# Beacon Financial Corp (BBT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Beacon Financial Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1108134/000110813424000003/bhlb-20231231.htm
Accession: 0001108134-24-000003
Filing date: 2024-02-28
Report date: 2023-12-31
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/
Previous year: /company/BBT/mda/fy2022/ (FY 2022)
Next year: /company/BBT/mda/fy2024/ (FY 2024)

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)","","2023","","2022","","2021","","2020","","2019"],["Per Common Share Data:"],["Net earnings/(loss), diluted - continuing operations","","$","1.60","","","$","2.02","","","$","2.39","","","$","(10.21)","","","$","2.05"],["Net (loss), diluted - discontinued operations","","\u2014","","","\u2014","","","\u2014","","","(0.39)","","","(0.08)"],["Net earnings/(loss), diluted","","$","1.60","","","$","2.02","","","$","2.39","","","$","(10.60)","","","$","1.97"],["Total book value per common share","","23.27","","","21.51","","","24.30","","","23.37","","","34.65"],["Dividends","","0.72","","","0.54","","","0.48","","","0.72","","","0.92"],["Common stock price:"],["High","","31.52","","","31.78","","","29.16","","","33.04","","","33.72"],["Low","","18.07","","","23.62","","","16.35","","","8.55","","","26.02"],["Close","","24.83","","","29.90","","","28.43","","","17.12","","","32.88"],["Performance Ratios: (1)"],["Return on assets","","0.59","%","","0.82","%","","0.98","%","","(4.15)","%","","0.75","%"],["Return on equity, including unrealized losses on AFS securities","","7.07","","","8.70","","","9.96","","","37.15","","","5.73"],["Return on equity, excluding unrealized losses on AFS securities","","5.68","","","7.76","","","10.18","","","(37.50)","","","5.75"],["Return on tangible common equity, including unrealized losses on AFS securities (2)","","7.60","","","9.29","","","10.57","","","(46.88)","","","9.31"],["Return on tangible common equity, excluding unrealized losses on AFS securities (2)","","6.07","","","8.26","","","10.80","","","(48.60)","","","9.36"],["Net interest margin, fully taxable equivalent (\"FTE\") (3)","","3.27","","","3.26","","","2.60","","","2.72","","","3.17"],["Growth Ratios:"],["Total commercial loans","","5.66","%","","12.99","%","","(12.09)","%","","(4.58)","%","","9.19","%"],["Total loans","","8.45","","","22.11","","","(15.54)","","","14.95","","","5.08"],["Total deposits","","2.96","","","2.57","","","(1.44)","","","(1.16)","","","15.07"],["Earnings per share, (compared to prior year)","","(20.79)","","","(15.48)","","","122.55","","","(638.07)","","","(13.97)"],["Selected Financial Data:"],["Total assets","","$","12,430,821","","","$","11,662,864","","","$","11,554,913","","","$","12,838,013","","","$","13,215,970"],["Total earning assets","","11,704,515","","","10,913,069","","","10,899,109","","","12,089,939","","","11,916,007"],["Securities","","1,607,496","","","2,033,436","","","2,548,590","","","2,223,417","","","1,769,878"],["Total loans","","9,039,686","","","8,335,309","","","6,825,847","","","8,081,519","","","9,502,428"],["Allowance for credit losses","","(105,357)","","","(96,270)","","","(106,094)","","","(127,302)","","","(63,575)"],["Total intangible assets","","19,664","","","24,483","","","26,619","","","34,819","","","599,377"],["Total deposits","","10,633,384","","","10,327,269","","","10,068,953","","","10,215,808","","","10,335,977"],["Total borrowings","","506,586","","","125,509","","","110,844","","","571,637","","","827,550"],["Total shareholders\u2019 equity","","1,012,221","","","954,062","","","1,182,435","","","1,187,773","","","1,758,564"]]
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[[GREPCENT_TABLE]]
[["","","At or For the Years Ended December 31,"],["","","2023","","2022","","2021","","2020","","2019"],["Selected Operating Data:"],["Total interest and dividend income","","$","576,299","","","$","387,257","","","$","329,065","","","$","409,782","","","$","509,513"],["Total interest expense","","207,252","","","42,660","","","37,899","","","93,000","","","144,255"],["Net interest income","","369,047","","","344,597","","","291,166","","","316,782","","","356,258"],["Fee income","","65,281","","","63,995","","","84,462","","","69,990","","","76,824"],["All other non-interest income/(loss)","","(22,499)","","","4,942","","","58,786","","","(3,683)","","","7,178"],["Total net revenue","","411,829","","","413,534","","","434,414","","","383,089","","","449,260"],["Provision for credit losses","","31,999","","","11,000","","","(500)","","","75,878","","","35,419"],["Total non-interest expense","","301,508","","","288,716","","","285,893","","","840,239","","","289,857"],["Income/(loss) from continuing operations before income taxes","","78,322","","","113,818","","","149,021","","","(533,028)","","","123,984"],["Income tax expense/(benefit) from continuing operations","","8,724","","","21,285","","","30,357","","","(19,853)","","","22,463"],["Net income/(loss) from continuing operations","","69,598","","","92,533","","","118,664","","","(513,175)","","","101,521"],["(Loss)/income from discontinued operations before income taxes","","\u2014","","","\u2014","","","\u2014","","","(26,855)","","","(5,539)"],["Income tax (benefit)/expense from discontinued operations","","\u2014","","","\u2014","","","\u2014","","","(7,013)","","","(1,468)"],["Net (loss)/income from discontinued operations","","\u2014","","","\u2014","","","\u2014","","","(19,842)","","","(4,071)"],["Net income/(loss)","","$","69,598","","","$","92,533","","","$","118,664","","","$","(533,017)","","","$","97,450"],["Basic earnings/(loss) per common share:"],["Continuing operations","","$","1.61","","","$","2.03","","","$","2.41","","","$","(10.21)","","","$","2.06"],["Discontinued operations","","\u2014","","","\u2014","","","\u2014","","","(0.39)","","","(0.08)"],["Total basic earnings/(loss) per share","","$","1.61","","","$","2.03","","","$","2.41","","","$","(10.60)","","","$","1.98"],["Diluted earnings/(loss) per common share:"],["Continuing operations","","$","1.60","","","$","2.02","","","$","2.39","","","$","(10.21)","","","$","2.05"],["Discontinued operations","","\u2014","","","\u2014","","","\u2014","","","(0.39)","","","(0.08)"],["Total diluted earnings/(loss) per share","","$","1.60","","","$","2.02","","","$","2.39","","","$","(10.60)","","","$","1.97"],["Weighted average common shares outstanding - basic","","43,288","","","45,564","","","49,240","","","50,270","","","49,263"],["Weighted average common shares outstanding - diluted","","43,504","","","45,914","","","49,554","","","50,270","","","49,421"],["Dividends per preferred share","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","1.20","","","$","1.84"],["Dividends per common share","","$","0.72","","","$","0.54","","","$","0.48","","","$","0.72","","","$","0.92"],["Asset Quality and Condition Ratios: (4)"],["Net loans charged-off/average loans","","0.26","%","","0.27","%","","0.29","%","","0.41","%","","0.35","%"],["Allowance for credit losses/total loans","","1.17","","","1.15","","","1.55","","","1.58","","","0.67"],["Loans/deposits","","85","","","81","","","68","","","79","","","92"],["Capital Ratios:"],["Tier 1 capital to average assets - Company","","9.65","%","","10.18","%","","10.49","%","","9.38","%","","9.33","%"],["Total capital to risk-weighted assets - Company","","14.36","","","14.60","","","17.32","","","16.10","","","13.73"],["Tier 1 capital to risk-weighted assets - Company","","12.27","","","12.60","","","15.30","","","14.06","","","12.30"],["Shareholders\u2019 equity/total assets","","8.14","","","8.18","","","10.23","","","9.25","","","13.31"]]
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(1)  All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

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

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

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

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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 1 - Average Balance, Interest and Average Yields / Costs

[[GREPCENT_TABLE]]
[["","","2023","","2022","","2021"],["(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","","$","4,326.8","","","$","272.5","","","6.30","%","","$","3,836.2","","","$","167.6","","","4.37","%","","$","3,600.2","","","$","124.4","","","3.46","%"],["Commercial and industrial loans","","1,455.9","","","107.9","","","7.41","","","1,435.3","","","74.7","","","5.20","","","1,527.6","","","71.8","","","4.70"],["Residential loans","","2,512.3","","","98.1","","","3.91","","","1,784.2","","","63.3","","","3.55","","","1,560.4","","","58.4","","","3.75"],["Consumer loans","","518.5","","","37.8","","","7.29","","","556.8","","","32.1","","","5.77","","","569.1","","","22.0","","","3.87"],["Total loans","","8,813.5","","","516.3","","","5.86","","","7,612.5","","","337.7","","","4.44","","","7,257.3","","","276.6","","","3.81"],["Investment securities (2)(3)","","2,186.6","","","50.8","","","2.32","","","2,489.7","","","51.2","","","2.06","","","2,283.6","","","49.4","","","2.16"],["Short-term investments and loans held for sale (4)","","372.4","","","17.1","","","4.59","","","569.1","","","4.9","","","0.86","","","1,619.4","","","2.3","","","0.58"],["Mid-Atlantic region loans held for sale","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","179.5","","","7.1","","","3.97"],["Total interest-earning assets","","11,372.5","","","584.2","","","5.14","","","10,671.3","","","393.8","","","3.69","","","11,339.8","","","335.4","","","2.60"],["Intangible assets","","21.9","","","","","","","26.8","","","","","","","32.0"],["Other non-interest earning assets (4)","","443.2","","","","","","","518.2","","","","","","","708.8"],["Total assets","","$","11,837.6","","","","","","","$","11,216.3","","","","","","","$","12,080.6"],["Liabilities and shareholders' equity"],["Deposits:"],["Non-interest-bearing demand deposits","","$","2,584.6","","","$","\u2014","","","\u2014","%","","$","2,914.9","","","$","\u2014","","","\u2014","%","","$","2,817.4","","","$","\u2014","","","\u2014","%"],["NOW and other","","1,048.9","","","14.9","","","1.42","%","","1,416.7","","","6.1","","","0.43","%","","1,340.2","","","1.0","","","0.07","%"],["Money market","","2,727.3","","","65.6","","","2.40","","","2,809.1","","","13.8","","","0.49","","","2,749.7","","","5.3","","","0.19"],["Savings","","1,067.2","","","6.1","","","0.57","","","1,114.8","","","0.4","","","0.03","","","1,067.7","","","0.5","","","0.05"],["Certificates of deposit","","2,275.8","","","72.4","","","3.18","","","1,541.7","","","13.1","","","0.85","","","1,978.9","","","18.6","","","0.94"],["Total deposits","","9,703.8","","","159.0","","","1.64","","","9,797.2","","","33.4","","","0.34","","","9,953.9","","","25.4","","","0.26"],["Borrowings and notes (4)","","913.6","","","48.3","","","5.29","","","176.1","","","9.2","","","5.24","","","320.2","","","10.7","","","3.34"],["Mid-Atlantic region interest-bearing deposits","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","335.1","","","1.8","","","0.54"],["Total funding liabilities","","10,617.4","","","207.3","","","1.95","","","9,973.3","","","42.6","","","0.43","","","10,609.2","","","37.9","","","0.35"],["Other non-interest-bearing liabilities","","236.3","","","","","","","180.1","","","","","","","280.9"],["Total liabilities","","10,853.7","","","","","","","10,153.4","","","","","","","10,890.1"],["Total shareholders' equity","","983.9","","","","","","","1,062.9","","","","","","","1,190.5"],["Total liabilities and equity","","$","11,837.6","","","","","","","$","11,216.3","","","","","","","$","12,080.6"],["Net interest margin (5)","","","","","","3.27","","","","","","","3.26","","","","","","","2.60"],["Supplementary data"],["Net Interest Income, non FTE","","$","369.0","","","","","","","$","344.6","","","","","","","$","291.2"],["FTE income adjustment (6)","","7.9","","","","","","","6.6","","","","","","","6.3"],["Net Interest Income, FTE","","376.9","","","","","","","351.2","","","","","","","297.5"]]
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Notes:

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

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

(5) Purchase accounting accretion totaled $0.7 million, $2.0 million, and $6.7 million for the years-ended December 31, 2023, 2022, and 2021, 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: 0.01%, 0.02%, and 0.09%.

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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 2 - Rate Volume Analysis

[[GREPCENT_TABLE]]
[["","","2023 Compared with 2022","","2022 Compared with 2021"],["","","(Decrease) Increase Due to","","(Decrease) Increase Due to"],["(In thousands)","","Rate","","Volume","","Net","","Rate","","Volume","","Net"],["Interest income:"],["Commercial real estate","","$","81,238","","","$","23,568","","","$","104,806","","","$","34,681","","","$","8,582","","","$","43,263"],["Commercial and industrial loans","","32,105","","","1,086","","","33,191","","","7,397","","","(4,501)","","","2,896"],["Residential loans","","6,883","","","27,931","","","34,814","","","(3,179)","","","8,061","","","4,882"],["Consumer loans","","8,004","","","(2,329)","","","5,675","","","10,572","","","(482)","","","10,090"],["Total loans","","128,230","","","50,256","","","178,486","","","49,471","","","11,660","","","61,131"],["Investment securities","","6,239","","","(6,628)","","","(389)","","","(2,468)","","","4,316","","","1,848"],["Short-term investments and loans held for sale (1)","","14,416","","","(2,244)","","","12,172","","","4,968","","","(2,335)","","","2,633"],["Mid-Atlantic region loans held for sale","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(7,120)","","","(7,120)"],["Total interest income","","$","148,885","","","$","41,384","","","$","190,269","","","$","51,971","","","$","6,521","","","$","58,492"],["Interest expense:"],["NOW accounts","","$","6,380","","","$","2,324","","","$","8,704","","","$","5,053","","","$","62","","","$","5,115"],["Money market accounts","","59,450","","","(7,713)","","","51,737","","","8,402","","","116","","","8,518"],["Savings accounts","","5,299","","","453","","","5,752","","","(204)","","","23","","","(181)"],["Certificates of deposit","","60,555","","","(1,271)","","","59,284","","","(1,593)","","","(3,839)","","","(5,432)"],["Total deposits","","131,684","","","(6,207)","","","125,477","","","11,658","","","(3,638)","","","8,020"],["Borrowings","","8","","","39,111","","","39,119","","","4,568","","","(6,010)","","","(1,442)"],["Mid-Atlantic region interest-bearing deposits","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(1,820)","","","(1,820)"],["Total interest expense","","$","131,692","","","$","32,904","","","$","164,596","","","$","16,226","","","$","(11,468)","","","$","4,758"],["Change in net interest income","","$","17,193","","","$","8,480","","","$","25,673","","","$","35,745","","","$","17,989","","","$","53,734"]]
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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 operating earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP operating 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 operating 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, and restructuring costs.

In 2023, adjustments were primarily related to branch consolidations, severance charges related to a workforce reduction, and loss on sale of AFS securities. Starting in 2023, fair value adjustments on securities are included in operating income.

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

In 2021, the Company recorded a net gain of $52 million on the sale of the operations of the insurance subsidiary and the Mid-Atlantic branch operations. Expense adjustments in 2021 were primarily related to branch consolidations, borrowings prepayment costs, and restructuring charges for efficiency initiatives in operation areas including write-downs on real estate and severance related to staff reductions.

The Company calculates certain profitability measures based on its operating revenue, expenses, and earnings. The Company also calculates operating 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 operating earnings and operating 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 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 Operating Pre-Provision Net Revenue (“Operating PPNR”) which measures PPNR excluding adjustments for items not viewed as related to ongoing operations. This measure is now integral to the Company’s analysis of its operations, and is not viewed as a substitute for GAAP measures of net income. Analysts also use this measure in assessing the Company’s operations and in making comparisons across banks. The Company and analysts also measure Operating PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability. This measure primarily relies on the measures of operating revenue and operating expense already used in the Company’s calculation of its efficiency ratio.

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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, 2023","","December 31, 2022","","December 31, 2021"],["GAAP Net income","","","","","","$","69,598","","","$","92,533","","","$","118,664"],["Non-GAAP measures"],["Adj: Fair value adjustments on securities (1)","","","","","","\u2014","","","2,037","","","787"],["Adj: Loss/(gain) on sale of AFS securities","","","","","","25,057","","","(6)","","","\u2014"],["Adj: Net gains on sale of business operations","","","","","","\u2014","","","\u2014","","","(52,942)"],["Adj: Acquisition, restructuring, conversion, and other related expenses (2)","","","","","","6,261","","","8,909","","","5,781"],["Adj: Income taxes","","","","","","(7,723)","","","(2,940)","","","11,696"],["Net non-operating charges","","","","","","23,595","","","8,000","","","(34,678)"],["Operating net income (non-GAAP)","","","","","","$","93,193","","","$","100,533","","","$","83,986"],["GAAP Total revenue from continuing operations","","","","","","$","411,829","","","$","413,534","","","$","434,414"],["Adj: Fair value adjustments on securities","","","","","","\u2014","","","2,037","","","787"],["Adj: Loss/(gain) on sale of AFS securities","","","","","","25,057","","","(6)","","","\u2014"],["Adj: Net gains on sale of business operations","","","","","","\u2014","","","\u2014","","","(52,942)"],["Operating revenue (non-GAAP)","","","","","","$","436,886","","","$","413,528","","","$","382,259"],["GAAP Total non-interest expense from continuing operations","","","","","","$","301,508","","","$","288,716","","","$","285,893"],["Less: Total non-operating expense (see above)","","","","","","(6,261)","","","(8,909)","","","(5,781)"],["Operating non-interest expense (non-GAAP)","","","","","","$","295,247","","","$","279,807","","","$","280,112"],["Pre-tax, pre-provision net revenue (PPNR)","","","","","","$","110,321","","","$","124,818","","","$","148,521"],["Operating pre-tax, pre-provision net revenue (PPNR)","","","","","","141,639","","","135,758","","","102,147"],["(in millions, except per share data)"],["Total average assets","","","","","","$","11,838","","","$","11,216","","","$","12,081"],["Total average shareholders' equity, including unrealized losses on AFS securities","","","","","","984","","","1,063","","","1,191"],["Total average shareholders' equity, excluding unrealized losses on AFS securities","","","","","","1,226","","","1,193","","","1,166"],["Total average tangible shareholders' equity, including unrealized losses on AFS securities","","","","","","962","","","1,036","","","1,159"],["Total average tangible shareholders' equity, excluding unrealized losses on AFS securities","","","","","","1,204","","","1,166","","","1,134"],["Total tangible shareholders\u2019 equity, period-end","","","","","","993","","","930","","","1,153"],["Total tangible assets, period-end","","","","","","12,411","","","11,638","","","11,525"],["Total common shares outstanding, period-end (thousands)","","","","","","43,501","","","44,361","","","48,667"],["Average diluted shares outstanding (thousands)","","","","","","43,504","","","45,914","","","49,554"],["Earnings per share, diluted","","","","","","$","1.60","","","$","2.02","","","$","2.39"],["Plus: Net adjustments per share, diluted","","","","","","0.54","","","0.17","","","(0.70)"],["Operating earnings per share, diluted","","","","","","2.14","","","2.19","","","1.69"],["Book value per common share, period-end","","","","","","23.27","","","21.51","","","24.30"],["Tangible book value per common share, period-end","","","","","","22.82","","","20.95","","","23.69"],["Total shareholders' equity/total assets","","","","","","8.14","","","8.18","","","10.23"],["Total tangible shareholders' equity/total tangible assets","","","","","","8.00","","","7.99","","","10.00"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","","","At or For the Years Ended"],["(Dollars in thousands)","","","","","","December 31, 2023","","December 31, 2022","","December 31, 2021"],["Performance Ratios"],["Return on equity, including unrealized losses on AFS securities","","","","","","7.07","%","","8.70","%","","9.96","%"],["Return on equity, excluding unrealized losses on AFS securities","","","","","","5.68","","","7.76","","","10.18"],["Operating return on equity, including unrealized losses on AFS securities","","","","","","9.47","","","9.46","","","7.05"],["Operating return on equity, excluding unrealized losses on AFS securities","","","","","","7.60","","","8.43","","","7.20"],["Return on tangible common equity, including unrealized losses on AFS securities (3)","","","","","","7.60","","","9.29","","","10.57"],["Return on tangible common equity, excluding unrealized losses on AFS securities (3)","","","","","","6.07","","","8.26","","","10.80"],["Operating return on tangible common equity, including unrealized losses on AFS securities (3)","","","","","","10.05","","","10.07","","","7.58"],["Operating return on tangible common equity, excluding unrealized losses on AFS securities (3)","","","","","","8.03","","","8.94","","","7.74"],["Return on assets","","","","","","0.59","","","0.82","","","0.98"],["Operating return on assets","","","","","","0.79","","","0.90","","","0.70"],["Efficiency ratio (4)","","","","","","63.88","","","64.31","","","69.96"],["Supplementary Data (in thousands)"],["Tax benefit on tax-credit investments","","","","","","$","9,863","","","$","4,880","","","$","4,372"],["Non-interest income charge on tax-credit investments","","","","","","(8,018)","","","(3,508)","","","(3,445)"],["Net income on tax-credit investments","","","","","","1,845","","","1,372","","","928"],["Intangible amortization","","","","","","4,820","","","5,134","","","5,200"],["Fully taxable equivalent income adjustment","","","","","","7,870","","","6,644","","","6,344"]]
[[/GREPCENT_TABLE]]

____________________________________

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

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

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

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

GENERAL

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

The objectives of this section are:

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

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

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

This discussion includes the following sections:

•Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

•Comparison of Financial Condition at December 31, 2023 and 2022

•Liquidity and Cash Flows

•Capital Resources

•Application of Critical Accounting Policies

•Enterprise Risk Management

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•LIBOR Transition

•Corporate Responsibility and Sustainability

The following discussion and analysis should be read in conjunction with the Company’s financial statements and the notes thereto appearing in Item 8 of this document. In the following discussion, income statement comparisons are against the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2024 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.

Berkshire 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.

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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Summary

Berkshire reported 2023 net income of $69.6 million, or $1.60 per diluted share, compared to $92.5 million, or $2.02, per share in 2022. Net income in 2023 included net pre-tax non-operating charges totaling $31.3 million ($23.6 million after-tax), or $0.54 per share. Net income in 2022 included net pre-tax non-operating charges totaling $10.9 million ($8.0 million after-tax), or $0.17 per share. Non-operating charges included restructuring charges in both years and a $25.1 million loss on the sale of securities in the fourth quarter of 2023. Due to this loss, the Company reported a net loss of $1 million in the fourth quarter of 2023.

The Company’s 2023 non-GAAP measure of operating income totaled $93.2 million, or $2.14 per diluted share, compared to $100.5 million, or $2.19 per share, for 2022. Year-over-year, higher net interest income was more than offset by higher loan loss provision expense and operating non-interest expense. Per share results benefited from share repurchases.

Berkshire’s 2023 return on average assets was 0.59% (0.79% on an operating basis) compared to 0.82% (0.90% on an operating basis) for 2022. Return on average tangible common equity including unrealized loss on AFS securities was 7.60% (10.05% on an operating basis) in 2023 compared to 9.29% (10.07% on an operating basis) in 2022. Return on average tangible common equity excluding unrealized loss on AFS securities was 6.07% (8.03% on an operating basis) in 2023 compared to 8.26% (8.94% on an operating basis) in 2022.

Compared to 2022, fully taxable equivalent ("FTE") net interest income increased $25.7 million to $376.9 million. The net interest margin was little changed, increasing one basis point to 3.27%. Average total earning assets increased year-over-year by $701 million, reflecting a $1.20 billion increase in average loans, partially offset by a $303 million decrease in average securities and a $197 million decrease in average short-term investments and HFS loans. Average total funding liabilities increased year-over-year by $644 million compared to the year-ago average, reflecting a $738 million increase in average borrowings, partially offset by a $93 million decrease in average deposits.

Year-over-year, non-interest income excluding losses/gains decreased $3.6 million and total non-interest expense increased $12.8 million. The efficiency ratio was 63.88% in 2023 compared to 64.31% in 2022.

The provision for credit losses on loans was $32.0 million in 2023, compared to $11.0 million in 2022. The allowance for credit losses on loans was $105.4 million, or 1.17% of total loans, at December 31, 2023, compared to $96.3 million, or 1.15% of total loans at December 31, 2022.

Berkshire’s total shareholders’ equity was $1.01 billion at December 31, 2023 compared to $954 million at December 31, 2022. The year-end common equity Tier 1 capital ratio was 12.0% in 2023 and 12.4% in 2022. Tangible common equity as a percentage of tangible assets was 8.0% at both of those dates.

Net Interest Income

Net interest income and net interest margin may be affected by many factors, including: changes in average balances; interest rate fluctuations and the slope of the yield curve; sales of loans and securities; residential mortgage loan and mortgage-backed security prepayment rates; product pricing; competitive forces; the relative mix, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities; non-interest-bearing sources of funds; hedging activities; and asset quality.

In response to persistent high inflation, the Federal Reserve Board increased the target federal funds rate during 2022 and 2023. The average maximum target Federal Funds rate increased from 0.25% in the first quarter of 2022 to 5.50% in the fourth quarter of 2023, increasing in each sequential quarter, with the largest quarterly increases occurring in the second and third quarters of 2022.

The net interest margin increased by one basis point to 3.27% in 2023. Net interest income increased year-over-year by $24 million, or 7%, due to a 7% increase in average earning assets funded by higher average borrowings. Total interest income increased $189 million and total interest expense increased $165 million. The FTE interest adjustment increased $1 million.

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Full year total average earning assets increased $701 million in 2023 compared to 2022, primarily reflecting an increase of $1.20 billion in average loans offset by decreases of $303 million in average securities and $197 million in short-term investments and loans HFS. The increase in average loans was primarily due to a $491 million increase in average commercial real estate loans and a $728 million increase in average residential mortgages, reflecting growth in originations staff and expansionary economic conditions supporting market demand for commercial loans.

Average total loans, average securities and average short-term investments and loans held for sale comprised 78%, 19% and 3%, respectively, of average total earning assets in 2023, compared to 72%, 23% and 5%, respectively, in 2022. In 2023, the yields on these portfolios were 5.86%, 2.32%, and 4.59% respectively, compared to 4.44%, 2.06%, and 0.86% in 2022.

The 145 basis point year-over-year increase in the full year yield on average earning assets reflected higher market interest rates. The loan yield increased by 142 basis points, the securities yield increased by 26 basis points, and the yield on short-term investments and loans held for sale increased 373 basis points. Higher loans yields included increases of 193 basis points in commercial real estate, 221 basis points in commercial and industrial loans, 36 basis points in residential mortgages, and 152 basis points in consumer loans.

Average total funding liabilities increased $644 million, reflecting a $738 million increase in average borrowings which was partially offset by a $93 million reduction in average deposits. The increase in borrowings was primarily due to higher borrowings from the Federal Home Loan Bank of Boston.

Compared to the prior year, average non-interest bearing deposits decreased $330 million, average NOW and other interest-bearing transaction accounts decreased $368 million, average money market deposits decreased $82 million, and average savings deposits decreased $48 million. Average time deposits increased $734 million. Deposit shifts reflected the migration of some balances from lower yielding accounts to higher yielding accounts in and out of the Bank, as well as the spend-down by customers of liquidity accumulated during the pandemic. Time deposit growth included higher utilization of brokered deposits.

Average total deposits comprised 91% and 98% of average total funding liabilities in 2023 and 2022, respectively. As a percentage of 2023 average deposits, average non-interest bearing deposits measured 27%, average NOW and other interest-bearing transaction accounts measured 11%, average money market deposits were 28%, average savings accounts were 11%, and average time deposits were 23%. The comparable percentages in the year-ago quarter were 30%, 14%, 29%, 11%, and 16% respectively.

The 152 basis point increase to 1.95% in the rate paid on average total funding liabilities in 2023 compared to 2022 primarily reflects the impact of the increase in market interest rates and increased borrowings. The rate paid on average total deposits increased 130 basis points, reflecting higher interest rates paid and the shift in the mix of deposits. Higher deposit costs included increases of 99 basis points in the cost of NOW and other interest-bearing transaction deposits, 191 basis points in the cost of money market deposits, 54 basis points in the cost of savings deposits, and 233 basis points in the cost of time deposits.

Non-Interest Income

Total non-interest income decreased $26.2 million in 2023 compared to 2022 due primarily to a $25.1 million loss recorded on the sale of AFS securities near-year end, with proceeds used to pay down higher cost borrowings. The Company views this loss as non-operating. SBA loan sale revenue decreased by $2.2 million, reflecting margin and volume changes in the rising interest rate environment. The category of other non-interest income decreased $4.9 million due to a $4.5 million increase in charges for the amortization of tax credit investments, reflecting higher balances of these investments in 2023 as projects progressed following prior pandemic related delays. These charges are more than offset by credits to income tax expense. Total deposit and loan related fees increased $3.3 million, or 8%, due to improved volume and pricing conditions.

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Provision for Credit Losses

The provision totaled $32.0 million in 2023 compared to $11.0 million in 2022. Provision expense in 2023 primarily reflected growth in the loan portfolio and increased uncertainty related to commercial real estate market conditions. The ratio of the allowance for credit losses to loans increased to 1.17% from 1.15%. The provision in 2022 reflected lower pandemic-related expected credit losses near the end of the pandemic public health emergency.

Non-Interest Expense

Total non-interest expense increased year-over-year by $12.8 million, or 4%. Restructuring and other non-operating expense decreased to $6.3 million from $8.9 million. Restructuring expense in 2023 was primarily due to the consolidation of four branches and severance related to a cross-company workforce reduction in the fourth quarter. Restructuring expense in 2022 was primarily due to the consolidation of six branch offices. The Company’s non-GAAP measure of operating non-interest expense increased year-over-year by $15.4 million, or 6%. This was primarily due to a $6.5 million, or 4%, increase in compensation expense and a $6.3 million, or 18%, increase in technology related expense. Expense growth reflected the impact of inflation, together with the Company’s strategy of investing in frontline bankers and digital innovation targeted to support future growth of revenues and deposits. Occupancy expense decreased by $1.9 million, or 5%, due to consolidation of branches and office premises. FDIC insurance expense increased $3.9 million due to higher premiums charged to the industry. The efficiency ratio improved slightly year-over-year to 63.9% from 64.3% as higher net interest income offset lower operating fee income and higher operating expenses. Quarterly operating revenue peaked in the fourth quarter of 2022 and has declined in consecutive quarters as the net interest margin has declined over these periods, with funding cost increases catching up with the higher initial sensitivity of variable rate interest earning assets to the rapid increase in market interest rates in 2022. The fourth quarter efficiency ratio measured 67.8% in 2023, compared to 58.3% in 2022.

Income Tax Expense

The Company’s effective income tax rate was 11.1% in 2023 compared to 18.7% in 2022. This reduction was primarily due to the higher proportional benefit of tax advantaged income compared to pre-tax income, which declined by $35.5 million, or 31%, due to the loss on sale of AFS securities and the increase in credit loss provision expense. Differences arising between Berkshire’s effective income tax rate and the U.S. federal statutory rate of 21% are generally attributable to: (i) tax-exempt interest earned on certain investments; (ii) tax-exempt income from BOLI; (iii) tax credit investment benefits; and (iv) state income taxes. The Company’s tax credit investment program contributed $0.04 to earnings per share in 2023, compared to $0.03 in 2022.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2023 AND DECEMBER 31, 2022

General

Total assets at December 31, 2023 were $12.4 billion, a $768 million increase from December 31, 2022, primarily reflecting a $704 million increase in total loans and a $515 million increase in short-term investments, partially offset by a decrease of $426 million in investment securities. Loan growth primarily consisted of a $398 million increase in commercial real estate loans and a $448 million increase in residential mortgages. The increase in short-term investments was primarily due to higher short-term deposits at year-end 2023. The decrease in investment securities was primarily due to the sale of $267 million of available for sale securities near year-end 2023, and also included amortizations and maturities of securities during the year.

Nonaccrual loans totaled $21.4 million at December 31, 2023, a $9.7 million decrease from December 31, 2022 across most major loan categories. The allowance for credit losses on loans totaled $105.4 million at December 31, 2023, compared to $96.3 million at December 31, 2022. At December 31 2023, the allowance as a percentage of total loans was 1.17% and as a percentage of nonaccrual loans was 492%, compared to 1.15% and 309%, respectively, at December 31, 2022.

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

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Berkshire’s total shareholders’ equity was $1.01 billion at December 31, 2023, a $58 million increase from December 31, 2022. As a percentage of total assets, shareholders’ equity was 8.1% and 8.2% at December 31, 2023 and December 31, 2022, respectively. Tangible common equity equaled 8.0% both at December 31, 2023 and December 31, 2022.

Berkshire’s (consolidated) Tier 1 Leverage capital ratio and its Common Equity Tier 1 (“CET 1”), Tier 1 and Total risk-based capital ratios were 9.6%, 12.0%, 12.3% and 14.4%, respectively, at December 31, 2023, compared to 10.2%, 12.4%, 12.6% and 14.6%, respectively, at December 31, 2022. The Bank’s Tier 1 Leverage capital ratio and its CET 1, Tier 1 and Total risk-based capital ratios were 9.6%, 12.2%, 12.2% and 13.3%, respectively, at December 31, 2023, compared to 10.2%, 12.6%, 12.6% and 13.6%, respectively, at December 31, 2022.

Securities

Total securities measured $1.6 billion at December 31, 2023, decreasing $426 million during 2023. This decrease was primarily due to the sale of available for sale securities valued at $267 million near year-end, with proceeds used to paydown higher costing short-term borrowings. The decrease in securities from this sale and from amortization and payoffs in 2023 was mostly in agency mortgage-related instruments including collateralized mortgage obligations, mortgage-backed securities, and commercial mortgage-backed securities.

Loans

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

Total loans measured $9.0 billion at December 31, 2023, increasing $704 million during 2023. At December 31, 2023, commercial loans measured 65% of total loans and retail loans measured 35% of total loans. In comparison, at December 31, 2022, commercial loans measured 66% of total loans and retail loans measured 34% of total loans.

Total commercial loans increased by $312 million to $5.8 billion during 2023 and were comprised of commercial real estate loans and commercial and industrial loans. Commercial real estate loans (which include construction loans and multifamily loans) totaled $4.5 billion and increased by $398 million during 2023. Construction loans increased by $321 million. Commercial and industrial loans totaled $1.4 billion and decreased by $86 million. Nonaccrual commercial loans totaled $13.1 million at December 31, 2023, and measured 0.22% of total commercial loans. At December 31, 2022, nonaccrual commercial loans totaled $19.4 million, measuring 0.35% of total commercial loans. Potential problem loans, which are adversely classified loans which remain in an accrual status, totaled $132 million, or 2.26% of total commercial loans at December 31, 2023, compared to $89 million, or 1.61% of total commercial loans at December 31, 2022.

Total retail loans increased by $392 million to $3.2 billion during 2023. Retail loans include residential mortgage loans and consumer loans. At December 31, 2023, residential mortgages totaled $2.8 billion and increased by $448 million during 2023. Consumer loans totaled $446 million and decreased by $56 million for this period, due primarily to planned run-off of unsecured consumer balances. Nonaccrual retail loans totaled $8.3 million at December 31, 2023, measuring 0.26% of total retail loans. At December 31, 2022, nonaccrual retail loans totaled $11.7 million, measuring 0.42% of total retail loans.

Allowance for Credit Losses on Loans

The allowance totaled $105.4 million at December 31, 2023, an increase of $9.1 million from December 31, 2022, primarily reflecting growth in the loan portfolio together with an increase in the qualitative reserve for non-owner occupied commercial real estate loans due to uncertain market conditions. The ratio of the allowance to total loans decreased to 1.17% from 1.15% for these respective dates.

For the commercial loan portfolio, the allowance for credit losses as a percentage of commercial loans was 1.23% at December 31, 2023, compared to 1.15% at December 31, 2022. The commercial allowance for credit losses represented 548% of nonaccrual commercial loans at December 31, 2023 compared to 326% at December 31, 2022.

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For the retail loan portfolio, the allowance for credit losses as a percentage of retail loans was 1.05% at December 31, 2023 compared to 1.17% at December 31, 2022. The retail allowance for credit losses represented 404% of nonaccrual retail loans at December 31, 2023 compared to 282% at December 31, 2022.

Deposits and Borrowings

Total deposits were $10.6 billion at December 31, 2023, a $306 million increase from year-end 2022. Most categories of deposits decreased except for higher cost time deposits as customers sought higher rate deposits in the environment of higher interest rates. Non-interest bearing deposits totaled $2.5 billion at December 31, 2023, a $383 million decrease from December 31, 2022. Non-maturity interest-bearing deposits totaled $5.5 billion, a $363 million decrease from year-end 2022. Period-end time deposits totaled $2.7 billion, increasing $1.1 billion during the year. Borrowings totaled $385 million at period-end, increasing $381 million from year-end 2022. The increase was due to the utilization of Federal Home Loan Bank of Boston advances primarily to fund loan growth.

Derivative Financial Instruments

The notional amount of derivative financial instruments totaled $4.8 billion at period-end, increasing $263 million from year-end 2022. The net fair value of these instruments at December 31, 2023 was a liability of $30 million, compared to a liability of $43 million at December 31, 2022.

Shareholders’ Equity and Dividends

Total shareholders’ equity was $1.01 billion at December 31, 2023, a $58 million increase from December 31, 2022. This primarily reflects net income of $70 million and other comprehensive income of $38 million partially offset by $32 million in common stock dividends at $0.72 per share and share repurchases totaling $24 million for the repurchase of 103,000 shares. Other comprehensive income reflected a decrease in the after-tax net unrealized losses on available for sale debt securities and derivative hedges primarily due to the $25 million realized loss on the sale of securities near year-end 2023.

LIQUIDITY AND CASH FLOWS

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs for the Company, including the Bank. Liquidity management addresses both the Company’s ability to fund new loans and investments as opportunities arise, to meet customer deposit withdrawals and to repay borrowings and subordinated notes as they mature. In the first quarter of 2023, the banking industry faced heightened focus on liquidity following the failure of several large banks. In response, the Company increased borrowings and short-term investments and also increased its off-balance sheet liquidity sources primarily by increasing its assets qualified for pledging against borrowings. The Company views its liquidity as satisfactory for current conditions as well as for stressed scenarios in its liquidity testing models.

At December 31, 2023, cash and equivalents totaled $1.2 billion and securities available for sale totaled $1.0 billion. Unused borrowing capacity at that date from the Federal Home Loan Bank of Boston “FHLBB” and the Federal Reserve Bank of Boston (“FRB”) totaled $4.0 billion, compared to $2.1 billion at year-end 2022. Borrowings from these sources are supported by collateral, to the extent utilized. The increase in borrowing capacity in 2023 was primarily due to the Company’s strategic focus to improve collateral efficiency, which began in early 2023 before market conditions worsened due to bank failures.

During 2023, growth of time deposits was the primary source of funds and the primary uses were loan growth and net outflows of non-maturity deposits. At year-end 2023, money market deposits and short-term investments were elevated due to short-term commercial deposit balances held at period-end.

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.

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

The Company’s goal is to maintain sound capitalization and use capital generation to support organic growth and shareholder distributions in the form of dividends and stock repurchases. The Company’s goal is to maintain a “well-capitalized” regulatory designation under projected and stressed financial projections.

In recent periods, the Company has returned excess capital to shareholders through stock repurchases. Additionally, the Company increased the quarterly dividend by 50% in the fourth quarter of 2022. The Company’s long-term goal is to maintain an efficient capital structure and to provide a return in excess of the cost of its common equity capital.

As a result of rising interest rates, available for sale bond portfolios in banks are subject to unrealized losses which result in charges against other comprehensive income (“AOCI”) and reduce the book value of shareholders’ equity. Like many of its peers, the Company utilizes an option in reporting its regulatory equity which excludes changes in AOCI in the calculation of regulatory capital.

Reductions in bond valuations due to changes in market interest rates are reversed as bonds approach maturity. These reversals are accreted to AOCI over time, restoring the book value of equity. Tangible common equity totaled $993 million at period-end and was net of an accumulated other comprehensive loss totaling $143 million.

While the Company monitors the book value of equity and related metrics, it primarily manages capital based on regulatory capital measures, with a focus on the common equity Tier 1 capital ratio. The Company continues to view itself as having excess capital which it plans to utilize in accordance with its capital management objectives. During the fourth quarter of 2023, the company sold $267 million of available for sale securities at a $25 million loss, which was recorded as a reduction in accumulated other comprehensive loss and in retained earnings. This had no impact on the total book value of equity but did reduce regulatory capital.

As of December 31, 2023 unrealized gains and losses, net of tax, are included in average equity and in average non-interest earning assets. Prior period balances and financial metrics have been updated to reflect the current presentation. Performance measures related to return on average equity, including related non-GAAP performance measures, are presented both based on the updated averages as well as based on measures which exclude these unrealized gains and losses, net of tax. These unrealized gains and losses are primarily related to the fair values of available-for-sale securities.

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.

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 2023.

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Allowance for Credit Losses on Loans

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

The appropriateness of the ACLL could change significantly because current economic conditions and forecasts can change and future events are inherently difficult to predict. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses.

While management utilizes its best judgment and information available, the ultimate adequacy of our ACLL is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, and changes in interest rates. For detailed information on the ACLL see Note 1- Summary of Significant Accounting Policies and Note 6 – Loans and Allowance for Credit Losses.

Fair Value Measurements

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, individually evaluated 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 individually evaluated loans held for investment and capitalized servicing rights. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting or other accounting standards.

Management has established and documented a process for determining fair value. The use of observable inputs is maximized and the use of unobservable inputs is minimized when developing fair value measurements. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our 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, loan review, compliance, and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital & Compliance Committee.

The Company includes recessionary/inflationary risk overlays on all of the material business risks to capture the uncertainties of the economic environment. The Company has also developed recession toolkits and playbooks that outline mitigating factors and actions that strive to minimize losses under such scenarios. Both of these items are addressed throughout the assessments and dashboards provided to the above Committees.

The high level corporate risk assessment focuses on the following material business risks: credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk, with the credit risk category having the highest weighting. For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company. In 2023, price risk remained elevated in relation to

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the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments and operations. Residual price risk was viewed as medium including the impact of mitigating factors and management actions in the risk management environment.

LIBOR TRANSITION

In 2023, the Company completed the transition away from the use of LIBOR based instruments in the context of the industry-wide transition program. The Company had in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations. These include loan interest rate indices as well as interest rate swap contracts based on LIBOR. The Company has transitioned to indices based on SOFR.

CORPORATE RESPONSIBILITY & SUSTAINABILITY

Berkshire’s Approach

Since its founding in 1846, Berkshire remains a purpose-driven and values-guided institution working to achieve its vision of becoming a high-performing, relationship-driven, community-focused bank. Berkshire empowers the financial potential of its stakeholders by delivering industry-leading financial expertise and a full suite of tailored banking solutions through its consumer banking, commercial banking and wealth management divisions to clients in New England and New York. For more than 175 years, Berkshire has provided strength, stability and trusted advice to create a positive impact for its clients and communities while upholding equitable, ethical, responsible and sustainable business practices.

Berkshire’s longstanding commitment to operating equitably, responsibly and sustainably is interwoven into the company’s vision, mission, business practices, and strategic goals. Berkshire’s integrated approach to managing the environmental, social and governance externalities helps reduce risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn drives Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.

Oversight and Reporting

The management of material environmental, social and governance factors is integral to Berkshire’s business practices, risk management program, competitive positioning and its ability to deliver on its strategic priorities and vision. Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee corporate culture, diversity and sustainability and are a leader among community banks in integrating these practices into its business strategy and operations.

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

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

•Corporate Responsibility & Culture Committee of its Board of Directors

•Environmental, Social and Governance (ESG) Committee

•Diversity Equity & Inclusion (DEI) Committee

•Responsible & Sustainable Business Policy

•Climate Risk Management Program

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

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

•Senior leadership for corporate responsibility and sustainability

The Board of Directors including its Corporate Responsibility & Culture Committee ("CRCC") has ultimate oversight responsibility for environmental, social and governance matters. The CRCC meets quarterly to review performance and approve relevant policies. In addition, the company established management Committees comprised of executives and senior leaders throughout the organization to assist in the management and oversight of ESG and DEI activities. Berkshire’s comprehensive approach ensures that the board receives regular reports from management on environmental and social dimensions of its business such as human capital management, diversity, stakeholder relations, climate change, community impact, and cybersecurity. It allows the board to develop a sufficient understanding of the Company’s impacts, management’s programs to mitigate those risks and capture

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

Berkshire regularly engages directly with its stakeholders to share information about the progress it’s made in its performance, including through its website, corporate annual report, and proxy statement. Additionally, Berkshire’s annual Corporate Responsibility & Sustainability Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure ("TCFD") disclosure standards, details the Company's programs and performance.

BEST Community Comeback

Berkshire launched the BEST Community Comeback in late 2021, a transformational commitment to empower its stakeholders’ financial potential. The plan focuses on four areas critical to the long-term vibrancy and success of its communities: fueling small businesses; community financing and philanthropy; financial access and empowerment; and environmental sustainability. Through this far-reaching initiative, Berkshire aims to help create more businesses and jobs, help more families achieve the dream of owning a home, and aid communities in becoming more environmentally efficient and eco-friendly. Berkshire has made steady progress towards achieving its goal of deploying $5 billion to support its communities by the end of 2024. As of year-end and since launching the program, Berkshire has deployed more than $2.5 billion into low-moderate income neighborhoods, $591 million to support low-carbon projects, increased its lending to underrepresented homebuyers and transitioned its own electricity supply to 100% renewables.

Sustainable Finance & Impact Investments

Berkshire became the first public U.S. community bank holding company with under $150 billion in assets to issue a Sustainability Bond with a $100 million issuance last year. In 2023, Berkshire allocated the proceeds from its inaugural sustainability bond to projects resulting in the creation of 330 units of affordable and workforce housing along with more than 200,000 square feet of green building development. Proceeds from the bond were allocated in alignment with Berkshire's Sustainable Financing Framework. Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, independently verified that Berkshire's Sustainable Financing Framework "is credible and impactful and aligns with the International Capital Market Association's ("ICMA") Sustainability Bond Guidelines 2021, Green Bond Principles 2021 and Social Bond Principles 2021." The subordinated Sustainability Bond issuance also received an investment grade rating of Baa3 from Moody's Investors Service. Berkshire's Sustainability Bond Report further details how proceeds were allocated to support affordable housing, workforce housing, green building and financial access and inclusion projects in communities across New England and New York.

Beyond its sustainability bond, Berkshire looks for innovative ways to advance its business priorities through sustainable finance and impact investing. As a result, Berkshire makes targeted impact investments in Small Business Investment Companies ("SBIC") and other strategically aligned assets that are within risk appetite and drive a competitive rate of return. The Company also has a strong tax-credit business whereby it makes targeted investments in low-income housing tax credits ("LIHTC"), historic tax credits ("HTC") and solar tax credits to further Berkshire’s goals and strengthen its Community Reinvestment Act ("CRA") performance. These investments help bring to life important economic development, revitalization and renewable energy projects while providing an appropriate return to the bank consistent with its capital and tax strategies.

Climate Change

Climate Change manifesting in the form of both physical or transition risks could adversely, either directly or indirectly, affect Berkshire’s operations, businesses, customers, communities, and its stakeholders. As the transition to a low-carbon economy accelerates, new policy emerges, and market dynamics shift, Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support the transition will allow it to strengthen its competitive positioning. The Company continues to evolve its practices to align with its mission, current and expected regulations as well as the size, scope, and complexity of its operations.

The physical risks of climate change over short, medium and long-term horizons include weather-related events, such as flooding and tornados, and longer-term shifts in climate patterns, such as extreme heat, rising sea levels and more severe droughts. Such events could disrupt Berkshire’s operations, impact customers, or third parties on which Berkshire relies, including through direct damage to physical assets and indirect impacts from supply chain disruption and market volatility. This could impact borrowers’ ability to repay obligations, devalue physical assets

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resulting in uncertain residual values and affect third-parties ability to deliver on service expectations. In turn, this could lead to operational disruptions, loan losses and an inability to fully recoup funds due to uncertain residual values over long-term horizons.

Transition risks over short, medium and long-term horizons can include changes in consumer preferences, additional regulatory requirements or policy such as taxes, and use of new technologies. Such developments could increase Berkshire, its customers and third-parties operating costs, reduce demand for services from select customer segments and impact current strategies. Reputation and customer relationships could be damaged as a result of Berkshire’s practices related to climate change mitigation as well as through its or its customers direct or indirect involvement with industries or projects with heighten climate related risks. Over the long-term, transition risks could also manifest in potential credit impacts affecting borrowers’ ability to repay obligations, increasing operating costs, creating stranded assets, uncertainty of residual values and potential loan losses.

Collectively these physical and transition risks are managed through a formal Climate Risk Management Program which outlines roles and responsibilities for the board, management and all employees, definitions, along with procedures for identifying, measuring and assessing climate risk. The program also lays out Berkshire’s system of controls which include governance mechanisms, formal policies, due diligence and insurance requirements, exclusionary criteria, business continuity planning, external relations, and employee education. Finally, the program sets expectations for responses to risk events or elevated risk levels, reporting and external disclosure. Ultimately the program helps identify, assess, mitigate and control climate risks protecting the Company, its stakeholders, communities and preserving shareholder value.

The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight of sustainability and climate change. Management and the board evaluate climate related risks and opportunities and incorporate the results of risk assessments and discussions into strategic planning, product development, programming and relevant risk mitigating measures. All business risks are also integrated into our Enterprise Risk Management program and discussed by other applicable Board Committees including the Risk Management, Capital & Compliance Committee. Both Committees report into the full board. Beyond board level oversight of climate matters, Berkshire maintains an Environmental, Social and Governance Committee comprised of senior executives throughout the Company. Business lines identify base-tier climate risks and Berkshire also completes an annual climate change risk assessment to assess the bank’s operations and lending activities for potential exposure to transition and physical risks as well as evaluate its related controls. The results of the risk assessment guide Berkshire’s forward climate management and environmental sustainability strategies to ensure its actively managing the risks and opportunities.

As Berkshire looks to further strengthen its management of climate related risks and opportunities, it expects to mature its climate risk management program and Greenhouse Gas (GHG) emissions strategies, in addition to its existing sustainable finance and renewable electricity goals. As the Company moves further along in its climate journey, it will look to enhance its disclosures, including scope 3 emissions, programs, mitigating controls and initiatives to minimize risk, reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy. Further details on Berkshire’s governance, risk management, strategy, metrics & targets and next steps can be found in its most recent Corporate Responsibility & Sustainability Report.

Ratings, Awards & Recognition

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

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

•MSCI ESG- A

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

•Bloomberg ESG Disclosure- 62.81

•Sustainalytics Rated

•Communitas Award for Leadership in Corporate Social Responsibility

•Boston Business Journal Top Charitable Contributor

•America’s Most Trustworthy Companies – Newsweek

•America’s Best Regional Banks - Newsweek

•Forbes America’s Best Midsize Employers

•Bloomberg Gender-Equality Index

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•Human Rights Campaign Corporate Equality Index

*As of December 31, 2023