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What changed in Beacon Financial Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Beacon Financial Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+488 added−518 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in Beacon Financial Corp's 2023 10-K

488 paragraphs added · 518 removed · 276 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

145 edited+49 added−45 removed105 unchanged
Biggest changeAs a result of Berkshire’s intentional and impactful efforts to date, Berkshire was listed in the Bloomberg Gender Equality Index and Human Rights Campaign’s Corporate Equality Index.
Biggest changeAs a result of Berkshire’s intentional and impactful efforts to date, Berkshire was listed in the Bloomberg Gender Equality Index and Human Rights Campaign’s Corporate Equality Index. † Diversity, Equity & Inclusion* † Percent of workforce comprised of women 66 % † Percent of workforce comprised of ethnic minorities 16 % † Percent of the Board comprised of women 38 % † Percent of the Board comprised of ethnic minorities 31 % † Percent of manager roles (officer+) comprised of women 55 % † Percent of manager roles (officer+) comprised of ethnic minorities 12 % † Percent of executive management roles comprised of women 29 % † Percent of executive management roles comprised of ethnic minorities 14 % *Workforce metrics reported are as of December 31, 2023.
The group expands the Bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets to manufacturers, distributors and select service companies experiencing seasonal working capital needs, rapid sales growth, a turnaround, buyout or recapitalization with credit needs generally ranging from $2 to $25 million.
The group expands the Bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets to manufacturers, distributors and select service companies experiencing seasonal working capital needs, rapid sales growth, a turnaround, buyout or recapitalization with credit needs generally ranging from $2 million to $25 million.
Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of 6.5% or greater.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 ratio of 6.5% or greater, and a leverage ratio of 5.0% or greater.
An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1 ratio of 4.5% or greater.
An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a common equity Tier 1 ratio of 4.5% or greater, and a leverage ratio of 4.0% or greater.
An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0%, or a common equity Tier 1 ratio of less than 4.5%.
An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a common equity Tier 1 ratio of less than 4.5%, or a leverage ratio of less than 4.0%.
An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 ratio of less than 3.0%.
An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a common equity Tier 1 ratio of less than 3.0%, or a leverage ratio of less than 3.0%.
In addition to the federal holding company regulations, a bank holding company organized or doing business in Massachusetts must comply with requirements under Massachusetts law. Approval of the Massachusetts regulatory authorities is generally required for the Company to acquire 25 percent or more of the voting stock of another depository institution.
In addition to the federal bank holding company regulations, a bank holding company organized or doing business in Massachusetts must comply with requirements under Massachusetts law. Approval of the Massachusetts regulatory authorities is generally required for the Company to acquire 25 percent or more of the voting stock of another depository institution.
When considering merger applications, the federal regulators must evaluate such factors as the financial and managerial resources and future prospects of the parties, the convenience and needs of the communities to be served (including performance of the parties under the Community Reinvestment Act), competitive factors, any risk to the stability of the United States banking or financial system and the effectiveness of the institutions involved in combating money laundering activities.
When considering merger applications, the federal regulators must evaluate such factors as the financial and managerial resources and future prospects of the parties, the convenience and needs of the communities to be served (including performance of the parties under the Community Reinvestment Act (“CRA”)), competitive factors, any risk to the stability of the United States banking or financial system and the effectiveness of the institutions involved in combating money laundering activities.
The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 42 basis points.
The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size range from 2.5 to 42 basis points.
Additional information on Berkshire’s Human Capital Management and Diversity, Equity & Inclusion practices can be found in the Company’s annual Corporate Responsibility Report, which details the company's environmental, social and governance programs. SUBSIDIARY ACTIVITIES The Company wholly-owns Berkshire Bank. The Bank operates as a commercial bank under a Massachusetts trust company charter.
Additional information on Berkshire’s Human Capital Management and Diversity, Equity & Inclusion practices can be found in the Company’s annual Corporate Responsibility & Sustainability Report, which details the company's environmental, social and governance programs. SUBSIDIARY ACTIVITIES The Company wholly-owns Berkshire Bank. The Bank operates as a commercial bank under a Massachusetts trust company charter.
Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage in “covered transactions,” such as loans, with any one affiliate to 10% of such institution’s capital stock and surplus. There is also an aggregate limit on all such transactions with all affiliates to 20% of capital stock and surplus.
Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage with any one affiliate in “covered transactions,” such as loans, to 10% of such institution’s capital stock and surplus. There is also an aggregate limit on all such “covered transactions” with all affiliates to 20% of the institution’s capital stock and surplus.
The description of statutory provisions and regulations applicable to financial institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Company and is qualified in its entirety by reference to the actual laws and regulations.
The description of statutory provisions and regulations applicable to financial institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Company and the Bank and is qualified in its entirety by reference to the actual laws and regulations.
Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. Massachusetts Holding Company Regulation.
Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, as is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. Massachusetts Holding Company Regulation.
The Company’s approach to human capital management is grounded in its corporate values and focuses on: • Strong oversight and risk management practices • Recruitment • Compensation & Benefits • Training, Development, Engagement & Retention • Health & Wellness OVERSIGHT The Board of Directors has ultimate responsibility for the strategy of the Company.
The Company’s approach to human capital management is grounded in its corporate values, business strategy and focuses on: • Strong oversight and risk management practices • Recruitment • Compensation & Benefits • Training, Development, Engagement & Retention • Health & Wellness OVERSIGHT The Board of Directors has ultimate responsibility for the strategy of the Company.
The Compensation Committee of the Board of Directors oversees executive compensation matters and the Corporate Responsibility & Culture committee oversees company culture as well as diversity, equity and inclusion performance. The full Board also receives an annual briefing on employee engagement. The SEVP, Chief Human Resources & Culture Officer provides management oversight on human capital matters.
The Compensation Committee of the Board of Directors oversees executive compensation matters and the Corporate Responsibility & Culture committee oversees company culture as well as diversity, equity and inclusion. The full Board also receives an annual briefing on employee engagement. The SEVP, Chief Human Resources & Culture Officer provides management oversight on human capital matters.
These include the Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinance loans; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
These include the Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinance loans; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited bases in extending credit; the Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a regulator.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or condition imposed by a regulator.
Similarly, prior regulatory approval would be necessary for any person or company to acquire 25 percent or more of the voting stock of the Company. 26 Table of Contents Mergers and Acquisitions The Company and the Bank have authority to engage, and have engaged, in acquisitions of other depository institutions.
Similarly, prior regulatory approval would be necessary for any person or company to acquire 25 percent or more of the voting stock of the Company. 25 Table of Contents Mergers and Acquisitions The Company and the Bank have authority to engage, and have engaged, in acquisitions of other depository institutions.
A bank’s compliance with such plans must be guaranteed by its holding company in an amount equal to the lesser of 5% of the institution’s total assets when deemed “undercapitalized” or the amount needed to comply with regulatory capital requirements.
A bank’s compliance with such capital restoration plans must be guaranteed by its holding company in an amount equal to the lesser of 5% of the institution’s total assets when deemed “undercapitalized” or the amount needed to comply with regulatory capital requirements.
The approval of the Commissioner is generally required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained “net profits,” as defined, of the preceding two years.
The approval of the Commissioner is generally required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained “net profits,” as defined, over the preceding two years.
The Futures Fund is a special purpose credit program which provides access to a low-interest, low barrier to entry line of credit in collaboration with non-profit partners who provide wrap around technical assistance to minority, LGBTQIA+ and other businesses owned by underrepresented individuals. Since launching the program in 2020, it has deployed nearly $1.5 million to underrepresented business owners.
The Futures Fund is a special purpose credit program which provides access to a low-interest, low barrier to entry line of credit in collaboration with non-profit partners who provide wrap around technical assistance to minority, LGBTQIA+ and other businesses owned by underrepresented individuals. Since launching the program in 2020, it has deployed nearly $1.7 million to underrepresented business owners.
If an “undercapitalized” 23 Table of Contents bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company.
If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
Any change in such regulatory requirements and policies, whether by the Commissioner, the Massachusetts legislature, the FDIC, the Federal Reserve Board, or Congress, could have a material adverse impact on the Company, the Bank, and their operations. 21 Table of Contents Certain regulatory requirements applicable to the Company and the Bank are referred to below.
Any change in such regulatory requirements and policies, whether by the Commissioner, the Massachusetts legislature, the FDIC, the Federal Reserve Board, or Congress, could have a material adverse impact on the Company, the Bank, and their operations. 20 Table of Contents Certain regulatory requirements applicable to the Company and the Bank are referred to below.
Finally, Massachusetts consumer protection and civil rights statutes applicable to the Bank permit private individual and class action lawsuits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damage and attorney’s fees in the case of certain violations of those statutes.
Finally, Massachusetts consumer protection and civil rights statutes applicable to the Bank permit private individual and class action lawsuits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorney’s fees in the case of certain violations of those statutes.
Ultimately an engaged workforce drives high levels of retention which reduces human capital risks, expense, and advances Berkshire’s progress and performance. The Company provides several learning and training programs consistent with one’s job responsibilities, professional goals, and development plans. Employees have regular performance assessments to identify strengths and areas for further growth.
Ultimately an engaged workforce drives high levels of productivity and retention which reduces human capital risks, expense, and advances Berkshire’s progress and performance. The Company provides several learning and training programs consistent with one’s job responsibilities, professional goals, and development plans. Employees have regular performance assessments to identify strengths, areas for further growth and career interests.
An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. “Undercapitalized” banks must adhere to growth, capital distribution (including dividend), and other limitations and are required to submit a capital restoration plan.
An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. 22 Table of Contents “Undercapitalized” banks must adhere to growth, capital distribution (including dividend), and other limitations and are required to submit a capital restoration plan.
There is a 30-day notice procedure to the Commissioner in order to engage in such activities. Massachusetts law also authorized Massachusetts institutions to engage in activities determined to be “financial in nature,” or incidental or complementary to such a financial activity, subject to a 30-day notice to the Commissioner. Dividends.
There is a 30-day notice procedure to the Commissioner in order to engage in such activities. Massachusetts law also authorizes Massachusetts institutions to engage in activities determined to be “financial in nature,” or incidental or complementary to such a financial activity, subject to a 30-day notice to the Commissioner. Dividends.
The Dodd-Frank Act codified the source of strength doctrine. 25 Table of Contents The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies.
The Dodd-Frank Act codified the source of strength doctrine. 24 Table of Contents The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies.
The Company obtained such nonobjection for its repurchase program in 2022 and for the repurchase program announced in January 2023. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of its stock, or otherwise engage in capital distributions.
The Company obtained such nonobjection for its repurchase program in 2023 and for the repurchase program announced in January 2024. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of its stock, or otherwise engage in capital distributions.
The Bank is a preferred SBA lender and closely manages the servicing portfolio pursuant to SBA requirements. This team is the Bank’s largest source of commercial lending fee revenue. 44 Business Capital is one of the top 20 bank originators of SBA 7A loans in the U.S. Residential Mortgages.
The Bank is a preferred SBA lender and closely manages the servicing portfolio pursuant to SBA requirements. This team is the Bank’s largest source of commercial lending fee revenue. 44 Business Capital is one of the top 20 bank originators of SBA 7A loans in the U.S. 7 Table of Contents Residential Mortgages.
Some commercial loans may also be secured by liens on real estate. The Bank generally does not make unsecured commercial loans. 6 Table of Contents Commercial and industrial loans are of higher risk and are made primarily on the basis of the borrower’s ability to make repayment from the cash flows of its business.
Some commercial loans may also be secured by liens on real estate. The Bank generally does not make unsecured commercial loans. Commercial and industrial loans are of higher risk and are made primarily on the basis of the borrower’s ability to make repayment from the cash flows of its business.
Information on the website is not incorporated by reference and is not a part of this annual report on Form 10-K. 4 Table of Contents COMPETITION The Company is subject to strong competition from banks and other financial institutions and financial service providers. Its competition includes national and super-regional banks.
Information on the website is not incorporated by reference and is not a part of this annual report on Form 10-K. COMPETITION The Company is subject to strong competition from banks and other financial institutions and financial service providers. Its competition includes national and super-regional banks.
The Bank has partnered with a third party fintech company to provide enhanced online deposit account opening services and plans in 2023 to implement a new online and mobile banking platform developed in partnership with this provider as an important milestone in its Digitouch SM strategy.
The Bank has partnered with a third party fintech company to provide enhanced online deposit account opening services and new online and mobile banking platform developed in partnership with this provider as an important milestone in its Digitouch SM strategy.
COMPENSATION & BENEFITS A highly competitive labor market along with inflationary pressures has impacted labor costs for all businesses. Berkshire is not immune to these economic pressures.
COMPENSATION & BENEFITS A highly competitive labor market along with inflationary and macroeconomic pressures has impacted labor costs for all businesses. Berkshire is not immune to these economic pressures.
Massachusetts has other statutes or regulations that are similar to the federal provisions discussed below. 22 Table of Contents Federal Regulations Capital Requirements.
Massachusetts has other statutes or regulations that are similar to the federal provisions discussed below. 21 Table of Contents Federal Regulations Capital Requirements.
The Company remains confident that the Berkshire brand, value proposition and socially responsible vision will continue to be a differentiator in the market.
The Company remains confident that the Berkshire brand, value proposition and vision will continue to be a differentiator in the market.
Further information about the allowance is discussed further in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements. 10 Table of Contents Management believes that it uses the best information available to establish the allowance.
Further information about the allowance is discussed further in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements. Management believes that it uses the best information available to establish the allowance.
The approval of the FDIC is required for the Bank to pay a dividend to the Company from its surplus account. FDIC approval was required for Bank dividends payments in 2022 and such approval is expected to be required in 2023. Investment Activities.
The approval of the FDIC is required for the Bank to pay a dividend to the Company from its surplus account. FDIC approval was required for Bank dividend payments in 2023 and such approval is expected to be required in 2024. Investment Activities.
As of December 31, 2022, the Bank operated branches in New York, Vermont, Connecticut and Rhode Island, as well as Massachusetts.
As of December 31, 2023, the Bank operated branches in New York, Vermont, Connecticut and Rhode Island, as well as Massachusetts.
These laws and regulations also prohibit depository institutions from engaging in business with foreign shell banks; require depository institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and improve information sharing between depository institutions and the U.S. government.
These laws and regulations also prohibit depository institutions from engaging in business with foreign shell banks; require depository institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and require information sharing with the U.S. government in certain circumstances.
Since the Bank has exceeded $10 billion of consolidated assets, compliance with such federal consumer protection statutes and regulations is examined for and enforced by the Consumer Finance Protection Bureau rather than the FDIC.
Since the Bank has exceeded $10 billion of consolidated assets, compliance with such federal consumer protection statutes and regulations is examined for and enforced by the Consumer Finance Protection Bureau.
“Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status. At December 31, 2022, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations. Transactions with Affiliates and Loans to Insiders.
“Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after they obtain such status. At December 31, 2023, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations. Transactions with Affiliates and Loans to Insiders.
Transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. In a holding company context, at a minimum, the parent holding company of an institution and any companies which are controlled by the holding company are affiliates of the institution.
Transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and the Act’s implementing regulation, Regulation W. In a holding company context, at a minimum, the parent holding company of an institution and any companies which are controlled by the holding company are affiliates of the institution.
The Bank is integrating with its growing private banking and MyBanker teams to further develop wealth management account generation. The Wealth Management Group reported $1.7 billion in total assets under management at year-end 2022.
The Bank is integrating with its growing private banking and MyBanker teams to further develop wealth management account generation. The Wealth Management Group reported $1.4 billion in total assets under management at year-end 2023.
Beyond offering financial solutions and wellness programming, Berkshire also understands that a diverse third-party base is important to achieving its operational goals, supply chain resilience, vision and creating equity in its communities.
Beyond offering financial solutions and wellness programming, Berkshire also understands that a diverse third-party base is important to achieving its operational goals, supply chain resilience, and vision.
In addition to its compensation and health benefits, Berkshire offers volunteer-time off, a matching-gift program, an employee assistance program, regular performance reviews, professional development and the You FIRST Fund to help employees impacted by personal financial hardships. Approximately 97% of employees are eligible for benefits.
In addition to its compensation and health benefits, Berkshire offers volunteer-time off, a matching-gift program, an employee assistance program, regular performance reviews, professional development and the You FIRST Fund to help employees impacted by personal financial hardships. Nearly 100% (99.6%) of employees are eligible for benefits.
The Inflation Reduction Act, which was signed into law on August 16, 2022, among other things, implements a new alternative minimum tax of 15% on corporations with profits in excess of $1 billion, a 1% excise tax on stock repurchases, and several tax incentives to promote clean energy and climate initiatives.
The Inflation Reduction Act, which was signed into law on August 16, 2022, among other things, implements a new alternative minimum tax of 15% on corporations with profits in excess of $1 billion, a 1% excise tax on stock repurchases, and several tax incentives to promote clean energy and climate initiatives. These provisions were effective beginning January 1, 2023.
In addition, as market disruptions from mergers remain and recessionary pressures impact other industries, Berkshire will continue to leverage its differentiated brand and unique market positioning to hire community-focused bankers from its competitors and attract high-performing operational talent from outside the industry.
In addition, as market disruptions from mergers remain and macroeconomic pressures impact many companies, Berkshire will continue to leverage its differentiated brand and unique market positioning to hire community-focused bankers from its competitors and attract high-performing operational talent from outside the industry.
This includes the Corporate Responsibility & Culture Committee of the Board of Directors which has ultimate oversight responsibility. Berkshire’s Diversity, Equity & Inclusion Committee, which reports into the Board committee, provides additional management level oversight to the Company’s programming and performance. The Senior Vice President, Chief Diversity Officer manages the Company’s DEI programming.
This includes the Corporate Responsibility & Culture Committee of the Board of Directors which oversees DEI performance. Berkshire’s Diversity, Equity & Inclusion Committee, which reports into the Board committee, provides additional management level oversight to the Company’s programming and performance. The Senior Vice President, Chief Diversity Officer leads and executes the Company’s DEI programming.
The Bank does not offer interest-only or negative amortization mortgage loans. Adjustable rate mortgage loan interest rates may rise as interest rates rise, thereby increasing the potential for default. The Bank also originates construction loans which generally provide 15-month construction periods followed by a permanent mortgage loan, and follow the Bank’s normal mortgage underwriting guidelines.
Adjustable rate mortgage loan interest rates may rise as interest rates rise, thereby increasing the potential for default. The Bank also originates construction loans which generally provide 15-month construction periods followed by a permanent mortgage loan, and follow the Bank’s normal mortgage underwriting guidelines.
Federal law places additional limitations on loans to executive officers. Massachusetts law previously had a separate law regarding insider transactions, but that law was amended in 2015 to generally incorporate the federal restrictions. Insurance of Deposit Accounts . The Bank’s deposit accounts are insured by the Deposit Insurance Fund of the FDIC up to applicable limits.
Massachusetts law previously had a separate law regarding insider transactions, but that law was amended in 2015 to generally incorporate the federal restrictions. Insurance of Deposit Accounts . The Bank’s deposit accounts are insured by the Deposit Insurance Fund of the FDIC up to applicable limits.
Every Employee Resource Group provides a safe space for dialogue, education, and collective action on topics relevant to their members and the Company.
Every Employee Resource Group provides a safe space for dialogue, education, programming and 19 Table of Contents collective action on topics relevant to their members and the Company.
Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are designated Special Mention. Please see the additional discussion of non-accruing and potential problem loans in Item 7 and additional information in notes to the financial statements.
Special mention are assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses. Please see the additional discussion of nonaccruing and potential problem loans in Item 7 and additional information in notes to the financial statements. Allowance for Credit Losses on Loans.
The Bank was required to obtain the approval of the Commissioner to pay Bank dividends to the Company in 2022 and is expected to require such approval in 2023. Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority.
The Bank was required to obtain the approval of the Commissioner to pay Bank dividends to the Company in 2023. Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority.
Item 1 - Table 3 - Credit Quality Ratios 2022 2021 2020 Ratios: Allowance for credit losses on loans/total loans 1.15 % 1.55 % 1.58 % Non-accrual loans/total loans 0.37 % 0.52 % 0.80 % Allowance for credit losses/non-accruing loans 309.41 % 300.33 % 196.01 % Net charge-offs/average loans 0.27 % 0.29 % 0.41 % Item 1 - Table 3.a - Net charge-offs to average loans for each loan category 2022 2021 2020 Net charge-offs to average loans: Construction — % — % 0.01 % Commercial multifamily — — — Commercial real estate owner occupied — 0.02 0.08 Commercial real estate non-owner occupied 0.06 0.18 0.12 Commercial and industrial 0.20 0.09 0.16 Residential real estate (0.01) — 0.01 Home equity — — — Consumer other 0.02 0.01 0.02 11 Table of Contents The following tables present year-end data for the approximate allocation of the allowance for credit losses on loans by loan categories at the dates indicated (including an apportionment of any unallocated amount).
Item 1 - Table 3 - Credit Quality Ratios 2023 2022 2021 Ratios: Allowance for credit losses on loans/total loans 1.17 % 1.15 % 1.55 % Nonaccrual loans/total loans 0.24 % 0.37 % 0.52 % Allowance for credit losses/nonaccruing loans 492.47 % 309.41 % 300.33 % Net charge-offs/average loans 0.26 % 0.27 % 0.29 % Item 1 - Table 3.a - Net charge-offs to average loans for each loan category 2023 2022 2021 Net charge-offs to average loans: Construction — % — % — % Commercial multifamily — — — Commercial real estate owner occupied (0.01) — 0.02 Commercial real estate non-owner occupied — 0.06 0.17 Commercial and industrial 0.17 0.20 0.09 Residential real estate — (0.01) — Home equity — — — Consumer other 0.10 0.02 0.01 11 Table of Contents The following tables present year-end data for the approximate allocation of the allowance for credit losses on loans by loan categories at the dates indicated (including an apportionment of any unallocated amount).
Item 1 - Table 6 - Average Balance and Weighted Average Rates for Deposits 2022 2021 2020 (In millions) Average Balance Percent of Total Average Deposits Weighted Average Rate Average Balance Percent of Total Average Deposits Weighted Average Rate Average Balance Percent of Total Average Deposits Weighted Average Rate Demand $ 2,914.9 30 % — % $ 3,008.5 30 % — % $ 2,324.6 23 % — % NOW and other 1,416.7 14 0.4 976.4 10 0.1 1,216.6 12 0.3 Money market 2,809.1 29 0.5 3,293.5 32 0.2 2,713.6 26 0.6 Savings 1,114.8 11 0.1 1,111.6 11 0.1 914.1 9 0.1 Time 1,541.7 16 0.9 1,678.9 17 0.9 3,102.9 30 1.7 Total $ 9,797.2 100 % 0.9 % $ 10,068.9 100 % 0.3 % $ 10,271.8 100 % 0.7 % Estimated uninsured deposits were $3.8 billion and $3.7 billion at December 31, 2022 and 2021, respectively.
Item 1 - Table 6 - Average Balance and Weighted Average Rates for Deposits 2023 2022 2021 (In millions) Average Balance Percent of Total Average Deposits Weighted Average Rate Average Balance Percent of Total Average Deposits Weighted Average Rate Average Balance Percent of Total Average Deposits Weighted Average Rate Demand $ 2,584.6 27 % — % $ 2,914.9 30 % — % $ 3,008.5 30 % — % NOW and other 1,048.9 11 0.6 1,416.7 14 0.4 976.4 10 0.1 Money market 2,727.3 28 3.4 2,809.1 29 0.5 3,293.5 32 0.2 Savings 1,067.2 11 1.0 1,114.8 11 0.1 1,111.6 11 0.1 Time 2,275.8 23 4.0 1,541.7 16 0.9 1,678.9 17 0.9 Total $ 9,703.8 100 % 2.4 % $ 9,797.2 100 % 0.9 % $ 10,068.9 100 % 0.3 % Estimated uninsured deposits were $4.6 billion and $3.8 billion at December 31, 2023 and 2022, respectively.
For variable rate loans, the Bank underwrites debt service coverage to interest rate shocks of 300 basis points or higher based on a minimum of 1.0 times coverage and it uses loan maturities to manage risk based on the lease base and interest sensitivity.
For adjustable rate loans, the Bank’s underwriting stresses debt service coverage to interest rate shocks of 400 basis points or higher based on a minimum of 1.0 times coverage and it uses loan maturities to manage risk based on the lease base and interest sensitivity.
Loans at origination may be made up to 80% of appraised value based on property type and risk, with sublimits of 75% or less for designated specialty property types. Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals. The Bank offers interest rate swaps to certain larger commercial mortgage borrowers.
Loans at origination may be made up to 80% of appraised value based on property type and risk, with sublimits of 75% or less for designated industry types. Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals.
Berkshire qualifies all of its forward-looking statements by these cautionary statements. GENERAL Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is headquartered in Boston, Massachusetts. Berkshire is a Delaware corporation and the holding company for Berkshire Bank (“the Bank”).
Berkshire qualifies all of its forward-looking statements by these cautionary statements. GENERAL Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is headquartered in Boston, Massachusetts. Berkshire is a Delaware corporation and the holding company for Berkshire Bank (“the Bank”). The Bank provides Commercial Banking, Retail Banking, Consumer Lending, Private Banking and Wealth Management services.
These requirements, and general financial results, could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. Historically, the FHLBB has paid dividends to member banks based on money market rates.
These requirements, and general financial results, could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members.
The Bank’s consumer loans are centrally underwritten and processed by its experienced consumer lending team based in Syracuse, New York. The Bank engages in prime home equity lending, following its conforming mortgage underwriting guidelines with more streamlined verifications and documentation. Most of these outstanding loans are prime based home equity lines with a maximum combined loan-to-value of 85 percent.
The Bank engages in prime home equity lending, following its conforming mortgage underwriting guidelines with more streamlined verifications and documentation. Most of these outstanding loans are prime based home equity lines with a maximum combined loan-to-value of 85 percent.
Further, loans to insiders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the institution’s employees and does not give preference to the insider over the employees.
Further, loans to insiders must be made on terms substantially the same as offered in comparable transactions to non-insiders, although insiders may receive loans made under a benefit or compensation program that is widely available to the institution’s employees and does not give preference to the insider over other employees. Federal law places additional limitations on loans to executive officers.
The Company maintains a shelf registration as part of its routine capital management. 15 Table of Contents DERIVATIVE FINANCIAL INSTRUMENTS The Company offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Company backs these swaps with offsetting swaps with national bank counterparties.
The Company maintains a shelf registration as part of its routine capital management. 15 Table of Contents DERIVATIVE FINANCIAL INSTRUMENTS The Company offers interest rate swaps to commercial loan customers who wish to fix the interest rate on their loans, and concurrently enters into offsetting positions with third-party financial institutions.
The origination of loans by Firestone was terminated in mid-2022 and the remaining $133 million portfolio at year-end 2022 is being run-off. 44 Business Capital is a dedicated SBA 7A program lending team based in the Philadelphia area.
The origination of loans by Firestone was terminated in mid-2022 and the remaining portfolio totaled $77 million at December 31, 2023. 44 Business Capital is a dedicated SBA 7A program lending team based in the Philadelphia area.
While technology will play a bigger role in the future of Berkshire, helping to improve processes and drive efficiencies, people will always be at the core of its ability to deliver value to its customers, shareholders and communities.
While technology continues to play a bigger role in the future of Berkshire, helping to improve processes and drive efficiencies, people will always be at the core of its ability to deliver expert advisement and tailored solutions to its clients which in turn drives value for its shareholders and communities.
The Bank has hold limits for numerous categories of commercial specialty lending including healthcare, hospitality, designated franchises, and leasing. Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk and lending spreads.
The Bank has hold limits for numerous categories of commercial lending including healthcare, hospitality, retail, and construction. Commercial real estate loans are among the largest of the Bank’s loans, and may have higher credit risk than the overall credit portfolio.
The Bank also periodically offers promotional interest rates and terms for limited periods of time. The Bank’s deposit accounts consist of demand deposits (non-interest-bearing checking), NOW (interest-bearing checking), regular savings, money market savings, and time certificates of deposit. Additionally, the Bank offers a variety of retirement deposit accounts to personal and business customers.
The Bank’s deposit accounts consist of demand deposits (non-interest-bearing checking), NOW (interest-bearing checking), regular savings, money market savings, and time certificates of deposit. Additionally, the Bank offers a variety of retirement deposit accounts to personal and business customers. The Bank emphasizes its transaction deposits – checking and NOW accounts – for personal accounts and checking accounts promoted to businesses.
The Company proactively identifies potential human capital related risks, such as the labor market shortage, rising labor costs, and employee retention and designs strategies to mitigate those risks. Strong human capital management is viewed as integral to the Company's transformation and ability to meet its strategic objectives.
The Company proactively identifies potential human capital related risks, such as the labor market shortage, skills gap, rising labor and health care costs, and employee retention and designs strategies to mitigate those risks. Strong human capital management is viewed as integral to the Company's ability to meet its strategic objectives, deliver a superior client experience and drive sustainable shareholder returns.
RECRUITMENT Berkshire operates in a highly competitive labor market with strong competition for top talent. The Company relies on and continues to recruit employees with the right mix of skills, expertise and experiences based on current openings and forecasted needs.
RECRUITMENT Berkshire operates in a highly competitive labor market with strong competition for top talent. The Company relies on and continues to recruit employees with the right mix of skills, expertise and experiences. The Company forecasts its hiring needs based on attrition, skills assessments, market conditions, resource availability and strategic objectives.
The Bank is subject to extensive anti-money laundering provisions and requirements, which require the institution to have in place a comprehensive customer identification program and an anti-money laundering program and procedures.
The Bank is subject to extensive anti-money laundering statutes and regulations, which require the institution to have in place an anti-money laundering compliance program and procedures and a customer identification program, among other things.
Loans may generally be made with amortizations of up to 30 years and with interest rates that adjust periodically (primarily from short-term to five years). Most commercial real estate loans are originated with final maturities of 10 years or less. As part of its business activities, the Bank also enters into commercial loan participations and interest rate swaps.
Loans may generally be made with amortizations of up to 30 years and with final maturities of 10 years or less. As part of its business activities, the Bank also enters into commercial loan participations and interest rate swaps.
Asset based lending involves monitoring loan collateral so that outstanding balances are properly margined by business asset collateral, which reduces the risks associated with these loans. Small Business Banking Group is also referred to as Business Banking, and handles most business relationships which are smaller than the middle market category.
Asset based lending involves monitoring loan collateral so that outstanding balances are properly margined by business asset collateral, which reduces the risks associated with these loans. Small Business Banking Group handles most business relationships which are smaller than the middle market category. Additionally, some smaller business needs are handled through the Bank’s retail branch system.
Item 1 - Table 4A - Allocation of Allowance for Credit Losses on Loans by Category (as of year-end) 2022 2021 2020 (Dollars in thousands) Amount Allocated Percent Allocated to Total Loans in Each Category Amount Allocated Percent Allocated to Total Loans in Each Category Amount Allocated Percent Allocated to Total Loans in Each Category Construction $ 1,227 0.4 % $ 3,206 1.0 % $ 5,111 1.1 % Commercial multifamily 1,810 0.3 6,120 1.2 5,916 1.2 Commercial real estate owner occupied 10,739 1.7 12,752 2.1 12,380 2.2 Commercial real estate non-owner occupied 30,724 1.2 32,106 1.5 35,850 1.7 Commercial and industrial 18,743 1.3 22,584 1.8 25,013 1.3 Residential real estate 18,666 0.8 22,734 1.5 28,491 1.5 Home equity 2,173 1.0 4,006 1.6 6,482 2.2 Consumer other 12,188 4.5 2,586 1.3 8,059 2.7 Total $ 96,270 1.2 % $ 106,094 1.6 % $ 127,302 1.6 % Item 1 - Table 4B - Allocation of Allowance for Credit Losses on Loans (as of year-end) 2022 2021 2020 (Dollars in thousands) Amount Allocated Percent of Loans in Each Category to Total Loans Amount Allocated Percent of Loans in Each Category to Total Loans Amount Allocated Percent of Loans in Each Category to Total Loans Construction $ 1,227 3.8 % $ 3,206 4.8 % $ 5,111 5.6 % Commercial multifamily 1,810 7.4 6,120 7.5 5,916 6.0 Commercial real estate owner occupied 10,739 7.7 12,752 8.9 12,380 6.8 Commercial real estate non-owner occupied 30,724 30.0 32,106 31.6 35,850 26.2 Commercial and industrial 18,743 17.4 22,584 18.8 25,013 24.0 Residential real estate 18,666 27.7 22,734 21.8 28,491 23.9 Home equity 2,173 2.7 4,006 3.7 6,482 3.7 Consumer other 12,188 3.3 2,586 2.9 8,059 3.8 Total $ 96,270 100.0 % $ 106,094 100.0 % $ 127,302 100.0 % 12 Table of Contents INVESTMENT SECURITIES ACTIVITIES The securities portfolio provides cash flow to protect the safety of customer deposits and as a potential source of liquidity.
Item 1 - Table 4A - Allocation of Allowance for Credit Losses on Loans by Category (as of year-end) 2023 2022 2021 (Dollars in thousands) Amount Allocated Percent Allocated to Total Loans in Each Category Amount Allocated Percent Allocated to Total Loans in Each Category Amount Allocated Percent Allocated to Total Loans in Each Category Construction $ 2,885 0.5 % $ 1,227 0.4 % $ 3,206 1.0 % Commercial multifamily 2,475 0.4 1,810 0.3 6,120 1.2 Commercial real estate owner occupied 9,443 1.5 10,739 1.7 12,752 2.1 Commercial real estate non-owner occupied 38,221 1.5 30,724 1.2 32,106 1.5 Commercial and industrial 18,602 1.4 18,743 1.3 22,584 1.8 Residential real estate 19,622 0.7 18,666 0.8 22,734 1.5 Home equity 2,015 0.9 2,173 1.0 4,006 1.6 Consumer other 12,094 5.5 12,188 4.5 2,586 1.3 Total $ 105,357 1.2 % $ 96,270 1.2 % $ 106,094 1.6 % Item 1 - Table 4B - Allocation of Allowance for Credit Losses on Loans (as of year-end) 2023 2022 2021 (Dollars in thousands) Amount Allocated Percent of Loans in Each Category to Total Loans Amount Allocated Percent of Loans in Each Category to Total Loans Amount Allocated Percent of Loans in Each Category to Total Loans Construction $ 2,885 7.1 % $ 1,227 3.8 % $ 3,206 4.8 % Commercial multifamily 2,475 6.6 1,810 7.4 6,120 7.5 Commercial real estate owner occupied 9,443 7.0 10,739 7.7 12,752 8.9 Commercial real estate non-owner occupied 38,221 28.8 30,724 30.0 32,106 31.6 Commercial and industrial 18,602 15.0 18,743 17.4 22,584 18.8 Residential real estate 19,622 30.5 18,666 27.7 22,734 21.8 Home equity 2,015 2.5 2,173 2.7 4,006 3.7 Consumer other 12,094 2.5 12,188 3.3 2,586 2.9 Total $ 105,357 100.0 % $ 96,270 100.0 % $ 106,094 100.0 % 12 Table of Contents INVESTMENT SECURITIES ACTIVITIES The securities portfolio provides a source of liquidity, income and interest rate risk management.
Item 1 - Table 5 - Weighted Average Yield One Year or Less More than One Year to Five Years More than Five Years to Ten Years More than Ten Years Total (In millions) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Municipal bonds and obligations $ 1.4 5.2 % $ 7.4 4.3 % $ 39.5 4.9 % $ 284.4 4.1 % $ 332.7 4.3 % Mortgage-backed securities 0.1 2.1 % 43.4 2.2 % 229.0 1.8 % 1,581.1 1.7 % 1,853.6 1.5 % Other bonds and obligations 12.1 3.6 % 6.1 7.1 % 38.7 4.3 % 1.5 3.8 % 58.4 2.0 % Total $ 13.6 3.8 % $ 56.9 3.0 % $ 307.2 2.5 % $ 1,867.0 2.1 % $ 2,244.7 1.9 % 13 Table of Contents DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS Deposits are the major source of funds for the Bank’s lending and investment activities.
Item 1 - Table 5 - Weighted Average Yield One Year or Less More than One Year to Five Years More than Five Years to Ten Years More than Ten Years Total (In millions) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Municipal bonds and obligations $ 0.7 6.5 % $ 6.9 4.3 % $ 53.6 4.8 % $ 254.6 4.0 % $ 315.8 4.2 % Mortgage-backed securities — — % 18.3 2.2 % 94.1 2.1 % 1,272.6 1.6 % 1,385.0 1.7 % Other bonds and obligations 8.0 1.0 % 6.1 8.6 % 38.2 4.3 % 1.5 5.0 % 53.8 4.3 % Total $ 8.7 1.4 % $ 31.3 3.9 % $ 185.9 3.3 % $ 1,528.7 2.0 % $ 1,754.6 2.2 % 13 Table of Contents DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS Deposits are the major source of funds for the Bank’s lending and investment activities.
The Bank also offers revolving loans, lines of credit, letters of credit, time notes and SBA guaranteed loans. Business lines of credit have adjustable rates of interest and can be committed or are payable on demand, subject to annual review and renewal.
The Bank also offers revolving loans, lines of credit, letters of credit, time notes and SBA guaranteed loans. Business lines of credit have interest rates that adjust, and are generally subject to annual review and renewal.
Further discussion of income taxation is contained in a note to the financial statements. The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions.
This discussion of tax matters is only a summary and is not a comprehensive description of the tax rules applicable to the Company and its subsidiaries. Further discussion of income taxation is contained in a note to the financial statements. The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions.
The FDIC has authority to bring enforcement actions against such institutions and their “institution-related parties,” including officers, directors, certain shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution.
The FDIC has authority to bring enforcement actions against such institutions and their “institution-related parties,” including officers, directors, certain shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in prescribed types of misconduct which caused or were likely to cause more than a minimal loss to, or a significant adverse effect on, an insured institution.
The Company leverages several strategies to support its talent pipeline and talent acquisition activities including formal advertising, postings on targeted career sites, career events, internship placements, affinity group relationships, and the use of experienced external recruiters for key management and specialized positions. Berkshire also has a small internal team of talent recruitment professionals.
This helps inform corporate strategies to fill current and future open positions. The Company leverages several strategies to support its talent pipeline and talent acquisition activities including formal advertising, postings on targeted career sites, career events, internship placements, affinity group relationships, and the use of experienced external recruiters for key management and specialized positions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisk Factors Summary Lending Risks • Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results. • The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits. • The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct. • The Company is Exposed to Risk of Environmental Liability When It Takes Title to Property. • New Third Party Lending Relationships and Sourcing Channels May Increase Lending Risk Operating Risks • Public Health Emergencies Like the COVID-19 Pandemic May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations. • The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business. • The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure. • Counterparties and Correspondents Expose the Company to Risks. • The Company’s Business is Reliant on Outside Vendors. • Tailoring The Bank's Delivery Model to Respond to Customer Preferences in Banking May Negatively Affect Earnings • Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk. • The Discontinuation of LIBOR and the Transition to an Alternative Reference Rate Could Adversely Impact the Company’s Business and Results of Operations. 29 Table of Contents Liquidity Risks • The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth. • The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions.
Biggest changeRisk Factors Summary Lending Risks • Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results. • The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits. • The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct. • The Company is Exposed to Risk of Environmental Liability When It Takes Title to Property. 28 Table of Contents Operating Risks • Effects of Conditions in the Financial Markets and Economic Conditions Generally, Including Macroeconomic Pressures Such as Inflation, Supply Chain Issues, and Geopolitical Risks Associated with International Conflict, and General Economic Conditions, Either Nationally or In Our Market Areas, That Are Worse Than Expected. • The Effects of any Public Health Emergencies and Pandemic Disease, Natural Disaster, War, Acts of Terrorism, Accident, or Similar Action or Event (collectively, "an event") May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations. • The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business. • The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Sensitive Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure. • Counterparties and Correspondents Expose the Company to Risks. • The Company’s Business is Reliant on Outside Vendors. • Tailoring The Bank's Delivery Model to Respond to Customer Preferences in Banking May Negatively Affect Earnings • Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk. • The Soundness of Other Financial Institutions Could Adversely Affect Us. • Legal and Regulatory Proceedings and Related Matters Could Adversely Affect Us and the Banking Industry in General. • Loss of Key Employees Could Disrupt Relationships With Certain Customers. • Mergers, Acquisitions and Dispositions Involve Numerous Risks and Uncertainties.
Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, the Company’s ability to access technical and other information from its clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the 33 Table of Contents preparation of marketing, sales and other materials that fully and accurately describe the product or service and its underlying risks.
Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, the Company’s ability to access technical and other information from its clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the preparation of marketing, sales and other materials that fully and accurately describe the product or service and its 33 Table of Contents underlying risks.
Changes in interest rates may also affect the market value of the Company’s investment securities portfolio, which may affect the level and adequate of its regulatory capital. During 2022, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. The Federal Reserve has signaled that further tightening is anticipated.
Changes in interest rates may also affect the market value of the Company’s investment securities portfolio, which may affect the level and adequate of its regulatory capital. During 2022 and 2023, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. The Federal Reserve has signaled that further tightening is anticipated.
Liquidity The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth. The Company must maintain sufficient funds to respond to the needs of depositors and borrowers.
The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth. The Company must maintain sufficient funds to respond to the needs of depositors and borrowers.
The length of the pandemic and the effectiveness of the measures being put in place to address it are unknown and we face possible continued impacts on liquidity, operating revenues, and credit performance.
The length of a pandemic and the effectiveness of the measures being put in place to address it are unknown and we face possible continued impacts on liquidity, operating revenues, and credit performance.
Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, steal financial assets, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means.
Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to sensitive information, destroy data, steal financial assets, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means.
Some of the risks the Company faces from the pandemic include, but are not limited to: the health and availability of our colleagues, the supply of labor, inflationary impacts on operating costs, the financial condition of our clients and the demand for our products and services, changes in interest rates, recognition of credit losses and increases in the allowance for credit losses, impacts if customers draw on their lines of credit or draw down deposits or seek additional loans to help finance their businesses, and a significant deterioration of business conditions in our markets.
Some of the risks the Company faces from an Event include, but are not limited to: the health and availability of our colleagues, the supply of labor, inflationary impacts on operating costs, the financial condition of our clients and the demand for our products and services, changes in interest rates, recognition of credit losses and increases in the allowance for credit losses, impacts if customers draw on their lines of credit or draw down deposits or seek additional loans to help finance their businesses, and a significant deterioration of business conditions in our markets.
Security breaches of confidential information in our technology platforms could expose the Company to possible liability and damage its reputation. Any compromise of data security could also deter customers from using the Company's services. The Company relies on industry standard internet security and authentication systems to effect secure transmission of data.
Security breaches of sensitive information in our technology platforms could expose the Company to possible liability and damage its reputation. Any compromise of data security could also deter customers from using the Company's services. The Company relies on industry standard internet security and authentication systems to effect secure transmission of data.
The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.
The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Sensitive Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.
Fair Value Measurements May Be Affected by Inherent Uncertainties The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, impaired loans, securities available for sale, and derivatives.
Fair Value Measurements May Be Affected by Inherent Uncertainties The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, securities available for sale, and derivatives.
These provisions include: limitations on voting rights of beneficial owners of more than 10 percent of common stock; supermajority voting requirements for certain business combinations; the election of directors to terms of one year; and advance notice 36 Table of Contents requirements for nominations for election to the Company's Board of Directors and for proposing matters that stockholders may act on at stockholder meetings.
These provisions include: limitations on voting rights of beneficial owners of more than 10 percent of common stock; supermajority voting requirements for certain business combinations; the election of directors to terms of one year; and advance notice requirements for nominations for election to the Company's Board of Directors and for proposing matters that stockholders may act on at stockholder meetings.
The Company could be the target of similar litigation in the future, which could result in substantial costs and divert management’s attention and resources. 37 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The Company could be the target of similar litigation in the future, which could result in substantial costs and divert management’s attention and resources. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 39 Table of Contents
As a part of its liquidity management, the Company uses a number of funding sources in addition to deposit growth and cash flows from loans and investments. These sources include Federal Home Loan Bank advances, proceeds from the sale of loans, and liquidity resources at the holding company.
As a part of its liquidity management, the Company uses a number of funding sources in addition to deposit growth and cash flows from loans and investments. These sources include Federal Home Loan Bank advances, issuance of Brokered CDs, proceeds from the sale of loans, and liquidity resources at the holding company.
To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of operations, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K. The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.
To the extent a pandemic adversely affects our business, financial condition, liquidity, or results of operations, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K. 31 Table of Contents The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.
The Company's mortgage banking operations have exposed us to counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and hedging. Financial, reputational, and operational risks are inherent in these counterparty and correspondent relationships.
The Company's mortgage banking operations have exposed us to counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and hedging, as well as mortgage servicing. Financial, reputational, and operational risks are inherent in these counterparty and correspondent relationships.
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.
Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as individually evaluated loans held for investment and capitalized servicing rights.
Despite efforts to ensure the integrity of its systems, the Company will not be able to anticipate all security breaches of these types, and the Company may not be able to implement effective preventive 32 Table of Contents measures against such security breaches.
Despite efforts to ensure the integrity of its systems, the Company will not be able to anticipate all security breaches of these types, and the Company may not be able to implement effective preventive measures against such security breaches.
Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans and increase loan losses, and generally affect the Company's financial condition and results of operations. Potential increases in interest rates could increase capitalization rates which could adversely affect commercial property appraisals and collateral value.
Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans and increase loan losses, and generally affect the Company's financial condition and results of operations. Potential increases in interest rates can lead to increased capitalization rates over time which could adversely affect commercial property appraisals and collateral value.
The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions. The Company’s Stock Repurchase Program is also Dependent on These Distributions.
The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions.
It is possible, depending upon the financial condition of the Bank and other factors, that the applicable regulatory authorities could assert that payment of dividends or other types of payments are an unsafe or unsound practice.
It is possible, depending upon the financial condition of the Bank and other factors, that the applicable regulatory authorities could assert that payment of dividends from the Bank to the Company or other types of payments are considered an unsafe or unsound practice.
The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity and results of operations will 31 Table of Contents depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to the pandemic.
The extent to which an Event impacts our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of an Event, the continued effectiveness of our business continuity plan, the direct and indirect impact of an Event on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to an Event.
A successful penetration or circumvention of system security could cause serious negative consequences to the Company, including significant disruption of operations, misappropriation of confidential information of the Company or that of its customers, or damage to computers or systems of the Company or those of its customers and counterparties.
A successful penetration or circumvention of system security could cause serious negative consequences to the Company, 32 Table of Contents including significant disruption of operations, misappropriation of sensitive information of the Company or that of its customers, or damage to computers or systems of the Company or those of its customers and counterparties.
If any of these representations and warranties are invalid, the Company may be required to refund premiums, indemnify the purchaser for any related costs or losses, or it may be required to repurchase part or all of the affected loans, which may be impaired.
If any of these representations and warranties are invalid, the Company may be required to refund premiums, indemnify the 30 Table of Contents purchaser for any related costs or losses, or it may be required to repurchase part or all of the affected loans.
The costs associated with investigation or remediation activities could be substantial. The Company may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. New Third Party Lending Relationships and Sourcing Channels May Increase Lending Risk.
The costs associated with investigation or remediation activities could be substantial. The Company may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.
If the Bank is unable to pay dividends, the Company may not 35 Table of Contents be able to service debt, pay debt obligations, or pay dividends on its common stock. The Company may also be unable to repurchase common stock under its Stock Repurchase Program.
If the Bank is unable to pay dividends, the Company may not be able to service debt, pay debt obligations, or pay dividends on its common stock. The Company may also be unable to repurchase common stock under a then outstanding stock repurchase program.
Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk. The Company’s financial performance depends, in part, on its ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate its products or provide cost efficiencies, while avoiding increased related expenses.
The Company’s financial performance depends, in part, on its ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate its products or provide cost efficiencies, while avoiding increased related expenses.
In recognition of this shift in consumer patterns, we regularly review the branch network, which has resulted in branch consolidation accompanied by the enhancement of the Bank’s capabilities to serve its customers through alternate delivery channels. The benefits of this strategy will depend on our ability to realize expected benefits without experiencing significant customer attrition.
In recognition of this shift in consumer patterns, we regularly review the branch network, which has resulted in branch consolidation accompanied by the enhancement of the Bank’s capabilities to serve its customers through alternate delivery channels.
Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on the Company’s business and reputation, as well as on its consolidated results of operations and financial condition. Tailoring The Bank’s Retail Delivery Model to Respond to Consumer Preferences in Banking May Negatively Affect Earnings.
Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on the Company’s business and reputation, as well as on its consolidated results of operations and financial condition. The soundness of other financial institutions could adversely affect us.
Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks. The Company may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
The Company may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
The Company’s branch network continues to be a very significant source of new business generation, however, consumers continue to migrate much of their routine banking to self-service channels.
Tailoring The Bank’s Retail Delivery Model to Respond to Consumer Preferences in Banking May Negatively Affect Earnings. The Company’s branch network continues to be a very significant source of new business generation, however, consumers continue to migrate much of their routine banking to self-service channels.
The Company uses brokered deposits both to support ongoing growth and to provide enhanced deposit insurance to support large dollar commercial relationships. The Company's financial flexibility will be severely constrained if the Company is unable to maintain access to wholesale funding or if adequate financing is not available to accommodate future growth at acceptable costs.
The Company’s financial flexibility will be severely constrained if the Company is unable to maintain access to wholesale funding or if adequate financing is not available to accommodate future growth at acceptable costs.
Interest Rate Risks • Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition. Securities Market Value Risks • Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings.
Securities Market Value Risks • Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings.
A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pay obligations, and pay shareholder dividends. The availability of dividends from the Bank is limited by various statutes and regulations.
The Company’s Stock Repurchase Program is also Dependent on These Distributions. 36 Table of Contents A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pays obligations, and pays shareholder dividends. The availability of dividends from the Bank is limited by various statutes and regulations.
Potential problems with the management of technology security and operational risks may affect regulatory compliance, which could affect operating costs and expansion plans.Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, may have unintended consequences due to their limitations, potential manipulation, or our failure to use them effectively.
Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, may have unintended consequences due to their limitations, potential manipulation, or our failure to use them effectively.
The Value of Shareholder Investments May be Subject to Sudden Decreases Due to the Volatility of the Price of the Common Stock . Lending Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results. Real estate lending is a major business activity for the Company.
Lending Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results. Real estate lending is a major business activity for the Company.
The Company's ability to raise capital, if needed, will depend on its condition and performance, and on market conditions.
The Company may need to raise additional capital in the future to support operations and continued growth. The Company's ability to raise capital, if needed, will depend on its condition and performance, and on market conditions.
Securities Market Values Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings. Declines in the value of investment securities due to market conditions and/or issuer impairment could result in losses that can reduce capital and earnings. Such declines can result from changes in interest rates and inflation.
Declines in the value of investment securities due to market conditions and/or issuer impairment could result in losses that can reduce capital and earnings. Such declines can result from changes in interest rates and inflation. The Company’s investment in equity securities and non-investment grade or unrated debt securities present heightened credit and price risks.
The Company’s investment in equity securities and non-investment grade debt securities present heightened credit and price risks. Under new accounting standards, equity gains and losses are recorded to current period operating results. The Company has an investment in the stock of the Federal Home Loan Bank of Boston ("FHLBB") which could result in write-down in the event of impairment.
Under applicable accounting standards, equity gains and losses are recorded to current period operating results. The Company has an investment in the stock of the Federal Home Loan Bank of Boston ("FHLBB") which could result in write-down in the event of impairment. Regulatory Matters Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs.
The Company emphasizes commercial lending, which generally exposes the Company to a greater risk of nonpayment and loss because repayment of such loans often depends on the successful operations and income stream of the borrowers. Commercial loans are historically more susceptible to delinquency, default, fraud, and loss during economic downturns.
The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits. The Company emphasizes commercial lending, which generally exposes the Company to a greater risk of nonpayment and loss because repayment of such loans often depends on the successful operations and income stream of the borrowers.
The Company’s Stock Repurchase Program is also Dependent on These Distributions. • The Loss Recorded in 2020 May Have an Adverse Effect on Future Dividend Payments to Common Shareholders. • Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.
The Company’s Stock Repurchase Program is also Dependent on These Distributions. • Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations. Interest Rate Risks • Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition.
Regulatory Matters Risks • Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs. • Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party.
Regulatory Matters Risks • Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs. • Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party. • Changes in Tax Laws and Accounting Policies and Practices. 29 Table of Contents Significant Accounting Estimates Risks • Various Factors May Cause Our Allowance for Credit Losses on Loans to Increase. • Fair Value Measurements May Be Affected by Inherent Uncertainties.
Regulatory Matters Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs. New federal or state laws and regulations could affect lending, funding practices, capital, and liquidity standards. New laws, regulations, and other regulatory changes may also increase compliance costs and affect business and operations.
New federal or state laws and regulations could affect lending, funding practices, capital, and liquidity standards. New laws, regulations, and other regulatory changes may also increase compliance costs and affect business and operations. Moreover, the FDIC sets the cost of FDIC insurance premiums, which can affect profitability. Regulatory capital requirements and their impact on the Company may change.
Commercial lending involves larger loan sizes and larger relationship exposures, with greater potential impact on profits in the event of adverse loan performance. The majority of the Company’s commercial loans are secured by real estate and subject to the previously discussed real estate risk factors, as well as risks specific to individual properties and property types.
The majority of the Company’s commercial loans are secured by real estate and subject to the previously discussed real estate risk factors, as well as risks specific to individual properties and property types. The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct.
Residential property values may be similarly adversely impacted. Pandemic impacts on the supply and demand of residential properties have caused unusual price appreciation in many markets, which may not be sustained if market conditions normalize. 30 Table of Contents The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits.
Residential property values may be similarly adversely impacted. Pandemic impacts on the supply of and demand for commercial and residential properties have caused unusual valuation changes in many markets, which may not be sustained if market conditions normalize. As of December 31, 2023, commercial real estate loans comprised approximately 49% of our loan portfolio.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by the Board. Significant Accounting Estimates Various Factors May Cause our Allowance for Credit Losses on Loans to Increase.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by the Board. Changes in tax laws and accounting policies and practices. We are subject to income taxes and complex tax regimes in the United States.
In addition, such uncertainty could result in pricing volatility and increased capital requirements, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks. 34 Table of Contents Interest Rate Risks Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition Net interest income is the Company's largest source of income.
Interest Rate Risks Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition Net interest income is the Company's largest source of income.
The Company's business continuity program addresses crisis management, business impact, and data and systems recovery.
The Company's business continuity program addresses crisis management, business impact, and data and systems recovery. Potential problems with the management of technology security and operational risks may affect regulatory compliance, which could affect operating costs and expansion plans.
Significant Accounting Estimates Risks • Various Factors May Cause Our Allowance for Credit Losses on Loans to Increase. • Fair Value Measurements May Be Affected by Inherent Uncertainties Trading of the Company's Common Stock • The Trading History of the Company’s Common Stock is Characterized By Low Trading Volume.
Trading of the Company's Common Stock • The Trading History of the Company’s Common Stock is Characterized By Low Trading Volume. The Value of Shareholder Investments May be Subject to Sudden Decreases Due to the Volatility of the Price of the Common Stock .
Removed
Recent expansion of the commercial lending team may expose the Company to new markets and risks if new lenders are not integrated with the Company’s policies, controls, and procedures. The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct.
Added
Liquidity Risks • Liquidity is Essential to the Company’s Business and a Lack of Liquidity Could Adversely Affect the Company’s Financial Condition and Results of Operations. • Bank failures and stresses may lead to negative depositor confidence in depository institutions.
Removed
The Company is expanding its lending sourcing channels, including a residential mortgage channel with local correspondents, partnering with fintech online lenders, and expanding its commercial loan sourcing channels. It is also relying more on third party loan servicing. These activities may increase the underwriting risks and loan administration risks in managing its lending activities.
Added
Systemic impacts may have a material adverse effect on our financial condition and results of operations and stock price. • The Company's Wholesale Funding Sources May Prove Insufficient to Support Operations and Future Growth. • The Company's Ability to Service Its Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions.
Removed
Operating Public Health Emergencies Such as the COVID-19 Pandemic May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations. The COVID-19 pandemic has negatively impacted the U.S. and global economy; disrupted U.S. and global supply chains and labor markets; created significant volatility and disruption in financial markets; impacted rates and yields on U.S.
Added
Commercial real estate mortgage loans generally involve a greater degree of credit risk than residential real estate mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy.
Removed
Treasury securities; resulted in increased credit risk in certain industries; increased demands on capital and liquidity; and affected employment wages, consumer confidence, and inflation. In addition, the pandemic has resulted in temporary closures and curtailment of individual and business activities in our footprint.
Added
Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations or changes in the level of interest rates.
Removed
The pandemic has resulted in increases in the Company's allowance for credit losses and the recognition of impairment of our goodwill.
Added
In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of office properties within our commercial real estate portfolio.
Removed
The Discontinuation of LIBOR and the Transition to an Alternative Reference Rate Could Adversely Impact the Company’s Business and Results of Operations. The interest rates paid on certain of the Company’s floating-rate funding, hedging transactions and products, such as floating-rate loans and mortgages, are indexed to the London Interbank Offered Rate (“LIBOR”).
Added
Accordingly, the federal banking regulatory agencies have issued advisories on managing commercial real estate concentrations in a challenging economic environment.
Removed
The use of LIBOR on new contracts was discontinued on December 31, 2021, and LIBOR will cease publication after June 30, 2023.
Added
Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which, accordingly, could have a material adverse effect on our business, financial condition and results of operations.
Removed
Regulators and various financial industry groups have sponsored or formed committees (e.g., the Federal Reserve-sponsored Alternative Reference Rates Committee) to, among other things, facilitate the identification of an alternative benchmark index to replace LIBOR, and publish consultations on recommended practices for transitioning away from LIBOR, including (i) the utilization of recommended fallback language for LIBOR-linked financial instruments, and (ii) development of alternative pricing methodologies for recommended alternative benchmarks such as the Secured Overnight Financing Rate (“SOFR”).
Added
Commercial loans are historically more susceptible to delinquency, default, fraud, and loss during economic downturns. Commercial lending involves larger loan sizes and larger relationship exposures, with greater potential impact on profits in the event of adverse loan performance.
Removed
SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-based repurchase transactions.
Added
Operating Risks Effects of conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, and geopolitical risks associated with international conflict, and general economic conditions, either nationally or in our market areas, that are worse than expected.
Removed
The March 2022 enactment of the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve’s proposed implementing regulations established SOFR as the benchmark rate that will automatically apply to agreements that rely on LIBOR and do not have an alternative contractual fallback benchmark rate.
Added
Generally, our financial performance, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of the collateral securing those loans, as well as demand for loans and other products and services we offer, is very dependent on the business environment in the markets we operate in and the United States as a whole.
Removed
The selected SOFR-based replacement benchmark rates may also apply automatically to contracts with fallback provisions that authorize a particular person to determine the replacement benchmark. The Company adopted SOFR as its preferred benchmark as an alternative to LIBOR for use in new contracts beginning on January 1, 2022.
Added
Adverse economic conditions may result from a variety of factors, including domestic and global economic and political developments, including plateauing or decreasing economic growth and business activity, recessions, interest rates, inflation, pressures on the commercial real estate market, uncertainty regarding the U.S. government's debt limit, a potential U.S. government shutdown, recent stress in the banking sector, international conflict, civil unrest.
Removed
At this time, it is still not possible to predict whether these recommendations and proposals will be broadly accepted in the market, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
Added
A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.
Removed
The discontinuation of LIBOR could result in disputes with customers or other counterparties, changes to the Company’s risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, the Company’s exposure to fluctuations in interest rates), or otherwise result in losses on a product or having to pay more or receive less on securities that the Company has issued or owns.
Added
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; high unemployment, natural disasters; increases in inflation or interest rates; limitations on the availability or increases in the cost of credit and capital; or a combination of these or other factors.
Removed
A substantial portion of the Company’s on- and off-balance sheet financial instruments are indexed to LIBOR, including interest rate swap agreements and other contracts used for hedging and trading account purposes, loans to commercial customers and consumers (including mortgage loans and other loans), and long-term borrowings.
Added
The occurrence of any of these conditions could have a material adverse effect on our financial condition and results of operations. The Effects of any Public Health Emergencies and Pandemic Disease, Natural Disaster, War, Acts of Terrorism, Accident, or Similar Action or Event (Collectively, "an Event") May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.
Removed
Moreover, the FDIC sets the cost of FDIC insurance premiums, which can affect profitability. Regulatory capital requirements and their impact on the Company may change. The Company may need to raise additional capital in the future to support operations and continued growth.
Added
Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks. Advancements in the use of artificial intelligence could lead to adversarial attacks by exploiting vulnerabilities to manipulate model outputs or bypass security controls.
Added
The benefits of this strategy will depend on our ability to realize expected benefits without experiencing significant customer attrition, unexpected costs, or unanticipated disruptions to operations. Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.
Added
Financial services institutions are interrelated as a result of clearing, trading, counterparty, or other relationships. We have exposure to many different counterparties and industries, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−1 removed2 unchanged
Biggest changeThe Bank's 44 Business Capital lending division is headquartered in Blue Bell, Pennsylvania. The Company has begun introducing MyTeller automated remote teller stations at new offices and targeted existing offices. The Bank has made its workplace more flexible as certain designated functions are approved for telecommuting arrangements.
Biggest changeThe Bank's 44 Business Capital lending division is headquartered in Blue Bell, Pennsylvania. The Bank has made its workplace more flexible as certain designated functions are approved for telecommuting arrangements. As a result of its efficiency initiatives, the Bank has been in the process of identifying and reducing real estate utilized for its operations.
Due to the pandemic, the Company adapted its infrastructure and protocols to accommodate the shift of back office operations out of the office and continues to support this expanded capability and flexibility in pursuit of its strategies and human capital management. 38 Table of Contents
Due to the pandemic, the Company adapted its infrastructure and protocols to accommodate the shift of back office operations out of the office and continues to support this expanded capability and flexibility in pursuit of its strategies and human capital management. 41 Table of Contents
As of December 31, 2022 the Company had 100 full-service financial centers in Massachusetts, New York, Connecticut, Rhode Island, and Vermont. The Company also has regional locations which are full-service commercial offices located in Boston, MA.; Pittsfield, MA.; Springfield, MA.; Albany, N.Y.; East Syracuse, N.Y.; Hartford, CT.; Willimantic, CT. Worcester, MA.; Burlington, MA, Providence RI, and New Haven, CT.
As of December 31, 2023 the Company had 96 full-service financial centers in Massachusetts, New York, Connecticut, Rhode Island, and Vermont. The Company also has regional locations which are full-service commercial offices located in Boston, MA.; Pittsfield, MA.; Springfield, MA.; Albany, N.Y.; East Syracuse, N.Y.; Glastonbury, CT.; Willimantic, CT. Worcester, MA.; Burlington, MA, and Providence RI.
Removed
As a result of its efficiency initiatives, the Bank has been in the process of identifying and reducing real estate utilized for its operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

7 edited+2 added−0 removed6 unchanged
Biggest changeThe complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s breach of loan participation agreements in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation.
Biggest changeThe complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s breaches of a series of loan participation agreements executed in 2017, 2018 and 2019 in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation.
ITEM 3. LEGAL PROCEEDINGS As of December 31, 2022, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations.
ITEM 3. LEGAL PROCEEDINGS As of December 31, 2023, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations.
The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a partial recovery of $1.7 million early in the second quarter of 2020. The Company has not accrued for any additional anticipated recovery at this time.
The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a partial recovery of $1.7 million early in the second quarter of 2020. The Company has not accrued for any additional anticipated recovery at this time. Extensive discovery has taken place in this action.
MINE SAFETY DISCLOSURES Not Applicable. 39 Table of Contents PART II
MINE SAFETY DISCLOSURES Not Applicable. 42 Table of Contents PART II
Pioneer has filed a motion to dismiss aspects of the Bank’s complaint, which motion was allowed in part by the court to dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed. Discovery is now underway in this action.
Pioneer filed a motion to dismiss aspects of the Bank’s complaint, which motion was allowed in part by the court to dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed.
On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration. The parties have mutually agreed on an arbitrator to hear the case and are preparing for arbitration proceedings that are expected to occur in the second half of 2023. Discovery is currently ongoing among the parties. ITEM 4.
On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration. The parties have mutually agreed on an arbitrator to hear the case and are preparing for arbitration proceedings that are expected to occur in the second or third quarter of 2024. Discovery is continuing between the parties. ITEM 4.
On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc.
Further discovery is continuing between the parties. On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc.
Added
On November 30, 2022, the Bank filed an amended complaint in its action against Pioneer setting forth more detailed allegations of Pioneer’s breaches of the loan participation agreements and stating additional claims for fraudulent inducement to cause Berkshire to join the loan participation agreements, constructive fraud and fraudulent concealment.
Added
On January 30, 2023, as part of its response to the Bank’s amended complaint, Pioneer filed a counterclaim against the Bank alleging (i) certain breaches by the Bank of the 2019 loan participation agreement stemming from actions that the Bank took to protect its interests after it learned of the facts and circumstances that caused the underlying credit loss, and (ii) that as a result of accepting the partial recovery of approximately $1.7 million in Q2 2020 the Bank should be deemed to have ratified the 2019 loan participation agreement and mooted its claims against Pioneer.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+0 added−0 removed2 unchanged
Biggest changePeriod Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs October 1-31, 2022 — $ — — 1,178,244 November 1-30, 2022 280,000 30.40 280,000 898,244 December 1-31, 2022 380,500 30.13 380,500 — Total 660,500 $ 30.24 660,500 — 40 Table of Contents Common Stock Performance Graph The performance graph compares the Company’s cumulative shareholder return on its common stock over the last five years to the cumulative return of the NYSE Composite Index and the KBW NASDAQ Regional Banking Index.
Biggest changePeriod Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs October 1-31, 2023 151,027 $ 19.16 151,027 1,055,914 November 1-30, 2023 124,090 20.38 124,090 931,824 December 1-31, 2023 52,831 22.43 52,831 — Total 327,948 $ 20.15 327,948 — 43 Table of Contents Common Stock Performance Graph The performance graph compares the Company’s cumulative shareholder return on its common stock over the last five years to the cumulative return of the NYSE Composite Index and the KBW NASDAQ Regional Banking Index.
Further information about dividend restrictions is disclosed in Note 18 - Shareholders’ Equity and Earnings per Common Share of the Consolidated Financial Statements. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities The Company occasionally issues unregistered shares of common stock to vendors or as consideration in contracts for the purchase of assets, services, or operations.
Further information about dividend restrictions is disclosed in Note 17 - Shareholders’ Equity and Earnings per Common Share of the Consolidated Financial Statements. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities The Company occasionally issues unregistered shares of common stock to vendors or as consideration in contracts for the purchase of assets, services, or operations.
Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) for the measurement period plus share price change for a period by the share price at the beginning of the measurement period. The Company’s cumulative shareholder return over a five-year period is based on an initial investment of $100 on December 31, 2017.
Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) for the measurement period plus share price change for a period by the share price at the beginning of the measurement period. The Company’s cumulative shareholder return over a five-year period is based on an initial investment of $100 on December 31, 2018.
On January 25, 2023, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $50 million through December 31, 2023.
On January 25, 2024, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $40 million through December 31, 2024.
Purchases of Equity Securities by the Issuer and Affiliated Purchases On January 19, 2022, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $140 million through December 31, 2022. This program expired at year-end 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchases On January 25, 2023, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $50 million through December 31, 2023. This program expired at year-end 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The common shares of the Company trade on the New York Stock Exchange under the symbol “BHLB”. The Company had approximately 3,806 holders of record of common stock at February 24, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The common shares of the Company trade on the New York Stock Exchange under the symbol “BHLB”. The Company had approximately 3,661 holders of record of common stock at February 23, 2024.
Dividends from the Bank have been a source of cash used by the Company to pay its dividends, and these dividends from the Bank are dependent on the Bank’s future earnings, capital requirements, and financial condition. Dividends from the Bank are currently subject to approval by the Massachusetts Division of Banks and the FDIC.
Dividends from the Bank have been a source of cash used by the Company to pay its dividends, and these dividends from the Bank are dependent on the Bank’s future earnings, capital requirements, and financial condition. Dividends from the Bank are allowed within statutory limits under Massachusetts statutes and are currently subject to approval by the FDIC.
During 2022 and 2021, there were no shares transferred.
During 2023 and 2022, there were no shares transferred.
Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Berkshire Hills Bancorp, Inc. 100.00 75.44 84.82 51.87 87.72 94.00 NYSE Composite Index 100.00 91.05 114.28 122.26 147.54 133.75 KBW NASDAQ Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59 Source: S&P Global Market Intelligence ITEM 6. RESERVED 41 Table of Contents
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Berkshire Hills Bancorp, Inc. 100.00 125.69 68.86 116.51 124.86 106.96 NYSE Composite Index 100.00 125.51 134.28 162.04 146.89 167.12 KBW NASDAQ Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17 Source: S&P Global Market Intelligence ITEM 6. RESERVED 44 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

62 edited+89 added−158 removed35 unchanged
Biggest changeThe following table summarizes the reconciliation of non-GAAP items recorded for the time periods indicated: At or For the Years Ended (Dollars in thousands) December 31, 2022 December 31, 2021 December 31, 2020 GAAP Net income/(loss) $ 92,533 $ 118,664 $ (533,017) Non-GAAP measures Adj: Loss on securities, net 2,031 787 7,520 Adj: Goodwill impairment — — 553,762 Adj: Net gains on sale of business operations — (52,942) (1,240) Adj: Acquisition, restructuring, conversion, and other related expenses (1) 8,909 5,781 5,839 Adj: Loss from discontinued operations before income taxes — — 26,855 Adj: Income taxes (2,940) 11,696 (29,342) Net non-operating charges 8,000 (34,678) 563,394 Total adjusted net income (non-GAAP) $ 100,533 $ 83,986 $ 30,377 GAAP Total revenue from continuing operations $ 413,534 $ 434,414 $ 383,089 Adj: Loss on securities, net 2,031 787 7,520 Adj: Net gains on sale of business operations — (52,942) (1,240) Total adjusted operating revenue (non-GAAP) $ 415,565 $ 382,259 $ 389,369 GAAP Total non-interest expense from continuing operations $ 288,716 $ 285,893 $ 840,239 Less: Total non-operating expense (see above) (8,909) (5,781) (5,839) Less: Goodwill impairment — — (553,762) Adjusted operating non-interest expense (non-GAAP) $ 279,807 $ 280,112 $ 280,638 Pre-tax, pre-provision net revenue (PPNR) from continuing operations $ 124,818 $ 148,521 $ (457,150) Adjusted pre-tax, pre-provision net revenue (PPNR) 135,758 102,147 108,731 (in millions, except per share data) Total average assets $ 11,347 $ 12,056 $ 12,861 Total average shareholders' equity 1,193 1,166 1,421 Total average tangible shareholders equity 1,166 1,134 1,105 Total average tangible common shareholders equity 1,166 1,134 1,088 Total tangible shareholders’ equity, period-end 930 1,153 1,153 Total tangible common shareholders’ equity, period-end 930 1,153 1,153 Total tangible assets, period-end 11,638 11,525 12,803 Total common shares outstanding, period-end (thousands) 44,361 48,667 50,833 Average diluted shares outstanding (thousands) 45,914 49,554 50,308 Earnings/(loss) per share, diluted $ 2.02 $ 2.39 $ (10.60) Plus: Net adjustments per share, diluted 0.17 (0.70) 11.20 Adjusted earnings per share, diluted 2.19 1.69 0.60 Book value per common share, period-end 21.51 24.30 23.37 Tangible book value per common share, period-end 20.95 23.69 22.68 Total shareholders' equity/total assets 8.18 10.23 9.25 Total tangible shareholders' equity/total tangible assets 7.99 10.00 9.01 49 Table of Contents At or For the Years Ended (Dollars in thousands) December 31, 2022 December 31, 2021 December 31, 2020 Performance Ratios GAAP return on assets 0.82 % 0.98 % (4.15) % Adjusted return on assets 0.89 0.70 0.24 GAAP return on equity 7.76 10.18 (37.46) Adjusted return on equity 8.43 7.20 2.14 Adjusted return on tangible common equity 8.94 7.74 3.18 Efficiency ratio (2) 64.31 69.96 68.53 Supplementary Data (in thousands) Tax benefit on tax-credit investments $ 4,880 $ 4,372 $ 4,699 Non-interest income charge on tax-credit investments (3,508) (3,445) (3,645) Net income on tax-credit investments 1,372 928 1,054 Intangible amortization 5,134 5,200 6,181 Fully taxable equivalent income adjustment 6,644 6,344 6,402 ____________________________________ (1) Acquisition, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years -ended December 31, 2022, 2021 and 2020.
Biggest changeThe following table summarizes the reconciliation of non-GAAP items recorded for the time periods indicated: At or For the Years Ended (Dollars in thousands) December 31, 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) — 2,037 787 Adj: Loss/(gain) on sale of AFS securities 25,057 (6) — Adj: Net gains on sale of business operations — — (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 — 2,037 787 Adj: Loss/(gain) on sale of AFS securities 25,057 (6) — Adj: Net gains on sale of business operations — — (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’ 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 52 Table of Contents 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 ____________________________________ (1) Starting in 2023, fair value adjustments on securities are included in operating income.
Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison.
Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison.
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.
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.
The Company also has a strong tax-credit business whereby it makes targeted investments in low-income housing tax credits (LIHTC), historic tax credits (HTC) and solar tax credits to further Berkshire’s ESG goals and strengthen its Community Reinvestment Act (CRA) performance.
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.
The plan focuses on four areas critical to the long-term vibrancy and success of its communities: fueling small businesses; community financing and philanthropy; financial access and empowerment; and funding environmental sustainability.
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.
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. 44 Table of Contents 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.
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. 47 Table of Contents 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.
(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.
(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.
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.
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 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’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.
In the following discussion, income statement comparisons are against the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2023 or any future period.
In 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.
Risk management is overseen by the Company’s Chief Risk Officer, who reports directly to the CEO. This position oversees risk management policy, credit, compliance, and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital & Compliance Committee.
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.
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.
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.
In acting as a source of strength for the Bank, the Company relies on capital distributions from the Bank in order to provide operating and capital service for the Company, which in turn can access national financial markets to provide financial support to the Bank.
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.
The effect of purchase accounting accretion on the net interest margin was an increase in all years, which is shown sequentially as follows beginning with the most recent year and ending with the earliest year: 0.02%, 0.09%, and 0.12%. 46 Table of Contents Rate/Volume Analysis The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income.
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%. 49 Table of Contents Rate/Volume Analysis The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income.
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.
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.
SUSTAINABLE FINANCE & IMPACT INVESTMENTS Berkshire became the first public U.S. community bank holding company with under $150 billion in assets to issue a Sustainability Bond with a $100 million issuance in 2022.
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.
For detailed information on our use of fair value measurements and our 62 Table of Contents related valuation methodologies, see Note 1 – Summary of Significant Accounting Policies and Note 21 – Fair Value Measurements for more information. 63 Table of Contents ENTERPRISE RISK MANAGEMENT Other sections of this report on Form 10-K include discussion of market risk and risk factors.
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.
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.
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.
Consistent with its previous practices measuring results on an adjusted basis before the impacts 48 Table of Contents of acquisitions, divestitures, and other designated items, the Company has introduced the measure of Adjusted Pre-Provision Net Revenue (“Adjusted PPNR”) which measures PPNR excluding adjustments for items not viewed as related to ongoing operations.
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.
Both of these most critical accounting policies were significant in determining income and financial condition based on events in 2022. Allowance for Credit Losses for Loans The allowance for credit losses for loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio.
Both of these most critical accounting policies were significant in determining income and financial condition based on events in 2023. 60 Table of Contents 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.
In management’s discussion and analysis of financial condition and results of operations, certain 50 Table of Contents reclassifications have been made to make prior periods comparable.
In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable.
As the Company moves further along in its climate journey, it expects to continue to enhance its disclosures, programs, mitigating controls and initiatives to minimize risk, reduce its emissions as well as capitalize on the many business opportunities arising from the transition to a lower-carbon economy.
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.
For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company. In 2022, price risk increased in relation to the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments and operations.
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 61 Table of Contents the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments and operations.
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.
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.
At or For the Years Ended December 31, (In thousands, except per share data) 2022 2021 2020 2019 2018 Per Common Share Data: Net earnings/(loss), diluted - continuing operations $ 2.02 $ 2.39 $ (10.21) $ 2.05 $ 2.36 Net (loss)/earnings, diluted - discontinued operations — — (0.39) (0.08) (0.07) Net earnings/(loss), diluted $ 2.02 $ 2.39 $ (10.60) $ 1.97 $ 2.29 Total book value per common share 21.51 24.30 23.37 34.65 33.30 Dividends 0.54 0.48 0.72 0.92 0.88 Common stock price: High 31.78 29.16 33.04 33.72 44.25 Low 23.62 16.35 8.55 26.02 25.77 Close 29.90 28.43 17.12 32.88 26.97 Performance Ratios: (1) Return on assets 0.82 % 0.98 % (4.15) % 0.75 % 0.90 % Return on equity 7.76 10.18 (37.50) 5.75 6.84 Return on tangible common equity 8.26 10.80 (48.60) 9.36 11.41 Net interest margin, fully taxable equivalent (FTE) (2) 3.26 2.60 2.72 3.17 3.40 Fee income/Net interest and fee income 15.66 22.49 18.10 23.86 23.36 Growth Ratios: Total commercial loans 12.99 % (12.09) % (4.58) % 9.19 % 6.17 % Total loans 22.11 (15.54) (14.95) 5.08 8.96 Total deposits 2.57 (1.44) (1.16) 15.07 2.66 Earnings per share, (compared to prior year) (15.48) 122.55 (638.07) (13.97) 64.75 Selected Financial Data: Total assets $ 11,662,864 $ 11,554,913 $ 12,838,013 $ 13,215,970 $ 12,212,231 Total earning assets 10,913,069 10,899,109 12,089,939 11,916,007 11,140,307 Securities 2,033,436 2,548,590 2,223,417 1,769,878 1,918,604 Total loans 8,335,309 6,825,847 8,081,519 9,502,428 9,043,253 Allowance for credit losses (96,270) (106,094) (127,302) (63,575) (61,469) Total intangible assets 24,483 26,619 34,819 599,377 551,743 Total deposits 10,327,269 10,068,953 10,215,808 10,335,977 8,982,381 Total borrowings 125,509 110,844 571,637 827,550 1,517,816 Total shareholders’ equity 954,062 1,182,435 1,187,773 1,758,564 1,552,918 42 Table of Contents At or For the Years Ended December 31, 2022 2021 2020 2019 2018 Selected Operating Data: Total interest and dividend income $ 387,257 $ 329,065 $ 409,782 $ 509,513 $ 465,894 Total interest expense 42,660 37,899 93,000 144,255 109,694 Net interest income 344,597 291,166 316,782 365,258 356,200 Fee income 63,995 84,462 69,990 76,824 74,026 All other non-interest income/(loss) 4,942 58,786 (3,683) 7,178 298 Total net revenue 413,534 434,414 383,089 449,260 430,524 Provision for credit losses 11,000 (500) 75,878 35,419 25,451 Total non-interest expense 288,716 285,893 840,239 289,857 266,893 Income/(loss) from continuing operations before income taxes 113,818 149,021 (533,028) 123,984 138,180 Income tax expense/(benefit) from continuing operations 21,285 30,357 (19,853) 22,463 28,961 Net income/(loss) from continuing operations 92,533 118,664 (513,175) 101,521 109,219 (Loss)/income from discontinued operations before income taxes — — (26,855) (5,539) (4,767) Income tax (benefit)/expense from discontinued operations — — (7,013) (1,468) (1,313) Net (loss)/income from discontinued operations — — (19,842) (4,071) (3,454) Net income/(loss) $ 92,533 $ 118,664 $ (533,017) $ 97,450 $ 105,765 Basic earnings/(loss) per common share: Continuing operations $ 2.03 $ 2.41 $ (10.21) $ 2.06 $ 2.38 Discontinued operations — — (0.39) (0.08) (0.08) Total basic earnings/(loss) per share $ 2.03 $ 2.41 $ (10.60) $ 1.98 $ 2.30 Diluted earnings/(loss) per common share: Continuing operations $ 2.02 $ 2.39 $ (10.21) $ 2.05 $ 2.36 Discontinued operations — — (0.39) (0.08) (0.07) Total diluted earnings/(loss) per share $ 2.02 $ 2.39 $ (10.60) $ 1.97 $ 2.29 Weighted average common shares outstanding - basic 45,564 49,240 50,270 49,263 46,024 Weighted average common shares outstanding - diluted 45,914 49,554 50,270 49,421 46,231 Dividends per preferred share $ — $ — $ 1.20 $ 1.84 $ 1.76 Dividends per common share $ 0.54 $ 0.48 $ 0.72 $ 0.92 $ 0.88 Asset Quality and Condition Ratios: (3) Net loans charged-off/average loans 0.27 % 0.29 % 0.41 % 0.35 % 0.18 % Allowance for credit losses/total loans 1.15 1.55 1.58 0.67 0.68 Loans/deposits 81 68 79 92 101 Capital Ratios: Tier 1 capital to average assets - Company 10.18 % 10.49 % 9.38 % 9.33 % 9.04 % Total capital to risk-weighted assets - Company 14.60 17.32 16.10 13.73 12.99 Tier 1 capital to risk-weighted assets - Company 12.60 15.30 14.06 12.30 11.57 Shareholders’ equity/total assets 8.18 10.23 9.25 13.31 12.73 43 Table of Contents ___________________________________ (1) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
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 — — — (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’ equity 1,012,221 954,062 1,182,435 1,187,773 1,758,564 45 Table of Contents 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 — — — (26,855) (5,539) Income tax (benefit)/expense from discontinued operations — — — (7,013) (1,468) Net (loss)/income from discontinued operations — — — (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 — — — (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 — — — (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 $ — $ — $ — $ 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’ equity/total assets 8.14 8.18 10.23 9.25 13.31 46 Table of Contents ___________________________________ (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.
(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.
This discussion includes the following sections: • Summary • Comparison of Financial Condition at December 31, 2022 and 2021 • Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 • Liquidity and Cash Flows • Capital Resources • Application of Critical Accounting Policies • Enterprise Risk Management • LIBOR Transition • Environmental, Social, Governance (ESG) and Commitment to Social Responsibility The following discussion and analysis should be read in conjunction with the Company’s financial statements and the notes thereto appearing in Item 8 of this document.
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 53 Table of Contents • 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.
Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee ESG matters and are a leader among community banks in integrating ESG standards into its business strategy and operations.
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 ESG, Sustainability, Climate Change, Diversity and Culture • Corporate Responsibility & Culture Committee of its Board of Directors • Environmental, Social and Governance (ESG) Committee 65 Table of Contents • Diversity Equity & Inclusion Committee • Responsible & Sustainable Business Policy • Lending, credit, deposit and investment policies which incorporate ESG exclusions and due diligence requirements • Senior managers for ESG and Diversity along with active involvement from business unit leaders and front lines in managing ESG externalities and risks This approach strengthens risk management practices consistent with the company’s enterprise risk management program and allows Berkshire to capitalize on business opportunities consistent with its strategy.
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.
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.
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.
The Company has in excess of $5 billion in notional balances of LIBOR based instruments related primarily to its commercial banking operations. These include loans index on LIBOR, as well as interest rate swap contracts including customer, dealer, and risk participation agreements.
The 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.
Such events could disrupt Berkshire’s operations, impact customers, or third parties on which Berkshire relies, including through direct damage to physical assets and indirect impacts from supply chain disruption and market volatility. This could impact borrowers’ ability to repay obligations, devalue physical assets resulting in uncertain residual values and affect third-parties ability to deliver on service expectations.
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.
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. 67 Table of Contents RATINGS, AWARDS & RECOGNITION We’re proud to be recognized for our performance with local, regional, national, and international awards as well as leading third party ESG ratings* including: • Top 17% aggregated ESG rating, achieving one of five major BEST goals • MSCI ESG- A • ISS ESG Quality Score - Environment: 3, Social: 1, Governance: 2 • Bloomberg ESG Disclosure- 62.81 • Sustainalytics Rated • Communitas Award for Leadership in Corporate Social Responsibility • Sustainable Business Network of Massachusetts Sustainable Business of the Year – Bank • Boston Business Journal Top Charitable Contributor • America’s Most Trustworthy Companies – Newsweek • Forbes America’s Best Midsize Employers • Bloomberg Gender-Equality Index • Human Rights Campaign Corporate Equality Index Best Place to Work for LGBTQ+ equality- 100% Score *As of December 31, 2022 68 Table of Contents
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 64 Table of Contents • Human Rights Campaign Corporate Equality Index *As of December 31, 2023
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.
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.
Residual price risk was viewed as medium including the impact of mitigating factors and management actions in the risk management environment. LIBOR TRANSITION The Company’s use of LIBOR based instruments and the industry-wide transition program away from LIBOR are discussed in Item 1 (“Business”) and Item 1-A (“Risk Factors”) of this report.
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.
As of year-end, Berkshire has deployed more than $1 billion in low-moderate income neighborhoods, over $300 million to support low-carbon projects and has transitioned its own electricity supply to 99% renewable since launching the program.
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.
In 2022, the Bank paid $108 million in dividends to the parent company. 61 Table of Contents 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.
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.
Item 7 - Table 3 - Average Balance, Interest and Average Yields / Costs 2022 2021 2020 (Dollars in millions) Average Balance Interest Average Yield/ Rate Average Balance Interest Average Yield/ Rate Average Balance Interest Average Yield/ Rate Assets Loans: (1)(2) Commercial real estate $ 3,836.2 $ 167.7 4.37 % $ 3,600.2 $ 124.4 3.46 % $ 3,958.6 $ 151.5 3.83 % Commercial and industrial loans 1,435.3 74.7 5.20 1,527.6 71.8 4.70 2,049.4 87.7 4.28 Residential loans 1,784.2 63.3 3.55 1,560.4 58.4 3.75 2,324.3 87.8 3.78 Consumer loans 556.8 32.1 5.77 569.1 22.0 3.87 828.1 31.3 3.78 Total loans 7,612.5 337.8 4.44 7,257.3 276.6 3.81 9,160.4 358.3 3.91 Investment securities (2)(3) 2,489.7 51.2 2.06 2,283.6 49.4 2.16 1,845.2 54.6 2.96 Short-term investments and loans held for sale (4) 569.1 4.9 0.86 1,619.4 2.3 0.58 767.2 4.4 0.64 Mid-Atlantic region loans held for sale — — — 179.5 7.1 3.97 25.2 0.4 1.07 Total interest-earning assets 10,671.3 393.9 3.69 11,339.8 335.4 2.60 11,798.0 417.7 3.55 Intangible assets 26.8 32.0 316.1 Other non-interest earning assets (4) 648.5 684.1 747.1 Total assets $ 11,346.6 $ 12,055.9 $ 12,861.2 Liabilities and shareholders' equity Deposits: NOW and other $ 1,416.7 $ 6.1 0.43 % $ 1,340.2 $ 1.0 0.07 % $ 1,216.6 $ 3.5 0.29 % Money market 2,809.1 13.8 0.49 2,749.7 5.3 0.19 2,713.6 15.3 0.56 Savings 1,114.8 0.4 0.03 1,067.7 0.5 0.05 914.1 0.9 0.10 Certificates of deposit 1,541.7 13.1 0.85 1,978.9 18.6 0.94 3,102.9 52.5 1.69 Total interest-bearing deposits 6,882.3 33.4 0.49 7,136.5 25.4 0.36 7,947.2 72.2 0.91 Borrowings and notes (5) 176.1 9.2 5.24 320.2 10.7 3.34 841.6 20.7 2.46 Mid-Atlantic region interest-bearing deposits — — — 335.1 1.8 0.54 45.0 0.1 0.80 Total interest-bearing liabilities 7,058.4 42.6 0.60 7,791.8 37.9 0.49 8,833.8 93.0 1.06 Non-interest-bearing demand deposits 2,914.9 2,817.4 2,324.6 Other non-interest-bearing liabilities (4) 180.1 280.9 281.4 Total liabilities 10,153.4 10,890.1 11,439.8 Total shareholders' equity 1,193.2 1,165.8 1,421.4 Total liabilities and equity $ 11,346.6 $ 12,055.9 $ 12,861.2 Net interest income $ 351.3 $ 297.5 $ 324.7 45 Table of Contents 2022 2021 2020 (Dollars in millions) Average Balance Interest Average Yield/ Rate Average Balance Interest Average Yield/ Rate Average Balance Interest Average Yield/ Rate Net interest spread 3.09 % 2.12 % 2.49 % Net interest margin (6) 3.26 2.60 2.72 Cost of funds 0.43 0.35 0.84 Cost of deposits 0.34 0.26 0.71 Interest-earning assets/interest-bearing liabilities 151.19 149.67 133.95 Supplementary data Total non-maturity deposits $ 8,255.5 $ 7,975.0 $ 7,168.9 Total deposits 9,797.2 9,954.0 10,271.8 Fully taxable equivalent adjustment 6.6 6.3 6.4 ____________________________________ Notes: (1) The average balances of loans include nonaccrual loans, and deferred fees and costs.
Item 7 - Table 1 - Average Balance, Interest and Average Yields / Costs 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 — — — — — — 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 $ — — % $ 2,914.9 $ — — % $ 2,817.4 $ — — % 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 — — — — — — 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 48 Table of Contents _________________________________ Notes: (1) The average balances of loans include nonaccrual loans, and deferred fees and costs.
Additionally, Berkshire’s annual Corporate Responsibility/ESG Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure (TCFD) disclosure standards, details the Company's ESG efforts and programs.
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.
Beyond the issuance of its sustainability bond, Berkshire looks for innovative ways to advance its ESG positioning and its strategic business priorities through sustainable finance and impact investing. As a result, Berkshire makes targeted impact investments in Small Business Investment Companies (SBIC) and other strategically aligned assets that are within risk appetite and drive a competitive rate of return.
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 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.
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.
Berkshire regularly engages directly with its stakeholders to share information about the progress it’s made in its ESG performance, including through its Corporate Responsibility website, corporate annual report, and proxy statement.
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.
Both Committees report into the full board. Beyond board level oversight of climate matters, Berkshire maintains an Environmental, Social and Governance committee comprised of senior executives throughout the Company. Berkshire also completes an annual climate change risk assessment to evaluate the bank’s operations and lending activities for potential exposure to transition and physical risks.
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.
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.
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.
Item 7 - Table 4 - Rate Volume Analysis 2022 Compared with 2021 2021 Compared with 2020 (Decrease) Increase Due to (Decrease) Increase Due to (In thousands) Rate Volume Net Rate Volume Net Interest income: Commercial real estate $ 34,681 $ 8,582 $ 43,263 $ (14,027) $ (13,071) $ (27,098) Commercial and industrial loans 7,397 (4,501) 2,896 7,962 (23,913) (15,951) Residential loans (3,179) 8,061 4,882 (762) (28,622) (29,384) Consumer loans 10,572 (482) 10,090 704 (10,014) (9,310) Total loans 49,471 11,660 61,131 (6,123) (75,620) (81,743) Investment securities (2,468) 4,316 1,848 (16,598) 11,341 (5,257) Short-term investments and loans held for sale (1) 4,968 (2,335) 2,633 (5,508) 2,980 (2,528) Mid-Atlantic region loans held for sale — (7,120) (7,120) (1,480) 8,600 7,120 Total interest income $ 51,971 $ 6,521 $ 58,492 $ (29,709) $ (52,699) $ (82,408) Interest expense: NOW accounts $ 5,053 $ 62 $ 5,115 $ (2,832) $ 327 $ (2,505) Money market accounts 8,402 116 8,518 (10,259) 201 (10,058) Savings accounts (204) 23 (181) (536) 137 (399) Certificates of deposit (1,593) (3,839) (5,432) (18,740) (15,233) (33,973) Total deposits 11,658 (3,638) 8,020 (32,367) (14,568) (46,935) Borrowings 4,568 (6,010) (1,442) 5,691 (15,702) (10,011) Mid-Atlantic region interest-bearing deposits — (1,820) (1,820) 814 1,006 1,820 Total interest expense $ 16,226 $ (11,468) $ 4,758 $ (25,862) $ (29,264) $ (55,126) Change in net interest income $ 35,745 $ 17,989 $ 53,734 $ (3,847) $ (23,435) $ (27,282) 47 Table of Contents 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”).
Item 7 - Table 2 - Rate Volume Analysis 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 — — — — (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 — — — — (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 50 Table of Contents 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”).
Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, has independently verified that Berkshire’s Sustainable Financing Framework "is credible and impactful and in alignment with” International Capital Market Association (ICMA) guidelines and principles.
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.
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.
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.
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 and analysts also measure Operating PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability.
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.
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. 59 Table of Contents 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.
This better approach to banking with ESG at its core helps manage risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn drives Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities. 64 Table of Contents BEST COMMUNITY COMEBACK Berkshire launched the BEST Community Comeback in late 2021, a transformational commitment to empower its stakeholders’ financial potential.
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.
(5) The average balances of borrowings and notes include the capital lease obligation presented under other liabilities on the consolidated balance sheet. (6) Purchase accounting accretion totaled $2.0 million, $6.7 million, and $9.9 million for the years-ended December 31, 2022, 2021, and 2020, respectively.
(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 Company’s long-term goal is to maintain an efficient capital structure and to provide a return in excess of the cost of its common equity capital. The Company’s tier 2 capital includes a $100 million subordinated note. The Company maintains a universal shelf registration statement for capital securities with the SEC.
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.
ESG INTEGRATION, OVERSIGHT & REPORTING ESG factors are integral to Berkshire’s business practices, risk management program, competitive positioning and its ability to deliver on its Berkshire’s Exciting Strategic Transformation (BEST) program and realize its vision of becoming a high-performing, leading socially responsible community bank.
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.
The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.
This measure primarily relies on the measures of operating revenue and operating expense already used in the Company’s calculation of its efficiency ratio. 51 Table of Contents The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.
As of December 31, 2022 and December 31, 2021, deferred fees related to PPP loans totaled $0.1 million and 0.2 million, respectively. (2) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%. (3) The average balance of investment securities is based on amortized cost. (4) Includes discontinued operations.
(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.
Collectively these physical and transition risks are managed through ongoing monitoring, existing industry exclusions, due diligence processes, policies, insurance requirements, business continuity planning, target setting and product development. 66 Table of Contents As Berkshire looks to further strengthen its management of climate related risks and opportunities, it expects to continue to formalize its climate risk management program and set formal targets to reduce its Greenhouse Gas (GHG) emissions, in addition to its existing sustainable finance and renewable electricity goals.
As 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.
The Company had converted $333 million in outstanding loans through year-end 2022. ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) & COMMITMENT TO SOCIAL RESPONSIBILITY BERKSHIRE’S APPROACH Since its founding in 1846, Berkshire continues to be a purpose-driven, values-guided, community-centered bank working to achieve its vision of becoming a high-performing leading socially responsible community bank.
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.
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.
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. 54 Table of Contents 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.
The allowance for credit losses on loans decreased to $96 million at year-end 2022 from $106 million at year-end 2021. The ratio of the allowance to total loans decreased to 1.15% from 1.55%.
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.
This difference contributed substantially to the net interest income generated as the average target federal funds rate increased by 359 basis points to 3.84% in the fourth quarter of 2022 compared to 0.25% in the fourth quarter of 2021.
The 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.
The fair value of derivative financial instruments was a liability of $43 million at year-end 2022, compared to an asset of $43 million at year-end 2021, due to the impact of changes in interest rates on the value of outstanding commercial loan interest rate swaps.
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.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2022 AND DECEMBER 31, 2021 Summary: Total assets were little changed in 2022, measuring $11.7 billion at year-end. Excess liquidity was reinvested into loan growth. A $0.9 billion decrease in cash and equivalents and a $0.5 billion decrease in investment securities were mostly offset by a $1.5 billion increase in loans.
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.
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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.
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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.
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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.
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(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.
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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.
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In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.
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Restructuring expense and other for 2020 primarily related to executive separation expense as a result of the CEO transition. The Company calculates certain profitability measures based on its adjusted revenue, expenses, and earnings. The Company also calculates adjusted earnings per share based on its measure of adjusted earnings.
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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.
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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.
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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.
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Berkshire’s vision is to empower the financial potential of its stakeholders by making banking available where, when, and how it's needed through a committed focus on exceptional customer service, digital banking, and positive community impact.
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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.
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Berkshire is committed to unleashing the financial potential of all its stakeholders by leveraging its more than 175 years of expertise, leading performance on environmental, social and governance (ESG) matters and best-in-class fintech partnerships.
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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.
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Its differentiated DigiTouch SM approach, a powerful combination of personal service, including its MyBanker program, fused with the convenience of user-centric technology, targets high customer satisfaction and a frictionless experience. Berkshire continued to drive forward its performance and make meaningful progress towards its Berkshire’s Exciting Strategic Transformation (BEST) goals in 2022. The Company increased its operating profitability during the year.
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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%.
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Fourth quarter revenue and earnings per share reached a fourth quarter record. Due to $52 million in gains recorded on the sale of operations in the third quarter of 2021, total full year net profit decreased year-over-year by 22% to $93 million ($2.02 per share) in 2022 from $119 million ($2.39 per share) in 2021.
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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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS Qualitative Aspects of Market Risk . The Company seeks to provide sustainable net interest income (NII) under varying economic conditions, while protecting the economic value of assets and liabilities from adverse effects of changes in market interest rates.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss to earnings and the economic values of certain assets and liabilities resulting from changes in interest rates. The only significant market risk exposure for the Company is Interest Rate Risk (“IRR”).
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary data required by this item are presented elsewhere in this report beginning on page F-1, in the order shown below: Management’s Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) Consolidated Balance Sheets as of December 31, 2022 and 2021 Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020 Notes to Consolidated Financial Statements ITEM 9.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary data required by this item are presented elsewhere in this report beginning on page F-1, in the order shown below: Management’s Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) Consolidated Balance Sheets as of December 31, 2023 and 2022 Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 Notes to Consolidated Financial Statements ITEM 9.
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While a number of market factors affect the level of NII and the economic value of our assets and liabilities, changes in interest rates is the most significant aspect of our market risk.
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This is a result of the Company’s core business activities of making loans and accepting deposits. The effective management of IRR is essential to achieving the Company’s financial objectives. The Company’s goal is to support the net interest margin and net interest income (“NII”) over entire interest rate cycles regardless of changes in either short- or long-term interest rates.
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Berkshire’s general objective is to maintain a neutral or asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes. The Company maintains a regular cadence for review and oversight of its asset-liability policies and interest rate risk positioning with oversight from senior management and the Board of Directors.
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The Company manages IRR through simulations of NII and equity at risk (“EVE”). These two measurements are complementary and provide both short-term and long-term risk profiles of the Company. NII Sensitivity is used to measure the potential NII exposure to changes in market rates over a period of time, such as 12 or 24 months.
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The manner and extent of the movement of interest rates is an uncertainty that could have a positive or negative impact on the Company’s earnings. The Company manages its interest rate risk by analyzing the sensitivity and mix of its assets and liabilities, including derivative financial instruments.
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This simulation captures underlying product behaviors, such as asset and liability repricing dates, interest rate indices and spreads, and rate caps and floors, and it applies appropriate behavioral attributes such as prepayment assumptions.
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The Company also uses secondary markets, brokerages, and counterparties to accommodate customer demand for long-term fixed rate loans and to provide it with flexibility in managing its balance sheet positions. Quantitative Aspects of Market Risk.
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Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from IRR modeling due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies. The Company uses two sets of standard scenarios to measure NII Sensitivity.
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The Company quantifies its NII sensitivity using an earnings simulation model that compares a baseline view of NII over 12 and 24 month horizons, based on a static view of the balance sheet and market interest rates, to a wide range of parallel and non-parallel rate shocks and ramps.
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Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario, while twist scenarios assume the shape of the curve flattens or steepens instantaneously.
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In addition, the Company analyzes net income at risk and equity at risk from interest rate changes through discounted cash flow analysis. The baseline view includes the projected future impacts of previous interest rate changes that are projected based on contractual and behavioral assumptions.
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The following tables set forth the estimated percent change in the Company’s NII Sensitivity over one-year simulation periods beginning December 31, 2023 and December 31, 2022. 65 Table of Contents ITEM 7 - 7A TABLE 3 - QUALITATIVE ASPECTS OF MARKET RISK Parallel Interest Rate Shock (basis points) Estimated Percent Change in Net Interest Income December 31, 2023 December 31, 2022 +200 0.5 % 1.8 % +100 0.3 0.8 -100 (0.6) (1.6) -200 (2.1) (5.2) Yield Curve Twist Interest Rate Shock December 31, 2023 December 31, 2022 Short End +100 (0.5) % 0.1 % Short End -100 (0.5) (1.3) Long End +100 1.1 1.0 Long End -100 (1.1) (1.2) NII Sensitivity results indicate that the Company’s asset sensitivity has declined at year-end 2023 compared to year-end 2022.
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The chart below shows an analysis of scenarios where there is a parallel shock to interest rates and the impacts are measured for the first year and second year after the shock. Modeled assets and liabilities are assumed to reprice at respective repricing or maturity dates. Pricing caps and floors are included in the results, where applicable.
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This change reflected several factors, including continued growth of the residential mortgage portfolio, increased utilization of short-term borrowings, further deposit mix shift towards interest-bearing, and less flooring on non-maturity deposits in downward modeled scenarios. EVE Sensitivity is conducted to ascertain a longer-term view of the Company’s exposure to changes in interest rates.
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The Company uses prepayment expectations set forth by market sources as well as Company generated data where applicable. Generally, cash flows from loans and securities are assumed to be reinvested to maintain a static balance sheet. Other assumptions about balance sheet mix are generally held constant.
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As with NII modeling, EVE Sensitivity captures product characteristics such as loan resets, repricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates.
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There were no material changes to the way that the Company measures market risk in 2022.
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Base case EVE Sensitivity is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The current spot interest rate curve is shocked up and down to generate new interest rate curves for parallel rate shock scenarios.
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The Company has changed its summary presentation of interest rate sensitivity from an analysis of ramped changes to interest rate shocks in order to better focus on the dynamics and uncertainties of the current markets. 69 Table of Contents CHANGE IN NET INTEREST INCOME Parallel Interest Rate Shock – Basis Points 1-12 Months 13-24 Months % Change % Change At December 31, 2022 +200 1.8 % 6.1 % +100 0.8 2.9 -100 (1.6) (4.3) -200 (5.2) (10.8) At December 31, 2021 +200 13.1 16.1 +100 5.6 6.5 -100 (0.1) (1.2) -200 NA NA The Company was significantly asset sensitive at year-end 2021, which benefited the Company in the 2022 environment of rising interest rates.
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These new curves are then used to recalculate EVE Sensitivity for rate shock scenarios. The following table sets forth the estimated percent change in the Company’s EVE Sensitivity, assuming various instantaneous parallel shocks in interest rates.
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This environment also contributed to growing sensitivity during the year to negative earnings impacts in the unexpected situation of interest rate decreases, as asset yields increased while deposit costs remained well-controlled.
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Estimated Percent Change in Economic Value of Equity Parallel Shock Rate Change (basis points December 31, 2023 December 31, 2022 +200 (3.9) % — % +100 (1.8) — -100 1.2 (1.5) -200 1.3 (5.4) The Company’s EVE Sensitivity profile indicates that at December 31, 2023 the balance sheet has remained largely neutral compared to December 31, 2022.
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Over the course of the year, the Company increased the duration of assets with the growth of the mortgage portfolio, and in the second half of the year the Company employed hedging strategies with interest rate swaps and collars.
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EVE was impacted by the same factors that affected NII sensitivity discussed above, particularly the increase in residential mortgages and short-term borrowings. 66 Table of Contents ITEM 8.
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As a result, year-end 2022 interest rate sensitivity was much closer to neutral, while remaining modestly asset sensitive, in line with the market expectation of further interest rate increases in 2023. Changes to first year modeled net interest income were under 2% in modeled scenarios of 100 basis point shocks in both up and down scenarios.
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This sensitivity was also under 2% for a 200 basis point upward shock, compared to the modeled 13.1% sensitivity at the start of the year. At year-end 2022, a down 200 basis point shock scenario was added to the model due to the increase in interest rates during the year.
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The change to first year modeled net interest income was down 5.2% under this scenario. The Company also models net interest income sensitivity to interest rate ramps over a twelve month period. In all cases, these sensitivities were modestly lower than those modeled for interest rate shocks of the same magnitude.
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At year-end 2022, the modeled year one sensitivity to a +100 basis point interest rate ramp was 0.6% and the year two sensitivity was 2.6%. The Company also models sensitivity to yield curve twists, and sensitivity remained positive in most scenarios for widening and narrowing of the yield curve.
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While the sensitivity of net interest income is the primary driver of the sensitivity of net income, the latter is more sensitive than the former since it is net of expenses.
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In the case of the first year of a 100 basis point scenario, the modeled shock sensitivity of net income is 1.7% in an upward shock and -3.3% in a downward shock.
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Economic value of equity sensitivity to changes in market rates at year-end 2022 was neutral for a 200 basis point upward shock and was -5.4% for a similar downward shock. A critical component of modeling is the assumption of deposit interest rate sensitivity (deposit “beta”).
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The Company expects the total deposits beta through the duration of an interest rate cycle to be in the area of 30-40%, which includes an assumption that non-interest bearing deposit balances remain unchanged for modeling purposes.
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The actual cost of deposits in 2022 has been less sensitive than the Company’s traditional modeling assumptions due to the rapid increase in interest rates and high liquidity in the economy in the unusual conditions prevailing in 2022. Modeled interest rate sensitivity depends on other material assumptions.
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Market risk exposure is affected by the level and shape of the yield curve in markets for financial instruments including U.S. Treasury obligations, forward interest rate derivatives, the U.S. prime interest rate, and LIBOR related rates. Also, the economic impact on customer and market behaviors of the COVID-19 pandemic remains uncertain and may cause actual events to differ from assumptions.
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The behavior of markets under the historically unusual conditions currently prevailing may be different from modeling assumptions, and the Company continues to monitor the markets and the assumptions in its model. 70 Table of Contents ITEM 8.

Other BBT 10-K year-over-year comparisons