# Beacon Financial Corp (BBT) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Beacon Financial Corp's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1108134/000110813422000004/bhlb-20211231.htm
Accession: 0001108134-22-000004
Filing date: 2022-03-01
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BBT/
All MD&A years: /company/BBT/mda/
Next year: /company/BBT/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL DATA

The following summary data is based in part on the Consolidated Financial Statements and accompanying notes, and other schedules appearing elsewhere in this Form 10-K. Historical data is also based in part on, and should be read in conjunction with, prior filings with the SEC.

[[GREPCENT_TABLE]]
[["","","At or For the Years Ended December 31,"],["(In thousands, except per share data)","","2021","","2020","","2019","","2018","","2017"],["Per Common Share Data:"],["Net earnings/(loss), diluted - continuing operations","","$","2.39","","","$","(10.21)","","","$","2.05","","","$","2.36","","","$","1.24"],["Net (loss)/earnings, diluted - discontinued operations","","\u2014","","","(0.39)","","","(0.08)","","","(0.07)","","","0.15"],["Net earnings/(loss), diluted","","$","2.39","","","$","(10.60)","","","$","1.97","","","$","2.29","","","$","1.39"],["Total book value per common share","","24.30","","","23.37","","","34.65","","","33.30","","","32.14"],["Dividends","","0.48","","","0.72","","","0.92","","","0.88","","","0.84"],["Common stock price:"],["High","","29.16","","","33.04","","","33.72","","","44.25","","","40.00"],["Low","","16.35","","","8.55","","","26.02","","","25.77","","","32.85"],["Close","","28.43","","","17.12","","","32.88","","","26.97","","","36.60"],["Performance Ratios: (1)"],["Return on assets","","0.98","%","","(4.15)","%","","0.75","%","","0.90","%","","0.56","%"],["Return on equity","","10.18","","","(37.50)","","","5.75","","","6.84","","","4.45"],["Return on tangible common equity","","10.80","","","(48.60)","","","9.36","","","11.41","","","7.29"],["Net interest margin, fully taxable equivalent (FTE) (2)","","2.60","","","2.72","","","3.17","","","3.40","","","3.40"],["Fee income/Net interest and fee income","","22.49","","","18.10","","","23.86","","","23.36","","","29.41"],["Growth Ratios:"],["Total commercial loans","","(12.09)","%","","(4.58)","%","","9.19","%","","6.17","%","","37.79","%"],["Total loans","","(15.54)","","","(14.95)","","","5.08","","","8.96","","","26.71"],["Total deposits","","(1.44)","","","(1.16)","","","15.07","","","2.66","","","32.13"],["Total net revenues, (compared to prior year)","","13.40","","","(14.73)","","","4.53","","","11.59","","","41.05"],["Earnings per share, (compared to prior year)","","122.55","","","(638.07)","","","(13.97)","","","64.75","","","(26.06)"],["Selected Financial Data:"],["Total assets","","$","11,554,913","","","$","12,838,013","","","$","13,215,970","","","$","12,212,231","","","$","11,570,751"],["Total earning assets","","10,899,109","","","12,089,939","","","11,916,007","","","11,140,307","","","10,509,163"],["Securities","","2,548,695","","","2,223,417","","","1,769,878","","","1,918,604","","","1,898,564"],["Total loans","","6,825,847","","","8,081,519","","","9,502,428","","","9,043,253","","","8,299,338"],["Allowance for credit losses","","(106,094)","","","(127,302)","","","(63,575)","","","(61,469)","","","(51,834)"],["Total intangible assets","","29,619","","","34,819","","","599,377","","","551,743","","","557,583"],["Total deposits","","10,068,953","","","10,215,808","","","10,335,977","","","8,982,381","","","8,749,530"],["Total borrowings","","110,844","","","571,637","","","827,550","","","1,517,816","","","1,137,075"],["Total shareholders\u2019 equity","","1,182,435","","","1,187,773","","","1,758,564","","","1,552,918","","","1,496,264"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","At or For the Years Ended December 31,"],["","","2021","","2020","","2019","","2018","","2017"],["Selected Operating Data:"],["Total interest and dividend income","","$","329,065","","","$","409,782","","","$","509,513","","","$","465,894","","","$","355,076"],["Total interest expense","","37,899","","","93,000","","","144,255","","","109,694","","","64,113"],["Net interest income","","291,166","","","316,782","","","365,258","","","356,200","","","290,963"],["Fee income","","84,462","","","69,990","","","76,824","","","74,026","","","71,356"],["All other non-interest income/(loss)","","58,786","","","(3,683)","","","7,178","","","298","","","2,888"],["Total net revenue","","434,414","","","383,089","","","449,260","","","430,524","","","365,207"],["Provision for credit losses","","(500)","","","75,878","","","35,419","","","25,451","","","21,025"],["Total non-interest expense","","285,893","","","840,239","","","289,857","","","266,893","","","252,978"],["Income/(loss) from continuing operations before income taxes","","149,021","","","(533,028)","","","123,984","","","138,180","","","91,204"],["Income tax expense/(benefit) from continuing operations","","30,357","","","(19,853)","","","22,463","","","28,961","","","42,088"],["Net income/(loss) from continuing operations","","118,664","","","(513,175)","","","101,521","","","109,219","","","49,116"],["(Loss)/income from discontinued operations before income taxes","","\u2014","","","(26,855)","","","(5,539)","","","(4,767)","","","8,545"],["Income tax (benefit)/expense from discontinued operations","","\u2014","","","(7,013)","","","(1,468)","","","(1,313)","","","2,414"],["Net (loss)/income from discontinued operations","","\u2014","","","(19,842)","","","(4,071)","","","(3,454)","","","6,131"],["Net income/(loss)","","$","118,664","","","$","(533,017)","","","$","97,450","","","$","105,765","","","$","55,247"],["Basic earnings/(loss) per common share:"],["Continuing operations","","$","2.41","","","$","(10.21)","","","$","2.06","","","$","2.38","","","$","1.24"],["Discontinued operations","","\u2014","","","(0.39)","","","(0.08)","","","(0.08)","","","0.16"],["Total basic earnings/(loss) per share","","$","2.41","","","$","(10.60)","","","$","1.98","","","$","2.30","","","$","1.40"],["Diluted earnings/(loss) per common share:"],["Continuing operations","","$","2.39","","","$","(10.21)","","","$","2.05","","","$","2.36","","","$","1.24"],["Discontinued operations","","\u2014","","","(0.39)","","","(0.08)","","","(0.07)","","","0.15"],["Total diluted earnings/(loss) per share","","$","2.39","","","$","(10.60)","","","$","1.97","","","$","2.29","","","$","1.39"],["Weighted average common shares outstanding - basic","","49,240","","","50,270","","","49,263","","","46,024","","","39,456"],["Weighted average common shares outstanding - diluted","","49,554","","","50,270","","","49,421","","","46,231","","","39,695"],["Dividends per preferred share","","$","\u2014","","","$","1.20","","","$","1.84","","","$","1.76","","","$","0.42"],["Dividends per common share","","$","0.48","","","$","0.72","","","$","0.92","","","$","0.88","","","$","0.84"],["Asset Quality and Condition Ratios: (3)"],["Net loans charged-off/average loans","","0.29","%","","0.41","%","","0.35","%","","0.18","%","","0.19","%"],["Allowance for credit losses/total loans","","1.55","","","1.58","","","0.67","","","0.68","","","0.62"],["Loans/deposits","","68","","","79","","","92","","","101","","","95"],["Capital Ratios:"],["Tier 1 capital to average assets - Company","","10.49","%","","9.38","%","","9.33","%","","9.04","%","","9.01","%"],["Total capital to risk-weighted assets - Company","","17.32","","","16.10","","","13.73","","","12.99","","","12.43"],["Tier 1 capital to risk-weighted assets - Company","","15.30","","","14.06","","","12.30","","","11.57","","","11.15"],["Shareholders\u2019 equity/total assets","","10.23","","","9.25","","","13.31","","","12.73","","","12.93"]]
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___________________________________

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

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

(3)  For periods prior to 2020, generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost. The fair value of loans acquired in a business combination includes expected loan losses, and there is no loan loss allowance recorded for these loans at the time of acquisition. Accordingly, the ratio of the loan loss allowance to total loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge-offs are normally reduced for loans acquired in a business combination since these loans are recorded net of expected loan losses. Therefore, the ratio of net loan charge-offs to average loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Other institutions may have loans acquired in a business combination, and therefore there may be no direct comparability of these ratios between and among other institutions.

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Average Balances, Interest and Average Yields/Cost

The following table presents an analysis of average rates and yields on a fully taxable equivalent basis for the years presented. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison.

Item 7 - Table 3 - Average Balance, Interest and Average Yields / Costs

[[GREPCENT_TABLE]]
[["","","2021","","2020","","2019"],["(Dollars in millions)","","Average Balance","","Interest","","Average Yield/ Rate","","Average Balance","","Interest","","Average Yield/ Rate","","Average Balance","","Interest","","Average Yield/ Rate"],["Assets"],["Loans: (1)(2)"],["Commercial real estate","","$","3,600.2","","","$","124.4","","","3.46","%","","$","3,958.6","","","$","151.5","","","3.83","%","","$","3,789.5","","","$","188.6","","","4.98","%"],["Commercial and industrial loans","","1,527.6","","","71.8","","","4.70","","","2,049.4","","","87.7","","","4.28","","","1,983.9","","","111.2","","","5.60"],["Residential loans","","1,560.4","","","58.4","","","3.75","","","2,324.3","","","87.8","","","3.78","","","2,719.8","","","100.7","","","3.70"],["Consumer loans","","569.1","","","22.0","","","3.87","","","828.1","","","31.3","","","3.78","","","1,038.4","","","46.5","","","4.48"],["Total loans","","7,257.3","","","276.6","","","3.81","","","9,160.4","","","358.3","","","3.91","","","9,531.6","","","447.0","","","4.69"],["Investment securities (2)(3)","","2,283.6","","","49.4","","","2.16","","","1,845.2","","","54.6","","","2.96","","","1,846.9","","","62.6","","","3.39"],["Short-term investments and loans held for sale (4)","","1,619.4","","","2.3","","","0.58","","","767.2","","","4.4","","","0.64","","","335.3","","","13.4","","","4.01"],["Mid-Atlantic region loans held for sale","","179.5","","","7.1","","","3.97","","","25.2","","","0.4","","","1.07","","","\u2014","","","\u2014","","","\u2014"],["Total interest-earning assets","","11,339.8","","","335.4","","","2.60","","","11,798.0","","","417.7","","","3.55","","","11,713.8","","","523.0","","","4.47"],["Intangible assets","","32.0","","","","","","","316.1","","","","","","","578.1"],["Other non-interest earning assets (4)","","684.1","","","","","","","747.1","","","","","","","669.1"],["Total assets","","$","12,055.9","","","","","","","$","12,861.2","","","","","","","$","12,961.0"],["Liabilities and shareholders' equity"],["Deposits:"],["NOW and other","","$","1,340.2","","","$","1.0","","","0.07","%","","$","1,216.6","","","$","3.5","","","0.29","%","","$","1,053.9","","","$","6.5","","","0.62","%"],["Money market","","2,749.7","","","5.3","","","0.19","","","2,713.6","","","15.3","","","0.56","","","2,542.6","","","31.4","","","1.23"],["Savings","","1,067.7","","","0.5","","","0.05","","","914.1","","","0.9","","","0.10","","","798.2","","","1.2","","","0.15"],["Certificates of deposit","","1,978.9","","","18.6","","","0.94","","","3,102.9","","","52.5","","","1.69","","","3,754.2","","","76.1","","","2.03"],["Total interest-bearing deposits","","7,136.5","","","25.4","","","0.36","","","7,947.2","","","72.2","","","0.91","","","8,148.9","","","115.2","","","1.41"],["Borrowings and notes (5)","","320.2","","","10.7","","","3.34","","","841.6","","","20.7","","","2.46","","","1,115.5","","","32.4","","","2.91"],["Mid-Atlantic region interest-bearing deposits","","335.1","","","1.8","","","0.54","","","45.0","","","0.1","","","0.80","","","\u2014","","","\u2014","","","\u2014"],["Total interest-bearing liabilities","","7,791.8","","","37.9","","","0.49","","","8,833.8","","","93.0","","","1.06","","","9,264.4","","","147.6","","","1.59"],["Non-interest-bearing demand deposits","","2,817.4","","","","","","","2,324.6","","","","","","","1,745.2"],["Other non-interest-bearing liabilities (4)","","280.9","","","","","","","281.4","","","","","","","257.1"],["Total liabilities","","10,890.1","","","","","","","11,439.8","","","","","","","11,266.7"],["Total shareholders' equity","","1,165.8","","","","","","","1,421.4","","","","","","","1,694.3"],["Total liabilities and equity","","$","12,055.9","","","","","","","$","12,861.2","","","","","","","$","12,961.0"],["Net interest income","","","","$","297.5","","","","","","","$","324.7","","","","","","","$","375.4"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","2021","","2020","","2019"],["(Dollars in millions)","","Average Balance","","Interest","","Average Yield/ Rate","","Average Balance","","Interest","","Average Yield/ Rate","","Average Balance","","Interest","","Average Yield/ Rate"],["Net interest spread","","","","","","2.12","%","","","","","","2.49","%","","","","","","2.88","%"],["Net interest margin (6)","","","","","","2.60","","","","","","","2.72","","","","","","","3.17"],["Cost of funds","","","","","","0.35","","","","","","","0.84","","","","","","","1.34"],["Cost of deposits","","","","","","0.26","","","","","","","0.71","","","","","","","1.16"],["Interest-earning assets/interest-bearing liabilities","","","","","","149.67","","","","","","","133.95","","","","","","","126.44"],["Supplementary data"],["Total non-maturity deposits","","$","7,975.0","","","","","","","$","7,168.9","","","","","","","$","6,139.9"],["Total deposits","","9,954.0","","","","","","","10,271.8","","","","","","","9,894.1"],["Fully taxable equivalent adjustment","","6.3","","","","","","","6.4","","","","","","","7.5"]]
[[/GREPCENT_TABLE]]

____________________________________

Notes:

(1) The average balances of loans include nonaccrual loans, and deferred fees and costs. As of December 31, 2021 and December 31, 2020, deferred fees related to PPP loans totaled $0.2 million and 12.3 million, respectively.

(2) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.

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

(4) Includes discontinued operations.

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

(6) Purchase accounting accretion totaled $6.7 million, $9.9 million, and $14.5 million for the years-ended December 31, 2021, 2020, and 2019, respectively. The effect of purchase accounting accretion on the net interest margin was an increase in all years, which is shown sequentially as follows beginning with the most recent year and ending with the earliest year: 0.09%, 0.12%, and 0.22%.

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Rate/Volume Analysis

The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate), and (3) changes in volume/rate (change in rate multiplied by change in volume) have been allocated proportionately based on the absolute value of the change due to the rate and the change due to volume. There are no out-of-period adjustments included in the rate/volume analysis in the following table.

Item 7 - Table 4 - Rate Volume Analysis

[[GREPCENT_TABLE]]
[["","","2021 Compared with 2020","","2020 Compared with 2019"],["","","(Decrease) Increase Due to","","(Decrease) Increase Due to"],["(In thousands)","","Rate","","Volume","","Net","","Rate","","Volume","","Net"],["Interest income:"],["Commercial real estate","","$","(14,027)","","","$","(13,071)","","","$","(27,098)","","","$","(45,193)","","","$","8,096","","","$","(37,097)"],["Commercial and industrial loans","","7,962","","","(23,913)","","","(15,951)","","","(27,008)","","","3,561","","","(23,447)"],["Residential loans","","(762)","","","(28,622)","","","(29,384)","","","2,017","","","(14,907)","","","(12,890)"],["Consumer loans","","704","","","(10,014)","","","(9,310)","","","(6,575)","","","(8,592)","","","(15,167)"],["Total loans","","(6,123)","","","(75,620)","","","(81,743)","","","(76,759)","","","(11,842)","","","(88,601)"],["Investment securities","","(16,598)","","","11,341","","","(5,257)","","","(7,945)","","","(57)","","","(8,002)"],["Short-term investments and loans held for sale (1)","","(5,508)","","","2,980","","","(2,528)","","","(16,924)","","","8,297","","","(8,627)"],["Mid-Atlantic region loans held for sale","","(1,480)","","","8,600","","","$","7,120","","","\u2014","","","\u2014","","","\u2014"],["Total interest income","","$","(29,709)","","","$","(52,699)","","","$","(82,408)","","","$","(101,628)","","","$","(3,602)","","","$","(105,230)"],["Interest expense:"],["NOW accounts","","$","(2,832)","","","$","327","","","$","(2,505)","","","$","(3,835)","","","$","882","","","$","(2,953)"],["Money market accounts","","(10,259)","","","201","","","(10,058)","","","(18,043)","","","1,985","","","(16,058)"],["Savings accounts","","(536)","","","137","","","(399)","","","(409)","","","156","","","(253)"],["Certificates of deposit","","(18,740)","","","(15,233)","","","(33,973)","","","(11,486)","","","(12,093)","","","(23,579)"],["Total deposits","","(32,367)","","","(14,568)","","","(46,935)","","","(33,773)","","","(9,070)","","","(42,843)"],["Borrowings","","5,691","","","(15,702)","","","(10,011)","","","(4,553)","","","(7,206)","","","(11,759)"],["Mid-Atlantic region interest-bearing deposits","","814","","","1,005","","","$","1,819","","","\u2014","","","\u2014","","","\u2014"],["Total interest expense","","$","(26,676)","","","$","(30,270)","","","$","(55,127)","","","$","(38,326)","","","$","(16,276)","","","$","(54,602)"],["Change in net interest income","","$","(3,033)","","","$","(22,429)","","","$","(27,281)","","","$","(63,302)","","","$","12,674","","","$","(50,628)"]]
[[/GREPCENT_TABLE]]

(1) Includes discontinued operations.

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NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP adjusted earnings information set forth is not necessarily comparable to non-GAAP information which may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information.

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations. These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations.

In 2021, the Company recorded a third quarter net gain of $52 million on the sale of the operations of the insurance subsidiary and the Mid-Atlantic branch operations. Expense adjustments in the first quarter 2021 were primarily related to branch consolidations. Third quarter 2021 adjustments included Federal Home Loan Bank borrowings prepayment costs. They also included other restructuring charges for efficiency initiatives in operations areas including write-downs on real estate moved to held for sale and severance related to staff reductions. The fourth quarter 2021 revenue adjustment was primarily related to trailing revenue on a previously reported sale, and the expense adjustment was due primarily to branch restructuring costs.

Discontinued operations are the Company’s national mortgage banking operations for which the Company completed the wind down of operations in 2020. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees. There were no merger costs in 2020 and merger costs in 2019 are primarily related to the acquisition of SI Financial Group, Inc. in May 2019. Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales. Restructuring costs also include severance and consulting expenses related to the Company’s strategic review. They also include costs related to the consolidation of branches. Restructuring expense and other for 2020 primarily related to executive separation expense as a result of the CEO transition. Restructuring expense and other for 2019 primarily related to branch consolidations.

The Company calculates certain profitability measures based on its adjusted revenue, expenses, and earnings. The Company also calculates adjusted earnings per share based on its measure of adjusted earnings. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.

Due to the anticipated earnings volatility resulting from loan loss provisions reflecting changes in estimates of uncertain future economic conditions under the new CECL accounting standard, many users of bank financial statements are focusing on Pre-Provision Net Revenue (“PPNR”). This is a measure of revenue less expenses, and is calculated before the loan loss provision and income tax expense. This measure gives clearer visibility of the operations of the company during the periods presented in the income statements, without the impact of period-end estimates of future uncertain events. This measure also enhances comparisons of operations across different banks, which might have significantly different period-end estimates of uncertain future economic conditions that affect the loan loss provision. Consistent with its previous practices measuring results on an adjusted basis before the impacts of acquisitions, divestitures, and other designated items, the Company has introduced the measure of Adjusted Pre-Provision Net Revenue (“Adjusted PPNR”) which measures PPNR excluding adjustments for items not viewed as

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related to ongoing operations. This measure is now integral to the Company’s analysis of its operations, and is not viewed as a substitute for GAAP measures of net income. Analysts also use this measure in assessing the Company’s operations and in making comparisons across banks. The Company and analysts also measure Adjusted PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability. This measure primarily relies on the measures of adjusted revenue and adjusted expense already used in the Company’s calculation of its efficiency ratio.

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

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

[[GREPCENT_TABLE]]
[["","","","","At or For the Years Ended"],["(Dollars in thousands)","","","","","","December 31, 2021","","December 31, 2020","","December 31, 2019"],["GAAP Net income/(loss)","","","","","","$","118,664","","","$","(533,017)","","","$","97,450"],["Non-GAAP measures"],["Adj: Loss/(gain) on securities, net","","","","","","787","","","7,520","","","(4,389)"],["Adj: Goodwill impairment","","","","","","\u2014","","","553,762","","","\u2014"],["Adj: Net gains on sale of business operations","","","","","","(52,942)","","","(1,240)","","","\u2014"],["Adj: Acquisition, restructuring, conversion, and other related expenses (1)","","","","","","5,781","","","5,839","","","28,046"],["Adj: Loss from discontinued operations before income taxes","","","","","","\u2014","","","26,855","","","5,539"],["Adj: Income taxes","","","","","","11,696","","","(29,342)","","","(7,799)"],["Net non-operating charges","","","","","","(34,678)","","","563,394","","","21,397"],["Total adjusted net income (non-GAAP)","","","","","","$","83,986","","","$","30,377","","","$","118,847"],["GAAP Total revenue from continuing operations","","","","","","$","434,414","","","$","383,089","","","$","449,260"],["Adj: Loss/(gain) on securities, net","","","","","","787","","","7,520","","","(4,389)"],["Adj: Net gains on sale of business operations","","","","","","(52,942)","","","(1,240)","","","\u2014"],["Total adjusted operating revenue (non-GAAP)","","","","","","$","382,259","","","$","389,369","","","$","444,871"],["GAAP Total non-interest expense from continuing operations","","","","","","$","285,893","","","$","840,239","","","$","289,857"],["Less: Total non-operating expense (see above)","","","","","","(5,781)","","","(5,839)","","","(28,046)"],["Less: Goodwill impairment","","","","","","\u2014","","","(553,762)","","","\u2014"],["Adjusted operating non-interest expense (non-GAAP)","","","","","","$","280,112","","","$","280,638","","","$","261,811"],["Pre-tax, pre-provision net revenue (PPNR) from continuing operations","","","","","","$","148,521","","","$","(457,150)","","","$","159,403"],["Adjusted pre-tax, pre-provision net revenue (PPNR)","","","","","","102,147","","","108,731","","","$","183,060"],["(in millions, except per share data)"],["Total average assets","","","","","","$","12,056","","","$","12,861","","","$","12,961"],["Total average shareholders' equity","","","","","","1,166","","","1,421","","","1,694"],["Total average tangible shareholders equity","","","","","","1,134","","","1,105","","","1,116"],["Total average tangible common shareholders equity","","","","","","1,134","","","1,088","","","1,076"],["Total tangible shareholders\u2019 equity, period-end","","","","","","1,153","","","1,153","","","1,159"],["Total tangible common shareholders\u2019 equity, period-end","","","","","","1,153","","","1,153","","","1,119"],["Total tangible assets, period-end","","","","","","11,525","","","12,803","","","12,613"],["Total common shares outstanding, period-end (thousands)","","","","","","48,667","","","50,833","","","49,585"],["Average diluted shares outstanding (thousands)","","","","","","49,554","","","50,308","","","49,421"],["Earnings/(loss) per share, diluted","","","","","","$","2.39","","","$","(10.60)","","","$","1.97"],["Plus: Net adjustments per share, diluted","","","","","","(0.70)","","","11.20","","","0.43"],["Adjusted earnings per share, diluted","","","","","","1.69","","","0.60","","","2.40"],["Book value per common share, period-end","","","","","","24.30","","","23.37","","","34.65"],["Tangible book value per common share, period-end","","","","","","23.69","","","22.68","","","22.56"],["Total shareholders' equity/total assets","","","","","","10.23","","","9.25","","","13.31"],["Total tangible shareholders' equity/total tangible assets","","","","","","10.00","","","9.01","","","9.19"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","","","At or For the Years Ended"],["(Dollars in thousands)","","","","","","December 31, 2021","","December 31, 2020","","December 31, 2019"],["Performance Ratios"],["GAAP return on assets","","","","","","0.98","%","","(4.15)","%","","0.75","%"],["Adjusted return on assets","","","","","","0.70","","","0.24","","","0.93"],["GAAP return on equity","","","","","","10.18","","","(37.46)","","","5.75"],["Adjusted return on equity","","","","","","7.20","","","2.14","","","7.01"],["Adjusted return on tangible common equity","","","","","","7.74","","","3.18","","","11.35"],["Efficiency ratio (2)","","","","","","69.96","","","68.53","","","55.63"],["Supplementary Data (in thousands)"],["Tax benefit on tax-credit investments","","","","","","$","4,372","","","$","4,699","","","$","7,950"],["Non-interest income charge on tax-credit investments","","","","","","(3,445)","","","(3,645)","","","(6,455)"],["Net income on tax-credit investments","","","","","","928","","","1,054","","","1,495"],["Intangible amortization","","","","","","5,200","","","6,181","","","5,783"],["Fully taxable equivalent income adjustment","","","","","","6,344","","","6,402","","","7,451"]]
[[/GREPCENT_TABLE]]

____________________________________

(1)Acquisition, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years -ended December 31, 2021, and 2020. For the year-ended 2019, these expenses included $18.7 million in merger and acquisition expenses and $9.3 million of restructuring, conversion, and other expenses.

(2)Efficiency ratio is computed by dividing total core tangible non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income adjusted to include tax credit benefit of tax shelter investments. The Company uses this non-GAAP measure to provide important information regarding its operational efficiency.

GENERAL

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

The objectives of this section are:

•To provide a narrative explanation of the Company’s financial statements that enables investors to see the company through the eyes of management;

•To enhance the financial disclosure and provide the context within which financial information should be analyzed; and

•To provide information about the quality of, and potential future variability of, the Company’s earnings and cash flow.

This discussion includes the following sections:

•Summary

•Comparison of Financial Condition at December 31, 2021 and 2020

•Comparison of Operating Results for the Years Ended December 31, 2021 and 2020

•Comparison of Operating Results for the Years Ended December 31, 2020 and 2019

•Liquidity and Cash Flows

•Capital Resources

•Application of Critical Accounting Policies

•Enterprise Risk Management

•LIBOR Transition

•Corporate Responsibility Update

The following discussion and analysis should be read in conjunction with the Company’s financial statements and the notes thereto appearing in Item 8 of this document. In the following discussion, income statement comparisons

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are against the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2022 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share, including the dilutive impact of the convertible preferred shares.

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

SUMMARY

The Company’s vision is to be a high performing, leading socially responsible community bank in New England and beyond. It offers a wide range of banking, investment, and financial services through its lines of business that include Commercial Banking, Retail Banking, Consumer Lending, Wealth Management, Private Banking, and its 44 Business Capital national SBA lending division. Berkshire is committed to unleashing the financial potential of all its stakeholders by leveraging its 175 years of expertise, leading performance on environmental, social and governance (ESG) matters and best-in-class fintech partnerships. Its differentiated DigiTouch™ approach, a powerful combination of personal service, including its MyBanker program, fused with the convenience of user-centric technology, targets high customer satisfaction and a frictionless experience.

The ongoing COVID-19 global pandemic continued to impact the Company’s activities and results in 2021. Business and consumer activity were recovering from the sharp downturn in 2020 but remained constrained by the impact of the pandemic. The Company’s markets generally reported comparatively high vaccination rates, but the emergence of new variants created disruptions throughout the year. Labor and supply shortages affected many sectors in the economy. The emergence of inflation led to expectations of a reversal of accommodative monetary policy near year-end, which had supported higher asset values across many financial and other property classes. Further federal fiscal support early in the year buoyed ongoing liquidity across the economy, and credit performance remained positive and improving throughout the year. The Company’s retail branch offices were intermittently affected by closures or reduced operations. Its non-branch workforce remained in a work-from-home status throughout the year as the Company continued to plan its transition to a hybrid work environment.

Berkshire reported net income of $119 million in 2021, compared to a loss of $533 million in 2020 and net income of $97 million in 2019. The loss in 2020 was primarily due to pandemic impacts leading to the write-off of goodwill and elevated provisioning for expected credit losses. Net income in 2021 included the benefit of lower credit loss provision expense reflecting strong credit performance. Results in 2021 also included gains recorded on the sale of Mid-Atlantic branches and insurance operations which were part of the Company’s strategy to focus on core markets and return excess equity to shareholders.

The Company uses the non-GAAP measure of adjusted earnings to assess its performance. This measure excludes items not viewed as related to ongoing operations. These items were presented and reconciled to GAAP measures in a previous section of this Item 7. Adjusted earnings were $84 million in 2021, compared to $30 million in 2020 and $119 million in 2019. The decrease in 2021 adjusted earnings compared to the pre-pandemic year of 2019 is a result of pandemic, economic, and operating factors leading to lower operating leverage. The Company’s BEST strategic plan goal, discussed below, is to restore operating leverage through revenue growth and expense discipline and to improve efficiencies based on its operating focus and technology initiatives.

Net income per share totaled $2.39 in 2021, and adjusted earnings per share totaled $1.69. For the year 2021, book value per share increased by 4% to $24.30, and the non-GAAP measure of tangible book value per share also increased by 4% to $23.69.

The Company’s Board of Directors recruited Nitin Mhatre as Chief Executing Officer in January 2021, completing the transition following the resignation of the previous CEO in August 2020. During the first quarter of 2021, the

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Company recruited Subhadeep Basu as SEVP/ Chief Financial Officer, replacing the prior CFO who resigned during the quarter. Also, during 2021, following the departure of the SEVP/Head of Consumer Banking, the Company recruited Lucy Bellomia as EVP/Head of Retail Banking and Ellen Steinfeld as EVP/Head of Consumer Lending and Payments. During 2021, Board Chair J. Williar Dunlaevy retired from the board, and Vice Chair David Brunelle was elected to the position of Board Chair. Three new directors joined the Board during the year: Nina A. Charnley, Jeffrey W. Kip, and Michael A. Zaitzeff.

In the second quarter of 2021, the Company announced its Berkshire’s Exciting Strategic Transformation (BEST) plan. The comprehensive BEST plan is targeted to improve the customer experience, deliver profitable growth, enhance stakeholder value and strengthen Berkshire’s community impact with improved focus on long-term efficiency, its customers, and its communities. The BEST plan has five major goals over the three-year plan period:

•Return On Tangible Common Equity (ROTCE): 10 - 12%

◦2021 Return on tangible common equity was 10.80%; Adjusted ROTCE was 7.74%

•Return on Assets (ROA): 1.00 – 1.05%

◦2021 ROA was 0.98%; Adjusted ROA was 0.70%

•Annual Pre-tax Pre-Provision Net Revenue (PPNR): $180 - 200 million

◦2021 PPNR was $149 million; adjusted PPNR was $102 million

•Net Promoter Score (NPS) in top quartile among New England banks

◦NPS measures customer experience and is correlated with business growth potential

◦NPS measure to be initiated in 2022

•ESG ranking in the top quartile nationally based on composite metrics tracked by the Company

◦ESG percentile ranking improved from 39th at year-end 2020 to 24th at year-end 2021

The plan has three major pillars; optimize, digitize, and enhance, outlined below along with the Company's 2021 accomplishments:

•Optimize

◦Completed the sale of its Mid-Atlantic branch operations, sold insurance operations, and consolidated 16 branch locations.

◦Procurement programs were widely initiated throughout the company.

◦Excess real estate was identified and designated as held for sale.

◦A third-party partnership was entered into for residential mortgage servicing.

•Digitize

◦Built out Application Programming Interfaces (APIs) to core systems.     

◦Data warehouse technology was enhanced and enterprise analytics were expanded.

◦A mobile deposit application was deployed to customers through a fintech partnership.

◦A third-party fintech partnership was entered into for internet and mobile consumer loan origination.

•Enhance

◦Front-line bankers were recruited across multiple business lines.

◦Socially responsible wealth management investment solutions were introduced.

◦A residential mortgage origination conduit was initiated with third-party in-market bank partners.

◦A 5% share repurchase was completed and a new repurchase program for additional buybacks was announced after year-end for approximately 9% of outstanding shares.

In the third quarter, Berkshire announced its BEST Community Comeback initiative that targets to lend and invest $5 billion over three years to strengthen the economic health of its communities, an industry-leading commitment given the relative size of the program and the Bank. This initiative includes specific targets for small business lending, lending in low and moderate income neighborhoods, mortgage lending to minorities, and lending for low-

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carbon projects amongst other non-financial measures. The plan is expected to help create more businesses and jobs, assist more families in achieving the dream of homeownership and support the transition to a low-carbon economy.

Berkshire resumed commercial loan growth in the fourth quarter of 2021 after a number of quarters of attrition from targeted run-off and lower demand. Growth of non-interest-bearing deposit account balances totaled 21% in 2021. The Company used excess liquidity to reduce higher cost wholesale funds and to increase the portfolio of investment securities. At year-end 2021, the Company viewed itself as having excess liquidity to support plans for resumed loan growth, further reductions in higher cost funds, and stock repurchases in the coming year.

The Company ended 2021 with cash and cash equivalents measuring 14% of total assets, contributing to strongly positive earnings sensitivity to higher interest rates. These low yielding assets reduced profitability metrics in 2021 but positioned the Company to benefit from forecast higher interest rates in 2022 and beyond. In addition to its $1.6 billion in year-end cash and equivalents, the Company also had $3.4 billion in loans with scheduled repricings within three months.

At year-end 2021, many of the Company’s asset quality and credit performance metrics had returned to pre-pandemic levels. The Company reduced the level of its credit loss allowance/loans in the fourth quarter and anticipated possible further normalization of reserve coverage if public health and economic conditions continued to support strong credit performance.

In 2021, Berkshire established a new banking region in Southern Connecticut and recruited a veteran Connecticut banking professional as SVP, Regional President & Middle Market Team Leader in Southern Connecticut, based in New Haven. The Company also opened a new Commercial Banking office in Providence, Rhode Island to complement and expand its existing Rhode Island presence. The Company also hired experienced frontline bankers in its growing Commercial Banking, SBA Lending, Asset-Based Lending, Wealth Management, Private Banking, and MyBanker teams.

The Company believes that merger activities among major local competitors provide opportunity for customer and talent acquisition over the near and medium term. The Company’s strategy is to be “banker heavy and branch light” in newer markets. The Company’s goal is to produce positive operating leverage through revenue growth and disciplined expense management utilizing expanded market channels, it’s 175 year history of community focus and it’s Digitouch™ strategy which combines personal service with the convenience of user-friendly technology.

The Company reduced its total branch banking offices from 130 offices at the start of the year to 106 offices at year-end 2021, including the 8 Mid-Atlantic offices sold and the consolidation of 16 other offices. The Company is considering the further consolidation of another 5 - 10 branches. Berkshire executed this plan in conjunction with the expansion of its MyBanker concierge style banking program. Deposit retention in the consolidated branches is regarded as high in part due to the MyBanker program,

At year-end 2021, forecasts of economic and public health conditions were supportive of the prospects for continued improvement in the Company’s markets. While uncertainties remain about the course of public health and government programs that have supported the economy during the pandemic, the Company views itself as positioned with excess capital and excess liquidity to support its strategies. Price inflation has recently reached levels not seen in four decades, and interest rate levels are expected to increase sharply after years of low interest rates. The Company’s income is targeted to benefit from higher rates based on its asset sensitive interest rate sensitivity profile.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2021 AND DECEMBER 31, 2020

Summary: Total assets decreased to $11.6 billion from $12.8 billion during 2021. This included the $0.6 billion impact of the sale of the Mid-Atlantic branch operations, along with the impact of $0.6 billion in Paycheck Protection Program (“PPP”) loan payoffs. Cash and cash equivalents increased to 14% of total assets, contributing to heightened asset sensitivity which is expected to benefit income in the forecast rising rate environment. The ratio of loans to deposits decreased to 68% from 79%, and the regulatory ratio of common equity tier 1 capital to risk-weighted assets increased to 15.0% from 13.8%. Most major measures of asset quality strengthened as economic

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conditions improved from distressed pandemic conditions, with many measures returning to pre-pandemic levels. The Company paid down most higher cost wholesale funding which, along with ongoing repricing of maturing retail time deposits, continued to lower overall funding costs and support the net interest margin. Stock repurchases were resumed in 2021 following a pause in 2020 and are targeted to accelerate in 2022.

Investments: Short-term investments remained elevated at $1.52 billion, or 14% of earning assets at year-end 2021.

These funds are available for ongoing payoffs of remaining maturing brokered deposits and are available to fund targeted net loan growth in 2022, as well as potential increases in the investment securities portfolio. Most short-term investments are held at the Federal Reserve Bank of Boston. The yield on short-term investments was approximately 0.17% in the final quarter of 2021, which brought down the overall yield on earning assets and the return on assets until the planned opportunity to source higher yielding loans and investments in 2022.

The portfolio of investment securities increased by $325 million, or 15%, to $2.55 billion in 2021, with much of this growth recorded in the fourth quarter in order to avoid further accumulation of low yielding short-term investments.

Growth was concentrated in agency mortgage-backed securities. Approximately 53% of the net growth was in held to maturity securities in order to limit negative impacts on accumulated other comprehensive income in shareholders’ equity if rising rates lead to bond price declines which would result in charges to shareholders’ equity. The portfolio is highly liquid, with an average life of 4.6 years for the bond portfolio at period-end. The portfolio yield decreased to 2.04% in the fourth quarter of 2021 from 2.69% in the fourth quarter of 2020, due to ongoing compression of asset yields.

The portfolio of investment securities had an unrealized gain of $6 million, or 0.2% 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 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 by $1.3 billion, or 16% in 2021, to $6.83 billion. This primarily reflected $0.6 billion in PPP loan pay-offs and $0.6 billion in run-off of residential mortgages and consumer loans. The PPP loan repayments were based on SBA loan forgiveness procedures and were anticipated. Excluding these loans, total commercial loans decreased by $74 million due to a $158 million decrease in commercial loans to COVID-sensitive industries.

Commercial loan growth turned positive in the final quarter of the year as new frontline bankers contributed to loan originations. This also contributed to a strengthening of the commercial loan pipeline at year-end.

At year-end 2021, non-owner occupied commercial real estate loans measured 223% of risk based capital, compared to the 300% federal regulatory monitoring guideline. Construction loans measured 26% of risk-based capital, compared to the 100% guideline. Included in commercial and industrial loans, the remaining balance of PPP loans was $30 million at year-end 2021, having declined from $633 million at the start of the year due to payoffs from SBA loan forgiveness. Also included in commercial and industrial loans are the asset-based lending loans managed by the Company’s growing ABL team in the Northeast and MidAtlantic. At year-end 2021, total C&I loans included $440 million of ABL balances, which was a 40% increase over the prior year-end. The Company’s 44 Business Capital national SBA lending group ranked 24th nationally for the SBA year ending September 30, 2021, with a total of $293 million in gross loans approved. The Company sells the SBA guaranteed portion of these loans, with the result that 44 Business Capital is one of the Company’s largest sources of non-interest income.

Residential mortgage runoff reflected ongoing prepayments in the low interest rate environment. Berkshire is expanding its mortgage origination team and is also developing conduit relationships with in-market third-party lenders. Consumer loan runoff primarily represents targeted run-off of the indirect auto loan portfolio. The balance of this portfolio was $110 million at year-end 2021, compared to $222 million at year-end 2020. In the fourth quarter of 2021, the Bank initiated a relationship with a leading artificial intelligence digital (AI) lending platform designed to improve access to affordable consumer credit while reducing the risk and costs of lending. The

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Company is investigating additional consumer lending channels as it pursues the strategies and goals set out in its BEST and Berkshire Community Comeback programs.

At year-end 2021, 50% of total loans were scheduled to mature or reprice within three months. contributing to the modeled asset sensitivity of the Company’s interest rate risk profile.

Asset Quality and Credit Loss Allowance: Major asset quality metrics improved in 2021, trending towards pre-pandemic levels. Total non-accruing loans decreased year-over-year and ended below the year-end 2019 pre-pandemic level, declining to $35 million and measuring 0.52% of period-end loans. Total delinquent loans decreased year-over-year and compared to year-end 2019, totaling $78 million and measuring 1.15% of year-end 2021 loans. Net loan charge-offs decreased compared to the prior two years, totaling $21 million in 2021 and measuring 0.29% of average loans in 2021. Accruing troubled debt restructurings totaled $17 million at year-end 2021 compared to $18 million at year-end 2020. Total COVID-19 loan modifications decreased to $14 million at year-end 2021 from approximately $1.5 billion in the second quarter of 2020 and $316 million at year-end 2020.

Criticized loans decreased year-over-year to $242 million, measuring 3.5% of total year-end 2021 loans. These included classified loans which decreased to $142 million, measuring 2.1% of year-end 2021 loans. The Company has traditionally viewed its potential problem loans as those 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 decreased year-over-year to $106 million at year-end 2021.

The allowance for credit losses on loans decreased by $21 million, or 17%, to $106 million during 2021. The ratio of the allowance to total loans measured 1.55%, compared to 1.58% at the start of the year. The 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 may decline in 2022, depending on economic and qualitative factors, and depending on the portfolio performance and mix.

The allowance is based on a methodology which considers historic loss rates for loans by collateral type and includes components for the impact of forecast economic conditions on loss rates, as well as an evaluation of qualitative factors including current period loan performance metrics and consideration of the benefit of government support in reducing possible loss rates. The economic forecast utilizes third-party base case projections and estimates credit loss impacts for the next seven quarters, with straight-line reversion to historical losses thereafter. The overall weighted average portfolio life was estimated at approximately 2.9 years at year-end 2021.

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, as well as prepaying most longer maturity FHLB borrowings. Total wholesale funds were reduced to $340 million, or 3% of total year-end 2021 assets, compared to $1.18 billion, or 9% of total assets at year-end 2020.

Total deposits decreased by $147 million, or 1%, to $10.07 billion during 2021. Excluding the $383 million decrease in brokered deposits, total deposits increased by $236 million, or 2%, in 2021. Non-interest-bearing demand deposits increased by $524 million, or 21%, including the benefit of federal stimulus payments in the Company’s markets, along with funds inflows from maturing retail time deposits. The Company entered the year with $1.77 billion in retail time deposits and repriced maturing time deposits down in the current low rate environment, with the result that retail time deposits decreased by $324 million, and most maturing funds were transferred to demand deposits and other deposit products, including savings deposits. Most of the remaining $1.45 billion remaining balance of retail time deposits at year-end 2021 was scheduled to mature in 2021, and the Company targets additional deposit cost savings on these maturing deposits.

The total cost of deposits decreased in the fourth quarter of 2021 to 0.19% from 0.47% in the same quarter of 2020. This mostly reflected the growth in non-interest-bearing checking accounts and the reduction and downward repricing of time deposits, which cost 0.80% compared to 1.35% for the above respective periods. The total cost of funds decreased to 0.26% from 0.60% for these periods and included the benefit from the paydown of borrowings.

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Other Assets and Liabilities: At year-end 2020, liabilities held for sale totaling $630 million and assets held for sale totaling $317 million included deposits and loans held for sale pursuant to the contract for the sale of the Mid-Atlantic branch operations. This sale was completed in the third quarter of 2021.

Derivative Financial Instruments: There were no material changes in the portfolio of outstanding derivative financial instruments, which totaled $3.8 billion in notional amount at period-end. The estimated fair value of these instruments was an asset of $43 million at period-end, which decreased from $94 million at year-end 2020 due to the impact of rising medium term interest rates on the value of outstanding commercial loan interest rate swaps.

Shareholders' Equity: Total shareholders’ equity was unchanged at $1.18 billion in 2021, as the contribution from net income was offset by shareholder distributions in the form of dividends and stock repurchases, along with a charge to accumulated other comprehensive net income due to lower debt investment security valuations related to higher medium interest rates at year-end. Due to the decline in assets, capital metrics improved year-over-year, with the common equity tier 1 capital ratio strengthening further to 15.0% from 13.8% at the start of the year. The Company’s BEST plan targets reducing this ratio to around 11% over time through loan growth and shareholder distributions of excess capital.

During the second quarter, Berkshire announced board authorization for the repurchase of 2.5 million shares, or approximately 5% of the then 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. After year-end, the Company announced the approval of another repurchase authorization through 2022 totaling $140 million, equating to approximately 9% of outstanding shares. The Company maintained its $0.12 per share quarterly dividend through 2021.

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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

Summary: Berkshire reported net income of $119 million, or $2.39 per share, in 2021, compared to a loss of $533 million, or $10.60 per share, in 2020. The loss in 2020 was primarily due to pandemic impacts leading to a $554 million pre-tax charge to write-off goodwill. The Company also recorded a $27 million pre-tax charge in 2020 as it completed the exit from discontinued national mortgage banking operations. In 2021, the Company recorded a pre-tax gain of $53 million on the sale of its Mid-Atlantic branch operations and its insurance operations.

The Company uses the non-GAAP measure of adjusted income to assess its performance, with component measures of adjusted revenue and adjusted expense. These measures exclude items not viewed as related to ongoing operations. In addition to the above items, the Company excludes securities gains and losses, other sale related gains and losses, and restructuring and other expense, together with related tax impacts, as discussed in the previous section on non-GAAP financial measures. Adjusted income totaled $84 million, or $1.69 per share, in 2021, compared to $30 million, or $0.60 per share, in 2020. Earnings in 2020 were depressed by $76 million in credit loss provision expense based on future loan loss expectations following the emergence of the pandemic.

Berkshire entered into an agreement to sell the operations of its eight mid-Atlantic branches in 2020 and completed the sale in the third quarter of 2021. During that quarter, the Company also announced and completed the sale of the operations of its insurance subsidiary. These operations were not viewed as central to the Company’s strategy. The sales produced $53 million in pre-tax gains which are planned to be returned to shareholders through the announced share buyback program. The operating expenses related to these sold operations are being reinvested in bankers and technology contributing to Berkshire’s BEST plan with a goal of replacing and expanding on the revenues previously related to these sold operations.

The return on tangible common equity measured 10.80% in 2021 and the non-GAAP measure of adjusted return on tangible common equity measured 7.74%. The Company’s BEST plan targets improving this measure to the 10 -12% range. Return on assets measured 0.98% in 2020, while the adjusted return on assets measured 0.70%. The Company’s BEST plan targets improving this measure to the 1.00 – 1.05% range.

Revenue: Total net revenue increased 13% year-over-year due to the gains on sales of operations. The non-GAAP measure of adjusted revenue excluding sale gains and losses, decreased year-over-year by $7 million, or 2%, to $382 million in 2021. A decrease in net interest income was partially offset by higher fee income. Contributing to this decrease were the four months of operating revenues related to the branch and insurance operations that were sold at the start of September. The Company targets to increase these revenues in 2022 based on expanded frontline bankers, increased business activity, and improved margins in the forecast environment of higher interest rates.

Net Interest Income: Net interest income decreased year-over-year by $26 million, or 8%. The Company recorded a $612 million, or 5%, decrease in average earning assets and a 4% decrease in the net interest margin to 2.60% in 2021 compared to 2.72% in 2020. The decrease in average earning assets was due to the use of funds from loan runoff to reduce wholesale funding, along with the impact of the sale of branch operations.

The net interest margin was generally stable over the last five quarters, ranging between 2.56% and 2.62% on a quarterly basis, and ending the year at 2.60 % in the fourth quarter of 2021. The full year decrease compared to 2020 was primarily due to the sharp contraction in the margin in the second quarter of 2020 as a result of the near-zero interest rate monetary policy. The margin in the first three quarters of 2021 included an average 9 basis point benefit from PPP loans due to elevated recognition of deferred PPP income at the time of loan repayment. There was no benefit in the fourth quarter due to the reduced PPP loan balance. The fourth quarter margin benefited from ongoing reduction in funding costs, along with higher investment securities balances. As discussed in the later section on interest rate sensitivity, the Company’s models indicate that the Company’s net interest income is positively sensitive to higher interest rates, based on conditions and model assumptions at year-end 2021. The Company also targets to benefit from maturing higher rate time deposits in 2022.

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Non-Interest Income: Total fee income increased year-over-year by $14 million, or 21%, due primarily to an $18 million increase in loan fees and revenue. This included a $9 million increase in revenue related to SBA loan originations, which totaled a record $21 million in 2021 after recovering from pandemic impacts on business volume in 2020. Fee revenue benefited from a decrease in fair value charges related to mortgage servicing rights and interest rate swaps which were elevated in 2020 after the plunge in interest rates resulting from federal monetary policy actions. Loan fees benefited by $2 million in 2021 from PPP loan referral fees recorded mostly in the first quarter of the year in relation to the second round of PPP loan support which the Company referred to a third-party.

Fee income also benefited in 2021 from a $2 million, or 7%, increase in deposit related fees and a $1 million, or 13%, increase in wealth management related revenue. This was offset by a $4 million reduction in insurance fee revenue due to the sale of these operations in the third quarter. Mortgage banking revenue decreased by $3 million, or 60%, as origination activity was reduced in 2021. Other non-interest income also benefited from an improvement related to fair valued loans resulting from charges in 2020 and recoveries in 2021.

The Company is actively expanding its SBA lending, mortgage banking, and wealth management teams as part of its strategy to build revenues and earnings and reduce reliance on net interest income. The Company is evaluating potential changes in industry practice related to overdraft fees which could reduce future deposit related fee income. Net overdraft fee income totaled $8 million in 2021.

Securities losses in 2020 were due primarily to pandemic related impacts on equity securities values. Gains on the sale of operations in 2021 were related to the previously described sales of branch operations and insurance operations.

Credit Loss Provision Expense: The Company recorded a $500 thousand credit to provision expense in 2021, compared to a $76 million charge in 2020. The elevated charge in 2020 was due to the provision for estimated credit losses projected to arise from the pandemic. In 2021, the credit to the provision resulted from a $21 million release of the credit loss allowance net of $21 million in net loan charge-offs. The allowance release was primarily due to the reduction in loan balances during the year.

Non-Interest Expense: Non-interest expense decreased year-over-year by $554 million due to the $554 million charge for the write-down of goodwill in 2020. Non-interest expense was flat before the impact of this charge and benefited from the third quarter sale of branch and insurance operations. Modest increases in compensation and technology expense were partially offset by lower occupancy expense. Lower salary expense was offset by higher performance-based compensation, which had been reduced in 2020 due to the pandemic. Professional services expense increased by $4 million, including $3 million accrued in the first quarter for legal, consulting, and other advisory services related to board and management matters. The category of all other expense decreased including the impact of higher lending and workout related charges in 2020. Procurement initiatives have been deployed across the company, contributing to lower expenses for occupancy and professional services towards the end of the year.

The Company completed the consolidation of 16 branch offices in 2021. Including the 8 Mid-Atlantic branches sold, total branch offices declined from 130 to 106, as the Company pursues its “branch light, banker heavy” strategy for front-line bankers in managing expansion and market positioning. This includes a focus on its MyBankers who provide dedicated relationship support to customers with committed banking relationships.

Full time equivalent staff totaled 1,319 positions at year-end 2021, compared to 1,505 positions at the start of the year. This decrease included 79 positions which were transferred in conjunction with the sale of insurance and branch operations. The Company designated a number of 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. Due to the revenue contraction, the efficiency ratio increased year-over-year to 69.96% from 68.53%.

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Income Tax Expense: Income taxes are discussed in a note to the financial statements; this note is important to an understanding of the results of operations. The Company recorded an effective income tax rate of 20% on income from continuing operations in 2021. The Company recorded a benefit to income tax expense in 2020 due to loss carrybacks resulting from the 2020 loss.

The 2021 effective tax rate included a 2.3% benefit from tax exemptions on investment securities. The effective tax rate was also reduced by 2.3% related to the Company’s tax credit investment projects for historic rehabilitation and low income housing. The Company reported $0.02 per share in net income benefit in both 2021 and 2020 related to investments in tax credit projects, net of amortization charges recorded to non-interest income. The Company actively pursues tax credit investment projects in its markets to provide financial support to community development projects as part of its overall banking services while also generating an appropriate return on the Bank’s investment.

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. These operations are excluded from the Company’s measures of adjusted net 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 $19 million in other net after-tax comprehensive income and the increase in medium term interest rates in 2021 resulted in a $34 million other net after-tax comprehensive loss.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Summary: Revenue and expense included the SI Financial operations acquired on May 17, 2019. Additionally, due to the COVID-19 pandemic Berkshire reported charges of $554 million for goodwill impairment and $76 million for the provision for credit losses. As a result, many categories of revenue and expense are not directly comparable year-over-year. For the year 2020, the Company recorded a loss of $533 million, or $10.60 per share. In 2019, the Company recorded earnings for the year of $97 million, or $1.97 per share.

Revenue: Revenue was adversely impacted by the pandemic in 2020, including the impact of lower business volumes, fee waivers, and tighter margins. Net revenue decreased by $66 million, or 15%, to $383 million in 2020. Revenue in 2020 included a full year of revenue from SI Financial operations acquired in May 2019. The full year decrease included a $48 million decrease in net interest income, a $7 million decrease in fee income, and a $12 million adverse swing in net securities gains/losses.

Net Interest Income: Net interest income decreased by $48 million, or 13% in 2020. This was the result of a 14% decrease in the net interest margin to 2.72% from 3.17%. The fourth quarter 2020 net interest margin was 2.61%. Quarterly net interest income peaked at $97 million in the third quarter of 2019, including the first full quarter of benefit from the acquired SI Financial operations. Net interest income decreased to $91 million in the fourth quarter of 2019 and then decreased sequentially in 2020 to $76 million in the final quarter. The margin was under pressure coming into 2020 due to the anticipated loss of purchased loan accretion income, including the impact of the CECL accounting standard. The Company’s interest rate risk profile was asset sensitive and was structurally sensitive both to the decrease in interest rates and to the low and relatively flat yield curve. The approximate 1.50% decrease in short-term interest rates resulting from the Federal Reserve Bank’s near zero interest rate policy response to the pandemic was adverse to the Company’s net interest margin. Additionally, the Company took on higher cost funds at the start of the pandemic to further strengthen liquidity in the national emergency as part of its risk management protocol. Also, the decline in higher yielding loans reduced this yield as the primary source of interest revenue.

Non-Interest Income: Fee income decreased year-over-year $7 million, or 9% due to pandemic impacts on deposit and loan fees. The decrease in deposit fees was due to pandemic impacts which resulted in less consumer spending and higher household liquidity. Additionally, overdraft fees and other deposit fees reflected increased fee waivers,

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which were granted programmatically by the Company as part of its support to its communities during initial lockdowns. The decrease in loan related fees included a reduction in commercial swap fee income due to lower demand, along with impacts from market value adjustments to the carrying value of commercial loan swaps. Other pandemic related market value adjustments affecting 2020 results related to charges against mortgage servicing rights and fair valued loans. Securities losses in 2020 were primarily due to the impact of the pandemic related stock market selloff on the carrying value of equity securities.

Provision for Credit Losses: In adopting the CECL accounting model on January 1, 2020, the Company moved from an incurred loss methodology to an expected loss methodology. Additionally, due to the emergence of the pandemic in March 2020, the Company recorded expected pandemic-related losses as provision expense against current period operations. Accordingly, provision expense increased year-over-year to $76 million from $35 million. The provision in 2019 included a component recognizing the incurred expense related to a $16 million charge-off in a fraud related commercial loan situation.

Non-Interest Expense: Total non-interest expense increased by $550 million due to the $554 million second quarter write-off of goodwill. Expenses in 2020 included a full year of the acquired SI Financial operations. Full time equivalent staff in continuing operations at year-end 2020 totaled 1,505, compared to 1,550 positions at the start of the year.

Income Tax Expense: The Company recorded a $20 million income tax benefit on 2020 continuing operations, including a benefit from the deductible portion of goodwill related impairment expense. In 2019, the Company’s effective tax rate was 18% on pre-tax income from continuing operations.

LIQUIDITY AND CASH FLOWS

Short-Term Liquidity: In 2021, the primary sources of cash were the decrease in total loans and the increase in demand deposits. The primary uses of cash were the reduction of wholesale funds, the settlement of the branch sale, and increases in short and long-term investments.

The Company viewed itself as having excess short-term liquidity at year-end 2021, with cash and equivalents totaling $1.6 billion, or 14% of total assets. The Company targets to use its excess liquidity in 2022 to fund growth in loans and investment securities, and to paydown higher cost funds sources. The Company also anticipates using liquidity to fund share repurchases under its $140 million stock repurchase program. Based on contractual obligations and ongoing operations, the Corporation's sources of liquidity are sufficient to meet present and future liquidity needs. Contractual obligations are viewed as normal in the context of banking operations, and consist primarily of payment schedules of financial instruments and off balance sheet commitments as discussed in the consolidated financial statements.

In addition to its cash and cash equivalents, the primary sources of the Company’s on balance sheet liquidity are its portfolio of high-quality marketable securities and the pledgeable loans in its loan portfolio. In addition to its on-balance sheet liquidity, the Bank has access to brokered deposits and to short-term credit availability. At year-end 2021, unused borrowing capacity at the FHLBB was $1.5 billion, and borrowing availability at the Fed discount window was $0.5 billion.

The Bank monitors a series of liquidity indicators and maintains monthly and quarterly forecasts of liquidity and cash flow, with primary focus on on-balance sheet cash equivalents and high-quality liquid investment securities in relation to scheduled debt and time deposit maturities. The Company views its liquidity as strong based on its high level of cash and equivalents and reduced use of wholesale funding.

The Company maintains a contingency funding plan based on its assessment of the liquidity stress environment. Primary liquidity data is reported on daily, and thirty-day stress analytics are maintained on an updated basis. A one year forward liquidity stress test evaluates stress across a variety of stress scenarios, including severe adverse loan loss scenarios due to the pandemic. The Company has defined strategic options which allow it to meet funding needs in all stress scenarios.

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Long-Term Liquidity: Over the long term, the Company expects to generate organic deposit growth that will fund organic loan growth. Operating earnings are expected to fund routine cash operating costs and capital expenditures. As a depository institution, the Bank maintains a high-quality liquid securities portfolio as a source of liquidity to service unexpected customer demand for loan advances or deposit withdrawals. Additionally, the aforementioned FHLBB and Federal Reserve Bank secured borrowing arrangements are maintained, and the Company and Bank have investment grade debt ratings from a Nationally Recognized Statistical Rating Organization (KBRA – Kroll Bond Rating Agency) to support access to public and institutional debt markets. The Company also is active in secondary markets for residential mortgages and SBA guaranteed loans, which support its organic growth without relying on internal liquidity and capital resources. The Company is monitoring for potential shifts in deposit sources as customer usage of traditional banking channels is also impacted by the spread of fintech alternatives. The Company’s strategy is to actively partner with fintechs to pursue a strong position in the evolving financial marketplace, while evolving its own technology to support these partnerships. The Company is also monitoring potential shifts in deposit demand if interest rates and inflation rise rapidly and pandemic related customer liquidity declines.

Parent Company Liquidity: Total cash held by the holding company was $109 million at year-end 2021. The Company targets to use cash at the holding company together with dividends from the Bank to fund holding company cash uses including modest operating expenditures, debt service, purchases of investments, shareholder dividends, and stock repurchases. A $50 million cash dividend was paid from the Bank to the parent company after year-end as an additional source of funds for stock repurchases. The holding company generally expects to maintain cash on hand equivalent to normal cash uses, including common stock dividends, for at least a one year period. Beginning in the third quarter of 2020, the Company cut its cash dividend to shareholders in half, reducing the quarterly cash dividend requirement from $12 million to $6 million. Bank dividends to the holding company presently require approval by the FDIC and the Massachusetts Division of Banks. The holding company’s goal is to maintain access to private and public credit markets to provide access to additional liquidity sources depending on conditions.

CAPITAL RESOURCES

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

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

The Company repurchased approximately 5% of its shares in 2021 and has approved an additional repurchase program for approximately 9% of its shares up to $140 million in 2022. The Company repurchased shares in 2019 but allowed a repurchase authorization to expire unused in 2020 due to the onset of the pandemic. In large measure, these repurchases represented a return of capital that became excess as a result of the reduction of certain business activities and loans, including targeted runoff of selected portfolios.

The Company’s long-term goal is to maintain a competitive capital stack and to provide a return in excess of the cost of its common equity capital. The Company’s tier 2 capital includes a $75 million subordinated note which converts to a floating rate and becomes callable as of September 2022. The Company will monitor capital markets conditions while assessing future plans for this capital. The Company maintains a universal shelf registration of capital securities with the SEC. The Company and Bank are investment grade rated by the KBRA bond rating service. The Company’s stock is traded on the New York Stock Exchange and the Company views itself as having good access to current capital markets.

The Company performs capital stress testing at least annually and has a general goal to remain qualifying for the “well capitalized” designation in the severely stressed scenario. The Company views its current stressed capital position as sound and conforming to its objectives.

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies and modifications to significant accounting policies made during the year are described in Note 1 to the financial statements. The preparation of the financial statements is in accordance with GAAP and general practices applicable to the financial services industry. This preparation requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates, assumptions, and judgements.

Not all significant accounting policies require management to make difficult, subjective or complex judgments. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. The following significant accounting policies are considered most critical in that they are important to the Company’s financial condition and results, and they require management’s subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. Both of these most critical accounting policies were significant in determining income and financial condition based on events in 2021.

Allowance for Credit Losses for Loans

The allowance for credit losses for loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACLL in those future periods.

The appropriateness of the ACLL could change significantly because current economic conditions and forecasts can change and future events are inherently difficult to predict. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. While management utilizes its best judgment and information available, the ultimate adequacy of our ACLL is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, and changes in interest rates. For detailed information on the ACLL see Note 1- Summary of Significant Accounting Policies and Note 7 – Loans and Allowance for Credit Losses.

Fair Value Measurements

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, impaired loans, securities available for sale, and derivatives. Our fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and capitalized servicing rights. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting or other accounting standards.

Management has established and documented a process for determining fair value. The use of observable inputs is maximized and the use of unobservable inputs is minimized when developing fair value measurements. Whenever

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there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our related valuation methodologies, see Note 1 – Summary of Significant Accounting Policies and Note 21 – Fair Value Measurements for more information.

ENTERPRISE RISK MANAGEMENT

Other sections of this report on Form 10-K include discussion of market risk and risk factors. Risk management is overseen by the Company’s Chief Risk Officer, who reports directly to the CEO. This position oversees risk management policy, credit, compliance, and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management and Capital Committee. The high level corporate risk assessment focuses on the following material business risks: credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk, with the credit risk category having the highest weighting. Based on management's recent review, all risks were within corporate appetites. For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company.

LIBOR TRANSITION

The Company’s use of LIBOR based instruments and the industry-wide transition program off of LIBOR are discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) of this report. The Company has in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations. These include loans priced off of LIBOR, as well as interest rate swap contacts including customer, dealer, and risk participation agreements.

The Financial Conduct Authority (“FCA”) presently intends to continue publishing most LIBOR indices through June 2023 for use with legacy instruments contracted in 2021 or before. The Company continues to develop and execute plans to transition instruments associated with LIBOR to alternative reference rates. The Company has approved the use of Term SOFR as the lead base case index to replace LIBOR for pricing of new contracts starting in 2022, with Daily Simple SOFR as an alternate. The Company continues to monitor additional index rates as they become available or are requested by customers or other counterparties.

CORPORATE RESPONSIBILITY UPDATE

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

Berkshire is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being a high performing, leading socially responsible community bank in New England and beyond. We’re a bank with a purpose: to empower the financial potential of individuals, families and businesses in our communities. We provide an ecosystem of socially responsible financial solutions, actively engage with our communities, and harness the power of our entire business to fuel the economy, promote thriving neighborhoods, foster financial access and success, and invest in a low-carbon future.

At Berkshire, our most important investment for 175 years has been the one we make in each other. We know that where you bank matters and building stronger communities requires a better approach to banking. As such, ESG factors are central to our vision, mission, risk management practices, and Berkshire’s Exciting Strategic Transformation (BEST).

BEST Community Comeback

We believe every community deserves a comeback. That’s why we launched the BEST Community Comeback in 2021, a transformational commitment to empower our stakeholders’ financial potential. The plan focuses on four key areas: fueling small businesses; community financing and philanthropy; financial access and empowerment; and funding environmental sustainability. Through this far-reaching initiative, Berkshire aims to help create more

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businesses and jobs, help more families achieve the dream of owning a home, and aid communities in becoming more environmentally efficient and eco-friendly.

Ongoing Pandemic Support

As 2021 continued to present new challenges, we remained committed to serving our customers and communities. We’re guided by our Be FIRST Values of Belonging, Focusing, Inclusion, Respect, Service, and Teamwork. These values fueled our efforts to navigate the pandemic with the goal of supporting the health and economic resiliency of all our stakeholders. During the height of the pandemic, Berkshire created the You FIRST employee assistance fund to help staff impacted by unexpected financial hardships, provided additional paid sick time, flexible work schedules for remote staff, and maintained full pay for those with reduced schedules as a result of the pandemic. Small businesses and consumers were helped with loan forbearances and government assistance programs. We also launched a fund to assist businesses in the LGBTQIA+ and Black, Indigenous and People of Color (BIPOC) communities.

ESG Program & Business Integration

We’re committed to integrating social, environmental and reputational considerations into all business decision making through our strong foundation of governance systems, including our Environmental, Social and Governance (ESG) Management Committee, Corporate Responsibility & Culture Committee of our Board of Directors, Diversity Equity & Inclusion Committee, Responsible & Sustainable Business Policy, and a strong collection of Social & Environmental risk management practices. Berkshire engages directly with its stakeholders to share information about the progress we’ve made 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, details the Company's ESG efforts and programs.

Ratings, Awards & Recognition

We’re proud to be recognized for our performance with local, regional, national, and international awards as well as leading third party ESG ratings* including:

•MSCI ESG- BBB

•ISS ESG Quality Score - Environment: 3, Social: 1, Governance: 2

•Bloomberg ESG Disclosure- 47.81

•The Company is also rated by Sustainalytics

•Banking Northeast Community Champion Award

•Communitas Award for Leadership in Corporate Social Responsibility

•Bloomberg Gender-Equality Index

•Human Rights Campaign Corporate Equality Index Best Place to Work for LGBTQ+ equality- 100% Score

*As of December 31, 2021

Climate Change

Climate Change poses unprecedented risks and opportunities to the world, including Berkshire, its customers and communities. The impacts which can occur from climate change can directly and/or indirectly impact the Company and its stakeholders. As the transition to a low-carbon economy accelerates, new policy emerges, and market dynamics shift, Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support the transition will allow it to strengthen its positioning as a high performing, leading socially responsible community bank. The Company continues to evolve its practices to reflect its community bank mission as well as the size, scope, and complexity of its operations.

Berkshire is actively managing climate related risks and opportunities at board, management and employee levels. The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight to environmental sustainability and Climate Change. All business risks are also integrated into our Enterprise Risk Management program and discussed by other applicable Board Committees including the Risk Management & Capital Committee. Both Committees report into the full board. Berkshire enhanced its governance over material

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environmental matters in 2021 by formalizing an Environmental, Social and Governance management committee and completing a formal climate change risk assessment to evaluate the bank’s operations and lending activities for potential exposure to transition and physical risks resulting from climate change.

The results of the risk assessment guide Berkshire’s forward climate management and environmental sustainability strategies to ensure its actively managing these risks and opportunities. It has set targets to help finance the green transition, reduce its Greenhouse Gas (GHG) emissions and source 100% of its electricity from renewable sources by the end of 2024. As the Company moves further along in its climate journey, it expects to continue to enhance its plans, disclosures, programs and initiatives to reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy. Further details on Berkshire’s Climate Change governance, risk management, strategy, metrics & targets and next steps can be found in its most recent Corporate Responsibility Report.

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