,538

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

~~Fair Value~~

~~(In thousands)~~

~~September 30, 2021~~

~~Valuation Techniques~~

~~Unobservable Inputs~~

~~Range (Weighted Average) (1)~~

~~Assets~~

~~Individually evaluated~~

~~20,379~~

~~Fair Value of Collateral~~

~~Discounted Cash Flow - Loss Severity~~

~~0.08% to 100.00% (59.24%)~~

~~Appraised Value~~

~~$0 to $11,777 ($7,911)~~

~~Capitalized servicing rights~~

~~13,963~~

~~Discounted Cash Flow~~

~~Constant Prepayment Rate (CPR)~~

~~6.99% to 17.30% (13.82%)~~

~~Discount Rate~~

~~9.50% to 12.08% (11.17%)~~

~~Other Real Estate Owned~~

—

~~Fair Value of Collateral~~

~~Appraised Value~~

~~N/A~~

~~Total~~

~~34,342~~

Fair Value

(In thousands)

September 30, 2022

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

2,944

Fair Value of Collateral

Discounted Cash Flow - Loss Severity

(100.00)% to 26.42% ((49.76)%)

Appraised Value

$0 to $608 ($-501)

Loans held for sale

3,574

Fair Value of Collateral

Appraised Value

$3,574

Capitalized servicing rights

11,793

Discounted Cash Flow

Constant Prepayment Rate (CPR)

5.99% to 13.52% (11.28%)

Discount Rate

9.16% to 16.13% (13.32%)

Total

18,311

(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, ~~2020~~2021

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

~~28,028~~12,482

Fair Value of Collateral

Discounted Cash Flow - loss severity

~~0.07%~~(35.96)% to ~~100.00% (46.36%~~133.09% ((49.14)%)

Appraised Value

$0 to ~~$11,432~~$405 ($~~9,800)~~256)

Capitalized servicing rights

~~13,315~~14,056

Discounted Cash Flow

Constant Prepayment Rate (CPR)

~~14.49%~~6.24% to ~~23.29% (16.98%~~17.73% (13.29%)

Discount Rate

~~10.00%~~9.59% to ~~11.00% (10.56%~~13.11% (11.97%)

~~Other Real Estate Owned~~

~~149~~

~~Fair Value of Collateral~~

~~Appraised Value~~

~~$94 - $182~~

Total

~~41,492~~26,538

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

5857

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.

Loans Transferred to Held for Sale. Once a decision has been made to sell loans not previously classified as held for sale, these loans are transferred into the held for sale category and carried at the lower of cost or fair value. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. The choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

5958

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.


		September 30, 2021											September 30, 2022
		Carrying		Fair									Carrying		Fair
(In thousands)	(In thousands)	Amount		Value		Level 1		Level 2		Level 3		(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	2,124,530	$	2,124,530	$	2,124,530	$	—	$	—	Cash and cash equivalents	$	694,913	$	694,913	$	694,913	$	—	$	—
Trading security	Trading security	8,574		8,574		—		—		8,574		Trading security	6,812		6,812		—		—		6,812
Marketable equity securities	Marketable equity securities	15,601		15,601		14,946		655		—		Marketable equity securities	12,790		12,790		12,790		—		—
Securities available for sale	Securities available for sale	1,643,965		1,643,965		—		1,643,965		—		Securities available for sale	1,470,949		1,470,949		—		1,467,029		3,920
Securities held to maturity	Securities held to maturity	651,863		665,359		—		662,452		2,907		Securities held to maturity	592,503		503,262		—		501,164		2,098
FHLB bank stock and restricted securities	FHLB bank stock and restricted securities	12,041		N/A		N/A		N/A		N/A		FHLB bank stock and restricted securities	7,264		N/A		N/A		N/A		N/A
Net loans	Net loans	6,723,319		6,930,827		—		—		6,930,827		Net loans	7,847,468		7,798,562		—		—		7,798,562
Loans held for sale	Loans held for sale	5,176		5,176		—		5,176		—		Loans held for sale	4,124		4,124		—		550		3,574
Accrued interest receivable	Accrued interest receivable	36,006		36,006		—		36,006		—		Accrued interest receivable	40,444		40,444		—		40,444		—

Derivative assets	Derivative assets	97,126		97,126		—		96,802		324		Derivative assets	53,019		53,019		—		52,997		22

Financial Liabilities	Financial Liabilities											Financial Liabilities
Total deposits	Total deposits	$	10,365,415	$	10,371,701	$	—	$	10,371,701	$	—	Total deposits	$	9,988,121	$	9,944,085	$	—	$	9,944,085	$	—
Short-term debt	Short-term debt	—		—		—		—		—		Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances and other	Long-term Federal Home Loan Bank advances and other	13,369		13,128		—		13,128		—		Long-term Federal Home Loan Bank advances and other	4,494		2,888		—		2,888		—
Subordinated borrowings	Subordinated borrowings	97,454		96,144		—		96,144		—		Subordinated borrowings	121,001		110,109		—		110,109		—
Derivative liabilities	Derivative liabilities	42,624		42,624		—		42,624		—		Derivative liabilities	101,745		101,745		—		101,745		—


		December 31, 2020											December 31, 2021
		Carrying		Fair									Carrying		Fair
(In thousands)	(In thousands)	Amount		Value		Level 1		Level 2		Level 3		(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets	Financial Assets											Financial Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,557,875	$	1,557,875	$	1,557,875	$	—	$	—	Cash and cash equivalents	$	1,627,807	$	1,627,807	$	1,627,807	$	—	$	—
Trading security	Trading security	9,708		9,708		—		—		9,708		Trading security	8,354		8,354		—		—		8,354
Marketable equity securities	Marketable equity securities	18,513		18,513		17,841		672		—		Marketable equity securities	15,453		15,453		14,798		655		—
Securities available for sale and other	Securities available for sale and other	1,695,232		1,695,232		—		1,680,232		15,000		Securities available for sale and other	1,877,585		1,877,585		—		1,873,555		4,030
Securities held to maturity	Securities held to maturity	465,091		491,855		—		488,393		3,462		Securities held to maturity	636,503		647,236		—		644,497		2,739
FHLB bank stock and restricted securities	FHLB bank stock and restricted securities	34,873		N/A		N/A		N/A		N/A		FHLB bank stock and restricted securities	10,800		N/A		N/A		N/A		N/A
Net loans	Net loans	7,954,217		8,243,437		—		—		8,243,437		Net loans	6,719,753		6,850,975		—		—		6,850,975
Loans held for sale	Loans held for sale	17,748		17,748		—		12,992		4,756		Loans held for sale	6,110		6,110		—		6,110		—
Accrued interest receivable	Accrued interest receivable	46,919		46,919		—		46,919		—		Accrued interest receivable	33,534		33,534		—		33,534		—

Derivative assets	Derivative assets	160,071		160,071		—		159,016		1,055		Derivative assets	79,528		79,528		—		79,270		258
Assets held for sale		317,304		317,304		—		16,705		300,599

Financial Liabilities	Financial Liabilities											Financial Liabilities
Total deposits	Total deposits	$	10,215,808	$	10,230,822	$	—	$	10,230,822	$	—	Total deposits	$	10,068,953	$	10,073,217	$	—	$	10,073,217	$	—
Short-term debt	Short-term debt	40,000		40,025		—		40,025		—		Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances	Long-term Federal Home Loan Bank advances	434,357		438,064		—		438,064		—		Long-term Federal Home Loan Bank advances	13,331		13,053		—		13,053		—
Subordinated borrowings	Subordinated borrowings	97,280		95,178		—		95,178		—		Subordinated borrowings	97,513		95,006		—		95,006		—
Derivative liabilities	Derivative liabilities	65,758		65,758		—		65,758		—		Derivative liabilities	35,194		35,194		—		35,194		—
Liabilities held for sale		630,065		631,268		—		631,268		—

6059

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~16.~~14. NET INTEREST INCOME AFTER BENEFIT/PROVISION FOR CREDIT LOSSES

Presented below is net interest income after provision for credit losses for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Net interest income from continuing operations $ 71,368 $ 77,055 $ 221,854 $ 241,073
Provision for credit losses (4,000) 1,200 2,500 65,878
Net interest income from continuing operations after provision for credit losses $ 75,368 $ 75,855 $ 219,354 $ 175,195


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Net interest income	$	92,084	$	71,368	$	242,505	$	221,854
Provision/(benefit) for credit losses	3,000		(4,000)		(1,000)		2,500
Net interest after provision for credit losses	$	89,084	$	75,368	$	243,505	$	219,354

6160

Table of Contents

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						At or for the							At or for the						At or for the
		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020				2022			2021			2022			2021
NOMINAL AND PER SHARE DATA	NOMINAL AND PER SHARE DATA													NOMINAL AND PER SHARE DATA
Net earnings/(loss) per common share, diluted		$	1.31		$	0.42		$	1.97		$	(10.90)
Adjusted earnings/(loss) per common share, diluted (1)(2)		0.53			0.53			1.28			0.32
Net income/(loss), (thousands)		63,749			21,225			98,416			(548,026)
Adjusted net income/(loss), (thousands) (1)(2)		25,695			26,424			63,814			16,315
Net earnings per common share, diluted														Net earnings per common share, diluted	$	0.42		$	1.31		$	1.34		$	1.97
Adjusted earnings per common share, diluted (1)(2)														Adjusted earnings per common share, diluted (1)(2)	0.62			0.53			1.56			1.28
Net income, (thousands)														Net income, (thousands)	18,717			63,749			62,028			98,416
Adjusted net income, (thousands) (1)(2)														Adjusted net income, (thousands) (1)(2)	27,928			25,695			72,279			63,814
Total common shares outstanding, (thousands)	Total common shares outstanding, (thousands)	48,657			50,306			48,657			50,306			Total common shares outstanding, (thousands)	45,040			48,657			45,040			48,657
Average diluted shares, (thousands)	Average diluted shares, (thousands)	48,744			50,329			49,963			50,290			Average diluted shares, (thousands)	45,034			48,744			46,396			49,963
Total book value per common share	Total book value per common share	24.21			23.03			24.21			23.03			Total book value per common share	20.93			24.21			20.93			24.21
Tangible book value per common share (2)	Tangible book value per common share (2)	23.58			22.22			23.58			22.22			Tangible book value per common share (2)	20.36			23.58			20.36			23.58
Dividends per common share	Dividends per common share	0.12			0.12			0.36			0.60			Dividends per common share	0.12			0.12			0.36			0.36
Full-time equivalent staff, continuing operations	Full-time equivalent staff, continuing operations	1,333			1,507			1,333			1,507			Full-time equivalent staff, continuing operations	1,300			1,333			1,300			1,333

PERFORMANCE RATIOS (3)	PERFORMANCE RATIOS (3)													PERFORMANCE RATIOS (3)
Return on equity	Return on equity	22.18		%	7.50		%	11.30		%	(48.26)		%	Return on equity	6.30		%	22.18		%	6.97		%	11.30		%
Adjusted return on equity (1)(2)	Adjusted return on equity (1)(2)	8.94			9.33			7.33			1.44			Adjusted return on equity (1)(2)	9.40			8.94			8.12			7.33
Return on tangible common equity (1)(2)	Return on tangible common equity (1)(2)	23.14			8.32			11.97			(67.09)			Return on tangible common equity (1)(2)	6.76			23.14			7.46			11.97
Adjusted return on tangible common equity (1)(2)	Adjusted return on tangible common equity (1)(2)	9.53			10.27			7.88			2.39			Adjusted return on tangible common equity (1)(2)	9.92			9.53			8.64			7.88
Return on assets	Return on assets	2.14			0.67			1.07			(5.63)			Return on assets	0.66			2.14			0.73			1.07
Adjusted return on assets (1)(2)	Adjusted return on assets (1)(2)	0.86			0.84			0.69			0.17			Adjusted return on assets (1)(2)	0.99			0.86			0.85			0.69
Net interest margin, fully taxable equivalent (FTE) ~~(6)~~(5)	Net interest margin, fully taxable equivalent (FTE) ~~(6)~~(5)	2.56			2.61			2.60			2.75			Net interest margin, fully taxable equivalent (FTE) ~~(6)~~(5)	3.48			2.56			3.05			2.60
Efficiency ratio (1)(2)	Efficiency ratio (1)(2)	68.76			65.39			69.32			67.72			Efficiency ratio (1)(2)	62.01			68.76			66.75			69.32

FINANCIAL DATA (in millions, end of period)	FINANCIAL DATA (in millions, end of period)													FINANCIAL DATA (in millions, end of period)
Total assets	Total assets	$	11,846		$	12,614		$	11,846		$	12,614		Total assets	$	11,317		$	11,846		$	11,317		$	11,846
Total earning assets	Total earning assets	11,145			11,832			11,145			11,832			Total earning assets	10,604			11,145			10,604			11,145
Total loans	Total loans	6,836			8,982			6,836			8,982			Total loans	7,943			6,836			7,943			6,836

Total deposits	Total deposits	10,365			10,467			10,365			10,467			Total deposits	9,988			10,365			9,988			10,365
Loans/deposits (%)	Loans/deposits (%)	66		%	86		%	66		%	86		%	Loans/deposits (%)	80		%	66		%	80		%	66		%

ASSET QUALITY ~~(5)~~	ASSET QUALITY ~~(5)~~													ASSET QUALITY ~~(5)~~
Allowance for credit losses, (millions)	Allowance for credit losses, (millions)	$	113		$	134		$	113		$	134		Allowance for credit losses, (millions)	$	96		$	113		$	96		$	113
Net charge-offs, (millions)	Net charge-offs, (millions)	(2)			(6)			(17)			(21)			Net charge-offs, (millions)	(6)			(2)			(9)			(17)
Net charge-offs (QTD annualized)/average loans	Net charge-offs (QTD annualized)/average loans	0.12		%	0.27		%	0.30		%	0.29		%	Net charge-offs (QTD annualized)/average loans	0.30		%	0.12		%	0.16		%	0.30		%
Provision (benefit)/expense, (millions)		$	(4)		$	1		$	3		$	66
Non-performing assets, (millions)		39			49			39			49
Non-performing loans/total loans		0.54		%	0.53		%	0.54		%	0.53		%
Allowance for credit losses/non-performing loans		304			284			304			284
Provision expense/(benefit), (millions)														Provision expense/(benefit), (millions)	$	3		$	(4)		$	(1)		$	3

Non-accruing loans/total loans														Non-accruing loans/total loans	0.48		%	0.54		%	0.48		%	0.54		%
Allowance for credit losses/non-accruing loans														Allowance for credit losses/non-accruing loans	254			304			254			304
Allowance for credit losses/total loans	Allowance for credit losses/total loans	1.65			1.50			1.65			1.50			Allowance for credit losses/total loans	1.21			1.65			1.21			1.65

CAPITAL RATIOS	CAPITAL RATIOS													CAPITAL RATIOS
Common equity tier 1 capital to risk-weighted assets	Common equity tier 1 capital to risk-weighted assets	15.3		%	13.2		%	15.3		%	13.2		%	Common equity tier 1 capital to risk-weighted assets	12.7		%	15.3		%	12.7		%	15.3		%
Tier 1 capital leverage ratio	Tier 1 capital leverage ratio	9.9			9.2			9.9			9.2			Tier 1 capital leverage ratio	10.1			9.9			10.1			9.9
Tangible common shareholders' equity/tangible assets (2)	Tangible common shareholders' equity/tangible assets (2)	9.7			8.9			9.7			8.9			Tangible common shareholders' equity/tangible assets (2)	8.1			9.7			8.1			9.7

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At or for the At or for the
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
FOR THE PERIOD: (In thousands)

Net interest income from continuing operations $ 71,368 $ 77,055 $ 221,854 $ 241,073
Non-interest income from continuing operations 73,635 19,963 121,839 42,980
Net revenue from continuing operations 145,003 97,018 343,693 284,053
Provision for credit losses (4,000) 1,200 2,500 65,878
Non-interest expense from continuing operations 69,460 72,843 216,486 768,443
Net income/(loss) 63,749 21,225 98,416 (548,026)
Adjusted income (1)(2)
25,695 26,424 63,814 16,315


	At or for the				At or for the
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
FOR THE PERIOD: (In thousands)
Net interest income	$	92,084	$	71,368	$	242,505	$	221,854
Non-interest income	16,251		73,635		53,283		121,839
Net revenue	108,335		145,003		295,788		343,693
Provision/(benefit) for credit losses	3,000		(4,000)		(1,000)		2,500
Non-interest expense	81,677		69,460		218,702		216,486
Net income	18,717		63,749		62,028		98,416
Adjusted income (1)(2)	27,928		25,695		72,279		63,814

(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~~"Reconciliation of ~~non-GAAP~~Non-GAAP Financial ~~Measures~~Measures" for additional information.

(2) Non-GAAP financial measure. Refer to ~~the Reconciliation~~"Reconciliation of ~~non-GAAP~~Non-GAAP Financial ~~Measures~~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 September 30, 2022 and 2021 was 0.01% and ~~2020 was~~ 0.06% ~~and 0.08%~~, respectively. The increase for the nine months ended September 30, 2022 and 2021 was 0.01% and ~~2020 was~~ 0.06% ~~and 0.07%~~, 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 September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020					2022				2021				2022				2021
(Dollars in millions)	(Dollars in millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		(Dollars in millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Assets	Assets																	Assets
Loans:	Loans:																	Loans:
Commercial real estate	Commercial real estate	$	3,577	3.40	%	$	3,986	3.52	%	$	3,611	3.38	%	$	3,997	3.90	%	Commercial real estate	$	3,926	4.53	%	$	3,577	3.40	%	$	3,802	3.89	%	$	3,611	3.38	%
Commercial and industrial loans	Commercial and industrial loans	1,370		4.78		2,192		3.88		1,612		4.71		2,047		4.31		Commercial and industrial loans	1,449		5.21		1,370		4.78		1,423		4.60		1,612		4.71
Residential mortgages	Residential mortgages	1,499		3.65		2,224		3.78		1,613		3.72		2,444		3.78		Residential mortgages	1,926		3.53		1,499		3.65		1,671		3.55		1,613		3.72
Consumer loans	Consumer loans	545		3.95		801		3.59		587		3.85		863		3.86		Consumer loans	587		6.24		545		3.95		554		5.30		587		3.85
Total loans (1)	Total loans (1)	6,991		3.77		9,203		3.68		7,423		3.78		9,351		3.95		Total loans (1)	7,888		4.54		6,991		3.77		7,450		4.05		7,423		3.78
Investment securities (2)	Investment securities (2)	2,312		2.09		1,874		2.78		2,255		2.21		1,804		3.06		Investment securities (2)	2,400		2.13		2,312		2.09		2,557		2.02		2,255		2.21
Short-term investments & loans held for sale (3)	Short-term investments & loans held for sale (3)	1,762		0.17		766		0.21		1,623		0.13		613		0.83		Short-term investments & loans held for sale (3)	342		1.96		1,762		0.17		673		0.90		1,623		0.13
Mid-Atlantic region loans held for sale(4)	Mid-Atlantic region loans held for sale(4)	155		3.82		—		—		239		3.96		—		—		Mid-Atlantic region loans held for sale (4)	—		—		155		3.82		—		—		239		3.96
Total interest-earning assets	Total interest-earning assets	11,220		2.86		11,843		3.31		11,540		2.96		11,768		3.63		Total interest-earning assets	10,630		3.91		11,220		2.86		10,680		3.36		11,540		2.96
Intangible assets	Intangible assets	31		X		41				33				410				Intangible assets	26		x		31				27				33
Other non-interest earning assets	Other non-interest earning assets	674				760				696				725				Other non-interest earning assets	659		x		674				648				696
Assets from discontinued operations		—				16				—				75

Total assets	Total assets	$	11,925			$	12,660			$	12,269			$	12,978			Total assets	$	11,315			$	11,925			$	11,355			$	12,269

Liabilities and shareholders’ equity	Liabilities and shareholders’ equity																	Liabilities and shareholders’ equity
Deposits:	Deposits:																	Deposits:
NOW and other	NOW and other	$	1,316	0.05	%	$	1,243	0.24	%	$	1,343	0.09	%	$	1,196	0.34	%	NOW and other	$	1,362	0.48	%	$	1,316	0.05	%	$	1,424	0.22	%	$	1,343	0.09	%
Money market	Money market	2,716		0.16		2,674		0.38		2,756		0.20		2,699		0.65		Money market	2,737		0.46		2,716		0.16		2,806		0.27		2,756		0.20
Savings	Savings	1,112		0.04		941		0.10		1,056		0.06		896		0.11		Savings	1,129		0.03		1,112		0.04		1,124		0.03		1,056		0.06
Time	Time	1,893		0.86		3,056		1.63		2,056		0.97		3,263		1.78		Time	1,528		0.85		1,893		0.86		1,537		0.73		2,056		0.97
Total interest-bearing deposits	Total interest-bearing deposits	7,037		0.31		7,914		0.81		7,211		0.38		8,054		1.00		Total interest-bearing deposits	6,756		0.48		7,037		0.35		6,891		0.32		7,211		0.38
Borrowings and notes (5)	Borrowings and notes (5)	253		3.89		777		2.36		377		3.26		890		2.44		Borrowings and notes (5)	251		5.46		253		3.89		178		5.09		377		3.26
Mid-Atlantic region interest-bearing deposits(4)	Mid-Atlantic region interest-bearing deposits(4)	306		0.51		—		—		447		0.54		—		—		Mid-Atlantic region interest-bearing deposits (4)	—		—		306		0.51		—		—		447		0.54
Total interest-bearing liabilities	Total interest-bearing liabilities	7,596		0.43		8,691		0.95		8,035		0.52		8,944		1.14		Total interest-bearing liabilities	7,007		0.66		7,596		0.43		7,069		0.44		8,035		0.52
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	2,901				2,559				2,742				2,250				Non-interest-bearing demand deposits	2,913		x		2,901				2,928				2,742
Other non-interest earning liabilities	Other non-interest earning liabilities	279				254				331				245				Other non-interest earning liabilities	206				279				171				331
Liabilities from discontinued operations	Liabilities from discontinued operations	—				23				—				25				Liabilities from discontinued operations	—				—				—				—
Total liabilities	Total liabilities	10,776				11,527				11,108				11,464				Total liabilities	10,126				10,776				10,168				11,108

Total preferred shareholders' equity		—				20				—				20

Total common shareholders' equity	Total common shareholders' equity	1,149				1,113				1,161				1,494				Total common shareholders' equity	1,189				1,149				1,187				1,161
Total shareholders’ equity (2)	Total shareholders’ equity (2)	1,149				1,133				1,161				1,514				Total shareholders’ equity (2)	1,189				1,149				1,187				1,161
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	11,925			$	12,660			$	12,269			$	12,978			Total liabilities and stockholders’ equity	$	11,315			$	11,925			$	11,355			$	12,269

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		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020					2022				2021				2022				2021
		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)			Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Net interest spread	Net interest spread			2.43	%			2.36	%			2.44	%			2.49	%	Net interest spread			3.25	%			2.43	%			2.92	%			2.44	%
Net interest margin (6)	Net interest margin (6)			2.56				2.61				2.60				2.75		Net interest margin (6)			3.48				2.56				3.05				2.60
Cost of funds	Cost of funds			0.31				0.73				0.38				0.92		Cost of funds			0.46				0.31				0.31				0.38
Cost of deposits	Cost of deposits			0.22				0.61				0.28				0.79		Cost of deposits			0.33				0.22				0.22				0.28

Supplementary data	Supplementary data																	Supplementary data
Total deposits (In millions)	Total deposits (In millions)	$	9,938			$	10,473			$	9,953			$	10,304			Total deposits (In millions)	$	9,669			$	9,938			$	9,819			$	9,953
Fully taxable equivalent income adj. (In thousands) (7)	Fully taxable equivalent income adj. (In thousands) (7)	1,586				1,512				4,739				4,917				Fully taxable equivalent income adj. (In thousands) (7)	1,715				1,586				4,799				4,739

(1) The average balances of loans include nonaccrual loans and deferred fees and costs. As of September 30, 2022, deferred fees related to PPP loans was not considered material. As of September 30, 2021, deferred fees related to PPP loans totaled $0.2 million.

(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 Bank sold its Mid-Atlantic branch operations and insurance operations in the third quarter of 2021. 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~~include the capital lease obligation presented under other liabilities on the consolidated balance sheet.

(6) Purchase accounting accretion totaled ~~$1.7~~$0.3 million and ~~$2.5~~$1.7 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Purchase accounting accretion totaled ~~$5.1~~$1.5 million and ~~$7.7~~$5.0 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

(7) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans. The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.

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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. ~~Discontinued operations are the Company’s national mortgage banking operations for which the Company completed the final wind-down of the operations during the fourth quarter of 2020.~~ 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 2022 and 2021 were primarily related to branch consolidations. Net losses on securities in 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.

In 2021, the Company recorded a third quarter net gain of $52 million on the sale of the operations of the insurance subsidiary and the Mid-Atlantic branch operations. Expense adjustments in the first quarter 2021 were primarily related to branch consolidations. Third quarter 2021 adjustments included Federal Home Loan Bank borrowings prepayment costs. They also included other restructuring charges for efficiency initiatives in operations areas including write-downs on real estate moved to held for sale and severance related to staff reductions. The fourth quarter 2021 revenue adjustment was primarily related to trailing revenue on a previously reported sale, and the expense adjustment was due primarily to branch restructuring costs. Net losses on securities in both years were primarily due to unrealized equity securities losses due to changes in market conditions. The adjustment to expense in 2022 is primarily related to the consolidation of branches in 2022, along with the disposition of other unused premises and costs related to the change in business operations in the Firestone business line.

Table of Contents

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 September 30, At or for the Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
GAAP Net income/(loss) $ 63,749 $ 21,225 $ 98,416 $ (548,026)
Adj: Net losses on securities (1)
166 1,017 681 9,925
Adj: Net (gains) on sale of business operations and assets (51,885) — (51,885) —
Adj: Goodwill impairment — — — 553,762
Adj: Restructuring and other expense 1,425 5,316 4,917 5,316
Adj: Loss/(income) from discontinued operations before income taxes — 2,477 — 21,741
Adj: Income taxes 12,240 (3,611) 11,685 (26,403)
Total adjusted income/(loss) (non-GAAP) (2)
(A) $ 25,695 $ 26,424 $ 63,814 $ 16,315
GAAP Total revenue $ 145,003 $ 97,018 $ 343,693 $ 284,053
Adj: Losses on securities, net (1)
166 1,017 681 9,925
Adj: Net (gains) on sale of business operations and assets (51,885) — (51,885) —
Total operating revenue (non-GAAP) (2)
(B) $ 93,284 $ 98,035 $ 292,489 $ 293,978
GAAP Total non-interest expense $ 69,460 $ 72,843 $ 216,486 $ 768,443
Less: Total non-operating expense (see above) (1,425) (5,316) (4,917) (5,316)
Less: Goodwill impairment — — — (553,762)
Operating non-interest expense (non-GAAP) (2)
(C) $ 68,035 $ 67,527 $ 211,569 $ 209,365
(In millions, except per share data)
Total average assets (D) $ 11,925 $ 12,660 $ 12,268 $ 13,001
Total average shareholders’ equity (E) 1,150 1,133 1,161 1,513
Total average tangible shareholders’ equity (2)
(F) 1,118 1,091 1,128 1,104
Total average tangible common shareholders' equity (2)
(G) 1,118 1,071 1,128 1,083
Total tangible shareholders’ equity, period-end (2)(3)
(H) 1,147 1,138 1,147 1,138
Total tangible common shareholders' equity, period-end (2)(3)
(I) 1,147 1,118 1,147 1,118
Total tangible assets, period-end (2)(3)
(J) 11,815 12,574 11,815 12,574
Total common shares outstanding, period-end (thousands) (K) 48,657 50,306 48,657 50,306
Average diluted shares outstanding (thousands) (L) 48,744 50,329 49,963 50,290
Earnings per common share, diluted $ 1.31 $ 0.42 $ 1.97 $ (10.90)
Adjusted earnings per common share, diluted (2)
(A/L) 0.53 0.53 1.28 0.32
Book value per common share, period-end 24.21 23.03 24.21 23.03
Tangible book value per common share, period-end (2)
(I/K) 23.58 22.22 23.58 22.22
Total shareholders' equity/total assets 9.95 9.35 9.95 9.35
Total tangible shareholder's equity/total tangible assets (2)
(H/J) 9.71 9.05 9.71 9.05
Performance ratios (4)

GAAP return on equity 22.18 % 7.50 % 11.30 % (48.26) %
Adjusted return on equity (2)
(A/E) 8.94 9.33 7.33 1.44
Return on tangible common equity (2)(5)
23.14 8.32 11.97 (67.09)


		At or for the Three Months Ended September 30,						At or for the Nine Months Ended September 30,
(In thousands)		2022			2021			2022			2021
GAAP Net income		$	18,717		$	63,749		$	62,028		$	98,416
Adj: Net losses on securities (1)		476			166			2,194			681

Adj: Net (gains) on sale of business operations and assets		—			(51,885)			—			(51,885)


Adj: Restructuring and other expense		11,473			1,425			11,526			4,917


Adj: Income taxes		(2,738)			12,240			(3,469)			11,685
Total adjusted income/(loss) (non-GAAP) (2)	(A)	$	27,928		$	25,695		$	72,279		$	63,814

GAAP Total revenue		$	108,335		$	145,003		$	295,788		$	343,693
Adj: Losses on securities, net (1)		476			166			2,194			681
Adj: Net (gains) on sale of business operations and assets		—			(51,885)			—			(51,885)
Total operating revenue (non-GAAP) (2)	(B)	$	108,811		$	93,284		$	297,982		$	292,489

GAAP Total non-interest expense		$	81,677		$	69,460		$	218,702		$	216,486
Less: Total non-operating expense (see above)		(11,473)			(1,425)			(11,526)			(4,917)
Less: Goodwill impairment		—			—			—			—
Operating non-interest expense (non-GAAP) (2)	(C)	$	70,204		$	68,035		$	207,176		$	211,569

(In millions, except per share data)
Total average assets	(D)	$	11,315		$	11,925		$	11,355		$	12,268
Total average shareholders’ equity	(E)	1,189			1,150			1,187			1,161
Total average tangible shareholders’ equity (2)	(F)	1,164			1,118			1,159			1,128
Total average tangible common shareholders' equity (2)	(G)	1,164			1,118			1,159			1,128
Total tangible shareholders’ equity, period-end (2)(3)	(H)	917			1,147			917			1,147
Total tangible common shareholders' equity, period-end (2)(3)	(I)	917			1,147			917			1,147
Total tangible assets, period-end (2)(3)	(J)	11,291			11,815			11,291			11,815
Total common shares outstanding, period-end (thousands)	(K)	45,040			48,657			45,040			48,657
Average diluted shares outstanding (thousands)	(L)	45,034			48,744			46,396			49,963

Earnings per common share, diluted		$	0.42		$	1.31		$	1.34		$	1.97
Adjusted earnings per common share, diluted (2)	(A/L)	0.62			0.53			1.56			1.28
Book value per common share, period-end		20.93			24.21			20.93			24.21
Tangible book value per common share, period-end (2)	(I/K)	20.36			23.58			20.36			23.58
Total shareholders' equity/total assets		8.33			9.95			8.33			9.95
Total tangible shareholder's equity/total tangible assets (2)	(H/J)	8.12			9.71			8.12			9.71
		x
Performance ratios (4)		x
GAAP return on equity		6.30		%	22.18		%	6.97		%	11.30		%
Adjusted return on equity (2)	(A/E)	9.40			8.94			8.12			7.33
Return on tangible common equity (2)(5)		6.76			23.14			7.46			11.97
Adjusted return on tangible common equity (2)(5)	(A+O)/(G)	9.92			9.53			8.64			7.88
GAAP return on assets		0.66			2.14			0.73			1.07

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Adjusted return on tangible common equity (2)(5)		(A+O)/(G)	9.53		10.27		7.88		2.39
GAAP return on assets			2.14		0.67		1.07		(5.63)
Adjusted return on assets (2)	Adjusted return on assets (2)	(A/D)	0.86		0.84		0.69		0.17		Adjusted return on assets (2)	(A/D)	0.99		0.86		0.85		69.00
Efficiency ratio (2)	Efficiency ratio (2)	(C-O)/(B+M+P)	68.76		65.39		69.32		67.72		Efficiency ratio (2)	(C-O)/(B+M+P)	62.01		68.76		66.75		69.32
(in thousands)	(in thousands)										(in thousands)
Supplementary data (In thousands)	Supplementary data (In thousands)										Supplementary data (In thousands)		xx
Tax benefit on tax-credit investments (6)	Tax benefit on tax-credit investments (6)	(M)	$	2,195	$	1,377	$	2,315	$	3,364	Tax benefit on tax-credit investments (6)	(M)	$	620	$	2,195	$	1,811	$	2,315
Non-interest income charge on tax-credit investments (7)	Non-interest income charge on tax-credit investments (7)	(N)	(1,789)		(1,090)		(1,996)		(2,673)		Non-interest income charge on tax-credit investments (7)	(N)	(445)		(1,789)		(1,153)		(1,996)
Net income on tax-credit investments	Net income on tax-credit investments	(M+N)	406		287		319		691		Net income on tax-credit investments	(M+N)	175		406		658		319

Intangible amortization	Intangible amortization	(O)	1,296		1,530		3,912		4,668		Intangible amortization	(O)	1,285		1,296		3,857		3,912
Fully taxable equivalent income adjustment	Fully taxable equivalent income adjustment	(P)	1,586		1,512		4,739		4,917		Fully taxable equivalent income adjustment	(P)	1,715		1,586		4,799		4,739

(1) Net securities ~~losses/(gains)~~losses for the periods ending September 30, ~~2021~~2022 and ~~2020~~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 ~~2020~~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 ~~2021~~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. References to loan categories in the financial statements are based on collateralization.

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”) ~~and Berkshire Insurance Group, Inc.~~. Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter.

The Bank ~~has a goal of transforming~~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 ~~the~~a leading socially responsible omni-channel community bank in ~~the markets it serves.~~New England and beyond. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately ~~$11.8~~$11.3 billion in assets and operates ~~106~~100 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 ~~busines~~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, supply chains, 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, inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market, legislative and regulatory change, changes in the financial markets, the effects of the COVID-19 pandemic, including impacts on the Company, its customers, and the communities where it operates, international conflict in Europe and elsewhere, 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, ~~2020~~2021, as updated by subsequent Quarterly Reports on Form 10-Q and ~~the Risk Factors in Item 1A of this report. Additionally, the COVID-19 pandemic may have further adverse impacts~~Current Reports 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. Form 8-K.

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’s quarterly revenue and operating earnings advanced in 2022 compared to the fourth quarter of 2021, reflecting growth and profitability under its BEST strategic plan which was initiated near midyear 2021. Results have also benefited from a strong credit environment and from market interest rate increases which began after the start of 2022. The Company’s interest rate risk profile is positioned to benefit earnings from further interest rate increases expected by the markets through the rest of the year.

The BEST plan targeted getting better before getting bigger, and this was a primary focus in the second half of 2021 as various expense and profitability initiatives were undertaken and less strategic operations were ended, including the sale of Mid-Atlantic branch operations and insurance operations in the third quarter of 2021. The refocus on core markets and operations and the reinvestment of resources into frontline bankers and technology contributed to the resumption of loan growth in 2022. Share repurchases over the last year to return excess capital to shareholders produced a 7% decrease in outstanding shares over the last twelve months, which has further supported growth in per share earnings and return on equity.

The sale of operations in the third quarter of 2021 inflated revenue and earnings in the third quarter and first nine months of 2021.As a result, GAAP revenue and earnings declined in 2022 compared to these periods.Adjusted measures of revenue and earnings, which do not include these sale gains, advanced in 2022 compared to 2021 in both the third quarter and first nine months of the year. Third quarter earnings per share decreased year-over-year by 68% to $0.42, while adjusted earnings per share increased by 18% to $0.62.Total third quarter net revenue decreased by 25%, while adjusted revenue increased by 17%.

The Company’s BEST plan sets goals for certain non-GAAP adjusted profitability measures.The Company advanced strongly in 2022 towards the target ranges for adjusted return on assets, adjusted return on tangible equity, and adjusted pre-tax pre-provision net revenue.

Third quarter 2022 financial highlights are shown below. Comparisons are year-over-year unless otherwise noted:

•6.8% return on tangible common equity and 9.9% adjusted return on tangible common equity

•11% increase quarter-over-quarter in total net revenue; 10% increase in adjusted net revenue

•3.48% net interest margin, increased from 3.11% in 2Q22 and 2.56% in 3Q21

•62% efficiency ratio, improved from 67% in 2Q22 and 69% in 3Q21

•2% end-of-period loan growth quarter-over-quarter; 16% growth year-over-year

•0.74% delinquent and non-accrual loans/loans

•7% reduction in period-end shares outstanding year-over-year reflecting stock buybacks

•Prepayment of $75 million in subordinated debt in September 2022

Credit metrics remained strong in 2022, and earnings benefited from a release of the credit loss allowance for the year-to-date.The allowance continues to provide comparatively strong coverage of the loan portfolio. The Company’s balance sheet positioning includes:

•Significant liquidity available through short and long term investments and off-balance sheet sources. Loans/deposits measured 80% at period-end

•Positive asset sensitivity to rising interest rates, with a 2.4% modeled benefit to first year net interest income compared to a static scenario in the event of a 100 basis point upward interest rate shock

•Stock repurchase plan approved for up to $140 million in repurchases, with $105 million completed in the first nine months of 2022

•Strong regulatory capital metrics, with a 12.7% period-end common equity tier 1 capital ratio

During the second quarter of 2022, Moody’s Investors Service assigned first time issuer ratings with an investment grade rating of Baa3 to Berkshire Hills Bancorp and Berkshire Bank, with a positive outlook. Moody’s assigned an A3 long-term deposit rating to the Bank. Also, in the second quarter, KBRA (Kroll Bond Rating Agency) affirmed senior unsecured investment grade ratings of BBB for Berkshire Hills Bancorp and BBB+ for Berkshire Bank, with a stable outlook. KBRA affirmed a BBB+ deposit rating for the Bank. In conjunction with the issuance of $100 million in subordinated notes, an amount equal to the net proceeds of which will be used to finance or refinance new

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~~SUMMARY~~or existing social and environmental projects (a “Sustainability Bond”),, the Company implemented its Sustainable Financing Framework, which received a favorable rating from Sustainalytics, a leading ESG ratings firm. This was the first Sustainability Bond issued by a U.S. community bank with assets under $150 billion.

In accordance with its BEST plan, Berkshire continued recruiting front line bankers and developing technology initiatives in the first nine months of 2022. The Company continues to promote employees from within the organization and to 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. For more information about the BEST plan, please see Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s most recent report on Form 10-K.

~~Berkshire recorded net income of $64 million, or $1.31 per diluted~~Since year-end 2021, inflation has accelerated, with the consumer price index increasing 8.2% year-over-year in September 2022. ~~share,~~In response, the Federal Reserve Bank has embarked on monetary tightening policies, resulting in increased interest rates. The Federal Reserve has indicated that further tightening is anticipated.The average federal funds target rate increased from 0.25% in the third quarter of ~~2021. This was an increase compared~~2021 to ~~$21 million, or $0.42 per share,~~2.37% in the third quarter of ~~2020.~~2022, reaching 4.00% as of November 7, 2022. The ~~increase was primarily due~~average ten year treasury increased from 1.53% to ~~$38 million~~3.10% for these periods, reaching 4.21% as of November 7, 2022. The possibility of a recession induced by monetary policy is an increasing market concern for 2023, although business conditions remained solid in ~~after-tax gains, or $0.78 per share, recorded~~the Company’s markets through period-end.The Company is pursuing its plans for growth under its BEST plan based on ~~the sale at the end of August 2021 of Berkshire’s insurance~~its favorable niche in a consolidating regional market and ~~Mid-Atlantic branch operations.~~its distinctive strategy based on its DigitouchSM approach to customer engagement and its community service message that where you bank matters.

~~The~~On October 13, 2022 the Company ~~uses~~and the ~~non-GAAP measure~~Bank announced that Subhadeep Basu, Chief Financial Officer of ~~adjusted earnings~~the Company and the Bank, resigned effective October 7, 2022, for personal reasons and to ~~assess its performance. This measure excludes items not viewed~~subsequently pursue other career interests. Mr. Basu agreed to be available as ~~related~~an advisor to ~~ongoing operations. Third quarter adjusted earnings per share was unchanged at $0.53 in both 2021 and 2020. Lower adjusted revenue in 2021 was offset by a favorable change in~~ the ~~provision for credit losses on loans. The above sale gains are excluded from adjusted revenue and~~Company to assist with transition matters through December 31, 2022. ~~earnings. Other major exclusions are merger, restructuring,~~The Company and ~~other expense.~~Berkshire Bank appointed Senior Vice President and Chief Accounting Officer Brett Brbovic, age 42, as Interim Chief Financial Officer, effective October 7, 2022, and is in the process of searching for a new Chief Financial Officer through an executive search process. Mr. Brbovic first joined the Company and Berkshire Bank from KPMG LLP in 2012 as Vice President and Controller and has served as Senior Vice President and Chief Accounting Officer since 2015.

~~Nine month results~~On November 4, 2022, the Company announced that it had increased its quarterly dividend to shareholder by 50% to $0.18 per share. This reflected growth in ~~2020 were a $548 million loss due primarily to credit loss provision and goodwill charges in~~earnings since the ~~first half~~announcement of the ~~year stemming from the onset~~BEST strategic transformation plan in May 2021. The $0.18 dividend represents a yield of ~~the COVID-19 global pandemic.Nine month results in 2021 were~~approximately 2.6% based on Berkshire’s closing share price of $27.44 on November 3, 2022 and is equivalent to a ~~$98 million profit, with both GAAP and adjusted quarterly earnings reaching the highest level in the~~29% payout compared to third quarter ~~including the benefit of improving credit quality as pandemic economic recovery has strengthened.~~

Asset quality has improved during 2021, with credit losses and delinquencies declining below pre-pandemic levels in the most recent quarter. Berkshire’s measures of capital and liquidity remained high and strengthened during 2021. Berkshire’s measures of interest rate sensitivity show significant potential benefit from possible higher future market interest rates.~~The Company’s ongoing restructuring of liabilities has benefited its funding costs, with more potential benefit from maturing liabilities over the next year.Berkshire completed a 2.5 million, or 5%, share repurchase program in the second and third quarters of 2021.~~

~~THIRD QUARTER FINANCIAL HIGHLIGHTS~~ ~~(Comparisons are to the prior year unless otherwise stated):~~

•~~$52 million pre-tax net gain on the sale of insurance and Mid-Atlantic branch operations~~

•~~4% increase in total non-interest income excluding gains/(losses)~~

•~~66% decrease in net loan charge-offs to $2 million~~

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

•~~Reduction in wholesale funding to 4% of assets, including prepayment of most Federal Home Loan Bank borrowings~~

•~~Deposit costs down year-over-year to 0.22% from 0.61%~~

The most recent quarter was the first full quarter since Berkshire announced its Berkshire’s Exciting Strategic Transformation (BEST) plan. This comprehensive transformation plan, designed to enhance value for all stakeholders, is viewed as contributing to improved focus on Berkshire’s long-term efficiency, its customers, and its communities. Exiting its Mid-Atlantic and insurance operations was a step in improving the Company’s operations and produced $52 million in net sale gains which bolstered third-quarter income. The 2.5 million share repurchase program was completed far ahead of the authorized time, returning a total of nearly $69 million in excess capital to shareholders.

~~In the third quarter, Berkshire also announced its~~ ~~BEST Community Comeback~~ initiative that targets to lend and invest to strengthen the economic health of its communities, an industry-leading commitment given the relative size of the program and the Bank. The Company is positioned to support other BEST initiatives in development including its recently announced consumer lending partnership with the fintech Upstart. The Company also initiated certain restructuring activities in the third quarter related to real estate consolidation, borrowings prepayments, and operations outsourcing as part of its optimization and efficiency strategies.

The Company continued to record strong deposit growth during the quarter and its expanded banking teams are focused on building loan origination volumes. The Company reduced its total branch banking offices from 130 offices at the start of the year to 106 offices currently. This includes the sale of 8 Mid-Atlantic offices and the consolidation of 16 offices in accordance with the plan announced in the fourth quarter of 2020. Additionally, the Company is considering the further consolidation of another 5-10 branches in the upcoming year. Berkshire is2022 adjusted earnings.

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executing this plan in conjunction with the expansion of its MyBanker concierge style bankers in affected markets. Deposit retention in the consolidated branches is regarded as high including the benefit of this strategy.

In the most recent quarter, Berkshire announced further refreshment of its board of directors. Board Chair J. Williar Dunlaevy retired from the board, and Vice Chair David Brunelle was elected to the position of Board Chair.The Board also elected Jeffrey Kip as a new director. Mr. Kip, age 53, is Chief Executive Officer of Angi International which provides internet tools and resources for home improvement, maintenance, and repair projects.~~After quarter-end, Deborah Bailey resigned from her position as director of the Company and the Bank.~~

Berkshire announced the recruitment of executive leaders during the quarter, following the previously announced resignation of Tami Gunsch, Senior EVP and Head of Consumer Banking. Ellen Steinfeld was hired as EVP, Head of Consumer Lending & Payments. Lucia "Lucy" Bellomia was hired as EVP, Head of Retail Banking. Berkshire hired veteran Connecticut banking professional Jeffrey Klaus as SVP, Regional President & Middle Market Team Leader in Southern Connecticut, based in New Haven. Additionally, the Company announced hirings of experienced frontline bankers in its growing Wealth Management, SBA Lending, Commercial Banking, Private Banking, and MyBanker units. The Company believes that merger activities among major local competitors provide opportunity for customer and talent acquisition over the near and medium term.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, ~~2021~~2022 AND DECEMBER 31, ~~2020~~2021

Summary: Total assets decreased by $0.3 billion to ~~$11.8~~$11.3 billion due primarily to lower values of available for sale securities.A $0.9 billion reduction in excess cash was the primary funding source for loan growth totaling $1.1 billion. Cash and equivalents decreased to 6% of total assets from ~~$12.8~~14%.Most asset quality metrics remained at relatively favorable levels.Total deposits decreased by 1%, and the ratio of loans/deposits increased to 80% from 68%.The book value of equity decreased primarily due to the unrealized bond losses, which are not applied against regulatory capital.The regulatory measure of common equity tier one capital decreased to 12.7% from 15.0% due primarily to the loan portfolio growth.The Company views its liquidity and capital, including the contribution of retained earnings, as well positioned to support ongoing organic growth and shareholder distributions.

Investments: The portfolio of investment securities decreased by $458 million, or 18%, to $2.09 billion during the first nine months of 2021. This included the $0.6 billion impact of the sale of the Mid-Atlantic branch operations, along with the impact of the $0.5 billion reduction in borrowings funded with proceeds from loan run-off, which also contributed to higher short-term investment balances. As a result, the Company’s liquidity strengthened further, as well as the sensitivity of its income to higher market interest rates which are anticipated by financial markets. The ratio of loans to deposits decreased to 66% from 79%, and the regulatory ratio of common equity tier 1 capital to risk-weighted assets increased to 15.3% from 13.8%. All major measures of asset quality strengthened as economic conditions improved from distressed pandemic conditions.

~~Investments:~~2022. ~~Short-term investments increased by $505 million~~This decrease was primarily due to ~~$1.97 billion~~the unrealized loss on securities available for sale, which resulted from interest rate increases in the first nine months of ~~the year. These funds are~~2022. The unrealized loss on securities available for ~~ongoing payoffs~~sale increased from $4 million, or 0.2% of ~~maturing brokered deposits, and are available~~book value, at year-end 2021 to ~~fund targeted net loan growth in 2022, as well as potential increases in the investment securities portfolio.~~$248 million, or 14.4% of book value, at period-end. ~~Most short-term~~Additionally, proceeds from securities maturities and amortization contributed funding for the growth of the loan portfolio. Proceeds from maturities, calls, and prepayments of investments ~~are held at the Federal Reserve Bank of Boston.~~

~~The portfolio of investment~~ securities ~~increased by $109~~totaled $483 million ~~or 5%, to $2.33 billion in~~for the first nine months of ~~the year. Growth was concentrated in agency mortgage-related securities and municipal securities.Emphasis has been placed on the held to maturity designation to limit impacts on equity if rates rise and bond prices decline.Total held to maturity securities increased by $187 million, or 40%, for the year-to-date.~~2022. The ~~portfolio is highly liquid, with an~~ average life of ~~4.4 years for~~ the bond portfolio ~~at period-end.~~increased to 6.9 years from 4.6 years due primarily to slower prepayments of mortgage related securities in the rising rate environment. The investment portfolio is viewed as a significant source of liquidity for the Bank, as 93% of the $1.5 billion available for sale portfolio consists of Agency mortgage related products and Treasury notes. The investment portfolio yield ~~decreased to 2.09%~~was 2.13% in the ~~most recent~~third quarter ~~from 2.69%~~of 2022, compared to 2.04% in the fourth quarter of ~~2020, due to ongoing compression of asset yields.~~2021.~~The portfolio of investment securities had an unrealized gain of $24 million, or~~1.0% of cost, at period-end, compared to $68 million, or 3.2% of cost at the start of the year, due to the rise in medium term interest rates during the first nine months of 2021. The Company continues to evaluate possible expansion of the securities portfolio to utilize a portion of excess short-term investments, taking into consideration the outlook for interest rates, loan growth, and deposit behaviors.

Loans: Total loans ~~decreased~~increased by $1.12 billion, or 16%, to $7.94 billion in the first nine months of 2022.Loan growth of 14% in the first half was followed by 2% growth in the third quarter.Growth was concentrated in a $641 million, or 46%, increase in residential mortgages and a $409 million, or 8%, increase in commercial loans.Loans increased in all major categories as a result of the Company’s BEST initiatives which included stronger production from frontline bankers, talent recruitment, and channel expansion.Prepayments slowed in the rising rate environment.Loan demand moderated in the third quarter reflecting the impact of higher interest rates and potential prospects for a future recession.

Overall loan yields increased from the fourth quarter of 2021 ~~by $1.25~~due mainly to increases in market interest rates, primarily in relation to loans repricing within three months.These loans totaled $2.96 billion, or ~~15%,~~38% of total loans and loan yields were expected to ~~$6.84 billion. This was primarily due~~benefit further in the fourth quarter based on market expectations for additional interest rate increases.The Company measures its loan beta, which is the ratio of the change in loan yields to a ~~$587 million decrease~~market index.Compared to the average federal funds target rate, the beta for the total loan portfolio measured 36% comparing the third quarter of 2022 to the fourth quarter of 2021. Comparing the most recent quarter to the linked quarter, the loan beta was 38%.The magnitude and consistency of these betas primarily reflects the large volume of loans contractually repricing based on Prime. LIBOR, or SOFR based indices.

As part of its BEST program, Berkshire has invested in ~~Paycheck Protection Program (“PPP”)~~expanding its retail originations team and its correspondent platform. The Company also purchased residential mortgages from area lenders. Most mortgage bookings were jumbo mortgages held for investment.New loan volumes were predominantly fixed rate early in the year and gradually transitioned to primarily 7/1 hybrid adjustable-rate mortgages in the third quarter.The mortgage portfolio expanded from 20% of total loans ~~which were prepaid~~at the start of the year to 26% at period-end.The portfolio yield decreased from 3.82% in the fourth quarter of 2021 to 3.53% in the most recent quarter, including the impact of the shorter duration adjustable rate mortgages added in 2022.Portfolio growth was substantially funded through the ~~SBA~~reinvestment of excess short-term investments accumulated from loan ~~forgiveness program. The remaining balance~~run-off in 2021.

Commercial real estate and commercial and industrial loans increased by 8% and 9% respectively in the first nine months of ~~PPP loans was $46 million at period-end. All other~~the year.Total commercial loans decreased by ~~$153 million, or 3%. This was primarily due to a $134 million decrease~~1% in ~~loans to COVID sensitive industries. The Company also has targeted runoff of selected commercial portfolios not contributing to its BEST strategic goals.~~Commercial line utilization decreased from 51% to 47% as businesses continued to accumulate liquidity resulting from federal support programs. Overall commercial loan demand has been muted as the Company’s markets recover from pandemic conditions.~~Berkshire is recruiting bankers to expand its loan originations. During~~ the third quarter, including outplacements of targeted credits, as well as seasonal impacts on loan closings in the ~~Company opened~~third quarter. The Company’s commercial loan pipeline at period-end increased compared to the midyear pipeline.The $295 million nine month increase in commercial real estate loans was concentrated in a ~~new commercial lending office~~$97 million, or 19%, increase inmultifamily loans and a $129

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~~New Haven to service the Southern Connecticut market and a new commercial office in Providence, Rhode Island to expand its current business in that market.~~

~~Residential mortgage balances decreased by $369~~ million, or ~~20%~~6%, ~~for the year-to-date due~~increase in loans to ~~prepayments in the ongoing low rate environment.~~commercial real estate non-owner occupied properties. ~~Consumer loan balances decreased~~The $111 million increase in commercial and industrial loans was driven by ~~$136 million, or 20%, primarily~~growth in asset-based lending related loans due to ~~targeted run-off of $104 million in consumer balances primarily related to indirect automobile loans. Under the leadership of the newly recruited EVP of Consumer Lending~~both customer growth and Payments, the Company is expanding its mortgage originations team and its in-market correspondent bank mortgage conduit relationships. The Company also recently announced a partnership with fintech Upstart to begin originating in-market unsecured consumer loans conforming to the Company’s underwriting and pricing parameters. The Company is pursuing additional consumer lending channels as it pursues the strategies and goals set out in its BEST and Berkshire Community Comeback programs.increased line utilization.

The third quarter 2021 average loan portfolio yield was 3.77%, compared to 3.62% in the fourth quarter of 2020. The improvement in yield included the benefit of the recognition of deferred PPP fees in interest income when the related loans were forgiven by the SBA.

The ~~Company has designated~~average yield on commercial real estate loans increased by 1.04% to 4.53% in the ~~following industries as sensitive~~most recent quarter compared to ~~direct and indirect COVID-19 impacts:~~the fourth quarter of 2021. ~~hospitality, Firestone (specialty equipment lending), restaurants,~~For these periods, the average yield on commercial and ~~nursing/assisted living facilities,~~industrial loans increased by 0.83% to 5.21%.Many of the commercial loans are indexed to prime, LIBOR, or SOFR which ~~collectively~~have responded quickly to changes in market interest rates.The impact of these increases on borrowers has been more muted due to the benefit of interest rate swaps with fix customer payments.The notional amount of borrower interest rate swaps totaled ~~$734 million~~approximately $1.7 billion at period-end, ~~compared to $868 million at the start~~measuring approximately 32% of the ~~year.~~ commercial portfolio. The Company continues to maintain its commercial underwriting standards and growth is managed within a detailed system of hold limits based on industry and loan type. Variable rate loan underwriting includes a test of debt service coverage for up to a 300 basis point upward interest rate shock.

~~Hospitality~~

After midyear, the Company announced that it would cease originating new loans ~~totaled $308~~in its Firestone Financial specialty lending operation and allow the portfolio to run-off. This was a strategic decision in the context of Berkshire’s BEST plan to focus on core markets and products. The Firestone portfolio stood at $153 million at period-end and ~~Firestone~~continues to have strong credit performance in line with its long history.

Consumer loans increased by $67 million, or 13%, in the first nine months of the year. Growth was driven by consumer unsecured loans originated through the Company’s partnership with the fintech Upstart. This portfolio totaled ~~$178~~$152 million at ~~period-end.~~period-end, and most of these loans were originated during the first half of the year and were generally subject to the Company’s prime underwriting standards. In July 2022 the Company announced that, due to the prevailing economic uncertainty, it was ceasing new originations through this partnership. Credit performance of this portfolio has exceeded the Company’s expectations.The yield on the consumer portfolio increased by 2.28% to 6.24% in the first nine months of 2022, reflecting the higher coupon consumer unsecured loans added in the first half of the year, along with the benefit of higher interest rates on prime-indexed home equity loans.

Asset Quality and Credit Loss Allowance:Major asset quality metrics ~~improved in~~remained solid as of third quarter-end, with many metrics at better levels than pre-pandemic.Non-accruing loans measured 0.48% of total loans, compared to 0.52% at year-end 2021.Annualized net loan charge-offs measured 0.16% of average loans for the first nine months of ~~2021, trending towards pre-pandemic levels. Total non-accruing loans decreased below~~ the ~~year-end 2019 pre-pandemic level, declining~~2022, compared to ~~$37 million and measuring 0.54% of period-end loans.~~

~~Accruing delinquent loans decreased to $22 million from $28 million, measuring 0.33% of total loans at period-end. Net loan charge-offs decreased to $2 million~~0.29% in ~~the most recent quarter. Nine month net loan charge-offs decreased year-over-year from $21 million to $17 million, measuring 0.30% of average loans in~~fiscal year 2021. Accruing delinquent loans measured a relatively low 0.26% of total loans, compared to 0.63% at year-end 2021.This included loans 30-89 days past due measuring 0.18% of loans.Period-end non-accruing loans totaling $38 million included $21 million in commercial and industrial loans which was concentrated in one manufacturing credit with operational challenges which were episodic rather than systemic in nature.This credit accounted for $4 million of the $6 million in net charge-offs in the quarter.Non-accruing commercial real estate loans decreased to a low $3 million from $8 million, including the benefit of the $11 million sale of certain problem and potential problem loans to proactively take advantage of attractive market conditions during the period.At period-end, accruing troubled debt restructurings totaled ~~$19~~$7 million ~~at quarter-end, which was little changed from $18 million at year-end 2020.~~

and accruing loans over 90 days delinquent totaled $6 million. Total COVID-19 loan modifications decreased to $65 million at period-end, or 0.95% of loans, compared to $316 million at the start of the year. Period-end loan modifications were concentrated in hospitality loans, which had $51 million in modifications at that date. Most of these loans were supported by interest reserves and were granted full year principal payment deferrals for 2021 to allow seasonal properties to recover and to allow newer properties additional time to achieve targeted stabilized income targets.

~~Criticized~~criticized loans decreased to ~~$265 million at period-end, compared to $359 million at year-end 2020, measuring 3.9%~~2.5% of ~~total period-end loans. This balance includes~~loans from 3.5% of loans, including classified loans which decreased to ~~$157 million, compared to $250 million at year-end 2020, measuring 2.3%~~1.6% of ~~total period-end~~loans from 2.1% of loans. ~~Loans to COVID sensitive industries comprised approximately 44% of criticized balances.Recent reductions in classified~~Classified loans ~~were due to a combination of exit strategies and upgrades of hospitality~~include accruing substandard loans,. ~~The Company has traditionally viewed its~~ which are regarded as potential problem loans ~~as those~~and which declined to 1.1% of loans from business activities which are rated as classified and continue to accrue interest. These loans have a possibility of loss if weaknesses are not corrected. Accruing classified loans totaled $120 million at period-end, compared to $185 million at year-end 2020.1.6% over the nine month period.

The allowance for credit losses on loans decreased ~~by $14 million, or 11%, to $113 million during~~in the first nine months of ~~the year.~~2022 to $96 million from $106 million. The ratio of the allowance to total loans ~~measured 1.65%, compared~~decreased to ~~1.58% at~~1.21% from 1.55%. This decline was primarily due toimproved asset quality metrics and a reduction in the ~~start~~potential losses from economic and social disruptions related to COVID-19 conditions, while including a qualitative assessment of risks related to market and inflation conditions and future possible recession conditions. The allowance covers all current expected credit losses for all loans. In relation to outstanding loans, the allowance for most of the year. The Company’s allowance methodology includes an assessment of the risk of adverse developments and consideration of qualitative factors. The 1.65% ratio of the allowance to total loans remains higher than the 0.94% ratio following the adoption of CECL and prior to the emergence of the pandemic. The Company anticipates that the allowance ratio will decline in the coming year, depending on economic and qualitative factors, and depending on the portfolio mix.loan categories decreased.

~~Deposits and Borrowings:~~ ~~Berkshire has been pursuing a course of reducing higher cost wholesale funds by paying off brokered time deposits and FHLB borrowings as they mature. In the third quarter, the Company also~~

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~~prepaid most borrowings from the Federal Home Loan Bank of Boston (“FHLBB”). For the year-to-date, total wholesale funds~~Deposits and Borrowings: Total deposits decreased by ~~64% from $1.182 billion to $428 million. Included in this total are brokered deposits, which decreased from $611 million to $317 million, most of which is scheduled to mature over the next year.~~

~~Total deposits increased by $150~~$81 million, or 1%, to ~~$10.37~~$9.99 billion during the first nine months of 2022.This decrease included a $73 million reduction in brokered deposits, and total other total deposits were essentially unchanged for the period.Non-interest-bearing demand deposit accounts decreased by $112 million or 4%.This decrease was more than offset by NOW deposit growth of $70 million, or 7%, and money market deposit growth of $95 million, or 3%.Payroll deposits, which fluctuate daily, totaled $1.05 billion at period-end.Deposit activity included the impact of increased customer spending rates as well as market competition from higher yielding investment instruments in the rising interest rate environment.

The cost of deposits increased to 0.33% in the third quarter of 2022, compared to 0.19% in the fourth quarter of 2021.Increases were concentrated in a 0.44% increase to 0.48% in the cost of NOW and related deposits and a 0.30% increase to 0.46% in the cost of money market deposit accounts.Deposit costs increased in most major account categories due to the impact of sharply rising market interest rates during the period.

The Company measures its deposit beta, which is the ratio of the change in deposit costs to a market index.Compared to the average federal funds target rate, the deposit beta measured 6% for the above periods, rising to 12% for the change in costs in the most recent quarter compared to the linked quarter.Deposit rates were relatively unchanged through the first half of the year, and began increasing in the most recent quarter. The Company anticipates that further increases in market interest rates will lead to higher deposit costs in future periods, including higher rates paid as well as shifts in balances from lower cost accounts to higher cost accounts.

The Company’s wholesale funds consist of brokered deposits and borrowings.Wholesale funds decreased by $49 million, or 15%, to $289 million over the first nine months of the year. Excluding the above change in brokered deposits, total deposits increased by $443 million, or 5%. Non-interest bearing checking accounts increased by $539 million, or 22%. This included growth of both personal and commercial checking balances and benefited from the further accumulation of liquidity from federal fiscal stimulus payments. NOW and money market balances shifted due to the impact of the calendar on daily payroll deposits. Time deposits decreased by $559 million, consisting mostly of the reduction in brokered time deposits, and savings balances increased as maturing time deposits shifted into checking and savings accounts.

~~Most~~On June 30, 2022, Berkshire completed the sale at par of $100 million in subordinated notes bearing interest at a fixed rate of 5.5% for the ~~$1.5 billion balance of non-brokered time deposits at period-end~~first five years. The notes will then reset quarterly to a floating rate per annum equal to a benchmark rate which is ~~scheduled to mature in the next twelve months. These balances comprise approximately 15% of total non-brokered deposits. The higher costs of these older time accounts are targeted~~expected to be ~~replaced~~the Three-Month Term SOFR, plus 249 basis points. The notes have a ten year final maturity and generally may be called at par after five years.Berkshire is the first public U.S. community bank holding company with ~~lower costing balances reflecting current lower interest rates.~~under $150 billion in total assets to issue a Sustainability Bond. The ~~total cost of deposits decreased~~Company intends to ~~0.22% in the most recent quarter from 0.47% in the fourth quarter of 2020. The cost of borrowings increased to 3.89% from 2.50% due~~use an amount equal to the ~~impact~~net proceeds of ~~remaining higher cost subordinated debt as shorter term borrowings matured~~its Sustainability Bond issuance to finance or ~~were prepaid. The total cost of funds decreased to 0.31% from 0.60%.~~refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework. Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, has independently verified that Berkshire’s Sustainable Financing Framework "is credible and impactful and in alignment with” International Capital Market Association (ICMA) guidelines and principles.

~~At year-end 2020, liabilities held for sale and assets held for sale included deposits and loans held for sale pursuant to~~On September 28, 2022, the ~~contract~~Company prepaid the balance of its existing $75 million in subordinated debt bearing interest at 6.875% which became callable for the ~~sale~~first time on that date since the original issuance ten years ago.Third quarter 2022 interest expense included the additional cost of ~~the Mid-Atlantic branch operations. This sale was completed in the most recent~~carrying these two subordinated debt obligations for one quarter.

Derivative Financial Instruments: ~~There~~During September 2022, the Company added $400 million of receive fix/pay SOFR interest rate swaps through a combination of immediate and forward-settling cash flow hedges which were intended to reduce the earnings exposure to downward rate movements.This was in response to the increased sensitivity to a downward interest rate shock following the rapid rise in market interest rates during the year.Except for these swaps, there were no material changes during the first nine months in the portfolio of outstanding derivative financial ~~instruments, which totaled $3.7 billion in notional amount at period-end.~~ instruments.The estimated fair value of these instruments was ~~an asset~~a liability of ~~$55~~$49 million at period-end, which decreased from ~~$94~~an asset of $43 million at year-end ~~2020~~2021 due to the impact of ~~rising medium term~~changes in interest rates on the value of outstanding commercial loan interest rate swaps.

Shareholders' ~~Equity:~~Equity: Total shareholders’ equity decreased by ~~$10~~$240 million, or ~~1%,~~20% to ~~$1.18 billion during~~$943 million in the first nine months of ~~2021. Berkshire earned $98~~2022.This decrease was primarily due to a $185 million net other comprehensive loss resulting mostly from the previously discussed $245 million unrealized loss on debt securities available for sale as a result of the increase in market interest rates.Additionally, the Company repurchased $105 million in ~~income~~common shares during this period, ~~including the $38 million after-tax gain on the sale~~representing approximately 8% of operations. Berkshire paid out $87 million to shareholders through stock repurchases and dividend payments. Additionally, the Company recorded a $24 million decrease in accumulated other comprehensive income due to the after-tax impact of a reduction in unrealized debt security gains resulting from the increase in medium term interest rates during the first nine months of the year.

~~During the second quarter, Berkshire announced a board authorization for the repurchase of 2.5 million~~ shares ~~or approximately 5% of~~ outstanding ~~shares. The Company completed this repurchase in the third quarter, paying an average price of $27.48 per share, totaling $69 million, for the repurchase of the 2.5 million shares.~~

Total risk-weighted assets decreased year-to-date, reflecting a decline in total assets and the impact of the temporary shift towards lower risk assets as loan balances have shifted into short-term investments. As a result, capital metrics improved over the nine months. The common equity tier 1 capital ratio improved to 15.3% from 13.8% at ~~the start of the year, and is viewed as comparatively very strong in relation to peer institutions.~~

~~Period-end book value per share totaled $24.21 and the non-GAAP measure of tangible book value per share measured $23.58. Both of these measures increased by 4% over the first nine months of the year.~~

year-end 2021.

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~~COMPARISON OF OPERATING RESULTS FOR THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020~~The unrealized securities losses are not counted against regulatory equity.As a result, the decrease in regulatory capital was more modest. Including the impact of the loan growth, the common equity tier one capital remained relatively strong, decreasing from 15.0% to 12.7% in the first nine months of 2022.Similarly, the relatively strong risk based capital ratio decreased to 15.0% from 17.3%.

Across the banking industry, the unrealized losses on available for sale investment securities have led to significant compression of book value and the non-GAAP financial measure of tangible book value. The Company’s

book value per share decreased by 14% to $20.93 and period-end equity/assets decreased from 10.2% to 8.3%. Tangible book value per share decreased by 14% to $20.36, and the period-end ratio of tangible common equity/tangible assets decreased from 10.0% to 8.1%.

~~Summary:~~ ~~Berkshire recorded net income~~During the first nine months of ~~$64 million, or $1.31~~2022, the Company continued the quarterly shareholder dividend at $0.12 per ~~diluted~~ share inlevel it was reduced to as a result of the ~~third quarter of 2021. This was an increase compared to $21 million, or $0.42 per share,~~pandemic beginning in the third quarter of 2020. ~~The increase was primarily due~~On November 4, 2022, the Company announced that it had increased its quarterly dividend to ~~$38 million in after-tax gains, or $0.78 per share, recorded on the sale at the end of August 2021 of Berkshire’s insurance operations and Mid-Atlantic branch operations.~~

~~The Company uses the non-GAAP measure of adjusted earnings~~shareholders by 50% to assess its performance. This measure excludes items not viewed as related to ongoing operations. Third quarter adjusted earnings per share was unchanged at $0.53 in both 2021 and 2020. Lower adjusted revenue in 2021 was offset by a favorable change in the provision for credit losses on loans. The above sale gains are excluded from adjusted revenue and earnings. Other major exclusions are merger, restructuring, and other expense.

Nine month results in 2020 were a loss of $548 million, or $10.90 per share, due primarily to credit loss provision and goodwill charges in the first half of the year stemming from the onset of the COVID-19 global pandemic.~~Nine month results in 2021 were profitable, with net income of $98 million, or $1.97~~$0.18 per share. ~~In 2021, both GAAP and adjusted quarterly~~This reflected growth in earnings ~~reaching~~since the ~~highest level~~announcement of the BEST strategic transformation plan in ~~the third quarter, including the benefit of improving credit quality as pandemic economic recovery has strengthened.~~

~~The third quarter efficiency ratio increased year-over-year to 68.8% from 65.4%, and the nine month ratio increased to 69.3% from 67.7%.This primarily reflected lower revenue from net interest income.~~Return on assets and return on tangible equity improved year-over-year from the first half 2020 loss, and benefited from the sale gains and the credit to the loan loss provision in the third quarter ofMay 2021. The $0.18 dividend represents a yield of approximately 2.6% based on Berkshire’s closing share price of $27.44 on November 3, 2022 and is equivalent to a 29% payout compared to third quarter ~~2021 return on assets was 2.14% and return on equity was 22.2%. The non-GAAP measure of~~2022 adjusted ~~return on assets was 0.86% and the non-GAAP measure of adjusted return on tangible equity was 9.5%.~~earnings.

~~Revenue:~~ Total net revenue increased year-over-year by $48 million, or 49%, in the third quarter and by $60 million, or 21%, in the first nine months of the year. This included the benefit of the $52 million in net gains on the sale of insurance and branch operations. The Company’s non-GAAP measure of adjusted revenue excludes gains and losses on securities and on sales of operations. Adjusted net revenue decreased year-over-year by $5 million, or 5%, in the third quarter and by $1 million, or 1%, in the first nine months of the year. Lower net interest income was partially offset by higher fee revenue. Revenue in 2021 included the approximate impact of the loss of approximately $2 million in revenues from insurance and branch operations which were sold at the end of August 2021.

~~Net Interest Income:~~ Net interest income decreased year-over-year by $6 million, or 7%, in the third quarter and by $19 million, or 8%, in the first nine months of the year. The third quarter change was primarily due to a decrease in average earning assets, which decreased by 5% year-over-year. This reflected the use of funds from loan run-off to paydown higher cost wholesale funds, together with the reduction in assets related to the branch sale.~~Additionally, the third quarter net interest margin decreased year-over-year by 5 basis points to 2.56%, due to the shift towards lower risk and shorter duration assets.~~

~~The decrease in nine month net interest income was primarily due to a decrease in the net interest margin to 2.60% from 2.75%.This primarily reflected the ongoing impact from the~~42 basis point contraction in the net interest margin in the second quarter of 2020 following the approximate 150 basis downward parallel shock in interest rates in March 2020 due to pandemic related emergency federal monetary interventions.

The yield on earning assets has decreased steadily over the last five quarters, reflecting ongoing yield compression in the low rate environment, together with the shift in mix with lower loans and higher short-term investments.This has been partially offset by higher income on PPP loans in the last three quarters due to the recognition of deferred revenues when PPP loans were forgiven by the SBA. These loans contributed 11 basis points to the margin in the first and second quarters of 2021, falling to 5 basis points in the most recent quarter. There was no remaining material balance of deferred PPP revenue at period-end.

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The Company’s liability management strategies have been focused on supporting the net interest margin to offset asset yield compression. Deposit costs have been repriced down and the Company benefited from higher non-interest bearing checking account balances, which increased year-over-year in the third quarter to 29% of average~~deposits from 24%.~~

The Company has focused on paying down higher cost wholesale funds as well as lowering the cost of maturing retail time deposits, which have been comparatively high sources of funding in recent years. The Company expects to benefit from the prepayment of FHLBB borrowings which occurred near the end of the most recent quarter. Additionally, the $1.8 billion remaining balance of time deposits at period-end represent further potential opportunity to reduce funding costs compared to peer institutions.COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021

~~Non-Interest Income:~~ Summary:~~Non-interest~~Berkshire’s third quarter net income ~~increased year-over-year~~decreased by ~~$54~~71% to $19 million.Results in 2021 included $52 million in ~~the third quarter and by $79 million in the first nine months of the year. This includes the $52 million benefit of net gain~~gains on ~~sales of business operations in the most recent quarter, and the cost of $10 million in securities losses in the first half of 2020.~~

Total non-interest income before gains and losses increased year-over-year by $1 million, or 4%, in the third quarter and by $18 million, or 34%, in the first nine months of the year. For the third quarter, SBA loan originations related income increased year-over-year by $3 million to a record level of $5 million, compared to pandemic depressed business volumes in 2020. Third quarter deposit related fees increased year-over-year by 8% and wealth management fees increased 15% due to improved business conditions. This growth helped offset a 41% reduction in insurance commissions due to the sale of insurance operations, along with a 77% decrease in mortgage banking revenue from elevated business volumes in 2020.

The nine month improvement in non-interest income before gains and losses was primarily due to improvements in the first half of 2021 from the pandemic emergency conditions in the first half of 2020, which resulted in contractions in business activity, fee waivers, and charges resulting from negative price movements in fair valued financial instruments, including derivative financial instruments and other fair valued assets.Additionally, the Company recorded $2 million in PPP referral fees in the first half of 2021 for its participation in the second round of the PPP program, channeling applications through a fintech partner rather than maintaining PPP loans on its balance sheet as it did in 2020.

~~Credit Loss Provision Expense:~~ The third quarter provision was a benefit of $4 million in 2021 compared to an expense of $1 million in 2020. For the first nine months of the year, the provision expense was $3 million in 2021 compared to $66 million in 2020. The provision was elevated in the first half of 2020, as the Company estimated expected loan losses in the context of the global pandemic. The Company continues to maintain an elevated allowance compared to loans based on its methodology. Because of the decline in the loan portfolio, there has been little need for additional provision expense in 2021. The benefit in the most recent quarter reflected a further reduction in loans as well as the improving economic outlook.

~~Non-Interest Expense and Tax Expense:~~ Non-interest expense decreased year-over-year by $3 million, or 5%, for the third quarter and by $552 million for the first nine months of the year. The third quarter decrease was due to lower merger, restructuring and other non-operating expenses. These costs in 2020 were primarily related to the CEO separation and in 2021 were primarily related to net restructuring costs including borrowings prepayment fees, real estate consolidation plans, and severance. The $552 million nine month decrease was primarily due to the $554 million goodwill write-off in the second quarter of 2020.

The Company’s non-GAAP measure of adjusted non-interest expense excludes the above costs, which are not viewed as related to ongoing operations. Adjusted non-interest expense increased year-over year by $1 million, or 1%, for the third quarter and by $2 million, or 1%, for the first nine months of the year. Expense benefited from the sale of insurance and branch ~~operations at the end~~operations.The non-GAAP measure of ~~August 2021.~~ adjusted income, which excludes non-operating items and sale gains, increased by 9% to $28 million.The benefit of a 29% increase in net interest income was partially offset by lower non-interest income and higher credit loss provision expense.

Third quarter ~~expense~~2022 GAAP earnings per share totaled $0.42 and adjusted earnings per share totaled $0.62, which was ~~up primarily due to a 6% increase in salary expense including~~ the ~~impact~~highest quarterly adjusted EPS since 2019. This included the benefit of ~~the Company’s investment in front line bankers. The~~share repurchases, which reduced outstanding shares by 7% year-over-year. GAAP EPS decreased by 68%, while adjusted EPS increased by 18%.

Berkshire’s nine month ~~increase~~net income decreased by 37% to $62 million.Adjusted net income improved by 13% to $72 million.In addition to adjusting for sale gains, the major adjustments to adjusted earnings related to restructuring expenses primarily consisting of branch consolidations.Nine month 2022 earnings per share totaled $1.34 and adjusted earnings per share totaled $1.56.

In the most recent quarter, the return on assets measured 0.66% and the adjusted return on assets measured 0.99%.The return on tangible equity measured 6.76% and the adjusted return on tangible equity measured 9.92%.By growing operating revenue and maintaining disciplined operating expenses, Berkshire has been achieving positive operating leverage.The third quarter efficiency ratio improved to 62% in ~~expense primarily reflected higher professional expense~~2022 compared to 69% in 2021.

Net Interest Income: Third quarter net interest income increased by 29% to $92 million.Nine month net interest income increased by 9% to $243 million.These increases were driven by increases of 36% and 17%, respectively, in the ~~first half~~net interest margin.This reflected the benefit of rising interest rates in 2022 as well as the ~~year for legal, financial,~~use of excess cash accumulated in 2021 and ~~other advisory services related to management and board matters.~~used reinvesting primarily in residential mortgage growth in 2022.

The third quarter net interest margin increased year-over-year by 91 basis points to 3.48% from 2.56%. This was the highest quarterly net interest margin reported by the Company ~~has completed~~in four years.This primarily reflects the ~~consolidation~~benefit of ~~16 branch offices~~the 36% loan beta compared to the 6% deposit beta in the environment of rapidly rising market interest rates since the fourth quarter of 2021. Most loans repricing within three months are indexed to Prime, LIBOR, or SOFR which change rapidly as market interest rates change.Deposit cost changes depend on market factors and typically operate with a lag, which has been pronounced in the current environment of rapid market rate increases.

At period-end, the Company remained asset sensitive and was positioned to benefit from further increases in market interest rates in 2022 based on market forecasts. This is discussed below in Item 3 “Quantitative and Qualitative Disclosures About Market Risk”. Expected market interest rate increases in the fourth quarter may provide further benefit to the net interest income. Based on the Company’s interest rate risk modeling, the deposit beta increase over time, and the cost of wholesale funds may also affect the cost of interest bearing liabilities, depending on market and competitive conditions and the Company’s asset and liability management strategies.The ~~Company~~structure of deposits, including the percentage of non-interest-bearing deposits (which was 29% of total deposits at period-end) may also affect the margin depending on future economic and monetary conditions.

Non-Interest Income:Total fee income decreased year-over-year by 29% to $15 million, and for nine months year-to-date fee income decreased by 26% to $48 million.Excluding insurance commissions and fees from insurance operations sold ~~8 offices~~at the end of September 2021, the decreases in this income measured 24% and 17% for the above respective periods.This was mostly due to decreases in loan fees totaling $5 million and $9 million for the above periods.This was primarily due to decreases of $3 million and $6 million, for the above respective periods, in SBA originations related income reflecting lower market volumes and premiums as ~~part~~a result of the ~~Mid-Atlantic branch sale. Total branch offices declined from 130~~increase in market interest rates.Berkshire continued to ~~106~~rank high in national SBA loan originations, placing in the22nd position nationally based on SBA 7(a) loan approval data for the ~~year-to-date, as~~SBA fiscal year ending September 30, 2022.Income from commercial loan swap fees and fair value changes also decreased for the ~~Company~~three and nine month periods.Deposit related fees increased by 9% and 6% respectively for these periods despite the sale of branch operations in 2021, reflecting increased consumer transaction activity year-over-year.

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~~pursues~~

Provision for Credit Losses on Loans:The third quarter provision was a $3 million expense in 2022 compared to a $4 million benefit in 2021.For the first nine months, the provision was a $1 million benefit in 2022 compared to a $2 million expense in 2021.The Company has steadily reduced the coverage of its ~~strategy~~allowance for ~~front-line~~credit losses on loans based on improvements in asset quality and forecast conditions. Charge-offs have remained at relatively favorable levels.These improvements have generally offset the impact of loan portfolio growth and increased consumer lending which would otherwise require additional provision expense.The most recent quarter was the first quarter with a provision expense since the first quarter of 2021.

Non-Interest Expense and Tax Expense:Total non-interest expense increased year-over-year by 18% for the third quarter and by 1% for the first nine months.The non-GAAP financial measure of adjusted non-interest expense increased by 3% for the third quarter and decreased by 2% for the first nine months.Expense in 2022 benefited from the sale of operations and restructuring actions in 2021.Cost saves from these initiatives were targeted towards increased spending for bankers and technology.The Company generally targets operating expenses in ~~managing expansion~~the range of $68 - $70 million on a quarterly basis.Adjustments to nine month expense totaled $5 million in 2021 and ~~market positioning. This includes a focus on its MyBankers who provide dedicated relationship support~~$12 million in 2022 and were primarily related to ~~customers with committed banking relationships.~~ branch consolidations and the sale of operations in 2021 and branch consolidations in 2022.The total branch count decreased from 130 branches at the start of 2021 to 106 branches at year-end 2021 and 100 branches at third quarter-end in 2022.Full time equivalent staff ~~totaled 1,333 positions at period-end, compared to~~decreased from 1,505 positions at the start of ~~the year. This decrease included 79~~2021 to 1,319 positions ~~which were transferred in conjunction with the sale of insurance~~at year-end 2021 and branch operations. The Company designated ten real estate properties as held for sale in the third quarter as it pursues its efficiency strategies for reducing overhead and evolving a hybrid work environment. A severance accrual was recorded during the quarter in conjunction with planned efficiencies in servicing customer accounts in partnership with third parties.1,300 positions at September 30, 2022.

The ~~Company received~~effective income tax ~~expense benefits in 2020 due to loss carrybacks resulting from the losses reported in 2020. The effective tax~~ rate was ~~20% in the third quarter of 2021 and~~ 21% for the first nine months of ~~the year.~~ 2021 and 22.The ~~effective~~ tax rate ~~on adjusted~~benefit from lower pre-tax income in 2022 was ~~12%~~offset in the third quarter of 2021 and 19% for the first nine months of the year. The higher GAAP tax rate reflected the higher GAAP pre-tax income primarily related to the net sale gains for the sale of the insurance and branch operations. Berkshire invested in two historic rehabilitationpart by lower benefits on investment tax credit ~~projects~~investments due to slower construction activity in ~~the most recent quarter, resulting from increased rehabilitation project activity which had declined following the onset of the pandemic.These programs serve community needs in Albany, NY~~2022 and ~~Westerly, RI. They provided $2 million in tax~~longer schedules for recognizing the benefits in ~~the most recent quarter, which resulted in $0.01 in additional EPS net of related amortization charges included as a component of non-interest income.~~

~~Discontinued Operations:~~ In the fourth quarter of 2020, the Company completed the exit of its national mortgage banking operations. These operations generated a net loss of $20 million in 2020, of which $2 million was recorded in the third quarter and $16 million was recorded in the first nine months of 2020.~~These operations are excluded from the Company’s measures of adjusted~~ income.

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. ~~The decrease in interest rates in 2020 resulted in $20~~Total comprehensive income for the first nine months of the year was a loss of $123 million in ~~other net after-tax nine month comprehensive~~2022, compared to income ~~and~~of $75 million in 2021, reflecting the ~~increase~~impact in both periods of rising medium term interest rates ~~in 2021 resulted in a $24 million nine month other net comprehensive loss.~~on the bond portfolio.

Liquidity and Cash Flows: ~~The primary sources~~Please see ““Item 7. Management’s Discussion and Analysis of ~~cash~~Financial Condition and Results of Operations--Liquidity and Cash Flows” in the most recent report on Form10-K for a more expansive discussion of these topics.

For the first nine months of ~~2021 were the decrease in total loans and the increase in demand deposits, and~~2022, loan growth was the primary ~~uses~~use of cash, ~~were the reduction of wholesale funds and an increase in~~which was mainly sourced from short-term investments ~~as well as the settlement~~and investment securities. The ratio of ~~the branch sale. As a result, liquidity increased, with short-term investments increasing~~cash and cash equivalents to ~~17% of~~ total assets decreased to 6% from 14% over this period. Investment securities and ~~total investments increasing~~wholesale funding are sources of cash to ~~36% of assets~~support future loan growth.Unused FHLBB borrowing availability stood at $1.2 billion at period-end. Cash at the parent company stood at $119 million at period-end ~~from 11%~~

The Company continues to view itself as having sufficient liquidity with a high quality and ~~29%, respectively, at~~liquid securities portfolio and well-positioned wholesale funding sources. The new Moody’s ratings introduced in 2022, including the ~~start~~A3 long-term bank deposit rating, support Berkshire’s liquidity profile. The relative stability of deposit costs during 2022 has also been positive as an indicator of core funding stability in the ~~year.~~ Company’s markets.

The ratio of loans to deposits ~~decreased~~measured 80% at period-end, compared to ~~66% from 79%. The ratio of wholesale funds to assets decreased to 4% from 9%.~~

The Company anticipates repaying most of the $428 million in wholesale funds over the next twelve months. The Company is targeting to resume loan growth in 2022, and to shift some funds from short-term investments into investment securities. The Company anticipates that excess liquidity will decline in 2022 based on these targeted events. The Company regularly stress tests its liquidity and views its stressed liquidity profile as sound including the benefit of current excess levels of liquidity.

~~At period-end, unused borrowing capacity~~68% at ~~the FHLBB was~~ ~~$1.6 billion, which was unchanged from~~ the start of the year. ~~Borrowing availability at~~A number of metrics are utilized in establishing optimal and minimal liquidity targets and the ~~Fed discount window was~~ ~~$0.5 billion~~ ~~and $0.8 billion for~~Company is generally well positioned across these ~~dates respectively. Total cash held by the holding company~~ ~~was $77~~ million and $84 million for these respective dates. The Company targets to use cash at the holding company together with dividends from the Bank to fund dividends and potential stock repurchases over the coming year.metrics.

The rising rate environment potentially constrains industry deposit demand growth.Additionally, the rising rates have contributed to the extension of the investment portfolio average life and the unrealized bond losses are a potential constraint on some options for the use of investments to support overall liquidity.The unrealized losses would affect capital if they were realized through the sale of the related securities, which could then impact the

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management of capital.The excess liquidity which has been widespread throughout the financial system during the pandemic may constrain funding sources if systemwide liquidity is reduced.The Company is monitoring various scenarios as it continues to pursue organic growth and market share gains in the context of its BEST strategic plan.

The parent relies over the long term on dividends from the Bank to fund its debt obligations and capital returns to shareholders.The Bank requires regulatory approval from the FDIC and the Massachusetts Division of Banks to provide dividends to the parent

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~~Note 10 – Capital Ratios and Shareholders' Equity in the notes to 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.

The Company ~~views its regulatory capital measures as providing it with a cushion~~monitors the impacts of ~~excess capital in relation to its operating condition, risk profile,~~rising rates, credit stress scenarios, and ~~strategic plans,~~ ~~and compared to peers. The Company’s priorities for uses of it capital are based on maintaining strong capital, supporting~~ organic growth in assessing its capital adequacy and ~~its BEST strategic plan, paying a dividend yield that in the long run is competitive and targets a 30-40% payout ratio, and distributing excess capital to shareholders through stock repurchases.~~plans.

The Company’s ~~long term goal is~~BEST plan includes the optimization of capital, including reducing excess capital through organic growth and capital returns to ~~maintain a competitive capital stack and to provide a return~~shareholders. The operation of this plan was evidenced in ~~excess~~the first nine months of the ~~cost of its common equity capital.~~year through the 16% loan growth and $105 million in share repurchases. ~~The Company’s tier 2 capital includes a $75~~Additionally, shareholder dividends paid totaled $16 million ~~subordinated note which converts to a convertible rate and becomes callable as of September 2022. The Company will monitor capital markets conditions while assessing future plans~~ for this ~~capital.~~period.Capital optimization was also supported through the subordinated debt issuance, reducing the coupon compared to the existing debt which was later prepaid.

The Company primarily focuses on regulatory capital measures in assessing capital, including the common equity Tier 1 capital ratio. This ratio stood at 12.7% at period-end. This also includes ongoing assessment of the shareholder cash dividend in relationship to earnings and ~~Bank~~to competitive practices. The Company announced a 50% increase in the quarterly shareholder dividend from $0.12 per share to $0.18 per share on November 4, 2022.

The unrealized available sale securities losses reduce the book value of equity.These losses are ~~investment grade rated by~~expected to accrete back into equity as the ~~KBRA bond rating service~~securities season to maturity. These losses are not deducted from regulatory capital which is the primary focus of the Company’s capital management.The measure of tangible book value is a focus of bank investors, together with the ratio of tangible equity to tangible assets and the ~~Company views itself as having good access~~measure of tangible book value per share.The tangible equity to ~~current capital markets.~~ tangible assets ratio decreased to 8.1% from 10.0% during the first nine months of the year, and tangible book value per share decreased by 14% to $20.36 from $23.69.The Company ~~performs capital stress testing~~is monitoring its tangible book value related metrics and it believes that its condition at ~~least annually and has~~period-end was within a general ~~goal to remain qualifying~~range for peers at that date.Further decreases in these metrics were anticipated for the ~~“well capitalized” designation in the severely stressed scenario. The Company views its current stressed capital position as sound and conforming to its objectives, including the benefit~~remainder of ~~current excess levels of capital.~~2022 based on market expectations for further rate increases.

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. Increased distributions from the Company to shareholders require notice to and nonobjection from the Federal Reserve Bank.For the first nine months of 2022, the Bank paid $108 million in dividends to the parent company.

~~Off-Balance Sheet Arrangements~~LIBOR Transition:Please see the Company’s most recent Annual Report on Form 10-K for additional information regarding the LIBOR transition. In addition to the commercial loan interest rate swaps and ~~Contractual Obligations:~~ back-to-back counterparty offsetting swaps, the Company’s primary exposure in managing the transition relates to LIBOR based commercial and mortgage loans.InThe Company introduced new loan documentation switching from LIBOR to one month term SOFR for new commercial loans originated beginning in 2022.As of September 30, 2022, the ~~normal course~~Company had approximately $2.0 billion in LIBOR based commercial loans, including $1.8 billion maturing after the LIBOR cessation date at midyear 2023.The Company is focused on converting the majority of ~~operations, Berkshire engages in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded~~these loans to one month term SOFR in the ~~Company’s financial statements. These transactions involve, to varying degrees, elements of credit, interest rate,~~next six months, working with customers, counsel, and ~~liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of~~its core loan ~~commitments and lines of credit. Further information about the Company’s off-balance sheet arrangements and information relating to payments due under contractual obligations is presented~~servicing provider.The Company had converted $258 million in the most recent Form 10-K. Changes in the fair value of derivative financial instruments and hedging activities are included on the balance sheet and information related to these matters is reported in the related footnote to the consolidated financial statements, and was included in management’s discussion of changes in financial condition. There were no major changes in off-balance sheet arrangements and contractual obligations during the nine months of 2021 except for the completion of the agreement to sell the Mid-Atlantic branch operations, which was completed at the end of August 2021.outstanding loans through period-end.

~~Fair Value Measurements:~~ Fair value measurements are discussed in the related financial statement footnote. The most significant measurements of recurring fair values of financial instruments primarily relate to securities available for sale, loans held for sale, and derivative instruments. These measurements were generally based on Level 2 market-based inputs. The premium or discount value of loans has historically been the most significant element of this period-end presentation. This premium or discount is a Level 3 estimate and reflects management’s subjective judgments.

CORPORATE RESPONSIBILITY UPDATE

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~~LIBOR BASED INSTRUMENTS~~

Our Commitment to Environmental, Social, Governance (ESG) & Corporate Responsibility

The Company’s use of LIBOR based instruments and the industry-wide transition program off of LIBOR were discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) of the Company’s most recent report on Form 10-K. The Company has in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations. These include loans priced off of LIBOR, as well as interest rate swap contacts including customer, dealer, and risk participation agreements. The Company has no material LIBOR based contracts requiring remediation prior to year-end 2021.

The Financial Conduct Authority (“FCA”) presently intends to continue publishing most LIBOR indices through June 2023 for use with legacy instruments contracted in 2021 or before. The Company continues to develop and execute plans to transition instruments associated with LIBOR to alternative reference rates. The Company expects that LIBOR based instruments issued after year-end 2021 will utilize a different pricing index, and it is working actively with customers and its core systems provider to prepare for this transition. The Company has begun incorporating SOFR in place of LIBOR in new contracts and contract proposals. The Company continues to monitor additional index rates as they become available or are requested by customers or other counterparties.

~~CORPORATE RESPONSIBILITY UPDATE~~

Berkshire ~~Bank~~ 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 provides an ecosystem of socially responsible financial solutions, actively engages with its communities, and harnesses the power of its business to support the economy, empower financial access and success, and invest in a low-carbon future.

ESG factors are integral to our vision, mission, risk management practices, sustainable finance activities and Berkshire’s Exciting Strategic Transformation (BEST). Berkshire focuses its strategy on material topics impacting its business and stakeholders including leadership & governance, human capital management, equity & inclusion, responsible banking & cybersecurity, financial access & affordability, environmental sustainability & climate change and community investment. Because our vision is to be a high-performing, leading socially responsible community bank in New England and beyond, we were one of the first banks in the country to establish a dedicated committee of our Board of Directors to oversee ESG matters, were the first U.S. community bank holding company with under $150 billion in assets to issue a Sustainability Bond and are a leader among community banks in integrating ESG standards into our business strategy and operations.

We continue to engage directly with our stakeholders to share information about the progress in our ESG performance, including through our Corporate Responsibility website, corporate annual report, and proxy statement. Additionally, our annual Corporate Responsibility Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) commercial bank disclosure topics along with the Task Force for Climate Related Financial Disclosures (TCFD), details the Company's ESG efforts and programs.

Climate Change & Sustainability

Climate Change poses unprecedented risks and opportunities to the world. Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks and impacts associated with climate change, and finance the transition to a low-carbon future will allow it to strengthen its positioning as a high-performing, leading socially responsible community bank. ~~Learn more about~~The Company continues to evolve its practices to reflect its community bank mission, expected regulatory requirements, sustainable finance opportunities as well as the ~~steps Berkshire is taking at~~ ~~berkshirebank.com/csr~~size, scope, and incomplexity of its ~~most recent Corporate Responsibility Report.~~operations.

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Key ~~developments in the quarter include:~~ESG & Corporate Responsibility Quarterly Developments

•~~Launch~~BEST Community Comeback: As a result of the ~~BEST Community Comeback:~~collective efforts of its employees, Berkshire ~~announced~~is making steady progress towards the achievement of its "BEST Community Comeback" ~~a $5 billion multi-year ESG and community commitment to fuel resilience and strengthen local communities.~~goals. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability.

The program includes $1.5 billion in small business lending; $2.5 billion in mortgage lending inclusive of $200 million in lending for minority mortgage borrowers; $2.5 billion in lending in low-moderate income neighborhoods; and $300 million in lending for low-carbon projects. Additionally, the Bank plans to transition its electricity supply to 100% renewables and reduce its greenhouse gas emissions by the end of 2024.

•~~Xtraordinary Day:~~ ~~As a kickoff to the Bank's "BEST Community Comeback," Berkshire Bank hosted its 5~~th annual "Xtraordinary Day of Service." Berkshire Bank employees were deployed in a virtual setting, volunteering for causes that support the small business ecosystem, equity and inclusion and basic community needs. More than 75% of Berkshires workforce participated in the day.

•Current ESG Performance: The Company ~~continued to improve~~remained within its BEST ESG goal with a top 23% composite performance in leading ESG indexes in the U.S. for its Environmental, Social and Governance (ESG) ~~ratings, generally outperforming peers.~~ratings. As of September 30, ~~2021~~2022 the Company ~~received~~has ratings of: MSCI ESG- BBB; ISS ESG Quality Score - Environment: 2, Social: 1, Governance: 2; and Bloomberg ESG Disclosure- ~~47.81.~~62.81. The ~~company is~~Company also ~~rated~~receives a rating by Sustainalytics. Berkshire continues to rank among the top 1% of all U.S. Banks for ESG in Bloomberg this year.

•Recognition & Continued Community Impact: The Boston Business Journal named Berkshire one of Massachusetts' Top Corporate Charitable Contributors for the tenth consecutive year. The honor further demonstrates Berkshire's deep commitment to lifting-up its communities which includes recent announcements of $100,000 in scholarships to forty (40) students continuing in their pursuit of an undergraduate degree from an accredited non-profit college or technical school and more than $600,000 in third quarter philanthropic contributions through Berkshire's Foundation to support projects enhancing the quality of life and economic vibrancy in communities where the bank operates.

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.

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

• Allowance for Credit Losses on Loans

• Fair Value ~~of Financial Instruments~~Measurements

These ~~particular significant accounting~~ policies are considered most critical in that they are important to the Company’s financial condition and results, and they require management’s subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. Both of these ~~most critical accounting~~ policies were significant in determining income and financial condition ~~based on events~~ in ~~2021.~~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, loan review, compliance and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital, and ~~Capital~~Compliance Committee. The high level corporate risk assessment ~~focuses on~~includes 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. Based on management's recent review, all risks were within corporate appetites. Increases in risks were noted for credit risk and compliance risk over the past year due largely to the pandemic; liquidity risks were declining due to elevated liquid assets. For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company.

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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 September 30, ~~2021,~~2022, Berkshire’s balance sheet was positioned to further benefit from for the forecast rising rate environment. Shown below is a chart of the modeled change in net interest income ~~is expected to benefit~~ from ~~upward changes in interest rates. In the scenario of~~ a 200 basis point upward parallel ramp, the Company models approximately a 4% increase in NII in the first year and a 13% increase in the second year. A scenario of a 200 basis point upward shock results in a 13% increase in the first year, with a further small increase in the second year. Upward ramps and shocks of 100 basis points result in slightly less than half of the modeled benefit of 200 basis point rate increase scenarios. Under an implied forward curve scenario, net interest income benefits by 1% and 3% in the first and second years, respectively, primarily driven by improvement in earning asset yields. The Company’s net income is also modeled to increasestatic base case in the event of interest rate ~~increases.~~ 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 September 30, 2022
+200	5.0%	9.9%
+100	2.4%	4.7%
-100	(4.9)%	(7.5)%
At December 31, 2021
+200	13.1%	16.1%
+100	5.6%	6.5%
-100	(0.1)%	(1.2)%

The ~~dollar amount~~shock information above shows that the Company has become less asset sensitive in the first nine months of 2022 due primarily to the reinvestment of cash into loans, some of which are longer duration. The Company remained asset sensitive at period-end and therefore was positioned to further benefit from expected interest rate increases in the fourth quarter of 2022.The Company’s sensitivity to decreases in interest rates has become more pronounced as current higher levels of interest rates are reflected in current net interest income. The downward sensitivity had not previously been significant during the near-zero interest rate environment in recent years as asset yields remained low. The Company is actively managing earnings sensitivity to lower rates within the total context of its strategic management. The increase in cash flow hedge derivatives in the most recent quarter had the impact of limiting the increase in interest income in rising rate environments and the decrease in interest income in falling rate environments.

The Company also models net interest income sensitivity to interest rate ramps.At period-end, the year one sensitivity to a +100 basis point interest rate ramp was 1.7% and the year two sensitivity was 4.4%. The Company also models sensitivity to yield curve twists, and sensitivity remained positive in most scenarios for widening and narrowing of the yield curve.

While the sensitivity of net interest income is the primary driver of the sensitivity of net income, ~~at risk was~~the latter is more sensitive than the former since it is net of expenses. In the case of the first year of a +100 basis point scenario, the modeled ~~to generally be the same as the amount~~shock sensitivity of ~~net-interest~~net income ~~at risk.~~ is 5.8%.

Economic value of ~~Equity (EVE)~~equity sensitivity to changes in market rates was nearly neutral at period-end , measuring 0.6%

for a +200% basis point shock.

A critical component of modeling is ~~a discounted cash flow~~the assumption of deposit interest rate sensitivity. The Company continues to model ~~designed to estimate~~ the ~~fair value~~interest bearing deposit beta of ~~assets and liabilities under a series~~approximately 30-40% for purposes of interest rate ~~shocks over a long-term horizon. At this time, EVE~~risk simulations. The resulting modeled deposit beta for all deposits is ~~positively~~approximately 21.28%, with the volume of non-interest bearing deposits remaining unchanged in the static model base case.The actual deposit beta compared to fed funds was approximately 12% for the third quarter of 2022 compared to the second quarter of 2022.It was approximately 6% for the third quarter of 2022 compared to the fourth quarter of 2021.The actual cost of deposits in 2022 has been

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less sensitive than the Company’s traditional modeling assumptions due to ~~increases~~the rapid increase in interest rates and high liquidity in the economy in the unusual conditions prevailing in 2022.

Modeled interest rate sensitivity depends on other material assumptions. Market risk exposure is affected by the level and shape of the yield curve in markets for financial instruments including U.S. Treasury obligations, forward interest rate derivatives, the U.S. prime interest rate, and LIBOR related rates. Also, the economic impact on customer and market behaviors of the COVID-19 pandemic remains uncertain and may cause actual events to differ from assumptions. The behavior of markets under the historically unusual conditions currently prevailing may be different from modeling assumptions, and the Company continues to monitor the markets and the assumptions in its model.

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ITEM 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 September 30, ~~2021,~~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.

On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc. (“FCLS”) filed a complaint in the Court of Common Pleas, Bucks County Pennsylvania against FCLS and two of its former senior corporate officers generally alleging wrongful termination as a result of purported whistleblower retaliation and other violations of New Jersey state employment law. The complaint also purports to name the Bank and the Company as additional defendants, even though neither entity ever employed, paid wages to or contracted with the plaintiff. On November 16, 2020, the plaintiff filed a First Amended Complaint reiterating the same claims against the same defendants. The Company's liability insurer has provided outside litigation counsel to defend the Company and the Bank in this matter, as well as FCLS and its former senior corporate officers. On December 7, 2020, defense counsel filed Preliminary Objections on behalf of the Company, the Bank, FCLS and FCLS’s former senior corporate officers denying the plaintiff’s claims and seeking dismissal of the case and an order that the plaintiff’s claims must proceed through arbitration in accordance with contractual obligations set forth in plaintiff’s previous employment agreement with FCLS. On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration. The parties have mutually agreed on an arbitrator to hear the case and are preparing for arbitration proceedings that are expected to occur in the first half of 2023.

The Chapter 11 Trustee in the US Bankruptcy Court for the Western District of Michigan for Interlogic Outsourcing, Inc. (“IOI”), a failed former payroll services company, has given the Bank notice of a threatened adversary proceeding to attempt to recover losses suffered by IOI’s creditors when IOI collapsed in July 2019 as a result of a fraudulent check kiting and pyramid scheme perpetrated by its founder, owner and former CEO Najeeb Ahmed Kahn. The Trustee’s threatened adversary proceeding complaint would allege, among other things, that the Bank knew or should have known that Mr. Kahn was conducting illegal, fraudulent check kiting and running a pyramid scheme, failed to properly monitor Mr. Kahn’s activities, and did nothing to stop him to the ultimate detriment of IOI and its creditors. The Bank did not actively participate in any of Mr. Kahn’s alleged illegal actions and denies that it had any duty to monitor or prevent the same. No formal complaint or action has been filed by IOI’s Bankruptcy Trustee to date, but the parties have agreed to participate in a 2-day mediation at the end of November 2022, where they will attempt to resolve the situation by mutual agreement.

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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~~have been no ~~other major~~material changes in risk factors from those identified ~~during~~in the ~~first nine months of 2021.~~

Form 10-K.

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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 September 30, ~~2021~~2022 and ~~2020~~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 third quarter of ~~2021:~~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
July 1-31, 2021 1,177,224 $ 27.34 1,177,224 577,834
August 1-31, 2021 490,574 27.64 490,574 87,260
September 1-30, 2021 87,260 25.41 87,260 —
Total 1,755,058 $ 27.33 1,755,058 —


	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
July 1-31, 2022	54,921	$	27.21	54,921	1,949,073
August 1-31, 2022	392,800	29.06		392,800	1,556,273
September 1-30, 2022	257,500	28.50		257,500	1,298,773
Total	705,221	$	28.71	705,221	1,298,773

On ~~April 28, 2021,~~January 19, 2022, the Company announced that its Board of Directors ~~has~~ approved a stock repurchase program pursuant to which the Company ~~may~~is authorized to repurchase ~~up to 2,500,000~~ shares of ~~its common stock through April 30, 2022. On September 13, 2021, the~~ Company ~~announced that it had completed this stock repurchase program. The Company repurchased 2,500,000 shares of its~~ common stock at ~~an aggregate~~a total cost of up to $140 million through December 31, 2022. This would result in the repurchase of approximately 9% of then outstanding shares based on the share price when the plan was approved. The maximum number of ~~$68.7 million, or an average~~shares that may be purchased under this program has been estimated based on the September 30, 2022 closing price per share of ~~$27.48 per share.~~Company common stock of $27.30.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

8485

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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)
10.1						Transition Agreement dated September 9, 2022, between Deborah A. Stephenson, Berkshire Hills Bancorp, Inc. and Berkshire Bank (5)
10.2						Transition Agreement and Release of Claims dated October 12, 2022, between Subhadeep Basu, Berkshire Hills Bancorp, Inc., and Berkshire Bank (6)
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 September 30, ~~2021,~~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 September 30, ~~2021,~~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.

(5) Incorporated herein by reference from the Exhibits to the Form 8-K as filed on September 12, 2022.

(6) Incorporated herein by reference from the Exhibits to the Form 8-K as filed on October 13, 2022.

8586

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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: November 9, ~~2021~~2022	By:	/s/ Nitin J. Mhatre
	Nitin J. Mhatre
	President and Chief Executive Officer


Dated: November 9, ~~2021~~2022	By:	/s/ ~~Subhadeep Basu~~Brett Brbovic
	~~Subhadeep Basu~~Brett Brbovic
	Senior ~~Executive~~ Vice President and Interim Chief Financial Officer

8687


PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	8283
Item 1A.	Risk Factors	8384
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8485
Item 3.	Defaults Upon Senior Securities	8485
Item 4.	Mine Safety Disclosures	8485
Item 5.	Other Information	8485
Item 6.	Exhibits	8586
Signatures		8687


	Three Months Ended September 30,				Nine Months Ended September 30
(In thousands, except per share data)	2021		2020		2021		2020
Interest and dividend income from continuing operations
Loans	$	68,018	$	85,688	$	217,872	$	278,259
Securities and other	11,670		12,080		35,333		39,392
Total interest and dividend income	79,688		97,768		253,205		317,651
Interest expense from continuing operations
Deposits	5,842		16,070		22,406		60,460
Borrowings	2,478		4,643		8,945		16,118
Total interest expense	8,320		20,713		31,351		76,578
Net interest income from continuing operations	71,368		77,055		221,854		241,073
Non-interest income from continuing operations
Deposit related fees	7,657		7,062		22,291		20,382
Loan fees and revenue	8,285		4,988		25,962		12,007
Insurance commissions and fees	1,581		2,660		7,003		8,451
Wealth management fees	2,653		2,299		7,944		6,926
Mortgage banking originations	461		2,044		1,797		4,647
Total fee income	20,637		19,053		64,997		52,413
Other, net	1,279		1,927		5,638		492
(Loss)/gain on securities, net	(166)		(1,017)		(681)		(9,925)

Gain on sale of business operations and other assets, net	51,885		—		51,885		—

Total non-interest income	73,635		19,963		121,839		42,980
Total net revenue from continuing operations	145,003		97,018		343,693		284,053
Provision for credit losses	(4,000)		1,200		2,500		65,878
Non-interest expense from continuing operations
Compensation and benefits	37,068		34,809		112,773		111,121
Occupancy and equipment	10,421		11,084		32,044		32,411
Technology and communications	8,397		8,540		25,204		24,376
Marketing and promotion	860		1,002		1,973		3,069
Professional services	3,180		2,567		13,495		7,852
FDIC premiums and assessments	805		1,518		2,852		4,658
Other real estate owned and foreclosures	41		40		17		81
Amortization of intangible assets	1,296		1,530		3,912		4,668
Goodwill impairment	—		—		—		553,762
Acquisition, restructuring, and other expenses	1,425		5,316		4,917		5,316
Other	5,967		6,437		19,299		21,129
Total non-interest expense	69,460		72,843		216,486		768,443

Income/(loss) from continuing operations before income taxes	$	79,543	$	22,975	$	124,707	$	(550,268)
Income tax expense/(benefit)	15,794		(68)		26,291		(18,194)
Net income/(loss) from continuing operations	$	63,749	$	23,043	$	98,416	$	(532,074)

(Loss) from discontinued operations before income taxes	$	—	$	(2,477)	$	—	$	(21,741)
Income tax (benefit)	—		(659)		—		(5,789)
Net (loss) from discontinued operations	$	—	$	(1,818)	$	—	$	(15,952)

Net income/(loss)	$	63,749	$	21,225	$	98,416	$	(548,026)
Preferred stock dividend	—		58		—		313
Income/(loss) available to common shareholders	$	63,749	$	21,167	$	98,416	$	(548,339)
(continued)