BBT 10-Q Quarterly Report Sept. 30, 2022

BERKSHIRE HILLS BANCORP INC

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bhlb-20220930

Table of Contents

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, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-15781

BERKSHIRE HILLS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3510455

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

60 State Street

Boston

Massachusetts

02109

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: ( 800 ) 773-5601 , ext. 133773

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BHLB

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Table of Contents

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 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, 2022, the Registrant had 45,025,062 shares of common stock, $0.01 par value per share, outstanding

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

FORM 10-Q

INDEX

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

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

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

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

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

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

Notes to Consolidated Financial Statements (Unaudited)

Note 1

Basis of Presentation

Note 2

Trading Security

Note 3

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

Note 4

Loans and Allowance for Credit Losses

Note 5

Deposits

Note 6

Borrowed Funds

Note 7

Derivative Financial Instruments and Hedging Activities

Note 8

Leases

Note 9

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

Note 10

Capital Ratios and Shareholders' Equity

Note 11

Earnings per Share

Note 12

Stock-Based Compensation Plans

Note 13

Fair Value Measurements

Note 14

Net Interest Income after Provision for Credit Losses

Item 2.

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

Selected Financial Data

Average Balances and Average Yields/Rates

Non-GAAP Financial Measures

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Table of Contents


PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	83
Item 1A.	Risk Factors	84
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	85
Item 6.	Exhibits	86
Signatures		87

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PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS


	September 30, 2022		December 31, 2021
(In thousands, except share data)
Assets
Cash and due from banks	$	128,509	$	109,350
Short-term investments	566,404		1,518,457
Total cash and cash equivalents	694,913		1,627,807

Trading security, at fair value	6,812		8,354
Marketable equity securities, at fair value	12,790		15,453
Securities available for sale, at fair value	1,470,949		1,877,585
Securities held to maturity (fair values of $ 503,262 and $ 647,236 )	592,503		636,503
Federal Home Loan Bank stock and other restricted securities	7,264		10,800
Total securities	2,090,318		2,548,695
Less: Allowance for credit losses on held to maturity securities	( 95 )		( 105 )
Net securities	2,090,223		2,548,590

Loans held for sale	4,124		6,110





Total loans	7,943,481		6,825,847
Less: Allowance for credit losses on loans	( 96,013 )		( 106,094 )
Net loans	7,847,468		6,719,753

Premises and equipment, net	86,809		94,383


Other intangible assets	25,761		29,619
Cash surrender value of bank-owned life insurance policies	238,052		235,690

Other assets	325,894		288,384
Assets held for sale	3,830		4,577

Total assets	$	11,317,074	$	11,554,913

Liabilities
Demand deposits	$	2,896,659	$	3,008,461
NOW and other deposits	1,045,970		976,401
Money market deposits	3,388,932		3,293,526
Savings deposits	1,111,304		1,111,625
Time deposits	1,545,256		1,678,940
Total deposits	9,988,121		10,068,953

Long-term Federal Home Loan Bank advances and other	4,494		13,331
Subordinated borrowings	121,001		97,513
Total borrowings	125,495		110,844
Other liabilities	260,896		192,681

Total liabilities	$	10,374,512	$	10,372,478
(continued)
	September 30, 2022		December 31, 2021

Shareholders’ equity

Common stock ($ 0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 45,039,702 shares outstanding in 2022; 51,903,190 shares issued and 48,667,110 shares outstanding in 2021)	528		528
Additional paid-in capital - common stock	1,424,158		1,423,445
Unearned compensation	( 10,726 )		( 9,056 )
Retained (deficit)	( 93,820 )		( 139,383 )
Accumulated other comprehensive (loss)	( 188,494 )		( 3,243 )
Treasury stock, at cost ( 6,863,488 shares in 2022 and 3,236,080 shares in 2021)	( 189,084 )		( 89,856 )
Total shareholders’ equity	942,562		1,182,435
Total liabilities and shareholders’ equity	$	11,317,074	$	11,554,913

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

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BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME


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

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

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

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

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









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

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

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME


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




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




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

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY



	Common stock		Additional paid-in capital			Unearned compensation		Retained earnings (deficit)		Accumulated other comprehensive income/(loss)		Treasury stock
(In thousands)		Shares			Amount											Total
Balance at June 30, 2021		50,453	$	528		$	1,423,083	$	( 11,006 )	$	( 210,994 )	$	14,772	$	( 40,994 )	$	1,175,389
Comprehensive income:
Net income		—	—			—		—		63,749		—		—		63,749
Other comprehensive (loss)		—	—			—		—		—		( 7,523 )		—		( 7,523 )
Total comprehensive income		—	—			—		—		63,749		( 7,523 )		—		56,226


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

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

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

Balance at June 30, 2022		45,788	$	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 (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 options		11	—			—		—		( 47 )		—		292		245
Restricted stock grants		7	—			( 17 )		( 188 )		—		—		205		—
Stock-based compensation		—	—			—		1,733		—		—		—		1,733

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

Table of Contents



	Common stock		Additional paid-in capital			Unearned compensation		Retained earnings (deficit)		Accumulated other comprehensive income/(loss)		Treasury stock
(In thousands)		Shares			Amount											Total
Balance at December 31, 2020		50,833	$	528		$	1,427,239	$	( 6,245 )	$	( 233,344 )	$	30,871	$	( 31,276 )	$	1,187,773
Comprehensive income:
Net income		—	—			—		—		98,416		—		—		98,416
Other comprehensive (loss)		—	—			—		—		—		( 23,622 )		—		( 23,622 )
Total comprehensive income		—	—			—		—		98,416		( 23,622 )		—		74,794
Cash dividends declared on common shares ($ 0.36 per share)		—	—			—		—		( 18,411 )		—		—		( 18,411 )

Treasury shares repurchased		( 2,500 )	—			—		—		—		—		( 68,712 )		( 68,712 )
Forfeited shares		( 89 )	—			( 44 )		2,130		—		—		( 2,086 )		—
Exercise of stock options		9	—			—		—		( 100 )		—		262		162
Restricted stock grants		452	—			( 3,885 )		( 8,974 )		—		—		12,859		—
Stock-based compensation		—	—			—		3,652		—		—		—		3,652

Other, net		( 48 )	—			11		—		—		—		( 1,194 )		( 1,183 )
Balance at September 30, 2021		48,657	$	528		$	1,423,321	$	( 9,437 )	$	( 153,439 )	$	7,249	$	( 90,147 )	$	1,178,075

Balance at December 31, 2021		48,667	$	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 (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 options		12	—			—		—		( 51 )		—		320		269
Restricted stock grants		321	—			536		( 9,240 )		—		—		8,704		—
Stock-based compensation		—	—			—		5,659		—		—		—		5,659

Other, net		( 60 )	—			8		—		—		—		( 1,629 )		( 1,621 )
Balance at September 30, 2022		45,040	$	528		$	1,424,158	$	( 10,726 )	$	( 93,820 )	$	( 188,494 )	$	( 189,084 )	$	942,562

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

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(In thousands)	2022		2021
Cash flows from operating activities:


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

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



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


Gain on sale of business operations and other assets	—		( 51,885 )
Prepayment penalties on repayment of Federal Home Loan Bank advances	—		862
Net change in other	4,039		16,934


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

Cash flows from investing activities:
Net decrease in trading security	609		578

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

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

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

(continued)

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)


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

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

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

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

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





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



Reclass of seasoned loan portfolios to held-for-sale, net	3,574		11,660
Reclass of Mid-Atlantic loans held-for-sale to portfolio loans, net	—		29,418
Reclass of Mid-Atlantic deposits held-for-sale to deposits, net	—		7,197

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

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

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, 2021. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods.

Use of Estimates

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

Refer to Note 9 – Other Commitments, Contingencies, Off-Balance Sheet Activities, and Pandemic Impact for pandemic related risks and uncertainties.

Recently Adopted Accounting Principles

There were no new applicable material accounting pronouncements adopted by the Company since December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future Application of Accounting Pronouncements

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.” The guidance expands the current last-of-layer method to allow multiple hedge layers of a single closed portfolio (renamed to portfolio layer method) and expands the portfolio layer method to include nonprepayable financial assets. The ASU specifies eligible hedging instruments in a single-layer hedge and provides additional guidance on accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method. Further, hedge basis adjustments should be considered when determining credit losses for assets included in the closed portfolio. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating; however, the adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” 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. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted and the Company can elect to adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is still evaluating; however, the adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

NOTE 2. TRADING SECURITY

The Company holds a tax-advantaged economic development bond accounted for at fair value. The security had an amortized cost of $ 7.3 million and $ 7.9 million, and a fair value of $ 6.8 million and $ 8.4 million, at September 30, 2022 and December 31, 2021, 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, 2022 or December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

EQUITY SECURITIES

The following is a summary of securities available for sale, held to maturity, and marketable equity securities:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
September 30, 2022
Securities available for sale
U.S Treasuries	$	19,997	$	3	$	—	$	20,000
Municipal bonds and obligations	66,399		21		( 5,854 )		60,566		—
Agency collateralized mortgage obligations	656,132		—		( 98,619 )		557,513		—
Agency mortgage-backed securities	660,065		1		( 106,329 )		553,737		—
Agency commercial mortgage-backed securities	270,609		—		( 35,033 )		235,576		—
Corporate bonds	45,269		83		( 2,451 )		42,901		—
Other bonds and obligations	655		67		( 66 )		656		—
Total securities available for sale	1,719,126		175		( 248,352 )		1,470,949		—

Securities held to maturity
Municipal bonds and obligations	267,821		299		( 36,446 )		231,674		67
Agency collateralized mortgage obligations	132,931		—		( 19,965 )		112,966		—
Agency mortgage-backed securities	52,175		—		( 10,333 )		41,842		—
Agency commercial mortgage-backed securities	137,177		—		( 22,659 )		114,518		—
Tax advantaged economic development bonds	2,235		5		( 142 )		2,098		28
Other bonds and obligations	164		—		—		164		—
Total securities held to maturity	592,503		304		( 89,545 )		503,262		95

Marketable equity securities	15,035		—		( 2,245 )		12,790		—
Total	$	2,326,664	$	479	$	( 340,142 )	$	1,987,001	$	95


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
December 31, 2021
Securities available for sale
U.S Treasuries	$	59,972	$	1	$	—	$	59,973	$	—
Municipal bonds and obligations	71,822		5,355		—		77,177		—
Agency collateralized mortgage obligations	693,782		5,566		( 11,012 )		688,336		—
Agency mortgage-backed securities	711,154		2,347		( 7,642 )		705,859		—
Agency commercial mortgage-backed securities	300,259		3,949		( 3,628 )		300,580		—
Corporate bonds	44,824		950		( 114 )		45,660		—


Total securities available for sale	1,881,813		18,168		( 22,396 )		1,877,585		—

Securities held to maturity
Municipal bonds and obligations	281,515		16,151		( 693 )		296,973		70
Agency collateralized mortgage obligations	149,195		3,203		( 3,513 )		148,885		—
Agency mortgage-backed securities	57,327		95		( 1,498 )		55,924		—
Agency commercial mortgage-backed securities	145,573		266		( 3,289 )		142,550		—
Tax advantaged economic development bonds	2,728		26		( 15 )		2,739		35
Other bonds and obligations	165		—		—		165		—
Total securities held to maturity	636,503		19,741		( 9,008 )		647,236		105

Marketable equity securities	15,689		67		( 303 )		15,453		—
Total	$	2,534,005	$	37,976	$	( 31,707 )	$	2,540,274	$	105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the three and nine months ended September 30, 2022 and 2021:


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


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


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


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

Credit Quality Information

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities segregated by contractual maturity at September 30, 2022 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.


	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value

Within 1 year	$	20,441	$	20,444	$	1,711	$	1,710
Over 1 year to 5 years	9,392		9,224		2,326		2,313
Over 5 years to 10 years	48,894		46,318		23,841		23,500
Over 10 years	53,593		48,137		242,342		206,413
Total bonds and obligations	132,320		124,123		270,220		233,936


Mortgage-backed securities	1,586,806		1,346,826		322,283		269,326
Total	$	1,719,126	$	1,470,949	$	592,503	$	503,262

During the three and nine months ended September 30, 2022, purchases of AFS securities totaled $ 41.4 million and $ 428.1 million, respectively. During the three months ended September 30, 2022, there were no sales of AFS securities. During the nine months ended September 30, 2022, sales of AFS securities totaled $ 150 million. During the three and nine months ended September 30, 2021, purchases of AFS securities totaled $ 160.0 million and $ 429.0 million, respectively. During the three and nine months ended September 30, 2021, there were no sales of AFS securities. 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. During the three and nine months ended September 30, 2021, there were no gross gains or losses on AFS securities. These gains and losses are included in gain/(loss) on securities, net on the consolidated statements of income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities available for sale and held to maturity with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:


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

Securities available for sale
U.S Treasuries	$	—	$	—	$	—	$	—	$	—	$	—
Municipal bonds and obligations	5,854		52,279		—		—		5,854		52,279
Agency collateralized mortgage obligations	26,129		293,758		72,490		263,754		98,619		557,512
Agency mortgage-backed securities	48,764		314,987		57,565		238,651		106,329		553,638
Agency commercial mortgage-backed securities	19,323		154,763		15,710		80,799		35,033		235,562
Corporate bonds	1,627		34,126		824		7,851		2,451		41,977

Other bonds and obligations	—		—		66		295		66		295



Total securities available for sale	$	101,697	$	849,913	$	146,655	$	591,350	$	248,352	$	1,441,263

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

Total	$	130,806	$	1,096,727	$	207,091	$	804,922	$	337,897	$	1,901,649

December 31, 2021

Securities available for sale

Agency collateralized mortgage obligations	$	9,626	$	375,132	$	1,386	$	27,025	$	11,012	$	402,157
Agency mortgage-backed securities	3,179		222,887		4,463		175,941		7,642		398,828
Agency commercial mortgage-backed securities	1,609		103,354		2,019		49,313		3,628		152,667
Corporate bonds	114		11,115		—		—		114		11,115





Total securities available for sale	$	14,528	$	712,488	$	7,868	$	252,279	$	22,396	$	964,767

Securities held to maturity
Municipal bonds and obligations	$	693	$	36,981	$	—	$	—	$	693	$	36,981
Agency collateralized mortgage obligations	1,808		49,308		1,705		36,212		3,513		85,520
Agency mortgage-backed securities	839		26,656		659		26,025		1,498		52,681
Agency commercial mortgage-backed securities	1,255		80,406		2,034		51,654		3,289		132,060
Tax advantaged economic development bonds	15		1,255		—		—		15		1,255
Total securities held to maturity	4,610		194,606		4,398		113,891		9,008		308,497
Total	$	19,138	$	907,094	$	12,266	$	366,170	$	31,404	$	1,273,264

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, 2022, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at September 30, 2022:

AFS municipal bonds and obligations

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

AFS collateralized mortgage obligations

At September 30, 2022, 245 of the 248 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 15.0 % of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s collateralized mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS commercial and residential mortgage-backed securities

At September 30, 2022, 136 of the 139 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 15.2 % of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company’s mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

AFS corporate bonds

At September 30, 2022, 14 of the 15 securities in the Company’s portfolio of AFS corporate bonds were in unrealized loss positions. Aggregate unrealized losses represents 5.5 % 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.

AFS other bonds and obligations

At September 30, 2022, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HTM municipal bonds and obligations

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

HTM collateralized mortgage obligations

At September 30, 2022, 13 of the 13 securities in the Company’s portfolio of HTM collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented 15.0 % of the amortized cost of the securities in unrealized loss positions. The FNMA, FHLMC, and GNMA guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated, and there were no material underlying credit downgrades during the quarter. All securities are performing.

HTM commercial and residential mortgage-backed securities

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

HTM tax-advantaged economic development bonds

At September 30, 2022, 2 of the 3 securities in the Company’s portfolio of tax-advantaged economic development bonds was in unrealized loss positions. Aggregate unrealized losses represented 10.3 % 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.

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, 2022		December 31, 2021
Construction	$	367,997	$	324,282
Commercial multifamily	612,890		515,817
Commercial real estate owner occupied	632,001		606,477
Commercial real estate non-owner occupied	2,285,770		2,156,929
Commercial and industrial	1,395,172		1,284,429

Residential real estate	2,128,039		1,489,248
Home equity	234,027		252,366
Consumer other	287,585		196,299
Total loans	$	7,943,481	$	6,825,847

Allowance for credit losses	96,013		106,094
Net loans	$	7,847,468	$	6,719,753

As of September 30, 2022 and December 31, 2021, outstanding loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $ 10.3 million and $ 29.9 million, respectively. These loans are 100% guaranteed by the SBA and the full principal amount of the loan may qualify for forgiveness. These loans are included in commercial and industrial.

During the three and nine months ended September 30, 2022, the Company reclassified $ 3.6 million of commercial real estate non-owner occupied loans to held for sale, reflecting its intent to sell these loans. During the three months ended September 30, 2021, there were no loans reclassified to held for sale. During the nine months ended September 30, 2021, the Company reclassified $ 11.7 million of commercial loans to held for sale, reflecting its intent to sell these loans. 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk characteristics relevant to each portfolio segment are as follows:

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

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

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

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

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

Allowance for Credit Losses for Loans

The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for loan losses, and the allowance for unfunded commitments is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon:

• the existence and growth of concentrations of credit;

• the volume and severity of past due financial assets, including nonaccrual assets;

• the institutions lending and credit review as well as the experience and ability of relevant management and staff and;

• the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters;

• the effect of other economic factors such as economic stimulus and customer forbearance programs.

The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in other liabilities on the consolidated balance sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three months ended September 30, 2022
Construction	$	1,710	$	—	$	—	$	( 479 )	$	1,231
Commercial multifamily	4,621		( 94 )		112		( 2,919 )		1,720
Commercial real estate owner occupied	10,687		( 176 )		256		( 582 )		10,185
Commercial real estate non-owner occupied	26,166		( 1,012 )		153		4,114		29,421
Commercial and industrial	22,914		( 5,545 )		616		650		18,635

Residential real estate	16,411		( 102 )		131		3,398		19,838
Home equity	2,828		( 9 )		9		( 407 )		2,421
Consumer other	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 Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Three months ended September 30, 2021
Construction	$	3,919	$	—	$	—	$	714	$	4,633
Commercial multifamily	7,197		—		—		( 46 )		7,151
Commercial real estate owner occupied	13,242		( 84 )		32		( 342 )		12,848
Commercial real estate non-owner occupied	30,315		( 1,676 )		267		2,870		31,776
Commercial and industrial	28,225		( 1,279 )		1,373		( 2,385 )		25,934

Residential real estate	23,643		( 903 )		312		( 107 )		22,945
Home equity	5,432		( 12 )		80		( 845 )		4,655
Consumer other	7,071		( 380 )		137		( 3,854 )		2,974
Total allowance for credit losses	$	119,044	$	( 4,334 )	$	2,201	$	( 3,995 )	$	112,916


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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In thousands)	Balance at Beginning of Period		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Nine months ended September 30, 2021
Construction	$	5,111	$	—	$	—	$	( 478 )	$	4,633
Commercial multifamily	5,916		( 239 )		157		1,317		7,151
Commercial real estate owner occupied	12,380		( 686 )		83		1,071		12,848
Commercial real estate non-owner occupied	35,850		( 10,896 )		571		6,251		31,776
Commercial and industrial	25,013		( 8,184 )		3,284		5,821		25,934

Residential real estate	28,491		( 1,501 )		1,417		( 5,462 )		22,945
Home equity	6,482		( 253 )		119		( 1,693 )		4,655
Consumer other	8,059		( 1,283 )		546		( 4,348 )		2,974
Total allowance for credit losses	$	127,302	$	( 23,042 )	$	6,177	$	2,479	$	112,916

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, 2022 and 2021 was as follows:


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


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


	Nine Months Ended September 30,
(In thousands)	2022		2021
Balance at beginning of period	$	7,043	$	7,629


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

Credit Quality Information

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

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

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

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)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of September 30, 2022
Construction
Risk rating
Pass	$	117,627	$	129,188	$	31,541	$	65,388	$	2,331	$	2,103	$	—	$	—	$	348,178
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		19,819		—		—		—		19,819
Total	$	117,627	$	129,188	$	31,541	$	65,388	$	22,150	$	2,103	$	—	$	—	$	367,997

Commercial multifamily:
Risk rating
Pass	$	194,494	$	61,247	$	27,732	$	94,937	$	68,290	$	157,611	$	400	$	—	$	604,711
Special Mention	—		—		2,646		—		5,533		—		—		—		8,179
Substandard	—		—		—		—		—		—		—		—		—
Total	$	194,494	$	61,247	$	30,378	$	94,937	$	73,823	$	157,611	$	400	$	—	$	612,890

Commercial real estate owner occupied:
Risk rating
Pass	$	101,409	$	133,212	$	60,422	$	84,434	$	76,062	$	164,207	$	3,169	$	—	$	622,915
Special Mention	—		—		—		—		—		114		—		—		114
Substandard	1,033		122		31		366		1,311		6,109		—		—		8,972
Total	$	102,442	$	133,334	$	60,453	$	84,800	$	77,373	$	170,430	$	3,169	$	—	$	632,001

Commercial real estate non-owner occupied:
Risk rating
Pass	$	421,349	$	445,515	$	168,958	$	291,942	$	296,356	$	568,691	$	18,051	$	—	$	2,210,862
Special Mention	—		—		—		13,686		—		31,073		—		—		44,759
Substandard	—		—		7,333		—		16,081		6,735		—		—		30,149
Total	$	421,349	$	445,515	$	176,291	$	305,628	$	312,437	$	606,499	$	18,051	$	—	$	2,285,770

Commercial and industrial:
Risk rating
Pass	$	175,428	$	159,122	$	81,452	$	75,464	$	95,370	$	109,382	$	635,314	$	—	$	1,331,532
Special Mention	—		—		—		667		12,558		—		—		—		13,225
Substandard	91		559		4,215		9,044		1,420		3,297		31,711		—		50,337
Doubtful	—		—		—		—		—		—		78		—		78
Total	$	175,519	$	159,681	$	85,667	$	85,175	$	109,348	$	112,679	$	667,103	$	—	$	1,395,172









Residential real estate
Risk rating
Pass	$	770,095	$	281,469	$	100,116	$	73,592	$	147,992	$	736,711	$	286	$	—	$	2,110,261
Special Mention	—		—		158		—		—		1,942		—		—		2,100
Substandard	—		3,254		—		274		2,086		10,064		—		—		15,678
Total	$	770,095	$	284,723	$	100,274	$	73,866	$	150,078	$	748,717	$	286	$	—	$	2,128,039

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2021
Construction
Risk rating
Pass	$	71,784	$	52,725	$	117,784	$	66,950	$	3,839	$	1,721	$	50	$	—	$	314,853
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		9,429		—		—		—		—		9,429
Total	$	71,784	$	52,725	$	117,784	$	76,379	$	3,839	$	1,721	$	50	$	—	$	324,282

Commercial multifamily:
Risk rating
Pass	$	63,630	$	28,172	$	98,455	$	59,720	$	76,699	$	176,020	$	457	$	—	$	503,153
Special Mention	—		2,700		—		5,598		—		—		—		—		8,298
Substandard	—		—		—		—		—		4,230		136		—		4,366
Total	$	63,630	$	30,872	$	98,455	$	65,318	$	76,699	$	180,250	$	593	$	—	$	515,817

Commercial real estate owner occupied:
Risk rating
Pass	$	154,434	$	50,236	$	85,687	$	91,316	$	45,995	$	157,346	$	3,206	$	—	$	588,220
Special Mention	—		525		869		1,668		1,405		1,157		—		—		5,624
Substandard	—		—		2,113		1,593		838		8,089		—		—		12,633
Total	$	154,434	$	50,761	$	88,669	$	94,577	$	48,238	$	166,592	$	3,206	$	—	$	606,477

Commercial real estate non-owner occupied:
Risk rating
Pass	$	426,086	$	176,172	$	296,985	$	349,947	$	204,043	$	585,044	$	19,511	$	—	$	2,057,788
Special Mention	—		221		3,472		7,632		2,302		27,268		—		—		40,895
Substandard	—		7,588		—		2,784		33,472		14,303		99		—		58,246
Total	$	426,086	$	183,981	$	300,457	$	360,363	$	239,817	$	626,615	$	19,610	$	—	$	2,156,929

Commercial and industrial:
Risk rating
Pass	$	187,257	$	130,520	$	114,153	$	156,443	$	54,190	$	136,837	$	424,393	$	—	$	1,203,793
Special Mention	661		1,691		10,824		5,092		1,433		488		22,468		—		42,657
Substandard	211		2,494		9,609		3,145		2,020		2,330		17,935		—		37,744
Doubtful	—		—		—		—		—		15		220		—		235
Total	$	188,129	$	134,705	$	134,586	$	164,680	$	57,643	$	139,670	$	465,016	$	—	$	1,284,429









Residential real estate
Risk rating
Pass	$	214,306	$	114,536	$	86,997	$	169,537	$	189,980	$	697,401	$	293	$	—	$	1,473,050
Special Mention	—		—		—		120		502		1,557		—		—		2,179
Substandard	1,239		—		142		1,849		2,161		8,628		—		—		14,019
Total	$	215,545	$	114,536	$	87,139	$	171,506	$	192,643	$	707,586	$	293	$	—	$	1,489,248

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)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of September 30, 2022
Home equity:
Payment performance
Performing	$	—	$	117	$	457	$	—	$	—	$	19	$	231,218	$	—	$	231,811
Nonperforming	—		—		—		—		—		—		2,216		—		2,216
Total	$	—	$	117	$	457	$	—	$	—	$	19	$	233,434	$	—	$	234,027

Consumer other:
Payment performance
Performing	$	159,609	$	30,603	$	8,901	$	14,548	$	33,215	$	30,817	$	8,035	$	—	$	285,728
Nonperforming	279		165		20		271		562		553		7		—		1,857
Total	$	159,888	$	30,768	$	8,921	$	14,819	$	33,777	$	31,370	$	8,042	$	—	$	287,585


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2021
Home equity:
Payment performance
Performing	$	125	$	469	$	—	$	—	$	—	$	24	$	249,590	$	—	$	250,208
Nonperforming	—		—		—		—		—		—		2,158		—		2,158
Total	$	125	$	469	$	—	$	—	$	—	$	24	$	251,748	$	—	$	252,366

Consumer other:
Payment performance
Performing	$	37,994	$	11,189	$	21,548	$	55,577	$	30,632	$	28,797	$	7,505	$	—	$	193,242
Nonperforming	8		46		290		797		746		1,139		31		—		3,057
Total	$	38,002	$	11,235	$	21,838	$	56,374	$	31,378	$	29,936	$	7,536	$	—	$	196,299

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
September 30, 2022
Construction	$	—	$	—	$	—	$	—	$	367,997	$	367,997
Commercial multifamily	—		—		—		—		612,890		612,890
Commercial real estate owner occupied	391		114		3,831		4,336		627,665		632,001
Commercial real estate non-owner occupied	368		3		206		577		2,285,193		2,285,770
Commercial and industrial	2,844		1,192		22,986		27,022		1,368,150		1,395,172

Residential real estate	4,566		2,281		13,038		19,885		2,108,154		2,128,039
Home equity	170		206		2,216		2,592		231,435		234,027
Consumer other	1,720		809		1,862		4,391		283,194		287,585
Total	$	10,059	$	4,605	$	44,139	$	58,803	$	7,884,678	$	7,943,481


(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
December 31, 2021
Construction	$	—	$	—	$	—	$	—	$	324,282	$	324,282
Commercial multifamily	82		306		187		575		515,242		515,817
Commercial real estate owner occupied	—		400		4,221		4,621		601,856		606,477
Commercial real estate non-owner occupied	25,420		653		9,049		35,122		2,121,807		2,156,929
Commercial and industrial	2,700		709		6,836		10,245		1,274,184		1,284,429

Residential real estate	5,529		2,015		13,264		20,808		1,468,440		1,489,248
Home equity	258		108		2,158		2,524		249,842		252,366
Consumer other	1,363		320		2,882		4,565		191,734		196,299
Total	$	35,352	$	4,511	$	38,597	$	78,460	$	6,747,387	$	6,825,847

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, 2022 and December 31, 2021:



(In thousands)	Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or Greater and Accruing		Interest Income Recognized on Nonaccrual
At or for the three months ended September 30, 2022
Construction	$	—	$	—	$	—	$	—
Commercial multifamily	—		—		—		—
Commercial real estate owner occupied	2,722		1,987		1,109		—
Commercial real estate non-owner occupied	206		80		—		—
Commercial and industrial	20,977		18,292		2,009		—

Residential real estate	10,703		6,355		2,335		—
Home equity	1,725		518		491		—
Consumer other	1,520		2		342		—
Total	$	37,853	$	27,234	$	6,286	$	—

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



(In thousands)	Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or Greater and Accruing		Interest Income Recognized on Nonaccrual
At or for the three months ended December 31, 2021
Construction	$	—	$	—	$	—	$	—
Commercial multifamily	187		187		—		—
Commercial real estate owner occupied	4,221		2,413		—		—
Commercial real estate non-owner occupied	8,877		8,412		172		—
Commercial and industrial	6,747		1,506		89		—

Residential real estate	10,698		6,511		2,566		—
Home equity	1,901		141		257		—
Consumer other	2,695		4		187		—
Total	$	35,326	$	19,174	$	3,271	$	—

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

The following table summarizes information about total loans rated Special Mention or lower at September 30, 2022 and December 31, 2021. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.


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

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 Estate		Investment Securities/Cash		Other
September 30, 2022
Construction	$	—	$	—	$	—
Commercial multifamily			—		—
Commercial real estate owner occupied	3,380		—		—
Commercial real estate non-owner occupied	394		—		—
Commercial and industrial	461		—		19,113

Residential real estate	5,537		—		—
Home equity	638		—		—
Consumer other	4		—		—
Total loans	$	10,414	$	—	$	19,113

December 31, 2021
Construction	$	9,429	$	—	$	—
Commercial multifamily	188		—		—
Commercial real estate owner occupied	4,466		—		—
Commercial real estate non-owner occupied	9,501		—		—
Commercial and industrial	526		—		1,040

Residential real estate	7,035		—		—
Home equity	262		—		—
Consumer other	2		—		—
Total loans	$	31,409	$	—	$	1,040

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Troubled Debt Restructuring Loans

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.

The following table presents activity in TDRs for the three and nine months ended September 30, 2022 and September 30, 2021:


(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period
Three months ended September 30, 2022
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial multifamily	677		( 7 )		—		( 175 )		—		495
Commercial real estate owner occupied	2,701		( 28 )		—		( 16 )		—		2,657
Commercial real estate non-owner occupied	986		( 13 )		—		—		—		973
Commercial and industrial	4,651		( 426 )		—		( 15 )		—		4,210

Residential real estate	1,019		( 17 )		—		—		—		1,002
Home equity	162		( 62 )		—		—		—		100
Consumer other	30		( 2 )		—		—		545		573
Total	$	10,226	$	( 555 )	$	—	$	( 206 )	$	545	$	10,010


(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period
Three months ended September 30, 2021
Construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial multifamily	728		( 11 )		—		—		—		717
Commercial real estate owner occupied	2,962		( 33 )		—		—		—		2,929
Commercial real estate non-owner occupied	24,488		( 67 )		—		( 10,967 )		—		13,454
Commercial and industrial	6,810		( 387 )		—		( 3,105 )		283		3,601

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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


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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


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

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


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

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

There were no TDRs for which there was a payment default within twelve months following the modification during the three months ending September 30, 2022. The following table presents loans by portfolio segment modified as TDRs for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2022:


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




Commercial and industrial	1	$	105



Total	1	$	105

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

Between March 2020 and December 2021, the Company offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. Refer to Note 9 - Other Commitments, Contingencies, and Off-Balance Sheet Activities, and Pandemic Impact for more information regarding these modifications.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. DEPOSITS

A summary of time deposits is as follows:


(In thousands)	September 30, 2022		December 31, 2021
Time less than $100,000	$	533,683	$	676,979
Time $100,000 through $250,000	631,551		610,174
Time more than $250,000	380,022		391,787
Total time deposits	$	1,545,256	$	1,678,940

Included in total deposits were brokered deposits of $ 163.5 million and $ 228.1 million at September 30, 2022 and December 31, 2021, respectively. Included in total deposits were reciprocal deposits of $ 71.3 million and $ 89.2 million at September 30, 2022 and December 31, 2021, respectively.

NOTE 6. BORROWED FUNDS

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


	September 30, 2022				December 31, 2021
			Weighted				Weighted
			Average				Average
(Dollars in thousands)	Principal		Rate		Principal		Rate
Short-term borrowings:
Advances from the FHLB	$	—	—	%	$	—	—	%

Total short-term borrowings:	—		—		—		—
Long-term borrowings:
Advances from the FHLB and other borrowings	4,494		0.71		13,331		1.75


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

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

Short-term debt includes Federal Home Loan Bank (“FHLB”) advances with an original maturity of less than one year. 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, 2022 and December 31, 2021. The Bank's available borrowing capacity with the FHLB was $ 1.2 billion and $ 1.5 billion for the periods ended September 30, 2022 and December 31, 2021.

The Bank is approved to borrow on a short-term basis from the Federal Reserve Bank of Boston as a non-member bank. The Bank has pledged certain loans and securities to the Federal Reserve Bank to support this arrangement. No borrowings with the Federal Reserve Bank under this arrangement took place for the periods ended September 30, 2022 and December 31, 2021. As a participant in the SBA Paycheck Protection Program ("PPP"), the Bank may pledge originated loans as collateral at face value to the Federal Reserve Bank of Boston for term financings. As of September 30, 2022 and December 31, 2021, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $ 590.5 million and $ 511.0 million for the periods ended September 30, 2022 and December 31, 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term FHLB advances consist of advances with an original maturity of more than one year and are subject to prepayment penalties. There were no callable advances outstanding at September 30, 2022. The advances outstanding at September 30, 2022 included amortizing advances totaling $ 4.4 million. The advances outstanding at December 31, 2021 included callable advances totaling $ 10.0 million and amortizing advances totaling $ 3.4 million. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

A summary of maturities of FHLB advances as of September 30, 2022 is as follows:


	September 30, 2022
			Weighted Average
(In thousands, except rates)	Principal		Rate
Fixed rate advances maturing:
2022	$	—	—	%
2023	—		—
2024	28		—
2025	—		—
2025 and beyond	4,466		0.71
Total FHLB advances	$	4,494	0.71	%

The Company did no t have variable-rate FHLB advances for the periods ended September 30, 2022 and December 31, 2021, 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 $ 2.0 million for unamortized debt issuance costs as of September 30, 2022.

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

The Company holds 100 % of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets at a cost of $ 0.5 million. The sole asset of Trust I is $ 15.5 million of the Company’s junior subordinated debentures due in 2035. These debentures bear interest at a variable rate equal to LIBOR plus 1.85 % and had a rate of 4.81 % and 2.01 % at September 30, 2022 and December 31, 2021, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust I is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust I is not consolidated into the Company’s financial statements.

The Company holds 100 % of the common stock of SI Capital Trust II (“Trust II”) which is included in other assets at a cost of $ 0.2 million. The sole asset of Trust II is $ 8.2 million of the Company’s junior subordinated debentures due in 2036. These debentures bear interest at a variable rate equal to LIBOR plus 1.70 % and had a rate of 4.99 % and 1.90 % at September 30, 2022 and December 31, 2021, respectively. The Company has the right to defer payments of interest for up to five years on the debentures at any time, or from time to time, with certain limitations, including a restriction on the payment of dividends to shareholders while such interest payments on the debentures have been deferred. The Company has not exercised this right to defer payments. The Company has the right to redeem the debentures at par value. Trust II is considered a variable interest entity for which the Company is not the primary beneficiary. Accordingly, Trust II is not consolidated into the Company’s financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, 2022, the Company held derivatives with a total notional amount of $ 4.0 billion. That amount included $ 0.4 billion in interest rate swap derivatives that were designated as cash flow hedges for accounting purposes. The Company also had economic hedges totaling $ 3.6 billion and $ 3.1 million non-hedging derivatives, which are not designated as hedges for accounting purposes with changes in fair value recorded directly through earnings. Economic hedges included interest rate swaps totaling $ 3.3 billion, risk participation agreements with dealer banks of $ 0.3 billion, and $ 1.0 million in forward commitment contracts.

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities. Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. The derivatives program is overseen by the Risk Management and Capital Committee of the Company’s Board of Directors. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at September 30, 2022.

The Company pledged collateral to derivative counterparties in the form of cash totaling $ 14.9 million and securities with an amortized cost of $ 22.5 million and a fair value of $ 22.3 million as of September 30, 2022. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back economic hedges. However certain language is written into the International Swaps Dealers Association, Inc. (“ISDA”) and loan documents where, in default situations, the Bank is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about derivative assets and liabilities at September 30, 2022, follows:


			Weighted	Weighted Average Rate				Estimated
	Notional		Average			Contract		Fair Value
	Amount		Maturity	Received		pay rate		Asset (Liability)
	(In thousands)		(In years)					(In thousands)
Cash flow hedges:
Interest rate swaps on commercial loans	$	225,000	2.9	2.50	%	3.25	%	$	( 4,740 )
Forward-starting interest rate swaps on commercial loans	175,000		3.0	—	%	3.84	%	$	( 815 )
Total cash flow hedges	400,000							( 5,555 )

Economic hedges:
Interest rate swap on tax advantaged economic development bond	$	7,270	7.4	5.09	%	4.25	%	$	( 205 )
Interest rate swaps on loans with commercial loan customers (1)	1,653,839		5.8	3.98	%	4.26	%	( 95,836 )
Offsetting interest rate swaps on loans with commercial loan customers (1)	1,653,839		5.8	4.26	%	3.98	%	52,834
Risk participation agreements with dealer banks	325,063		6.9					13
Forward sale commitments	539		0.2					7
Total economic hedges	3,640,550							( 43,187 )

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

Total	$	4,043,682						$	( 48,726 )

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

Information about derivative assets and liabilities at December 31, 2021, follows:


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




Economic hedges:
Interest rate swap on tax advantaged economic development bond	$	7,879	7.9	0.47	%	5.09	%	$	( 1,158 )
Interest rate swaps on loans with commercial loan customers	1,684,238		5.8	3.99	%	1.91	%	74,348
Offsetting interest rate swaps on loans with commercial loan customers (1)	1,684,238		5.8	1.91	%	3.99	%	( 30,454 )
Risk participation agreements with dealer banks	320,981		5.8					432
Forward sale commitments	6,377		0.2					134
Total economic hedges	3,703,713							43,302

Non-hedging derivatives:
Commitments to lend	8,192		0.2					124
Total non-hedging derivatives	8,192							124

Total	$	3,711,905						$	43,426

(1) Fair value estimates include the impact of $ 45.7 million settled to market contract agreements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash flow hedges

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

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


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

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



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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Economic hedges

As of September 30, 2022, the Company has an interest rate swap with a $ 7.3 million notional amount to swap out the fixed rate of interest on an economic development bond bearing a fixed rate of 5.09 %, currently within the Company’s trading portfolio under the fair value option, in exchange for a LIBOR-based floating rate. The intent of the economic hedge is to improve the Company’s asset sensitivity to changing interest rates in anticipation of favorable average floating rates of interest over the 21 -year life of the bond. The fair value changes of the economic development bond are mostly offset by fair value changes of the related interest rate swap.

The Company also offers certain derivative products directly to qualified commercial borrowers. The Company economically hedges derivative transactions executed with commercial borrowers by entering into mirror-image, offsetting derivatives with third-party financial institutions. The transaction allows the Company’s customer to convert a variable-rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts mostly offset each other in earnings. 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, 2022. The interest income and expense on these mirror image swaps exactly offset each other.

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

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

The Company uses the following types of forward sale commitments contracts:

• Best efforts loan sales,

• Mandatory delivery loan sales, and

• To Be Announced (“TBA”) mortgage-backed securities sales.

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

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

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

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)	2022		2021		2022		2021
Economic hedges
Interest rate swap on industrial revenue bond:
Unrealized gain recognized in other non-interest income	$	304	$	106	$	953	$	462

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

Offsetting interest rate swaps on loans with commercial loan customers:
Unrealized gain recognized in other non-interest income	53,788		17,164		177,413		66,949


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

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



Non-hedging derivatives
Commitments to lend
Unrealized (loss) recognized in other non-interest income	$	( 100 )	$	( 39 )	$	( 108 )	$	( 513 )

Realized gain in other non-interest income	78		500		420		2,310

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 $ 52.8 million and $ 2.2 million as of September 30, 2022 and December 31, 2021, respectively. The Company had net asset positions with its commercial banking counterparties totaling $ 98.0 thousand and $ 76.8 million as of September 30, 2022 and December 31, 2021, respectively. The Company had net liability positions with its financial institution counterparties totaling $ 190.0 thousand and $ 33.3 million as of September 30, 2022 and December 31, 2021, respectively. The Company had net liability positions with its commercial banking counterparties totaling $ 95.9 million and $ 2.5 million as of September 30, 2022 and December 31, 2021. The Company has collateral pledged to cover this liability.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement as of September 30, 2022 and December 31, 2021:

Offsetting of Financial Assets and Derivative Assets


	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Assets Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
September 30, 2022
Interest Rate Swap Agreements:
Institutional counterparties	$	101,474	$	( 48,639 )	$	52,835	$	—	$	—	$	52,835
Commercial counterparties	98		—		98		—		—		98
Total	$	101,572	$	( 48,639 )	$	52,933	$	—	$	—	$	52,933

Offsetting of Financial Liabilities and Derivative Liabilities


	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Liabilities Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount
September 30, 2022
Interest Rate Swap Agreements:
Institutional counterparties	$	( 232 )	$	42	$	( 190 )	$	22,273	$	14,863	$	36,946
Commercial counterparties	( 101,353 )		5,419		( 95,934 )		—		—		( 95,934 )
Total	$	( 101,585 )	$	5,461	$	( 96,124 )	$	22,273	$	14,863	$	( 58,988 )

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
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Assets		Condition		Condition		Instruments		Collateral Received		Net Amount
December 31, 2021
Interest Rate Swap Agreements:
Institutional counterparties	$	2,223	$	( 75 )	$	2,148	$	—	$	—	$	2,148
Commercial counterparties	76,809		—		76,809		—		—		76,809
Total	$	79,032	$	( 75 )	$	78,957	$	—	$	—	$	78,957

Offsetting of Financial Liabilities and Derivative Liabilities


	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Liabilities Presented in the		Gross Amounts Not Offset in the Statements of Condition
	Recognized		Statements of		Statements of		Financial		Cash
(In thousands)	Liabilities		Condition		Condition		Instruments		Collateral Pledged		Net Amount
December 31, 2021
Interest Rate Swap Agreements:
Institutional counterparties	$	( 78,146 )	$	44,814	$	( 33,332 )	$	34,896	$	43,694	$	45,258
Commercial counterparties	( 2,461 )		—		( 2,461 )		—		—		( 2,461 )
Total	$	( 80,607 )	$	44,814	$	( 35,793 )	$	34,896	$	43,694	$	42,797

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, 2022, lease expiration dates ranged from 1 month to 17 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, 2022		December 31, 2021
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	48,467	$	52,180
Finance lease right-of-use assets	Premises and equipment, net	6,282		6,674
Total Lease Right-of-Use Assets		$	54,749	$	58,854

Lease Liabilities
Operating lease liabilities	Other liabilities	$	55,269	$	55,674
Finance lease liabilities	Other liabilities	9,448		9,862
Total Lease Liabilities		$	64,717	$	65,536

Supplemental information related to leases was as follows:


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

Weighted-Average Discount Rate
Operating leases	2.60	%	2.77	%
Finance leases	5.00	%	5.00	%

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

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

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

Lease expense for operating leases for the three months ended September 30, 2021 was $ 2.6 million. Lease expense for operating leases for the nine months ended September 30, 2021 was $ 8.3 million. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases was as follows:


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


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

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


(In thousands)	Operating Leases		Finance Leases
2022	$	2,522	$	256
2023	10,068		1,037
2024	8,506		1,037
2025	6,541		1,037
2026	5,323		1,037
Thereafter	29,271		8,187
Total undiscounted lease payments	62,231		12,591
Less amounts representing interest	( 6,962 )		( 3,143 )
Lease liability	$	55,269	$	9,448

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In March 2020, the World Health Organization declared a novel strain of coronavirus ("COVID-19") a global pandemic and the United States declared a National Public Health Emergency. The impact of the COVID-19 pandemic is fluid and continues to evolve, which is adversely affecting some of the Company’s clients. The continuing impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets, and our clients, employees, and vendors.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Company’s borrowers to repay their loans, the value of collateral underlying the Company’s secured loans, and demand for loans and other products and services the Company offers, which are highly dependent on the business environment in the Company’s primary markets where it operates and in the United States as a whole.

These circumstances could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, results of operations and prospects. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, loan servicing rights, deferred tax assets, lease right-of-use assets, or counter-party risk derivatives.

Beginning in March 2020, the Company offered three-month payment deferrals for customers with a current payment status who were negatively impacted by economic disruption caused by the COVID-19 pandemic. As of September 30, 2022, the Company had 2 active modified loans outstanding with a carrying value of $ 12.5 million. As of December 31, 2021, the Company had 19 active modified loans outstanding with a carrying value of $ 14.4 million, which excluded loans returning to payment or awaiting evaluation for further deferral. The Company continues to accrue interest on these loans during the deferral period. In accordance with interagency guidance issued in March 2020 and Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty. In addition, the risk-ratings on COVID-19 modified loans did not automatically change as a result of payment deferrals, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume. Section 4013 (Temporary Relief from Troubled Debt Restructurings) of the CARES Act expired on December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios were as follows:


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


	September 30, 2022		December 31, 2021		Regulatory Minimum to be Adequately Capitalized		Regulatory Minimum to be Well Capitalized
Bank
Total capital to risk-weighted assets	13.6	%	15.9	%	8.0	%	10.0	%
Common equity tier 1 capital to risk-weighted assets	12.7		14.8		4.5		6.5
Tier 1 capital to risk-weighted assets	12.7		14.8		6.0		8.0
Tier 1 capital to average assets	9.9		10.1		4.0		5.0

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

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, 2022, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and the Bank's regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at September 30, 2022 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 2.5%.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive (loss)

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


(In thousands)	September 30, 2022		December 31, 2021
Other accumulated comprehensive income, before tax:
Net unrealized holding (loss) on AFS securities	$	( 246,739 )	$	( 1,806 )
Net unrealized (loss) on cash flow hedging derivatives	( 5,555 )		—
Net unrealized holding (loss) on pension plans	( 2,518 )		( 2,518 )

Income taxes related to items of accumulated other comprehensive income:
Net unrealized tax benefit on AFS securities	64,150		407
Net unrealized tax benefit on cash flow hedging derivatives	1,494		—
Net unrealized tax benefit on pension plans	674		674
Accumulated other comprehensive loss	$	( 188,494 )	$	( 3,243 )

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


(In thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended September 30, 2022
Net unrealized holding loss on AFS securities:	x
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 )




Three Months Ended September 30, 2021
Net unrealized holding loss on AFS securities:
Net unrealized (losses) arising during the period	$	( 10,098 )	$	2,575	$	( 7,523 )
Less: reclassification adjustment for gains realized in net income	—		—		—
Net unrealized holding (loss) on AFS securities	( 10,098 )		2,575		( 7,523 )

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










Other comprehensive (loss)	$	( 10,098 )	$	2,575	$	( 7,523 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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










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

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

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










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

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, 2022 and 2021:


(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, 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 (loss)	( 61,434 )		( 4,061 )		—		( 65,495 )
Balance at End of Period	$	( 182,588 )	$	( 4,061 )	$	( 1,845 )	$	( 188,494 )

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

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

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 income	4		—		—		4
Total other comprehensive (loss)	( 181,190 )		( 4,061 )		—		( 185,251 )

Balance at End of Period	$	( 182,588 )	$	( 4,061 )	$	( 1,845 )	$	( 188,494 )

Nine Months Ended September 30, 2021
Balance at Beginning of Period	$	33,458	$	—	$	( 2,587 )	$	30,871
Other comprehensive (loss) before reclassifications	( 23,622 )		—				( 23,622 )
Less: amounts reclassified from accumulated other comprehensive income	—		—		—		—
Total other comprehensive (loss)	( 23,622 )		—		—		( 23,622 )
Balance at End of Period	$	9,836	$	—	$	( 2,587 )	$	7,249

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, 2022 and 2021:


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


















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


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

	( 2 )		—		Tax expense


	4		—		Net of tax


















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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. 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)	2022		2021		2022		2021


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

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

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




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




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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. STOCK-BASED COMPENSATION PLANS

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


	Non-Vested Stock Awards Outstanding			Stock Options Outstanding
(Shares in thousands)	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Exercise Price
December 31, 2021	710	$	20.16	80	$	25.21
Granted	321	28.78		—	—
Acquired	—	—		—	—
Stock options exercised	—	—		( 12 )	22.97
Stock awards vested	( 230 )	21.75		—	—
Forfeited	( 75 )	25.62		—	—
Expired	—	—		( 6 )	24.30
September 30, 2022	726	$	22.73	62	$	25.43

During the three and nine months ended September 30, 2022, proceeds from stock option exercises totaled $ 246 thousand and $ 270 thousand, respectively. During the three and nine months ended September 30, 2021, proceeds from stock option exercises totaled $ 38 thousand and $ 162 thousand, respectively. During the three and nine months ended September 30, 2022, there were 120 thousand and 230 thousand shares vested in connection with stock awards, respectively. During the three and nine months ended September 30, 2021, there were 89 thousand and 168 thousand shares vested in connection with stock awards, respectively. All of these shares were issued from available treasury stock. Stock-based compensation expense totaled $ 1.7 million and $ 1.4 million during the three months ended September 30, 2022 and 2021, respectively. Stock-based compensation expense totaled $ 5.7 million and $ 3.7 million during the nine months ended September 30, 2022 and 2021, respectively. Stock-based compensation expense is recognized over the requisite service period for all awards.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. FAIR VALUE MEASUREMENTS

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

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.


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

Other bonds and obligations	—		656		—		656
Marketable equity securities	12,790		—		—		12,790
Loans held for investment at fair value	—		—		796		796
Loans held for sale	—		550		—		550
Derivative assets	—		52,997		22		53,019
Capitalized servicing rights	—		—		2,026		2,026
Derivative liabilities	—		101,745		—		101,745


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


Marketable equity securities	14,798		655		—		15,453
Loans held for investment at fair value	—		—		1,200		1,200
Loans held for sale	—		6,110		—		6,110
Derivative assets	—		79,270		258		79,528
Capitalized servicing rights	—		—		1,966		1,966
Derivative liabilities	—		35,194		—		35,194

There were no transfers between levels during the three and nine months ended September 30, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Trading Security 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 LIBOR rate.

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

Loans Held for Investment. The Company’s held for investment loan portfolio includes loans originated by Company and loans acquired through business combinations. The Company intends to hold these assets until maturity as a part of its business operations. For one acquired portfolio subset, the Company previously accounted for these purchased-credit impaired loans as a pool under ASC 310, as they were determined to have common risk characteristics. These loans were recorded at fair value on acquisition date and subsequently evaluated for impairment collectively. Upon adoption of ASC 326, the Company elected the fair value option on this portfolio, recognizing an $ 11.2 million fair value write-down charged to retained earnings, 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, 2022.

Aggregate Fair Value

September 30, 2022

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for investment at fair value

796

13,371

( 12,575 )

Aggregate Fair Value

December 31, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for investment at fair value

1,200

31,430

( 30,230 )

Loans Held for Sale. The Company elected the fair value option for all loans held for sale (HFS) originated for sale on or after May 1, 2012. Loans HFS are classified as Level 2 as the fair value is based on input factors such as quoted prices for similar loans in active markets.

Aggregate Fair Value

September 30, 2022

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

550

539

Aggregate Fair Value

December 31, 2021

Aggregate

Less Aggregate

(In thousands)

Fair Value

Unpaid Principal

Loans held for sale

6,110

5,926

184

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

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, 2022 and 2021.


	Assets (Liabilities)
			Securities		Loans						Capitalized
	Trading		Available		Held for		Commitments		Forward		Servicing
(In thousands)	Security		for Sale		Investment		to Lend		Commitments		Rights
Three Months Ended September 30, 2022
June 30, 2022	$	7,040	$	4,020	$	1,049	$	26	$	18	$	1,906



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

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

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

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


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


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


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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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


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


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

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

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

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

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



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

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

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

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, 2022		Valuation Techniques	Unobservable Inputs	Value
Assets (Liabilities)
Trading security	$	6,812	Discounted Cash Flow	Discount Rate	6.38		%
AFS Securities	3,920		Indication from Market Maker	Price	98.00 %
Loans held for investment	1,049		Discounted Cash Flow	Discount Rate	25.00		%
				Collateral Value	$ — - $ 20.7
Commitments to lend	15		Historical Trend	Closing Ratio	83.95		%
			Pricing Model	Origination Costs, per loan	$	3
Forward commitments	7		Historical Trend	Closing Ratio	83.95		%
			Pricing Model	Origination Costs, per loan	$	3
Capitalized servicing rights	2,026		Discounted cash flow	Constant Prepayment Rate (CPR)	12.48		%
				Discount Rate	9.55		%
Total	$	13,829


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

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, 2022		December 31, 2021		Fair Value Measurement Date as of September 30, 2022
	Level 3		Level 3		Level 3
(In thousands)	Inputs		Inputs		Inputs
Assets
Individually evaluated	$	2,944	$	12,482	September 2022
Loans held for sale	3,574		—		September 2022
Capitalized servicing rights	11,793		14,056		September 2022

Total	$	18,311	$	26,538

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

Fair Value

(In thousands)

September 30, 2022

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

2,944

Fair Value of Collateral

Discounted Cash Flow - Loss Severity

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

Appraised Value

$ 0 to $ 608 ($- 501 )

Loans held for sale

3,574

Fair Value of Collateral

Appraised Value

$ 3,574

Capitalized servicing rights

11,793

Discounted Cash Flow

Constant Prepayment Rate (CPR)

5.99 % to 13.52 % ( 11.28 %)

Discount Rate

9.16 % to 16.13 % ( 13.32 %)

Total

18,311

(1) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.

Fair Value

(In thousands)

December 31, 2021

Valuation Techniques

Unobservable Inputs

Range (Weighted Average) (1)

Assets

Individually evaluated

12,482

Fair Value of Collateral

Discounted Cash Flow - loss severity

( 35.96 )% to 133.09 % (( 49.14 )%)

Appraised Value

$ 0 to $ 405 ($ 256 )

Capitalized servicing rights

14,056

Discounted Cash Flow

Constant Prepayment Rate (CPR)

6.24 % to 17.73 % ( 13.29 %)

Discount Rate

9.59 % to 13.11 % ( 11.97 %)

Total

26,538

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

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.

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, 2022
	Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	694,913	$	694,913	$	694,913	$	—	$	—
Trading security	6,812		6,812		—		—		6,812
Marketable equity securities	12,790		12,790		12,790		—		—
Securities available for sale	1,470,949		1,470,949		—		1,467,029		3,920
Securities held to maturity	592,503		503,262		—		501,164		2,098
FHLB bank stock and restricted securities	7,264		N/A		N/A		N/A		N/A
Net loans	7,847,468		7,798,562		—		—		7,798,562
Loans held for sale	4,124		4,124		—		550		3,574
Accrued interest receivable	40,444		40,444		—		40,444		—

Derivative assets	53,019		53,019		—		52,997		22


Financial Liabilities
Total deposits	$	9,988,121	$	9,944,085	$	—	$	9,944,085	$	—
Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances and other	4,494		2,888		—		2,888		—
Subordinated borrowings	121,001		110,109		—		110,109		—
Derivative liabilities	101,745		101,745		—		101,745		—


	December 31, 2021
	Carrying		Fair
(In thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	1,627,807	$	1,627,807	$	1,627,807	$	—	$	—
Trading security	8,354		8,354		—		—		8,354
Marketable equity securities	15,453		15,453		14,798		655		—
Securities available for sale and other	1,877,585		1,877,585		—		1,873,555		4,030
Securities held to maturity	636,503		647,236		—		644,497		2,739
FHLB bank stock and restricted securities	10,800		N/A		N/A		N/A		N/A
Net loans	6,719,753		6,850,975		—		—		6,850,975
Loans held for sale	6,110		6,110		—		6,110		—
Accrued interest receivable	33,534		33,534		—		33,534		—

Derivative assets	79,528		79,528		—		79,270		258


Financial Liabilities
Total deposits	$	10,068,953	$	10,073,217	$	—	$	10,073,217	$	—
Short-term debt	—		—		—		—		—
Long-term Federal Home Loan Bank advances	13,331		13,053		—		13,053		—
Subordinated borrowings	97,513		95,006		—		95,006		—
Derivative liabilities	35,194		35,194		—		35,194		—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


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

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

PERFORMANCE RATIOS (3)
Return on equity	6.30		%	22.18		%	6.97		%	11.30		%
Adjusted return on equity (1)(2)	9.40			8.94			8.12			7.33
Return on tangible common equity (1)(2)	6.76			23.14			7.46			11.97
Adjusted return on tangible common equity (1)(2)	9.92			9.53			8.64			7.88
Return on assets	0.66			2.14			0.73			1.07
Adjusted return on assets (1)(2)	0.99			0.86			0.85			0.69
Net interest margin, fully taxable equivalent (FTE) (4)(5)	3.48			2.56			3.05			2.60
Efficiency ratio (1)(2)	62.01			68.76			66.75			69.32


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

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


ASSET QUALITY
Allowance for credit losses, (millions)	$	96		$	113		$	96		$	113
Net charge-offs, (millions)	(6)			(2)			(9)			(17)
Net charge-offs (QTD annualized)/average loans	0.30		%	0.12		%	0.16		%	0.30		%
Provision expense/(benefit), (millions)	$	3		$	(4)		$	(1)		$	3

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

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

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

____________________________________________________________________________________________

(1) Adjusted measurements are non-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions and restructuring activities. Refer to "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.

(5) The effect of purchase accounting accretion for loans, time deposits, and borrowings on the net interest margin was an increase in all periods presented. The increase for the three months ended September 30, 2022 and 2021 was 0.01% and 0.06%, respectively. The increase for the nine months ended September 30, 2022 and 2021 was 0.01% and 0.06%, respectively.

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES

The following table presents average balances and an analysis of average rates and yields on an annualized fully taxable equivalent basis for the periods included:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
(Dollars in millions)	Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)		Average Balance		Yield/Rate (FTE basis)
Assets
Loans:
Commercial real estate	$	3,926	4.53	%	$	3,577	3.40	%	$	3,802	3.89	%	$	3,611	3.38	%
Commercial and industrial loans	1,449		5.21		1,370		4.78		1,423		4.60		1,612		4.71
Residential mortgages	1,926		3.53		1,499		3.65		1,671		3.55		1,613		3.72
Consumer loans	587		6.24		545		3.95		554		5.30		587		3.85
Total loans (1)	7,888		4.54		6,991		3.77		7,450		4.05		7,423		3.78
Investment securities (2)	2,400		2.13		2,312		2.09		2,557		2.02		2,255		2.21
Short-term investments & loans held for sale (3)	342		1.96		1,762		0.17		673		0.90		1,623		0.13
Mid-Atlantic region loans held for sale (4)	—		—		155		3.82		—		—		239		3.96
Total interest-earning assets	10,630		3.91		11,220		2.86		10,680		3.36		11,540		2.96
Intangible assets	26		x		31				27				33
Other non-interest earning assets	659		x		674				648				696

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

Liabilities and shareholders’ equity
Deposits:
NOW and other	$	1,362	0.48	%	$	1,316	0.05	%	$	1,424	0.22	%	$	1,343	0.09	%
Money market	2,737		0.46		2,716		0.16		2,806		0.27		2,756		0.20
Savings	1,129		0.03		1,112		0.04		1,124		0.03		1,056		0.06
Time	1,528		0.85		1,893		0.86		1,537		0.73		2,056		0.97
Total interest-bearing deposits	6,756		0.48		7,037		0.35		6,891		0.32		7,211		0.38
Borrowings and notes (5)	251		5.46		253		3.89		178		5.09		377		3.26
Mid-Atlantic region interest-bearing deposits (4)	—		—		306		0.51		—		—		447		0.54
Total interest-bearing liabilities	7,007		0.66		7,596		0.43		7,069		0.44		8,035		0.52
Non-interest-bearing demand deposits	2,913		x		2,901				2,928				2,742
Other non-interest earning liabilities	206				279				171				331
Liabilities from discontinued operations	—				—				—				—
Total liabilities	10,126				10,776				10,168				11,108


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

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

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

____________________________________

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

(2) The average balance for securities available for sale is based on amortized cost. The average balance of equity also reflects this adjustment.

(3) Interest income on loans held for sale is included in loan interest income on the income statement.

(4) The Bank sold its Mid-Atlantic branch operations and insurance operations in the third quarter of 2021. The Mid-Atlantic region loans are not included in the loan yields; however they are included in the total earning assets yield and the net interest margin. The Mid-Atlantic region deposits are not included in the deposit costs; however, they are included in the total interest-bearing liabilities cost and the net interest margin.

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

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

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

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NON-GAAP FINANCIAL MEASURES

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

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations. These items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and professional fees. Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales. Restructuring costs also include severance and consulting expenses related to the Company’s strategic review.

The Company also calculates adjusted earnings per share based on its measure of adjusted earnings and diluted common shares. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to merger and acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company’s performance. Expense adjustments in 2022 and 2021 were primarily related to branch consolidations. Net losses on securities in 2022 were primarily due to unrealized equity securities losses due to changes in market conditions.

Management believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.

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

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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)		2022			2021			2022			2021
GAAP Net income		$	18,717		$	63,749		$	62,028		$	98,416
Adj: Net losses on securities (1)		476			166			2,194			681

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


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


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

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

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

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

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

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Adjusted return on assets (2)	(A/D)	0.99		0.86		0.85		69.00
Efficiency ratio (2)	(C-O)/(B+M+P)	62.01		68.76		66.75		69.32
(in thousands)
Supplementary data (In thousands)		xx
Tax benefit on tax-credit investments (6)	(M)	$	620	$	2,195	$	1,811	$	2,315
Non-interest income charge on tax-credit investments (7)	(N)	(445)		(1,789)		(1,153)		(1,996)
Net income on tax-credit investments	(M+N)	175		406		658		319

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

_________________________________________________________________________________________

(1) Net securities losses for the periods ending September 30, 2022 and 2021 include the change in fair value of the Company's equity securities in compliance with the Company's adoption of ASU 2016-01.

(2) Non-GAAP financial measure.

(3) Total tangible shareholders’ equity is computed by taking total shareholders’ equity less the intangible assets at period-end. Total tangible assets is computed by taking total assets less the intangible assets at period-end.

(4) Ratios are annualized and based on average balance sheet amounts, where applicable.

(5) Adjusted return on tangible common equity is computed by dividing the total adjusted income adjusted for the tax-affected amortization of intangible assets, assuming a 27% marginal rate, by tangible equity.

(6) The tax benefit is the direct reduction to the income tax provision due to tax credits and deductions generated from investments in historic rehabilitation and low-income housing.

(7) The non-interest income charge is the reduction to the tax-advantaged commercial project investments, which are incurred as the tax credits are generated.

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GENERAL

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Annual Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the year 2022 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. References to loan categories in the financial statements are based on collateralization.

Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 27% marginal rate (including state income taxes net of federal benefit). In the discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share.

Berkshire Hills Bancorp, Inc. (“Berkshire” or “the Company”) is a Delaware corporation headquartered in Boston and the holding company for Berkshire Bank (“the Bank”). Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter. The Bank seeks to transform what it means to bank its neighbors socially, humanly, and digitally to empower the financial potential of people, families, and businesses in its communities as it pursues its vision of being a leading socially responsible omni-channel community bank in New England and beyond. Berkshire Bank provides business and consumer banking, mortgage, wealth management, and investment services. Headquartered in Boston, Berkshire has approximately $11.3 billion in assets and operates 100 branch offices in New England and New York.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our outlook for earnings, net interest margin, fees, expenses, tax rates, capital and liquidity levels and other matters regarding or affecting Berkshire and its future business or operations. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “outlook,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. Such statements further include statements about expectations regarding inflation and interest rates, economic activity, supply chains, the Russian invasion of Ukraine, market conditions, and stock repurchases.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market, legislative and regulatory change, changes in the financial markets, the effects of the COVID-19 pandemic, including impacts on the Company, its customers, and the communities where it operates, international conflict in Europe and elsewhere, and other risks and uncertainties disclosed from time to time in documents that Berkshire Hills Bancorp files with the Securities and Exchange Commission, including the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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

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SUMMARY

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

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

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

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

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

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

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

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

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

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

• 0.74% delinquent and non-accrual loans/loans

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

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

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

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

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

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

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

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

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

In accordance with its BEST plan, Berkshire continued recruiting front line bankers and developing technology initiatives in the first nine months of 2022. The Company continues to promote employees from within the organization and to bring on board knowledgeable bankers to deepen long-term relationships with its customers. Berkshire Bank recently announced an expanded partnership with fintech Narmi to create a best-in-class digital banking experience for consumers and small businesses, which is targeted for implementation in 2023. For more information about the BEST plan, please see Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s most recent report on Form 10-K.

Since year-end 2021, inflation has accelerated, with the consumer price index increasing 8.2% year-over-year in September 2022. In response, the Federal Reserve Bank has embarked on monetary tightening policies, resulting in increased interest rates. The Federal Reserve has indicated that further tightening is anticipated. The average federal funds target rate increased from 0.25% in the third quarter of 2021 to 2.37% in the third quarter of 2022, reaching 4.00% as of November 7, 2022. The average ten year treasury increased from 1.53% to 3.10% for these periods, reaching 4.21% as of November 7, 2022. The possibility of a recession induced by monetary policy is an increasing market concern for 2023, although business conditions remained solid in the Company’s markets through period-end. The Company is pursuing its plans for growth under its BEST plan based on its favorable niche in a consolidating regional market and its distinctive strategy based on its Digitouch SM approach to customer engagement and its community service message that where you bank matters.

On October 13, 2022 the Company and the Bank announced that Subhadeep Basu, Chief Financial Officer of the Company and the Bank, resigned effective October 7, 2022, for personal reasons and to subsequently pursue other career interests. Mr. Basu agreed to be available as an advisor to the Company to assist with transition matters through December 31, 2022. The Company and Berkshire Bank appointed Senior Vice President and Chief Accounting Officer Brett Brbovic, age 42, as Interim Chief Financial Officer, effective October 7, 2022, and is in the process of searching for a new Chief Financial Officer through an executive search process. Mr. Brbovic first joined the Company and Berkshire Bank from KPMG LLP in 2012 as Vice President and Controller and has served as Senior Vice President and Chief Accounting Officer since 2015.

On November 4, 2022, the Company announced that it had increased its quarterly dividend to shareholder by 50% to $0.18 per share. This reflected growth in earnings since the announcement of the BEST strategic transformation plan in May 2021. The $0.18 dividend represents a yield of approximately 2.6% based on Berkshire’s closing share price of $27.44 on November 3, 2022 and is equivalent to a 29% payout compared to third quarter 2022 adjusted earnings.

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

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

Investments: The portfolio of investment securities decreased by $458 million, or 18%, to $2.09 billion during the first nine months of 2022. This decrease was primarily due to the unrealized loss on securities available for sale, which resulted from interest rate increases in the first nine months of 2022. The unrealized loss on securities available for sale increased from $4 million, or 0.2% of book value, at year-end 2021 to $248 million, or 14.4% of book value, at period-end. Additionally, proceeds from securities maturities and amortization contributed funding for the growth of the loan portfolio. Proceeds from maturities, calls, and prepayments of investments securities totaled $483 million for the first nine months of 2022. The average life of the bond portfolio increased to 6.9 years from 4.6 years due primarily to slower prepayments of mortgage related securities in the rising rate environment. The investment portfolio is viewed as a significant source of liquidity for the Bank, as 93% of the $1.5 billion available for sale portfolio consists of Agency mortgage related products and Treasury notes. The investment portfolio yield was 2.13% in the third quarter of 2022, compared to 2.04% in the fourth quarter of 2021.

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

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

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

Commercial real estate and commercial and industrial loans increased by 8% and 9% respectively in the first nine months of the year. Total commercial loans decreased by 1% in the third quarter, including outplacements of targeted credits, as well as seasonal impacts on loan closings in the third quarter. The Company’s commercial loan pipeline at period-end increased compared to the midyear pipeline. The $295 million nine month increase in commercial real estate loans was concentrated in a $97 million, or 19%, increase in multifamily loans and a $129

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million, or 6%, increase in loans to commercial real estate non-owner occupied properties. The $111 million increase in commercial and industrial loans was driven by growth in asset-based lending related loans due to both customer growth and increased line utilization.

The average yield on commercial real estate loans increased by 1.04% to 4.53% in the most recent quarter compared to the fourth quarter of 2021. For these periods, the average yield on commercial and industrial loans increased by 0.83% to 5.21%. Many of the commercial loans are indexed to prime, LIBOR, or SOFR which have responded quickly to changes in market interest rates. The impact of these increases on borrowers has been more muted due to the benefit of interest rate swaps with fix customer payments. The notional amount of borrower interest rate swaps totaled approximately $1.7 billion at period-end, measuring approximately 32% of the commercial portfolio. The Company continues to maintain its commercial underwriting standards and growth is managed within a detailed system of hold limits based on industry and loan type. Variable rate loan underwriting includes a test of debt service coverage for up to a 300 basis point upward interest rate shock.

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

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

Asset Quality and Credit Loss Allowance: Major asset quality metrics remained solid as of third quarter-end, with many metrics at better levels than pre-pandemic. Non-accruing loans measured 0.48% of total loans, compared to 0.52% at year-end 2021. Annualized net loan charge-offs measured 0.16% of average loans for the first nine months of the 2022, compared to 0.29% in fiscal year 2021. Accruing delinquent loans measured a relatively low 0.26% of total loans, compared to 0.63% at year-end 2021. This included loans 30-89 days past due measuring 0.18% of loans. Period-end non-accruing loans totaling $38 million included $21 million in commercial and industrial loans which was concentrated in one manufacturing credit with operational challenges which were episodic rather than systemic in nature. This credit accounted for $4 million of the $6 million in net charge-offs in the quarter. Non-accruing commercial real estate loans decreased to a low $3 million from $8 million, including the benefit of the $11 million sale of certain problem and potential problem loans to proactively take advantage of attractive market conditions during the period. At period-end, accruing troubled debt restructurings totaled $7 million and accruing loans over 90 days delinquent totaled $6 million. Total criticized loans decreased to 2.5% of loans from 3.5% of loans, including classified loans which decreased to 1.6% of loans from 2.1% of loans. Classified loans include accruing substandard loans, which are regarded as potential problem loans and which declined to 1.1% of loans from 1.6% over the nine month period.

The allowance for credit losses on loans decreased in the first nine months of 2022 to $96 million from $106 million. The ratio of the allowance to total loans decreased to 1.21% from 1.55%. This decline was primarily due to improved asset quality metrics and a reduction in the potential losses from economic and social disruptions related to COVID-19 conditions, while including a qualitative assessment of risks related to market and inflation conditions and future possible recession conditions . The allowance covers all current expected credit losses for all loans. In relation to outstanding loans, the allowance for most of the loan categories decreased.

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

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

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

The Company’s wholesale funds consist of brokered deposits and borrowings. Wholesale funds decreased by $49 million, or 15%, to $289 million over the first nine months of the year.

On June 30, 2022, Berkshire completed the sale at par of $100 million in subordinated notes bearing interest at a fixed rate of 5.5% for the first five years. The notes will then reset quarterly to a floating rate per annum equal to a benchmark rate which is expected to be the Three-Month Term SOFR, plus 249 basis points. The notes have a ten year final maturity and generally may be called at par after five years. Berkshire is the first public U.S. community bank holding company with under $150 billion in total assets to issue a Sustainability Bond. The Company intends to use an amount equal to the net proceeds of its Sustainability Bond issuance to finance or refinance new or existing social and environmental projects consistent with its Sustainable Financing Framework. Sustainalytics, a Morningstar Company, and the global leader in high-quality ESG research, ratings, and data, has independently verified that Berkshire’s Sustainable Financing Framework "is credible and impactful and in alignment with” International Capital Market Association (ICMA) guidelines and principles.

On September 28, 2022, the Company prepaid the balance of its existing $75 million in subordinated debt bearing interest at 6.875% which became callable for the first time on that date since the original issuance ten years ago. Third quarter 2022 interest expense included the additional cost of carrying these two subordinated debt obligations for one quarter.

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

Shareholders' Equity : Total shareholders’ equity decreased by $240 million, or 20% to $943 million in the first nine months of 2022. This decrease was primarily due to a $185 million net other comprehensive loss resulting mostly from the previously discussed $245 million unrealized loss on debt securities available for sale as a result of the increase in market interest rates. Additionally, the Company repurchased $105 million in common shares during this period, representing approximately 8% of shares outstanding at year-end 2021.

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The unrealized securities losses are not counted against regulatory equity. As a result, the decrease in regulatory capital was more modest. Including the impact of the loan growth, the common equity tier one capital remained relatively strong, decreasing from 15.0% to 12.7% in the first nine months of 2022. Similarly, the relatively strong risk based capital ratio decreased to 15.0% from 17.3%.

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

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

During the first nine months of 2022, the Company continued the quarterly shareholder dividend at $0.12 per share level it was reduced to as a result of the pandemic beginning in the third quarter of 2020. On November 4, 2022, the Company announced that it had increased its quarterly dividend to shareholders by 50% to $0.18 per share. This reflected growth in earnings since the announcement of the BEST strategic transformation plan in May 2021. The $0.18 dividend represents a yield of approximately 2.6% based on Berkshire’s closing share price of $27.44 on November 3, 2022 and is equivalent to a 29% payout compared to third quarter 2022 adjusted earnings.

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COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021

Summary: Berkshire’s third quarter net income decreased by 71% to $19 million. Results in 2021 included $52 million in gains on the sale of insurance and branch operations. The non-GAAP measure of adjusted income, which excludes non-operating items and sale gains, increased by 9% to $28 million. The benefit of a 29% increase in net interest income was partially offset by lower non-interest income and higher credit loss provision expense.

Third quarter 2022 GAAP earnings per share totaled $0.42 and adjusted earnings per share totaled $0.62, which was the highest quarterly adjusted EPS since 2019. This included the benefit of share repurchases, which reduced outstanding shares by 7% year-over-year. GAAP EPS decreased by 68%, while adjusted EPS increased by 18%.

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

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

Net Interest Income: Third quarter net interest income increased by 29% to $92 million. Nine month net interest income increased by 9% to $243 million. These increases were driven by increases of 36% and 17%, respectively, in the net interest margin. This reflected the benefit of rising interest rates in 2022 as well as the use of excess cash accumulated in 2021 and used reinvesting primarily in residential mortgage growth in 2022.

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

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

Non-Interest Income: Total fee income decreased year-over-year by 29% to $15 million, and for nine months year-to-date fee income decreased by 26% to $48 million. Excluding insurance commissions and fees from insurance operations sold at the end of September 2021, the decreases in this income measured 24% and 17% for the above respective periods. This was mostly due to decreases in loan fees totaling $5 million and $9 million for the above periods. This was primarily due to decreases of $3 million and $6 million, for the above respective periods, in SBA originations related income reflecting lower market volumes and premiums as a result of the increase in market interest rates. Berkshire continued to rank high in national SBA loan originations, placing in the 22nd position nationally based on SBA 7(a) loan approval data for the SBA fiscal year ending September 30, 2022. Income from commercial loan swap fees and fair value changes also decreased for the three and nine month periods. Deposit related fees increased by 9% and 6% respectively for these periods despite the sale of branch operations in 2021, reflecting increased consumer transaction activity year-over-year.

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

Non-Interest Expense and Tax Expense: Total non-interest expense increased year-over-year by 18% for the third quarter and by 1% for the first nine months. The non-GAAP financial measure of adjusted non-interest expense increased by 3% for the third quarter and decreased by 2% for the first nine months. Expense in 2022 benefited from the sale of operations and restructuring actions in 2021. Cost saves from these initiatives were targeted towards increased spending for bankers and technology. The Company generally targets operating expenses in the range of $68 - $70 million on a quarterly basis. Adjustments to nine month expense totaled $5 million in 2021 and $12 million in 2022 and were primarily related to branch consolidations and the sale of operations in 2021 and branch consolidations in 2022. The total branch count decreased from 130 branches at the start of 2021 to 106 branches at year-end 2021 and 100 branches at third quarter-end in 2022. Full time equivalent staff decreased from 1,505 positions at the start of 2021 to 1,319 positions at year-end 2021 and 1,300 positions at September 30, 2022.

The effective income tax rate was 21% for the first nine months of 2021 and 22. The tax rate benefit from lower pre-tax income in 2022 was offset in part by lower benefits on investment tax credit investments due to slower construction activity in 2022 and longer schedules for recognizing the benefits in income.

Total Comprehensive Income: Total comprehensive income includes net income together with other comprehensive income, which primarily consists of unrealized gains/losses on debt securities available for sale, after tax. Total comprehensive income for the first nine months of the year was a loss of $123 million in 2022, compared to income of $75 million in 2021, reflecting the impact in both periods of rising medium term interest rates on the bond portfolio.

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

For the first nine months of 2022, loan growth was the primary use of cash, which was mainly sourced from short-term investments and investment securities. The ratio of cash and cash equivalents to total assets decreased to 6% from 14% over this period. Investment securities and wholesale funding are sources of cash to support future loan growth. Unused FHLBB borrowing availability stood at $1.2 billion at period-end. Cash at the parent company stood at $119 million at period-end

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

The ratio of loans to deposits measured 80% at period-end, compared to 68% at the start of the year. A number of metrics are utilized in establishing optimal and minimal liquidity targets and the Company is generally well positioned across these metrics.

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

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

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

Capital Resources: Please see the “Shareholders’ Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with Note 10 – Capital Ratios and Shareholders' Equity in the notes to the consolidated financial statements. Additional information about capital resources and regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K. The Company monitors the impacts of rising rates, credit stress scenarios, and organic growth in assessing its capital adequacy and plans.

The Company’s BEST plan includes the optimization of capital, including reducing excess capital through organic growth and capital returns to shareholders. The operation of this plan was evidenced in the first nine months of the year through the 16% loan growth and $105 million in share repurchases. Additionally, shareholder dividends paid totaled $16 million for this period. Capital optimization was also supported through the subordinated debt issuance, reducing the coupon compared to the existing debt which was later prepaid.

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

The unrealized available sale securities losses reduce the book value of equity. These losses are expected to accrete back into equity as the securities season to maturity. T hese losses are not deducted from regulatory capital which is the primary focus of the Company’s capital management. The measure of tangible book value is a focus of bank investors, together with the ratio of tangible equity to tangible assets and the measure of tangible book value per share. The tangible equity to tangible assets ratio decreased to 8.1% from 10.0% during the first nine months of the year, and tangible book value per share decreased by 14% to $20.36 from $23.69. The Company is monitoring its tangible book value related metrics and it believes that its condition at period-end was within a general range for peers at that date. Further decreases in these metrics were anticipated for the remainder of 2022 based on market expectations for further rate increases.

In acting as a source of strength for the Bank, the Company relies in the long term on capital distributions from the Bank in order to provide operating and capital service for the Company, which in turn can access national financial markets to provide financial support to the Bank. Capital distributions from the Bank to the parent company presently require approval by the FDIC and the Massachusetts Division of Banking. Increased distributions from the Company to shareholders require notice to and nonobjection from the Federal Reserve Bank. For the first nine months of 2022, the Bank paid $108 million in dividends to the parent company.

LIBOR Transition: Please see the Company’s most recent Annual Report on Form 10-K for additional information regarding the LIBOR transition. In addition to the commercial loan interest rate swaps and back-to-back counterparty offsetting swaps, the Company’s primary exposure in managing the transition relates to LIBOR based commercial and mortgage loans. The Company introduced new loan documentation switching from LIBOR to one month term SOFR for new commercial loans originated beginning in 2022. As of September 30, 2022, the Company had approximately $2.0 billion in LIBOR based commercial loans, including $1.8 billion maturing after the LIBOR cessation date at midyear 2023. The Company is focused on converting the majority of these loans to one month term SOFR in the next six months, working with customers, counsel, and its core loan servicing provider. The Company had converted $258 million in outstanding loans through period-end.

CORPORATE RESPONSIBILITY UPDATE

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

Berkshire is committed to purpose-driven, community-centered banking that enhances value for all stakeholders as it pursues its vision of being a high-performing, leading socially responsible community bank in New England and beyond. Berkshire provides an ecosystem of socially responsible financial solutions, actively engages with its communities, and harnesses the power of its business to support the economy, empower financial access and success, and invest in a low-carbon future.

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

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

Climate Change & Sustainability

Climate Change poses unprecedented risks and opportunities to the world. Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks and impacts associated with climate change, and finance the transition to a low-carbon future will allow it to strengthen its positioning as a high-performing, leading socially responsible community bank. The Company continues to evolve its practices to reflect its community bank mission, expected regulatory requirements, sustainable finance opportunities as well as the size, scope, and complexity of its operations.

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Key ESG & Corporate Responsibility Quarterly Developments

• BEST Community Comeback : As a result of the collective efforts of its employees, Berkshire is making steady progress towards the achievement of its "BEST Community Comeback" goals. The multi-year plan focuses on four key areas: fueling small businesses, community financing and philanthropy, financial access and empowerment, and funding environmental sustainability.

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

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements

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

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.

ENTERPRISE RISK MANAGEMENT

Following sections of this report on Form 10-Q include discussion of market risk and risk factors. Risk management is overseen by the Company’s Chief Risk Officer, who reports directly to the CEO. This position oversees risk management policy, credit, loan review, compliance and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital, and Compliance Committee. The high level corporate risk assessment includes the following material business risks: credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk, with the credit risk category having the highest weighting.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For additional discussion about the Company’s Quantitative and Qualitative Aspects of Market Risk, please review Item 7A of the most recent report on Form 10-K which sets forth the methodologies employed by the Company and the various aspects of its analysis of its interest rate sensitivity. Berkshire’s objective is to maintain a neutral or asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes.

As of September 30, 2022, Berkshire’s balance sheet was positioned to further benefit from for the forecast rising rate environment. Shown below is a chart of the modeled change in net interest income from a static base case in the event of interest rate shocks for the scenarios illustrated.


CHANGE IN NET INTEREST INCOME
	1-12 Months	13-24 Months
Parallel Interest Rate Shock – Basis Points	% Change	% Change
At September 30, 2022
+200	5.0%	9.9%
+100	2.4%	4.7%
-100	(4.9)%	(7.5)%
At December 31, 2021
+200	13.1%	16.1%
+100	5.6%	6.5%
-100	(0.1)%	(1.2)%

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

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

While the sensitivity of net interest income is the primary driver of the sensitivity of net income, the latter is more sensitive than the former since it is net of expenses. In the case of the first year of a +100 basis point scenario, the modeled shock sensitivity of net income is 5.8%.

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

for a +200% basis point shock.

A critical component of modeling is the assumption of deposit interest rate sensitivity. The Company continues to model the interest bearing deposit beta of approximately 30-40% for purposes of interest rate risk simulations. The resulting modeled deposit beta for all deposits is approximately 21.28%, with the volume of non-interest bearing deposits remaining unchanged in the static model base case. The actual deposit beta compared to fed funds was approximately 12% for the third quarter of 2022 compared to the second quarter of 2022. It was approximately 6% for the third quarter of 2022 compared to the fourth quarter of 2021. The actual cost of deposits in 2022 has been

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

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

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ITEM 4. CONTROLS AND PROCEDURES

a) Disclosure controls and procedures.

The principal executive officers, including the principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures were effective.

b) Changes in internal control over financial reporting.

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

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PART II

ITEM 1. LEGAL PROCEEDINGS

As of September 30, 2022, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations. Periodically, there have been various claims and lawsuits involving the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the Bank’s business. A summary of certain legal matters involving unsettled litigation or pertaining to pending transactions are as follows:

On February 4, 2020, the Bank filed a complaint in the New York State Supreme Court for the County of Albany against Pioneer Bank (“Pioneer”) seeking damages of approximately $16.0 million. The complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s breach of loan participation agreements in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation. Pioneer has filed a motion to dismiss aspects of the Bank’s complaint, which motion was allowed in part by the court to dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed. Discovery is now underway in this action. The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a partial recovery of $1.7 million early in the second quarter of 2020. The Company has not accrued for any additional anticipated recovery at this time.

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

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

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ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed herein and in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which could materially affect the Company's business, financial condition, or future operating results. Please also see the earlier discussion in this report about Enterprise Risk Management. The risks described in this report and in the Annual Report on Form 10-K are not the only risks presently facing the Company. Additional risks and uncertainties not currently known to the Company, or currently deemed to be immaterial, also may materially adversely affect the Company's business, financial condition, and/or operating results. There have been no material changes in risk factors from those identified in the Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sales of Unregistered Securities

The Company occasionally engages in the practice of transferring unregistered securities for the purpose of completing business transactions. These shares are issued to vendors or other organizations as consideration for services performed in accordance with each contract. During the three months ended September 30, 2022 and 2021 there were no shares transferred.

(b) Not applicable.

(c) The following table provides certain information with regard to shares repurchased by the Company in the third quarter of 2022:


	Total number of	Average price		Total number of shares purchased as part of publicly announced	Maximum number of shares that may yet be purchased under
Period	shares purchased	paid per share		plans or programs	the plans or programs
July 1-31, 2022	54,921	$	27.21	54,921	1,949,073
August 1-31, 2022	392,800	29.06		392,800	1,556,273
September 1-30, 2022	257,500	28.50		257,500	1,298,773
Total	705,221	$	28.71	705,221	1,298,773

On January 19, 2022, the Company announced that its Board of Directors approved a stock repurchase program pursuant to which the Company is authorized to repurchase shares of Company common stock at a total cost of up to $140 million through December 31, 2022. This would result in the repurchase of approximately 9% of then outstanding shares based on the share price when the plan was approved. The maximum number of shares that may be purchased under this program has been estimated based on the September 30, 2022 closing price per share of Company common stock of $27.30.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


3.1						Amended and Restated Certificate of Incorporation of Berkshire Hills Bancorp, Inc.(1)
3.2						Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
4.1						Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (3)
4.2						Certificate of Designations of Series B Non-Voting Preferred Stock of Berkshire Hills Bancorp, Inc. (4)
10.1						Transition Agreement dated September 9, 2022, between Deborah A. Stephenson, Berkshire Hills Bancorp, Inc. and Berkshire Bank (5)
10.2						Transition Agreement and Release of Claims dated October 12, 2022, between Subhadeep Basu, Berkshire Hills Bancorp, Inc., and Berkshire Bank (6)
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101						The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and including detailed tags.
104						The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL.

_______________________________________

(1) Incorporated herein by reference from the Exhibits to the Form 10-Q as filed on August 9, 2018.

(2) Incorporated herein by reference from the Exhibits to the Form 8-K as filed on June 26, 2017.

(3) Incorporated herein by reference from the Exhibits to the Form S-1, Registration Statement and amendments thereto, initially filed on March 10, 2000, Registration No. 333-32146.

(4) Incorporated herein by reference from the Exhibits to the Form 8-K as filed on October 16, 2017.

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

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

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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, 2022	By:	/s/ Nitin J. Mhatre
	Nitin J. Mhatre
	President and Chief Executive Officer


Dated: November 9, 2022	By:	/s/ Brett Brbovic
	Brett Brbovic
	Senior Vice President and Interim Chief Financial Officer

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Part I Item 1. Consolidated Financial Statements (unaudited)Note 1. Basis Of Presentation Note 2. Trading Security Note 3. Securities Available For Sale, Held To Maturity, and Marketable Note 4. Loans and Allowance For Credit Losses Note 5. Deposits Note 6. Borrowed Funds Note 7. Derivative Financial Instruments and Hedging Activities Note 8. Leases Note 9. Other Commitments, Contingencies, Off-balance Sheet Activities, and Pandemic Impact Note 10. Capital Ratios and Shareholders Equity Note 11. Earnings Per Share Note 12. Stock-based Compensation Plans Note 13. Fair Value Measurements Note 14. Net Interest Income After Benefit/provision For Credit Losses Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

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) 4.2 Certificate of Designations of Series B Non-Voting Preferred Stock of Berkshire Hills Bancorp, Inc. (4) 10.1 Transition Agreement dated September 9, 2022, between Deborah A. Stephenson,Berkshire Hills Bancorp, Inc.and Berkshire Bank (5) 10.2 Transition Agreement and Release of Claims dated October 12, 2022, between Subhadeep Basu, Berkshire Hills Bancorp, Inc., and Berkshire Bank (6) 31.1 Certification of Chief Executive Officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to Section906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Section906 of the Sarbanes-Oxley Act of 2002

BBT 10-Q Quarter ended Sept. 30, 2022

Exhibits