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Berkshire Hills Bancorp
BHLB
#4649
Rank
$2.20 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$26.13
Share price
-0.65%
Change (1 day)
1.83%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Berkshire Hills Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q3

Berkshire Hills Bancorp - 10-Q quarterly report FY2023 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2023
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                    to                  
 
Commission File Number: 001-15781
newlogoa10.jpg  
BERKSHIRE HILLS BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware04-3510455
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
   
60 State StreetBoston Massachusetts02109
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code: (800) 773-5601, ext. 133773

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareBHLBThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý   No o
    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ý    Accelerated filer        o     
Non-accelerated filer    o     Smaller reporting company    ☐
    Emerging growth company    ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐  No ☒
 
As of November 7, 2023, the Registrant had 43,670,239 shares of common stock, $0.01 par value per share, outstanding

BERKSHIRE HILLS BANCORP, INC.
FORM 10-Q
 
INDEX 
  Page
   
 
 
 Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
3
 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022
4
 Consolidated Statements of Comprehensive (Loss)/Income for the Three and Nine Months Ended September 30, 2023 and 2022
5
 Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022
6
 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022
8
 Notes to Consolidated Financial Statements (Unaudited) 
  
10
  
11
  
11
17
  
32
  
32
  
34
42
44
  
49
  
50
  
51
  
60
Item 2.
61
 
61
 
63
 
65
77
79

2
PART I
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
 September 30,
2023		December 31,
2022
(In thousands, except share data)
Assets  
Cash and due from banks$120,634 $145,342 
Short-term investments542,836 540,013 
Total cash and cash equivalents663,470 685,355 
Trading securities, at fair value6,171 6,708 
Equity securities, at fair value12,325 12,856 
Securities available for sale, at fair value1,260,391 1,423,200 
Securities held to maturity (fair values of $453,729 and $507,464)
552,981 583,453 
Federal Home Loan Bank stock 38,912 7,219 
Total securities1,870,780 2,033,436 
Less: Allowance for credit losses on held to maturity securities(69)(91)
Net securities1,870,711 2,033,345 
Loans held for sale2,342 4,311 
Total loans8,984,377 8,335,309 
Less: Allowance for credit losses on loans (102,792)(96,270)
Net loans8,881,585 8,239,039 
Premises and equipment, net70,042 85,217 
Other intangible assets20,869 24,483 
Cash surrender value of bank-owned life insurance policies242,172 238,919 
Other assets377,605 348,935 
Assets held for sale11,157 3,260 
Total assets$12,139,953 $11,662,864 
Liabilities  
Demand deposits$2,530,441 $2,852,127 
NOW and other deposits843,032 1,054,596 
Money market deposits3,075,307 3,723,570 
Savings deposits1,086,329 1,063,269 
Time deposits2,445,435 1,633,707 
Total deposits9,980,544 10,327,269 
Short-term debt670,000 — 
Long-term Federal Home Loan Bank advances and other134,295 4,445 
Subordinated borrowings121,300 121,064 
Total borrowings925,595 125,509 
Other liabilities282,805 256,024 
Total liabilities$11,188,944 $10,708,802 
(continued)
September 30,
2023		December 31,
2022
Shareholders’ equity  
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 43,822,473 shares outstanding in 2023; 51,903,190 shares issued and 44,361,222 shares outstanding in 2022)
528 528 
Additional paid-in capital - common stock1,423,720 1,424,183 
Unearned compensation(12,004)(8,598)
Retained (deficit)(23,846)(71,428)
Accumulated other comprehensive (loss) (218,386)(181,052)
Treasury stock, at cost (8,080,717 shares in 2023 and 7,541,968 shares in 2022)
(219,003)(209,571)
Total shareholders’ equity951,009 954,062 
Total liabilities and shareholders’ equity$12,139,953 $11,662,864 
The accompanying notes are an integral part of these consolidated financial statements.
3
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands, except per share data)2023202220232022
Interest and dividend income   
Loans$132,816 $90,266 $377,180 $227,583 
Securities and other15,205 13,405 48,582 38,290 
Total interest and dividend income148,021 103,671 425,762 265,873 
Interest expense   
Deposits44,008 8,164 106,056 16,508 
Borrowings13,679 3,423 39,080 6,860 
Total interest expense57,687 11,587 145,136 23,368 
Net interest income90,334 92,084 280,626 242,505 
Non-interest income
Deposit related fees8,792 8,377 25,674 23,733 
Loan fees and other2,879 1,292 8,537 7,344 
Gain on SBA loan sales2,548 2,551 7,952 9,515 
Wealth management fees2,481 2,353 7,803 7,753 
Total fee income16,700 14,573 49,966 48,345 
Other, net1,232 2,154 1,454 7,132 
Fair value adjustments on securities(467)(476)(255)(2,194)
Total non-interest income17,465 16,251 51,165 53,283 
Total net revenue 107,799 108,335 331,791 295,788 
Provision expense/(benefit) for credit losses 8,000 3,000 24,999 (1,000)
Non-interest expense  
Compensation and benefits40,155 39,422 119,186 114,773 
Occupancy and equipment8,816 8,702 27,165 28,207 
Technology and communications10,616 8,719 30,552 25,857 
Marketing and promotion1,552 1,290 4,270 3,873 
Professional services2,423 3,285 8,226 8,890 
FDIC premiums and assessments1,905 476 5,165 2,121 
Other real estate owned and foreclosures— 13 — 36 
Amortization of intangible assets1,205 1,285 3,615 3,857 
Restructuring and other expenses2,607 11,473 2,592 11,526 
Other7,234 7,012 21,745 19,562 
Total non-interest expense76,513 81,677 222,516 218,702 
Income before income taxes$23,286 $23,658 $84,276 $78,086 
Income tax expense3,741 4,941 13,233 16,058 
Net income$19,545 $18,717 $71,043 $62,028 
Basic earnings per common share$0.45 $0.42 $1.64 $1.35 
Diluted earnings per common share$0.45 $0.42 $1.63 $1.34 
Weighted average shares outstanding:  
Basic43,164 44,700 43,435 46,056 
Diluted43,347 45,034 43,640 46,396 
The accompanying notes are an integral part of these consolidated financial statements.
4
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
Three Months Ended
September 30,		Nine Months Ended
September 30,
(In thousands)2023202220232022
Net income$19,545 $18,717 $71,043 $62,028 
Other comprehensive (loss), before tax:    
Changes in unrealized (loss) on debt securities available-for-sale(40,525)(83,073)(41,398)(244,933)
Changes in unrealized (loss) on derivative hedges(2,959)(5,555)(9,072)(5,555)
Income taxes related to other comprehensive (loss):   
Changes in unrealized (loss) on debt securities available-for-sale10,544 21,639 10,701 63,743 
Changes in unrealized (loss) on derivative hedges794 1,494 2,435 1,494 
Total other comprehensive (loss)(32,146)(65,495)(37,334)(185,251)
Total comprehensive (loss)/income$(12,601)$(46,778)$33,709 $(123,223)
The accompanying notes are an integral part of these consolidated financial statements.

5
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 Common stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive (loss)		Treasury stock
(In thousands)SharesAmountTotal
Balance at June 30, 202245,788 $528 $1,424,081 $(12,824)$(106,997)$(122,999)$(167,739)$1,014,050 
Comprehensive (loss):       
Net income— — — — 18,717 — — 18,717 
Other comprehensive (loss)— — — — — (65,495)— (65,495)
Total comprehensive income/(loss)— — — — 18,717 (65,495)— (46,778)
Cash dividends declared on common shares ($0.12 per share)
— — — — (5,493)— — (5,493)
Treasury shares repurchased(705)— — — — — (20,249)(20,249)
Forfeited shares(23)— 90 553 — — (643)— 
Exercise of stock options11 — — — (47)— 292 245 
Restricted stock grants7 — (17)(188)— — 205 — 
Stock-based compensation— — — 1,733 — — — 1,733 
Other, net(38)— 4 — — — (950)(946)
Balance at September 30, 202245,040 $528 $1,424,158 $(10,726)$(93,820)$(188,494)$(189,084)$942,562 
Balance at June 30, 202344,033 $528 $1,423,856 $(14,470)$(35,490)$(186,240)$(214,803)$973,381 
Comprehensive (loss):
       
Net income— — — — 19,545 — — 19,545 
Other comprehensive (loss)— — — — — (32,146)— (32,146)
Total comprehensive income/(loss)— — — — 19,545 (32,146)— (12,601)
Cash dividends declared on common shares $0.18 per share)
— — — — (7,901)— — (7,901)
Treasury shares repurchased(179)— — — — — (3,578)(3,578)
Forfeited shares(23)— (82)572 — — (490)— 
Exercise of stock options— — — — — — — — 
Restricted stock grants8 — (54)(172)— — 226 — 
Stock-based compensation— — — 2,066 — — — 2,066 
Other, net(17)— — — — — (358)(358)
Balance at September 30, 202343,822 $528 $1,423,720 $(12,004)$(23,846)$(218,386)$(219,003)$951,009 

6
 Common stockAdditional
paid-in capital		Unearned compensationRetained earnings (deficit)Accumulated
other
comprehensive (loss)		Treasury stock
(In thousands)SharesAmountTotal
Balance at December 31, 202148,667 $528 $1,423,445 $(9,056)$(139,383)$(3,243)$(89,856)$1,182,435 
Comprehensive (loss):       
Net income— — — — 62,028 — — 62,028 
Other comprehensive (loss)— — — — — (185,251)— (185,251)
Total comprehensive income/(loss)— — — — 62,028 (185,251)— (123,223)
Cash dividends declared on common shares ($0.36 per share)
— — — — (16,414)— — (16,414)
Treasury shares repurchased(3,825)— — — — — (104,543)(104,543)
Forfeited shares(75)— 169 1,911 — — (2,080)— 
Exercise of stock options12 — — — (51)— 320 269 
Restricted stock grants321 — 536 (9,240)— — 8,704 — 
Stock-based compensation— — — 5,659 — — — 5,659 
Other, net(60)— 8 — — — (1,629)(1,621)
Balance at September 30, 202245,040 $528 $1,424,158 $(10,726)$(93,820)$(188,494)$(189,084)$942,562 
Balance at December 31, 202244,361 $528 $1,424,183 $(8,598)$(71,428)$(181,052)$(209,571)$954,062 
Comprehensive income:       
Net income— — — — 71,043 — — 71,043 
Other comprehensive (loss)— — — — — (37,334)— (37,334)
Total comprehensive income— — — — 71,043 (37,334)— 33,709 
Impact of ASU No. 2022-02 Adoption— — — — 401 — — 401 
Cash dividends declared on common shares ($0.54 per share)
— — — — (23,862)— — (23,862)
Treasury shares repurchased(807)— — — — — (17,146)(17,146)
Forfeited shares(72)— (45)1,833 — — (1,789)(1)
Exercise of stock options— — — — — — — — 
Restricted stock grants400 — (262)(10,760)— — 11,022 — 
Stock-based compensation— — — 5,521 — — — 5,521 
Other, net(60)— (156)— — — (1,519)(1,675)
Balance at September 30, 202343,822 $528 $1,423,720 $(12,004)$(23,846)$(218,386)$(219,003)$951,009 
The accompanying notes are an integral part of these consolidated financial statements.
7
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended
September 30,
(In thousands)20232022
Cash flows from operating activities:  
Net income$71,043 $62,028 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision/(benefit) for credit losses24,999 (1,000)
Net (accretion)/amortization of securities965 2,288 
Change in unamortized net loan costs and premiums145 2,557 
Premises and equipment depreciation and amortization expense6,404 7,257 
Stock-based compensation expense5,521 5,659 
Accretion of purchase accounting entries, net(503)(1,467)
Amortization of other intangibles3,615 3,857 
Income from cash surrender value of bank-owned life insurance policies(3,910)(4,139)
(Gain) on SBA loan sales (7,952)(9,515)
Fair value adjustments on securities255 2,194 
Net change in loans held-for-sale1,969 4,954 
Amortization of interest in tax-advantaged projects5,959 1,153 
Net change in other(3,804)12,401 
Net cash provided by operating activities104,706 88,227 
Cash flows from investing activities:  
Net decrease in trading security641 609 
Purchases of securities available for sale(44,586)(428,068)
Proceeds from sales of securities available for sale— 149,994 
Proceeds from maturities, calls, and prepayments of securities available for sale166,552 440,025 
Purchases of securities held to maturity(700)(807)
Proceeds from maturities, calls, and prepayments of securities held to maturity29,852 43,384 
Net change in loans
(658,823)(1,130,744)
Proceeds from surrender of bank-owned life insurance657 1,777 
Purchase of Federal Home Loan Bank stock(449,336)(66,486)
Proceeds from redemption of Federal Home Loan Bank stock417,643 70,022 
Net investment in limited partnership tax credits— (1,443)
Purchase of premises and equipment, net(753)(730)
Net cash (used) by investing activities(538,853)(922,467)
8
BERKSHIRE HILLS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
 Nine Months Ended
September 30,
(In thousands)20232022
(continued)
Cash flows from financing activities:  
Net (decrease)/increase in deposits(346,725)(80,832)
Proceeds from Federal Home Loan Bank advances and other borrowings10,010,000 51,275 
Repayments of Federal Home Loan Bank advances and other borrowings(9,210,150)(60,146)
Proceeds from issuance of subordinated debt— 98,032 
Repayment from calling of subordinated debt— (75,000)
Purchase of treasury stock(17,146)(104,543)
Exercise of stock options— 269 
Common stock cash dividends paid(23,862)(16,414)
Settlement of derivative contracts with financial institution counterparties145 88,705 
Net cash provided by financing activities412,262 (98,654)
Net change in cash and cash equivalents(21,885)(932,894)
Cash and cash equivalents at beginning of period685,355 1,627,807 
Cash and cash equivalents at end of period$663,470 $694,913 
Supplemental cash flow information:  
Interest paid on deposits$98,428 $16,290 
Interest paid on borrowed funds36,165 7,016 
Income taxes paid, net7,743 15,241 
Other non-cash changes:  
Other net comprehensive income$(37,334)$(185,251)
Impact to retained earnings from adoption of ASU 2022-02401 — 
Reclassification of seasoned loan portfolios to held-for-sale, net— 3,574 
Properties transferred to held for sale8,714 — 
Reclassification of held-for-sale loans to held-for-investment, net— 606 


The accompanying notes are an integral part of these consolidated financial statements.
9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.           BASIS OF PRESENTATION

The Consolidated Financial Statements (the “financial statements”) of Berkshire Hills Bancorp, Inc. and its subsidiaries (the “Company” or “Berkshire”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is a Delaware corporation, headquartered in Boston, Massachusetts, and the holding company for Berkshire Bank (the “Bank”), a Massachusetts-chartered trust company headquartered in Pittsfield, Massachusetts. These financial statements include the accounts of the Company, its wholly-owned subsidiaries and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless GAAP requires otherwise.

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these financial statements were issued.

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

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and disclosures Berkshire Hills Bancorp, Inc. previously filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods.

Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates.

Recently Adopted Accounting Principles
Effective January 1, 2023, the Company adopted ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The adoption did not have a material impact on the Company’s Consolidated Financial Statements.

The ASU eliminates the troubled debt restructuring (“TDR”) accounting model that was adopted with Topic 326, “Financial Instruments – Credit Losses” and enhances disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. The ASU requires prospective disclosure of current-period gross write-offs by year of origination. Refer to Note 4 – Loans and Allowance for Credit Losses for the new financial statement disclosures applicable under this update.

Future Application of Accounting Pronouncements
In March 2023, the FASB issued ASU No. 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force).” The guidance is intended to improve the accounting and disclosures for investments in tax credit structures. The ASU allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying investments in low-income housing tax credit structures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating; however, the adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.           TRADING SECURITIES

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $6.4 million and $7.1 million, and a fair value of $6.2 million and $6.7 million, at September 30, 2023 and December 31, 2022, respectively. As discussed further in Note 7 - Derivative Financial Instruments and Hedging Activities, the Company entered into a swap contract to swap-out the fixed rate of the security in exchange for a variable rate. The Company does not purchase securities with the intent of selling them in the near term, and there were no other securities in the trading portfolio at September 30, 2023 or December 31, 2022.

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

The following is a summary of securities available for sale, held to maturity, and marketable equity securities:
(In thousands)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
September 30, 2023    
Securities available for sale    
U.S Treasuries$7,873 $— $— $7,873 
Municipal bonds and obligations
65,397 — (6,703)58,694 — 
Agency collateralized mortgage obligations 570,205 — (109,849)460,356 — 
Agency mortgage-backed securities
595,518 — (112,317)483,201 — 
Agency commercial mortgage-backed securities
255,891 — (44,520)211,371 — 
Corporate bonds
43,312 59 (5,131)38,240 — 
Other bonds and obligations
655 67 (66)656 — 
Total securities available for sale1,538,851 126 (278,586)1,260,391 — 
Securities held to maturity    
Municipal bonds and obligations
255,888 33 (36,047)219,874 48 
Agency collateralized mortgage obligations 116,267 — (22,592)93,675 — 
Agency mortgage-backed securities
48,196 — (10,839)37,357 — 
Agency commercial mortgage-backed securities
130,705 — (29,721)100,984 — 
Tax advantaged economic development bonds
1,637 6 (92)1,551 21 
Other bonds and obligations
288 — — 288 — 
Total securities held to maturity552,981 39 (99,291)453,729 69 
Equity securities15,035 — (2,710)12,325 — 
Total$2,106,867 $165 $(380,587)$1,726,445 $69 
11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Amortized  CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair ValueAllowance
December 31, 2022    
Securities available for sale    
U.S Treasuries$11,972 $1 $— $11,973 $— 
Municipal bonds and obligations
65,943 422 (3,030)63,335 — 
Agency collateralized mortgage obligations 631,732 — (99,787)531,945 — 
Agency mortgage-backed securities
643,308 1 (96,996)546,313 — 
Agency commercial mortgage-backed securities
264,218 — (35,750)228,468 — 
Corporate bonds
43,368 80 (2,938)40,510 — 
Other bonds and obligations
655 67 (66)656 — 
Total securities available for sale1,661,196 571 (238,567)1,423,200 — 
Securities held to maturity    
Municipal bonds and obligations
266,793 691 (23,704)243,780 66 
Agency collateralized mortgage obligations 128,136 — (20,420)107,716 — 
Agency mortgage-backed securities
50,958 — (9,240)41,718 — 
Agency commercial mortgage-backed securities
135,206 — (23,203)112,003 — 
Tax advantaged economic development bonds
2,069 8 (121)1,956 25 
Other bonds and obligations
291 — — 291 — 
Total securities held to maturity583,453 699 (76,688)507,464 91 
Equity securities15,035 — (2,179)12,856 — 
Total$2,259,684 $1,270 $(317,434)$1,943,520 $91 

The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the three and nine months ended September 30, 2023 and 2022:
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at June, 2023$49 $22 $71 
(Benefit)/provision for credit losses(1)(1)(2)
Balance at September 30, 2023$48 $21 $69 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at June 30, 2022$66 $28 $94 
(Benefit)/provision for credit losses1 — 1 
Balance at September 30, 2022$67 $28 $95 
12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2022$66 $25 $91 
(Benefit)/provision for credit losses(18)(4)(22)
Balance at September 30, 2023$48 $21 $69 
(In thousands)Municipal bonds and obligationsTax advantaged economic development bondsTotal
Balance at December 31, 2021$70 $35 $105 
(Benefit)/provision for credit losses(3)(7)(10)
Balance at September 30, 2022$67 $28 $95 

Credit Quality Information
The Company monitors the credit quality of held to maturity securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization.

As of September 30, 2023, none of the Company's investment securities were delinquent or in non-accrual status.

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at September 30, 2023 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
 Available for saleHeld to maturity
 AmortizedFairAmortizedFair
(In thousands)CostValueCostValue
Within 1 year$8,693 $8,692 $822 $822 
Over 1 year to 5 years11,291 11,068 1,683 1,667 
Over 5 years to 10 years54,720 48,694 36,012 34,653 
Over 10 years42,533 37,009 219,296 184,571 
Total bonds and obligations117,237 105,463 257,813 221,713 
Mortgage-backed securities1,421,614 1,154,928 295,168 232,016 
Total$1,538,851 $1,260,391 $552,981 $453,729 

During the three and nine months ended September 30, 2023, purchases of AFS securities totaled $7.8 million and $44.6 million, respectively. During the three and nine months ended September 30, 2023, there were no sales of AFS securities. During the three and nine months ended September 30, 2022, purchases of AFS securities totaled $41.4 million and $428.1 million, respectively. During the three months ended September 30, 2022, there were no sales of AFS securities. During the nine months ended September 30, 2022, proceeds from sales of AFS securities totaled $150 million. During the three months ended September 30, 2022, there were no gross gains or gross losses.
During the nine months ended September 30, 2022, gross gains totaled $6 thousand and there were no gross losses.
13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities available for sale and held to maturity with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
 Less Than Twelve MonthsOver Twelve MonthsTotal
 Gross Gross Gross 
 UnrealizedFairUnrealizedFairUnrealizedFair
(In thousands)LossesValueLossesValueLossesValue
September 30, 2023      
Securities available for sale      
Municipal bonds and obligations
$2,779 $37,869 $3,924 $20,200 $6,703 $58,069 
Agency collateralized mortgage obligations
— — 109,849 460,356 109,849 460,356 
Agency mortgage-backed securities
6 285 112,311 482,909 112,317 483,194 
Agency commercial mortgage-backed securities— — 44,520 211,362 44,520 211,362 
Corporate bonds
441 7,809 4,690 29,523 5,131 37,332 
Other bonds and obligations
— — 66 295 66 295 
Total securities available for sale$3,226 $45,963 $275,360 $1,204,645 $278,586 $1,250,608 
Securities held to maturity      
Municipal bonds and obligations$7,986 $128,129 $28,061 $80,778 $36,047 $208,907 
Agency collateralized mortgage obligations1 21 22,591 93,654 22,592 93,675 
Agency mortgage-backed securities— — 10,839 37,357 10,839 37,357 
Agency commercial mortgage-backed securities— — 29,721 100,984 29,721 100,984 
Tax advantaged economic development bonds
— — 92 927 92 927 
Total securities held to maturity7,987 128,150 91,304 313,700 99,291 441,850 
Total$11,213 $174,113 $366,664 $1,518,345 $377,877 $1,692,458 
December 31, 2022      
Securities available for sale      
Municipal bonds and obligations
$2,406 $36,696 $624 $2,763 $3,030 $39,459 
Agency collateralized mortgage obligations
23,052 247,509 76,735 284,434 99,787 531,943 
Agency mortgage-backed securities
3,124 37,540 93,872 508,683 96,996 546,223 
Agency commercial mortgage-backed securities9,885 96,396 25,865 132,043 35,750 228,439 
Corporate bonds
1,709 25,657 1,229 9,929 2,938 35,586 
Other bonds and obligations
— — 66 295 66 295 
Total securities available for sale$40,176 $443,798 $198,391 $938,147 $238,567 $1,381,945 
Securities held to maturity      
Municipal bonds and obligations
$5,476 $125,494 $18,228 $38,341 $23,704 $163,835 
Agency collateralized mortgage obligations
2,734 49,539 17,686 58,177 20,420 107,716 
Agency mortgage-backed securities
300 2,419 8,940 39,299 9,240 41,718 
Agency commercial mortgage-backed securities
447 9,713 22,756 102,290 23,203 112,003 
Tax advantaged economic development bonds
1 142 120 1,008 121 1,150 
Total securities held to maturity8,958 187,307 67,730 239,115 76,688 426,422 
Total$49,134 $631,105 $266,121 $1,177,262 $315,255 $1,808,367 

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Securities
The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of September 30, 2023, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at September 30, 2023:

AFS municipal bonds and obligations
At September 30, 2023, 90 of the 93 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 10.4% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

AFS collateralized mortgage obligations
At September 30, 2023, 238 of the 240 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 19.3% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s collateralized mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS commercial and residential mortgage-backed securities
At September 30, 2023, 135 of the 136 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 18.4% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS corporate bonds
At September 30, 2023, 14 of the 15 securities in the Company’s portfolio of AFS corporate bonds were in unrealized loss positions. Aggregate unrealized losses represents 12.1% of the amortized cost of the bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities. All securities are performing.

AFS other bonds and obligations
At September 30, 2023, 2 of the 3 securities in the Company’s portfolio of AFS other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represents 18.3% of the amortized cost of the bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities. All securities are performing.

 

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HTM municipal bonds and obligations
At September 30, 2023, 159 of the 178 securities in the Company’s portfolio of HTM municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 14.7% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

HTM collateralized mortgage obligations
At September 30, 2023, 12 of the 12 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 19.4% of the amortized cost of the securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.

HTM commercial and residential mortgage-backed securities
At September 30, 2023, 17 of the 17 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 22.7% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

HTM tax-advantaged economic development bonds
At September 30, 2023, 1 of the 2 securities in the Company’s portfolio of tax-advantaged economic development bonds was in unrealized loss positions. Aggregate unrealized losses represented 9.1% of the amortized cost of the security in unrealized loss positions. The Company believes that more likely than not all the principal outstanding will be collected. All securities are performing.

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following is a summary of total loans by regulatory call report code with sub-segmentation based on underlying collateral for certain loan types:
(In thousands)September 30, 2023December 31, 2022
Construction$561,691 $319,452 
Commercial multifamily602,120 620,088 
Commercial real estate owner occupied658,189 640,489 
Commercial real estate non-owner occupied2,605,823 2,496,237 
Commercial and industrial1,363,771 1,445,236 
Residential real estate2,729,411 2,312,447 
Home equity227,052 227,450 
Consumer other236,320 273,910 
Total loans$8,984,377 $8,335,309 
Allowance for credit losses(102,792)(96,270)
Net loans$8,881,585 $8,239,039 

During the three and nine months ended September 30, 2023, there were no loans reclassified to held for sale. Transferred held for sale loans are not contained in the balances within this note and are accounted for at the lower of carrying value or fair market value within loans held for sale on the Consolidated Balance Sheet.


Risk characteristics relevant to each portfolio segment are as follows:
Construction - Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property or long term financing at completion. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial real estate multifamily, owner occupied and non-owner - Loans in these segments are primarily owner-occupied or income-producing properties throughout New England and Northeastern New York. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans.

Commercial and industrial loans - Loans in this segment are made to businesses and are generally secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Repayment is expected from the cash flows of the business. Loans in this segment include asset based loans which generally have no scheduled repayment and which are closely monitored against formula based collateral advance ratios. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Residential real estate - All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Home equity and other consumer loans - Loans in this segment are primarily home equity lines of credit, automobile loans and other consumer loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Credit Losses for Loans
The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for loan losses, and the allowance for unfunded commitments is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon:
•the existence and growth of concentrations of credit;
•the volume and severity of past due financial assets, including nonaccrual assets;
•the institutions lending and credit review as well as the experience and ability of relevant management and staff and;
•the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters;
•the effect of other economic factors such as economic stimulus and customer forbearance programs.
The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in other liabilities on the consolidated balance sheet.

The Company’s activity in the allowance for credit losses for loans for the three and nine months ended September 30, 2023 and September 30, 2022 was as follows:
(In thousands)Balance at Beginning of PeriodAdoption of ASU No. 2022-02Charge-offsRecoveries
Provision/(Benefit) for Credit Losses
Balance at End of Period
Three months ended September 30, 2023
Construction$1,553 $— $— $— $1,949 $3,502 
Commercial multifamily2,066 — — — 339 2,405 
Commercial real estate owner occupied10,343 — (25)116 (979)9,455 
Commercial real estate non-owner occupied36,322 — (1)20 (3,059)33,282 
Commercial and industrial18,741 — (3,997)617 3,158 18,519 
Residential real estate18,218 — (72)92 1,766 20,004 
Home equity2,572 — (71)278 (677)2,102 
Consumer other10,404 — (2,578)192 5,505 13,523 
Total allowance for credit losses$100,219 $— $(6,744)$1,315 $8,002 $102,792 
18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveries
Provision/(Benefit) for Credit Losses
Balance at End of Period
Three months ended September 30, 2022
Construction$1,710 $— $— $(479)$1,231 
Commercial multifamily4,621 (94)112 (2,919)1,720 
Commercial real estate owner occupied10,687 (176)256 (582)10,185 
Commercial real estate non-owner occupied26,166 (1,012)153 4,114 29,421 
Commercial and industrial22,914 (5,545)616 650 18,635 
Residential real estate16,411 (102)131 3,398 19,838 
Home equity2,828 (9)9 (407)2,421 
13,684 (486)140 (776)12,562 
Total allowance for credit losses$99,021 $(7,424)$1,417 $2,999 $96,013 
(In thousands)Balance at Beginning of PeriodAdoption of ASU No. 2022-02Charge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Nine months ended September 30, 2023
Construction$1,227 $— $(1)$— $2,276 $3,502 
Commercial multifamily1,810 — — 6 589 2,405 
Commercial real estate owner occupied10,739 24 (489)758 (1,577)9,455 
Commercial real estate non-owner occupied30,724 — (1)195 2,364 33,282 
Commercial and industrial18,743 (23)(14,625)1,736 12,688 18,519 
Residential real estate18,666 2 (313)555 1,094 20,004 
Home equity2,173 — (88)437 (420)2,102 
Consumer other12,188 (404)(6,848)580 8,007 13,523 
Total allowance for credit losses$96,270 $(401)$(22,365)$4,267 $25,021 $102,792 
(In thousands)Balance at Beginning of PeriodCharge-offsRecoveriesProvision for Credit LossesBalance at End of Period
Nine months ended September 30, 2022
Construction$3,206 $— $— $(1,975)$1,231 
Commercial multifamily6,120 (94)112 (4,418)1,720 
Commercial real estate owner occupied12,752 (603)562 (2,526)10,185 
Commercial real estate non-owner occupied32,106 (5,895)1,464 1,746 29,421 
Commercial and industrial22,584 (6,951)2,485 517 18,635 
Residential real estate22,406 (480)719 (2,807)19,838 
Home equity4,006 (9)255 (1,831)2,421 
Consumer other2,914 (1,031)375 10,304 12,562 
Total allowance for credit losses$106,094 $(15,063)$5,972 $(990)$96,013 

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the consolidated statement of income. The Company’s activity in the allowance for credit losses on unfunded commitments for the three and nine months ended September 30, 2023 and 2022 was as follows:

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
September 30,
(In thousands)20232022
Balance at beginning of period$8,687 $7,043 
Expense for credit losses300 700 
Balance at end of period$8,987 $7,743 
Nine Months Ended September 30,
(In thousands)20232022
Balance at beginning of period$8,588 $7,043 
Expense for credit losses399 700 
Balance at end of period$8,987 $7,743 

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality Information
The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential weaknesses and are evaluated closely by management. Substandard, including non-accruing loans, are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annual, semiannually, or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations.

The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention, and Substandard. Loans that are current within 59 days are rated Pass. Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status. 

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s loans by risk category:
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of September 30, 2023
Construction
Current period gross write-offs$— $— $— $— $— $1 $— $— $1 
Risk rating
Pass$71,516 $301,236 $139,599 $29,177 $2,553 $564 $— $— $544,645 
Special Mention— — 471 — — — — — 471 
Substandard— — 16,575 — — — — — 16,575 
Total$71,516 $301,236 $156,645 $29,177 $2,553 $564 $— $— $561,691 
Commercial multifamily:
Current period gross write-offs$— $— $— $— $— $— $— $— $— 
Risk rating
Pass$8,974 $217,062 $57,061 $27,126 $95,398 $187,225 $998 $— $593,844 
Special Mention— — — — — — — — — 
Substandard— — 244 2,573 — 5,459 — — 8,276 
Total$8,974 $217,062 $57,305 $29,699 $95,398 $192,684 $998 $— $602,120 
Commercial real estate owner occupied:
Current period gross write-offs$— $— $— $380 $— $109 $— $— $489 
Risk rating
Pass$80,561 $123,110 $126,637 $68,938 $71,603 $173,060 $1,642 $— $645,551 
Special Mention— — — 387 885 2,447 — — 3,719 
Substandard— 11 81 47 4,141 4,639 — — 8,919 
Total$80,561 $123,121 $126,718 $69,372 $76,629 $180,146 $1,642 $— $658,189 
Commercial real estate non-owner occupied:
Current period gross write-offs$— $— $— $— $1 $— $— $— $1 
Risk rating
Pass$349,765 $584,973 $386,493 $141,534 $279,849 $767,366 $18,312 $— $2,528,292 
Special Mention— — — — 27,219 12,806 — — 40,025 
Substandard— — — 6,923 5,879 24,704 — — 37,506 
Total$349,765 $584,973 $386,493 $148,457 $312,947 $804,876 $18,312 $— $2,605,823 
Commercial and industrial:
Current period gross write-offs$— $700 $645 $2,158 $1,429 $7,380 $2,313 $— $14,625 
Risk rating
Pass$100,443 $234,213 $124,139 $49,315 $43,656 $129,863 $596,559 $— $1,278,188 
Special Mention1,801 3,323 4,829 2,111 633 1,574 17,575 — 31,846 
Substandard460 915 9,060 1,542 5,353 17,823 17,058 — 52,211 
Doubtful— — — — — — 1,526 — 1,526 
Total$102,704 $238,451 $138,028 $52,968 $49,642 $149,260 $632,718 $— $1,363,771 
22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Residential real estate
Current period gross write-offs$— $50 $— $50 $174 $39 $— $— $313 
Risk rating
Pass$527,326 $986,269 $269,172 $91,540 $66,691 $774,516 $141 $— $2,715,655 
Special Mention— — — — 741 816 — — 1,557 
Substandard— 132 1,024 379 1,361 9,303 — — 12,199 
Total$527,326 $986,401 $270,196 $91,919 $68,793 $784,635 $141 $— $2,729,411 
23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2022
Construction
Risk rating
Pass$153,393 $133,708 $25,634 $3,432 $1,361 $1,924 $— $— $319,452 
Special Mention— — — — — — — — — 
Substandard— — — — — — — — — 
Total$153,393 $133,708 $25,634 $3,432 $1,361 $1,924 $— $— $319,452 
Commercial multifamily:
Risk rating
Pass$205,124 $61,032 $27,583 $100,696 $67,675 $149,633 $205 $— $611,948 
Special Mention— — 2,628 — — — — — 2,628 
Substandard— — — — 5,512 — — — 5,512 
Total$205,124 $61,032 $30,211 $100,696 $73,187 $149,633 $205 $— $620,088 
Commercial real estate owner occupied:
Risk rating
Pass$131,096 $127,270 $58,835 $82,576 $75,322 $154,056 $3,464 $— $632,619 
Special Mention— — 387 — — — — — 387 
Substandard1,003 122 31 282 1,056 4,989 — — 7,483 
Total$132,099 $127,392 $59,253 $82,858 $76,378 $159,045 $3,464 $— $640,489 
Commercial real estate non-owner occupied:
Risk rating
Pass$621,685 $410,359 $175,456 $333,783 $313,124 $530,322 $17,846 $— $2,402,575 
Special Mention— — — — 20,000 18,462 — — 38,462 
Substandard— — 7,237 13,623 15,610 18,730 — — 55,200 
Total$621,685 $410,359 $182,693 $347,406 $348,734 $567,514 $17,846 $— $2,496,237 
Commercial and industrial:
Risk rating
Pass$282,781 $147,070 $56,880 $67,975 $83,223 $99,367 $648,956 $— $1,386,252 
Special Mention— 5,811 1,290 1,332 11,502 912 2,632 — 23,479 
Substandard204 496 3,640 8,139 1,981 2,799 10,581 — 27,840 
Doubtful— — — — — 56 7,609 — 7,665 
Total$282,985 $153,377 $61,810 $77,446 $96,706 $103,134 $669,778 $— $1,445,236 
Residential real estate
Risk rating
Pass$997,981 $280,308 $96,548 $70,845 $138,894 $713,744 $165 $— $2,298,485 
Special Mention— 364 — 861 202 707 — — 2,134 
Substandard— 284 448 267 1,857 8,972 — — 11,828 
Total$997,981 $280,956 $96,996 $71,973 $140,953 $723,423 $165 $— $2,312,447 

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For home equity and consumer other loan portfolio segments, Berkshire evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an ongoing basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost based on payment activity:
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of September 30, 2023
Home equity:
Current period gross write-offs$— $— $— $70 $— $— $18 $— $88 
Payment performance
Performing$— $— $— $443 $— $2,615 $222,691 $— $225,749 
Nonperforming— — — — — — 1,303 — 1,303 
Total$— $— $— $443 $— $2,615 $223,994 $— $227,052 
Consumer other:
Current period gross write-offs$65 $5,729 $804 $11 $44 $195 $— $— $6,848 
Payment performance
Performing$40,770 $121,690 $21,794 $6,468 $8,261 $26,015 $10,561 $— $235,559 
Nonperforming17 116 60 29 139 386 14 — 761 
Total$40,787 $121,806 $21,854 $6,497 $8,400 $26,401 $10,575 $— $236,320 
Term Loans Amortized Cost Basis by Origination Year
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
As of December 31, 2022
Home equity:
Payment performance
Performing$— $114 $454 $— $— $17 $224,746 $— $225,331 
Nonperforming— — — — — — 2,119 — 2,119 
Total$— $114 $454 $— $— $17 $226,865 $— $227,450 
Consumer other:
Payment performance
Performing$161,157 $28,279 $8,312 $12,670 $27,608 $24,682 $9,070 $— $271,778 
Nonperforming588 137 44 280 477 567 39 — 2,132 
Total$161,745 $28,416 $8,356 $12,950 $28,085 $25,249 $9,109 $— $273,910 

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans by past due status at September 30, 2023 and December 31, 2022:
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
September 30, 2023
Construction$— $— $— $— $561,691 $561,691 
Commercial multifamily5,853 — — 5,853 596,267 602,120 
Commercial real estate owner occupied334 599 1,423 2,356 655,833 658,189 
Commercial real estate non-owner occupied240 132 4,010 4,382 2,601,441 2,605,823 
Commercial and industrial1,263 267 11,086 12,616 1,351,155 1,363,771 
Residential real estate3,988 1,557 12,170 17,715 2,711,696 2,729,411 
Home equity688 26 1,616 2,330 224,722 227,052 
Consumer other2,111 1,642 2,076 5,829 230,491 236,320 
Total$14,477 $4,223 $32,381 $51,081 $8,933,296 $8,984,377 
(In thousands)30-59 Days Past Due60-89 Days Past Due90 Days or Greater Past DueTotal Past DueCurrentTotal Loans
December 31, 2022
Construction$— $— $— $— $319,452 $319,452 
Commercial multifamily— 214 — 214 619,874 620,088 
Commercial real estate owner occupied122 — 3,302 3,424 637,065 640,489 
Commercial real estate non-owner occupied143 — 191 334 2,495,903 2,496,237 
Commercial and industrial1,173 1,438 18,658 21,269 1,423,967 1,445,236 
Residential real estate3,694 2,134 11,724 17,552 2,294,895 2,312,447 
Home equity168 57 2,119 2,344 225,106 227,450 
Consumer other1,990 1,028 2,158 5,176 268,734 273,910 
Total$7,290 $4,871 $38,152 $50,313 $8,284,996 $8,335,309 



26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of loans on nonaccrual status and loans past due 90 days or more and still accruing as of September 30, 2023 and December 31, 2022:
(In thousands)Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended September 30, 2023
Construction$— $— $— $— 
Commercial multifamily— — — — 
Commercial real estate owner occupied1,212 257 211 — 
Commercial real estate non-owner occupied4,010 52 — — 
Commercial and industrial10,982 8,271 104 — 
Residential real estate8,368 4,678 3,802 — 
Home equity1,303 442 313 — 
Consumer other761 — 1,315 — 
Total$26,636 $13,700 $5,745 $— 
The commercial and industrial loans nonaccrual amortized cost as of September 30, 2023 included medallion loans with a fair value of $0.4 million and a contractual balance of $9.1 million.
(In thousands) Nonaccrual Amortized CostNonaccrual With No Related AllowancePast Due 90 Days or Greater and AccruingInterest Income Recognized on Nonaccrual
At or for the three months ended December 31, 2022
Construction$— $— $— $— 
Commercial multifamily— — — — 
Commercial real estate owner occupied2,202 1,411 1,100 — 
Commercial real estate non-owner occupied191 73 — — 
Commercial and industrial16,992 14,223 1,666 — 
Residential real estate8,901 5,307 2,823 — 
Home equity1,568 388 551 — 
Consumer other1,260 2 898 — 
Total$31,114 $21,404 $7,038 $— 
The commercial and industrial loans nonaccrual amortized cost as of December 31, 2022 included medallion loans with a fair value of $0.6 million and a contractual balance of $10.9 million.

The following table summarizes information about total loans rated Special Mention or lower at September 30, 2023 and December 31, 2022. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.

(In thousands)September 30, 2023December 31, 2022
Non-Accrual$26,636 $31,114 
Substandard Accruing 114,252 88,665 
Total Classified140,888 119,779 
Special Mention 79,258 68,127 
Total Criticized$220,146 $187,906 


27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of individually analyzed collateral-dependent loans by loan portfolio segment:
Type of Collateral
(In thousands)Real EstateInvestment Securities/CashOther
September 30, 2023
Construction$— $— $— 
Commercial multifamily— — 
Commercial real estate owner occupied633 — — 
Commercial real estate non-owner occupied352 — — 
Commercial and industrial4,813 — 3,420 
Residential real estate6,951 — — 
Home equity458 — — 
Consumer other42 — — 
Total loans$13,249 $— $3,420 
December 31, 2022
Construction$— $— $— 
Commercial multifamily— — — 
Commercial real estate owner occupied2,793 — — 
Commercial real estate non-owner occupied384 — — 
Commercial and industrial288 — 16,931 
Residential real estate3,910 — — 
Home equity501 — — 
Consumer other2 — — 
Total loans$7,878 $— $16,931 



28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Modified Loans
Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension and principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following table presents the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

(In thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionTotal Class of Financing Receivable
Three months ended September 30, 2023
Construction$— $— $— $— $— $— — %
Commercial multifamily— — — — — — — 
Commercial real estate owner occupied— — — — — — — 
Commercial real estate non-owner occupied— — — — — — 
Commercial and industrial— 34 6,240 — — — 0.46 %
Residential real estate— — — — — — — 
Home equity— — — — — — — 
Consumer other— — — — — — — 
Total$— $34 $6,240 $— $— $— 0.07 %
29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionTotal Class of Financing Receivable
Nine months ended September 30, 2023
Construction$— $— $— $— $— $— — %
Commercial multifamily— — — — — — — 
Commercial real estate owner occupied— 387 — — — — 0.06 
Commercial real estate non-owner occupied— — 11,733 — — — 0.85 
Commercial and industrial— 34 7,531 — 10 — 0.56 
Residential real estate— — — — — — — 
Home equity— — — — — — — 
Consumer other— — — — — — — 
Total$— $421 $19,264 $— $10 $— 0.22 %
The Company has not committed to lend additional amounts to the borrowers included in the previous table.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. As of September 30, 2023, there were no loans that were modified to borrowers experiencing financial difficulty that were past due.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:
(In thousands)Principal ForgivenessWeighted Average Interest Rate ReductionWeighted Average Term Extension (months)
Three months ended September 30, 2023
Construction$— — %0
Commercial multifamily— — 0
Commercial real estate owner occupied— — 0
Commercial real estate non-owner occupied— — 0
Commercial and industrial— — 17
Residential real estate— — 0
Home equity— — 0
Consumer other— — 0
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Principal ForgivenessWeighted Average Interest Rate ReductionWeighted Average Term Extension (months)
Nine months ended September 30, 2023
Construction$— — %0
Commercial multifamily— — 0
Commercial real estate owner occupied— — 120
Commercial real estate non-owner occupied— — 12
Commercial and industrial— 1.00 34
Residential real estate— — 0
Home equity— — 0
Consumer other— — 0
There were no loans that had a payment default during the three and nine months ended September 30, 2023 that were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.               DEPOSITS

A summary of time deposits is as follows:
(In thousands)September 30,
2023		December 31,
2022
Time less than $100,000$666,406 $549,265 
Time $100,000 through $250,0001,158,816 642,600 
Time more than $250,000620,213 441,842 
Total time deposits$2,445,435 $1,633,707 

NOTE 6.               BORROWED FUNDS

Borrowed funds at September 30, 2023 and December 31, 2022 are summarized as follows:
 September 30, 2023December 31, 2022
  Weighted Weighted
  Average Average
(Dollars in thousands)PrincipalRatePrincipalRate
Short-term debt:
    
Advances from the FHLB $670,000 5.57 %$— — %
Total short-term borrowings:670,000 5.57 — — 
Long-term debt:
    
Advances from the FHLB and other borrowings134,295 4.06 4,445 0.71 
Subordinated borrowings98,286 5.50 98,089 5.50 
Junior subordinated borrowing - Trust I15,464 7.49 15,464 6.54 
Junior subordinated borrowing - Trust II7,550 7.37 7,511 6.47 
Total long-term borrowings:255,595 4.92 125,509 5.52 
Total$925,595 5.39 %$125,509 5.52 %

Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year. The Bank also maintains a $3.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was no outstanding balance on the FHLB line of credit for the periods ended September 30, 2023 and December 31, 2022. The Bank's available borrowing capacity with the FHLB was $2.0 billion and $1.5 billion for the periods ended September 30, 2023 and December 31, 2022.

The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. The Bank had no borrowings with the Federal Reserve Bank under this arrangement during the periods ended September 30, 2023 and December 31, 2022, respectively. The Bank's available borrowing capacity with the Federal Reserve Bank was $1.4 billion and $0.6 billion for the periods ended September 30, 2023 and December 31, 2022, respectively.

Long-term FHLB advances consist of advances with an original maturity of more than one year and are subject to prepayment penalties. The advances outstanding at September 30, 2023 included callable advances totaling $60.0 million and amortizing advances totaling $4.3 million. There were no callable advances outstanding at December 31, 2022. The advances outstanding at December 31, 2022 included amortizing advances totaling $4.4 million. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.


32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of maturities of FHLB advances as of September 30, 2023 is as follows:
 September 30, 2023
  Weighted Average
(In thousands, except rates)PrincipalRate
Fixed rate advances maturing:  
2023$660,000 5.57 %
202440,014 5.05 
202540,000 4.55 
202630,530 3.68 
2027 and beyond33,751 3.07 
Total FHLB advances$804,295 5.32 %

The Company did not have variable-rate FHLB advances for the periods ended September 30, 2023 and December 31, 2022, respectively.

In June 2022, the Company issued ten year subordinated notes in the amount of $100.0 million. The interest rate is fixed at 5.50% for the first five years. After five years, the notes become callable and will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be Three-Month Term SOFR), plus 249 basis points. The subordinated note includes reduction to the note principal balance of $1.7 million for unamortized debt issuance costs as of September 30, 2023.
The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets at a cost of $0.5 million. The sole asset of Trust I is $15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to 3-month CME Term SOFR plus 1.85% and had a rate of 7.49% and 6.54% at September 30, 2023 and December 31, 2022, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.

The Company holds 100% of the common stock of SI Capital Trust II (“Trust II”) which is included in other assets at a cost of $0.2 million. The sole asset of Trust II is $8.2 million of the Company’s junior subordinated debentures due in 2036. These debentures bear interest at a variable rate equal to 3-month CME Term SOFR plus 1.70% and had a rate of 7.37% and 6.47% at September 30, 2023 and December 31, 2022, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust II is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust II is not consolidated into the Company’s financial statements.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, 2023, the Company held derivatives with a total notional amount of $4.8 billion. That amount included $0.8 billion in interest rate swap derivatives that were designated as cash flow hedges for accounting purposes. The Company also had economic hedges totaling $4.0 billion and $6.4 million non-hedging derivatives, which are not designated as hedges for accounting purposes with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling $3.6 billion, risk participation agreements with dealer banks of $0.4 billion, and $2.3 million in forward commitment contracts.

As of December 30, 2022, the Company held derivatives with a total notional amount of $4.5 billion. That amount included $0.6 billion in interest rate swap derivatives and $0.2 billion in interest rate collars that were designated as cash flow hedges for accounting purposes. The Company had economic hedges and non-hedging derivatives totaling $3.7 billion and $4.1 million, respectively, which are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling $3.4 billion, risk participation agreements with dealer banks of $341.9 million, and $0.9 million in forward commitment contracts.

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management and Capital Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at September 30, 2023.

The Company had no pledged collateral to derivative counterparties in the form of cash as of September 30, 2023. The Company had pledged securities to derivative counterparties with an amortized cost of $10.0 million and a fair value of $9.7 million as of September 30, 2023. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.


34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at September 30, 2023, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Cash flow hedges:     
Interest rate swaps on commercial loans (1)
$600,000 2.13.64 %5.32 %$841 
Interest rate collars on commercial loans200,000 2.8105 
Total cash flow hedges800,000    946 
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$6,421 6.24.96 %5.09 %$(30)
Interest rate swaps on loans with commercial loan customers1,788,086 5.04.30 %6.42 %(117,048)
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,788,086 5.06.42 %4.30 %63,705 
Risk participation agreements with dealer banks377,852 5.7  (16)
Forward sale commitments 2,312 0.2  10 
Total economic hedges3,962,757    (53,379)
Non-hedging derivatives:     
Commitments to lend 6,409 0.2  (9)
Total non-hedging derivatives6,409    (9)
Total$4,769,166    $(52,442)
(1) Fair value estimates include the impact of $38.5 million settled to market contract agreements.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about derivative assets and liabilities at December 31, 2022, follows:
  WeightedWeighted Average RateEstimated
 NotionalAverage ContractFair Value
 AmountMaturityReceivedpay rateAsset (Liability)
 (In thousands)(In years)  (In thousands)
Cash flow hedges:     
Interest rate swaps on commercial loans$400,000 2.74.09 %3.51 %$— 
Forward-starting interest rate swaps on commercial loans200,000 3.3— %3.90 %— 
Interest rate collars on commercial loans200,000 3.51,937 
800,000    1,937 
Economic hedges:     
Interest rate swap on tax advantaged economic development bond$7,062 6.94.49 %5.09 %$(193)
Interest rate swaps on loans with commercial loan customers1,685,263 5.74.11 %5.55 %(95,114)
Offsetting interest rate swaps on loans with commercial loan customers (1)
1,685,263 5.75.55 %4.11 %50,267 
Risk participation agreements with dealer banks341,885 6.6  (89)
Forward sale commitments 927 0.2  8 
Total economic hedges3,720,400    (45,121)
Non-hedging derivatives:     
Commitments to lend 4,114 0.2  17 
Total non-hedging derivatives 4,114    17 
Total$4,524,514    $(43,167)
(1) Fair value estimates include the impact of $38.3 million settled to market contract agreements.


36

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

As of September 30, 2023, the Company had eight interest rate swap contracts with a notional value of $800.0 million. The interest rate swaps have durations of two to three years. This hedge strategy converts commercial variable rate loans to fixed interest rates, thereby protecting the Company from floating interest rate variability.

As of September 30, 2023, the Company had two interest rate collars. The first interest rate collar has a 3.00% floor and a 5.75% cap with a notional value of $100.0 million. The second interest rate collar has a 3.25% floor and a 5.75% cap with a notional value of $100.0 million. The interest rate collars have durations of three to four years. The structure of these instruments is such that the Company pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, the Company receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates.

Amounts included in the Consolidated Statements of Income and in the other comprehensive income section of the Consolidated Statements of Comprehensive Income (related to interest rate derivatives designated as hedges of cash flows), were as follows:
Three Months Ended
September 30,		Nine Months Ended September 30,
(In thousands)2023202220232022
Interest rate swaps on commercial loans:
Unrealized (loss) recognized in accumulated other comprehensive loss$(2,800)$(5,555)$(8,599)$(5,555)
Reclassification of unrealized (loss) from accumulated other comprehensive loss to interest expense
(159)— (473)— 
Net tax benefit on items recognized in accumulated other comprehensive income794 1,494 2,435 1,494 
Other comprehensive loss recorded in accumulated other comprehensive income, net of reclassification adjustments and tax effects$(2,165)$(4,061)$(6,637)$(4,061)
Net interest expense recognized on hedged commercial loans$2,621 $(136)$6,262 $(136)
37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic hedges
As of September 30, 2023, the Company has an interest rate swap with a $6.4 million notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of 5.09%, currently within the Company’s trading portfolio under the fair value option, in exchange for a SOFR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the 21-year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.

The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. There was no credit valuation loss adjustment arising from the difference in credit worthiness of the commercial loan and financial institution counterparties as of September 30, 2023. The interest income and expense on these mirror image swaps exactly offset each other.

The Company has risk participation agreements with dealer banks. Risk participation agreements occur when the Company participates on a loan and a swap where another bank is the lead. The Company gets paid a fee to take on the risk associated with having to make the lead bank whole on Berkshire’s portion of the pro-rated swap should the borrower default. Changes in fair value are recorded in current period earnings.

The Company utilizes forward sale commitments to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings.

The Company uses the following types of forward sale commitments contracts:
•Best efforts loan sales,
•Mandatory delivery loan sales, and
•To Be Announced (“TBA”) mortgage-backed securities sales.

A best efforts contract refers to a loan sale agreement where the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. The Company may enter into a best efforts contract once the price is known, which is shortly after the potential borrower’s interest rate is locked.

A mandatory delivery contract is a loan sale agreement where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly after the loan closes with a customer.

The Company may sell TBA mortgage-backed securities to hedge the changes in fair value of interest rate lock commitments and held for sale loans, which do not have corresponding best efforts or mandatory delivery contracts. These security sales transactions are closed once mandatory contracts are written. On the closing date the price of the security is locked-in, and the sale is paired-off with a purchase of the same security. Settlement of the security purchase/sale transaction is done with cash on a net-basis.
38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-hedging derivatives
The Company enters into interest rate lock commitments (“IRLCs”), or commitments to lend, for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in non-interest income in the Company’s consolidated statements of operations. Changes in the fair value of IRLCs subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

Amounts included in the Consolidated Statements of Income related to economic hedges and non-hedging derivatives were as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2023202220232022
Economic hedges    
Interest rate swap on industrial revenue bond:    
Unrealized gain recognized in other non-interest income$88 $304 $163 $953 
Interest rate swaps on loans with commercial loan customers:    
Unrealized (loss) recognized in other non-interest income(24,728)(53,788)(21,934)(177,413)
Favorable change in credit valuation adjustment recognized in other non-interest income— — — 1,809 
Offsetting interest rate swaps on loans with commercial loan customers:    
Unrealized gain recognized in other non-interest income24,728 53,788 21,934 177,413 
Risk participation agreements:    
Unrealized gain/(loss) recognized in other non-interest income65 (19)73 (419)
Forward commitments:    
Unrealized (loss)/gain recognized in other non-interest income(53)(11)2 (127)
Non-hedging derivatives    
Commitments to lend    
Unrealized (loss) recognized in other non-interest income$(46)$(100)$(26)$(108)
Realized gain in other non-interest income210 78 304 420 
39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Subject to Enforceable Master Netting Arrangements
Interest Rate Swap Agreements (“Swap Agreements”)
The Company enters into swap agreements to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting swap agreements with highly rated third party financial institutions. The swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of marketable securities is received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.

The Company had net asset positions with its financial institution counterparties totaling $64.0 million and $51.2 million as of September 30, 2023 and December 31, 2022, respectively. The Company had net asset positions with its commercial banking counterparties totaling $0.3 million and $1.0 million as of September 30, 2023 and December 31, 2022, respectively. The Company had net liability positions with its financial institution counterparties totaling $0.3 million and $1.2 million as of September 30, 2023 and December 31, 2022, respectively. The Company had net liability positions with its commercial banking counterparties totaling $116.6 million and $96.1 million as of September 30, 2023 and December 31, 2022. The Company has collateral pledged to cover this liability.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of September 30, 2023 and December 31, 2022:

Offsetting of Financial Assets and Derivative Assets
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Assets
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)AssetsConditionConditionInstrumentsCollateral ReceivedNet Amount
September 30, 2023      
Interest Rate Swap Agreements:      
Institutional counterparties$117,306 $(53,346)$63,960 $— $— $63,960 
Commercial counterparties261 — 261 — — 261 
Total$117,567 $(53,346)$64,221 $— $— $64,221 

Offsetting of Financial Liabilities and Derivative Liabilities
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Liabilities
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)LiabilitiesConditionConditionInstrumentsCollateral PledgedNet Amount
September 30, 2023      
Interest Rate Swap Agreements:      
Institutional counterparties$(274)$2 $(272)$9,676 $— $9,404 
Commercial counterparties(131,221)14,857 (116,364)— — (116,364)
Total$(131,495)$14,859 $(116,636)$9,676 $— $(106,960)
40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Offsetting of Financial Assets and Derivative Assets
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Assets
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)AssetsConditionConditionInstrumentsCollateral ReceivedNet Amount
December 31, 2022      
Interest Rate Swap Agreements:      
Institutional counterparties$96,295 $(45,046)$51,249 $— $— $51,249 
Commercial counterparties975 — 975 — — 975 
Total$97,270 $(45,046)$52,224 $— $— $52,224 

Offsetting of Financial Liabilities and Derivative Liabilities
Gross
Amounts of		Gross Amounts
Offset in the		Net Amounts
of Liabilities
Presented in the		Gross Amounts Not Offset in
the Statements of Condition
 RecognizedStatements ofStatements ofFinancialCash 
(In thousands)LiabilitiesConditionConditionInstrumentsCollateral PledgedNet Amount
December 31, 2022      
Interest Rate Swap Agreements:      
Institutional counterparties$(1,271)$36 $(1,235)$11,973 $— $10,738 
Commercial counterparties(102,595)6,507 (96,088)— — (96,088)
Total$(103,866)$6,543 $(97,323)$11,973 $— $(85,350)
41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LEASES

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space. Most of the Company’s leases are classified as operating leases. At September 30, 2023, lease expiration dates ranged from 1 month to 16 years.

The following table represents the Consolidated Balance Sheets classification of the Company’s right-of-use (“ROU”) assets and lease liabilities:
(In thousands)September 30, 2023December 31, 2022
Lease Right-of-Use AssetsClassification
Operating lease right-of-use assets Other assets$48,173 $46,411 
Finance lease right-of-use assetsPremises and equipment, net5,727 6,151 
Total Lease Right-of-Use Assets$53,900 $52,562 
Lease Liabilities
Operating lease liabilitiesOther liabilities$54,128 $53,736 
Finance lease liabilitiesOther liabilities8,831 9,306 
Total Lease Liabilities$62,959 $63,042 

Supplemental information related to leases was as follows:
September 30, 2023December 31, 2022
Weighted-Average Remaining Lease Term (in years)
Operating leases8.59.3
Finance leases11.111.8
Weighted-Average Discount Rate
Operating leases2.85 %2.56 %
Finance leases5.00 %5.00 %

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.

The Company does not have any material sub-lease agreements.

Lease expense for operating leases for the three months ended September 30, 2023 was $2.2 million. Lease expense for operating leases for the nine months ended September 30, 2023 was $6.9 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

Lease expense for operating leases for the three months ended September 30, 2022 was $2.2 million. Lease expense for operating leases for the nine months ended September 30, 2022 was $7.3 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.


42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases was as follows:
Three Months Ended
(In thousands)September 30, 2023September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,267 $2,518 
Operating cash flows from finance leases112 119 
Financing cash flows from finance leases148 139 
Nine Months Ended
(In thousands)September 30, 2023September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$6,800 $7,657 
Operating cash flows from finance leases336 359 
Financing cash flows from finance leases443 414 

The following table presents a maturity analysis of the Company’s lease liability by lease classification at September 30, 2023:
(In thousands)Operating LeasesFinance Leases
2023$2,399 $260 
20249,470 1,039 
20258,259 1,039 
20267,262 1,039 
20276,383 1,039 
Thereafter26,594 7,075 
Total undiscounted lease payments 60,367 11,491 
Less amounts representing interest (6,239)(2,660)
Lease liability $54,128 $8,831 
43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9.           CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:
September 30,
2023		December 31,
2022
Minimum Capital Requirement
Company (consolidated)  
Total capital to risk-weighted assets14.4 %14.6 %8.0 %
Common equity tier 1 capital to risk-weighted assets12.1 12.4 4.5 
Tier 1 capital to risk-weighted assets12.3 12.6 6.0 
Tier 1 capital to average assets9.8 10.2 4.0 
September 30,
2023		December 31,
2022		Regulatory Minimum to be Adequately CapitalizedRegulatory
Minimum to be
Well Capitalized
Bank
Total capital to risk-weighted assets13.4 %13.6 %8.0 %10.0 %
Common equity tier 1 capital to risk-weighted assets12.4 12.6 4.5 6.5 
Tier 1 capital to risk-weighted assets12.4 12.6 6.0 8.0 
Tier 1 capital to average assets9.7 10.2 4.0 5.0 

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Failure to meet capital requirements can initiate regulatory action. At each date shown, the Company met the minimum capital requirements and the Bank met the conditions to be classified as “well capitalized” under the relevant regulatory framework. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.

As of January 1, 2019, banking organizations must maintain a minimum Common equity Tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5%, and a minimum Total risk-based capital ratio of 10.5%, including a 2.5% capital conservation buffer. Capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the capital conservation buffer is not met.

At September 30, 2023, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at September 30, 2023 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.
44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated other comprehensive (loss)
Components of accumulated other comprehensive (loss) is as follows:
(In thousands)September 30,
2023		December 31,
2022
Other accumulated comprehensive income, before tax:  
Net unrealized holding (loss) on AFS securities$(278,285)$(236,887)
Net unrealized (loss) on cash flow hedging derivatives(15,739)(6,667)
Net unrealized holding (loss) on pension plans(844)(844)
Income taxes related to items of accumulated other comprehensive income:  
Net unrealized tax benefit on AFS securities72,030 61,329 
Net unrealized tax benefit on cash flow hedging derivatives4,224 1,789 
Net unrealized tax benefit on pension plans228 228 
Accumulated other comprehensive loss$(218,386)$(181,052)

The following table presents the components of other comprehensive (loss) for the three and nine months ended September 30, 2023 and 2022:
(In thousands)Before TaxTax EffectNet of Tax
Three Months Ended September 30, 2023   
Net unrealized holding loss on AFS securities:x 
Net unrealized (losses) arising during the period$(40,525)$10,544 $(29,981)
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding gain on AFS securities(40,525)10,544 (29,981)
Net unrealized loss on cash flow hedging derivatives:   
Net unrealized (loss) arising during the period(3,118)836 (2,282)
Less: reclassification adjustment for (losses) realized in net income(159)42 (117)
Net unrealized loss on cash flow hedging derivatives(2,959)794 (2,165)
Other comprehensive (loss)$(43,484)$11,338 $(32,146)
Three Months Ended September 30, 2022   
Net unrealized holding loss on AFS securities:  
Net unrealized (losses) arising during the period$(83,073)$21,639 $(61,434)
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding (loss) on AFS securities(83,073)21,639 (61,434)
Net unrealized loss on cash flow hedging derivatives:  
Net unrealized (loss) arising during the period(5,555)1,494 (4,061)
Less: reclassification adjustment for (losses) realized in net income— — — 
Net unrealized (loss) on cash flow hedging derivatives(5,555)1,494 (4,061)
Other comprehensive (loss)$(88,628)$23,133 $(65,495)
45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)Before TaxTax EffectNet of Tax
Nine Months Ended September 30, 2023   
Net unrealized holding loss on AFS securities: 
Net unrealized (losses) arising during the period$(41,398)$10,701 $(30,697)
Less: reclassification adjustment for gains realized in net income— — — 
Net unrealized holding (loss) on AFS securities(41,398)10,701 (30,697)
Net unrealized loss on cash flow hedging derivatives:   
Net unrealized (losses) arising during the period(9,545)2,562 (6,983)
Less: reclassification adjustment for (losses) realized in net income(473)127 (346)
Net unrealized loss on cash flow hedging derivatives(9,072)2,435 (6,637)
Other comprehensive (loss)$(50,470)$13,136 $(37,334)
Nine Months Ended September 30, 2022   
Net unrealized holding loss on AFS securities:  
Net unrealized (losses) arising during the period$(244,927)$63,741 $(181,186)
Less: reclassification adjustment for gains realized in net income6 (2)4 
Net unrealized holding (loss) on AFS securities(244,933)63,743 (181,190)
Net unrealized loss on cash flow hedging derivatives:  
Net unrealized (loss) arising during the period(5,555)1,494 (4,061)
Less: reclassification adjustment for (losses) realized in net income— — — 
Net unrealized (loss) on cash flow hedging derivatives(5,555)1,494 (4,061)
Other comprehensive (loss)(250,488)65,237 (185,251)


46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in each component of accumulated other comprehensive (loss), for the three and nine months ended September 30, 2023 and 2022:
(In thousands)Net unrealized
holding loss
on AFS Securities		Net loss on
effective cash
flow hedging derivatives		Net unrealized
holding loss
on pension plans		Total
Three Months Ended September 30, 2023    
Balance at Beginning of Period$(176,274)$(9,350)$(616)$(186,240)
Other comprehensive (loss) before reclassifications(29,981)(2,282)(32,263)
Less: amounts reclassified from accumulated other comprehensive (loss)— (117)— (117)
Total other comprehensive (loss)(29,981)(2,165)— (32,146)
Balance at End of Period$(206,255)$(11,515)$(616)$(218,386)
Three Months Ended September 30, 2022    
Balance at Beginning of Period$(121,154)$— $(1,845)$(122,999)
Other comprehensive (loss) before reclassifications(61,434)(4,061)— (65,495)
Less: amounts reclassified from accumulated other comprehensive (loss) — — — — 
Total other comprehensive income(61,434)(4,061)— (65,495)
Balance at End of Period$(182,588)$(4,061)$(1,845)$(188,494)
(In thousands)Net unrealized
holding loss
on AFS Securities		Net loss on
effective cash
flow hedging derivatives		Net unrealized
holding loss
on pension plans		Total
Nine Months Ended September 30, 2023    
Balance at Beginning of Period$(175,558)$(4,878)$(616)$(181,052)
Other comprehensive (loss) before reclassifications(30,697)(6,983)— $(37,680)
Less: amounts reclassified from accumulated other comprehensive (loss)— (346)— $(346)
Total other comprehensive (loss)(30,697)(6,637)— (37,334)
Balance at End of Period(206,255)(11,515)(616)(218,386)
Nine Months Ended September 30, 2022    
Balance at Beginning of Period$(1,398)$— $(1,845)$(3,243)
Other comprehensive (loss) before reclassifications(181,186)(4,061)(185,247)
Less: amounts reclassified from accumulated other comprehensive (loss) 4 — — 4 
Total other comprehensive income(181,190)(4,061)— (185,251)
Balance at End of Period$(182,588)$(4,061)$(1,845)$(188,494)

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amounts reclassified out of each component of accumulated other comprehensive
income for the three and nine months ended September 30, 2023 and 2022:
   Affected Line Item in the
 Three Months Ended September 30,Statement where Net Income
(In thousands)20232022is Presented
Realized gains on AFS securities:  
 $— $— Non-interest income
 — — Tax expense
 — — Net of tax
   
Realized (losses) on cash flow hedging derivatives:   
 (159)— Interest expense
— — Non-interest expense
 42 — Tax benefit
 (117)— Net of tax
Total reclassifications for the period$(117)$— Net of tax
   Affected Line Item in the
 Nine Months Ended September 30,Statement where Net Income
(In thousands)20232022is Presented
Realized gains on AFS securities:  
 $— $6 Non-interest income
 — (2)Tax expense
 — 4 Net of tax
   
Realized (losses) on cash flow hedging derivatives:   
 (473)— Interest expense
— — Non-interest expense
 127 — Tax benefit
 (346)— Net of tax
Total reclassifications for the period$(346)$4 Net of tax


48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. EARNINGS PER SHARE

Earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
 Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share data)2023202220232022
Net income$19,545 $18,717 $71,043 $62,028 
Average number of common shares issued51,903 51,903 51,903 51,903 
Less: average number of treasury shares7,916 6,433 7,675 5,068 
Less: average number of unvested stock award shares823 770 793 779 
Average number of basic shares outstanding43,164 44,700 43,435 46,056 
Plus: dilutive effect of unvested stock award shares183 330 205 336 
Plus: dilutive effect of stock options outstanding— 4 — 4 
Average number of diluted shares outstanding43,347 45,034 43,640 46,396 
Basic earnings per common share:$0.45 $0.42 $1.64 $1.35 
Diluted earnings per common share:$0.45 $0.42 $1.63 $1.34 

For the three months ended September 30, 2023, 639 thousand shares of unvested restricted stock and 49 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the nine months ended September 30, 2023, 569 thousand shares of unvested restricted stock and 49 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended September 30, 2022, 440 thousand shares of unvested restricted stock and 68 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation. For the nine months ended September 30, 2022, 448 thousand shares of unvested restricted stock and 69 thousand options outstanding were anti-dilutive and therefore excluded from the earnings per share calculation.
49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCK-BASED COMPENSATION PLANS

A combined summary of activity in the Company’s stock award and stock option plans for the nine months ended September 30, 2023 is presented in the following table:
 Non-Vested Stock Awards OutstandingStock Options Outstanding
(Shares in thousands)Number of SharesWeighted-Average Grant Date Fair ValueNumber of SharesWeighted-Average Exercise Price
December 31, 2022704 $22.85 49 $26.46 
Granted400 26.87 — — 
Acquired— — — — 
Stock options exercised— — — — 
Stock awards vested(236)20.91 — — 
Forfeited(72)25.48 — — 
Expired— — — — 
September 30, 2023796 $24.92 49 $26.46 

During the three and nine months ended September 30, 2023, there were no stock option exercises. During the three and nine months ended September 30, 2022, proceeds from stock option exercises totaled $245 thousand and $269 thousand, respectively. During the three and nine months ended September 30, 2023, there were 58 thousand and 236 thousand shares vested in connection with stock awards, respectively. During the three and nine months ended September 30, 2022, there were 120 thousand and 230 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $2.1 million and $1.7 million during the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense totaled $5.5 million and $5.7 million during the nine months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
 September 30, 2023
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading securities$— $— $6,171 $6,171 
Securities available for sale: 
U.S Treasuries7,873 — — 7,873 
Municipal bonds and obligations— 58,694 — 58,694 
Agency collateralized mortgage obligations— 460,356 — 460,356 
Agency residential mortgage-backed securities— 483,201 — 483,201 
Agency commercial mortgage-backed securities— 211,371 — 211,371 
Corporate bonds— 34,280 3,960 38,240 
Other bonds and obligations— 656 — 656 
Equity securities12,325 — — 12,325 
Loans held for investment at fair value— — 408 408 
Loans held for sale — 2,342 — 2,342 
Derivative assets — 64,151 10 64,161 
Capitalized servicing rights — — 1,706 1,706 
Derivative liabilities — 116,594 9 116,603 
 December 31, 2022
 Level 1Level 2Level 3Total
(In thousands)InputsInputsInputsFair Value
Trading securities$— $— $6,708 $6,708 
Securities available for sale:
U.S Treasuries11,973 — — 11,973 
Municipal bonds and obligations— 63,335 — 63,335 
Agency collateralized mortgage obligations— 531,945 — 531,945 
Agency residential mortgage-backed securities— 546,313 — 546,313 
Agency commercial mortgage-backed securities— 228,468 — 228,468 
Corporate bonds— 36,510 4,000 40,510 
Equity securities12,856 — — 12,856 
Loans held for investment at fair value— — 605 605 
Loans held for sale — 942 — 942 
Derivative assets — 54,216 25 54,241 
Capitalized servicing rights — — 1,846 1,846 
Derivative liabilities — 97,030 — 97,030 
 

There were no transfers between levels during the three and nine months ended September 30, 2023.
51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trading Securities at Fair Value. The Company holds one security designated as a trading security. It is a tax-advantaged economic development bond issued to the Company by a local nonprofit which provides wellness and health programs. The fair value of this security is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable and there is little to no market activity in the security; therefore, the security meets the definition of a Level 3 security. The discount rate used in the valuation of the security is sensitive to movements in the 3-month SOFR rate.

Securities Available for Sale and Equity Securities. Equity securities classified as Level 1 consist of publicly-traded equity securities for which the fair values can be obtained through quoted market prices in active exchange markets. Equity securities classified as Level 2 consist of securities with infrequent trades in active exchange markets, and pricing is primarily sourced from third party pricing services. AFS securities classified as Level 1 consist of U.S. Treasury securities. AFS securities classified as Level 2 include most of the Company’s debt securities. The pricing on Level 2 and Level 3 was primarily sourced from third party pricing services, overseen by management, and is based on models that consider standard input factors such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and condition, among other things. Level 3 pricing includes inputs unobservable to market participants.

Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing an $11.2 million fair value write-down charged to retained earnings, net of deferred tax impact, as of January 1, 2020. The fair value of this loan portfolio is determined based on a discounted cash flow methodology. Certain inputs to the fair value calculation are unobservable; therefore, the loans meet the definition of Level 3 assets. The discount rate used in the valuation is consistent with assets that have significant credit deterioration. The cash flow assumptions include payment schedules for loans with current payment histories and estimated collateral value for delinquent loans. All of these loans were nonperforming as of September 30, 2023.
   Aggregate Fair Value
September 30, 2023AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$408 $9,064 $(8,656)

   Aggregate Fair Value
December 31, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for investment at fair value$605 $10,948 $(10,343)


52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans Held for Sale. The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.
   Aggregate Fair Value
September 30, 2023AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale$2,342 $2,312 $30 
   Aggregate Fair Value
December 31, 2022AggregateAggregateLess Aggregate
(In thousands)Fair ValueUnpaid PrincipalUnpaid Principal
Loans held for sale $942 $927 $15 
The changes in fair value of loans held for sale for the three and nine months ended September 30, 2023, were losses of $94 thousand and gains of $15 thousand, respectively. During the three and nine months ended September 30, 2023, originations of loans held for sale totaled $26.8 million and $56.2 million, respectively. During the three and nine months ended September 30, 2023, sales of loans originated for sale totaled $33.1 million and $54.8 million, respectively.

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

Interest Rate Swaps. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2023, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Commitments to Lend. The Company enters into commitments to lend for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close, and by the non-refundable costs of originating the loan. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. The costs to originate are primarily based on the Company’s internal commission rates that are not observable. As such, these commitments are classified as Level 3 measurements.


53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the commitments to lend and loans originated for sale. To Be Announced (“TBA”) mortgage-backed securities forward commitment sales are used as the hedging instrument, are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of the Company’s best efforts and mandatory delivery loan sale commitments are determined similarly to the commitments to lend using quoted prices in the market place that are observable. However, costs to originate and closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are considered factors that are not observable. As such, best efforts and mandatory forward commitments are classified as Level 3 measurements.

Capitalized Servicing Rights. The Company accounts for certain capitalized servicing rights at fair value in its Consolidated Financial Statements, as the Company is permitted to elect the fair value option for each specific instrument. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and nine months ended September 30, 2023 and 2022.
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securitiesfor SaleInvestmentto LendCommitments Rights
Three Months Ended September 30, 2023
June 30, 2023$6,405 $3,930 $401 $37 $63 $1,886 
Unrealized (loss)/gain, net recognized in other non-interest income(19)— 28 26 (53)(180)
Unrealized gain included in accumulated other comprehensive income— 30 — — — — 
Paydown of asset(215)— (21)— — — 
Transfers to held for sale loans— — — (72)— — 
September 30, 2023$6,171 $3,960 $408 $(9)$10 $1,706 
Nine Months Ended September 30, 2023
December 31, 2022$6,708 $4,000 $605 $17 $8 $1,846 
Unrealized (loss)/gain, net recognized in other non-interest income104 — (119)146 2 (140)
Unrealized (loss) included in accumulated other comprehensive income— (40)— — — — 
Paydown of asset(641)— (78)— — — 
Transfers to held for sale loans— — — (172)— — 
September 30, 2023$6,171 $3,960 $408 $(9)$10 $1,706 
Unrealized (loss)/gain relating to instruments still held at September 30, 2023$(251)$(40)$— $(9)$10 $— 

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Assets (Liabilities)
  SecuritiesLoans Capitalized
 TradingAvailableHeld for CommitmentsForwardServicing
(In thousands)Securitiesfor SaleInvestmentto LendCommitments Rights
Three Months Ended September 30, 2022
June 30, 2022$7,040 $4,020 $1,049 $26 $18 $1,906 
Unrealized (loss)/gain, net recognized in other non-interest income(23)— (6)41 (11)120 
Unrealized gain included in accumulated other comprehensive income— (100)— — — — 
Paydown of asset(205)(247)— — — 
Transfers to held for sale loans— — — (52)— — 
September 30, 2022$6,812 $3,920 $796 $15 $7 $2,026 
Nine Months Ended September 30, 2022
December 31, 2021$8,354 $4,030 $1,200 $124 $134 $1,966 
Unrealized (loss)/gain, net recognized in other non-interest income(933)— 462 171 (127)60 
Unrealized (loss) included in accumulated other comprehensive income— (110)— — — — 
Paydown of asset(609)— (866)— — — 
Transfers to held for sale loans— — — (280)— — 
Additions to servicing rights— — 0— — — 
September 30, 2022$6,812 $3,920 $796 $15 $7 $2,026 
Unrealized (loss)/gain relating to instruments still held at September 30, 2022$(459)$(80)$— $26 $18 $— 









55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:
 Fair Value  Significant
Unobservable Input
(In thousands)September 30, 2023Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading Securities$6,171 Discounted Cash FlowDiscount Rate5.14 %
AFS Securities3,960 Indication from Market MakerPrice
99.00%
Loans held for investment408 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$0.0 - $18.6
Commitments to lend (9)Historical TrendClosing Ratio80.39 %
  Pricing ModelOrigination Costs, per loan$3 
Forward commitments 10 Historical TrendClosing Ratio80.39 %
  Pricing ModelOrigination Costs, per loan$3 
Capitalized servicing rights 1,706 Discounted cash flowConstant Prepayment Rate (CPR)8.62 %
Discount Rate10.58 %
Total$12,246    

 Fair Value  Significant
Unobservable Input
(In thousands)December 31, 2022Valuation TechniquesUnobservable InputsValue
Assets (Liabilities)    
Trading Securities$6,708 Discounted Cash FlowDiscount Rate5.92 %
AFS Securities4,000 Indication from Market MakerPrice100.00 %
Loans held for investment605 Discounted Cash FlowDiscount Rate25.00 %
Collateral Value
$0.0- $20.4
Commitments to lend 17 Historical TrendClosing Ratio80.63 %
  Pricing ModelOrigination Costs, per loan$2 
Forward commitments 8 Historical TrendClosing Ratio80.63 %
  Pricing ModelOrigination Costs, per loan$2 
Capitalized servicing rights1,846 Discounted Cash FlowConstant Prepayment Rate (CPR)11.07 %
Discount Rate9.56 %
Total$13,184    
56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Recurring Fair Value Measurements
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.
 September 30, 2023Fair Value Measurement Date December 31, 2022Fair Value Measurement Date
 Level 3Level 3Level 3Level 3
(In thousands)InputsInputsInputsInputs
Assets  
Individually evaluated$5,676 September 2023$14,571 December 2022
Loans held for sale— September 20233,369 December 2022
Capitalized servicing rights10,850 September 202311,201 December 2022
Total$16,526 $29,141 

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is as follows:
 Fair Value   
(In thousands)September 30, 2023Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$5,676 Fair Value of CollateralDiscounted Cash Flow - Loss Severity
(100.00)% to (0.01)% (60.44%)
   Appraised Value
$0 to $3,361 ($2,336)
Capitalized servicing rights10,850 Discounted Cash FlowConstant Prepayment Rate (CPR)
4.78% to 12.22% (11.70%)
   Discount Rate
9.59% to 19.71% (15.26%)
Total$16,526    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
 Fair Value   
(In thousands)December 31, 2022Valuation TechniquesUnobservable InputsRange (Weighted Average) (1)
Assets    
Individually evaluated$14,571 Fair Value of CollateralDiscounted Cash Flow - loss severity
(100.00)% to 74.74% ((40.02)%)
   Appraised Value
$0 to $2,160 ($643)
Loans held for sale3,369 Fair Value of CollateralAppraised Value$3,369
Capitalized servicing rights11,201 Discounted Cash FlowConstant Prepayment Rate (CPR)
5.81% to 13.18% (10.94%)
   Discount Rate
9.59% to 22.70% (16.83%)
Total$29,141    
(1)     Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.

There were no Level 1 or Level 2 nonrecurring fair value measurements for the periods ended September 30, 2023 and December 31, 2022.


57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurring fair value measurement adjustments that relate to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supports commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. 

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

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

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Estimated Fair Values of Financial Instruments
The following tables summarize the estimated fair values (represents exit price), and related carrying amounts, of the Company’s financial instruments. Certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 September 30, 2023
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$663,470 $663,470 $663,470 $— $— 
Trading securities6,171 6,171 — — 6,171 
Equity securities12,325 12,325 12,325 — — 
Securities available for sale 1,260,391 1,260,391 7,873 1,248,558 3,960 
Securities held to maturity552,981 453,729 — 452,178 1,551 
Federal Home Loan Bank stock38,912 N/AN/AN/AN/A
Net loans8,881,585 8,757,345 — — 8,757,345 
Loans held for sale 2,342 2,342 — 2,342 — 
Accrued interest receivable52,669 52,669 — 52,669 — 
Derivative assets 64,161 64,161 — 64,151 10 
Financial Liabilities     
Total deposits$9,980,544 $9,951,662 $— $9,947,373 $— 
Short-term debt670,000 669,981 — 669,981 — 
Long-term Federal Home Loan Bank advances and other134,295 129,182 — 129,182 — 
Subordinated borrowings121,300 94,192 — 94,192 — 
Accrued interest payable12,794 12,794 — 12,794 — 
Derivative liabilities 116,603 116,603 — 116,594 9 
 December 31, 2022
 CarryingFair   
(In thousands)AmountValueLevel 1Level 2Level 3
Financial Assets     
Cash and cash equivalents$685,355 $685,355 $685,355 $— $— 
Trading securities6,708 6,708 — — 6,708 
Equity securities12,856 12,856 12,856 — — 
Securities available for sale and other1,423,200 1,423,200 11,973 1,407,227 4,000 
Securities held to maturity583,453 507,464 — 505,508 1,956 
Federal Home Loan Bank stock7,219 N/AN/AN/AN/A
Net loans8,239,039 8,194,110 — — 8,194,110 
Loans held for sale 4,311 4,311 — 942 3,369 
Accrued interest receivable46,868 46,868 — 46,868 — 
Derivative assets 54,241 54,241 — 54,216 25 
Financial Liabilities     
Total deposits$10,327,269 $10,283,543 $— $10,283,543 $— 
Short-term debt— — — — — 
Long-term Federal Home Loan Bank advances4,445 2,782 — 2,782 — 
Subordinated borrowings121,064 110,853 — 110,853 — 
Accrued interest payable1,610 1,610 — 1,610 — 
Derivative liabilities 97,030 97,030 — 97,030 — 
59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. NET INTEREST INCOME AFTER PROVISION/(BENEFIT) FOR CREDIT LOSSES

Presented below is net interest income after provision for credit losses for the three and nine months ended September 30, 2023 and 2022, respectively.
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2023202220232022
Net interest income$90,334 $92,084 $280,626 $242,505 
Provision/(benefit) for credit losses8,000 3,000 24,999 (1,000)
Net interest after provision for credit losses$82,334 $89,084 $255,627 $243,505 
60
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL DATA
The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Forms 10-Q.
At or for theAt or for the
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
NOMINAL AND PER SHARE DATA    
Net earnings per common share, diluted$0.45 $0.42 $1.63 $1.34 
Operating earnings per common share, diluted (1)(2)0.50 0.62 1.67 1.56 
Net income, (thousands)19,545 18,717 71,043 62,028 
Operating net income, (thousands) (1)(2)21,516 27,928 73,002 72,279 
Net interest income, non FTE90,334 92,084 280,626 242,505 
Net interest income, FTE (4)92,314 93,799 286,476 247,304 
Total common shares outstanding, (thousands) 43,822 45,040 43,822 45,040 
Average diluted shares, (thousands)43,347 45,034 43,640 46,396 
Total book value per common share21.70 20.93 21.70 20.93 
Tangible book value per common share (2)21.23 20.36 21.23 20.36 
Dividends per common share0.18 0.12 0.54 0.36 
Dividend payout ratio40.56 %29.35 %33.67 %28.18 %
PERFORMANCE RATIOS (3)
Return on equity, including unrealized losses on AFS securities7.91 %7.31 %9.57 %7.55 %
Return on equity, excluding unrealized losses on AFS securities6.35 6.30 7.75 6.97 
Operating return on equity, including unrealized losses on AFS securities (1)(2)8.71 10.92 9.83 8.79 
Operating return on equity, excluding unrealized losses on AFS securities (1)(2)6.99 9.40 7.97 8.12 
Return on tangible common equity, including unrealized losses on AFS securities(1)(2)8.45 7.88 10.16 8.10 
Return on tangible common equity, excluding unrealized losses on AFS securities(1)(2)6.76 6.76 8.19 7.46 
Operating return on tangible common equity, including unrealized losses on AFS securities (1)(2)9.27 11.57 10.43 9.37 
Operating return on tangible common equity, excluding unrealized losses on AFS securities (1)(2)7.41 9.92 8.41 8.64 
Return on assets0.66 0.67 0.80 0.73 
Operating return on assets (1)(2)0.73 1.00 0.82 0.86 
Net interest margin, FTE (4)3.18 3.48 3.33 3.05 
Efficiency ratio (1)(2)65.05 62.01 62.65 66.75 
FINANCIAL DATA (in millions, end of period)
Total assets$12,140 $11,317 $12,140 $11,317 
Total earning assets11,400 10,604 11,400 10,604 
Total loans8,984 7,943 8,984 7,943 
Total deposits9,981 9,988 9,981 9,988 
Loans/deposits (%)90 %80 %90 %80 %
Total shareholders' equity951 943 951 943 
61
ASSET QUALITY   
Allowance for credit losses, (millions)$103 $96 $103 $96 
Net charge-offs, (millions)(5)(6)(18)(9)
Net charge-offs (QTD annualized)/average loans0.24 %0.30 %0.28 %0.16 %
Provision expense/(benefit), (millions)$8 $3 $25 $(1)
Non-accruing loans/total loans0.30 %0.48 %0.30 %0.48 %
Allowance for credit losses/non-accruing loans386 254 386 254 
Allowance for credit losses/total loans1.14 1.21 1.14 1.21 
CAPITAL RATIOS
Common equity tier 1 capital to risk-weighted assets12.1 %12.7 %12.1 %12.7 %
Tier 1 capital leverage ratio9.8 10.1 9.8 10.1 
Tangible common shareholders' equity/tangible assets (2)7.7 8.1 7.7 8.1 
____________________________________________________________________________________________
(1)  Operating measurements are non-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions and restructuring activities. Refer to "Reconciliation of Non-GAAP Financial Measures" for additional information.
(2)     Non-GAAP financial measure. Refer to "Reconciliation of Non-GAAP Financial Measures" for additional information.
(3)  All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
(4) Fully taxable equivalent considers the impact of tax advantaged investment securities and loans.

62
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included:
 Three Months Ended September 30,
 20232022
(Dollars in millions)Average
Balance		Interest (FTE basis)Yield/Rate
(FTE basis)		Average
Balance		Interest (FTE basis)Yield/Rate
(FTE basis)
Assets
Loans:    
Commercial real estate$4,385 $71 6.32 %$3,926 $46 4.53 %
Commercial and industrial loans1,436 27 7.48 1,449 19 5.21 
Residential mortgages2,618 26 3.97 1,926 17 3.53 
Consumer loans513 9 7.33 587 9 6.24 
Total loans (1)
8,952 133 5.88 7,888 91 4.54 
Investment securities (2)
2,171 13 2.40 2,400 13 2.13 
Short-term investments & loans held for sale (3)
267 3 4.76 342 2 1.96 
Total interest-earning assets11,390 149 5.19 10,630 106 3.91 
Intangible assets21 x26 X
Other non-interest earning assets449 x494 
Total assets$11,860  $11,150 
Liabilities and shareholders’ equity
Deposits:    
Non-interest-bearing demand deposits$2,553 $— — %$2,913 $— — %
NOW and other858 2 1.15 1,362 2 0.48 
Money market2,697 18 2.69 2,737 3 0.46 
Savings1,082 2 0.77 1,129 — 0.03 
Time2,440 22 3.43 1,528 3 0.85 
Total deposits9,630 44 1.81 9,669 8 0.48 
Borrowings and notes (4)
1,010 14 5.32 251 4 5.46 
Total funding liabilities10,640 58 2.15 9,920 12 0.66 
Other non-interest earning liabilities232  206 
Total liabilities10,872  10,126 
Total common shareholders' equity988 1,024 
Total shareholders’ equity (5)
988  1,024 
Total liabilities and shareholders’ equity$11,860  $11,150 
Net interest margin, FTE3.18 3.48 
Supplementary data
Net Interest Income, non FTE$90.3 $92.1 
FTE income adjustment (6)
2.0 1.7 
Net Interest Income, FTE$92.3 $93.8 
(1)     The average balances of loans include nonaccrual loans and deferred fees and costs.
(2)     The average balance for securities available for sale is based on amortized cost.
(3)     Interest income on loans held for sale is included in loan interest income on the income statement.
(4)     The average balances of borrowings include the capital lease obligation presented under other liabilities on the consolidated balance sheet.
(5)    As of September 30, 2023 unrealized gains and losses, net of tax, are included in average equity. Prior period balances and financial metrics have been updated to reflect the current presentation.
(6)    Fully taxable equivalent considers the impact of tax advantaged investment securities and loans. The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.
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 Nine Months Ended September 30,
 20232022
(Dollars in millions)Average
Balance		Interest (FTE basis)Yield/Rate
(FTE basis)		Average
Balance		Interest (FTE basis)Yield/Rate
(FTE basis)
Assets
Loans:    
Commercial real estate$4,279 $199 6.13 %$3,802 $114 3.89 %
Commercial and industrial loans1,486 81 7.22 1,423 50 4.60 
Residential mortgages2,464 71 3.85 1,671 45 3.55 
Consumer loans525 28 7.28 554 22 5.30 
Total loans (1)
8,754 379 5.74 7,450 231 4.05 
Investment securities (2)
2,222 38 2.30 2,557 39 2.02 
Short-term investments & loans held for sale (3)
380 13 4.70 673 2 0.90 
Total interest-earning assets11,356 430 5.03 10,680 272 3.36 
Intangible assets22 x27 X
Other non-interest earning assets452 x557 
Total assets$11,830  $11,264 
Liabilities and shareholders’ equity
Deposits:    
Non-interest-bearing demand deposits$2,617 $— — %$2,928 $— — %
NOW and other1,121 12 1.43 1,424 2 0.22 
Money market2,637 42 2.14 2,806 6 0.27 
Savings1,069 2 0.46 1,124 — 0.03 
Time2,181 50 2.95 1,537 8 0.73 
Total deposits9,625 106 2.02 9,819 16 0.32 
Borrowings and notes (4)
996 39 5.23 178 8 5.09 
Total funding liabilities10,621 145 1.82 9,997 24 0.44 
Other non-interest earning liabilities219  171 
Total liabilities10,840  10,168 
Total common shareholders' equity990 1,096 
Total shareholders’ equity (5)
990  1,096 
Total liabilities and shareholders’ equity$11,830  $11,264 
Net interest margin, FTE3.33 3.05 
Supplementary data
Net Interest Income, non FTE$280.6 $242.5 
FTE income adjustment (6)
5.9 4.8 
Net Interest Income, FTE$286.5 $247.3 
(1)     The average balances of loans include nonaccrual loans and deferred fees and costs.
(2)     The average balance for securities available for sale is based on amortized cost.
(3)     Interest income on loans held for sale is included in loan interest income on the income statement.
(4)     The average balances of borrowings include the capital lease obligation presented under other liabilities on the consolidated balance sheet.
(5)    As of September 30, 2023 unrealized gains and losses, net of tax, are included in average equity. Prior period balances and financial metrics have been updated to reflect the current presentation.
(6)    Fully taxable equivalent considers the impact of tax advantaged investment securities and loans. The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 27%.
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NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP operating earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP operating earnings information set forth is not necessarily comparable to non- GAAP information which may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information.

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

The Company also calculates operating earnings per share based on its measure of operating earnings and diluted common shares. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s performance. Expense adjustments in 2023 and 2022 were primarily related to branch consolidations. For 2022, fair value adjustments on securities were primarily due to unrealized equity securities losses due to changes in market conditions. Starting March 31, 2023 fair value adjustments on securities are included in operating income.

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


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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items recorded for the periods indicated:
  At or for the Three Months Ended September 30,At or for the Nine Months 
Ended September 30
(In thousands) 2023202220232022
GAAP Net income  $19,545 $18,717 $71,043 $62,028 
Adj: Fair value adjustments on securities (1)
 — 476 — 2,194 
Adj: Restructuring and other expense 2,607 11,473 2,592 11,526 
Adj: Income taxes (636)(2,738)(633)(3,469)
Total operating income (non-GAAP) (2)
(A)$21,516 $27,928 $73,002 $72,279 
GAAP Total revenue  $107,799 $108,335 $331,791 $295,788 
Adj: Fair value adjustments on securities (1)
 — 476 — 2,194 
Total operating revenue (non-GAAP) (2)
(B)$107,799 $108,811 $331,791 $297,982 
GAAP Total non-interest expense $76,513 $81,677 $222,516 $218,702 
Less: Total non-operating expense (see above) (2,607)(11,473)(2,592)(11,526)
Operating non-interest expense (non-GAAP) (2)
(C)$73,906 $70,204 $219,924 $207,176 
(In millions, except per share data)   
Total average assets(D)$11,860 $11,150 $11,830 $11,264 
Total average shareholders’ equity, including unrealized losses on AFS securities(E)988 1,024 990 1,096 
Total average shareholders’ equity, excluding unrealized losses on AFS securities (F)1,231 1,189 1,222 1,187 
Total average tangible shareholders’ equity, including unrealized losses on AFS securities (2)
(G)967 998 967 1,068 
Total average tangible shareholders’ equity, excluding unrealized losses on AFS securities (2)
(H)1,210 1,164 1,199 1,159 
Total tangible shareholders’ equity, period-end (2)(3)
(I)930 917 930 917 
Total tangible assets, period-end (2)
(J)12,119 11,291 12,119 11,291 
Total common shares outstanding, period-end (thousands)(K)43,822 45,040 43,822 45,040 
Average diluted shares outstanding (thousands)(L)43,347 45,034 43,640 46,396 
Earnings per common share, diluted$0.45 $0.42 $1.63 $1.34 
Operating earnings per common share, diluted (2)
(A/L)0.50 0.62 1.67 1.56 
Book value per common share, period-end21.70 20.93 21.70 20.93 
Tangible book value per common share, period-end (2)
(I/K)21.23 20.36 21.23 20.36 
Total shareholders' equity/total assets7.83 8.33 7.83 8.33 
Total tangible shareholder's equity/total tangible assets (2)
(I/J)7.68 8.12 7.68 8.12 
x
Performance ratios (4)
 x 
Return on equity, including unrealized losses on AFS securities7.91 %7.31 %9.57 %7.55 %
Return on equity, excluding unrealized losses on AFS securities6.35 6.30 7.75 6.97 
Operating return on equity, including unrealized losses on AFS securities (2)
(A/E)8.71 10.92 9.83 8.79 
Operating return on equity, excluding unrealized losses on AFS securities (2)
(A/F)6.99 9.40 7.97 8.12 
Return on tangible common equity, including unrealized losses on AFS securities (2)(5)
8.45 7.88 10.16 8.10 
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Return on tangible common equity, excluding unrealized losses on AFS securities (2)(5)
6.76 6.76 8.19 7.46 
Operating return on tangible common equity, including unrealized losses on AFS securities (2)(5)
(A+O)/(G)9.27 11.57 10.43 9.37 
Operating return on tangible common equity, excluding unrealized losses on AFS securities (2)(5)
(A+O)/(H)7.41 9.92 8.41 8.64 
Return on assets0.66 0.67 0.80 0.73 
Operating return on assets (2)
(A/D)0.73 1.00 0.82 0.86 
Efficiency ratio (2)
(C-O)/(B+M+P)65.05 62.01 62.65 66.75 
(in thousands) 
Supplementary data (In thousands)
 xx 
Tax benefit on tax-credit investments (6)
(M)$1,979 $620 $7,611 $1,811 
Non-interest income tax-credit investments amortization (7)
(N)(1,463)(445)(5,959)(1,153)
Net income on tax-credit investments(M+N)516 175 1,652 658 
Intangible amortization(O)1,205 1,285 3,615 3,857 
Fully taxable equivalent income adjustment(P)1,980 1,715 5,850 4,799 
_____________________________________________________________________________________________
(1)     Starting March 31, 2023, fair value adjustments on securities are included in operating income.
(2)    Non-GAAP financial measure.
(3)    Total tangible shareholders’ equity is computed by taking total shareholders’ equity less the intangible assets at period-end. Total tangible assets is computed by taking total assets less the intangible assets at period-end.
(4)     Ratios are annualized and based on average balance sheet amounts, where applicable. Quarterly data may not sum to year-to-date data due to rounding.
(5)     Operating return on tangible common equity is computed by dividing the total operating income adjusted for the tax-affected amortization of intangible assets, assuming a 27% marginal rate, by tangible equity.
(6)     The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation, low-income housing, new markets and solar.
(7)     The non-interest income amortization is the reduction to the tax-advantaged investments and are incurred as the tax credits are generated.

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GENERAL
Management’s discussion and analysis of financial condition and results of operations is intended to assist in
understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2022 Annual Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2023 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.

Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is a Delaware corporation headquartered in Boston and the holding company for Berkshire Bank (“the Bank”) which operates as a commercial bank under a Massachusetts trust company charter. Established in 1846, the Bank provides business and consumer banking, mortgage, wealth management, and investment services, with a vision to be a high performing, relationship focused community bank. Berkshire has approximately $12.1 billion in assets and operates 96 branch offices in New England and New York.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment and inflation, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission, including the Risk Factors in Item 1A of this report.

Because of these and other uncertainties, Berkshire’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Berkshire’s past results of operations do not necessarily indicate Berkshire’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Berkshire is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Berkshire qualifies all of its forward-looking statements by these cautionary statements.

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FINANCIAL OVERVIEW

Berkshire reported net income of $19.5 million, or $0.45 per diluted share, for the three months ended September 30, 2023, compared to $18.7 million, or $0.42 per diluted share, for the year-ago period. Included in the results for the three months ended September 30, 2023 are net non-operating charges totaling $2.6 million ($2.0 million after-tax) or $0.05 per share. Included in the results for the three months ended September 30, 2022 are net non-operating charges totaling $11.9 million ($9.2 million after-tax) or $0.20 per share. The Company’s non-GAAP measure of operating income totaled $21.5 million, or $0.50 per diluted share, for the three months ended September 30, 2023, compared to $27.9 million, or $0.62 per diluted share, for the year-ago period. Compared to the year-ago period, third quarter 2023 operating income primarily reflected higher loan loss provision expense and operating non-interest expense.

Berkshire’s return on average assets was 0.66% (0.73% on an operating basis) for the three months ended September 30, 2023 compared to 0.67% (1.00% on an operating basis) for the year-ago period. Return on average tangible common equity including unrealized loss on AFS securities was 8.45% (9.27% on an operating basis) for the three months ended September 30, 2023 compared to 7.88% (11.57% on an operating basis) for the year-ago period. Return on average tangible common equity excluding unrealized loss on AFS securities was 6.76% (7.41% on an operating basis) for the three months ended September 30, 2023 compared to 6.76% (9.92% on an operating basis) for the year-ago period. Per share results and equity returns have included the benefit of ongoing share repurchases.

Compared to the third quarter of 2022, FTE net interest income decreased $1.5 million to $92.3 million and the net interest margin decreased 30 basis points to 3.18%. Third quarter 2023 average total earning assets increased $760 million compared to the third quarter of 2022, primarily reflecting an increase of $1.06 billion in average loans offset by decreases of $75 million in average short-term investments and loans HFS and $229 million in average securities. Average total funding liabilities increased $720 million compared to the year-ago quarter, reflecting a $759 million increase in average borrowings, partially offset by a $39 million decrease in average deposits.

Net income for the nine months ended September 30, 2023 totaled $71.0 million, or $1.63 per diluted share, compared to $62.0 million, or $1.34 per diluted share, for the year-ago period. Included in the results for the nine months ended September 30, 2023 are net non-operating charges totaling $2.6 million ($2.0 million after-tax) or $0.04 per share. Included in the results for the nine months ended September 30, 2022 were net non-operating charges totaling $13.7 million ($10.3 million after-tax) or $0.22 per share. The Company’s non-GAAP measure of operating income total $73.0 million, or $1.67 per diluted share, for the nine months ended September 30, 2023, compared to $72.3 million, or $1.56 per diluted share, for the year-ago period. Compared to the year-ago period, nine month 2023 operating earnings primarily reflect higher net interest income partially offset by higher credit loss provision expense and operating non-interest expense.

Berkshire’s return on average assets was 0.80% (0.82% on an operating basis) for the nine months ended September 30, 2023 compared to 0.73% (0.86% on an operating basis) for the year-ago period.

Return on average tangible common equity including unrealized loss on AFS securities was 10.16% (10.43% on an operating basis) for the nine months ended September 30, 2023 compared to 8.10% (9.37% on an operating basis) for the year-ago period. Return on average tangible common equity excluding unrealized loss on AFS securities was 8.19% (8.41% on an operating basis) for the nine months ended September 30, 2023 compared to 7.46% (8.64% on an operating basis) for the year-ago period. Per share results and equity returns have included the benefit of ongoing share repurchases.

Compared to the first nine months of 2022, FTE net interest income increased $39.2 million to $286.5 million and the net interest margin increased 28 basis points to 3.33%. Average total earning assets in the first nine months of 2023 increased $676 million compared to the first nine months of 2022, primarily reflecting an increase of $1.30 billion in average loans, partially offset by a $335 million decrease in average securities and a $293 million decrease in average short-term investments and HFS loans. Average nine month total funding liabilities increased $624 million compared to the year-ago period, reflecting an $818 million increase in average borrowings, partially offset by a $194 million decrease in average deposits.

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Third quarter non-interest income increased $1.2 million year-over-year and total non-interest expense decreased $5.2 million. The efficiency ratio was 65.1% for the third quarter of 2023 compared to 62.0% for the year-ago quarter. For the first nine months of the year, total non-interest income decreased $2.1 million and non-interest expense increased $3.8 million. The efficiency ratio was 62.7% and 66.8% for these periods, respectively.

The provision for credit losses on loans in the third quarter of 2023 totaled $8.0 million compared to $3.0 million in the year-ago quarter. For the first nine months of the year, the provision expense was $25.0 million in 2023, compared to ($1.0) million in 2022. Provision expense in 2022 reflected notable improvement in pandemic-related expected credit losses. The allowance for credit losses on loans was $102.8 million, or 1.14% of total loans, at September 30, 2023, compared to $96.3 million, or 1.15% of total loans at December 31, 2022.

Berkshire’s total shareholders’ equity was $951 million at September 30, 2023 compared to $954 million at December 31, 2022. The common equity Tier 1 capital ratio was 12.1% and 12.3% at September 30, 2023 and December 31, 2022, respectively. Tangible common equity as a percentage of tangible assets was 7.7% at September 30, 2023 compared to 8.0% at December 31, 2022.

Net Interest Income

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

In response to persistent high inflation, the Federal Reserve Board increased the target federal funds rate during 2022 and 2023. The average maximum target Federal Funds rate increased from 25 basis points in the first quarter of 2022 to 5.43% in the third 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 decreased by 30 basis points to 3.18% in the third quarter of 2023 compared to the year-ago quarter, reflecting increased cost of funds partially offset by increased earning asset yield. Third quarter net interest income decreased year-over-year by $1.8 million due to the lower margin which was partially offset by a 7% increase in average earning assets funded primarily by higher borrowings. Total interest income increased $44.4 million and total interest expense increased $46.1 million. The FTE interest adjustment increased $265 thousand.

Third quarter 2023 average total earning assets increased $760 million compared to the third quarter of 2022, primarily reflecting an increase of $1.06 billion in average loans offset by decreases of $229 million in averages securities and $75 million in short-term investments and loans HFS. The increase in average loans was primarily due to a $459 million increase in average commercial real estate loans and a $692 million increase in average residential mortgages, reflecting growth in originations staff and expansionary economic conditions supporting market demand for commercial loans.

Average total loans, average securities and average short-term investments and loans held for sale comprised 79%, 19% and 2%, respectively, of average total earning assets in the third quarter of 2023, compared to 74%, 23% and 3%, respectively, in the third quarter of 2022. In the current quarter, the yields on these portfolios were 5.88%, 2.40%, and 4.76% respectively, compared to 4.54%, 2.13%, and 1.96% in the same quarter of 2022.

The 128 basis point year-over-year increase in the third quarter yield on average earning assets reflected higher market interest rates and a mix shift towards higher yielding loans. The loan yield increased by 134 basis points, the securities yield increased by 27 basis points, and the yield on short-term investments and loans held for sale increased 280 basis points. Higher loans yields included increases of 179 basis points in commercial real estate, 227 basis points in commercial and industrial loans, 44 basis points in residential mortgages, and 109 basis points in consumer loans.

Third quarter average total funding liabilities increased $720 million, reflecting a $759 million increase in average borrowings which was partially offset by a $39 million reduction in average deposits. The increase in borrowings was primarily due to higher borrowings from the Federal Home Loan Bank of Boston.
70

Compared to the prior year third quarter, third quarter average non-interest bearing deposits decreased $360 million, average NOW and other interest-bearing transaction accounts decreased $504 million, average money market deposits decreased $40 million, and average savings deposits decreased $47 million. Average time deposits increased $912 million. Deposit shifts reflected the migration of some balances from lower yielding accounts to higher yielding accounts in and out of the Bank, as well as the spend-down by customers of liquidity accumulated during the pandemic. Time deposit growth included higher utilization of brokered deposits.

Average total deposits comprised 91% and 97% of average total funding liabilities in the third quarters of 2023 and 2022, respectively. As a percentage of average deposits, in the third quarter of 2023, average non-interest bearing deposits measured 27%, average NOW and other interest-bearing transaction accounts measured 9%, average money market deposits were 28%, average savings accounts were 11%, and average time deposits were 25%. The comparable percentages in the year-ago quarter were 30%, 14%, 28%, 12%, and 16% respectively.

The 149 basis point increase to 2.15% in the rate paid on average total funding liabilities in the third quarter of 2023 compared to 2022 primarily reflects the impact of the increase in market interest rates and increased borrowings. The rate paid on average total deposits increased 133 basis points, reflecting higher interest rates paid and the shift in the mix of deposits. Higher deposit costs included increases of 67 basis points in the cost of NOW and other interest-bearing transaction deposits, 74 basis points in the cost of savings deposits, 223 basis points in the cost of money market deposits, and 258 basis points in the cost of time deposits.

Nine month net interest income increased year-over-year by $38.1 million due to the 28 basis point increase in the net interest margin and the $676 million increase in average earning assets which was primarily driven by higher average loans which was mostly funded by increased average borrowings.

Non-Interest Income

Total non-interest income in the third quarter of 2023 increased $1.2 million compared to the same quarter of 2022 due primarily to increases in loan and deposit related fees partially offset by a decrease in other non-interest income.
Total non-interest income in the first nine months of 2023 decreased $2.1 million compared to the first nine months of 2022. The decrease compared to the year-ago period was primarily due to $4.8 million in higher tax credit amortization charges related to increased tax credit investments in 2023. These charges are more than offset by credits to income tax expense.

Provision for Credit Losses

The provision was an expense of $8.0 million in the third quarter of 2023 compared to $3.0 million in the same period of 2022. The provision in the first nine months of 2023 was an expense of $25.0 million, compared to a benefit of $1.0 million in the same period of 2022. Provision expense in 2023 primarily reflected growth in the loan portfolio. The results in 2022 reflected notable improvement in pandemic-related expected credit losses.

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Non-Interest Expense

Total non-interest expense decreased year-over year in the third quarter by $5.2 million and in the first nine months of the year by $3.8 million. Restructuring and other non-operating expense decreased by $8.9 million in both the third quarter and first nine months of the year. These expenses were primarily due to branch consolidations and premises restructurings. Operating non-interest expense increased year over year by $3.7 million in the third quarter and by $12.7 million for the first nine months of the year. The increases were primarily in compensation and benefits, technology and communications, and the category of other expenses. These increases were partially offset by decreases in occupancy and equipment expense.

Compensation and benefits expense has increased including the impact of hiring of frontline bankers. Higher technology and communications expense largely reflects investments to digitize the Bank. The increase in the category of other expenses primarily reflects increases in deposit insurance premiums. Occupancy and equipment expense has declined due to the benefit from office and branch consolidation.

The third quarter efficiency ratio increased year-over-year due to the 1% decrease in operating revenue and the 5% increase in operating expenses. For the first nine months of the year, the efficiency ratio improved due to the 11% increase in operating revenue partially offset by the 6% increase in operating expense. Quarterly operating revenue peaked in the fourth quarter of 2022 and has declined in consecutive quarters as the net interest margin has declined over these periods, with funding cost increases catching up with the higher initial sensitivity of variable rate interest earning assets to the rapid increase in market interest rates in 2022.

Income Tax Expense

The Company’s effective income tax rate was 16.1% for the third quarter of 2023 and 15.7 % for the first nine months of 2023, compared to 20.9% and 20.6%, respectively, for the comparable periods of 2022, and compared to 18.7% for the full year of 2022. The lower tax rate in 2023 reflected benefit from increased tax credit investments. Differences arising between Berkshire’s effective income tax rate and the U.S. federal statutory rate of 21% are generally attributable to: (i) tax-exempt interest earned on certain investments; (ii) tax-exempt income from BOLI; (iii) tax credit investment benefits; and (iv) state income taxes.


COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

General

Total assets at September 30, 2023 were $12.1 billion, a $477 million increase from December 31, 2022, primarily reflecting a $649 million increase in total loans partially offset by decreases of $22 million in cash and cash equivalents and $163 million in investment securities. Loan growth primarily consisted of a $417 million increase in residential mortgages and a $352 million increase in commercial real estate loans. The decrease in investment securities primarily represented amortizations and maturities.

Nonaccrual loans totaled $26.6 million at September 30, 2023, a $4.5 million decrease from December 31, 2022 due to lower nonaccrual commercial loans. The allowance for credit losses on loans totaled $102.8 million at September 30, 2023, compared to $96.3 million at December 31, 2022. At September 30, 2023, the allowance as a percentage of total loans was 1.14% and as a percentage of nonaccrual loans was 386%, compared to 1.15% and 309%, respectively, at December 31, 2022.

At September 30, 2023, total liabilities were $11.2 billion, a $480 million increase from December 31, 2022, primarily reflecting an $800 million increase in total borrowings, partially offset by a $347 million decrease in total deposits.

Berkshire’s total shareholders’ equity was $951 million at September 30, 2023, a $3 million decrease from December 31, 2022. As a percentage of total assets, shareholders’ equity was 7.8% and 8.2% at September 30, 2023 and December 31, 2022, respectively. Tangible common equity equaled 7.7% of tangible assets at September 30, 2023 compared to 8.0% at December 31, 2022.
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Berkshire’s (consolidated) Tier 1 Leverage capital ratio and its Common Equity Tier 1 (“CET 1”), Tier 1 and Total risk-based capital ratios were 9.8%, 12.1%, 12.3% and 14.4%, respectively, at September 30, 2023, compared to 10.2%, 12.4%, 12.6% and 14.6%, respectively, at December 31, 2022. The Bank’s Tier 1 Leverage capital ratio and its CET 1, Tier 1 and Total risk-based capital ratios were 9.7%, 12.4%, 12.4% and 13.4%, respectively, at September 30, 2023, compared to 10.2%, 12.6%, 12.6% and 13.6%, respectively, at December 31, 2022.

Loans

Total loans at period-end are categorized in the financial statement in accordance with regulatory reporting.
Total loans measured $9.0 billion at September 30, 2023, increasing $649 million during the nine months of 2023. At September 30, 2023, commercial loans measured 64% of total loans and retail loans measured 36% of total loans. In comparison, at December 31, 2022, commercial loans measured 66% of total loans and retail loans measured 34% of total loans.

Total commercial loans increased by $270 million to $5.8 billion during the first nine months of 2023 and were comprised of commercial real estate loans and commercial and industrial loans. Commercial real estate loans (which include construction loans and multifamily loans) totaled $4.4 billion and increased by $352 million during the first nine months of 2023. Commercial and industrial loans totaled $1.4 billion and decreased by $81 million. Nonaccrual commercial loans totaled $16.2 million at September 30, 2023, and measured 0.28% of total commercial loans. At December 31, 2022, nonaccrual commercial loans totaled $19.4 million, measuring 0.35% of total commercial loans.

Total retail loans increased by $379 million to $3.2 billion during the first nine months of 2023. Retail loans include residential mortgage loans and consumer loans. At September 30, 2023, residential mortgages totaled $2.7 billion and increased by $417 million during the first nine months of 2023. Consumer loans totaled $463 million at September 30, 2023 and decreased by $38 million in the first nine months of 2023 due primarily to planned run-off of unsecured consumer balances which was partially offset by growth in home equity loans. Nonaccrual retail loans totaled $10.4 million at September 30, 2023, measuring 0.33% of total retail loans. At December 31, 2022, nonaccrual retail loans totaled $11.7 million, measuring 0.42% of total retail loans.

Allowance for Credit Losses on Loans

The allowance totaled $102.8 million at September 30, 2023, an increase of $6.5 million from December 31, 2022, reflecting growth in the loan portfolio. The ratio of the allowance to total loans decreased to 1.14% from 1.15% for these respective dates.

For the commercial loan portfolio, the allowance for credit losses as a percentage of commercial loans was 1.16% at September 30, 2023, compared to 1.15% at December 31, 2022. The commercial allowance for credit losses represented 414% of nonaccrual commercial loans at September 30, 2023 compared to 326% at December 31, 2022.

For the retail loan portfolio, the allowance for credit losses as a percentage of retail loans was 1.12% at September 30, 2023 compared to 1.17% at December 31, 2022. The retail allowance for credit losses represented 342% of nonaccrual retail loans at September 30, 2023 compared to 282% at December 31, 2022.

Deposits and Borrowings

Total deposits were $10.0 billion at September30, 2023, a $347 million decrease from year-end 2022. Most categories of deposits decreased except for higher cost time deposits as customers sought higher rate deposits in the environment of higher interest rates. Non-interest bearing deposits totaled $2.5 billion at September 30, 2023, a $322 million decrease from December 31, 2022. Non-maturity interest-bearing deposits totaled $5.0 billion, an $837 million decrease during the first nine months of 2023. Period-end time deposits totaled $2.4 billion, increasing $812 million during this period. Borrowings totaled $0.9 billion at period-end, increasing $800 million from year-end
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2022. The increase was due to the utilization of Federal Home Loan Bank of Boston advances primarily to fund loan growth.

Derivative Financial Instruments

The notional amount of derivative financial instruments totaled $4.8 billion at period-end, increasing $245 million from year-end 2022. The net fair value of these instruments at September 30, 2023 was a liability of $52 million, increasing $9 million from December 31, 2022.

Shareholders’ Equity and Dividends

Total shareholders’ equity was $951 million at September 30, 2023, a $3 million decrease from December 31, 2022. This primarily reflects net income of $71 million partially offset by $24 million in common stock dividends at $0.54 per share and share repurchases totaling $17 million for the repurchase of 807 thousand shares as well as a $37 million increase in the accumulated other comprehensive loss reflecting an increase in the after-tax net unrealized losses on available-for-sale debt securities and derivative hedges.

Liquidity and Cash Flows

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs for the Company, including the Bank. Liquidity management addresses both the Company’s ability to fund new loans and investments as opportunities arise, to meet customer deposit withdrawals and to repay borrowings and subordinated notes as they mature. During the first nine months of 2023 the Company increased its off-balance sheet liquidity sources primarily by increasing its assets qualified for pledging against borrowings, and the Company views its liquidity as satisfactory for current conditions as well as for stressed scenarios in its liquidity testing models.

At September 30, 2023, cash and equivalents totaled $0.7 billion and securities available for sale totaled $1.3 billion. Unused borrowing availability at that date from the Federal Home Loan Bank of Boston “FHLBB” and the Federal Reserve Bank of Boston (“FRB”) totaled $3.4 billion. Borrowings from these sources are supported by collateral, to the extent utilized. Cash balances at the holding company totaled $101 million at period-end.

During the first nine months of 2023, borrowings from the FHLB were the primary source of funds and the primary uses were loan growth and net deposit outflows.

Capital Resources

Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the note on Shareholders' Equity in the consolidated financial statements.
Additional information about capital resources and regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.

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

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

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

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Reductions in bond valuations due to changes in market interest rates are reversed as bonds approach maturity. These reversals are accreted to AOCI over time, restoring the book value of equity. Tangible common equity totaling $930 million at period-end and was net of an accumulated other comprehensive loss totaling $218 million.

While the Company monitors the book value of equity and related metrics, it primarily manages capital based on regulatory capital measures, with a focus on the common equity Tier 1 capital ratio. The Company continues to view itself as having excess capital which it plans to utilize in accordance with its capital management objectives.

As of September 30, 2023 unrealized gains and losses, net of tax, are included in average equity and in average non-interest earning assets. Prior period balances and financial metrics have been updated to reflect the current presentation. Performance measures related to return on average equity, including related non-GAAP performance measures, are presented both based on the updated averages as well as based on measures which exclude these unrealized gains and losses, net of tax. These unrealized gains and losses are primarily related to the fair values of available-for-sale securities.

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



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APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

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

• Allowance for Credit Losses on Loans

• Fair Value Measurements

These policies are considered most critical in that they are important to the Company’s financial condition and results, and they require management’s subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. Both of these policies were significant in determining income and financial condition in the financial statements. There is further discussion of the application of these policies in the Form 10-K.

CORPORATE RESPONSIBILITY UPDATE

Berkshire is a performance and purpose-driven, values-guided, community-centered bank. Berkshire’s corporate responsibility and sustainability activities are integral to its mission. Third quarter corporate responsibility highlights include:
•Berkshire launched a new Down Payment Assistance Program to increase homeownership amongst low-to-moderate income and first-time homebuyers.
•Berkshire’s annual Xtraordinary Day of Service featured 47 volunteer events in which more than 1,000 employees contributed 4,000 hours of service to lift-up local communities.
•Berkshire maintained its top quartile ESG rating performance and was named a Top Charitable Contributor by the Boston Business Journal for the 11th consecutive year.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For additional discussion about the Company’s Quantitative and Qualitative Aspects of Market Risk, please review Item 7A of the most recent report on Form 10-K which sets forth the methodologies employed by the Company and the various aspects of its analysis of its interest rate sensitivity.

Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes in interest rates and equity prices. The only significant market risk exposure for the Company is Interest Rate Risk (“IRR”). 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 over entire interest rate cycles regardless of changes in either short- or long-term interest rates. The Company manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles of the Company.

Net Interest Income at Risk Simulation is used to measure the sensitivity of net interest income to changes in market rates over a period of time, such as 12 or 24 months. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) future balance sheet volume and mix assumptions; (ii) prepayment projections for loans and securities; (iii) new business loan spreads; and (iv) deposit pricing assumptions. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts 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 net interest income at risk compared to a base case with a static balance sheet and interest rates. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Yield curve twist scenarios assume the shape of the curve flattens or steepens instantaneously.

The following tables set forth the estimated percent change in the Company’s net interest income at risk over one-year simulation periods beginning September 30, 2023 and December 31, 2022.


Estimated Percent Change in Net Interest Income
Parallel Interest Rate Shock (basis points)September 30, 2023December 31, 2022
+200(3.1)%1.8%
+100(1.5)0.8
-1001.2(1.6)
-2001.8(5.2)
Estimated Percent Change in Net Interest Income
Yield Curve Twist Interest Rate Shock
(basis points)		September 30, 2023December 31, 2022
Short End +100(2.4)%0.1%
Short End -1001.6(1.3)
Long End +1001.21.0
Long End -100(1.2)(1.2)


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The net interest income at risk simulation results indicate that the Company’s interest rate risk changed to modestly liability sensitive under parallel shift modeled scenarios at September 30, 2023 from a modestly asset sensitive profile under these scenarios as of December 31, 2022. 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.

Economic Value of Equity at Risk Simulation is conducted in tandem with net interest income simulations, to ascertain a longer-term view of the Company’s IRR position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. Economic value of equity at risk simulation values only the current balance sheet. As with net interest income modeling, this simulation 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. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. All key assumptions are subject to periodic review.

Base case economic value of equity at risk 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. These new curves are then used to recalculate economic value of equity at risk for these rate shock scenarios.

The following table sets forth the estimated percent change in the Company’s economic value of equity at risk, assuming various instantaneous parallel shocks in interest rates.
Estimated Percent Change in Economic Value of Equity
Parallel Shock Rate Change (basis points)September 30, 2023December 31, 2022
+200(6.0)%—%
+100(2.9)—
-1002.6(1.5)
-2004.3(5.4)

The Company’s economic value of equity at risk profile indicates that at September 30, 2023 the economic value of equity in the modeled scenarios was liability sensitive compared to a neutral/asset sensitive position at December 31, 2022. Equity value sensitivity was impacted by the same factors that affected net interest income sensitivity discussed above, particularly the increase in residential mortgages and short-term borrowings.

Management utilizes both interest rate measures in the normal course of measuring and managing IRR and believes that each measure is valuable in understanding the Company’s IRR position.
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ITEM 4.           CONTROLS AND PROCEDURES
a)  Disclosure controls and procedures.
The principal executive officers, including the principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures were effective.

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

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PART II
ITEM 1.            LEGAL PROCEEDINGS
As of September 30, 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. Periodically, there have been various claims and lawsuits involving the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the Bank’s business. A summary of certain legal matters involving unsettled litigation or pertaining to pending transactions are as follows:

On February 4, 2020, the Bank filed a complaint in the New York State Supreme Court for the County of Albany against Pioneer Bank (“Pioneer”) seeking damages of approximately $16.0 million. The complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s 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. 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. 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. 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. 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. Further discovery is now ongoing.

On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc. (“FCLS”) filed a complaint in the Court of Common Pleas, Bucks County Pennsylvania against FCLS and two of its former senior corporate officers generally alleging wrongful termination as a result of purported whistleblower retaliation and other violations of New Jersey state employment law. The complaint also purports to name the Bank and the Company as additional defendants, even though neither entity ever employed, paid wages to or contracted with the plaintiff. On November 16, 2020, the plaintiff filed a First Amended Complaint reiterating the same claims against the same defendants. The Company's liability insurer has provided outside litigation counsel to defend the Company and the Bank in this matter, as well as FCLS and its former senior corporate officers. On December 7, 2020, defense counsel filed Preliminary Objections on behalf of the Company, the Bank, FCLS and FCLS’s former senior corporate officers denying the plaintiff’s claims and seeking dismissal of the case and an order that the plaintiff’s claims must proceed through arbitration in accordance with contractual obligations set forth in plaintiff’s previous employment agreement with FCLS. On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration. The parties have mutually agreed on an arbitrator to hear the case and are preparing for arbitration proceedings that are expected to occur in the second half of 2023. Discovery is currently ongoing among the parties.
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ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider information regarding the Company’s risk factors as set forth in Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2022, and Part II, Item 1A “Risk Factors” in our subsequent Quarterly Reports on Form 10-Q, each as filed with the Securities and Exchange Commission. Additional risks and uncertainties not currently known to the Company, or currently deemed to be immaterial, also may materially adversely affect the Company's business, financial condition, and/or operating results.
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ITEM 2.               UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)                Recent Sales of Unregistered Securities
The Company occasionally engages in the practice of transferring unregistered securities for the purpose of completing business transactions. These shares are issued to vendors or other organizations as consideration for services performed in accordance with each contract. During the three months ended September 30, 2023 and 2022 there were no shares transferred.

(b)                 Not applicable.

(c)                 The following table provides certain information with regard to shares repurchased by the Company in the third quarter of 2023:
Total number ofAverage priceTotal number of shares
purchased as part of
publicly announced		Maximum number of
shares that may yet
be purchased under
Period shares purchasedpaid per shareplans or programsthe plans or programs
July 1-31, 20237,821 $20.36 7,821 1,857,940 
August 1-31, 2023— — — 1,857,940 
September 1-30, 2023170,926 20.00 170,926 1,687,014 
Total178,747 $20.02 178,747 1,687,014 

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. The maximum number of shares that may be purchased under this program has been estimated based on the September 30, 2023 closing price per share of Company common stock of $20.05.



ITEM 3.                DEFAULTS UPON SENIOR SECURITIES
None.


ITEM 4.                  MINE SAFETY DISCLOSURES
Not applicable.


ITEM 5.                OTHER INFORMATION
During the three months ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations.
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Table of Contents
ITEM 6.                   EXHIBITS
3.1 
Amended and Restated Certificate of Incorporation of Berkshire Hills Bancorp, Inc.(1)
3.2 
Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
4.1 
Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (3)
4.2
Certificate of Designations of Series B Non-Voting Preferred Stock of Berkshire Hills Bancorp, Inc. (4)
31.1 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and including detailed tags. 
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL.
_______________________________________
(1)     Incorporated herein by reference from the Exhibits to the Form 10-Q as filed on August 9, 2018.
(2)    Incorporated herein by reference from the Exhibits to the Form 8-K as filed on June 26, 2017.
(3)    Incorporated herein by reference from the Exhibits to the Form S-1, Registration Statement and amendments thereto, initially filed on March 10, 2000, Registration No. 333-32146.
(4)    Incorporated herein by reference from the Exhibits to the Form 8-K as filed on October 16, 2017.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 BERKSHIRE HILLS BANCORP, INC.
  
   
Dated: November 9, 2023By:/s/ Nitin J. Mhatre
 Nitin J. Mhatre
 President and Chief Executive Officer
  
   
Dated: November 9, 2023By:/s/ R. David Rosato
 R. David Rosato
 Senior Executive Vice President and Chief Financial Officer

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